10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from __________ to __________

Commission file number 001-39331

System1, Inc.

(Exact name of registrant as specified in its charter)

Delaware	98-1531250
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4235 Redwood Avenue Marina Del Rey, CA	90066
(Address of Principal Executive Offices)	(Zip Code)

(310) 924-6037

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	SST	The New York Stock Exchange
Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share	SST.WS	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days: Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐  No ☒

As of August 12, 2022, there were 90,593,904 shares of Class A common stock, $0.0001 par value per share, issued and outstanding and 22,077,319 shares issued and outstanding of Class C common stock, $0.0001 par value per share.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) amends and restates certain items as listed in "Items Amended in this Form 10-Q/A" below in the Quarterly Report on Form 10-Q/A of System1, Inc. (the “Company,” "System1," "we," "us," "our" and other similar terms) for the quarter ended June 30, 2022, including the S1 Holdco LLC ("S1 Holdco") predecessor period from January 1, 2022 to January 26, 2022, for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 presented therein, as originally filed with the Securities and Exchange Commission (“SEC”) on August 15, 2022 (the “Original Report”).

Restatement Background

As described in the Company’s Current Report on Form 8-K (Item 4.02) filed on March 17, 2023, on March 15, 2023, the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) concluded that the unaudited condensed consolidated financial statements of the Company (the "quarterly financial statements") (i) as of and for the period ended March 31, 2022 included in the Company's Form

10-Q filed with the SEC on May 19. 2022, (ii) as of and for the three and six month periods ended June 30, 2022 (“Q2 2022”) included in the Original Report and (iii) as of and for the three and nine month periods ended September 30, 2022 (“Q3 2022”) included in the Company’s Form 10-Q filed with the SEC on November 14, 2022 should no longer be relied upon due to material errors identified in such financial statements and should be restated. The errors identified by the Company relate to its accounting for (i) the valuation and purchase price allocation of assets acquired and liabilities assumed in the Company’s business combination (“Merger”) with S1 Holdco LLC and System1 SS Protect Holdings, Inc. on January 27, 2022, (ii) equity awards, including certain restricted stock awards related to the Merger, (iii) the valuation and purchase price allocation of assets acquired in the Company’s acquisition of NextGen Shopping, Inc., d/b/a CouponFollow ("CouponFollow"), and (iv) certain other errors, including errors in the Statements of Cash Flows.

The nature of the errors and related restatement to correct the errors are further described in Note 1 of the "Notes to Unaudited Condensed Consolidated Financial Statements" included in Part I, Item 1. "Financial Statements (Unaudited) As Restated" of this Form 10-Q/A.

Control Considerations

Management concluded, with concurrence of the Audit Committee, that there were additional deficiencies in our internal control over financial reporting that constituted additional material weaknesses as of June 30, 2022. For a discussion of management's consideration of our disclosure controls and procedures and material weaknesses in internal control over financial reporting identified, see Part I, Item 4, Controls and Procedures of this Form 10-Q/A.

Items Amended in this Form 10-Q/A

For the convenience of the reader, this Form 10-Q/A sets forth the Original Report, as amended, in its entirety; however, this Form 10-Q/A amends and restates the following Items of the Original Filing to the extent necessary to reflect the adjustments discussed above:

•Part I, Item 1. "Financial Statements (Unaudited)" to reflect the impact of the restatement;

•Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" to reflect the impact of the restatement;

•Part I, Item 4. "Controls and Procedures" to reflect the additional material weaknesses in internal control over financial reporting as of June 30, 2022;

•Part II, Item 1A. "Risk Factors";

•Part II, Item 3. Defaults Upon Senior Securities"; and,

•Part II, Item 6. "Exhibits" to include (i) pursuant to the rules of the SEC, currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer which are attached as Exhibits 31.1, 31.2 and 32.1 to this Form 10-Q/A and (ii) restated unaudited condensed consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101 and 104.

In addition, in connection with the preparation of this Form 10-Q/A, the Company has reevaluated its financial condition as of the date of filing this Form 10-Q/A. Based on this reevaluation, the Company identified matters that raised substantial doubt about its ability to continue as a going concern for the twelve-month assessment period from the date of filing this Form 10-Q/A. The assessment of going concern is further discussed in Note 1 of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1. “Financial Statements (Unaudited)” of this Form 10-Q/A.

Except as described above, no attempt has been made in this Form 10-Q/A to reflect events occurring subsequent to the filing of the Original Report. Among other things, risk disclosures made in the Original Report have not been amended to reflect events that occurred or facts that became known to us subsequent to the filing of the Original Report (other than the restatement). Accordingly, this Form 10-Q/A should be read in conjunction with filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.

Restatement of Other Financial Statements

In addition to the restated financial information for the period ended June 30, 2022 included in this Form 10-Q/A, we are also restating our interim condensed consolidated financial statements and related disclosures for the quarters ended March 31, 2022 and September 30, 2022. Concurrently with the filing of this Form 10-Q/A, we are sequentially filing with the SEC an amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2022 followed by this Form 10-Q/A and then followed by an amended Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2022 to restate for the errors described above and other identified errors impacting those periods.

Table of Contents

		Page
Part I. - Financial Information		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity	5
	Condensed Consolidated Statements of Changes in Members' Deficit	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	66
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	87
Item 4.	Controls and Procedures	87
Part II - Other Information		90
Item 1.	Legal Proceedings	90
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 3.	Defaults upon Senior Securities	90
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	92
Signatures		94

i

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

System1, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except for par values)

	Successor		Predecessor
	June 30, 2022		December 31, 2021
	As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	37,442	$	47,896
Restricted cash, current	4,572		—
Accounts receivable	93,662		90,203
Prepaid expenses and other current assets	12,298		7,689
Total current assets	147,974		145,788
Restricted cash, non-current	2,452		743
Property and equipment, net	4,330		830
Internal-use software development costs, net	3,610		11,213
Intangible assets, net	556,341		50,368
Goodwill	881,370		44,820
Operating lease right-of-use assets	7,533		—
Other non-current assets	804		3,149
Total assets	$	1,604,414	$	256,911
LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Current liabilities:
Accounts payable	17,286		72,846
Accrued expenses and other current liabilities	97,959		31,284
Deferred revenue	68,368		1,971
Operating lease liabilities, current	2,065		—
Notes payable, current	14,888		170,453
Total current liabilities	200,566		276,554
Operating lease liabilities, non-current	7,073		—
Notes payable, non-current	406,026		—
Warrant liability	13,669		—
Deferred tax liability	129,310		7,789
Protected incentive plan liability	18,163		—
Other liabilities	5,735		969
Total liabilities	780,542		285,312
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Class A Common stock - $0.0001 par value; 500,000 shares authorized, 90,587 Class A shares issued and outstanding as of June 30, 2022	9		—
Class C Common stock - $0.0001 par value; 25,000 shares authorized, 22,077 Class C shares issued and outstanding as of June 30, 2022	2		—
Additional paid-in capital	812,309		—
Accumulated deficit	(169,603)		—
Members’ deficit	—		(28,829)
Accumulated other comprehensive income	(421)		428
Total stockholders’ equity/members’ deficit	642,296		(28,401)
Non-controlling interest	181,576		—
Total stockholders’ equity/members’ deficit	823,872		(28,401)
Total liabilities and stockholders’ equity/members’ deficit	$	1,604,414	$	256,911

1

System1, Inc. and Subsidiaries

See notes to unaudited condensed consolidated financial statements.

2

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except for per share and per unit data)

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated				As Restated		As Restated
Revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	152,558		126,167		272,942		41,507		236,952
Salaries, commissions, and benefits	49,511		17,698		97,709		31,181		32,893
Selling, general, and administrative	16,747		6,277		31,835		15,665		13,227
Depreciation and amortization	32,094		3,112		54,022		1,000		6,801
Total operating costs and expenses	250,910		153,254		456,508		89,353		289,873
Operating income (loss)	(31,113)		16,325		(70,603)		(36,641)		27,267
Other expense (income):
Interest expense	7,324		4,476		12,100		1,049		8,524
Change in fair value of warrant liabilities	(4,139)		—		9,622		—		—
Total other expense	3,185		4,476		21,722		1,049		8,524
Income (loss) before income tax	(34,298)		11,849		(92,325)		(37,690)		18,743
Income tax (benefit) provision	(454)		77		(15,103)		(629)		228
Net income (loss)	$	(33,844)	$	11,772	$	(77,222)	$	(37,061)	$	18,515
Net loss attributable to non-controlling interest	(8,107)		—		(15,416)		—		—
Net income (loss) attributable to System1, Inc.	$	(25,737)	$	11,772	$	(61,806)	$	(37,061)	$	18,515
Net loss per share:
Basic	$	(0.29)	n/a		$	(0.71)	n/a		n/a
Diluted	$	(0.33)	n/a		n/a		n/a		n/a
Shares used in net loss per share calculations:
Basic	89,701		n/a		86,840		n/a		n/a
Diluted	91,182		n/a		n/a		n/a		n/a
Basic and diluted net income (loss) per unit	n/a		$	0.57	n/a		$	(1.81)	$	0.90
Weighted average units outstanding - basic and diluted	n/a		20,488		n/a		20,488		20,488

See notes to unaudited condensed consolidated financial statements.

3

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated				As Restated		As Restated
Net income (loss)	$	(33,844)	$	11,772	$	(77,222)	$	(37,061)	$	18,515
Other comprehensive income (loss)
Foreign currency translation income (loss)	(524)		24		(421)		87		465
Comprehensive income (loss)	$	(34,368)	11,796		$	(77,643)	$	(36,974)	18,980
Comprehensive loss attributable to non-controlling interest	(8,046)		—		(15,355)		—		—
Comprehensive income (loss) attributable to System1, Inc.	$	(26,322)	11,796		$	(62,288)	$	(36,974)	18,980

See notes to unaudited 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			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
As Restated
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	51,750	$	5	—	$	—	—	$	—	$	574,003	$	(107,797)	$	—	$	—	$	466,211
Effect of Merger transaction	29,017	3		22,077	2		1,450	—		148,359		—		—		198,691		347,055
BALANCE—January 27, 2022	80,767	8		22,077	2		1,450	—		722,362		(107,797)		—		198,691		813,266
Net loss	—	—		—	—		—	—		—		(36,069)		—		(7,309)		(43,378)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	930	—		—	—		—	—		661		—		—		—		661
Issuance of common stock in connection with the acquisition of business	2,000	—		—	—		—	—		25,500		—		—		—		25,500
Issuance of market-based restricted stock units upon vesting	—	—		—	—		1,450	—		—		—		—		—		—
Conversion of Class D shares to Class A shares	2,900	1		—	—		(2,900)	—		—		—		—		—		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(2,596)		—		—		—		(2,596)
Other comprehensive income	—	—		—	—		—	—		—		—		103		(184)		(81)
Share-based compensation	—	—		—	—		—	—		31,398		—		—		—		31,398
Distribution to members	—	—		—	—		—	—		—		—		—		(247)		(247)
BALANCE—March 31, 2022	86,597	$	9	22,077	$	2	—	$	—	$	777,325	$	(143,866)	$	103	$	190,951	$	824,524
Net loss	—	—		—	—		—	—		—		(25,737)		—		(8,107)		(33,844)
Exercise of warrants	3,969	—		—	—		—	—		27,989		—		—		—		27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	21	—		—	—		—	—		—		—		—		—		—
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—	—		—		—		(524)		(14)		(538)
Share-based compensation	—	—		—	—		—	—		6,995		—		—		—		6,995
Distribution to members	—	—		—	—		—	—		—		—		—		(1,254)		(1,254)
BALANCE—June 30, 2022	90,587	$	9	22,077	$	2	—	$	—	$	812,309	$	(169,603)	$	(421)	$	181,576	$	823,872

See notes to unaudited condensed consolidated financial statements.

5

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Members' Deficit (Unaudited)

(In thousands)

	Members’ Deficit		Accumulated Other Comprehensive Income (Loss)		Total Members’ Deficit
	As Restated				As Restated
Predecessor:
For the period January 1, 2022 to January 26, 2022
BALANCE—January 1, 2022	$	(28,829)	$	428	$	(28,401)
Net loss	(37,061)		—		(37,061)
Accumulated other comprehensive income	—		87		87
Share-based compensation expense	23,705		—		23,705
BALANCE—January 26, 2022	$	(42,185)	$	515	$	(41,670)
	Members’ Deficit		Accumulated Other Comprehensive Income (Loss)		Total Members’ Deficit
Predecessor:
For the period January 1, 2021 to June 30, 2021
BALANCE—January 1, 2021	$	(47,886)	$	(343)	$	(48,229)
Net income	6,743		—		6,743
Accumulated other comprehensive income	—		441		441
Share-based compensation expense	146		—		146
Contribution from OpenMail	147		—		147
BALANCE—March 31, 2021	$	(40,850)	$	98	$	(40,752)
Net income	11,772		—		11,772
Accumulated other comprehensive income	—		24		24
Share-based compensation expense	120		—		120
Distribution to Court Square Capital Partners	(1,814)		—		(1,814)
Contribution from OpenMail	3		—		3
Distribution to OpenMail	(877)		—		(877)
BALANCE—June 30, 2021	$	(31,646)	$	122	$	(31,524)

See notes to unaudited condensed consolidated financial statements.

6

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Successor		Predecessor		Predecessor
	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated		As Restated
Cash flows from Operating Activities:
Net income (loss)	$	(77,222)	$	(37,061)	$	18,515
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	54,022		1,000		6,801
Share-based compensation	57,470		23,705		224
Amortization of debt issuance costs	2,226		—		1,131
Noncash lease expense	694		115		—
Change in fair value of contingent consideration and CEO equity profit interest	(27)		(9)		4,331
Change in fair value of warrants	9,622		—		—
Deferred tax benefits	(22,746)		(816)		(603)
Other	661		—		—
Changes in operating assets and liabilities
Accounts receivable	(8,136)		11,118		(8,306)
Due from related party	—		—		—
Prepaids and other assets	(2,002)		1,069		(1,864)
Accounts payable	6,535		(67,600)		8,568
Accrued expenses and other liabilities	(11,225)		57,488		(1,978)
Protected.net incentive plan liability	5,694		—		—
Deferred revenue	7,211		311		494
Other long-term liabilities	(31,080)		77		—
Net cash (used in) operating activities	(8,303)		(10,603)		27,313
Cash flows from Investing Activities:
Purchases of property and equipment	(2,310)		—		—
Capitalized software development costs	(3,497)		(441)		(3,233)
Acquisition of businesses, net of cash acquired	(444,074)		—		—
Net cash used in investing activities	(449,881)		(441)		(3,233)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	449,000		—		—
Repayment of term loan	(177,488)		—		(8,136)
Member capital contributions	—		—		150
Payments on contingent consideration from purchase of companies	—		—		(6,715)
Payments for financing costs	(24,845)		—		—
Payments for earnouts	(1,715)		—		—
Redemptions of Class A common stock	(510,469)		—		—
Proceeds from warrant exercises	5,027		—		—
Cash received from the Backstop	246,484		—		—
Related party loan	—		—		(1,500)
Distributions to members	(1,501)		—		(2,691)
Net cash used in financing activities	(15,507)		—		(18,892)
Effect of exchange rate changes in cash, cash equivalent and restricted cash	604		(19)		366
Net increase (decrease) in cash, cash equivalents and restricted cash	(473,087)		(11,063)		5,554
Cash and cash equivalents and restricted cash, beginning of the period	517,553		48,639		29,013
Cash and cash equivalents and restricted cash, end of the period	$	44,466	$	37,576	$	34,567
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	37,442	$	36,833	$	34,567
Restricted cash	7,024		743		—
Total cash, cash equivalents and restricted cash	$	44,466	$	37,576	$	34,567
Supplemental cash flow information:
Cash paid for operating lease liabilities	$	563	$	175	$	—
ROU assets obtained in exchange for operating lease liabilities	$	2,064	$	7,987	$	—

7

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Equity issuance to settle intercompany loan	$	—	$	941	$	—
Deferred consideration for acquisition	$	7,059	$	—	$	—

See notes to unaudited condensed consolidated financial statements.

8

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

1.ORGANIZATION AND DESCRIPTION OF BUSINESS

System1, Inc. and subsidiaries (“System1”, or the “Company”, f/k/a Trebia Acquisition Corp.) operates an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and sells antivirus software packages to end user customers.

The Company provides its omnichannel customer acquisition platform services through its proprietary responsive acquisition marketing platform, or RAMP. Operating seamlessly across major advertising networks and advertising category verticals to acquire users on its behalf, RAMP allows the Company to monetize such users through its relationships with third party advertisers and advertising networks, which the Company refers to as its Advertising Partners. RAMP also allows third party advertising platforms and publishers, which the Company refers to as its Network Partners, to send user traffic to, and monetize user traffic on, the Company’s owned and operated websites. RAMP operates across the Company’s network of owned and operated websites and related products, allowing the Company to monetize user traffic that the Company sources from various acquisition marketing channels, including Google, Facebook, Taboola, Snapchat and TikTok.

The Company, through Protected.net, also provides antivirus software solutions to its customers, offering its customers a single packaged solution that provides protection and reporting to the end user. The Company delivers its antivirus software solutions directly to end-user customers across the world. The antivirus software solutions product offering comprises a core security package with varying levels of extra protection based on a customer's specific needs.

The Company’s primary operations are in the United States; however, the Company also has operations in Canada, the United Kingdom, and the Netherlands. Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among these risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, and exposure to currency exchange fluctuations. The Company does not engage in hedging activities to mitigate its exposure to fluctuations in foreign currency exchange rates.

For the purposes of the condensed consolidated financial statements, periods on or before January 26, 2022 reflect the financial position, results of operations and cash flows of S1 Holdco and its consolidated subsidiaries prior to the Merger transaction (as defined in Note 3), referred to herein as the “Predecessor,” and periods beginning on or after January 27, 2022 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the Merger transaction, referred to herein as the “Successor”.

Revenue attributable to the United States of the total revenue were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
United States	76	%	96	%	78	%	98	%	97	%

Long-lived assets attributable to the United States and Canada represent 77% and 16% of total long-lived assets as of June 30, 2022 (Successor), respectively, and 99% and 1% of total long-lived assets as of December 31, 2021 (Predecessor), respectively.

9

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Going Concern

As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan (refer to Note 12 – DEBT). The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America. The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern. Upon delivery of the audited financial statements by the Company, the event of default will be remediated and, once remediated, Bank of America will no longer have the ability to call the outstanding principal balances on the Term Loan and Revolving Facility.

Separate from the default under the Term Loan and Revolving Facility, in the third and fourth quarters of 2022, the Company experienced declining cash flows and financial performance as a result of deteriorating macroeconomic conditions, resulting in reductions in both advertiser and overall consumer demand for our marketing services. As of December 31, 2022, the Company had cash on hand of $24,606. The declining cash flows and financial performance also raised substantial doubt regarding the Company's ability to continue as a going concern for a period of one year following the date that the consolidated financial statements are issued. In response to the declining cash flows, the Company implemented a plan to raise additional financing. On April 10, 2023, the Company entered into an incremental revolver note (“2023 Revolving Note”) with related parties for $20,000 (refer to Note 12—DEBT for additional information regarding the 2023 Revolving Note). As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Restatement of Previously Issued Financial Statements

The Company identified errors impacting the previously issued unaudited condensed consolidated financial statements for the periods indicated below. The Company analyzed the errors using Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and determined the errors were material to the previously issued unaudited condensed consolidated financial statements. Accordingly, in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, the Company has restated herein the unaudited condensed consolidated statements of operations, of comprehensive income (loss), of changes in members’ deficit and of cash flows for the predecessor period from January 1, 2022 to January 26, 2022, the successor condensed consolidated balance sheet as of June 30, 2022 and the condensed consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity and of cash flows for the Successor periods from January 27, 2022 to June 30, 2022 and from April 1, 2022 to June 30, 2022 and related footnote disclosures that were impacted by the errors.

A description of the errors is as follows:

I.Merger and business combination errors, and other errors impacting the successor period opening statement of stockholders’ equity:

a.Valuation related errors - The Company identified the following valuation errors related to the Merger with S1 Holdco, LLC (“S1 Holdco”) and System1 SS Protected Holdings. Inc. (“Protected”) ("the Merger") which occurred on January 27, 2022 ("the Merger date") and the

10

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

NextGen Shopping, Inc. d/b/a CouponFollow (“CouponFollow”) acquisition which occurred on March 4, 2022:

i.Error in the valuation of acquired developed technology from S1 Holdco in the Merger due to incorrectly recording capitalized internal-use software costs that were already included in the valuation of the RAMP developed technology which overstated capitalized Internal-use software development costs by $11,312 and understated Goodwill by $11,312 as of the Merger date. As a result of this error, capitalized Internal-use software development costs, net, was overstated by $9,352 and Goodwill was understated by $11,312 as of June 30, 2022 and Depreciation and amortization expense was overstated by $1,118 and $1,960 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

ii.Errors in the valuation of intangible assets of S1 Holdco in the Merger due to the use of incorrect forecasts and assumptions that were not updated to reflect the facts and circumstances as of the date of the Merger, which understated intangible assets by $9,400 and overstated Goodwill by $9,400 as of the Merger date. The impact to the intangible assets as of the Merger date was as follows: trademarks were understated by $10,900 and customer relationship and developed technology intangible assets were overstated by $500 and $1,000, respectively. As a result of these errors, Intangible assets, net, was understated by $9,085 and Goodwill was overstated by $9,400 as of June 30, 2022 and Depreciation and amortization expense was understated by $186 and $315 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

iii.Errors in the valuation of intangible assets of Protected in the Merger due to the use of incorrect forecasts and assumptions that were not updated to reflect facts and circumstances as of the date of the Merger, which overstated intangible assets by $2,800 and understated Goodwill by $2,800 as of the Merger date. The impact to the intangible assets as of the Merger date was as follows: trademarks were overstated by $7,700 and customer relationships were understated by $4,900. As a result of these errors, Intangible assets, net, was overstated by $2,163 and Goodwill was understated by $2,800 as of June 30, 2022, and Depreciation and amortization expense was overstated by $506 and $638 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

iv.Errors in the valuation of intangible assets from the CouponFollow acquisition due to the use of incorrect forecasts and assumptions that were not updated to reflect facts and circumstances as of the date of the acquisition, which understated intangible assets by $11,900, and overstated Goodwill by $11,900 as of the acquisition date. As a result of these errors, Intangible assets, net was understated by $11,506 and Goodwill was overstated by $11,900 as of June 30, 2022 and Depreciation and amortization expense was understated by $305 and $394 for the successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively.

b.Not used

c.Stock retirement error – The Company identified an error in the accounting for the repurchase and retirement of common stock that was incorrectly recorded to Additional paid-in capital upon the Merger rather than directly to Accumulated deficit. This error resulted in an understatement of Additional paid-in capital and Accumulated deficit by $31,167 as of January 27, 2022 and June 30, 2022.

d.Forward purchase liability error – The Company identified an error in the opening balance sheet as of January 27, 2022 related to the accounting and valuation of a modification to a forward purchase contract classified as a liability with Cannae (as defined in Note 3). As further described in Note 3, on June 28, 2021, and as amended on January 10, 2022, the Trebia Sponsors agreed to

11

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

forfeit up to 2,600 shares of Trebia Class B common stock in exchange for Cannae providing backstop funding for the Merger. This should have resulted in Trebia recording a forward purchase agreement liability on June 28, 2021, with mark-to-market adjustments to fair value at each future reporting date. The Company estimated the value of this liability immediately preceding the Merger based on the final redemptions and Cannae’s anticipated backstop funding and the impact of reversing the gain recorded upon termination of the original forward agreement with Cannae. This error resulted in an understatement of Accumulated deficit and Additional paid-in capital by $25,336 as of June 30, 2022.

e.Tax related opening balance sheet errors - The Company identified tax related errors in the acquired assets and liabilities relating to the Merger and its other business acquisitions due to the valuation errors noted in (a) above and a failure to identify and record acquired tax assets and liabilities as follows:

i.The Company identified tax related errors in the acquired assets and liabilities relating to S1 Holdco which, after consideration of measurement period adjustments originally recorded in the period, resulted in an understatement of prepaid expenses and other current assets of $2,537, an understatement of Other non-current assets of $27, an understatement of Accrued expenses and other current liabilities of $362, an overstatement of the Deferred tax liability of $5,844, and an overstatement of Goodwill of $8,047 as of the Merger date and June 30, 2022;

ii.The Company identified tax related errors in the acquired assets and liabilities relating to Protected during the Merger which resulted in an understatement of Prepaid expenses and other current assets of $2,063, an understatement of Accrued expenses and other current liabilities of $1,744, an overstatement of the Deferred tax liability of $110, and an overstatement of Goodwill of $429 as of the Merger date and June 30, 2022;

iii.The Company identified tax related errors in the acquired assets and liabilities relating to the CouponFollow acquisition which resulted in an overstatement of Accrued expenses and other current liabilities by $693, an understatement of Deferred tax liability by $2,802, and an understatement of Goodwill by $2,109 as of the acquisition date and June 30, 2022.

II.Equity related errors:

f.CouponFollow Incentive Plan error - The Company failed to record a post-combination bonus expense for the three months ended June 30, 2022 related to CouponFollow’s Incentive Plan. The impact of this error was an understatement of Salaries, commissions and benefits expense of $1,001 for the Successor period three months ended June 30, 2022 and the Successor period from January 27, 2022 to June 30, 2022 and an understatement of Accrued expenses and other current liabilities by $1,001 as of June 30, 2022.

g.Stock based compensation - The Company identified errors in its accounting for stock-based compensation arrangements as follows:

i.Errors in accounting for Class F Unit ("F units") awards relating to the modification of the awards and the attribution of compensation cost between purchase consideration and post-combination expense due to the incorrect use of graded vesting for expense recognition subsequent to the Merger rather than recognizing expense on a straight-line basis; the determination of the fair value of awards upon the Merger; a spreadsheet formula error; and the accounting for forfeitures of awards subsequent to the Merger. In the Predecessor period there was an overstatement of Additional paid-in capital and an overstatement of Stock-based compensation expense of $3,993. As a result of these errors, Goodwill was overstated by $4,115, Accrued expenses and other current liabilities was overstated by $159, Other liabilities was overstated by $147, Additional paid-in capital was understated by $6,774, and Accumulated other comprehensive income was

12

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

overstated by $1 as of June 30, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $497 and $10,582 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022, respectively;

ii.Errors in accounting for Value Creation Unit ("VCU") awards relating to the modification of the awards and the attribution of compensation cost between purchase consideration and post-combination expense due to the incorrect use of graded vesting for expense recognition subsequent to the Merger rather than recognizing expense on a straight-line basis; the determination of the fair value of awards upon the Merger; and the accounting for forfeitures of awards subsequent to the Merger. As a result of these errors, Goodwill was overstated by $7,133, Accrued expenses and other current liabilities was overstated by $512, Other liabilities was overstated by $1,390, and Additional paid-in capital was overstated by $4,036 as of June 30, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $1,017 and $1,195 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022, respectively;

iii.Errors in the accounting for restricted stock awards issued to the SPAC sponsors, which should have been treated as an equity exchange on the Merger date rather than as compensation expense in the Successor period from January 27, 2022 to June 30, 2022 As a result, Salaries, commissions, and benefits was overstated by $0 and $12,746 in the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 and Additional paid-in capital was overstated by $12,746 as of June 30, 2022;

iv.Error in the accounting and valuation for Sponsor Promote Shares which should have been recorded in the Successor period from January 27, 2022 to June 30, 2022 rather than the Trebia financial statements as of January 26, 2022. As a result, Additional paid-in capital and Accumulated deficit were overstated by $8,079 in opening shareholders' equity as of January 27, 2022. This error resulted in an understatement of Additional paid-in capital of $288 as of June 30, 2022. Additionally, this error resulted in an understatement of stock-based compensation expense included in Salaries, commissions and benefits of $0 and $7,706 and an understatement of Selling, general and administrative expense of $0 and $661 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively.

h.Stock based compensation errors, other - The Company identified other errors relating to the improper accounting for equity awards, which overstated Goodwill by $518 and overstated Additional paid-in capital by $518 as of the Merger date. These errors resulted in an understatement of stock-based compensation expense included in Salaries, commissions and benefits of $1,473 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively. As a result of these errors, Goodwill was overstated by $518 and Additional paid-in capital was understated by $955 as of June 30, 2022.

III.Other errors:

i.Non-controlling interest errors - The Company identified errors related to its calculation of net loss attributable to non-controlling interests due to the inclusion of entities that did not have non-controlling interests. In addition, the Company has corrected Net loss attributable to non-controlling interest for other errors described herein. The impact of the errors was an understatement of Accumulated other comprehensive income by $368 an overstatement of Accumulated deficit by $2,420, and an overstatement of Non-controlling interest by $2,788 as of June 30, 2022. Net loss attributable to non-controlling interest was understated by $3,240 and $2,481 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively. As a result of these adjustments, Comprehensive loss

13

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

attributable to non-controlling interest was understated by $3,234 and $2,469 for the Successor three months ended June 30, 2022 and the period from January 27, 2022 through June 30, 2022.

j.Internal-use software development costs – The Company identified errors in the capitalization of internal-use software costs subsequent to the Merger which resulted in an understatement of Internal-use software development costs, net by $1,316 as of June 30, 2022 and an overstatement of Salaries, commissions, and benefits expense by $36 and $519, and an overstatement of Depreciation and amortization expense by $170 and $797 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 through June 30, 2022, respectively.

k.Accrual related errors - The Company identified various errors in accruals at period ends which impacted the Predecessor and Successor Periods. These errors had the impact of overstating Cost of revenues by $261 and understating Selling, general and administrative expense by $744 in the Predecessor period from January 1, 2022 to January 26, 2022 and understating Accrued expenses and other current liabilities by $319 and overstating Prepaid expenses and other current assets by $164 as of the Merger date. These errors also had the impact of understating Cost of revenues by $0 and $261 and Selling, general and administrative expense by $537 and $92 in the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively, and understating Accrued expenses and other current liabilities and Goodwill by $836 and $483, respectively, as of June 30, 2022.

l.RoadWarrior contingent consideration errors - Errors in the valuation of contingent consideration for the RoadWarrior acquisition resulting from a misinterpretation of the arrangement. The Company erroneously recorded a liability in the opening balance sheet for contingent consideration; however, the arrangement does not include contingent consideration provisions. The impact of the error was an overstatement of Goodwill, Accrued expenses and other current liabilities, and Other liabilities by $540, $337, and $209, respectively, as of June 30, 2022. Additionally, Selling, general and administrative was overstated by $0 and $6 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively.

m.Impact of errors on tax accounts:

i.The income tax provision was recomputed based on the restated pre-tax income (loss) for the period, resulting in an understatement of Income tax benefit for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 by $3,454 and $1,851, respectively, and an overstatement of the related Deferred tax liability of $1,851 as of June 30, 2022;

ii.As a result of the valuation errors identified in the opening balance sheet, the Company corrected the tax impacts of the Company’s contribution of the net assets of CouponFollow to System1 Opco, LLC immediately following the acquisition, resulting in an overstatement of the Deferred tax liability and an understatement of Additional paid-in capital of $3,573, as of June 30, 2022;

iii.The Company identified errors in the reconciliation of its tax accounts as of June 30, 2022 which resulted in an overstatement of Prepaid expenses and other current assets by $1,973, an overstatement of Accrued expenses and other current liabilities of $2,032, an understatement of Deferred tax liability by $534 and an overstatement of Accumulated other comprehensive income of $475 as of June 30, 2022. The accumulated other comprehensive income adjustment was the result of the Company correcting for a foreign currency error incorrectly applied to deferred tax balances.

n.Other classification errors - The Company identified classification errors between current and non-current Restricted cash and Accounts receivable, which overstated Restricted cash, current by $1,185, understated Restricted cash, non-current and Accounts receivable by $920 and $265, respectively, as of June 30, 2022.

14

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

o.Other adjustments - In addition to the impacts of the adjustments described herein, the Company identified various adjustments primarily related to rounding.

p.Impact of errors on foreign currency translation - As a result of the correction of the identified errors and preparation of the financial statements, the effects of foreign currency translation adjustments and their effects on other comprehensive income have also been reflected within the restated amounts.

q.Cash flow errors - In addition to the impacts of adjustments to correct the statements of cash flows from the adjustments described above, the Company also determined that various line items within the operating activities section required the correction of errors and total cash flows within operating, investing, and financing activities were misstated due to errors resulting from incorrect support utilized by the Company in preparing the statements of cash flows. The aggregate impact of these errors to the consolidated statements of cash flows for the Successor period from January 27, 2022 to June 30, 2022 was an understatement of Share-based compensation of $38, an overstatement of decrease in Change in fair value of contingent consideration and CEO equity profit interest of $45, and overstatement of increase in Accounts receivable of $19, an understatement of increase in Prepaids and other assets of $863, an understatement of decrease in Accrued expenses and other liabilities of $7,274, an understatement of increase in Protected.net incentive plan liability of $5,694, an understatement of increase in Other long-term liabilities of $72, an understatement of Purchases of property and equipment of $25, an understatement of Capitalized software development costs of $77, an overstatement of Acquisitions of businesses, net of cash acquired of $1,886. The Company also identified other immaterial errors for the Successor period from January 27, 2022 to June 30, 2022 which have been corrected herein.

r.Cash flow lease payments error - Cash lease payments of $784 for the Successor period from January 27, 2022 through June 30, 2022 were previously classified as noncash "Amortization of right-of-use-assets" rather than as lease liability outflows in changes in operating assets and liabilities in the statement of cash flows.

s.Earnings per share error - The Company identified an error in its computation of weighted average number of shares which impacted the earnings per share disclosure for the Successor three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022. Additionally, the Company did not appropriately include the impact of “in-the-money” warrants on the presentation of diluted earnings per share for the three months ended June 30, 2022. This error resulted in an increase in the diluted net loss per share by $(0.04) which was offset by the change in net income attributable to System1 impacts above.

t.Not used

The accompanying notes to the condensed consolidated financial statements have also been corrected to reflect the impacts of the adjustments described above. In addition, the Company has corrected the following disclosures errors:

•Authorized share disclosure - The Company corrected disclosure of the number of authorized Class A common stock on the condensed consolidated balance sheet.

•Merger disclosures - The Company corrected the disclosure in Note 3 related to the presentation of assets acquired and liabilities assumed from the Merger and the unaudited pro forma information due to errors resulting from incorrect support utilized in preparing the disclosures and incorrect application of adjustments to the pro forma information.

15

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

•CouponFollow acquisition disclosures – The Company corrected the disclosure in Note 4 for transaction costs incurred for the CouponFollow acquisition that did not include total amounts incurred in 2021 and the amount of deferred contingent consideration;

•Reportable segment goodwill disclosure - The Company corrected the disclosure in Note 6 related to errors in the allocation of goodwill from the Merger and other business acquisitions to its reportable segments;

•Segment disclosures – The Company also corrected the disclosure in Note 16 related to errors in the allocation of revenues and adjusted gross profit to the Owned and Operated and the Partner Network segments. For the Predecessor period from January 1, 2022 to January 26, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $542 and Owned and Operated adjusted gross profit was overstated by $542 and Partner Network adjusted gross profit was understated by $91. For the Successor period three months ended June 30, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $5,754 and Owned and Operated adjusted gross profit was overstated by $5,754 and Partner Network adjusted gross profit was understated by $585. For the Successor period from January 27, 2022 to June 30, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $9,128 and Owned and Operated adjusted gross profit was overstated by $9,128 and Partner Network adjusted gross profit was understated by $1,022;

•CouponFollow Incentive Plan disclosure - The Company corrected the disclosure in Note 18 to include the disclosure of terms of the CouponFollow Incentive Plan that were previously omitted;

The following table summarizes the effect of the adjustments to correct errors on each affected financial statement line item impacting the condensed consolidated balance sheet as of June 30, 2022. The footnotes correspond to the error descriptions above:

	Successor
	June 30, 2022
	As Previously Reported		Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	37,442	$	—		$	37,442
Restricted cash, current	5,757		(1,185)		(n)	4,572
Accounts receivable	93,397		265		(n)	93,662
Prepaid expenses and other current assets	9,671		4,600		(e)
			(1,973)		(m)	12,298
Total current assets	146,267		1,707			147,974
Restricted cash, non-current	1,532		920		(n)	2,452
Property and equipment, net	4,330		—			4,330
Internal-use software development costs, net	11,647		(9,352)		(a)
			1,316		(j)
			(1)		(o)	3,610
Intangible assets, net	537,913		18,428		(a)	556,341
Goodwill	907,248		(7,188)		(a)
			(6,367)		(e)
			(11,248)		(g)
			(518)		(h)
			483		(k)
			(540)		(l)
			1		(o)
			(501)		(p)	881,370
Operating lease right-of-use assets	7,533		—			7,533

16

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Other non-current assets	779		27		(e)
			(2)		(o)	804
Total assets	$	1,617,249	$	(12,835)		$	1,604,414
LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Current liabilities:
Accounts payable	17,286		—			17,286
Accrued expenses and other current liabilities	97,752		1,413		(e)
			1,001		(f)
			(671)		(g)
			836		(k)
			(337)		(l)
			(2,032)		(m)
			(3)		(o)	97,959
Deferred revenue	68,368		—			68,368
Operating lease liabilities, current	2,065		—			2,065
Notes payable, current	14,888		—			14,888
Total current liabilities	200,359		207			200,566
Operating lease liabilities, non-current	7,073					7,073
Notes payable, non-current	406,026		—			406,026
Warrant liability	13,669		—			13,669
Deferred tax liability	137,354		(3,152)		(e)
			(4,890)		(m)
			(2)		(o)	129,310
Protected incentive plan liability	18,163		—			18,163
Other liabilities	7,482		(1,537)		(g)
			(209)		(l)
			(1)		(o)	5,735
Total liabilities	790,126		(9,584)			780,542
Commitments and contingencies
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Class A common stock - $0.0001 par value; 500,000 shares authorized, 90,587 Class A shares issued and outstanding as of June 30, 2022	9		—			9
Class C common stock - $0.0001 par value; 25,000 shares authorized, 22,077 Class C shares issued and outstanding as of June 30, 2022	2		—			2
Additional paid-in capital	761,002		31,167		(c)
			25,336		(d)
			(9,720)		(g)
			955		(h)
			3,573		(m)
			(4)		(p)	812,309
Accumulated deficit	(118,373)		1,888		(a)
			(31,167)		(c)
			(25,336)		(d)
			(1,001)		(f)
			681		(g)
			(1,473)		(h)
			2,420		(i)
			1,316		(j)
			(353)		(k)
			6		(l)
			1,851		(m)
			(17)		(o)
			(45)		(p)	(169,603)

17

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Accumulated other comprehensive income (loss)	179		(1)		(e)
			(1)		(g)
			368		(i)
			(475)		(m)
			(39)		(o)
			(452)		(p)	(421)
Total stockholders’ equity/members’ deficit attributable to System1, Inc.	642,819		$	(523)		642,296
Non-controlling interest	184,304		(2,788)		(i)
			60		(o)	181,576
Total stockholders’ equity/members’ deficit	827,123		(3,251)			823,872
Total liabilities and stockholders’ equity/members’ deficit	$	1,617,249	$	(12,835)		$	1,604,414

18

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods indicated, impacting the condensed consolidated statements of operations. The footnotes correspond to the error descriptions above:

	Successor																Predecessor
	Three Months Ended June 30, 2022								Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated			As Previously Reported		Adjustments			As Restated			As Previously Reported		Adjustments			As Restated
Revenue	$	219,797	$	—		$	219,797		$	385,905	$	—		385,905			$	52,712				$	52,712
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	152,558		—			152,558			272,689		261		(k)				41,760		(261)		(k)
											(8)		(o)	272,942					8		(o)	41,507
Salaries, commissions, and benefits	45,555		1,001		(f)				89,014		1,001		(f)				35,175		(3,993)		(g)
			1,514		(g)						6,737		(g)						(1)		(o)	31,181
			1,473		(h)						1,473		(h)
			(36)		(j)						(519)		(j)
			4		(o)	49,511					3		(o)	97,709
Selling, general, and administrative	16,167		537		(k)				31,148		661		(g)				14,817		744		(k)
			43		(p)	16,747					92		(k)						104		(o)	15,665
											(6)		(l)
											(103)		(o)
											43		(p)	31,835
Depreciation and amortization	33,397		(1,133)		(a)				56,708		(1,889)		(a)				1,000		—			1,000
			(170)		(j)	32,094					(797)		(j)	54,022
Total operating costs and expenses	247,677		3,233			250,910			449,559		6,949			456,508			92,752		(3,399)			89,353
Operating income (loss)	(27,880)		(3,233)			(31,113)			(63,654)		(6,949)			(70,603)			(40,040)		3,399			(36,641)
Other expense (income):
Interest expense	7,324		—			7,324			12,100		—			12,100			1,049		—			1,049
Change in fair value of warrant liabilities	(4,139)		—			(4,139)			9,622		—			9,622			—		—			—
Total other expense	3,185		—			3,185			21,722		—			21,722			1,049		—			1,049
Income (loss) before income tax	(31,065)		(3,233)			(34,298)			(85,376)		(6,949)			(92,325)			(41,089)		3,399			(37,690)
Income tax (benefit) provision	3,000		(3,454)		(m)	(454)			(13,252)		(1,851)		(m)	(15,103)			(629)		—			(629)
Net income (loss)	$	(34,065)	$	221		$	(33,844)		$	(72,124)	$	(5,098)		$	(77,222)		$	(40,460)	$	3,399		$	(37,061)
Net loss attributable to non-controlling interest	(4,867)		(3,240)		(i)	(8,107)			(12,935)		(2,481)		(i)	(15,416)			—		—			—
Net income (loss) attributable to System1, Inc.	$	(29,198)	$	3,461		$	(25,737)		$	(59,189)	$	(2,617)		$	(61,806)		$	(40,460)	$	3,399		$	(37,061)
Basic net loss per share	$	(0.33)	$	0.04		$	(0.29)		$	(0.68)	$	(0.03)		$	(0.71)		n/a					n/a
Diluted net loss per share	$	(0.33)				$	(0.33)	(s)	n/a					n/a			n/a					n/a
Weighted average units outstanding - basic	89,701					89,701			87,351		(511)		(s)	86,840			n/a					n/a
Weighted average units outstanding - diluted	89,701		1,481		(s)	91,182			n/a					n/a			n/a					n/a
Basic and diluted net income (loss) per unit	n/a					n/a			n/a					n/a			$	(1.97)	$	0.16		$	(1.81)
Weighted average units outstanding - basic and diluted	n/a					n/a			n/a					n/a			20,488					20,488

19

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods indicated, impacting the condensed consolidated statements of comprehensive income (loss). The footnotes correspond to the error descriptions above:

	Successor							Successor							Predecessor
	Three Months Ended June 30, 2022							Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated
Net income (loss)	$	(34,065)	$	221	(a)(f)(g)(h)(j)(k)(m)(o)(p)	$	(33,844)	$	(72,124)	$	(5,098)	(a)(f)(g)(h)(j)(k)(m)(o)(p)	$	(77,222)	$	(40,460)	$	3,399	(g)(k) (o)	$	(37,061)
Other comprehensive income (loss)
Foreign currency translation income (loss)	262		(786)		(m)(p)	(524)		228		(649)		(m)(p)	(421)		87		—			87
Comprehensive income (loss)	$	(33,803)	$	(565)		$	(34,368)	$	(71,896)	$	(5,747)		$	(77,643)	$	(40,373)	$	3,399		$	(36,974)
Comprehensive loss attributable to non-controlling interest	(4,812)		(3,234)		(i)	(8,046)		(12,886)		(2,469)		(i)	(15,355)							—
Comprehensive income (loss) attributable to System1, Inc.	$	(28,991)	$	2,669		$	(26,322)	$	(59,010)	$	(3,278)		$	(62,288)	$	(40,373)	$	3,399		$	(36,974)

20

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statements of changes in stockholders' equity. The footnotes correspond to the error descriptions above:

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
As Previously Reported
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	52,680	$	5	—	$	—	—	$	—	$	525,579	$	(59,184)	$	—	$	—	$	466,400
Effect of Merger transaction	29,017	3		22,077	2		2,900	—		157,046		—		—		198,691		355,742
BALANCE—January 27, 2022	81,697	8		22,077	2		2,900	—		682,625		(59,184)		—		198,691		822,142
Net loss	—	—		—	—		—	—		—		(29,991)		—		(8,068)		(38,059)
Issuance of common stock in connection with the acquisition of business	2,000	—		—	—		—	—		25,500		—		—		—		25,500
Issuance of market-based restricted stock units upon vesting	—	—		—	—		—	—		—		—		—		—		—
Conversion of Class D shares to Class A shares	2,900	1		—	—		(2,900)	—		—		—		—		—		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(6,752)		—		—		—		(6,752)
Other comprehensive income	—	—		—	—		—	—		—		—		(28)		(6)		(34)
Share-based compensation	—	—		—	—		—	—		27,167		—		—		—		27,167
Distribution to members	—	—		—	—		—	—		—		—		—		(247)		(247)
BALANCE—March 31, 2022	86,597	$	9	22,077	$	2	—	$	—	$	728,540	$	(89,175)	$	(28)	$	190,370	$	829,718
Net loss	—	—		—	—		—	—		—		(29,198)		—		(4,867)		(34,065)
Exercise of warrants	3,969	—		—	—		—	—		27,989		—		—		—		27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	21	—		—	—		—	—		—		—		—		—		—
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		585		—		—		—		585
Other comprehensive income	—	—		—	—		—	—		—		—		207		55		262
Share-based compensation	—	—		—	—		—	—		3,888		—		—		—		3,888
Distribution to members	—	—		—	—		—	—		—		—		—		(1,254)		(1,254)
BALANCE—June 30, 2022	90,587	$	9	22,077	$	2	—	$	—	$	761,002	$	(118,373)	$	179	$	184,304	$	827,123

21

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
Adjustments
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	(930)	$	—	—	$	—	—	$	—	$	48,424	$	(48,613)	$	—	$	—	$	(189)	(c) (d)
Effect of Merger transaction	—	—		—	—		(1,450)	—		(8,687)		—		—		—		(8,687)		(d) (g)
BALANCE—January 27, 2022	(930)	$	—	—	$	—	(1,450)	$	—	$	39,737	$	(48,613)	$	—	$	—	(8,876)
Net loss	—	—		—	—		—	—		—		(6,078)		—		759		(5,319)		(a)(g)(i)(j)(k)(l)(m)(o)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	930	—		—	—		—	—		661		—		—		—		661		(g)
Issuance of market-based restricted stock units upon vesting	—	—		—	—		1,450	—		—		—		—		—		—		(g)
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		4,156		—		—		—		4,156		(m)
Other comprehensive income	—	—		—	—		—	—		—		—		131		(178)		(47)		(p)
Share-based compensation	—	—		—	—		—	—		4,231		—		—		—		4,231		(g) (h)
BALANCE—March 31, 2022	—	$	—	—	$	—	—	$	—	$	48,785	$	(54,691)	$	131	$	581	$	(5,194)
Net loss	—	—		—	—		—	—		—		3,461		—		(3,240)		221		(g) (i)
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(585)		—		—		—		(585)		(m)
Other comprehensive income	—	—		—	—		—	—		—		—		(731)		(69)		(800)		(p)
Share-based compensation	—	—		—	—		—	—		3,107		—		—		—		3,107		(g) (h)
BALANCE—June 30, 2022	—	$	—	—	$	—	—	$	—	$	51,307	$	(51,230)	$	(600)	$	(2,728)	$	(3,251)

22

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
As Restated
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	51,750	$	5	—	$	—	—	$	—	$	574,003	$	(107,797)	$	—	$	—	$	466,211
Effect of Merger transaction	29,017	3		22,077	2		1,450	—		148,359		—		—		198,691		347,055
BALANCE—January 27, 2022	80,767	8		22,077	2		1,450	—		722,362		(107,797)		—		198,691		813,266
Net loss	—	—		—	—		—	—		—		(36,069)		—		(7,309)		(43,378)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	930	—		—	—		—	—		661		—		—		—		661
Issuance of common stock in connection with the acquisition of business	2,000	—		—	—		—	—		25,500		—		—		—		25,500
Issuance of market-based restricted stock units upon vesting	—	—		—	—		1,450	—		—		—		—		—		—
Conversion of Class D shares to Class A shares	2,900	1		—	—		(2,900)	—		—		—		—		—		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(2,596)		—		—		—		(2,596)
Other comprehensive income	—	—		—	—		—	—		—		—		103		(184)		(81)
Share-based compensation	—	—		—	—		—	—		31,398		—		—		—		31,398
Distribution to members	—	—		—	—		—	—		—		—		—		(247)		(247)
BALANCE—March 31, 2022	86,597	$	9	22,077	$	2	—	$	—	$	777,325	$	(143,866)	$	103	$	190,951	$	824,524
Net loss	—	—		—	—		—	—		—		(25,737)		—		(8,107)		(33,844)
Exercise of warrants	3,969	—		—	—		—	—		27,989		—		—		—		27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	21	—		—	—		—	—		—		—		—		—		—
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—	—		—		—		(524)		(14)		(538)
Share-based compensation	—	—		—	—		—	—		6,995		—		—		—		6,995

23

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Distribution to members	—	—		—	—		—	—		—		—		—		(1,254)		(1,254)
BALANCE—June 30, 2022	90,587	$	9	22,077	$	2	—	$	—	$	812,309	$	(169,603)	$	(421)	$	181,576	$	823,872

24

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statement of changes in members' deficit. The footnotes correspond to the error descriptions above:

	Members’ Deficit							Accumulated Other Comprehensive Income (Loss)		Total Members’ Deficit
Predecessor:
For the period January 1, 2022 to January 26, 2022	As Previously Reported		Adjustments			As Restated				As Restated
BALANCE—January 1, 2022	$	(28,829)	$	—		$	(28,829)	$	428	$	(28,401)
Net loss	(40,460)		$	3,399	(g)(k)(o)	(37,061)		—		(37,061)
Accumulated other comprehensive income	—		—			—		87		87
Share-based compensation expense	27,698		(3,993)		(g)	23,705		—		23,705
BALANCE—January 26, 2022	$	(41,591)	$	(594)		$	(42,185)	$	515	$	(41,670)

25

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statements of cash flows. The footnotes correspond to the error descriptions above:

	Successor							Predecessor
	Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated
Cash flows from Operating Activities:
Net income (loss)	$	(72,124)	$	(5,098)	(a)(f)(g)(h)(j)(k)(l)(m)(o)(p)	$	(77,222)	$	(40,460)	$	3,399	(g)(k)(o)	$	(37,061)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	56,708		(2,686)		(a)(j)	54,022		1,000		—			1,000
Share-based compensation	49,219		8,251		(g)(h)(o)(q)	57,470		27,698		(3,993)		(g)	23,705
Amortization of debt issuance costs	2,226		—			2,226		—		—			—
Noncash lease expense	(90)		784		(r)	694		115		—			115
Change in fair value of contingent consideration and CEO equity profit interest	(72)		45		(q)	(27)		(9)		—			(9)
Change in fair value of warrants	9,622		—			9,622		—		—			—
Deferred tax benefits	(20,893)		(1,853)		(m)(q)	(22,746)		(816)		—			(816)
Other	—		661		(g)	661		—		—			—
Changes in operating assets and liabilities
Accounts receivable	(7,890)		(246)		(n)(q)	(8,136)		11,118		—			11,118
Prepaids and other assets	(978)		(1,024)		(k)(o)(q)	(2,002)		905		164		(k)	1,069
Accounts payable	6,535		—			6,535		(67,600)		—			(67,600)
Accrued expenses and other liabilities	(5,466)		(5,759)		(f)(k)(o)(q)	(11,225)		57,170		318		(k)(o)	57,488
Protected.net incentive plan liability	—		5,694		(q)	5,694		—		—			—
Deferred revenue	7,211		—			7,211		311		—			311
Other long-term liabilities	(30,217)		(863)		(l)(o)(q)(r)	(31,080)		78		(1)		(o)	77
Net cash used in operating activities	(6,209)		(2,094)			(8,303)		(10,490)		(113)			(10,603)
Cash flows from Investing Activities:
Purchases of property and equipment	(2,285)		(25)		(q)	(2,310)		—		—			—
Capitalized software development costs	(2,901)		(596)		(j)(q)	(3,497)		(441)		—			(441)
Acquisition of businesses, net of cash acquired	(445,893)		1,819		(o)(p)(q)	(444,074)		—		—			—
Net cash used in investing activities	(451,079)		1,198			(449,881)		(441)		—			(441)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	449,000		—			449,000		—		—			—
Repayment of term loan	(177,488)		—			(177,488)		—		—			—
Payments for financing costs	(24,845)		—			(24,845)		—		—			—
Payments for earnouts	(1,715)		—			(1,715)		—		—			—
Redemptions of Class A common stock	(510,469)		—			(510,469)		—		—			—
Proceeds from warrant exercises	5,029		(2)		(q)	5,027		—		—			—
Cash received from the Backstop	246,484		—			246,484		—		—			—
Distributions to members	(1,501)		—			(1,501)		—		—			—
Net cash used in financing activities	(15,505)		(2)			(15,507)		—		—			—

26

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Effect of exchange rate changes in cash, cash equivalent and restricted cash	(29)		633		(p)	604		(132)		113		(p)	(19)
Net increase (decrease) in cash, cash equivalents and restricted cash	(472,822)		(265)			(473,087)		(11,063)		—			(11,063)
Cash and cash equivalents and restricted cash, beginning of the period	517,553		—			517,553		48,639		—			48,639
Cash and cash equivalents and restricted cash, end of the period	$	44,731	$	(265)		$	44,466	$	37,576	$	—		$	37,576
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	37,442	$	—		$	37,442	$	36,833	$	—		$	36,833
Restricted cash	7,289		(265)		(n)	7,024		743		—			743
Total cash, cash equivalents and restricted cash	$	44,731	$	(265)		$	44,466	$	37,576	$	—		$	37,576
Supplemental cash flow information:
ROU assets obtained in exchange for operating lease liabilities	$	2,064	$	—		$	2,064	$	7,987	$	—		$	7,987
Equity issuance to settle intercompany loan	$	—	$	—		$	—	$	—	$	941		$	941
Deferred consideration for acquisition	$	—	$	7,059		$	7,059	$	—	$	—		$	—

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Principles of Consolidation and Summary of Significant Accounting Policies

System1, Inc. was a special purpose acquisition company originally incorporated as a Cayman Islands exempted company on February 11, 2020 under the name Trebia Acquisition Corp. (“Trebia”). The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Merger”). On January 27, 2022, the Company consummated its Merger, which resulted in the acquisition of S1 Holdco, LLC (“S1 Holdco”) and System1 SS Protected Holdings, Inc. (“Protected”). As a result of the Merger, the results of operations, financial position and cash flows of the Predecessor and Successor are not directly comparable.

The Company was deemed the accounting acquirer in the Merger based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations and S1 Holdco was deemed to be the predecessor entity. Accordingly, the historical financial statements of S1 Holdco became the historical financial statements of the Company, upon the consummation of the Merger. As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger and (ii) the combined results of the Company, including S1 Holdco and Protected following the closing of the Merger. The accompanying financial statements include a Predecessor period, which includes the period through January 26, 2022 concurrent with the Merger, and a Successor period for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022. A black-line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods as the Merger resulted in a new basis of accounting for S1 Holdco.

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and

27

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022 (Successor periods) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter.

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.

ASC 842 Adoption

On January 1, 2022, the Company adopted ASC 842, Leases, under the modified transition approach. This lease accounting standard provides several optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption. Accordingly, for those leases that qualify, the Company did not recognize a right-of-use asset or lease liability, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The adoption of the lease standard did not have any effect on its previously reported Condensed Consolidated Statements of Operations and did not result in a cumulative catch-up adjustment to opening equity. The Company recorded $6,786 of Right-of-Use (“ROU”) assets, $7,987 of lease liabilities and reclassified $1,201 of deferred rent liabilities as a reduction to the beginning ROU assets upon implementation of ASC 842.

Risk and Concentrations

The Company is subject to certain business risks, including dependence on key employees, dependence on key contracts, competition from alternative technologies, and dependence on growth to achieve its business and operational objectives.

The Company’s revenue is dependent on two key Advertising Partners, which are Google and Microsoft.

The following table illustrates the level of concentration as a percentage of total revenues:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Google	69	%	84	%	71	%	88	%	83	%
Microsoft	3	%	5	%	3	%	4	%	5	%

The Company has (i) two paid search advertising partnership contracts with Google, and (ii) one paid search advertising partnership contract with Microsoft. One of the Google contracts was renewed with an effective date of March 1, 2021, and has a two-year term through February 28, 2023. The other Google contract was renewed with an effective date of August 1, 2021, and has a two-year term through July 31, 2023. The Company recently renewed its advertising contract with Microsoft with an effective date of July 1, 2022, and has a three-year term through June 30,

28

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

2025. All three agreements may be terminated by the respective Advertising Partner immediately or with minimal notice under certain circumstances.

Impact of COVID-19

The worldwide spread of COVID-19 has resulted, and is expected to continue to result, in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting sales channels and advertising and marketing activities for an unknown period of time until the virus is contained or economic activity normalizes. The Company's revenue growth and results of operations have been resilient despite the headwinds created by the COVID-19 pandemic. The extent to which ongoing and future developments related to the global impact of the COVID-19 pandemic, including related vaccination measures and inoculation rates designed to curb its spread, continue to impact its business, financial condition, results of operations and cash flows, cannot be predicted with certainty. Many of these ongoing and future developments and uncertainties are beyond the Company's control, including the speed of contagion or the spread of new variants, the development, distribution and implementation of effective preventative or treatment measures, including vaccines (and vaccination rates), the scope of governmental and other restrictions on travel, discretionary services and other activity, and the public reactions and receptiveness to these developments.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain.

A summary of the significant accounting policies followed by the Company in the preparation of the accompanying condensed consolidated financial statements is set forth below.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to: (1) valuation of goodwill, acquired intangible assets and long-lived assets for impairment, (2) valuation and recognition of the Company's share-based compensation awards, (3) income taxes, (4) variable and contingent consideration and (5) determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily represent amounts due from Advertising Partners, and these accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company does not require collateral for its accounts receivable. The Company considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer and current economic industry trends. These accounts receivables have historically been paid on a timely basis. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection and

29

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

therefore no allowance for doubtful accounts was required as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor). The payment terms for the Company's accounts receivable are typically 30 days.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. 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, the Company has not experienced any losses related to these cash balances and believes that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits.

Accounts receivable are primarily derived from Advertising Partners located within the United States. As of June 30, 2022 (Successor), two of the Company’s largest Advertising Partners, Google and Yahoo, represented 67% and 11%, respectively, of the Company’s accounts receivables balance. As of December 31, 2021 (Predecessor), these two Advertising Partners represented 72% and 10%, respectively, of the Company’s accounts receivable balances.

Foreign Currency

The Company’s reporting currency is the U.S. dollar. The balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. The statement of operations amounts have been translated using the average exchange rate for the month in which the activity related. Accumulated net translation adjustments and foreign currency transaction gains/losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the functional currency were not material.

Warrant Liability

The Company accounts for the Public Warrants and Private Placement Warrants (collectively, the “Warrants”; which are discussed in further detail in Note 13 and Note 14) in accordance with ASC 815-40 under which the Warrants do not meet the criteria for equity classification, and therefore must be recorded as liabilities. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the fair value of the Public Warrants.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.

The provisions of ASC 820 relate to financial and nonfinancial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date.

The Company measures 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.

30

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

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 the Company’s own assumptions about current market conditions and require significant management judgment or estimation.

Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, 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. The carrying amount of the Company’s outstanding debt approximates the fair value, as the debt bears interest at a rate that approximates the prevailing market rate. The Company classifies the fair value of debt within Level 2 in the fair value hierarchy.

The Company does not have any assets, with the exception of cash, cash equivalents and restricted cash, that are required to be carried at fair value on a recurring basis at June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company’s liabilities measured at fair value relate to the former CEO of S1 Holdco's equity profits interest liability (Level 3), contingent consideration (Level 3), Public Warrant liabilities (Level 1) and Private Placement Warrant liabilities (Level 2). In January 2022, as part of the Merger, S1 Holdco settled the equity profits interest liability with S1 Holdco's former CEO.

Certain assets, including goodwill and intangible 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. The fair value of these assets is determined using unobservable inputs to present value the assets.

Restricted Cash

The Company had restricted cash of $7,024 and $743 as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The amount of restricted cash as of December 31, 2021 (Predecessor) relates to cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its corporate office in Marina del Rey, California. The Company’s restricted cash as of June 30, 2022 (Successor) primarily consists of (i) cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility, (ii) merchant reserve balances with its credit card processors held due to arrangements under which the Company's credit card processors withhold certain credit card funds to cover potential charge backs initiated by the Company’s customers, (iii) the escrow account balance related to the portion of unvested equity awards as of the closing of the Merger that will be cash settled and will be released to the Company's employees as the service requirement is completed and (iv) the escrow account balance related to post-close adjustments and indemnifications from the RoadWarrior acquisition.

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 the Condensed Consolidated Statement of Operations.

The estimated useful lives of the Company’s property and equipment for purposes of computing depreciation are as follows:

31

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	(Years)
Computer equipment	3
Office equipment	3
Software	4
Furniture, fixtures and equipment	3	-	7
Motor vehicles	4
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. The Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure, including continuing to develop and deploy its RAMP platform. These costs include personnel and related employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as external direct costs of materials and services consumed in developing or obtaining the software. Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and correspondingly recorded in Salaries, commissions, and benefits expense in the Condensed 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. The Company capitalizes costs associated with software developed for internal use when 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. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for deployment for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software or lease its software to third parties.

Intangible Assets

Intangible assets primarily consist of acquired technology, customer relationships and trade names/trademarks. The Company determines 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 amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Certain customer relationship intangibles are amortized on an accelerated basis based upon the expected timing of economic benefits which are derived from an analysis of customer attrition rates over the expected life. The fair value of the intangible assets acquired is determined using either the income or market methodologies.

The estimated useful lives of the Company’s intangible assets are as follows:

32

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Useful Life
	(Years)
Developed technology	4
Customer relationships	3	-	5
Trademarks and trade names	10
Other intangibles	4

Impairment of Long-Lived Assets

The Company assesses the recoverability of its 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 its previously estimated useful life. The Company performs 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. The Company assesses recoverability of a long-lived asset by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives. 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 charged to operations in the period in which management determines such impairment has occurred. For the periods presented in this quarterly report, Management has determined there to be no impairment of long-lived assets.

Business Combinations

The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which the Company's management believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations.

Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value during each reporting period through the Company’s Condensed Consolidated Statements of Operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350,

33

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Intangibles—Goodwill and Other, which requires the Company to test goodwill at the reporting unit level for impairment at least annually.

The Company has the option (i) 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 (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than carrying amount, an impairment loss is recognized in an amount equal to the excess.

The determination of fair value(s) requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected cash flows from a market participant perspective, and discount rates. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

The Company tests for goodwill impairment annually at December 31st. For the periods presented in this quarterly report, there were no triggering events identified, and therefore no impairment charges recorded on goodwill during the interim periods were required.

Leases

On January 1, 2022, the Company adopted ASC 842, Leases, and recognized right-of-use assets and lease liabilities in its Condensed Consolidated Balance Sheet.

A contract is or contains a lease when, (1) the contract contains an explicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at commencement of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date, on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company’s right to use the underlying asset over the period of use.

The Company’s leases are operating leases and operating lease right-of-use (“ROU”) asset and lease liabilities are recorded in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2022 (Successor). An ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments include taxes, insurance, utilities and maintenance costs.

As most of the Company’s leases do not provide an implicit interest rate, the incremental borrowing rate based on the information available on the commencement date of the lease is used to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and lease incentives. The lease terms may include options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for as a single lease component.

See Note 7 for additional details.

Revenue

The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:

34

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

•Identification of a contract with a customer,

•Identification of the performance obligations in the contract,

•Determination of the transaction price,

•Allocation of the transaction price to the performance obligations in the contract, and

•Recognition of revenue when or as the performance obligations are satisfied.

The Company’s revenue is principally derived from the following areas:

Advertising and Other Revenue

Revenue is earned from revenue-sharing arrangements with the Company’s Network Partners for the use of its RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. The Company has determined it is the agent in these transactions and reports revenue on a net basis, because (a) the Company does not control the underlying advertising space, (b) the Company does not acquire the traffic and does not have risk of loss in connection therewith and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. The Company reports this revenue on a net basis with respect to the amount retained under its revenue-sharing arrangements, which represents the difference between amounts received by the Company from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts.

The Company also earns revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, the Company is the principal in the transaction and reports revenue on a gross basis for the amount(s) received from its Advertising Partners. For this revenue, the Company has determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with its Advertising Partners, and, in the case of its owned and operated websites, the Company maintains the website, provides the content and bears the cost and risk of loss associated with its websites’ advertising space.

The Company recognizes revenue upon delivering traffic to its Advertising Partners based on a cost-per-click or cost-per-thousand impression basis.

Subscription Revenue

In connection with the Merger of Protected discussed in Note 3, the Company is also engaged in selling security software as a service subscription to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, ad-blocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. The Company’s services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period.

The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

Cost of Revenues

Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, and costs related to the utilization of antivirus engine

35

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

licensing related to APIs for the antivirus product. The Company does not pay any up-front payments. Incentive payments or bonuses and such costs are expensed as incurred.

Salaries, Commissions, and Benefits

Salaries, commissions and benefits expenses include salaries, bonuses, stock-based compensation, non-capitalized personnel costs incurred in the capitalized internal use software development, and employee benefits costs.

Share-Based Compensation

Compensation cost related to share-based payments is measured based on the fair value of the units issued and recognized within “Salaries, commissions, and benefits” in the Company’s Condensed Consolidated Statement of Operations. The Company has elected to treat share-based payment awards with time-based service condition(s) only as a single award and recognizes share-based compensation expense on a straight-line basis over the vesting period, which is generally four years. The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following:

•Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist.

•Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. For non-employees, the expected life equals the contractual term of the option.

•Risk-free Interest Rate: The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options.

•Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies.

Replacement Awards

Prior to the Merger, S1 Holdco had outstanding both, Value Creation Units (“VCU’s”) and Class F Units. The VCU’s and Class F Units were concluded to be profits interests units granted to employees. The VCU’s shall become fully vested upon the satisfaction of both a service condition and a performance condition determined to be a change in control event effectuated by the Merger. The Class F Units are subject to vesting conditions where the units will vest at the later of (i) a change in control event or (ii) four-year anniversary of issuance.

Pursuant to the Merger, the Company was 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 System1 and a cash award (collectively, the "Replacement Awards”). The fair value of the Replacement Awards was derived utilizing the transaction closing price of $10.00. 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 are included in the total consideration transferred, with the exception of the unvested awards subject to service vesting conditions where the service condition has not been completed. With regards to the remaining unvested portion of the Replacement Awards, the Company continues to recognize compensation expense on a straight-line basis over the original requisite service period and recognizes forfeitures as they occur. For VCU Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the remaining unvested shares, as a share of the Company’s Class A Common Stock becomes issuable to the previous investors for each VCU Replacement Award forfeited. For Cash Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the unpaid amount, as that cash amount becomes payable to the previous investors.

36

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Post-Combination Awards

For awards granted subsequent to the Merger, the Company’s fair value of the related restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. As these awards are subject only to time-based service conditions, the Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Liability Awards

In connection with the Merger and acquisition of Protected.net described in Note 3, the Company effected an incentive plan for eligible recipients which is payable in a fixed value of fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “Protected.net Incentive Plan”).

In connection with the acquisition of CouponFollow described in Note 4 the Company effected an incentive plan for eligible recipients, which, at the Company’s option, is payable in cash or fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “CouponFollow Incentive Plan”).

The Company recognizes compensation cost for these 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 adjusted to reflect the completed portion of the service period with a graded vesting attribution.

After the Merger, the Company’s fair value of its restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. The Company recognizes compensation on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Selling, General, and Administrative

Selling, general, and administrative expenses consist of fees for professional services, occupancy costs, travel and entertainment. These costs are expensed as incurred.

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to the Company’s capital investments and consist of fixed asset depreciation and amortization of intangible assets with finite lives.

Income Taxes

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its condensed consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco. Various subsidiaries of the Company are subject to income tax in the United States and in other countries.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) 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.

37

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

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 recent operations. If the Company determines that it would not be able to realize its DTAs in the future in excess of their net recorded amount, it would make an adjustment to the DTA valuation allowance, which would increase the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes both accrued interest and penalties, when appropriate, in the provision for income taxes in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

For the periods presented in this quarterly report, the Company had not incurred any related interest and penalties.

Non-Controlling Interest

The Company reports a non-controlling interest representing the economic interest in S1 Holdco held by certain individuals and entities other than the Company. The non-controlling interest is comprised of certain selling equity holders of S1 Holdco that retained an economic interest in S1 Holdco through their ownership of Class B units in S1 Holdco, along with the same number of corresponding shares of Class C common stock in the Company. The non-controlling interest holders may, from time to time, require the Company to convert all or a portion of their economic interest via a redemption of their Class B units in S1 Holdco together with surrendering their corresponding shares of Class C common stock in the Company in exchange for shares of Class A common stock on a one-for-one basis. As future redemptions occur, this will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in S1 Holdco as of June 30, 2022 (Successor).

	Units (in thousands)	Ownership %
Class A units of S1 Holdco	90,587	80	%
Class B units of S1 Holdco	22,077	20	%

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequent amendments, Measurement of Credit Losses on Financial Instruments (Topic 326), which modifies the accounting methodology for most financial instruments. The guidance requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. This guidance is effective for the Company for annual periods beginning after December 15, 2022, and early adoption is permitted. The Company does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements.

38

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

3.MERGER

On June 28, 2021, the Company entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (the “Business Combination Agreement”) by and among S1 Holdco, Trebia, and Protected (collectively, the “Companies”). On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company is organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco. The combined Companies’ business continues to operate through the subsidiaries of S1 Holdco and Protected. Additionally, Trebia’s ordinary shares and public warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.'s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.

The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock, Class C common stock and Replacement Awards.

The aggregate cash consideration was $440,155.

The aggregate equity consideration paid and/or retained S1 Holdco Class B Units was $610,144, consisting of (a) the aggregate equity consideration payable under the Business Combination Agreement, consisting of shares of Class A common stock and Replacement Awards, and (b) the aggregate Class B Units in S1 Holdco retained by S1 Holdco equity holders at the Closing.

The fair value of the Class A common stock was determined by utilizing the transaction closing price per share per the BCA of $10.00 and a discount of 10%, as the shares were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics.

Additionally, the aggregate Class B units in S1 Holdco retained by S1 Holdco equity holders at the Closing Date resulted in a non-controlling interest. The 22,077 Class B units in S1 Holdco and the corresponding Class C common stock in the Company were determined to have an estimated value of $198,691. As the Class B units in S1 Holdco together with the corresponding shares of the Company's Class C common stock are exchangeable for shares of Class A common stock on a one-for-one basis, the fair value was determined using the same method as for the shares of Class A common stock, utilizing the transaction closing price of $10.00 and a discount of 10% (as the units and the corresponding shares of Class C common stock were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics). The fair value of $198,691 was included in non-controlling interest on the accompanying condensed consolidated balance sheet and condensed consolidated statements of changes in stockholders' equity.

In connection with the Merger, System1 and Cannae Holdings, Inc. (“Cannae”), an investor in the Sponsor of Trebia, entered into a backstop agreement (the “Backstop Agreement”) on June 28, 2021, as amended on January 10, 2022, whereby Cannae agreed, to subscribe for up to 25,000 shares of Trebia Class A common stock in order to fund up to $250,000 of redemptions by shareholders of Trebia. See discussion below regarding the Amended and Restated Sponsor Agreement, which was amended in conjunction with the Backstop Agreement. As a result of shareholder redemptions, Cannae provided $246,484 of the cash used to fund the Closing Cash Consideration pursuant to its obligations under the Backstop Agreement and in exchange received 24,648 shares of Class A common stock ("Backstop shares").

Additionally, pursuant to the Backstop Agreement, the Selling Shareholders (i.e., certain shareholders of S1 Holdco and Protected prior to the Merger) agreed that, in the event shareholders of Trebia requested redemption of Trebia outstanding equity immediately prior to the Merger in excess of a certain dollar value threshold, certain equity holders of S1 Holdco and Protected would reduce their cash consideration and proportionally increase their equity consideration for the Merger, which is referred to as the “Seller Backstop Election”. In the event that the Seller Backstop Election was made, the Sponsors would forfeit their shares to allow the Company to then issue shares to the Selling Shareholders. The Seller Backstop Election was triggered and, as a result, the Sponsors forfeited 930

39

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

shares of Trebia Class B ordinary shares which were converted at time of Merger, at a one-to-one ratio, into shares of Class A common stock of System1 and delivered to the various selling shareholders of S1 Holdco, collectively referred to as the “Sponsor Promote Shares”. The total consideration amount, in a combination of cash and equity consideration, did not change from the amount agreed in the Business Combination Agreement due to this Seller Backstop Election. The Company recorded $7,706 in Salaries, commissions, and benefits expense and $661 in Selling, general and administrative expense for Sponsor Promote Shares during the period January 27, 2022 through March 31, 2022 (Successor).

In connection with the execution of the Business Combination Agreement and the Backstop Agreement, on June 28, 2021, as amended on January 10, 2022, the sponsors of Trebia entered into the Amended and Restated Sponsor Agreement whereby the sponsors agreed to forfeit up to 2,600 shares of Trebia Class B common stock in order for the Company to then issue the shares to Cannae (“Backstop forfeiture shares”), in exchange for Cannae entering into the Backstop Agreement. On January 27, 2022, based upon the final backstop funding provided by Cannae, the sponsors forfeited 2,533 shares of Trebia Class B shares, after which the Company then issued 2,533 shares of Class A common stock to Cannae. Trebia recorded a forward purchase liability of $25,336 immediately prior to the Merger, representing the fair value of the Backstop shares and the Backstop forfeiture shares.

In accordance with the Amended and Restated Sponsor Agreement entered into concurrently with the Business Combination Agreement, the Company issued 1,450 Class D shares to the Trebia sponsors in exchange for 1,450 Trebia Class B shares ("Sponsor RSAs"). The difference in the fair value of the two was treated as a capital contribution. The founders of S1 Holdco and Protected were also issued 1,450 Class D shares ("Seller RSUs"). Further, in connection with the Merger, the Company also effected an incentive plan for Protected business. Refer to Note 18—SHARE-BASED PAYMENTS for additional information on the Seller RSU's and the Protected Incentive Plan.

Concurrently with the consummation of the Merger, System1 entered into a tax receivable agreement with the minority holders of S1 Holdco, (the “Tax Receivable Agreement” or “TRA”), pursuant to which, among other things, the parties to the Tax Receivable Agreement have agreed to the allocation and payment of 85% of the actual savings, if any, in U.S. federal, state and local income tax that System1 may realize as a result of certain tax benefits (if any) related to the transactions contemplated by the Business Combination Agreement and future exchanges of Class B Units in S1 Holdco (together with the corresponding shares of the Company’s shares of Class C common stock) in exchange for shares of the Company’s Class A common stock. As of the closing date, the fair value of obligations under the TRA was determined to be zero as any tax savings are uncertain. The TRA is contingent consideration and subsequent changes in fair value of the contingent liability will be recognized in earnings.

The Company adopted ASU No. 2021-08 on January 1, 2022 and accordingly, has recorded contract assets and contract liabilities acquired as part of the Merger based on what the Company would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the Company had entered into the original contract at the same date and on the same terms as S1 Holdco and Protected.

The Merger has been accounted for as a business combination using the acquisition method of accounting. The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

40

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The purchase consideration was allocated to the following assets and liabilities.

	Amount
Tangible assets acquired and liabilities assumed:
Cash and marketable securities	$	68,748
Accounts receivable	79,086
Prepaid expenses	7,807
Income tax receivable	4,566
Property, plant & equipment, net	1,551
Other assets	6,950
Accounts payable	(9,798)
Deferred revenue	(60,768)
Accrued expenses and other current liabilities	(110,004)
Income tax payable	(2,091)
Notes payable	(172,038)
Deferred tax liabilities	(138,613)
Other liabilities	(8,474)
Total tangible assets acquired and liabilities assumed	(333,078)
Intangible assets	562,100
Goodwill	821,277
Net assets acquired	$	1,050,299
Consideration:
Cash	$	440,155
Equity	411,453
Total consideration attributable to System1	851,608
Total consideration attributable to NCI	198,691
Total consideration	$	1,050,299

The intangible assets as of the closing date of the acquisition included:

	Amount		Weighted Average Useful Life (in Years)
Trademarks	$	246,400	10
Customer relationships	119,700		4
Technology	196,000		4
Total	$	562,100

The fair value of the intangible assets acquired was determined using income-based approach methodologies. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Customer relationships are amortized on an accelerated basis. To determine the amortization period for each of the customer relationships assets and to evaluate the pattern of usage of economic benefits, the Company performed a customer attrition analysis of the Company's customer relationships to estimate the attrition rate and consequently the life expectancy for the existing customer relationships.

41

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Trademarks – The Company valued 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.

Customer relationships – The Company valued 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.

Technology – The Company valued technology using the excess-earnings method utilizing company-specific inputs. Key assumptions include forecasted revenue, technology migration rate, and a discount rate.

The goodwill balance is primarily attributable to the expected revenue opportunities with the Company's applications and services offerings, assets acquired and acquired workforce. Goodwill is not deductible for tax purposes.

Unaudited Pro Forma Information

The following table provides unaudited pro forma information as if the Merger and other acquisitions occurred as of January 1, 2021. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, adjustments for transaction expenses, adjustments for certain stock-based compensation and equity related expenses incurred as a result of the transaction and the resulting tax effects, as if the Merger and acquisitions of Answers, CouponFollow and RoadWarrior (each as defined in Note 4—ACQUISITIONS) occurred January 1, 2021. The pro forma results do not include any anticipated cost synergies or other effects of the merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.

	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Pro forma revenue	$	219,912	$	219,031	$	455,836	$	412,232
Pro forma net (loss)	$	(20,474)	$	(41,112)	$	(25,436)	$	(140,549)

4.ACQUISITIONS

Answers Holdings, Inc.

On May 4, 2022, the Company acquired the assets of Answers Holdings, Inc. and its subsidiaries, collectively ("Answers") for total cash consideration of $4,632. The acquisition of Answers constitutes a business combination under ASC 805.

The acquisition expands the Company's portfolio of Owned & Operated publishing sites and search destinations to include a destination for higher education and lifelong learning content. The results of Answers' operations since the date of the acquisition have been included in the Company's condensed consolidated financial statements from May 4, 2022 to June 30, 2022 (Successor). The total revenue and loss before income taxes were immaterial for the period January 27, 2022 to June 30, 2022 (Successor). The operating results of Answers are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The purchase price is preliminary and may be subject to additional adjustments, including working capital adjustments. The Company expects to finalize the purchase accounting as soon as practicable, but not later than one year from the acquisition date.

42

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	32
Total tangible assets acquired and liabilities assumed	32
Trademark - 10 years weighted average useful life	1,100
Goodwill	3,500
Net assets acquired	$	4,632
Consideration:
Cash	$	4,632
Total consideration	$	4,632

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $93 in transaction costs related to the acquisition.

Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademark and a discount rate.

NextGen Shopping, Inc.

On March 4, 2022, the Company acquired NextGen Shopping, Inc. (d/b/a “CouponFollow”) for total cash consideration of $75,087, of which $16,446 was deferred, 5,600 was held-back, and $25,500 related to the fair value of 2,000 shares of Class A common stock issued. The fair value of the shares of Class A common stock was determined by utilizing the closing price per share of the Company's Class A common stock listed on the NYSE as of March 3, 2022, and a discount rate of 7.5%, as the shares were not immediately available for sale upon issuance, and this restriction was deemed to be a function of the security characteristics. The deferred consideration of $16,446 was paid subsequent to the acquisition. The held-back consideration amount will become payable eighteen months subsequent to the acquisition date, subject to the Company's satisfaction of any potential post-closing purchase price adjustments and indemnification claims. The cash payment included the transaction costs of $3,129 that the Company paid on behalf of CouponFollow in connection with the closing of the transaction. The acquisition of CouponFollow constitutes a business combination under ASC 805.

The acquisition leverages CouponFollow’s reputation, software and large organic traffic to vertically integrate with the Company’s RAMP platform and generate paid traffic for shopping-related products. The results of CouponFollow’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements from March 4, 2022 to June 30, 2022 (Successor). The amounts of total revenue and loss before income taxes for the period from March 4, 2022 to June 30, 2022 (Successor) were $7,316 and $1,860, respectively, and the amounts of revenue and loss before income taxes for the three months ended June 30, 2022 (Successor) were $5,396 and $1,302, respectively. The operating results of CouponFollow are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

The purchase consideration was allocated to the following assets and liabilities:

43

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Amount
Tangible assets acquired and liabilities assumed:
Cash and cash equivalents	$	21,232
Accounts receivable	5,860
Other current assets	446
Accounts payable	(116)
Accrued expenses and other current liabilities	(118)
Income tax payable	(197)
Deferred tax liabilities	(10,895)
Total tangible assets acquired and liabilities assumed	16,212
Intangible assets	42,200
Goodwill	42,175
Net assets acquired	$	100,587
Consideration:
Cash	$	75,087
Equity	25,500
Total consideration	$	100,587

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $813 in transaction costs related to the acquisition.

Following are the details of the purchase price allocated to the intangible assets for the CouponFollow acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	38,100	10
Software	4,100		4
Total	$	42,200

Trademark – The Company valued the trademark using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademarks and a discount rate.

Software – Acquired software technology was valued using the excess-earnings method utilizing company-specific inputs. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the software and a discount rate.

RoadWarrior, LLC

On February 9, 2022, the Company acquired the assets of RoadWarrior, LLC (“RoadWarrior”) for total cash consideration of $19,636. The acquisition of RoadWarrior constitutes a business combination under ASC 805.

The acquisition expands the Company’s Mapquest.com website technology and provides additional functionality for customers centered around route planning for delivery drivers and teams. The results of RoadWarrior’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements from February 9, 2022 to June 30, 2022 (Successor). The amounts of revenue and loss before income taxes for the period from February 9, 2022 to June 30, 2022 (Successor) were $2,237 and $1,692, respectively, and

44

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

the amounts of revenue and loss before income taxes for the three months ended June 30, 2022 were $1,288 and $908, respectively. The operating results of RoadWarrior are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	155
Total tangible assets acquired and liabilities assumed	155
Intangible assets	4,500
Goodwill	14,981
Net assets acquired	$	19,636
Total consideration:
Cash	$	19,636

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $308 in transaction costs related to this acquisition.

Following are the details of the purchase price allocated to the intangible assets for the RoadWarrior acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	2,200	10
Software	1,000		4
Customer relationships	1,300		3
Total	$	4,500

Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademark and a discount rate.

Software – Software technology represents existing technology acquired and incorporated into the Company’s existing infrastructure. The Company valued software using the relief from royalty method. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the software and a discount rate.

Customer relationships – The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale to customers acquired. The Company valued customer relationships using an excess-earnings method. Key assumptions include customer attrition rate, revenue growth rate, and a discount rate.

5.PROPERTY AND EQUIPMENT, NET

Property and equipment, net as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following:

45

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Computer equipment	$	604	$	415
Motor vehicles	234		—
Furniture and equipment	918		475
Leasehold improvements	2,833		976
Property and equipment—gross	4,589		1,866
Less accumulated depreciation	(259)		(1,036)
Property and equipment—net	$	4,330	$	830

Total depreciation expense on property and equipment were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Depreciation expense	$	149	$	89	$	268	$	16	$	170

6.GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

Goodwill

The changes in goodwill by reportable segments, were as follows:

	Owned and Operated		Partner Network		Subscription		Total
Goodwill at January 27, 2022	$	—	$	—	$	—	$	—
Additions	351,849		93,400		433,184		878,433
Currency translation adjustments	(37)		—		—		(37)
Goodwill at March 31, 2022	351,812		93,400		433,184		878,396
Additions	3,500		—		—		3,500
Currency translation adjustments	$	(526)	$	—	$	—	$	(526)
Goodwill at June 30, 2022	$	354,786	$	93,400	$	433,184	$	881,370

Additions to goodwill were from the acquisitions of S1 Holdco, Protected.net, CouponFollow, RoadWarrior and Answers in 2022.

Goodwill as of December 31, 2021 (Predecessor), resulted from the acquisitions of Concourse Media, Mapquest, and Waterfox in 2019 and the prior acquisitions of InfoSpace in 2016 and Qool Media, Inc. in 2017. There was no Goodwill activity for the period January 1, 2021 through January 26, 2022 (Predecessor). Goodwill by reportable segments as of December 31, 2021 were as follows:

46

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	Owned and Operated		Partner Network		Total
Goodwill at December 31, 2021 (Predecessor)	$	24,403	$	20,417	$	44,820

Internal-use software development costs and intangible assets

Internal-use software development costs and intangible assets consisted of the following:

	June 30, 2022 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	3,985	$	(375)	$	3,610
Intangibles:
Developed technology	$	196,000	$	(20,822)	$	175,178
Trademarks and trade names	287,852		(11,803)		276,049
Software	5,100		(428)		4,672
Customer relationships	121,000		(20,558)		100,442
Total intangible costs	$	609,952	$	(53,611)	$	556,341

	December 31, 2021 (Predecessor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	21,274	$	(10,061)	$	11,213
Intangibles:
Developed technology	$	8,398	$	(7,242)	$	1,156
Trademarks and trade names	69,007		(21,375)		47,632
Professional service agreement	3,100		(2,359)		741
Customer relationships	1,500		(661)		839
Total intangible costs	$	82,005	$	(31,637)	$	50,368

The internal-use software development costs include capitalized costs not ready for its internal use of $2,948 and $2,540 as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively.

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

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Amortization expense for internal-use software development	$	78	$	921	$	143	$	355	$	2,245
Amortization expense for intangible assets	$	31,867	$	2,102	$	53,611	$	629	$	4,386

47

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

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

The weighted average amortization period for all intangible assets is 7 years. As of June 30, 2022 (Successor), the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs for each of the next five years, is as follows:

Amortization Expense
Remainder of 2022	$	63,901
2023	110,204
2024	101,197
2025	94,344
2026	43,380
Thereafter	146,925
Total amortization expense	$	559,951

7.LEASES

The Company leases office facilities under noncancelable operating lease agreements. During the period from January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 through June 30, 2022 (Successor), the Company had leases for office facilities in Marina del Rey, California; Bellevue, Washington; and Guelph, Canada.

In March 2021, the Company entered into an agreement for a sublease of office space facility in Marina Del Rey, California. The initial term of the sublease is in effect until November of 2025 with no renewal periods.

The components of lease expense were as follows:

	Successor		Successor		Predecessor
	Three Months Ended June 30, 2022		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022
Operating lease cost	$	585	$	982	$	142

Variable lease costs for operating leases were immaterial for the periods presented above. Operating lease costs were included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. Supplemental information related to leases was as follows:

	Successor
	As of June 30, 2022
Weighted average remaining lease terms (in years):
Operating leases	7.2
Weighted average discount rate	5.3%

48

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows as of June 30, 2022 (Successor):

	Successor
	As of June 30, 2022
Operating leases:
Remainder of 2022	$	1,240
2023	2,525
2024	2,597
2025	2,252
2026	285
Thereafter	1,588
Total lease payments	$	10,487
Less: Imputed interest	(1,349)
Present value of operating lease liabilities	$	9,138

Rent expense was $571 and $1,062 for the three and six months ended June 30, 2021 (Predecessor), respectively, which was included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of December 31, 2021 (Predecessor), the expected future operating lease obligation are as follows:

	Predecessor
	As of December 31, 2021
Year ending
2022	$	1,957
2023	$	1,950
2024	$	1,950
2025	$	1,663

49

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

8.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Former CEO profit interest	$	—	$	11,132
Payable to employees	11,105		10,091
Accrued legal service fees	—		6,242
Accrued marketing expenses	47,649		144
Holdback liability	1,221		—
Contingent consideration	359		1,682
VAT tax liability	9,970		—
Accrued tax liability	7,235		361
Deferred rent	—		233
Other liabilities	20,420		1,399
Accrued expenses and other current liabilities	$	97,959	$	31,284

9.DEFERRED REVENUE

Deferred revenue activities for the period January 1, 2021 through December 31, 2021 (Predecessor), January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 (Predecessor) through June 30, 2022 (Successor) are as follows:

	Deferred Revenue
Deferred revenue as of January 1, 2021 (Predecessor)	$	1,889
Additional amounts deferred	5,116
Deferred revenue recognized	(5,034)
Deferred revenue as of December 31, 2021 (Predecessor)	$	1,971

	Deferred Revenue
Deferred revenue as of January 1, 2022 (Predecessor)	$	1,971
Additions amounts deferred	620
Deferred revenue recognized	(309)
Deferred revenue as of January 26, 2022 (Predecessor)	$	2,282

	Deferred Revenue
Deferred revenue as of January 27, 2022 (Successor)	$	—
Additional amounts deferred*	141,941
Deferred revenue recognized	(73,573)
Deferred revenue as of June 30, 2022 (Successor)	$	68,368

* Of the additional amounts deferred during the period January 27, 2022 through June 30, 2022 (Successor), $61,156 was acquired from the acquisitions.

During the periods January 27, 2022 through June 30, 2022 (Successor), January 1, 2022 through January 26, 2022 (Predecessor), and January 1, 2021 through December 31, 2021 (Predecessor), $0, $309, and $1,889, respectively, of the deferred revenue recognized existed at the beginning of each respective period.

50

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

We expect to recognize revenue related to the remaining performance obligations within the next twelve months.

10.INCOME TAXES

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in the consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company.

The following table presents the Company’s Income tax (benefit) provision and the effective income tax rate:

	Successor			Predecessor			Successor			Predecessor
(in thousands, except percentages)	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021
Income tax (benefit) provision	$	(454)		$	77		$	(15,103)		$	(629)		$	228
Effective tax rate	1		%	1		%	16		%	2		%	1		%

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 income (loss) from non-taxable pass-through entities related to non-controlling interests, state taxes, foreign rate differential, non-deductible expenses, outside basis adjustments, and Global Intangible Low-taxed Income.

In assessing the ability to realize deferred tax assets for the period from January 1, 2022, through January 26, 2022 (Predecessor), the period from January 27, 2022, through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, management considered whether it is more-likely-than-not some portion or all the deferred tax assets will be realized, as prescribed by ASC 740. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. Based on the weight of both positive and negative evidence, the Company determined that it was more-likely-than-not that the net deferred tax assets would be realizable, with the exception of Privacy One Group Limited, for which the Company does not anticipate future income. Management cannot conclude that it is more-likely-than-not that the deferred tax assets of Privacy One will be realized. As such, a full valuation allowance has been retained on the net deferred tax assets of Privacy One Group Limited.

The unrecognized tax benefits of $69 relates to R&D tax credits for the period from January 27, 2022, through June 30, 2022 (Successor).

The Company files income tax returns in the U.S. federal, states, and various foreign countries. For U.S. federal income tax purposes, as of June 30, 2022 (Successor), the year 2018 and later tax years remain open for examination by the tax authorities. For foreign income tax purposes, as of June 30, 2022 (Successor), the year 2016 and later tax years remain open for examination by the tax authorities under the Netherland’s five-year statute of limitations.

The Company contributed all the net assets of CouponFollow to a lower entity taxed as a partnership, System1 OpCo, LLC. The contribution qualified as a transaction among or with noncontrolling shareholders, which is accounted for as an equity transaction. As a result, the Company recorded $2,595 to additional paid-in-capital for the tax effects of the contribution with an offsetting entry to deferred tax liability in accordance with ASC 740-20-45-11(c).

51

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

11.COMMITMENTS AND CONTINGENCIES

Service Agreements

On June 18, 2021, the Company entered into an agreement with a service provider whereby the Company is contractually obligated to pay $6,900 and $8,000 in the first and second years of the contract, respectively. The contract commencement date was July 1, 2021. The Company has paid a total of $7,424 to this service provider as of June 30, 2022 (Successor).

Executive Compensation

Ian Weingarten was hired as CEO of S1 Holdco on April 10, 2019. He was entitled to a cash-settled profits interest of 5% of the value of S1 Holdco, which was contingent upon (i) a participation threshold of $300,000 (which was subject to adjustment as set forth in the S1 Holdco operating agreement) and (ii) on a four-year vesting term, or if a qualifying change in control transaction occurs.

In February 2021, Mr. Weingarten's employment with S1 Holdco was terminated and the parties entered into a separation agreement. In connection with the separation agreement, S1 Holdco agreed to payment of separation pay benefits consistent with the terms of Mr. Weingarten’s employment agreement, including the payment of the liability accrued for the cash-settled profits interest of 5% of S1 Holdco, which was deemed vested as to a 3.75% profits interest and forfeited as to the remaining 1.25% profits interest above the applicable adjusted threshold amount (subject to further increase to a 2.5% profits interest in the event that the Merger was not consummated). S1 Holdco recorded a liability for this arrangement of $11,132 as of December 31, 2021 (Predecessor). In January 2022, in conjunction with the consummation of the Merger, S1 Holdco settled the profits interest liability pursuant to the separation agreement with Mr. Weingarten.

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company believes 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 the Company’s condensed consolidated financial position, results of operations, or cash flows. The Company accrues for losses when the loss is deemed probable and the liability can reasonably be estimated.

In July 2021, the Company received initial correspondence from counsel for a United Kingdom-based marketing research company and its United States subsidiary (collectively, the “Demanding Group”) alleging trademark infringement (i) based on its use of the “SYSTEM1” trade name and mark in the United States, and (ii) subsequently based on its use of the “SYSTEM1” trade name and mark in the United Kingdom. The correspondence demanded that we cease and desist from using the “SYSTEM1” name and mark, and made reference to potential legal action if we did not comply with that demand. While the Company was engaged in active discussions and correspondence with the Demanding Group to attempt to resolve the matter, the Demanding Group filed a lawsuit in the United States District Court for the Southern District of New York in September 2021 (the “Infringement Suit”), alleging (i) trademark infringement, (ii) false designation of origin, (iii) unfair competition and (iv) certain violations of New York business laws, seeking, among other things, an injunction, disgorgement of profits, actual damages and attorneys’ fees and costs. The Company believes that the Demanding Group’s infringement and other allegations and claims set forth in the Infringement Suit may be subject to a laches defense, among other defenses, and the Company intends to vigorously defend its rights and position in the Infringement Suit. The matter is currently pending. The Company filed a motion to dismiss the Infringement Suit in November 2021, and the parties are waiting for the court to rule on the pending motion. Even though the Company received similar correspondence from the Demanding Group regarding its alleged infringing use of the SYSTEM1 trade name and mark in the United

52

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Kingdom, no lawsuit has been filed in the United Kingdom. The Company does not believe that its activities infringe any rights of the Demanding Group in the United Kingdom because, among other defenses, the Company does not actively offer services to customers using the SYSTEM1 trade name and mark in the United Kingdom. The Company’s counsel has informed the Demanding Group’s UK counsel of these circumstances, and the Demanding Group’s UK counsel confirmed receipt of this correspondence, and the parties have not shared any further meaningful correspondence with respect to the Demanding Group’s allegations of infringing use in the United Kingdom.

Indemnifications

In the ordinary course of business, the Company 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 the Company’s breach of such agreements, services to be provided by the Company, 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 the Company could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, the Company believes the estimated fair value of these agreements was immaterial. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2022 (Successor) or December 31, 2021 (Predecessor), respectively.

12.DEBT

As of December 31, 2021 (Predecessor), S1 Holdco had principal of $172,038 outstanding under a term loan secured from Cerberus Business Finance, LLC. Amortization payments of $1,750 were due quarterly and, upon delivery of the prior year’s audited consolidated financial statements, S1 Holdco was required to make a payment of 50% of excess free cash flow, as defined. S1 Holdco also had a $20,000 revolving line of credit, and no amounts were outstanding as of December 31, 2021 under this revolving line of credit.

Interest payments on the secured financing were due monthly at London InterBank Offered Rate (“LIBOR”), plus 7% with a LIBOR floor of 1%. Maturity for the secured financing was August 22, 2022. The facility had certain financial and nonfinancial covenants, including a leverage ratio.

In connection with the Merger disclosed in Note 3, Orchid Merger Sub II LLC (a subsidiary of S1 Holdco) entered into a new loan (“Term Loan”) and revolving facility (“Revolving Facility”) on January 27, 2022, providing for a 5.5 year term loan with a principal balance of $400,000 and with the net proceeds of $376,000, of which a portion of the proceeds were used by S1 Holdco, to settle the outstanding debt of $172,038 with Cerberus Business Finance, LLC. The Revolving Facility was for $50,000.

For every interest period, the interest rate on the Term Loan is the adjusted Term Secured Overnight Financing Rate (“Term SOFR”) plus 4.75% with an adjusted Term SOFR floor of 0.50%. The Term Loan will amortize in quarterly installments on each scheduled payment date (commencing with the scheduled payment date occurring on June 30, 2022). The new loan comes with a springing covenant, which goes into effect if the utilization on the Revolving Facility exceeds 35% of the $50,000 Revolving Facility at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40. The facility had certain financial and nonfinancial covenants, including a leverage ratio. The facility also requires that the Company delivers its consolidated financial report to its lender within 120 days of its fiscal year end, being December 31. Should the Company fail to distribute the financial report to its lender within 120 days, it is allowed an additional 30 days to cure. For the period covering June 30, 2022 through and including December 31, 2025, $5,000 of the amortization payment will be made quarterly. For March 31, 2026 (scheduled payment date) and thereafter, $7,500 of the amortization payment will be made quarterly.

The Revolving Facility will mature five years after the closing date. The interest rate on the Revolving Facility is the adjusted Term SOFR plus 2.75% with an adjusted Term SOFR floor of 0%. In March 2022, the Company borrowed

53

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

$49,000 under its Revolving Facility principally for funding of the cash portion of the purchase price consideration for the CouponFollow acquisition. As of June 30, 2022 (Successor), this amount is outstanding.

As of June 30, 2022, future minimum principal payments on long-term debt are as follows:

	Successor
	As of June 30, 2022
Remainder for 2022	$	10,000
2023	$	20,000
2024	$	20,000
2025	$	20,000
2026	$	30,000
2027	$	344,000
Total future minimum principal payment	$	444,000
Less: current portion	$	(20,000)
Long-term portion	$	424,000

Loan fees amounting to $1,197 have been offset against the loan balance.

As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan. The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America. The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern. Upon delivery of the audited financial statements by the Company, the event of default will be remediated and, once remediated, Bank of America will no longer have the ability to call the outstanding principal balances on the Term Loan and Revolving Facility.

2023 Revolving Note

On April 10, 2023, Orchid Merger Sub II, LLC (“Orchid Sub”), a wholly-owned subsidiary of the Company, entered into a $20,000 Revolving Note (the “2023 Revolving Note”) with Lone Star Friends Trust (acting by and through its trustee, Stanley Blend, “Lone Star”) and CEE Holding Trust (acting by and through its trustee, Jackson Hole Trust Company, “CEE”, and together with Lone Star, collectively, the “Lenders” and each, a “Lender”), which are trusts established for the benefit of Michael Blend (Chief Executive Officer, co-founder and stockholder) and Charles Ursini (co-founder and stockholder), respectively, in a private transaction approved by the independent and non-interested members of the Company’s Board of Directors (the “Board”). Each Lender provided a $10,000 commitment for an aggregate principal of $20,000 under the 2023 Revolving Note to Orchid Sub on a several but not joint basis (each, a “Commitment” and, collectively, the “Commitments”).

Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York plus 3.15%. Orchid Sub may borrow amounts under the 2023 Revolving Note in increments of $100, and may prepay any amounts borrowed at any time without penalty or interest (other than applicable breakage costs, if any). The Company may borrow up to its commitment amount, and may reuse the loan again after the balance has been paid down. The final maturity date under the 2023 Revolving Note is July 10, 2024. The Lenders are also entitled to (i) an unused commitment fee equal to 1.0% per annum of the actual daily amount of total unfunded Commitments

54

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a closing fee equal to 12.0% of each Lender’s Commitment under the 2023 Revolving Note, payable within 180 days of April 10, 2023. In addition, Orchid Sub agreed to reimburse the Lenders for their reasonable and documented costs expenses incurred in connection with the negotiation, documentation and execution of the 2023 Revolving Note. As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

13.WARRANTS

In June 2020, the Company issued Public Warrants and Private Placement Warrants in conjunction with the initial public offering of Trebia. Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants became exercisable on April 18, 2022, when the S-1/A registration statement, which was required to be filed under the terms of the Warrant Agreement and the Business Combination Agreement, was declared effective. The Public Warrants will expire five years from the completion of the Merger, or earlier upon redemption or liquidation.

The Company is not obligated to deliver any shares of Class A common stock pursuant to the exercise of a Public Warrants and has no obligation to settle such Public Warrants exercises unless a registration statement under the Securities Act with respect to the Class A common stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. Warrants are exercisable and the Company is obligated to issue a share of Class A common stock upon exercise of each Warrant, as the Warrants have been registered with the SEC.

The Company is obligated to use its commercially reasonable efforts to maintain the effectiveness of a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the Warrants, and a current prospectus relating thereto, until the expiration or redemption of the Warrants in accordance with the provisions of the Warrant Agreement. If the effectiveness of a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the Warrants is not maintained, Warrant holders may exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. In addition, if the Company's Class A common stock is, at the time of any exercise of a Warrant, not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of the Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company elects to do so, the Company will not be required to file or maintain in effect a registration statement, but it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the Public Warrants for that number of shares of Class A common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the Public Warrants, multiplied the excess of the “fair market value” less the exercise price of the Public Warrants by (y) the fair market value and (B) 0.361. The “fair market value” shall mean the volume weighted average price of the Class A common stock for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.

Redemption of Warrants when the Price per Class A common stock equals or exceeds $18.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Public Warrants:

● in whole and not in part;

● at a price of $0.01 per Public Warrant;

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

● if, and only if, the last reported sale price of the Class A common stock for any 20 trading days within a 30-trading day period ending three business days before sending the notice of redemption to warrant holders

55

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

(the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like).

If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, the Company will not redeem the Warrants unless an effective registration statement under the Securities Act covering the underlying shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period.

Redemption of Warrants When the Price per Class A common stock equals or exceeds $18.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Warrants:

● in whole and not in part;

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

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

● if the Reference Value is less than $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) the Private Placement Warrants must also be concurrently -called for redemption on the same terms (except as described below with respect to a holder’s ability to cashless exercise its warrants) as the outstanding Public Warrants, as described above.

The exercise price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.

The Private Placement Warrants were identical to the Public Warrants underlying the units sold in the initial public offering of Trebia, except that (x) the Private Placement Warrants and the shares of Class A common stock issuable upon the exercise of the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Merger, subject to certain limited exceptions, (y) the Private Placement Warrants were exercised on a cashless basis. There are no outstanding Private Placement Warrants as of June 30, 2022 (Successor).

The Public and Private Placement Warrants are accounted for as liabilities and marked-to-market at each reporting period, with changes in fair value included as change in fair value of warrant liabilities in the Condensed Consolidated Statements of Operations.

In April 2022, the Private Placement Warrant holders exercised their Warrants on a cashless basis in exchange for 3,532 shares of the Company's Class A common stock. Additionally, during the three months ended June 30, 2022, Public Warrant holders exercised 437 warrants on a cash basis resulting in total proceeds paid to the Company of $5,028. The total outstanding Public Warrants as of June 30, 2022 was 16,813.

14.FAIR VALUE MEASUREMENT

The following tables present the Company’s fair value hierarchy for liabilities measured at fair value on a recurring basis as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor):

56

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

	June 30, 2022 (Successor)
	Level 1		Level 3		Total
Warrant liabilities:
Public warrants	$	13,669	$	—	$	13,669
Contingent consideration	—		568		568
Grand total	$	13,669	$	568	$	14,237

	December 31, 2021 (Predecessor)
	Level 3		Total
Former CEO equity interest	11,132		11,132
Contingent consideration	1,682		1,682
Grand total	$	12,814	$	12,814

The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants was estimated using the Public Warrants’ quoted market price.

The fair value of the former CEO of S1 Holdco's equity profits interest was determined with an option pricing model and utilizing significant unobservable inputs for a discount for lack of marketability and projected financial information. The fair value contingent consideration was determined with an option pricing model and contains significant unobservable inputs for projected financial information.

57

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Changes in estimated fair value of Level 1, 2 and 3 financial liabilities for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, are as follows:

	Former CEO equity profits interest*		Contingent consideration		Warrant liability
Fair value of liabilities at December 31, 2020 (Predecessor)	$	4,236	$	8,240
Settlements	—		(6,715)
Change in fair value	4,238		94
Fair value of liabilities at June 30, 2021 (Predecessor)	$	8,474	$	1,619
Fair value of liabilities at December 31, 2021 (Predecessor) and January 26, 2022 (Predecessor)	$	11,132	$	1,682
Fair value of liabilities at January 27, 2022 (Successor)			$	1,682	$	27,012
Additions			573		—
Change in fair value			—		13,761
Fair value of liabilities at March 31, 2022 (Successor)			2,255		40,773
Settlements			(1,715)		(22,965)
Change in fair value			28		(4,139)
Fair value of liabilities at June 30, 2022 (Successor)			$	568	$	13,669

*Former CEO equity profits interest as further described in executive compensation Note 11.

The total impact of the changes in fair values related to contingent consideration and the former CEO of S1 Holdco's equity profits interest are included in Selling, general and administrative expenses, and Salaries, commissions and benefits, respectively in the Condensed Consolidated Statements of Operations. There were no transfers in or out of levels during the period January 1, 2022 through January 26, 2022 (Predecessor), the period January 27, 2022 through June 30, 2022 (Successor), or for the six months ended June 30, 2021 (Predecessor).

58

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

15.NET INCOME (LOSS) PER SHARE

For the three months ended June 30, 2021 (Predecessor), the period from January 1, 2022 through January 26, 2022 (Predecessor), and for the six months ended June 30, 2021 (Predecessor), the basic net income (loss) per unit attributable to members was calculated by dividing the net income (loss) attributable to common equity holders by the weighted-average number of membership units. For the three months ended June 30, 2022 (Successor) and the period from January 27, 2022 through June 30, 2022 (Successor), 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. Diluted net income (loss) per share gives effect to all potentially dilutive shares. Basic and diluted net income (loss) per share was calculated as follows:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Net loss per share:
Basic	$	(0.29)	n/a		$	(0.71)	n/a		n/a
Diluted	(0.33)		n/a		n/a		n/a		n/a
Numerator:
Net loss attributable to System1, Inc.	(25,737)		n/a		$	(61,806)	n/a		n/a
Change in fair value of warrant liabilities	(4,139)		n/a		n/a		n/a		n/a
Net loss used in diluted computation	$	(29,876)	n/a		n/a		n/a		n/a
Denominator:
Weighted-average common shares outstanding used in computing basic net loss per share	89,701		n/a		86,840		n/a		n/a
Adjustment for incremental shares from applying treasury stock method	1,481		n/a		n/a		n/a		n/a
Weighted-average common shares outstanding used in computing diluted net loss per share	91,182		n/a		n/a		n/a		n/a
Basic and diluted net income (loss) per unit	n/a		$	0.57	n/a		$	(1.81)	$	0.90
Numerator:
Net income (loss)	n/a		11,772		n/a		(37,061)		18,515
Denominator:
Weighted-average membership units outstanding - basic and diluted (units in thousands)	n/a		20,488		n/a		20,488		20,488

Shares of Class C common stock, warrants, and RSUs outstanding for the period January 27, 2022 through June 30, 2022 (Successor) are considered potentially dilutive of the shares of Class A common stock under the application of the treasury stock method, 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 22,077 shares of Class C common stock were excluded from the computation of net loss per share as the impact was anti-dilutive.

16.SEGMENT REPORTING

59

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

ASC 280-10, Segment Reporting, establishes standards for reporting information about operating 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. System1’s Chief Executive Officer, who is considered to be its 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 operating revenues as well as adjusted gross profit and other measures. The Company defines and calculates adjusted gross profit as revenue less advertising expense and agency fees to acquire users (refer to Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES), as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, credit card processing fees, and licensing costs related to the antivirus and other software available via APIs for sale and distribution of its SaaS products to end customers. The Company excludes the following items from segment adjusted gross profit: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment adjusted gross profit, they are included in reported consolidated net income from operations before income tax and are included in the reconciliation that follows.

The Company’s computation of segment adjusted gross profit may not be comparable to other similarly-titled measures computed by other companies because all companies do not calculate segment Adjusted Gross Profit in the same fashion.

Operating segments do not sell products and services across segments, and, accordingly, there are no intersegment revenues to be reported. The accounting policies for segment reporting are the same as for System1 as a whole.

The CODM of the Company reviews operating results, assesses performance and makes decisions by operating segment. Management views each of the Company’s business lines as an operating segment. The Company has four business lines and operating segments: Publishing and Lead Generation, Search & Applications, Partner Network, and Subscription.

The Publishing and Lead Generation and Search & Applications operating segments are aggregated into one reportable segment, referred to as Owned and Operated, based on their similar economic characteristics, technology platform utilized, types of services provided, Advertising Partners, and cost structures. The Company has three reportable segments: Owned and Operated, Partner Network and Subscription.

The following summarizes revenue by reportable segments:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	157,952	$	160,816	$	284,836	$	49,249	$	300,242
Partner Network	19,077		8,763		30,427		3,463		16,898
Subscription	42,768		—		70,642		—		—
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

60

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

The following summarizes adjusted gross profit by reportable segments:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	36,799	$	37,572	$	66,217	$	8,768	$	69,700
Partner Network	13,908		8,763		22,321		3,012		16,898
Subscription	22,890		—		35,537		—		—
Adjusted gross profit	$	73,597	$	46,335	$	124,075	$	11,780	$	86,598
Other cost of revenues	6,358		2,923		11,112		575		6,410
Salaries, commissions and benefits	49,511		17,698		97,709		31,181		32,893
Selling, general and administrative	16,747		6,277		31,835		15,665		13,227
Depreciation and amortization	32,094		3,112		54,022		1,000		6,801
Interest expense	7,324		4,476		12,100		1,049		8,524
Change in fair value of warrant liabilities	(4,139)		—		9,622		—		—
Net income (loss) before income tax	$	(34,298)	$	11,849	$	(92,325)	$	(37,690)	$	18,743

The following table presents the revenues disaggregated by geographic region.

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Geographic Region
United States	$	167,872	$	163,072	$	302,480	$	51,701	$	307,630
United Kingdom	42,924		168		70,643		—		169
Other international	9,001		6,339		12,782		1,011		9,341
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

61

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

17.RELATED-PARTY TRANSACTIONS

On October 16, 2018, S1 Holdco and its subsidiaries purchased a 50.1% interest in a UK-based company, Protected.net Group Ltd., for $55,000. At the time of the transaction, an investment vehicle known as Lone Investment Holdings (LIH) was a shareholder and creditor of Protected. LIH owned 7.7% of the equity of Protected, and also was a creditor for $10,500, with respect to shareholder loans for which Protected was the obligor. LIH’s shareholders primarily consist of members of the Company’s management team. As a result of the Merger, LIH’s shareholder loan to Protected was repaid, with interest, and LIH also received $1,158 in proceeds from the sale of its equity.

Additionally, during 2021, S1 Holdco extended a loan of $1,500 to its former CEO in connection with his separation agreement. In January 2022, in conjunction with the consummation of the Merger, the loan was repaid in full.

Protected utilizes multiple payment processors in order to process credit card payments from its subscription customers, including Paysafe Financial Services Limited (“Paysafe”). Paysafe recently completed a merger with Foley Trasimene Acquisition Corp. II, a special purpose acquisition company sponsored by entities affiliated with William Foley, who was also a sponsor of Trebia Acquisition Corp. and a member of the Company’s Board of Directors. Protected’s payment processing agreement with Paysafe was negotiated before the announcements of both (i) the Merger as well as (ii) the business combination between Paysafe and Foley Trasimene. The amount due from Paysafe was $1,347 as of June 30, 2022 (Successor).

The Company has agreements with JDI Property Holdings Limited (“JDI”), an entity controlled by a director of the Company, which allows for the Company to occupy desks at JDI’s property in such a place as JDI specifies from time to time in exchange for GBP 42 per month. The agreements with JDI expire on October 31, 2026.

Additionally, the Company utilizes a JDI credit card and the Company reimburses JDI monthly. As of June 30, 2022 (Successor), the Company owes $149 to JDI.

18.SHARE-BASED PAYMENTS

Pursuant to the Merger, the Company is required to replace certain profits interests awards with restricted stock units (“RSUs”) in System 1 (the “Replacement Awards”). The Replacement Awards will continue to vest over the original vesting schedule of the original underlying awards. The Company recognized a total stock-based compensation expense of $23,705 upon the Merger transaction during the period January 1, 2022 through January 26, 2022 (Predecessor). Subsequent to the Merger, the remaining amount of $30,724 will be amortized over the weighted average period of 2.3 years. The Company recognized stock-based compensation expense of $15,547 under these awards during the period January 27, 2022 through June 30, 2022 (Successor). The unrecognized stock-based compensation expense associated with these unvested Replacement Awards at June 30, 2022 was $21,241.

In addition to the Replacement Awards, the Company issued 1,450 Class D shares that were exchanged for 1,450 Trebia's legacy shares, in a like for like transaction ("Sponsor RSAs"). The founders of S1 Holdco and Protected were also issued with 1,450 Class D shares ("Seller RSUs"). The Sponsor RSAs and Seller RSUs vested if the Company’s common stock traded at a VWAP equal or exceeding $12.50 per share for any 20 trading days within a 30 trading day period. When the VWAP of the Company’s common stock price exceeded the threshold in March 2022 the Sponsor RSAs and Seller RSUs vested, and the Company recorded their conversion from Class D common stock to Class A common stock on its Condensed Consolidated Statements of Changes in Stockholders' Equity. The Company also recorded $12,745 in stock-based compensation expense associated with the vesting of the Seller RSUs during the period January 27, 2022 through March 31, 2022 (Successor). Since these Sponsor RSAs and Seller RSUs had a market condition to vest, the Company estimated the fair values of these market-based RSUs and RSAs using a Monte Carlo simulation.

The key assumptions used to determine the fair value of these market-based RSUs and RSAs were as follows:

62

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Inputs
Risk-free interest rate	1.6		%
Expected stock price volatility	50.0		%
Cost of equity	23.6		%
Expected term (years)	5
Fair Value of Class A Common Stock	$	10.00

The Company recorded $7,706 in stock-based compensation expense for Sponsor Promote Shares during the period January 27, 2022 through March 31, 2022 (Successor).

The Company recorded the following total share-based compensation expense for the periods presented:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		s	Six Months Ended June 30, 2021
Share-based compensation expense	$	25,168	$	120	$	57,470	$	23,705		$	266

On April 27, 2022, the Company registered the System1, Inc. 2022 Incentive Award Plan ("Award Plan”). On May 10, 2022, the Company’s Board of Directors authorized the issuance of 1,900 replacement RSU’s in connection with S1 Holdco unvested value creation units at the time of the Merger as required per the Business Combination Agreement and 4,900 RSUs from the authorized Award Plan pool of shares (as defined in the Award Plan).

Protected.net Incentive Plan

In connection with the Merger and acquisition of Protected.net described in Note 3, which was consummated on January 26, 2022, the Company effected an incentive plan for eligible recipients as defined in the Business Combination Agreement (see Note 3), which may include employees and non-employees, including the Protected CEO, totaling up to $100,000 payable in fully-vested shares of the Company’s Class A Common Stock. As defined in the Business Combination Agreement, if the Protected business exceeds last twelve months (“LTM”) Cash EBITDA (as defined in the Business Combination Agreement) of $55,000 on or prior to December 31, 2023, a pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2023 Award”) shall be allocated to eligible recipients as of December 31, 2023. Shares under the 2023 Award will be issued to eligible recipients within 30 days of December 31, 2023. Further, if the Protected business exceeds LTM Cash EBITDA (as defined in the Business Combination Agreement) of $65,000 on or prior to December 31, 2024, a separate pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2024 Award") shall be allocated to eligible recipients as of December 31, 2024. Shares under the 2024 Award will be issued to eligible recipients within 30 days of December 31, 2024. The number of shares payable under the 2023 and 2024 Awards will be determined based on the volume-weighted average price of the Company’s Class A Common Stock over the 20 consecutive trading days preceding the 5 trading days prior to settlement. The distribution of shares to eligible recipients for both the 2023 and 2024 Awards shall be at the sole discretion of the Protected CEO, or the System1, Inc. Board if the Protected CEO is no longer employed by the Company.

As of June 30, 2022, although neither of the LTM Cash EBITDA targets for the 2023 Award and 2024 Award were met, the Company determined that they were both probable of achievement, and accordingly, it recorded a portion of the $100,000 payable for these awards, within salaries, commissions, and benefits on the Consolidated Statement of

63

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

Operations for the three months ended June 30, 2022. As of June 30, 2022, $18,163 of stock-based compensation has been recorded as a liability for these awards within “Protected Incentive Plan Liability”. The remaining liability for these awards will be recorded over the remaining service period to the extent that management determines that the achievement of the LTM Cash EBITDA targets and issuance of the Series A common stock is considered probable.

CouponFollow Incentive Plan

In connection with the acquisition of CouponFollow described in Note 4, which was consummated on March 4, 2022, the Company approved and adopted the CouponFollow Incentive Plan, which includes CouponFollow’s key employees, including CouponFollow’s founder (“Principal Participant” and together collectively the “Participants”). The CouponFollow Incentive Plan provides for total payments of $35,000 payable at the Company’s option in cash or in fully-vested shares of the Company’s Class A common stock, consisting of a fixed amount of $10,000 and contingent amounts of $25,000, which can be earned over a three calendar year period between each January 1 to December 31 of 2022, 2023 and 2024 (each a “Performance Period” and collectively, the “Performance Periods”). In order to receive any payments under the CouponFollow Incentive Plan, the Participants must maintain continuous employment through the last day of each Performance Period to be eligible for the following earnout payment amounts (with the exception of the Principal Participant who is still eligible if terminated without cause or if he terminates his employment for good reason) in the amounts and at the times set forth below:

•Fixed Amount. Over the course of the Performance Periods, the Company shall pay to each of the employed eligible Participants a total of $10,000 (the “Fixed Amount”) in three substantially equal pro rata installment payments (as set forth in each Participant’s applicable award agreement) within 60 days of the end of each Performance Period.

•Tier 1 Target. If, during any of the Performance Periods, the CouponFollow business achieves the first tier TTM EBITDA (as defined in the CouponFollow Incentive Plan) for the first time (the “Tier 1 Target”), the Company will pay a total of $10,000 (the “Tier 1 Amount”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

•Tier 2 Target. If, during any of the Performance Periods, the CouponFollow business achieves the second tier TTM EBITDA for the first time (the “Tier 2 Target”), the Company will pay an additional $7,500 (the “Tier 2 Amount”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

•Tier 3 Target. If, during any of the Performance Periods, the CouponFollow business achieves the third tier TTM EBITDA for the first time (the “Tier 3 Target” and together with the Tier 1 Target and Tier 2 Target, collectively the “Targets”), the Company will pay an additional $7,500 (the “Tier 3 Amount” and together with the Tier 1 Amount and the Tier 2 Amount, collectively the “Tier Amounts”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

64

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except for per unit amounts)

•

Performance Period*	Fixed Amount		Tier 1 Amount**		Tier 2 Amount**		Tier 3 Amount**		Total Maximum Payment per Performance Period
Dec. 31, 2022	$	3,333	$	3,333	$	—	$	—	$	6,666
Dec. 31, 2023	3,333		3,333		3,750		—		10,416
Dec. 31, 2024	3,334		3,334		3,750		7,500		17,918
	$	10,000	$	10,000	$	7,500	$	7,500	$	35,000
*Payments for each applicable Performance Period are paid within 60 calendar days of the end of the applicable Performance Period.
**If the Tier 1 Amount is not achieved in the first Performance Period but is achieved in the second Performance Period, the Tier 1 Amount for the first Performance Period shall be paid out at the end of the second Performance Period and if achieved in the third Performance period the full amount will be paid at the end of the third Performance Period. If the Tier 2 Amount is not achieved in the second Performance Period but is achieved in the third Performance Period, the Tier 2 Amount will be paid at the end of the third Performance Period. If the Tier 2 Amount or the Tier 3 Amount is achieved in the first Performance Period, such Tier Amounts shall be paid as noted in the table above.

If a Participant’s continued employment is terminated prior to applicable payment date(s), with the exception of the Principal Participant as discussed above, the Company will reverse all prior liabilities for their pro rata share of any Tier Amounts associated with that Participant. If the Company elects to settle the payment obligations with respect to any Tier Amount in shares of the Company’s Class A common stock, the number of shares payable under the CouponFollow Incentive Plan will be determined based on the VWAP of the Company’s Class A common stock over the 30 trading day period immediately preceding the respective settlement date, but in any event, shall be capped at 4,667 shares of the Company’s Class A common stock in the aggregate. Any amount over the maximum number of shares is to be settled in cash.

As of June 30, 2022, the Company has determined that it was not probable that the CouponFollow business would achieve any of the Targets during the Performance Periods, and accordingly, it did not record a liability for any of the Tier Amounts set forth in the CouponFollow Incentive Plan. During the three and six months ended June 30, 2022, the Company recognized $1,001 and $1,309, respectively, for the Fixed Amount, within Salaries, commissions, and benefits on the condensed consolidated statements of operations.

19.SUBSEQUENT EVENT

In August 2022, the Company's Board of Directors authorized up to $25,000 for the repurchase of its Class A Common Stock and Public Warrants.

65

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 

SYSTEM1 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of System1 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q/A. The following discussion and analysis should also be read together with the section entitled “Organization and description of business” as of June 30, 2022 (Successor) and for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through June 30, 2022 (Successor) and for the year ended December 31, 2021 (Predecessor). In addition to historical information, the following discussion and analysis contains forward-looking statements. Our actual results may differ significantly from those projected in such forward-looking statements. Factors that might cause future results to differ materially from those projected in such forward-looking statements include, but are not limited to, those discussed in the section entitled “Risk Factors.” All figures are presented in thousands, except percentages, rates and unless otherwise noted.

References to “Notes” are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q/A.

As described in the EXPLANATORY NOTE and in Note 1 of “Notes to Unaudited Condensed Consolidated Financial Statements” included elsewhere in this Amendment No. 1 to the Quarterly Report on Form 10-Q/A, we have restated our unaudited quarterly financial statements as of June 30, 2022, and for the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022. This Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, has been amended to reflect the restatement of the previously reported financial information for these periods, including but not limited to, information within the Results of Operations section.

Company Overview

We operate an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and selling antivirus software packages to end user customers.

We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform (“RAMP”). Operating seamlessly across major advertising networks and advertising category verticals to acquire users on our behalf, RAMP allows us to monetize these acquired users through our relationships with third party advertisers and advertising networks (“Advertising Partners”). RAMP also allows third party advertising platforms and publishers (“Network Partners”), to send user traffic to, and monetize user traffic on, our owned and operated websites. RAMP operates across our network of owned and operated websites and related products, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Facebook, Taboola, Snapchat and TikTok.

Through RAMP, we process approximately 22 million daily advertising campaign optimizations and ingest 6 billion rows of data daily across 40 plus advertising verticals. We are able to efficiently monetize user intent by linking data on consumer engagement, such as first party search data, with data on monetization and advertising spend. This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising verticals.

The business of S1 Holdco, LLC (“S1 Holdco”), one of the entities acquired in the Merger described below, was founded in 2013 with a focus on monetizing user traffic acquired by its network. Since launching, it has expanded to support additional advertising formats across numerous advertising platforms, and has acquired several leading websites, enabling it to control user acquisition and experience, and monetize user traffic on its behalf.

66

Today S1 Holdco owns and operates over 40 websites, including leading search engines like info.com and Startpage.com, and publishing digital media sites and utilities such as HowStuffWorks, Mapquest and ActiveBeat.

We, through Protected.net, also provide antivirus software solutions, offering our customers a single packaged solution that provides protection and reporting to the end user. We deliver our antivirus software solutions directly to end-user customers across the world. The antivirus software solutions product offering comprises a core security package with varying levels of extra protection based on a customer's specific needs. These products include unlimited devices, Adblock, ID Protect and are managed to ensure they provide a value-added service to the customer base. The software is sold in either a monthly or annual subscription predominantly through the flagship brand TotalAV. As of June 30, 2022, Protected had over 2.3 million active subscribers for its products.

Our primary operations are in the United States; and we also have operations in Canada, the United Kingdom and the Netherlands. Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, and exposure to currency exchange fluctuations. We do not engage in hedging activities to mitigate its exposure to fluctuations in foreign currency exchange rates.

We were deemed the accounting acquirer in the Merger based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations. S1 Holdco was deemed to be the predecessor entity based on an analysis. Accordingly, the historical financial statements of S1 Holdco became the historical financial statements of the Company, upon the consummation of the Merger. As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger; and (ii) the consolidated results of the Company, including S1 Holdco and Protected following the closing of the Merger. The accompanying financial information includes a Predecessor period, which includes the periods through January 26, 2022 concurrent with the Merger, and a Successor period from January 27, 2022 through June 30, 2022. A black-line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods as the Merger resulted in a new basis of accounting for S1 Holdco.

The Merger

On June 28, 2021, the Company entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (the “Business Combination Agreement”) by and among S1 Holdco, Trebia, and Protected (collectively, the “Companies”). On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company is organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco. The combined Companies’ business continues to operate through the subsidiaries of S1 Holdco and Protected. Additionally, Trebia’s ordinary shares and public warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.'s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.

The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock and Class C common stock.

The aggregate cash consideration was $440,155.

The aggregate equity consideration was $610,144, consisting of Replacement Awards and shares of Class A common stock. The fair value of the Class A common stock was determined by utilizing the transaction closing price per share per the Business Combination Agreement of $10.00 and a discount of 10%, as the shares were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics.

67

Additionally, the aggregate Class B units in S1 Holdco retained by S1 Holdco equity holders at the Closing Date resulted in a non-controlling interest. The 22,077 Class B units in S1 Holdco and the corresponding Class C common stock in the Company were determined to have an estimated value of $198,691. As the Class B units in S1 Holdco together with the corresponding shares of our Class C common stock are exchangeable for shares of Class A common stock on a one-for-one basis, the fair value was determined using the same method as for the shares of our Class A common stock, utilizing the transaction closing price of $10.00 and a discount of 10% (as the units and the corresponding shares of Class C common stock were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics). The fair value of $198,691 was recorded as non-controlling interest in the accompanying condensed consolidated balance sheet and presented as non-controlling interests in the accompanying condensed consolidated statements of changes in stockholders' equity.

In connection with the Merger, System1 and Cannae Holdings, Inc. (“Cannae”), an investor in the Sponsor of Trebia, entered into a backstop agreement (the “Backstop Agreement”) whereby Cannae agreed, subject to the other terms and conditions, to subscribe for Trebia Class A common stock in order to fund a certain amount of redemptions by shareholders of System1 redeemed at the Closing Date. As a result of shareholder redemptions, Cannae provided $246,484 of the cash used to fund the Closing Cash Consideration pursuant to its obligations under the Backstop Agreement and in exchange received 24,648 shares of Class A common stock ("Backstop shares").

Additionally, pursuant to the Backstop Agreement, the Selling Shareholders (i.e., certain shareholders of S1 Holdco and Protected prior to the Merger) agreed that, in the event Trebia shareholders requested redemption of Trebia outstanding equity immediately prior to the Merger in excess of a certain dollar value threshold, certain equity holders of S1 Holdco and Protected would reduce their cash consideration and proportionally increase their equity consideration for the Merger, which is referred to as the “Seller Backstop Election”. In the event that the Seller Backstop Election was made, the Sponsors would forfeit shares to allow the Company to then issue shares to the Selling Shareholders. The Seller Backstop Election was triggered and, as a result, the Sponsors forfeited 930 shares of Trebia Class B ordinary shares which were converted at time of Merger, at a one-to-one ratio, into shares of Class A common stock of System1and delivered to the various selling shareholders of S1 Holdco, collectively referred to as the “Sponsor Promote Shares”. The total consideration amount, in a combination of cash and equity consideration, did not change from the amount agreed in the Business Combination Agreement due to this Seller Backstop Election. The Company recorded $7,706 in Salaries, commissions, and benefits expense and $661 in Selling, general and administrative expense for Sponsor Promote Shares during the period January 27, 2022 through March 31, 2022 (Successor).

In connection with the execution of the Business Combination Agreement and the Backstop Agreement, on June 28, 2021, as amended on January 10, 2022, the sponsors of Trebia entered into the Amended and Restated Sponsor Agreement whereby the sponsors agreed to forfeit up to 2,600 shares of Trebia Class B common stock in order for the Company to then issue the shares to Cannae (“Backstop forfeiture shares”), in exchange for Cannae entering into the Backstop Agreement. On January 27, 2022, based upon the final backstop funding provided by Cannae, the sponsors forfeited 2,533 shares of Trebia Class B shares, after which the Company then issued 2,533 shares of Class A common stock to Cannae. Trebia recorded a forward purchase liability of $25,336 immediately prior to the Merger, representing the fair value of the Backstop shares and Backstop forfeiture shares.

In accordance with a Sponsor Agreement entered into concurrently with the Business Combination Agreement, we issued 1,450 Class D shares to Trebia sponsors that were exchanged for 1,450 Trebia's Class B shares ("Sponsor RSAs"). The difference in the fair value of the two was treated as a capital contribution. The founders of S1 Holdco and Protected were also issued 1,450 Class D shares ("Seller RSUs"). Further, in connection with the Merger, we also effected an incentive plan for Protected business. Refer to Note 18 for additional information on the Seller RSU's and the Protected Incentive Plan.

Concurrently with the Merger, we entered into a tax receivable agreement with certain of the then-existing members of S1 Holdco, (the “Tax Receivable Agreement” or “TRA”), pursuant to which, among other things, the parties to the Tax Receivable Agreement agreed to the allocation and payment of 85% of the actual savings, if any, in U.S. federal, state and local income taxes that System1 may realize as a result of certain tax benefits (if any) related to the transactions contemplated by the Business Combination Agreement and future exchanges of Class B

68

units in S1 Holdco (together with the corresponding shares of our shares of Class C common stock) in exchange for shares of the Company’s Class A common stock. As of the Closing Date, the fair value of obligations under the TRA was determined to be zero as any tax savings were uncertain. The TRA is contingent consideration and subsequent changes in fair value of the contingent liability are recognized in earnings. Refer to TRA discussion in Note 10.

Refer to Note 3 for additional information.

COVID-19

The worldwide spread of COVID-19 has resulted, and is expected to continue to result, in a global slowdown of economic activity, which is likely to decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting sales channels and advertising and marketing activities for an unknown period of time until the virus is contained or economic activity normalizes. Our revenue growth and results of operations have been resilient despite the headwinds created by the COVID-19 pandemic. The extent to which ongoing and future developments related to the global impact of the COVID-19 pandemic, including related vaccination measures and inoculation rates designed to curb its spread, continue to impact the business, financial condition, results of operations and cash flows, cannot be predicted with certainty. Many of these ongoing and future developments and uncertainties are beyond our control, including the speed of contagion or the spread of new variants, the development, distribution and implementation of effective preventative or treatment measures, including vaccines (and vaccination rates), the scope of governmental and other restrictions on travel, discretionary services and other activity, and the public reactions and receptiveness to these developments. See “Risk Factors” of the Amendment No. 3 to FORM S-1 filed with the U.S. SEC on April 13, 2022 for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

69

Components of Our Results of Operations

We have three reportable segments: Owned and Operated, Partner Network and Subscription. Refer to Note 16 for additional information.

Revenue

Revenue is earned from revenue-sharing arrangements with our Network Partners for the use of our RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. We have determined it is the agent in these transactions and reports revenue on a net basis, because (a) we do not control the underlying advertising space, (b) we do not acquire the traffic and do not have risk of loss in connection therewith, and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. We report this revenue on a net basis with respect to the amount retained under our revenue-sharing arrangements, which represents the difference between amounts received by us from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts.

We also earn revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, we are the principal in the transaction and reports revenue on a gross basis for the amounts received from our Advertising Partners. For this revenue, we have determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with our Advertising Partners, and, in the case of our owned and operated websites, we maintain the website, provide the content and bear the cost and risk of loss associated with our websites’ advertising space.

We use total advertising spend, number of Owned & Operated sessions (“O&O sessions”), number of Partner Network sessions (“Network sessions”), Owned & Operated cost-per-session (“O&O CPS”), Owned & Operated revenue-per-session (“O&O RPS”) and Partner Network revenue-per-session (“Network RPS”) to track our operations. We define total advertising spend as the amount of advertising that is spent by us to acquire traffic to our websites. We define O&O sessions as the total number of monetizable user visits to our Owned & Operated websites. We define Network sessions as the number of monetizable user visits delivered by our network partners to RAMP. Monetizable visits exclude those visits identified by our advertising partners as spam, bot, or other invalid traffic. We define CPS as advertising spend divided by O&O sessions. We define O&O RPS as O&O Revenue divided by O&O sessions. We define Network RPS as Partner Network revenue divided by Network sessions.

We recognize revenue upon delivering traffic to our Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment term with our Advertising Partners is typically 30 days.

We, through Protected.net, are also engaged in selling security software subscriptions to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, adblocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract, and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. Our services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period.

The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, we bill many of our customers in advance of the provision of services under our contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

Revenue may fluctuate from period to period due to a number of factors including seasonality and the shift in mix of user acquisition sources from Advertising Partners, and renewal rates of customers for subscription services.

70

Operating Expenses

We classify our operating expenses into the following four categories:

Cost of Revenues (excluding depreciation and amortization). Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, and costs related to the utilization of antivirus engine licensing related to APIs for the antivirus product. The Company does not pay any up-front payments, incentive payments or bonuses and such costs are expensed as incurred.

Salaries, Commissions, and Benefits. Salaries, commissions and benefits expenses include salaries, bonuses, stock-based compensation, non-capitalized personnel costs incurred in the capitalized internal use software development, and employee benefits costs.

We expect to continue to invest in corporate infrastructure to support our growth. We expect salaries, commissions, and benefits to increase in absolute dollars in future periods.

Selling, General, and Administrative. Selling, general, and administrative expenses consist of fees for professional service fees, occupancy costs, travel and entertainment. These costs are expensed as incurred.

We expect to continue to invest in corporate infrastructure to support our growth. We expect selling, general and administrative expenses to increase in absolute dollars in future periods.

Depreciation and Amortization. Depreciation and amortization expenses are primarily attributable to the Company’s capital investment(s) and consist of fixed asset depreciation and amortization of intangible assets with finite lives.

Other Expenses

Other expenses consist of the following:

Interest Expense. Interest expense is primarily related to our debt, which carries a variable interest rate.

Change in Fair Value of Warrant Liabilities. Change in fair value of warrant liabilities relates to the mark to market of our liability-classified public and private warrants.

Income tax (benefit) provision

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its condensed consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco. Various subsidiaries of the Company are subject to income tax in the United States and in other countries.

71

Results of Operations

The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented.

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated				As Restated		As Restated
(in thousands)
Revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140
Operating expenses:
Cost of revenues	152,558		126,167		272,942		41,507		236,952
Salaries, commissions, and benefits	49,511		17,698		97,709		31,181		32,893
Selling, general, and administrative	16,747		6,277		31,835		15,665		13,227
Depreciation and amortization	32,094		3,112		54,022		1,000		6,801
Total operating expenses	250,910		153,254		456,508		89,353		289,873
Operating income (loss)	(31,113)		16,325		(70,603)		(36,641)		27,267
Other expense (income):
Interest expense	7,324		4,476		12,100		1,049		8,524
Change in fair value of warrant liabilities	(4,139)		—		9,622		—		—
Total other expense (income), net	3,185		4,476		21,722		1,049		8,524
Income (loss) before income tax	(34,298)		11,849		(92,325)		(37,690)		18,743
Income tax (benefit) provision	(454)		77		(15,103)		(629)		228
Net income (loss)	$	(33,844)	$	11,772	$	(77,222)	$	(37,061)	$	18,515
Net loss attributable to non-controlling interest	(8,107)		—		(15,416)		—		—
Net income (loss) attributable to System1, Inc.	$	(25,737)	$	11,772	$	(61,806)	$	(37,061)	$	18,515

72

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated				As Restated		As Restated
Revenue	100	%	100	%	100	%	100	%	100	%
Operating expenses:
Cost of revenues	69	%	74	%	71	%	79	%	75	%
Salaries, commissions, and benefits	23	%	10	%	25	%	59	%	10	%
Selling, general, and administrative	8	%	4	%	8	%	30	%	4	%
Depreciation and amortization	15	%	2	%	14	%	2	%	2	%
Total operating expenses	114	%	90	%	118	%	170	%	91	%
Operating income (loss)	(14)	%	10	%	(18)	%	(70)	%	9	%
Interest expense	3	%	3	%	3	%	2	%	3	%
Change in fair value of warrant liabilities	(2)	%	—	%	2	%	—	%	—	%
Income (loss) before income tax	(16)	%	7	%	(24)	%	(72)	%	6	%
Income tax (benefit) provision	1	%	1	%	(4)	%	(1)	%	—	%
Net income (loss)	(15)	%	7	%	(20)	%	(70)	%	6	%
Net loss attributable to non-controlling interest	(4)	%	—	%	(4)	%	—	%	—	%
Net income (loss) attributable to System1, Inc.	(12)	%	7	%	(16)	%	(70)	%	6	%

* Percentages may not sum due to rounding

The comparability of our operating results for the six months ended June 30, 2022 (Successor) compared to the six months ended June 30, 2021 (Predecessor) was impacted by the Merger, as discussed above, and the acquisitions discussed in Note 4. Expense contributions from our recent acquisitions for each of the respective period comparisons generally were not separately identifiable due to the integration of these businesses into our existing operations.

Comparisons of Results of Operations for the three months ended June 30, 2022 (Successor) and the June 30, 2021 (Predecessor), the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the period from January 27, 2022 through June 30, 2022 (Successor) and the six months ended June 30, 2021 (Predecessor)

Revenue

The following tables set forth our revenue by reportable segment.

73

	Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated				As Restated
Revenue:
Owned and Operated	$	157,952	$	160,816	(2)%
Partner Network	19,077		8,763		118%
Subscription	42,768		—		100%
Total revenue	$	219,797	$	169,579	30%

Refer to the Revenue discussions below.

	Successor		Predecessor
	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated		As Restated				As Restated
Revenue:
Owned and Operated	$	284,836	$	49,249	$	300,242	11%
Partner Network	30,427		3,463		16,898		101%
Subscription	70,642		—		—		100%
Total revenue	$	385,905	$	52,712	$	317,140	38%

Owned and Operated

The increases in Owned and Operated revenues for the three and six months ended June 30, 2022, compared to the same prior year periods, was primarily due to increased traffic from international markets, revenues from our recent acquisitions and significant improvements in our RAMP technology. For the six months ended June 30, 2022, compared to the same prior year period, sessions increased 480 million, with Revenue Per Session ("RPS") decreasing by approximately $0.03.

Partner Network

The increase in Partner Network revenue for the three and six months ended June 30, 2022, compared to the same prior year periods, was due to our continued investment in this business and growth from partners signed in prior years. For the six months ended June 30, 2022, compared to the same prior year period, RPS increased by approximately $0.01, partially offsetting a decrease of 7 million sessions.

Subscription

In connection with the Merger, we acquired Protected and began recognizing subscription revenue.

Cost of revenues

74

	Successor			Predecessor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			2022 vs. 2021 change (%)
Cost of revenues	$	152,558		$	126,167		21%
Percent of revenue	69		%	74		%

The increase in cost of revenue dollars for the three months ended June 30, 2022, compared to the same prior year period, was due to the acquisition of Protected and a chargeback matter being resolved with a customer. Protected contributed $19.9 million to the cost of revenues.

	Successor			Predecessor
	Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated			As Restated						As Restated
Cost of revenues	$	272,942		$	41,507		$	236,952		33%
Percent of revenue	71		%	79		%	75		%

The increase in cost of revenue dollars for the six months ended June 30, 2022, compared to the same prior year period, was due to the acquisition of Protected and an increase in user acquisition costs in the Owned and Operated segment. Protected contributed $35.1 million to the cost of revenues. User acquisition costs for the six months ended June 30, 2022, increased $28.7 million and drove 1,988 million sessions at approximately $0.13 Cost Per Session (“CPS”), compared to 1,507 million sessions at approximately $0.15 CPS for the same period in 2021 (Predecessor). User acquisition costs accounted for 82% and 97% of total cost of revenues for the six months ended June 30, 2022 and 2021 (Predecessor), respectively.

The following supplemental tables set forth our adjusted gross profit by reportable segment.

	Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated				As Restated
Segment Adjusted Gross Profit:
Owned and Operated	$	36,799	$	37,572	(2)%
Partner Network	13,908		8,763		59%
Subscription	22,890		—		100%
Total Adjusted Gross Profit	$	73,597	$	46,335	59%

Refer to the Revenue and Cost of revenues discussions above. Additionally, refer to Note 16 for additional information.

75

	Successor		Predecessor
	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated		As Restated				As Restated
Segment Adjusted Gross Profit:
Owned and Operated	$	66,217	$	8,768	$	69,700	8%
Partner Network	22,321		3,012		16,898		50%
Subscription	35,537		—		—		100%
Total Adjusted Gross Profit	$	124,075	$	11,780	$	86,598	57%

Refer to the Revenue and Cost of revenue discussions above. Additionally, refer to Note 16 for additional information.

Salaries, commissions, and benefits

	Successor			Predecessor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated						As Restated
Salaries, commissions and benefits	$	49,511		$	17,698		180%
Percent of revenue	23		%	10		%

The increase in salaries, commissions, and benefits dollars for the three months ended June 30, 2022, compared to the same prior year period, was primarily due to an increase in salaries and bonus related expense of $5.1 million due to increased headcount related to the Merger and our recent acquisitions. Stock-based compensation increased $25.0 million, including $18.2 million related to the Protected incentive plan, and the fluctuations in the value of our common stock since the Merger. For additional information on our stock-based compensation, refer to Note 18.

	Successor			Predecessor
	Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated			As Restated						As Restated
Salaries, commissions and benefits	$	97,709		$	31,181		$	32,893		>100%
Percent of revenue	25		%	59		%	10		%

The increase in salaries, commissions, and benefits dollars for the six months ended June 30, 2022, compared to the same prior year period, was primarily due to an increase in stock-based compensation of $81.2 million, which included $23.7 million upon the close of the Merger and $18.2 million related to the Protected Incentive Plan, and an increase in salaries and bonus related expenses of $11.2 million due to increased headcount related to the Merger and our recent acquisitions. For additional information on our stock-based compensation, refer to Note 18.

Selling, general, and administrative

76

	Successor			Predecessor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated						As Restated
Selling, general, and administrative	$	16,747		$	6,277		>100%
Percent of revenue	8		%	4		%

The increase in selling, general, and administrative expense for the three months ended June 30, 2022, compared to the same prior year period, was primarily associated with our recent acquisitions and additional costs associated with being a public company.

	Successor			Predecessor
	Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated			As Restated						As Restated
Selling, general, and administrative	$	31,835		$	15,665		$	13,227		>100%
Percent of revenue	8		%	30		%	4		%

The increase in selling, general, and administrative expense for the six months ended June 30, 2022, compared to the same prior year period, was primarily due to $24.7 million in costs associated with the Merger, costs associated with our recent acquisitions and additional costs associated with becoming a public company.

Depreciation and amortization

	Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated				As Restated
Depreciation and amortization	$	32,094	$	3,112	>100%

77

	Successor		Predecessor
	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021		2022 vs. 2021 change (%)
	As Restated						As Restated
Depreciation and amortization	$	54,022	$	1,000	$	6,801	>100%

The increases in depreciation and amortization expense for the three and six months ended June 30, 2022, compared to the same prior year periods, was primarily due to additions of intangible assets as a result of the Merger, along with subsequent acquisitions.

Interest expense

	Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		2022 vs. 2021 change (%)
Interest expense	$	7,324	$	4,476	64%

    

	Successor		Predecessor
	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021		2022 vs. 2021 change (%)
Interest expense	$	12,100	$	1,049	$	8,524	54%

The increases in interest expense for the three and six months ended June 30, 2022, compared to the same prior year periods, was due to an increase in our outstanding loan balances as a result of the Term Loan and Revolving Facility, which we entered into as part of the Merger.

Change in fair value of warrant liabilities

The changes in fair value of warrant liabilities in 2022 was driven by the fluctuations in the market value of our Class A common stock since the Merger.

Income tax (benefit) provision

78

	Successor			Predecessor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated						As Restated
Income tax (benefit) provision	$	(454)		$	77		>100%
Effective tax rate	1		%	1		%

	Successor			Predecessor
	Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021			2022 vs. 2021 change (%)
	As Restated									As Restated
Income tax (benefit) provision	$	(15,103)		$	(629)		$	228		>100%
Effective tax rate	16		%	2		%	—		%

The difference between the effective tax rates for the periods presented above and the federal statutory tax rate of 21% was primarily due to income (loss) from non-taxable pass-through entities related to non-controlling interests, effects of predecessor flow through income allocations, state taxes, foreign rate differential, change in fair value of warrant liabilities, non-deductible expenses, outside basis adjustments, and Global Intangible Low-taxed Income.

Liquidity and Capital Resources

As of June 30, 2022 (Successor), we had cash and cash equivalents of $37,442.

To date, our available liquidity and operations have been financed through the initial public offering of Trebia, the Backstop Agreement, credit facilities, and cash flows from operations. We are subject to certain business risks, including dependence on key employees, dependence on key contracts, competition from alternative technologies, and dependence on growth to achieve our business and operational objectives.

Our revenue is dependent on two key Advertising Partners, which are Google and Microsoft.

The following table illustrates the level of concentration as a percentage of total revenues:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Google	69	%	84	%	71	%	88	%	83	%
Microsoft	3	%	5	%	3	%	4	%	5	%

We have (i) two paid search advertising partnership contracts with Google, and (ii) one paid search advertising partnership contract with Microsoft. One of the Google contracts was renewed with an effective date of March 1,

79

2021, and has a two-year term through February 28, 2023. The other Google contract was renewed with an effective date of August 1, 2021, and has a two-year term through July 31, 2023. The Company recently renewed its advertising contract with Microsoft with an effective date of July 1, 2022, and has a three-year term through June 30, 2025. All three agreements may be terminated by the respective Advertising Partner immediately or with minimal notice under certain circumstances.

The coronavirus pandemic has adversely affected our results of operations and we have experienced unpredictable reductions in demand for certain products and services. There is uncertainty around the duration and breadth of the COVID-19 pandemic and, as a result, the ultimate impact on our business, financial condition, or operating results cannot be reasonably estimated with certainty at this time. To the extent that existing capital resources and sales growth are not sufficient to fund future activities, we may need to raise capital resources through additional equity or debt financings. Additional funds may not be available on terms favorable to us or at all. Failure to raise additional capital, if and when needed, could have a material adverse effect on our consolidated financial position, results of operations, and cash flows.

Going Concern

As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan (refer to Note 12 – DEBT). The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America. The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern. Upon delivery of the audited financial statements by the Company, the event of default will be remediated and, once remediated, Bank of America will no longer have the ability to call the outstanding principal balances on the Term Loan and Revolving Facility.

Separate from the default under the Term Loan and Revolving Facility, in the third and fourth quarters of 2022, the Company experienced declining cash flows and financial performance as a result of deteriorating macroeconomic conditions, resulting in reductions in both advertiser and overall consumer demand for our marketing services. As of December 31, 2022, the Company had cash on hand of $24,606. The declining cash flows and financial performance also raised substantial doubt regarding the Company's ability to continue as a going concern for a period of one year following the date that the consolidated financial statements are issued. In response to the declining cash flows, the Company implemented a plan to raise additional financing. On April 10, 2023, the Company entered into an incremental revolver note (“2023 Revolving Note”) with related parties for $20,000 (refer to Note 12—DEBT for additional information regarding the 2023 Revolving Note). As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Credit Facilities

In connection with the Merger discussed above, Orchid Merger Sub II LLC (a subsidiary of S1 Holdco) entered into a new loan (“Term Loan”) and revolving facility (“Revolving Facility”) on January 27, 2022, providing for a 5.5 year Term Loan with a principal balance of $400,000 and with the net proceeds of $376,000, of which a portion of the proceeds were used by S1 Holdco, to settle the outstanding debt of $172,038 with Cerberus Business Finance, LLC. The Revolving Facility was for $50,000.

80

We have been able to and expect to continue to be able to make payments on the principal and interest on a timely basis. As of June 30, 2022, we were in compliance with our borrowing covenants.

On April 10, 2023, the Company entered into the 2023 Revolving Note for $20,000 with related parties (refer to Note 12 for additional information regarding the 2023 Revolving Note). As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

For additional information regarding our credit facilities, refer to Note 12.

Refer to NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS for additional information regarding the default of the Term Loan.

81

Cash Flows

The following table summarizes our cash flows for the periods presented:

	Successor		Predecessor		Predecessor
(in thousands)	Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
	As Restated		As Restated
Net cash provided by (used in) operating activities	$	(8,303)	$	(10,603)	$	27,313
Net cash used in investing activities	$	(449,881)	$	(441)	$	(3,233)
Net cash used in financing activities	$	(15,507)	$	—	$	(18,892)

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, timing of collections from our clients and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to period. In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.

In the period from January 1, 2022 to January 26, 2022 (Predecessor), cash used in operating activities of $10,603 resulted primarily from a net loss of $37,061, and a decrease in accounts payable of $67,600 due to the Merger. This was partially offset by an increase in accrued expenses of $57,488, non-cash stock-based compensation of $23,705 and a decrease in accounts receivable of $11,118 due to the Merger.

In the period from January 27, 2022 to June 30, 2022 (Successor), cash used in operating activities of $8,303 resulted primarily from a net loss of $77,222, non-cash tax benefit of $22,746, a decrease in accrued expenses of $11,225, a decrease in other long-term liabilities of $31,080, an increase in accounts receivable of $8,136 due to the Merger. This was partially offset by an increase in the non-cash depreciation and amortization expense of $54,022, non-cash stock-based compensation of $57,470, non-cash change in fair value of warrants of $9,622, a decrease in deferred revenue of $7,211 due to the Merger, and an increase in accounts payable of $6,535.

In the six months ended June 30, 2021 (Predecessor), cash provided by operating activities of $27,313 resulted primarily from Owned and Operated advertising revenue, offset by user acquisition costs incurred to drive the growth and salaries, commissions and benefits costs. In addition, non-cash expenses were $11,884 and cash outflow was $3,086 primarily due to an increase in accounts receivable of $8,306 driven by growth in revenue and an increase in accrued expenses of $1,978 due to timing of payments, partially offset by an increase in accounts payable of $8,568 due to increased user acquisition costs.

Investing Activities

Our primary investing activities consist of acquisitions of businesses, such as the acquisition of S1 Holdco, Protected, RoadWarrior, CouponFollow and Answers in 2022 as well as costs capitalized for internally developed software.

In the period from January 1, 2022 to January 26, 2022 (Predecessor), cash used in investing activities of $441 resulted from costs capitalized for internally developed software.

In the period from January 27, 2022 to June 30, 2022 (Successor), cash used in investing activities of $449,881 resulted primarily from the acquisitions of S1 Holdco, Protected, RoadWarrior CouponFollow and Answers, costs capitalized for internally developed software of $3,497 and purchases of property and equipment of $2,310.

82

In the six months ended June 30, 2021 (Predecessor), cash used in investing activities of $3,233 resulted primarily from costs capitalized for internally developed software.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of our debt, distributions to members related to tax obligations, acquisition related contingent consideration and proceeds from the sale of assets.

In the period from January 1, 2022 to January 26, 2022 (Predecessor), there was no cash provided or used in financing activities.

In the period from January 27, 2022 to June 30, 2022 (Successor), cash used in financing activities of $15,507 resulted primarily from redemptions of Trebia Class A ordinary shares of $510,469, repayment of existing term loan of $177,488, and payment of debt financing costs related to the Term Loan of $24,845, partially offset by proceeds from the Term Loan and Revolving Facility of $449,000 and the Cannae Backstop of $246,484.

In the six months ended June 30, 2021 (Predecessor), cash used in financing activities of $18,892 resulted primarily from repayments of debt of $8,136, payment of acquisition related contingent consideration of $5,000 related to the acquisition of Startpage, $1,715 related to the acquisition of Concourse, and distributions to members of $2,691, and related party loan of $1,500.

Share Repurchase Authorization

In August 2022, our Board of Directors authorized up to $25,000 for the repurchase of our Class A Common Stock and Public Warrants.

Off-Balance Sheet Arrangements

We do not have any relationships with entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements during the periods presented other than the indemnification agreements.

Contractual Obligations and Known Future Cash Requirements

Service Agreements

On June 18, 2021, the Company entered into an agreement with a service provider whereby the Company is contractually obligated to pay $6,900 and $8,000 in the first and second years of the contract, respectively. The contract commencement date was July 1, 2021. The Company has paid a total of $7,424 to this service provider as of June 30, 2022 (Successor).

Executive Compensation

Ian Weingarten was hired as CEO of S1 Holdco on April 10, 2019. He was entitled to a cash-settled profit interests of 5% of the value of S1 Holdco, which was contingent upon (i) a participation threshold of $300 million (which was subject to adjustment as set forth in the S1 Holdco operating agreement) and (ii) on a four-year vesting term, or if a qualifying change in control transaction occurs.

In February 2021, Mr. Weingarten's employment with S1 Holdco was terminated and the parties entered into a separation agreement. In connection with the separation agreement, S1 Holdco agreed to payment of separation pay benefits consistent with the terms of Mr. Weingarten’s employment agreement, including the payment of the liability accrued for the cash-settled profits interest of 5% of S1 Holdco, which was deemed vested as to a 3.75%

83

profits interest and forfeited as to the remaining 1.25% profits interest above the applicable adjusted threshold amount (subject to further reduction to a 2.5% profits interest in the event that the Merger was not consummated). S1 Holdco recorded a liability for this arrangement of $11,132 as of December 31, 2021 (Predecessor). In January 2022, in conjunction with the consummation of the Merger, S1 Holdco settled the profits interest liability pursuant to the separation agreement with Mr. Weingarten.

84

Contingencies

From time to time, System1 is subject to contingencies that arise in the ordinary course of business. System1 records an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. System1 does not currently believe the resolution of any such contingencies will have a material adverse effect upon System1’s consolidated balance sheets, statements of comprehensive loss, or statements of cash flows.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to: (1) valuation of goodwill, acquired intangible assets and long-lived assets for impairment, (2) valuation and recognition of the Company's share-based compensation awards, (3) income taxes, (4) variable and contingent consideration and (5) determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain.

Business combinations

The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations.

Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value each reporting period through the Company’s Condensed Consolidated Statements of Operations.

85

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which requires the Company to test goodwill at the reporting unit level for impairment at least annually.

The Company has the option (i) 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 (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value exceeds its carrying amount, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized in an amount equal to the excess.

The determination of fair values requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected revenues and cash flows from a market participant perspective, and discount rates. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

We test for goodwill impairment annually at December 31st, or more frequently if events or changes in circumstances indicate the asset might be impaired.

For the periods presented in this quarterly report, there were no triggering events identified, and therefore no impairment charges recorded on goodwill.

Share-based compensation

Compensation cost related to share-based payments is measured based on the fair value of the units issued and recognized within “Salaries, commissions, and benefits” in the Company’s Condensed Consolidated Statement of Operations. The Company has elected to treat share-based payment awards with time-based service condition(s) only as a single award and recognizes share-based compensation expense on a straight-line basis over the vesting period, which is generally four years. The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following:

•Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist.

•Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. For non-employees, the expected life equals the contractual term of the option.

•Risk-free Interest Rate: The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options.

•Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies.

After the Merger, the Company’s fair value of its restricted stock units is derived from the market price of its Class A common stock, which is traded on the NYSE. The Company recognizes compensation on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

86

In connection with the Merger and acquisition of Protected, we effected an incentive plan for eligible recipients (the “Protected Incentive Plan”). As defined in the Business Combination Agreement, if the Protected business achieves certain financial metrics at any time prior to December 31, 2023, recipients will be eligible to receive a pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2023 Award”). Shares under the 2023 Award will be issued to recipients within 30 days of December 31, 2023. Further, as defined in the Business Combination Agreement, if the Protected business achieves certain financial metrics at any time prior to December 31, 2024, recipients will be eligible to receive a separate pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2024 Award”). Shares under the 2024 Award will be issued to recipients within 30 days of December 31, 2024.

We account for each of these awards as liability-classified until the awards are settled in stock, and accordingly, when either award is probable of achievement, we record stock-based compensation for that respective liability award. Refer to Note 18 for additional information regarding the Protected Incentive Plan.

Share-based compensation expense is included in the Salaries, commissions, and benefits expense in the Condensed Consolidated Statements of Operations.

Recently Issued Accounting Pronouncements

See Note 2 for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

As a “smaller reporting company”, as defined by Rule 10(f)(1) of Regulation S-K, the Company is not required to provide this information.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that, as of June 30, 2022, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Material weaknesses in internal control over financial reporting

We have identified material weaknesses in our internal control over financial reporting as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses identified were as follows:

87

•We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, the limited personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions.

•We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.

These material weaknesses contributed to the following additional material weaknesses:

•We did not design and maintain effective controls to timely analyze and record the financial statement effects from acquisitions. Specifically, we did not design and maintain effective controls over the (i) application of U.S. GAAP to such transactions, including accounting for post-combination compensation arrangements, (ii) review of the inputs and assumptions used in the measurement of assets acquired and liabilities assumed, including discounted cash flow analysis to value acquired intangible assets at an appropriate level of precision, (iii) the tax impacts of acquisitions to the financial statements, and (iv) conforming of U.S. GAAP and accounting policies of acquired entities to that of the Company. In addition, we did not design and maintain effective controls relating to the oversight and ongoing recording of the financial statement results of the acquired businesses.

◦We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of business performance reviews, account reconciliations and journal entries, and (ii) maintaining appropriate segregation of duties. Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the consolidated financial statements, including the statement of cash flows.

◦We did not design and maintain effective controls over the completeness and accuracy of accrued liabilities, stock-based compensation and equity transactions.

◦We did not design and maintain effective controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment.

These material weaknesses resulted in the restatement of the Company's condensed consolidated financial statements as of March 31, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and the successor period from January 27, 2022 to March 31, 2022; as of June 30, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended June 30, 2022 and from January 27, 2022 to June 30, 2022. These material weaknesses also resulted in immaterial misstatements to substantially all of the S1 Holdco, LLC accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021, 2020, 2019 and 2018 and for the years then ended; as of March 31, 2021 and 2020 and for the three-month periods then ended; as of June 30, 2021 and 2020 and for the six-month periods then ended; and as of September 30, 2021 and 2020 and for the nine-month periods then ended.

•We did not design and maintain effective controls over the accounting for complex financial instruments, including the impact of these instruments on earnings per share.

This material weakness also resulted in a material misstatement of the Trebia warrant liabilities, change in the fair value of the Trebia warrant liabilities, forward purchase agreement liabilities, change in the fair value of the forward purchase agreement liabilities, classification of redeemable shares of Class A common stock issued in connection with Trebia’s initial public offering, additional paid-in-capital, accumulated deficit, Earnings Per Share,

88

and related financial disclosures of Trebia Acquisition Corp. as of December 31, 2020 and for the period from February 11, 2020 (inception) through December 31, 2020, as of September 30, 2020 and for three month period ended September 30, 2020 and for the period from February 11, 2020 (inception) through September 30, 2020, as of June 30, 2020 and for three month period ended June 30, 2020 and for the period from February 11, 2020 (inception) through June 30, 2020, as of March 31, 2021 and for three month period ended March 31, 2021. This material weakness also resulted in material adjustments relating to the Trebia forward purchase agreement liabilities and repurchases of common stock impacting the accumulated deficit and additional paid-in capital in the opening balance sheet as of January 27, 2022 and the earnings per share computations for the quarter ended June 30, 2022 of the Company.

Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

•We did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored, and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

These IT deficiencies did not result in a material misstatement to the financial statements; however, the deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined these IT deficiencies in the aggregate constitute a material weakness.

(c) Remediation plan for the material weaknesses

Our remediation plan consists of the following:

•Hiring additional senior level accounting personnel with applicable technical accounting knowledge, training and experience in accounting matters, supplemented by third party resources;

•Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls over segregation of duties;

•Engaging an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission;

•Engaging third-party experts to assist with the preparation of technical accounting analysis and valuations associated with business combinations;

•Designing and implementing controls related to accounting for acquisitions and other technical accounting and financial reporting matters, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, tax impacts, and ongoing recording of the financial statement results of the acquired businesses;

•Designing and implementing formal accounting policies, procedures and controls supporting our period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, business performance reviews, foreign exchange gains/losses for intercompany transactions, and classification and presentation of accounts and disclosures, including the statement of cash flows;

89

•Designing and implementing controls over the completeness and accuracy of accrued liabilities, stock-based compensation and equity transactions;

•Designing and implementing controls related to accounting for complex financial instruments, including the earnings per share impacts;

•Designing and implementing controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment;

•Implementing an enhanced enterprise resource planning software for automation and enforcing segregation of duties across the organization; and

•Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.

While we believe that these efforts will improve our internal control over financial reporting, remediation of the material weaknesses will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Therefore, these material weaknesses have not been remediated as of June 30, 2022.

(d) Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2022, as defined under Rule 13a-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II

Item 1. Legal Proceedings

Information in response to this Item is included in “Part I — Item 1. — Note 11 — Commitments and contingencies” and is incorporated by reference into Part II of this Quarterly Report on Form 10-Q/A.

Item 1A. Risk Factors.

Other than with respect to the material weakness described herein, which could further amplify our previously disclosed risks, particularly with respect to the consequences of a material weakness in internal control over financial reporting, there are no material changes had occurred in our risk factors, compared with the disclosure in our Registration Statement on Form S-1, originally filed with the SEC on April 1, 2022, as subsequently amended (Reg. No. 333-262608), and subsequent filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 4, 2022, in connection with the Company's acquisition of NextGen Shopping, Inc. (d/b/a "CouponFollow"), the Company issued 2,000 shares of its Class A common stock with a total fair value of $25,500 in a private placement, which shares were subsequently registered on our Registration Statement on Form S-1, originally filed with the SEC April 1, 2022, as subsequently amended (Reg. No. 333-262608).

Item 3. Defaults Upon Senior Securities

On May 1, 2023, the Company did not deliver audited financial statements as required under the terms of its credit agreement. On May 1, 2023, the Company received a notice of default, which started a 30 day cure period, ending on May 31, 2023, within which the Company could remedy the default. On June 1, 2023, as a result of not delivering audited financial statements for the fiscal year ended December 31, 2022, the default constitutes an event

90

of default. As a result, the outstanding principal balances of $430,000 for the Term Loan and Revolving Facility are callable by Bank of America at the request of, or with the consent of, the required majority of lenders thereunder. Upon delivering audited financial statements prior to the debt being called, the event of default will no longer be continuing and the Company will be in compliance with the credit agreement, which eliminates the ability of the lenders to exercise remedies with respect thereto.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

In August 2022, the Company's Board of Directors authorized up to $25,000 for the repurchase of its Class A Common Shares and Public Warrants.

91

Item 6. Exhibits

			Incorporated by Reference				Filed or Furnished Herewith
Exhibit No.		Description	Form	File No.	Exhibit	Filing Date
2.1(a)		Business Combination Agreement, dated as of June  28, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto.	8-K	001-39331	2.1	6/29/2021
	0
2.1(b)		Amendment No. 1 to the Business Combination Agreement, dated as of November  30, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto.	S-4	333-260714	2.2	12/1/2021
2.1(c)		Amendment No. 2 to the Business Combination Agreement, dated January  10, 2022, by and among S1 Holdco, LLC, a Delaware limited liability company, System1 SS Protect Holdings, Inc., a Delaware corporation and the other parties signatory thereto.	8-K	001-39331	10.1	1/20/2022
2.1(d)		Amendment No. 3 to the Business Combination Agreement, dated January  25, 2022, by and among S1 Holdco, LLC, a Delaware limited liability company, System1 SS Protect Holdings, Inc., a Delaware corporation and the other parties signatory thereto.	8-K	001-39331	10.1	1/26/2022
3.1		Certificate of Incorporation of System1, Inc.	8-K	001-39331	3.1	2/2/2022
3.2		Amended and Restated Bylaws of System1, Inc.	8-K	001-39331	3.1	7/8/2022
4.1		Warrant Agreement, dated June 19, 2020, by and between Trebia Acquisition Corp. and Continental Stock Transfer  & Trust Company, as warrant agent.	8-K	001-39331	4.1	6/2/2020
4.2		Credit and Guarantee Agreement	10-Q/A	001-39331	4.2	6/5/2023
10.1		System1, Inc. 2022 Incentive Award Plan.	8-K	001-39331	10.2	2/20/2022
10.2		Amended and Restated Backstop Facility Agreement, dated January  10, 2022, by and between Trebia Acquisition Corp. and Cannae Holdings, Inc.	8-K	001-39331	10.3	1/10/2022
10.3		Protected Support Agreement, dated as of June  28, 2021, by and among each of the Persons listed on Exhibit A thereto, JDI & AFH Limited, Protected.net Group Limited, Protected Security Holdings, LLC and Trebia Acquisition Corp.	S-4	333-260714	10.8	12/16/2021
31.1*		Certification of principal executive officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2*		Certification of principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1**		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2**		Certification of principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS*		XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		XBRL Taxonomy Extension Schema Document.

92

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.
**	This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

93

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Sysem1 Inc.
Date: June 5, 2023	By:	/s/ Michael Blend
		Michael Blend
		Chief Executive Officer
Date: June 5, 2023	By:	/s/ Tridivesh Kidambi
		Tridivesh Kidambi
		Chief Financial Officer

94

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Michael Blend, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q/A of System1, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael Blend        

Michael Blend

Chief Executive Officer    

(Principal Executive Officer)

Date: June 5, 2023

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Tridivesh Kidambi, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q/A of System1, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Tridivesh Kidambi    

Tridivesh Kidambi

Chief Financial Officer    

(Principal Financial Officer)

Date: June 5, 2023

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q/A for the fiscal quarter ended June 30, 2022 of System1, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Blend, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael Blend                

Michael Blend

Chief Executive Officer

(Principal Executive Officer)

Date: June 5, 2023

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (the “SEC”) or its staff upon request.

This certification accompanies the Form 10-Q/A to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q/A), irrespective of any general incorporation language contained in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q/A for the fiscal quarter ended June 30, 2022 of System1, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tridivesh Kidambi, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tridivesh Kidambi        

Tridivesh Kidambi

Chief Financial Officer

(Principal Financial Officer)

Date: June 5, 2023

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (the “SEC”) or its staff upon request.

This certification accompanies the Form 10-Q/A to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q/A), irrespective of any general incorporation language contained in such filing.

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2022	Aug. 12, 2022
Cover
Document Type	10-Q/A
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2022
Document Transition Report	false
Entity File Number	001-39331
Entity Registrant Name	System1, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	98-1531250
Entity Address, Address Line One	4235 Redwood Avenue
Entity Address, City or Town	Marina Del Rey
Entity Address State Or Province	CA
Entity Address, Postal Zip Code	90066
City Area Code	310
Local Phone Number	924-6037
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Central Index Key	0001805833
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Amendment Flag	true
Amendment Description	This Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) amends and restates certain items as listed in "Items Amended in this Form 10-Q/A" below in the Quarterly Report on Form 10-Q/A of System1, Inc. (the “Company,” "System1," "we," "us," "our" and other similar terms) for the quarter ended June 30, 2022, including the S1 Holdco LLC ("S1 Holdco") predecessor period from January 1, 2022 to January 26, 2022, for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 presented therein, as originally filed with the Securities and Exchange Commission (“SEC”) on August 15, 2022 (the “Original Report”).Restatement BackgroundAs described in the Company’s Current Report on Form 8-K (Item 4.02) filed on March 17, 2023, on March 15, 2023, the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) concluded that the unaudited condensed consolidated financial statements of the Company (the "quarterly financial statements") (i) as of and for the period ended March 31, 2022 included in the Company's Form 10-Q filed with the SEC on May 19. 2022, (ii) as of and for the three and six month periods ended June 30, 2022 (“Q2 2022”) included in the Original Report and (iii) as of and for the three and nine month periods ended September 30, 2022 (“Q3 2022”) included in the Company’s Form 10-Q filed with the SEC on November 14, 2022 should no longer be relied upon due to material errors identified in such financial statements and should be restated. The errors identified by the Company relate to its accounting for (i) the valuation and purchase price allocation of assets acquired and liabilities assumed in the Company’s business combination (“Merger”) with S1 Holdco LLC and System1 SS Protect Holdings, Inc. on January 27, 2022, (ii) equity awards, including certain restricted stock awards related to the Merger, (iii) the valuation and purchase price allocation of assets acquired in the Company’s acquisition of NextGen Shopping, Inc., d/b/a CouponFollow ("CouponFollow"), and (iv) certain other errors, including errors in the Statements of Cash Flows.The nature of the errors and related restatement to correct the errors are further described in Note 1 of the "Notes to Unaudited Condensed Consolidated Financial Statements" included in Part I, Item 1. "Financial Statements (Unaudited) As Restated" of this Form 10-Q/A.Control ConsiderationsManagement concluded, with concurrence of the Audit Committee, that there were additional deficiencies in our internal control over financial reporting that constituted additional material weaknesses as of June 30, 2022. For a discussion of management's consideration of our disclosure controls and procedures and material weaknesses in internal control over financial reporting identified, see Part I, Item 4, Controls and Procedures of this Form 10-Q/A.Items Amended in this Form 10-Q/AFor the convenience of the reader, this Form 10-Q/A sets forth the Original Report, as amended, in its entirety; however, this Form 10-Q/A amends and restates the following Items of the Original Filing to the extent necessary to reflect the adjustments discussed above:•Part I, Item 1. "Financial Statements (Unaudited)" to reflect the impact of the restatement;•Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" to reflect the impact of the restatement;•Part I, Item 4. "Controls and Procedures" to reflect the additional material weaknesses in internal control over financial reporting as of June 30, 2022;•Part II, Item 1A. "Risk Factors";•Part II, Item 3. Defaults Upon Senior Securities"; and,•Part II, Item 6. "Exhibits" to include (i) pursuant to the rules of the SEC, currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer which are attached as Exhibits 31.1, 31.2 and 32.1 to this Form 10-Q/A and (ii) restated unaudited condensed consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101 and 104.In addition, in connection with the preparation of this Form 10-Q/A, the Company has reevaluated its financial condition as of the date of filing this Form 10-Q/A. Based on this reevaluation, the Company identified matters that raised substantial doubt about its ability to continue as a going concern for the twelve-month assessment period from the date of filing this Form 10-Q/A. The assessment of going concern is further discussed in Note 1 of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1. “Financial Statements (Unaudited)” of this Form 10-Q/A.Except as described above, no attempt has been made in this Form 10-Q/A to reflect events occurring subsequent to the filing of the Original Report. Among other things, risk disclosures made in the Original Report have not been amended to reflect events that occurred or facts that became known to us subsequent to the filing of the Original Report (other than the restatement). Accordingly, this Form 10-Q/A should be read in conjunction with filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings. Restatement of Other Financial StatementsIn addition to the restated financial information for the period ended June 30, 2022 included in this Form 10-Q/A, we are also restating our interim condensed consolidated financial statements and related disclosures for the quarters ended March 31, 2022 and September 30, 2022. Concurrently with the filing of this Form 10-Q/A, we are sequentially filing with the SEC an amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2022 followed by this Form 10-Q/A and then followed by an amended Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2022 to restate for the errors described above and other identified errors impacting those periods.
Class A Common Stock
Cover
Title of 12(b) Security	Class A common stock, par value $0.0001 per share
Trading Symbol	SST
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding		90,593,904
Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share
Cover
Title of 12(b) Security	Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share
Trading Symbol	SST.WS
Security Exchange Name	NYSE
Class C Common Stock
Cover
Entity Common Stock, Shares Outstanding		22,077,319

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 37,442	$ 47,896
Restricted cash, current	4,572	0
Accounts receivable	93,662	90,203
Prepaid expenses and other current assets	12,298	7,689
Total current assets	147,974	145,788
Restricted cash, non-current	2,452	743
Property and equipment, net	4,330	830
Internal-use software development costs, net	3,610	11,213
Intangible assets, net	556,341	50,368
Goodwill	881,370	44,820
Operating lease right-of-use assets	7,533	0
Other non-current assets	804	3,149
Total assets	1,604,414	256,911
Current liabilities:
Accounts payable	17,286	72,846
Accrued expenses and other current liabilities	97,959	31,284
Deferred revenue	68,368	1,971
Operating lease liabilities, current	2,065	0
Notes payable, current	14,888	170,453
Total current liabilities	200,566	276,554
Operating lease liabilities, non-current	7,073	0
Notes payable, non-current	406,026	0
Warrant liability	13,669	0
Deferred tax liability	129,310	7,789
Protected incentive plan liability	18,163	0
Other liabilities	5,735	969
Total liabilities	780,542	285,312
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	812,309	0
Accumulated deficit	(169,603)	0
Members’ deficit	0	(28,829)
Accumulated other comprehensive income	(421)	428
Total stockholders’ equity/members’ deficit	642,296	(28,401)
Non-controlling interest	181,576	0
Total stockholders’ equity/members’ deficit	823,872	(28,401)
Total liabilities and stockholders’ equity/members’ deficit	1,604,414	256,911
Class A Common Stock
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	9	0
Class C Common Stock
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	$ 2	$ 0

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical)	Jun. 30, 2022 $ / shares shares
Class A Common Stock
Common stock, par value (in dollars per share) | $ / shares	$ 0.0001
Common stock, shares authorized (in shares)	500,000,000
Common stock issued (in shares)	90,587,000
Common stock outstanding (in shares)	90,587,000
Class C Common Stock
Common stock, par value (in dollars per share) | $ / shares	$ 0.0001
Common stock, shares authorized (in shares)	25,000,000
Common stock issued (in shares)	22,077,000
Common stock outstanding (in shares)	22,077,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Income Statement [Abstract]
Revenue	$ 52,712		$ 219,797	$ 169,579		$ 385,905	$ 317,140
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	41,507		152,558	126,167		272,942	236,952
Salaries, commissions, and benefits	31,181		49,511	17,698		97,709	32,893
Selling, general, and administrative	15,665		16,747	6,277		31,835	13,227
Depreciation and amortization	1,000		32,094	3,112		54,022	6,801
Total operating costs and expenses	89,353		250,910	153,254		456,508	289,873
Operating income (loss)	(36,641)		(31,113)	16,325		(70,603)	27,267
Other expense (income):
Interest expense	1,049		7,324	4,476		12,100	8,524
Change in fair value of warrant liabilities	0		(4,139)	0		9,622	0
Total other expense	(1,049)		(3,185)	(4,476)		(21,722)	(8,524)
Income (loss) before income tax	(37,690)		(34,298)	11,849		(92,325)	18,743
Income tax (benefit) provision	(629)		(454)	77		(15,103)	228
Net income (loss)	(37,061)	$ (43,378)	(33,844)	11,772	$ 6,743	(77,222)	18,515
Net loss attributable to non-controlling interest	0		(8,107)	0		(15,416)	0
Net income (loss) attributable to System1, Inc.	$ (37,061)		$ (25,737)	$ 11,772		$ (61,806)	$ 18,515
Basic net loss per share (in dollars per share)			$ (0.29)			$ (0.71)
Diluted net loss per share (in dollars per share)			$ (0.33)
Weighted average number of shares outstanding - basic (in shares)			89,701,000			86,840,000
Weighted average number of shares outstanding - diluted (in shares)			91,182,000
Basic net income (loss) per unit (in dollars per share)	$ (1.81)			$ 0.57			$ 0.90
Diluted net income (loss) per unit (in dollars per share)	$ (1.81)			$ 0.57			$ 0.90
Weighted average units outstanding - basic (in shares)	20,488,000			20,488,000			20,488,000
Weighted average units outstanding - diluted (in shares)	20,488,000			20,488,000			20,488,000

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (37,061)	$ (43,378)	$ (33,844)	$ 11,772	$ 6,743	$ (77,222)	$ 18,515
Other comprehensive income (loss)
Foreign currency translation income (loss)	87		(524)	24		(421)	465
Comprehensive income (loss)	(36,974)		(34,368)	11,796		(77,643)	18,980
Comprehensive loss attributable to non-controlling interest	0		(8,046)	0		(15,355)	0
Comprehensive income (loss) attributable to System1, Inc.	$ (36,974)		$ (26,322)	$ 11,796		$ (62,288)	$ 18,980

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Previously Reported	Revision of Prior Period, Adjustment	Cumulative Effect, Period of Adoption, Adjusted Balance	Common Stock Class A Common Stock	Common Stock Class A Common Stock Previously Reported	Common Stock Class A Common Stock Revision of Prior Period, Adjustment	Common Stock Class A Common Stock Cumulative Effect, Period of Adoption, Adjusted Balance	Common Stock Class C Common Stock	Common Stock Class C Common Stock Previously Reported	Common Stock Class C Common Stock Revision of Prior Period, Adjustment	Common Stock Class C Common Stock Cumulative Effect, Period of Adoption, Adjusted Balance	Common Stock Class D Common Stock	Common Stock Class D Common Stock Previously Reported	Common Stock Class D Common Stock Revision of Prior Period, Adjustment	Common Stock Class D Common Stock Cumulative Effect, Period of Adoption, Adjusted Balance	Additional Paid-In-Capital	Additional Paid-In-Capital Previously Reported	Additional Paid-In-Capital Revision of Prior Period, Adjustment	Additional Paid-In-Capital Cumulative Effect, Period of Adoption, Adjusted Balance	Accumulated Deficit	Accumulated Deficit Previously Reported	Accumulated Deficit Revision of Prior Period, Adjustment	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjusted Balance	Accumulated Other Comprehensive Income	Accumulated Other Comprehensive Income Previously Reported	Accumulated Other Comprehensive Income Revision of Prior Period, Adjustment	Accumulated Other Comprehensive Income Cumulative Effect, Period of Adoption, Adjusted Balance	Non-Controlling Interest	Non-Controlling Interest Previously Reported	Non-Controlling Interest Revision of Prior Period, Adjustment	Non-Controlling Interest Cumulative Effect, Period of Adoption, Adjusted Balance
Beginning balance at Dec. 31, 2021	$ (28,401)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(37,061)	$ (40,460)
Other comprehensive income	87																								$ 87
Share-based compensation	23,705
Ending balance (in shares) at Jan. 26, 2022						51,750	29,017	80,767		0	22,077	22,077		0	1,450	1,450
Ending balance at Jan. 26, 2022		466,211	$ 347,055	$ 813,266		$ 5	$ 3	$ 8		$ 0	$ 2	$ 2		$ 0	$ 0	$ 0		$ 574,003	$ 148,359	$ 722,362		$ (107,797)	$ 0	$ (107,797)		$ 0	$ 0	$ 0		$ 0	$ 198,691	$ 198,691
Beginning balance at Dec. 31, 2021	(28,401)
Ending balance (in shares) at Jun. 30, 2022					90,587				22,077				0
Ending balance at Jun. 30, 2022	823,872	827,123			$ 9				$ 2				$ 0				$ 812,309				$ (169,603)				(421)				$ 181,576
Beginning balance (in shares) at Jan. 26, 2022						51,750	29,017	80,767		0	22,077	22,077		0	1,450	1,450
Beginning balance at Jan. 26, 2022		466,211	347,055	813,266		$ 5	$ 3	$ 8		$ 0	$ 2	$ 2		$ 0	$ 0	$ 0		574,003	148,359	722,362		(107,797)	0	(107,797)		0	0	0		0	198,691	198,691
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(43,378)																				(36,069)								(7,309)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions (in shares)					930
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	661																661
Issuance of common stock in connection with the acquisition of business (in shares)					2,000
Issuance of common stock in connection with the acquisition of business	25,500																25,500
Issuance of market-based restricted stock units upon vesting													1,450
Conversion of Class D shares to Class A shares (in shares)					2,900
Conversion of Class D shares to Class A shares	1				$ 1								$ 2,900
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	(2,596)																(2,596)
Other comprehensive income	(81)																								103				(184)
Share-based compensation	31,398																31,398
Distribution to members	(247)																												(247)
Ending balance (in shares) at Mar. 31, 2022					86,597				22,077				0
Ending balance at Mar. 31, 2022	824,524				$ 9				$ 2				$ 0				777,325				(143,866)				103				190,951
Beginning balance (in shares) at Jan. 26, 2022						51,750	29,017	80,767		0	22,077	22,077		0	1,450	1,450
Beginning balance at Jan. 26, 2022		466,211	$ 347,055	$ 813,266		$ 5	$ 3	$ 8		$ 0	$ 2	$ 2		$ 0	$ 0	$ 0		$ 574,003	$ 148,359	$ 722,362		$ (107,797)	$ 0	$ (107,797)		$ 0	$ 0	$ 0		$ 0	$ 198,691	$ 198,691
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(77,222)	(72,124)
Ending balance (in shares) at Jun. 30, 2022					90,587				22,077				0
Ending balance at Jun. 30, 2022	823,872	827,123			$ 9				$ 2				$ 0				812,309				(169,603)				(421)				181,576
Beginning balance (in shares) at Mar. 31, 2022					86,597				22,077				0
Beginning balance at Mar. 31, 2022	824,524				$ 9				$ 2				$ 0				777,325				(143,866)				103				190,951
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(33,844)	(34,065)																			(25,737)								(8,107)
Exercise of warrants (in shares)					3,969
Exercise of warrants	27,989																27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes (in shares)					21
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	0
Other comprehensive income	(538)																								(524)				(14)
Share-based compensation	6,995																6,995
Distribution to members	(1,254)																												(1,254)
Ending balance (in shares) at Jun. 30, 2022					90,587				22,077				0
Ending balance at Jun. 30, 2022	$ 823,872	$ 827,123			$ 9				$ 2				$ 0				$ 812,309				$ (169,603)				$ (421)				$ 181,576

XML

Condensed Consolidated Statements of Changes in Member's Deficit (Unaudited) - USD ($) $ in Thousands	Total	Court Square Capital Partners	OpenMail	Members’ Deficit	Members’ Deficit Court Square Capital Partners	Members’ Deficit OpenMail	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2020	$ (48,229)			$ (47,886)			$ (343)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	6,743			6,743
Accumulated other comprehensive income	441						441
Share-based compensation expense	146			146
Contribution from OpenMail			$ 147			$ 147
Ending balance at Mar. 31, 2021	(40,752)			(40,850)			98
Beginning balance at Dec. 31, 2020	(48,229)			(47,886)			(343)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	18,515
Ending balance at Jun. 30, 2021	(31,524)			(31,646)			122
Beginning balance at Mar. 31, 2021	(40,752)			(40,850)			98
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	11,772			11,772
Accumulated other comprehensive income	24						24
Share-based compensation expense	120			120
Distribution to members		$ (1,814)	(877)		$ (1,814)	(877)
Contribution from OpenMail			$ 3			$ 3
Ending balance at Jun. 30, 2021	(31,524)			(31,646)			122
Beginning balance at Dec. 31, 2021	(28,401)			(28,829)			428
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(37,061)			(37,061)
Accumulated other comprehensive income	87						87
Share-based compensation expense	23,705			23,705
Ending balance at Jan. 26, 2022	$ (41,670)			$ (42,185)			$ 515

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Jan. 27, 2022	Dec. 31, 2021
Cash flows from Operating Activities:
Net income (loss)	$ (37,061)	$ (43,378)	$ (33,844)	$ 11,772	$ 6,743	$ (77,222)		$ 18,515
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	1,000		32,094	3,112		54,022		6,801
Share-based compensation	23,705					57,470		224
Amortization of debt issuance costs	0					2,226		1,131
Noncash lease expense	115					694		0
Change in fair value of contingent consideration and CEO equity profit interest	(9)					(27)		4,331
Change in fair value of warrants	0		4,139			9,622		0
Deferred tax benefits	(816)					(22,746)		(603)
Other	0					661		0
Changes in operating assets and liabilities
Accounts receivable	11,118					(8,136)		(8,306)
Due from related party	0					0		0
Prepaids and other assets	1,069					(2,002)		(1,864)
Accounts payable	(67,600)					6,535		8,568
Accrued expenses and other liabilities	57,488					(11,225)		(1,978)
Protected.net incentive plan liability	0					5,694		0
Deferred revenue	311					7,211		494
Other long-term liabilities	77					(31,080)		0
Net cash (used in) operating activities	(10,603)					(8,303)		27,313
Cash flows from Investing Activities:
Purchases of property and equipment	0					(2,310)		0
Capitalized software development costs	(441)					(3,497)		(3,233)
Acquisition of businesses, net of cash acquired	0					(444,074)		0
Net cash used in investing activities	(441)					(449,881)		(3,233)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	0					449,000		0
Repayment of term loan	0					(177,488)		(8,136)
Member capital contributions	0					0		150
Payments on contingent consideration from purchase of companies	0					0		(6,715)
Payments for financing costs	0					(24,845)		0
Payments for earnouts	0					(1,715)		0
Redemptions of Class A common stock	0					(510,469)		0
Proceeds from warrant exercises	0					5,027	$ 5,028	0
Cash received from the Backstop	0					246,484		0
Related party loan	0					0
Related party loan								(1,500)
Distributions to members	0					(1,501)		(2,691)
Net cash used in financing activities	0					(15,507)		(18,892)
Effect of exchange rate changes in cash, cash equivalent and restricted cash	(19)					604		366
Net increase (decrease) in cash, cash equivalents and restricted cash	(11,063)					(473,087)		5,554
Cash and cash equivalents and restricted cash, beginning of the period	48,639	$ 37,576			$ 29,013	37,576	48,639	29,013
Cash and cash equivalents and restricted cash, end of the period	37,576		44,466	34,567		44,466	44,466	34,567
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	36,833		37,442	34,567		37,442	37,442	34,567		$ 47,896
Restricted cash	743		7,024	0		7,024	7,024	0
Total cash, cash equivalents and restricted cash	37,576		$ 44,466	$ 34,567		44,466	$ 44,466	34,567	$ 517,553	$ 48,639
Supplemental cash flow information:
Cash paid for operating lease liabilities	175					563		0
ROU assets obtained in exchange for operating lease liabilities	7,987					2,064		0
Equity issuance to settle intercompany loan	941					0		0
Deferred consideration for acquisition	$ 0					$ 7,059		$ 0

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND DESCRIPTION OF BUSINESS

ORGANIZATION AND DESCRIPTION OF BUSINESS

System1, Inc. and subsidiaries (“System1”, or the “Company”, f/k/a Trebia Acquisition Corp.) operates an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and sells antivirus software packages to end user customers.

The Company provides its omnichannel customer acquisition platform services through its proprietary responsive acquisition marketing platform, or RAMP. Operating seamlessly across major advertising networks and advertising category verticals to acquire users on its behalf, RAMP allows the Company to monetize such users through its relationships with third party advertisers and advertising networks, which the Company refers to as its Advertising Partners. RAMP also allows third party advertising platforms and publishers, which the Company refers to as its Network Partners, to send user traffic to, and monetize user traffic on, the Company’s owned and operated websites. RAMP operates across the Company’s network of owned and operated websites and related products, allowing the Company to monetize user traffic that the Company sources from various acquisition marketing channels, including Google, Facebook, Taboola, Snapchat and TikTok.

The Company, through Protected.net, also provides antivirus software solutions to its customers, offering its customers a single packaged solution that provides protection and reporting to the end user. The Company delivers its antivirus software solutions directly to end-user customers across the world. The antivirus software solutions product offering comprises a core security package with varying levels of extra protection based on a customer's specific needs.

The Company’s primary operations are in the United States; however, the Company also has operations in Canada, the United Kingdom, and the Netherlands. Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among these risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, and exposure to currency exchange fluctuations. The Company does not engage in hedging activities to mitigate its exposure to fluctuations in foreign currency exchange rates.

For the purposes of the condensed consolidated financial statements, periods on or before January 26, 2022 reflect the financial position, results of operations and cash flows of S1 Holdco and its consolidated subsidiaries prior to the Merger transaction (as defined in Note 3), referred to herein as the “Predecessor,” and periods beginning on or after January 27, 2022 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the Merger transaction, referred to herein as the “Successor”.

Revenue attributable to the United States of the total revenue were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
United States	76	%	96	%	78	%	98	%	97	%

Long-lived assets attributable to the United States and Canada represent 77% and 16% of total long-lived assets as of June 30, 2022 (Successor), respectively, and 99% and 1% of total long-lived assets as of December 31, 2021 (Predecessor), respectively.

Going Concern

As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan (refer to Note 12 – DEBT). The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America. The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern. Upon delivery of the audited financial statements by the Company, the event of default will be remediated and, once remediated, Bank of America will no longer have the ability to call the outstanding principal balances on the Term Loan and Revolving Facility.

Separate from the default under the Term Loan and Revolving Facility, in the third and fourth quarters of 2022, the Company experienced declining cash flows and financial performance as a result of deteriorating macroeconomic conditions, resulting in reductions in both advertiser and overall consumer demand for our marketing services. As of December 31, 2022, the Company had cash on hand of $24,606. The declining cash flows and financial performance also raised substantial doubt regarding the Company's ability to continue as a going concern for a period of one year following the date that the consolidated financial statements are issued. In response to the declining cash flows, the Company implemented a plan to raise additional financing. On April 10, 2023, the Company entered into an incremental revolver note (“2023 Revolving Note”) with related parties for $20,000 (refer to Note 12—DEBT for additional information regarding the 2023 Revolving Note). As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Restatement of Previously Issued Financial Statements

The Company identified errors impacting the previously issued unaudited condensed consolidated financial statements for the periods indicated below. The Company analyzed the errors using Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and determined the errors were material to the previously issued unaudited condensed consolidated financial statements. Accordingly, in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, the Company has restated herein the unaudited condensed consolidated statements of operations, of comprehensive income (loss), of changes in members’ deficit and of cash flows for the predecessor period from January 1, 2022 to January 26, 2022, the successor condensed consolidated balance sheet as of June 30, 2022 and the condensed consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity and of cash flows for the Successor periods from January 27, 2022 to June 30, 2022 and from April 1, 2022 to June 30, 2022 and related footnote disclosures that were impacted by the errors.

A description of the errors is as follows:

I.Merger and business combination errors, and other errors impacting the successor period opening statement of stockholders’ equity:

a.Valuation related errors - The Company identified the following valuation errors related to the Merger with S1 Holdco, LLC (“S1 Holdco”) and System1 SS Protected Holdings. Inc. (“Protected”) ("the Merger") which occurred on January 27, 2022 ("the Merger date") and the

NextGen Shopping, Inc. d/b/a CouponFollow (“CouponFollow”) acquisition which occurred on March 4, 2022:

i.Error in the valuation of acquired developed technology from S1 Holdco in the Merger due to incorrectly recording capitalized internal-use software costs that were already included in the valuation of the RAMP developed technology which overstated capitalized Internal-use software development costs by $11,312 and understated Goodwill by $11,312 as of the Merger date. As a result of this error, capitalized Internal-use software development costs, net, was overstated by $9,352 and Goodwill was understated by $11,312 as of June 30, 2022 and Depreciation and amortization expense was overstated by $1,118 and $1,960 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

ii.Errors in the valuation of intangible assets of S1 Holdco in the Merger due to the use of incorrect forecasts and assumptions that were not updated to reflect the facts and circumstances as of the date of the Merger, which understated intangible assets by $9,400 and overstated Goodwill by $9,400 as of the Merger date. The impact to the intangible assets as of the Merger date was as follows: trademarks were understated by $10,900 and customer relationship and developed technology intangible assets were overstated by $500 and $1,000, respectively. As a result of these errors, Intangible assets, net, was understated by $9,085 and Goodwill was overstated by $9,400 as of June 30, 2022 and Depreciation and amortization expense was understated by $186 and $315 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

iii.Errors in the valuation of intangible assets of Protected in the Merger due to the use of incorrect forecasts and assumptions that were not updated to reflect facts and circumstances as of the date of the Merger, which overstated intangible assets by $2,800 and understated Goodwill by $2,800 as of the Merger date. The impact to the intangible assets as of the Merger date was as follows: trademarks were overstated by $7,700 and customer relationships were understated by $4,900. As a result of these errors, Intangible assets, net, was overstated by $2,163 and Goodwill was understated by $2,800 as of June 30, 2022, and Depreciation and amortization expense was overstated by $506 and $638 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively;

iv.Errors in the valuation of intangible assets from the CouponFollow acquisition due to the use of incorrect forecasts and assumptions that were not updated to reflect facts and circumstances as of the date of the acquisition, which understated intangible assets by $11,900, and overstated Goodwill by $11,900 as of the acquisition date. As a result of these errors, Intangible assets, net was understated by $11,506 and Goodwill was overstated by $11,900 as of June 30, 2022 and Depreciation and amortization expense was understated by $305 and $394 for the successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively.

b.Not used

c.Stock retirement error – The Company identified an error in the accounting for the repurchase and retirement of common stock that was incorrectly recorded to Additional paid-in capital upon the Merger rather than directly to Accumulated deficit. This error resulted in an understatement of Additional paid-in capital and Accumulated deficit by $31,167 as of January 27, 2022 and June 30, 2022.

d.Forward purchase liability error – The Company identified an error in the opening balance sheet as of January 27, 2022 related to the accounting and valuation of a modification to a forward purchase contract classified as a liability with Cannae (as defined in Note 3). As further described in Note 3, on June 28, 2021, and as amended on January 10, 2022, the Trebia Sponsors agreed to

forfeit up to 2,600 shares of Trebia Class B common stock in exchange for Cannae providing backstop funding for the Merger. This should have resulted in Trebia recording a forward purchase agreement liability on June 28, 2021, with mark-to-market adjustments to fair value at each future reporting date. The Company estimated the value of this liability immediately preceding the Merger based on the final redemptions and Cannae’s anticipated backstop funding and the impact of reversing the gain recorded upon termination of the original forward agreement with Cannae. This error resulted in an understatement of Accumulated deficit and Additional paid-in capital by $25,336 as of June 30, 2022.

e.Tax related opening balance sheet errors - The Company identified tax related errors in the acquired assets and liabilities relating to the Merger and its other business acquisitions due to the valuation errors noted in (a) above and a failure to identify and record acquired tax assets and liabilities as follows:

i.The Company identified tax related errors in the acquired assets and liabilities relating to S1 Holdco which, after consideration of measurement period adjustments originally recorded in the period, resulted in an understatement of prepaid expenses and other current assets of $2,537, an understatement of Other non-current assets of $27, an understatement of Accrued expenses and other current liabilities of $362, an overstatement of the Deferred tax liability of $5,844, and an overstatement of Goodwill of $8,047 as of the Merger date and June 30, 2022;

ii.The Company identified tax related errors in the acquired assets and liabilities relating to Protected during the Merger which resulted in an understatement of Prepaid expenses and other current assets of $2,063, an understatement of Accrued expenses and other current liabilities of $1,744, an overstatement of the Deferred tax liability of $110, and an overstatement of Goodwill of $429 as of the Merger date and June 30, 2022;

iii.The Company identified tax related errors in the acquired assets and liabilities relating to the CouponFollow acquisition which resulted in an overstatement of Accrued expenses and other current liabilities by $693, an understatement of Deferred tax liability by $2,802, and an understatement of Goodwill by $2,109 as of the acquisition date and June 30, 2022.

II.Equity related errors:

f.CouponFollow Incentive Plan error - The Company failed to record a post-combination bonus expense for the three months ended June 30, 2022 related to CouponFollow’s Incentive Plan. The impact of this error was an understatement of Salaries, commissions and benefits expense of $1,001 for the Successor period three months ended June 30, 2022 and the Successor period from January 27, 2022 to June 30, 2022 and an understatement of Accrued expenses and other current liabilities by $1,001 as of June 30, 2022.

g.Stock based compensation - The Company identified errors in its accounting for stock-based compensation arrangements as follows:

i.Errors in accounting for Class F Unit ("F units") awards relating to the modification of the awards and the attribution of compensation cost between purchase consideration and post-combination expense due to the incorrect use of graded vesting for expense recognition subsequent to the Merger rather than recognizing expense on a straight-line basis; the determination of the fair value of awards upon the Merger; a spreadsheet formula error; and the accounting for forfeitures of awards subsequent to the Merger. In the Predecessor period there was an overstatement of Additional paid-in capital and an overstatement of Stock-based compensation expense of $3,993. As a result of these errors, Goodwill was overstated by $4,115, Accrued expenses and other current liabilities was overstated by $159, Other liabilities was overstated by $147, Additional paid-in capital was understated by $6,774, and Accumulated other comprehensive income was

overstated by $1 as of June 30, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $497 and $10,582 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022, respectively;

ii.Errors in accounting for Value Creation Unit ("VCU") awards relating to the modification of the awards and the attribution of compensation cost between purchase consideration and post-combination expense due to the incorrect use of graded vesting for expense recognition subsequent to the Merger rather than recognizing expense on a straight-line basis; the determination of the fair value of awards upon the Merger; and the accounting for forfeitures of awards subsequent to the Merger. As a result of these errors, Goodwill was overstated by $7,133, Accrued expenses and other current liabilities was overstated by $512, Other liabilities was overstated by $1,390, and Additional paid-in capital was overstated by $4,036 as of June 30, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $1,017 and $1,195 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022, respectively;

iii.Errors in the accounting for restricted stock awards issued to the SPAC sponsors, which should have been treated as an equity exchange on the Merger date rather than as compensation expense in the Successor period from January 27, 2022 to June 30, 2022 As a result, Salaries, commissions, and benefits was overstated by $0 and $12,746 in the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 and Additional paid-in capital was overstated by $12,746 as of June 30, 2022;

iv.Error in the accounting and valuation for Sponsor Promote Shares which should have been recorded in the Successor period from January 27, 2022 to June 30, 2022 rather than the Trebia financial statements as of January 26, 2022. As a result, Additional paid-in capital and Accumulated deficit were overstated by $8,079 in opening shareholders' equity as of January 27, 2022. This error resulted in an understatement of Additional paid-in capital of $288 as of June 30, 2022. Additionally, this error resulted in an understatement of stock-based compensation expense included in Salaries, commissions and benefits of $0 and $7,706 and an understatement of Selling, general and administrative expense of $0 and $661 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively.

h.Stock based compensation errors, other - The Company identified other errors relating to the improper accounting for equity awards, which overstated Goodwill by $518 and overstated Additional paid-in capital by $518 as of the Merger date. These errors resulted in an understatement of stock-based compensation expense included in Salaries, commissions and benefits of $1,473 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively. As a result of these errors, Goodwill was overstated by $518 and Additional paid-in capital was understated by $955 as of June 30, 2022.

III.Other errors:

i.Non-controlling interest errors - The Company identified errors related to its calculation of net loss attributable to non-controlling interests due to the inclusion of entities that did not have non-controlling interests. In addition, the Company has corrected Net loss attributable to non-controlling interest for other errors described herein. The impact of the errors was an understatement of Accumulated other comprehensive income by $368 an overstatement of Accumulated deficit by $2,420, and an overstatement of Non-controlling interest by $2,788 as of June 30, 2022. Net loss attributable to non-controlling interest was understated by $3,240 and $2,481 for the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively. As a result of these adjustments, Comprehensive loss

attributable to non-controlling interest was understated by $3,234 and $2,469 for the Successor three months ended June 30, 2022 and the period from January 27, 2022 through June 30, 2022.

j.Internal-use software development costs – The Company identified errors in the capitalization of internal-use software costs subsequent to the Merger which resulted in an understatement of Internal-use software development costs, net by $1,316 as of June 30, 2022 and an overstatement of Salaries, commissions, and benefits expense by $36 and $519, and an overstatement of Depreciation and amortization expense by $170 and $797 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 through June 30, 2022, respectively.

k.Accrual related errors - The Company identified various errors in accruals at period ends which impacted the Predecessor and Successor Periods. These errors had the impact of overstating Cost of revenues by $261 and understating Selling, general and administrative expense by $744 in the Predecessor period from January 1, 2022 to January 26, 2022 and understating Accrued expenses and other current liabilities by $319 and overstating Prepaid expenses and other current assets by $164 as of the Merger date. These errors also had the impact of understating Cost of revenues by $0 and $261 and Selling, general and administrative expense by $537 and $92 in the Successor period three months ended June 30, 2022 and for the period from January 27, 2022 to June 30, 2022, respectively, and understating Accrued expenses and other current liabilities and Goodwill by $836 and $483, respectively, as of June 30, 2022.

l.RoadWarrior contingent consideration errors - Errors in the valuation of contingent consideration for the RoadWarrior acquisition resulting from a misinterpretation of the arrangement. The Company erroneously recorded a liability in the opening balance sheet for contingent consideration; however, the arrangement does not include contingent consideration provisions. The impact of the error was an overstatement of Goodwill, Accrued expenses and other current liabilities, and Other liabilities by $540, $337, and $209, respectively, as of June 30, 2022. Additionally, Selling, general and administrative was overstated by $0 and $6 for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022, respectively.

m.Impact of errors on tax accounts:

i.The income tax provision was recomputed based on the restated pre-tax income (loss) for the period, resulting in an understatement of Income tax benefit for the Successor period three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022 by $3,454 and $1,851, respectively, and an overstatement of the related Deferred tax liability of $1,851 as of June 30, 2022;

ii.As a result of the valuation errors identified in the opening balance sheet, the Company corrected the tax impacts of the Company’s contribution of the net assets of CouponFollow to System1 Opco, LLC immediately following the acquisition, resulting in an overstatement of the Deferred tax liability and an understatement of Additional paid-in capital of $3,573, as of June 30, 2022;

iii.The Company identified errors in the reconciliation of its tax accounts as of June 30, 2022 which resulted in an overstatement of Prepaid expenses and other current assets by $1,973, an overstatement of Accrued expenses and other current liabilities of $2,032, an understatement of Deferred tax liability by $534 and an overstatement of Accumulated other comprehensive income of $475 as of June 30, 2022. The accumulated other comprehensive income adjustment was the result of the Company correcting for a foreign currency error incorrectly applied to deferred tax balances.

n.Other classification errors - The Company identified classification errors between current and non-current Restricted cash and Accounts receivable, which overstated Restricted cash, current by $1,185, understated Restricted cash, non-current and Accounts receivable by $920 and $265, respectively, as of June 30, 2022.

o.Other adjustments - In addition to the impacts of the adjustments described herein, the Company identified various adjustments primarily related to rounding.

p.Impact of errors on foreign currency translation - As a result of the correction of the identified errors and preparation of the financial statements, the effects of foreign currency translation adjustments and their effects on other comprehensive income have also been reflected within the restated amounts.

q.Cash flow errors - In addition to the impacts of adjustments to correct the statements of cash flows from the adjustments described above, the Company also determined that various line items within the operating activities section required the correction of errors and total cash flows within operating, investing, and financing activities were misstated due to errors resulting from incorrect support utilized by the Company in preparing the statements of cash flows. The aggregate impact of these errors to the consolidated statements of cash flows for the Successor period from January 27, 2022 to June 30, 2022 was an understatement of Share-based compensation of $38, an overstatement of decrease in Change in fair value of contingent consideration and CEO equity profit interest of $45, and overstatement of increase in Accounts receivable of $19, an understatement of increase in Prepaids and other assets of $863, an understatement of decrease in Accrued expenses and other liabilities of $7,274, an understatement of increase in Protected.net incentive plan liability of $5,694, an understatement of increase in Other long-term liabilities of $72, an understatement of Purchases of property and equipment of $25, an understatement of Capitalized software development costs of $77, an overstatement of Acquisitions of businesses, net of cash acquired of $1,886. The Company also identified other immaterial errors for the Successor period from January 27, 2022 to June 30, 2022 which have been corrected herein.

r.Cash flow lease payments error - Cash lease payments of $784 for the Successor period from January 27, 2022 through June 30, 2022 were previously classified as noncash "Amortization of right-of-use-assets" rather than as lease liability outflows in changes in operating assets and liabilities in the statement of cash flows.

s.Earnings per share error - The Company identified an error in its computation of weighted average number of shares which impacted the earnings per share disclosure for the Successor three months ended June 30, 2022 and the period from January 27, 2022 to June 30, 2022. Additionally, the Company did not appropriately include the impact of “in-the-money” warrants on the presentation of diluted earnings per share for the three months ended June 30, 2022. This error resulted in an increase in the diluted net loss per share by $(0.04) which was offset by the change in net income attributable to System1 impacts above.

t.Not used

The accompanying notes to the condensed consolidated financial statements have also been corrected to reflect the impacts of the adjustments described above. In addition, the Company has corrected the following disclosures errors:

•Authorized share disclosure - The Company corrected disclosure of the number of authorized Class A common stock on the condensed consolidated balance sheet.

•Merger disclosures - The Company corrected the disclosure in Note 3 related to the presentation of assets acquired and liabilities assumed from the Merger and the unaudited pro forma information due to errors resulting from incorrect support utilized in preparing the disclosures and incorrect application of adjustments to the pro forma information.

•CouponFollow acquisition disclosures – The Company corrected the disclosure in Note 4 for transaction costs incurred for the CouponFollow acquisition that did not include total amounts incurred in 2021 and the amount of deferred contingent consideration;

•Reportable segment goodwill disclosure - The Company corrected the disclosure in Note 6 related to errors in the allocation of goodwill from the Merger and other business acquisitions to its reportable segments;

•Segment disclosures – The Company also corrected the disclosure in Note 16 related to errors in the allocation of revenues and adjusted gross profit to the Owned and Operated and the Partner Network segments. For the Predecessor period from January 1, 2022 to January 26, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $542 and Owned and Operated adjusted gross profit was overstated by $542 and Partner Network adjusted gross profit was understated by $91. For the Successor period three months ended June 30, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $5,754 and Owned and Operated adjusted gross profit was overstated by $5,754 and Partner Network adjusted gross profit was understated by $585. For the Successor period from January 27, 2022 to June 30, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $9,128 and Owned and Operated adjusted gross profit was overstated by $9,128 and Partner Network adjusted gross profit was understated by $1,022;

•CouponFollow Incentive Plan disclosure - The Company corrected the disclosure in Note 18 to include the disclosure of terms of the CouponFollow Incentive Plan that were previously omitted;

The following table summarizes the effect of the adjustments to correct errors on each affected financial statement line item impacting the condensed consolidated balance sheet as of June 30, 2022. The footnotes correspond to the error descriptions above:

	Successor
	June 30, 2022
	As Previously Reported		Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	37,442	$	—		$	37,442
Restricted cash, current	5,757		(1,185)		(n)	4,572
Accounts receivable	93,397		265		(n)	93,662
Prepaid expenses and other current assets	9,671		4,600		(e)
			(1,973)		(m)	12,298
Total current assets	146,267		1,707			147,974
Restricted cash, non-current	1,532		920		(n)	2,452
Property and equipment, net	4,330		—			4,330
Internal-use software development costs, net	11,647		(9,352)		(a)
			1,316		(j)
			(1)		(o)	3,610
Intangible assets, net	537,913		18,428		(a)	556,341
Goodwill	907,248		(7,188)		(a)
			(6,367)		(e)
			(11,248)		(g)
			(518)		(h)
			483		(k)
			(540)		(l)
			1		(o)
			(501)		(p)	881,370
Operating lease right-of-use assets	7,533		—			7,533

Other non-current assets	779		27		(e)
			(2)		(o)	804
Total assets	$	1,617,249	$	(12,835)		$	1,604,414
LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Current liabilities:
Accounts payable	17,286		—			17,286
Accrued expenses and other current liabilities	97,752		1,413		(e)
			1,001		(f)
			(671)		(g)
			836		(k)
			(337)		(l)
			(2,032)		(m)
			(3)		(o)	97,959
Deferred revenue	68,368		—			68,368
Operating lease liabilities, current	2,065		—			2,065
Notes payable, current	14,888		—			14,888
Total current liabilities	200,359		207			200,566
Operating lease liabilities, non-current	7,073					7,073
Notes payable, non-current	406,026		—			406,026
Warrant liability	13,669		—			13,669
Deferred tax liability	137,354		(3,152)		(e)
			(4,890)		(m)
			(2)		(o)	129,310
Protected incentive plan liability	18,163		—			18,163
Other liabilities	7,482		(1,537)		(g)
			(209)		(l)
			(1)		(o)	5,735
Total liabilities	790,126		(9,584)			780,542
Commitments and contingencies
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Class A common stock - $0.0001 par value; 500,000 shares authorized, 90,587 Class A shares issued and outstanding as of June 30, 2022	9		—			9
Class C common stock - $0.0001 par value; 25,000 shares authorized, 22,077 Class C shares issued and outstanding as of June 30, 2022	2		—			2
Additional paid-in capital	761,002		31,167		(c)
			25,336		(d)
			(9,720)		(g)
			955		(h)
			3,573		(m)
			(4)		(p)	812,309
Accumulated deficit	(118,373)		1,888		(a)
			(31,167)		(c)
			(25,336)		(d)
			(1,001)		(f)
			681		(g)
			(1,473)		(h)
			2,420		(i)
			1,316		(j)
			(353)		(k)
			6		(l)
			1,851		(m)
			(17)		(o)
			(45)		(p)	(169,603)

Accumulated other comprehensive income (loss)	179		(1)		(e)
			(1)		(g)
			368		(i)
			(475)		(m)
			(39)		(o)
			(452)		(p)	(421)
Total stockholders’ equity/members’ deficit attributable to System1, Inc.	642,819		$	(523)		642,296
Non-controlling interest	184,304		(2,788)		(i)
			60		(o)	181,576
Total stockholders’ equity/members’ deficit	827,123		(3,251)			823,872
Total liabilities and stockholders’ equity/members’ deficit	$	1,617,249	$	(12,835)		$	1,604,414

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods indicated, impacting the condensed consolidated statements of operations. The footnotes correspond to the error descriptions above:

	Successor																Predecessor
	Three Months Ended June 30, 2022								Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated			As Previously Reported		Adjustments			As Restated			As Previously Reported		Adjustments			As Restated
Revenue	$	219,797	$	—		$	219,797		$	385,905	$	—		385,905			$	52,712				$	52,712
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	152,558		—			152,558			272,689		261		(k)				41,760		(261)		(k)
											(8)		(o)	272,942					8		(o)	41,507
Salaries, commissions, and benefits	45,555		1,001		(f)				89,014		1,001		(f)				35,175		(3,993)		(g)
			1,514		(g)						6,737		(g)						(1)		(o)	31,181
			1,473		(h)						1,473		(h)
			(36)		(j)						(519)		(j)
			4		(o)	49,511					3		(o)	97,709
Selling, general, and administrative	16,167		537		(k)				31,148		661		(g)				14,817		744		(k)
			43		(p)	16,747					92		(k)						104		(o)	15,665
											(6)		(l)
											(103)		(o)
											43		(p)	31,835
Depreciation and amortization	33,397		(1,133)		(a)				56,708		(1,889)		(a)				1,000		—			1,000
			(170)		(j)	32,094					(797)		(j)	54,022
Total operating costs and expenses	247,677		3,233			250,910			449,559		6,949			456,508			92,752		(3,399)			89,353
Operating income (loss)	(27,880)		(3,233)			(31,113)			(63,654)		(6,949)			(70,603)			(40,040)		3,399			(36,641)
Other expense (income):
Interest expense	7,324		—			7,324			12,100		—			12,100			1,049		—			1,049
Change in fair value of warrant liabilities	(4,139)		—			(4,139)			9,622		—			9,622			—		—			—
Total other expense	3,185		—			3,185			21,722		—			21,722			1,049		—			1,049
Income (loss) before income tax	(31,065)		(3,233)			(34,298)			(85,376)		(6,949)			(92,325)			(41,089)		3,399			(37,690)
Income tax (benefit) provision	3,000		(3,454)		(m)	(454)			(13,252)		(1,851)		(m)	(15,103)			(629)		—			(629)
Net income (loss)	$	(34,065)	$	221		$	(33,844)		$	(72,124)	$	(5,098)		$	(77,222)		$	(40,460)	$	3,399		$	(37,061)
Net loss attributable to non-controlling interest	(4,867)		(3,240)		(i)	(8,107)			(12,935)		(2,481)		(i)	(15,416)			—		—			—
Net income (loss) attributable to System1, Inc.	$	(29,198)	$	3,461		$	(25,737)		$	(59,189)	$	(2,617)		$	(61,806)		$	(40,460)	$	3,399		$	(37,061)
Basic net loss per share	$	(0.33)	$	0.04		$	(0.29)		$	(0.68)	$	(0.03)		$	(0.71)		n/a					n/a
Diluted net loss per share	$	(0.33)				$	(0.33)	(s)	n/a					n/a			n/a					n/a
Weighted average units outstanding - basic	89,701					89,701			87,351		(511)		(s)	86,840			n/a					n/a
Weighted average units outstanding - diluted	89,701		1,481		(s)	91,182			n/a					n/a			n/a					n/a
Basic and diluted net income (loss) per unit	n/a					n/a			n/a					n/a			$	(1.97)	$	0.16		$	(1.81)
Weighted average units outstanding - basic and diluted	n/a					n/a			n/a					n/a			20,488					20,488

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods indicated, impacting the condensed consolidated statements of comprehensive income (loss). The footnotes correspond to the error descriptions above:

	Successor							Successor							Predecessor
	Three Months Ended June 30, 2022							Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated
Net income (loss)	$	(34,065)	$	221	(a)(f)(g)(h)(j)(k)(m)(o)(p)	$	(33,844)	$	(72,124)	$	(5,098)	(a)(f)(g)(h)(j)(k)(m)(o)(p)	$	(77,222)	$	(40,460)	$	3,399	(g)(k) (o)	$	(37,061)
Other comprehensive income (loss)
Foreign currency translation income (loss)	262		(786)		(m)(p)	(524)		228		(649)		(m)(p)	(421)		87		—			87
Comprehensive income (loss)	$	(33,803)	$	(565)		$	(34,368)	$	(71,896)	$	(5,747)		$	(77,643)	$	(40,373)	$	3,399		$	(36,974)
Comprehensive loss attributable to non-controlling interest	(4,812)		(3,234)		(i)	(8,046)		(12,886)		(2,469)		(i)	(15,355)							—
Comprehensive income (loss) attributable to System1, Inc.	$	(28,991)	$	2,669		$	(26,322)	$	(59,010)	$	(3,278)		$	(62,288)	$	(40,373)	$	3,399		$	(36,974)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statements of changes in stockholders' equity. The footnotes correspond to the error descriptions above:

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
As Previously Reported
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	52,680	$	5	—	$	—	—	$	—	$	525,579	$	(59,184)	$	—	$	—	$	466,400
Effect of Merger transaction	29,017	3		22,077	2		2,900	—		157,046		—		—		198,691		355,742
BALANCE—January 27, 2022	81,697	8		22,077	2		2,900	—		682,625		(59,184)		—		198,691		822,142
Net loss	—	—		—	—		—	—		—		(29,991)		—		(8,068)		(38,059)
Issuance of common stock in connection with the acquisition of business	2,000	—		—	—		—	—		25,500		—		—		—		25,500
Issuance of market-based restricted stock units upon vesting	—	—		—	—		—	—		—		—		—		—		—
Conversion of Class D shares to Class A shares	2,900	1		—	—		(2,900)	—		—		—		—		—		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(6,752)		—		—		—		(6,752)
Other comprehensive income	—	—		—	—		—	—		—		—		(28)		(6)		(34)
Share-based compensation	—	—		—	—		—	—		27,167		—		—		—		27,167
Distribution to members	—	—		—	—		—	—		—		—		—		(247)		(247)
BALANCE—March 31, 2022	86,597	$	9	22,077	$	2	—	$	—	$	728,540	$	(89,175)	$	(28)	$	190,370	$	829,718
Net loss	—	—		—	—		—	—		—		(29,198)		—		(4,867)		(34,065)
Exercise of warrants	3,969	—		—	—		—	—		27,989		—		—		—		27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	21	—		—	—		—	—		—		—		—		—		—
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		585		—		—		—		585
Other comprehensive income	—	—		—	—		—	—		—		—		207		55		262
Share-based compensation	—	—		—	—		—	—		3,888		—		—		—		3,888
Distribution to members	—	—		—	—		—	—		—		—		—		(1,254)		(1,254)
BALANCE—June 30, 2022	90,587	$	9	22,077	$	2	—	$	—	$	761,002	$	(118,373)	$	179	$	184,304	$	827,123

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
Adjustments
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	(930)	$	—	—	$	—	—	$	—	$	48,424	$	(48,613)	$	—	$	—	$	(189)	(c) (d)
Effect of Merger transaction	—	—		—	—		(1,450)	—		(8,687)		—		—		—		(8,687)		(d) (g)
BALANCE—January 27, 2022	(930)	$	—	—	$	—	(1,450)	$	—	$	39,737	$	(48,613)	$	—	$	—	(8,876)
Net loss	—	—		—	—		—	—		—		(6,078)		—		759		(5,319)		(a)(g)(i)(j)(k)(l)(m)(o)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	930	—		—	—		—	—		661		—		—		—		661		(g)
Issuance of market-based restricted stock units upon vesting	—	—		—	—		1,450	—		—		—		—		—		—		(g)
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		4,156		—		—		—		4,156		(m)
Other comprehensive income	—	—		—	—		—	—		—		—		131		(178)		(47)		(p)
Share-based compensation	—	—		—	—		—	—		4,231		—		—		—		4,231		(g) (h)
BALANCE—March 31, 2022	—	$	—	—	$	—	—	$	—	$	48,785	$	(54,691)	$	131	$	581	$	(5,194)
Net loss	—	—		—	—		—	—		—		3,461		—		(3,240)		221		(g) (i)
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(585)		—		—		—		(585)		(m)
Other comprehensive income	—	—		—	—		—	—		—		—		(731)		(69)		(800)		(p)
Share-based compensation	—	—		—	—		—	—		3,107		—		—		—		3,107		(g) (h)
BALANCE—June 30, 2022	—	$	—	—	$	—	—	$	—	$	51,307	$	(51,230)	$	(600)	$	(2,728)	$	(3,251)

	Class A Common Stock			Class C Common Stock			Class D Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-Controlling Interest		Total Stockholders’ Equity
As Restated
Successor:
For the period from January 27, 2022 to June 30, 2022
BALANCE—January 26, 2022	51,750	$	5	—	$	—	—	$	—	$	574,003	$	(107,797)	$	—	$	—	$	466,211
Effect of Merger transaction	29,017	3		22,077	2		1,450	—		148,359		—		—		198,691		347,055
BALANCE—January 27, 2022	80,767	8		22,077	2		1,450	—		722,362		(107,797)		—		198,691		813,266
Net loss	—	—		—	—		—	—		—		(36,069)		—		(7,309)		(43,378)
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions	930	—		—	—		—	—		661		—		—		—		661
Issuance of common stock in connection with the acquisition of business	2,000	—		—	—		—	—		25,500		—		—		—		25,500
Issuance of market-based restricted stock units upon vesting	—	—		—	—		1,450	—		—		—		—		—		—
Conversion of Class D shares to Class A shares	2,900	1		—	—		(2,900)	—		—		—		—		—		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		(2,596)		—		—		—		(2,596)
Other comprehensive income	—	—		—	—		—	—		—		—		103		(184)		(81)
Share-based compensation	—	—		—	—		—	—		31,398		—		—		—		31,398
Distribution to members	—	—		—	—		—	—		—		—		—		(247)		(247)
BALANCE—March 31, 2022	86,597	$	9	22,077	$	2	—	$	—	$	777,325	$	(143,866)	$	103	$	190,951	$	824,524
Net loss	—	—		—	—		—	—		—		(25,737)		—		(8,107)		(33,844)
Exercise of warrants	3,969	—		—	—		—	—		27,989		—		—		—		27,989
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	21	—		—	—		—	—		—		—		—		—		—
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC	—	—		—	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—	—		—		—		(524)		(14)		(538)
Share-based compensation	—	—		—	—		—	—		6,995		—		—		—		6,995

Distribution to members	—	—		—	—		—	—		—		—		—		(1,254)		(1,254)
BALANCE—June 30, 2022	90,587	$	9	22,077	$	2	—	$	—	$	812,309	$	(169,603)	$	(421)	$	181,576	$	823,872

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statement of changes in members' deficit. The footnotes correspond to the error descriptions above:

	Members’ Deficit							Accumulated Other Comprehensive Income (Loss)		Total Members’ Deficit
Predecessor:
For the period January 1, 2022 to January 26, 2022	As Previously Reported		Adjustments			As Restated				As Restated
BALANCE—January 1, 2022	$	(28,829)	$	—		$	(28,829)	$	428	$	(28,401)
Net loss	(40,460)		$	3,399	(g)(k)(o)	(37,061)		—		(37,061)
Accumulated other comprehensive income	—		—			—		87		87
Share-based compensation expense	27,698		(3,993)		(g)	23,705		—		23,705
BALANCE—January 26, 2022	$	(41,591)	$	(594)		$	(42,185)	$	515	$	(41,670)

The following tables summarize the effect of the adjustments to correct errors on each affected financial statement line item for the periods ended as indicated, impacting the condensed consolidated statements of cash flows. The footnotes correspond to the error descriptions above:

	Successor							Predecessor
	Period from January 27, 2022 through June 30, 2022							Period from January 1, 2022 through January 26, 2022
	As Previously Reported		Adjustments			As Restated		As Previously Reported		Adjustments			As Restated
Cash flows from Operating Activities:
Net income (loss)	$	(72,124)	$	(5,098)	(a)(f)(g)(h)(j)(k)(l)(m)(o)(p)	$	(77,222)	$	(40,460)	$	3,399	(g)(k)(o)	$	(37,061)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	56,708		(2,686)		(a)(j)	54,022		1,000		—			1,000
Share-based compensation	49,219		8,251		(g)(h)(o)(q)	57,470		27,698		(3,993)		(g)	23,705
Amortization of debt issuance costs	2,226		—			2,226		—		—			—
Noncash lease expense	(90)		784		(r)	694		115		—			115
Change in fair value of contingent consideration and CEO equity profit interest	(72)		45		(q)	(27)		(9)		—			(9)
Change in fair value of warrants	9,622		—			9,622		—		—			—
Deferred tax benefits	(20,893)		(1,853)		(m)(q)	(22,746)		(816)		—			(816)
Other	—		661		(g)	661		—		—			—
Changes in operating assets and liabilities
Accounts receivable	(7,890)		(246)		(n)(q)	(8,136)		11,118		—			11,118
Prepaids and other assets	(978)		(1,024)		(k)(o)(q)	(2,002)		905		164		(k)	1,069
Accounts payable	6,535		—			6,535		(67,600)		—			(67,600)
Accrued expenses and other liabilities	(5,466)		(5,759)		(f)(k)(o)(q)	(11,225)		57,170		318		(k)(o)	57,488
Protected.net incentive plan liability	—		5,694		(q)	5,694		—		—			—
Deferred revenue	7,211		—			7,211		311		—			311
Other long-term liabilities	(30,217)		(863)		(l)(o)(q)(r)	(31,080)		78		(1)		(o)	77
Net cash used in operating activities	(6,209)		(2,094)			(8,303)		(10,490)		(113)			(10,603)
Cash flows from Investing Activities:
Purchases of property and equipment	(2,285)		(25)		(q)	(2,310)		—		—			—
Capitalized software development costs	(2,901)		(596)		(j)(q)	(3,497)		(441)		—			(441)
Acquisition of businesses, net of cash acquired	(445,893)		1,819		(o)(p)(q)	(444,074)		—		—			—
Net cash used in investing activities	(451,079)		1,198			(449,881)		(441)		—			(441)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	449,000		—			449,000		—		—			—
Repayment of term loan	(177,488)		—			(177,488)		—		—			—
Payments for financing costs	(24,845)		—			(24,845)		—		—			—
Payments for earnouts	(1,715)		—			(1,715)		—		—			—
Redemptions of Class A common stock	(510,469)		—			(510,469)		—		—			—
Proceeds from warrant exercises	5,029		(2)		(q)	5,027		—		—			—
Cash received from the Backstop	246,484		—			246,484		—		—			—
Distributions to members	(1,501)		—			(1,501)		—		—			—
Net cash used in financing activities	(15,505)		(2)			(15,507)		—		—			—

Effect of exchange rate changes in cash, cash equivalent and restricted cash	(29)		633		(p)	604		(132)		113		(p)	(19)
Net increase (decrease) in cash, cash equivalents and restricted cash	(472,822)		(265)			(473,087)		(11,063)		—			(11,063)
Cash and cash equivalents and restricted cash, beginning of the period	517,553		—			517,553		48,639		—			48,639
Cash and cash equivalents and restricted cash, end of the period	$	44,731	$	(265)		$	44,466	$	37,576	$	—		$	37,576
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	37,442	$	—		$	37,442	$	36,833	$	—		$	36,833
Restricted cash	7,289		(265)		(n)	7,024		743		—			743
Total cash, cash equivalents and restricted cash	$	44,731	$	(265)		$	44,466	$	37,576	$	—		$	37,576
Supplemental cash flow information:
ROU assets obtained in exchange for operating lease liabilities	$	2,064	$	—		$	2,064	$	7,987	$	—		$	7,987
Equity issuance to settle intercompany loan	$	—	$	—		$	—	$	—	$	941		$	941
Deferred consideration for acquisition	$	—	$	7,059		$	7,059	$	—	$	—		$	—

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Principles of Consolidation and Summary of Significant Accounting Policies

System1, Inc. was a special purpose acquisition company originally incorporated as a Cayman Islands exempted company on February 11, 2020 under the name Trebia Acquisition Corp. (“Trebia”). The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Merger”). On January 27, 2022, the Company consummated its Merger, which resulted in the acquisition of S1 Holdco, LLC (“S1 Holdco”) and System1 SS Protected Holdings, Inc. (“Protected”). As a result of the Merger, the results of operations, financial position and cash flows of the Predecessor and Successor are not directly comparable.

The Company was deemed the accounting acquirer in the Merger based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations and S1 Holdco was deemed to be the predecessor entity. Accordingly, the historical financial statements of S1 Holdco became the historical financial statements of the Company, upon the consummation of the Merger. As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger and (ii) the combined results of the Company, including S1 Holdco and Protected following the closing of the Merger. The accompanying financial statements include a Predecessor period, which includes the period through January 26, 2022 concurrent with the Merger, and a Successor period for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022. A black-line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods as the Merger resulted in a new basis of accounting for S1 Holdco.

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and

regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022 (Successor periods) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter.

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.

ASC 842 Adoption

On January 1, 2022, the Company adopted ASC 842, Leases, under the modified transition approach. This lease accounting standard provides several optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption. Accordingly, for those leases that qualify, the Company did not recognize a right-of-use asset or lease liability, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The adoption of the lease standard did not have any effect on its previously reported Condensed Consolidated Statements of Operations and did not result in a cumulative catch-up adjustment to opening equity. The Company recorded $6,786 of Right-of-Use (“ROU”) assets, $7,987 of lease liabilities and reclassified $1,201 of deferred rent liabilities as a reduction to the beginning ROU assets upon implementation of ASC 842.

Risk and Concentrations

The Company is subject to certain business risks, including dependence on key employees, dependence on key contracts, competition from alternative technologies, and dependence on growth to achieve its business and operational objectives.

The Company’s revenue is dependent on two key Advertising Partners, which are Google and Microsoft.

The following table illustrates the level of concentration as a percentage of total revenues:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Google	69	%	84	%	71	%	88	%	83	%
Microsoft	3	%	5	%	3	%	4	%	5	%

The Company has (i) two paid search advertising partnership contracts with Google, and (ii) one paid search advertising partnership contract with Microsoft. One of the Google contracts was renewed with an effective date of March 1, 2021, and has a two-year term through February 28, 2023. The other Google contract was renewed with an effective date of August 1, 2021, and has a two-year term through July 31, 2023. The Company recently renewed its advertising contract with Microsoft with an effective date of July 1, 2022, and has a three-year term through June 30,

2025. All three agreements may be terminated by the respective Advertising Partner immediately or with minimal notice under certain circumstances.

Impact of COVID-19

The worldwide spread of COVID-19 has resulted, and is expected to continue to result, in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting sales channels and advertising and marketing activities for an unknown period of time until the virus is contained or economic activity normalizes. The Company's revenue growth and results of operations have been resilient despite the headwinds created by the COVID-19 pandemic. The extent to which ongoing and future developments related to the global impact of the COVID-19 pandemic, including related vaccination measures and inoculation rates designed to curb its spread, continue to impact its business, financial condition, results of operations and cash flows, cannot be predicted with certainty. Many of these ongoing and future developments and uncertainties are beyond the Company's control, including the speed of contagion or the spread of new variants, the development, distribution and implementation of effective preventative or treatment measures, including vaccines (and vaccination rates), the scope of governmental and other restrictions on travel, discretionary services and other activity, and the public reactions and receptiveness to these developments.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain.

A summary of the significant accounting policies followed by the Company in the preparation of the accompanying condensed consolidated financial statements is set forth below.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to: (1) valuation of goodwill, acquired intangible assets and long-lived assets for impairment, (2) valuation and recognition of the Company's share-based compensation awards, (3) income taxes, (4) variable and contingent consideration and (5) determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily represent amounts due from Advertising Partners, and these accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company does not require collateral for its accounts receivable. The Company considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer and current economic industry trends. These accounts receivables have historically been paid on a timely basis. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection and

therefore no allowance for doubtful accounts was required as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor). The payment terms for the Company's accounts receivable are typically 30 days.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. 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, the Company has not experienced any losses related to these cash balances and believes that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits.

Accounts receivable are primarily derived from Advertising Partners located within the United States. As of June 30, 2022 (Successor), two of the Company’s largest Advertising Partners, Google and Yahoo, represented 67% and 11%, respectively, of the Company’s accounts receivables balance. As of December 31, 2021 (Predecessor), these two Advertising Partners represented 72% and 10%, respectively, of the Company’s accounts receivable balances.

Foreign Currency

The Company’s reporting currency is the U.S. dollar. The balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. The statement of operations amounts have been translated using the average exchange rate for the month in which the activity related. Accumulated net translation adjustments and foreign currency transaction gains/losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the functional currency were not material.

Warrant Liability

The Company accounts for the Public Warrants and Private Placement Warrants (collectively, the “Warrants”; which are discussed in further detail in Note 13 and Note 14) in accordance with ASC 815-40 under which the Warrants do not meet the criteria for equity classification, and therefore must be recorded as liabilities. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the fair value of the Public Warrants.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.

The provisions of ASC 820 relate to financial and nonfinancial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date.

The Company measures 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 the Company’s own assumptions about current market conditions and require significant management judgment or estimation.

Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, 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. The carrying amount of the Company’s outstanding debt approximates the fair value, as the debt bears interest at a rate that approximates the prevailing market rate. The Company classifies the fair value of debt within Level 2 in the fair value hierarchy.

The Company does not have any assets, with the exception of cash, cash equivalents and restricted cash, that are required to be carried at fair value on a recurring basis at June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company’s liabilities measured at fair value relate to the former CEO of S1 Holdco's equity profits interest liability (Level 3), contingent consideration (Level 3), Public Warrant liabilities (Level 1) and Private Placement Warrant liabilities (Level 2). In January 2022, as part of the Merger, S1 Holdco settled the equity profits interest liability with S1 Holdco's former CEO.

Certain assets, including goodwill and intangible 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. The fair value of these assets is determined using unobservable inputs to present value the assets.

Restricted Cash

The Company had restricted cash of $7,024 and $743 as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The amount of restricted cash as of December 31, 2021 (Predecessor) relates to cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its corporate office in Marina del Rey, California. The Company’s restricted cash as of June 30, 2022 (Successor) primarily consists of (i) cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility, (ii) merchant reserve balances with its credit card processors held due to arrangements under which the Company's credit card processors withhold certain credit card funds to cover potential charge backs initiated by the Company’s customers, (iii) the escrow account balance related to the portion of unvested equity awards as of the closing of the Merger that will be cash settled and will be released to the Company's employees as the service requirement is completed and (iv) the escrow account balance related to post-close adjustments and indemnifications from the RoadWarrior acquisition.

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 the Condensed Consolidated Statement of Operations.

The estimated useful lives of the Company’s property and equipment for purposes of computing depreciation are as follows:

	(Years)
Computer equipment	3
Office equipment	3
Software	4
Furniture, fixtures and equipment	3	-	7
Motor vehicles	4
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. The Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure, including continuing to develop and deploy its RAMP platform. These costs include personnel and related employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as external direct costs of materials and services consumed in developing or obtaining the software. Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and correspondingly recorded in Salaries, commissions, and benefits expense in the Condensed 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. The Company capitalizes costs associated with software developed for internal use when 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. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for deployment for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software or lease its software to third parties.

Intangible Assets

Intangible assets primarily consist of acquired technology, customer relationships and trade names/trademarks. The Company determines 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 amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Certain customer relationship intangibles are amortized on an accelerated basis based upon the expected timing of economic benefits which are derived from an analysis of customer attrition rates over the expected life. The fair value of the intangible assets acquired is determined using either the income or market methodologies.

The estimated useful lives of the Company’s intangible assets are as follows:

	Useful Life
	(Years)
Developed technology	4
Customer relationships	3	-	5
Trademarks and trade names	10
Other intangibles	4

Impairment of Long-Lived Assets

The Company assesses the recoverability of its 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 its previously estimated useful life. The Company performs 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. The Company assesses recoverability of a long-lived asset by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives. 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 charged to operations in the period in which management determines such impairment has occurred. For the periods presented in this quarterly report, Management has determined there to be no impairment of long-lived assets.

Business Combinations

The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which the Company's management believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations.

Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value during each reporting period through the Company’s Condensed Consolidated Statements of Operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350,

Intangibles—Goodwill and Other, which requires the Company to test goodwill at the reporting unit level for impairment at least annually.

The Company has the option (i) 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 (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than carrying amount, an impairment loss is recognized in an amount equal to the excess.

The determination of fair value(s) requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected cash flows from a market participant perspective, and discount rates. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

The Company tests for goodwill impairment annually at December 31st. For the periods presented in this quarterly report, there were no triggering events identified, and therefore no impairment charges recorded on goodwill during the interim periods were required.

Leases

On January 1, 2022, the Company adopted ASC 842, Leases, and recognized right-of-use assets and lease liabilities in its Condensed Consolidated Balance Sheet.

A contract is or contains a lease when, (1) the contract contains an explicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at commencement of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date, on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company’s right to use the underlying asset over the period of use.

The Company’s leases are operating leases and operating lease right-of-use (“ROU”) asset and lease liabilities are recorded in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2022 (Successor). An ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments include taxes, insurance, utilities and maintenance costs.

As most of the Company’s leases do not provide an implicit interest rate, the incremental borrowing rate based on the information available on the commencement date of the lease is used to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and lease incentives. The lease terms may include options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for as a single lease component.

See Note 7 for additional details.

Revenue

The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:

•Identification of a contract with a customer,

•Identification of the performance obligations in the contract,

•Determination of the transaction price,

•Allocation of the transaction price to the performance obligations in the contract, and

•Recognition of revenue when or as the performance obligations are satisfied.

The Company’s revenue is principally derived from the following areas:

Advertising and Other Revenue

Revenue is earned from revenue-sharing arrangements with the Company’s Network Partners for the use of its RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. The Company has determined it is the agent in these transactions and reports revenue on a net basis, because (a) the Company does not control the underlying advertising space, (b) the Company does not acquire the traffic and does not have risk of loss in connection therewith and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. The Company reports this revenue on a net basis with respect to the amount retained under its revenue-sharing arrangements, which represents the difference between amounts received by the Company from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts.

The Company also earns revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, the Company is the principal in the transaction and reports revenue on a gross basis for the amount(s) received from its Advertising Partners. For this revenue, the Company has determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with its Advertising Partners, and, in the case of its owned and operated websites, the Company maintains the website, provides the content and bears the cost and risk of loss associated with its websites’ advertising space.

The Company recognizes revenue upon delivering traffic to its Advertising Partners based on a cost-per-click or cost-per-thousand impression basis.

Subscription Revenue

In connection with the Merger of Protected discussed in Note 3, the Company is also engaged in selling security software as a service subscription to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, ad-blocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. The Company’s services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period.

The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

Cost of Revenues

Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, and costs related to the utilization of antivirus engine

licensing related to APIs for the antivirus product. The Company does not pay any up-front payments. Incentive payments or bonuses and such costs are expensed as incurred.

Salaries, Commissions, and Benefits

Salaries, commissions and benefits expenses include salaries, bonuses, stock-based compensation, non-capitalized personnel costs incurred in the capitalized internal use software development, and employee benefits costs.

Share-Based Compensation

Compensation cost related to share-based payments is measured based on the fair value of the units issued and recognized within “Salaries, commissions, and benefits” in the Company’s Condensed Consolidated Statement of Operations. The Company has elected to treat share-based payment awards with time-based service condition(s) only as a single award and recognizes share-based compensation expense on a straight-line basis over the vesting period, which is generally four years. The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following:

•Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist.

•Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. For non-employees, the expected life equals the contractual term of the option.

•Risk-free Interest Rate: The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options.

•Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies.

Replacement Awards

Prior to the Merger, S1 Holdco had outstanding both, Value Creation Units (“VCU’s”) and Class F Units. The VCU’s and Class F Units were concluded to be profits interests units granted to employees. The VCU’s shall become fully vested upon the satisfaction of both a service condition and a performance condition determined to be a change in control event effectuated by the Merger. The Class F Units are subject to vesting conditions where the units will vest at the later of (i) a change in control event or (ii) four-year anniversary of issuance.

Pursuant to the Merger, the Company was 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 System1 and a cash award (collectively, the "Replacement Awards”). The fair value of the Replacement Awards was derived utilizing the transaction closing price of $10.00. 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 are included in the total consideration transferred, with the exception of the unvested awards subject to service vesting conditions where the service condition has not been completed. With regards to the remaining unvested portion of the Replacement Awards, the Company continues to recognize compensation expense on a straight-line basis over the original requisite service period and recognizes forfeitures as they occur. For VCU Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the remaining unvested shares, as a share of the Company’s Class A Common Stock becomes issuable to the previous investors for each VCU Replacement Award forfeited. For Cash Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the unpaid amount, as that cash amount becomes payable to the previous investors.

Post-Combination Awards

For awards granted subsequent to the Merger, the Company’s fair value of the related restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. As these awards are subject only to time-based service conditions, the Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Liability Awards

In connection with the Merger and acquisition of Protected.net described in Note 3, the Company effected an incentive plan for eligible recipients which is payable in a fixed value of fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “Protected.net Incentive Plan”).

In connection with the acquisition of CouponFollow described in Note 4 the Company effected an incentive plan for eligible recipients, which, at the Company’s option, is payable in cash or fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “CouponFollow Incentive Plan”).

The Company recognizes compensation cost for these 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 adjusted to reflect the completed portion of the service period with a graded vesting attribution.

After the Merger, the Company’s fair value of its restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. The Company recognizes compensation on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Selling, General, and Administrative

Selling, general, and administrative expenses consist of fees for professional services, occupancy costs, travel and entertainment. These costs are expensed as incurred.

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to the Company’s capital investments and consist of fixed asset depreciation and amortization of intangible assets with finite lives.

Income Taxes

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its condensed consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco. Various subsidiaries of the Company are subject to income tax in the United States and in other countries.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) 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 recent operations. If the Company determines that it would not be able to realize its DTAs in the future in excess of their net recorded amount, it would make an adjustment to the DTA valuation allowance, which would increase the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes both accrued interest and penalties, when appropriate, in the provision for income taxes in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

For the periods presented in this quarterly report, the Company had not incurred any related interest and penalties.

Non-Controlling Interest

The Company reports a non-controlling interest representing the economic interest in S1 Holdco held by certain individuals and entities other than the Company. The non-controlling interest is comprised of certain selling equity holders of S1 Holdco that retained an economic interest in S1 Holdco through their ownership of Class B units in S1 Holdco, along with the same number of corresponding shares of Class C common stock in the Company. The non-controlling interest holders may, from time to time, require the Company to convert all or a portion of their economic interest via a redemption of their Class B units in S1 Holdco together with surrendering their corresponding shares of Class C common stock in the Company in exchange for shares of Class A common stock on a one-for-one basis. As future redemptions occur, this will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in S1 Holdco as of June 30, 2022 (Successor).

	Units (in thousands)	Ownership %
Class A units of S1 Holdco	90,587	80	%
Class B units of S1 Holdco	22,077	20	%

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequent amendments, Measurement of Credit Losses on Financial Instruments (Topic 326), which modifies the accounting methodology for most financial instruments. The guidance requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. This guidance is effective for the Company for annual periods beginning after December 15, 2022, and early adoption is permitted. The Company does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements.

XML

MERGER

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

MERGER

MERGER

On June 28, 2021, the Company entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (the “Business Combination Agreement”) by and among S1 Holdco, Trebia, and Protected (collectively, the “Companies”). On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company is organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco. The combined Companies’ business continues to operate through the subsidiaries of S1 Holdco and Protected. Additionally, Trebia’s ordinary shares and public warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.'s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.

The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock, Class C common stock and Replacement Awards.

The aggregate cash consideration was $440,155.

The aggregate equity consideration paid and/or retained S1 Holdco Class B Units was $610,144, consisting of (a) the aggregate equity consideration payable under the Business Combination Agreement, consisting of shares of Class A common stock and Replacement Awards, and (b) the aggregate Class B Units in S1 Holdco retained by S1 Holdco equity holders at the Closing.

The fair value of the Class A common stock was determined by utilizing the transaction closing price per share per the BCA of $10.00 and a discount of 10%, as the shares were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics.

Additionally, the aggregate Class B units in S1 Holdco retained by S1 Holdco equity holders at the Closing Date resulted in a non-controlling interest. The 22,077 Class B units in S1 Holdco and the corresponding Class C common stock in the Company were determined to have an estimated value of $198,691. As the Class B units in S1 Holdco together with the corresponding shares of the Company's Class C common stock are exchangeable for shares of Class A common stock on a one-for-one basis, the fair value was determined using the same method as for the shares of Class A common stock, utilizing the transaction closing price of $10.00 and a discount of 10% (as the units and the corresponding shares of Class C common stock were not immediately available for sale upon issuance and this restriction is viewed to be a function of the security characteristics). The fair value of $198,691 was included in non-controlling interest on the accompanying condensed consolidated balance sheet and condensed consolidated statements of changes in stockholders' equity.

In connection with the Merger, System1 and Cannae Holdings, Inc. (“Cannae”), an investor in the Sponsor of Trebia, entered into a backstop agreement (the “Backstop Agreement”) on June 28, 2021, as amended on January 10, 2022, whereby Cannae agreed, to subscribe for up to 25,000 shares of Trebia Class A common stock in order to fund up to $250,000 of redemptions by shareholders of Trebia. See discussion below regarding the Amended and Restated Sponsor Agreement, which was amended in conjunction with the Backstop Agreement. As a result of shareholder redemptions, Cannae provided $246,484 of the cash used to fund the Closing Cash Consideration pursuant to its obligations under the Backstop Agreement and in exchange received 24,648 shares of Class A common stock ("Backstop shares").

Additionally, pursuant to the Backstop Agreement, the Selling Shareholders (i.e., certain shareholders of S1 Holdco and Protected prior to the Merger) agreed that, in the event shareholders of Trebia requested redemption of Trebia outstanding equity immediately prior to the Merger in excess of a certain dollar value threshold, certain equity holders of S1 Holdco and Protected would reduce their cash consideration and proportionally increase their equity consideration for the Merger, which is referred to as the “Seller Backstop Election”. In the event that the Seller Backstop Election was made, the Sponsors would forfeit their shares to allow the Company to then issue shares to the Selling Shareholders. The Seller Backstop Election was triggered and, as a result, the Sponsors forfeited 930

shares of Trebia Class B ordinary shares which were converted at time of Merger, at a one-to-one ratio, into shares of Class A common stock of System1 and delivered to the various selling shareholders of S1 Holdco, collectively referred to as the “Sponsor Promote Shares”. The total consideration amount, in a combination of cash and equity consideration, did not change from the amount agreed in the Business Combination Agreement due to this Seller Backstop Election. The Company recorded $7,706 in Salaries, commissions, and benefits expense and $661 in Selling, general and administrative expense for Sponsor Promote Shares during the period January 27, 2022 through March 31, 2022 (Successor).

In connection with the execution of the Business Combination Agreement and the Backstop Agreement, on June 28, 2021, as amended on January 10, 2022, the sponsors of Trebia entered into the Amended and Restated Sponsor Agreement whereby the sponsors agreed to forfeit up to 2,600 shares of Trebia Class B common stock in order for the Company to then issue the shares to Cannae (“Backstop forfeiture shares”), in exchange for Cannae entering into the Backstop Agreement. On January 27, 2022, based upon the final backstop funding provided by Cannae, the sponsors forfeited 2,533 shares of Trebia Class B shares, after which the Company then issued 2,533 shares of Class A common stock to Cannae. Trebia recorded a forward purchase liability of $25,336 immediately prior to the Merger, representing the fair value of the Backstop shares and the Backstop forfeiture shares.

In accordance with the Amended and Restated Sponsor Agreement entered into concurrently with the Business Combination Agreement, the Company issued 1,450 Class D shares to the Trebia sponsors in exchange for 1,450 Trebia Class B shares ("Sponsor RSAs"). The difference in the fair value of the two was treated as a capital contribution. The founders of S1 Holdco and Protected were also issued 1,450 Class D shares ("Seller RSUs"). Further, in connection with the Merger, the Company also effected an incentive plan for Protected business. Refer to Note 18—SHARE-BASED PAYMENTS for additional information on the Seller RSU's and the Protected Incentive Plan.

Concurrently with the consummation of the Merger, System1 entered into a tax receivable agreement with the minority holders of S1 Holdco, (the “Tax Receivable Agreement” or “TRA”), pursuant to which, among other things, the parties to the Tax Receivable Agreement have agreed to the allocation and payment of 85% of the actual savings, if any, in U.S. federal, state and local income tax that System1 may realize as a result of certain tax benefits (if any) related to the transactions contemplated by the Business Combination Agreement and future exchanges of Class B Units in S1 Holdco (together with the corresponding shares of the Company’s shares of Class C common stock) in exchange for shares of the Company’s Class A common stock. As of the closing date, the fair value of obligations under the TRA was determined to be zero as any tax savings are uncertain. The TRA is contingent consideration and subsequent changes in fair value of the contingent liability will be recognized in earnings.

The Company adopted ASU No. 2021-08 on January 1, 2022 and accordingly, has recorded contract assets and contract liabilities acquired as part of the Merger based on what the Company would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the Company had entered into the original contract at the same date and on the same terms as S1 Holdco and Protected.

The Merger has been accounted for as a business combination using the acquisition method of accounting. The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

The purchase consideration was allocated to the following assets and liabilities.

	Amount
Tangible assets acquired and liabilities assumed:
Cash and marketable securities	$	68,748
Accounts receivable	79,086
Prepaid expenses	7,807
Income tax receivable	4,566
Property, plant & equipment, net	1,551
Other assets	6,950
Accounts payable	(9,798)
Deferred revenue	(60,768)
Accrued expenses and other current liabilities	(110,004)
Income tax payable	(2,091)
Notes payable	(172,038)
Deferred tax liabilities	(138,613)
Other liabilities	(8,474)
Total tangible assets acquired and liabilities assumed	(333,078)
Intangible assets	562,100
Goodwill	821,277
Net assets acquired	$	1,050,299
Consideration:
Cash	$	440,155
Equity	411,453
Total consideration attributable to System1	851,608
Total consideration attributable to NCI	198,691
Total consideration	$	1,050,299

The intangible assets as of the closing date of the acquisition included:

	Amount		Weighted Average Useful Life (in Years)
Trademarks	$	246,400	10
Customer relationships	119,700		4
Technology	196,000		4
Total	$	562,100

The fair value of the intangible assets acquired was determined using income-based approach methodologies. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Customer relationships are amortized on an accelerated basis. To determine the amortization period for each of the customer relationships assets and to evaluate the pattern of usage of economic benefits, the Company performed a customer attrition analysis of the Company's customer relationships to estimate the attrition rate and consequently the life expectancy for the existing customer relationships.

Trademarks – The Company valued 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.

Customer relationships – The Company valued 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.

Technology – The Company valued technology using the excess-earnings method utilizing company-specific inputs. Key assumptions include forecasted revenue, technology migration rate, and a discount rate.

The goodwill balance is primarily attributable to the expected revenue opportunities with the Company's applications and services offerings, assets acquired and acquired workforce. Goodwill is not deductible for tax purposes.

Unaudited Pro Forma Information

The following table provides unaudited pro forma information as if the Merger and other acquisitions occurred as of January 1, 2021. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, adjustments for transaction expenses, adjustments for certain stock-based compensation and equity related expenses incurred as a result of the transaction and the resulting tax effects, as if the Merger and acquisitions of Answers, CouponFollow and RoadWarrior (each as defined in Note 4—ACQUISITIONS) occurred January 1, 2021. The pro forma results do not include any anticipated cost synergies or other effects of the merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.

	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Pro forma revenue	$	219,912	$	219,031	$	455,836	$	412,232
Pro forma net (loss)	$	(20,474)	$	(41,112)	$	(25,436)	$	(140,549)

XML

ACQUISITIONS

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

ACQUISITIONS

ACQUISITIONS

Answers Holdings, Inc.

On May 4, 2022, the Company acquired the assets of Answers Holdings, Inc. and its subsidiaries, collectively ("Answers") for total cash consideration of $4,632. The acquisition of Answers constitutes a business combination under ASC 805.

The acquisition expands the Company's portfolio of Owned & Operated publishing sites and search destinations to include a destination for higher education and lifelong learning content. The results of Answers' operations since the date of the acquisition have been included in the Company's condensed consolidated financial statements from May 4, 2022 to June 30, 2022 (Successor). The total revenue and loss before income taxes were immaterial for the period January 27, 2022 to June 30, 2022 (Successor). The operating results of Answers are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The purchase price is preliminary and may be subject to additional adjustments, including working capital adjustments. The Company expects to finalize the purchase accounting as soon as practicable, but not later than one year from the acquisition date.

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	32
Total tangible assets acquired and liabilities assumed	32
Trademark - 10 years weighted average useful life	1,100
Goodwill	3,500
Net assets acquired	$	4,632
Consideration:
Cash	$	4,632
Total consideration	$	4,632

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $93 in transaction costs related to the acquisition.

Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademark and a discount rate.

NextGen Shopping, Inc.

On March 4, 2022, the Company acquired NextGen Shopping, Inc. (d/b/a “CouponFollow”) for total cash consideration of $75,087, of which $16,446 was deferred, 5,600 was held-back, and $25,500 related to the fair value of 2,000 shares of Class A common stock issued. The fair value of the shares of Class A common stock was determined by utilizing the closing price per share of the Company's Class A common stock listed on the NYSE as of March 3, 2022, and a discount rate of 7.5%, as the shares were not immediately available for sale upon issuance, and this restriction was deemed to be a function of the security characteristics. The deferred consideration of $16,446 was paid subsequent to the acquisition. The held-back consideration amount will become payable eighteen months subsequent to the acquisition date, subject to the Company's satisfaction of any potential post-closing purchase price adjustments and indemnification claims. The cash payment included the transaction costs of $3,129 that the Company paid on behalf of CouponFollow in connection with the closing of the transaction. The acquisition of CouponFollow constitutes a business combination under ASC 805.

The acquisition leverages CouponFollow’s reputation, software and large organic traffic to vertically integrate with the Company’s RAMP platform and generate paid traffic for shopping-related products. The results of CouponFollow’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements from March 4, 2022 to June 30, 2022 (Successor). The amounts of total revenue and loss before income taxes for the period from March 4, 2022 to June 30, 2022 (Successor) were $7,316 and $1,860, respectively, and the amounts of revenue and loss before income taxes for the three months ended June 30, 2022 (Successor) were $5,396 and $1,302, respectively. The operating results of CouponFollow are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Cash and cash equivalents	$	21,232
Accounts receivable	5,860
Other current assets	446
Accounts payable	(116)
Accrued expenses and other current liabilities	(118)
Income tax payable	(197)
Deferred tax liabilities	(10,895)
Total tangible assets acquired and liabilities assumed	16,212
Intangible assets	42,200
Goodwill	42,175
Net assets acquired	$	100,587
Consideration:
Cash	$	75,087
Equity	25,500
Total consideration	$	100,587

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $813 in transaction costs related to the acquisition.

Following are the details of the purchase price allocated to the intangible assets for the CouponFollow acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	38,100	10
Software	4,100		4
Total	$	42,200

Trademark – The Company valued the trademark using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademarks and a discount rate.

Software – Acquired software technology was valued using the excess-earnings method utilizing company-specific inputs. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the software and a discount rate.

RoadWarrior, LLC

On February 9, 2022, the Company acquired the assets of RoadWarrior, LLC (“RoadWarrior”) for total cash consideration of $19,636. The acquisition of RoadWarrior constitutes a business combination under ASC 805.

The acquisition expands the Company’s Mapquest.com website technology and provides additional functionality for customers centered around route planning for delivery drivers and teams. The results of RoadWarrior’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements from February 9, 2022 to June 30, 2022 (Successor). The amounts of revenue and loss before income taxes for the period from February 9, 2022 to June 30, 2022 (Successor) were $2,237 and $1,692, respectively, and

the amounts of revenue and loss before income taxes for the three months ended June 30, 2022 were $1,288 and $908, respectively. The operating results of RoadWarrior are reported within the Owned and Operated segment prospectively from the date of acquisition.

The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	155
Total tangible assets acquired and liabilities assumed	155
Intangible assets	4,500
Goodwill	14,981
Net assets acquired	$	19,636
Total consideration:
Cash	$	19,636

The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. The goodwill is deductible for tax purposes over 15 years. The Company has incurred $308 in transaction costs related to this acquisition.

Following are the details of the purchase price allocated to the intangible assets for the RoadWarrior acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	2,200	10
Software	1,000		4
Customer relationships	1,300		3
Total	$	4,500

Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademark and a discount rate.

Software – Software technology represents existing technology acquired and incorporated into the Company’s existing infrastructure. The Company valued software using the relief from royalty method. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the software and a discount rate.

Customer relationships – The value of customer relationships represents the fair value of future projected revenues that will be derived from the sale to customers acquired. The Company valued customer relationships using an excess-earnings method. Key assumptions include customer attrition rate, revenue growth rate, and a discount rate.

XML

PROPERTY AND EQUIPMENT, NET

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT, NET

PROPERTY AND EQUIPMENT, NETProperty and equipment, net as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following:

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Computer equipment	$	604	$	415
Motor vehicles	234		—
Furniture and equipment	918		475
Leasehold improvements	2,833		976
Property and equipment—gross	4,589		1,866
Less accumulated depreciation	(259)		(1,036)
Property and equipment—net	$	4,330	$	830

Total depreciation expense on property and equipment were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Depreciation expense	$	149	$	89	$	268	$	16	$	170

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

Goodwill

The changes in goodwill by reportable segments, were as follows:

	Owned and Operated		Partner Network		Subscription		Total
Goodwill at January 27, 2022	$	—	$	—	$	—	$	—
Additions	351,849		93,400		433,184		878,433
Currency translation adjustments	(37)		—		—		(37)
Goodwill at March 31, 2022	351,812		93,400		433,184		878,396
Additions	3,500		—		—		3,500
Currency translation adjustments	$	(526)	$	—	$	—	$	(526)
Goodwill at June 30, 2022	$	354,786	$	93,400	$	433,184	$	881,370

Additions to goodwill were from the acquisitions of S1 Holdco, Protected.net, CouponFollow, RoadWarrior and Answers in 2022.

Goodwill as of December 31, 2021 (Predecessor), resulted from the acquisitions of Concourse Media, Mapquest, and Waterfox in 2019 and the prior acquisitions of InfoSpace in 2016 and Qool Media, Inc. in 2017. There was no Goodwill activity for the period January 1, 2021 through January 26, 2022 (Predecessor). Goodwill by reportable segments as of December 31, 2021 were as follows:

	Owned and Operated		Partner Network		Total
Goodwill at December 31, 2021 (Predecessor)	$	24,403	$	20,417	$	44,820

Internal-use software development costs and intangible assets

Internal-use software development costs and intangible assets consisted of the following:

	June 30, 2022 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	3,985	$	(375)	$	3,610
Intangibles:
Developed technology	$	196,000	$	(20,822)	$	175,178
Trademarks and trade names	287,852		(11,803)		276,049
Software	5,100		(428)		4,672
Customer relationships	121,000		(20,558)		100,442
Total intangible costs	$	609,952	$	(53,611)	$	556,341

	December 31, 2021 (Predecessor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	21,274	$	(10,061)	$	11,213
Intangibles:
Developed technology	$	8,398	$	(7,242)	$	1,156
Trademarks and trade names	69,007		(21,375)		47,632
Professional service agreement	3,100		(2,359)		741
Customer relationships	1,500		(661)		839
Total intangible costs	$	82,005	$	(31,637)	$	50,368

The internal-use software development costs include capitalized costs not ready for its internal use of $2,948 and $2,540 as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively.

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

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Amortization expense for internal-use software development	$	78	$	921	$	143	$	355	$	2,245
Amortization expense for intangible assets	$	31,867	$	2,102	$	53,611	$	629	$	4,386

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

The weighted average amortization period for all intangible assets is 7 years. As of June 30, 2022 (Successor), the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs for each of the next five years, is as follows:

Amortization Expense
Remainder of 2022	$	63,901
2023	110,204
2024	101,197
2025	94,344
2026	43,380
Thereafter	146,925
Total amortization expense	$	559,951

XML

LEASES

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

LEASES

LEASES

The Company leases office facilities under noncancelable operating lease agreements. During the period from January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 through June 30, 2022 (Successor), the Company had leases for office facilities in Marina del Rey, California; Bellevue, Washington; and Guelph, Canada.

In March 2021, the Company entered into an agreement for a sublease of office space facility in Marina Del Rey, California. The initial term of the sublease is in effect until November of 2025 with no renewal periods.

The components of lease expense were as follows:

	Successor		Successor		Predecessor
	Three Months Ended June 30, 2022		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022
Operating lease cost	$	585	$	982	$	142

Variable lease costs for operating leases were immaterial for the periods presented above. Operating lease costs were included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. Supplemental information related to leases was as follows:

	Successor
	As of June 30, 2022
Weighted average remaining lease terms (in years):
Operating leases	7.2
Weighted average discount rate	5.3%

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows as of June 30, 2022 (Successor):

	Successor
	As of June 30, 2022
Operating leases:
Remainder of 2022	$	1,240
2023	2,525
2024	2,597
2025	2,252
2026	285
Thereafter	1,588
Total lease payments	$	10,487
Less: Imputed interest	(1,349)
Present value of operating lease liabilities	$	9,138

Rent expense was $571 and $1,062 for the three and six months ended June 30, 2021 (Predecessor), respectively, which was included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of December 31, 2021 (Predecessor), the expected future operating lease obligation are as follows:

	Predecessor
	As of December 31, 2021
Year ending
2022	$	1,957
2023	$	1,950
2024	$	1,950
2025	$	1,663

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

6 Months Ended

Jun. 30, 2022

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Former CEO profit interest	$	—	$	11,132
Payable to employees	11,105		10,091
Accrued legal service fees	—		6,242
Accrued marketing expenses	47,649		144
Holdback liability	1,221		—
Contingent consideration	359		1,682
VAT tax liability	9,970		—
Accrued tax liability	7,235		361
Deferred rent	—		233
Other liabilities	20,420		1,399
Accrued expenses and other current liabilities	$	97,959	$	31,284

XML

DEFERRED REVENUE

6 Months Ended

Jun. 30, 2022

Revenue from Contract with Customer [Abstract]

DEFERRED REVENUE

DEFERRED REVENUE

Deferred revenue activities for the period January 1, 2021 through December 31, 2021 (Predecessor), January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 (Predecessor) through June 30, 2022 (Successor) are as follows:

	Deferred Revenue
Deferred revenue as of January 1, 2021 (Predecessor)	$	1,889
Additional amounts deferred	5,116
Deferred revenue recognized	(5,034)
Deferred revenue as of December 31, 2021 (Predecessor)	$	1,971

	Deferred Revenue
Deferred revenue as of January 1, 2022 (Predecessor)	$	1,971
Additions amounts deferred	620
Deferred revenue recognized	(309)
Deferred revenue as of January 26, 2022 (Predecessor)	$	2,282

	Deferred Revenue
Deferred revenue as of January 27, 2022 (Successor)	$	—
Additional amounts deferred*	141,941
Deferred revenue recognized	(73,573)
Deferred revenue as of June 30, 2022 (Successor)	$	68,368

* Of the additional amounts deferred during the period January 27, 2022 through June 30, 2022 (Successor), $61,156 was acquired from the acquisitions.

During the periods January 27, 2022 through June 30, 2022 (Successor), January 1, 2022 through January 26, 2022 (Predecessor), and January 1, 2021 through December 31, 2021 (Predecessor), $0, $309, and $1,889, respectively, of the deferred revenue recognized existed at the beginning of each respective period.

We expect to recognize revenue related to the remaining performance obligations within the next twelve months.

XML

INCOME TAXES

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in the consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company.

The following table presents the Company’s Income tax (benefit) provision and the effective income tax rate:

	Successor			Predecessor			Successor			Predecessor
(in thousands, except percentages)	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021
Income tax (benefit) provision	$	(454)		$	77		$	(15,103)		$	(629)		$	228
Effective tax rate	1		%	1		%	16		%	2		%	1		%

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 income (loss) from non-taxable pass-through entities related to non-controlling interests, state taxes, foreign rate differential, non-deductible expenses, outside basis adjustments, and Global Intangible Low-taxed Income.

In assessing the ability to realize deferred tax assets for the period from January 1, 2022, through January 26, 2022 (Predecessor), the period from January 27, 2022, through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, management considered whether it is more-likely-than-not some portion or all the deferred tax assets will be realized, as prescribed by ASC 740. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. Based on the weight of both positive and negative evidence, the Company determined that it was more-likely-than-not that the net deferred tax assets would be realizable, with the exception of Privacy One Group Limited, for which the Company does not anticipate future income. Management cannot conclude that it is more-likely-than-not that the deferred tax assets of Privacy One will be realized. As such, a full valuation allowance has been retained on the net deferred tax assets of Privacy One Group Limited.

The unrecognized tax benefits of $69 relates to R&D tax credits for the period from January 27, 2022, through June 30, 2022 (Successor).

The Company files income tax returns in the U.S. federal, states, and various foreign countries. For U.S. federal income tax purposes, as of June 30, 2022 (Successor), the year 2018 and later tax years remain open for examination by the tax authorities. For foreign income tax purposes, as of June 30, 2022 (Successor), the year 2016 and later tax years remain open for examination by the tax authorities under the Netherland’s five-year statute of limitations.

The Company contributed all the net assets of CouponFollow to a lower entity taxed as a partnership, System1 OpCo, LLC. The contribution qualified as a transaction among or with noncontrolling shareholders, which is accounted for as an equity transaction. As a result, the Company recorded $2,595 to additional paid-in-capital for the tax effects of the contribution with an offsetting entry to deferred tax liability in accordance with ASC 740-20-45-11(c).

XML

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Service Agreements

On June 18, 2021, the Company entered into an agreement with a service provider whereby the Company is contractually obligated to pay $6,900 and $8,000 in the first and second years of the contract, respectively. The contract commencement date was July 1, 2021. The Company has paid a total of $7,424 to this service provider as of June 30, 2022 (Successor).

Executive Compensation

Ian Weingarten was hired as CEO of S1 Holdco on April 10, 2019. He was entitled to a cash-settled profits interest of 5% of the value of S1 Holdco, which was contingent upon (i) a participation threshold of $300,000 (which was subject to adjustment as set forth in the S1 Holdco operating agreement) and (ii) on a four-year vesting term, or if a qualifying change in control transaction occurs.

In February 2021, Mr. Weingarten's employment with S1 Holdco was terminated and the parties entered into a separation agreement. In connection with the separation agreement, S1 Holdco agreed to payment of separation pay benefits consistent with the terms of Mr. Weingarten’s employment agreement, including the payment of the liability accrued for the cash-settled profits interest of 5% of S1 Holdco, which was deemed vested as to a 3.75% profits interest and forfeited as to the remaining 1.25% profits interest above the applicable adjusted threshold amount (subject to further increase to a 2.5% profits interest in the event that the Merger was not consummated). S1 Holdco recorded a liability for this arrangement of $11,132 as of December 31, 2021 (Predecessor). In January 2022, in conjunction with the consummation of the Merger, S1 Holdco settled the profits interest liability pursuant to the separation agreement with Mr. Weingarten.

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company believes 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 the Company’s condensed consolidated financial position, results of operations, or cash flows. The Company accrues for losses when the loss is deemed probable and the liability can reasonably be estimated.

In July 2021, the Company received initial correspondence from counsel for a United Kingdom-based marketing research company and its United States subsidiary (collectively, the “Demanding Group”) alleging trademark infringement (i) based on its use of the “SYSTEM1” trade name and mark in the United States, and (ii) subsequently based on its use of the “SYSTEM1” trade name and mark in the United Kingdom. The correspondence demanded that we cease and desist from using the “SYSTEM1” name and mark, and made reference to potential legal action if we did not comply with that demand. While the Company was engaged in active discussions and correspondence with the Demanding Group to attempt to resolve the matter, the Demanding Group filed a lawsuit in the United States District Court for the Southern District of New York in September 2021 (the “Infringement Suit”), alleging (i) trademark infringement, (ii) false designation of origin, (iii) unfair competition and (iv) certain violations of New York business laws, seeking, among other things, an injunction, disgorgement of profits, actual damages and attorneys’ fees and costs. The Company believes that the Demanding Group’s infringement and other allegations and claims set forth in the Infringement Suit may be subject to a laches defense, among other defenses, and the Company intends to vigorously defend its rights and position in the Infringement Suit. The matter is currently pending. The Company filed a motion to dismiss the Infringement Suit in November 2021, and the parties are waiting for the court to rule on the pending motion. Even though the Company received similar correspondence from the Demanding Group regarding its alleged infringing use of the SYSTEM1 trade name and mark in the United

Kingdom, no lawsuit has been filed in the United Kingdom. The Company does not believe that its activities infringe any rights of the Demanding Group in the United Kingdom because, among other defenses, the Company does not actively offer services to customers using the SYSTEM1 trade name and mark in the United Kingdom. The Company’s counsel has informed the Demanding Group’s UK counsel of these circumstances, and the Demanding Group’s UK counsel confirmed receipt of this correspondence, and the parties have not shared any further meaningful correspondence with respect to the Demanding Group’s allegations of infringing use in the United Kingdom.

Indemnifications

In the ordinary course of business, the Company 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 the Company’s breach of such agreements, services to be provided by the Company, 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 the Company could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, the Company believes the estimated fair value of these agreements was immaterial. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2022 (Successor) or December 31, 2021 (Predecessor), respectively.

XML

DEBT

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

DEBT

DEBT

As of December 31, 2021 (Predecessor), S1 Holdco had principal of $172,038 outstanding under a term loan secured from Cerberus Business Finance, LLC. Amortization payments of $1,750 were due quarterly and, upon delivery of the prior year’s audited consolidated financial statements, S1 Holdco was required to make a payment of 50% of excess free cash flow, as defined. S1 Holdco also had a $20,000 revolving line of credit, and no amounts were outstanding as of December 31, 2021 under this revolving line of credit.

Interest payments on the secured financing were due monthly at London InterBank Offered Rate (“LIBOR”), plus 7% with a LIBOR floor of 1%. Maturity for the secured financing was August 22, 2022. The facility had certain financial and nonfinancial covenants, including a leverage ratio.

In connection with the Merger disclosed in Note 3, Orchid Merger Sub II LLC (a subsidiary of S1 Holdco) entered into a new loan (“Term Loan”) and revolving facility (“Revolving Facility”) on January 27, 2022, providing for a 5.5 year term loan with a principal balance of $400,000 and with the net proceeds of $376,000, of which a portion of the proceeds were used by S1 Holdco, to settle the outstanding debt of $172,038 with Cerberus Business Finance, LLC. The Revolving Facility was for $50,000.

For every interest period, the interest rate on the Term Loan is the adjusted Term Secured Overnight Financing Rate (“Term SOFR”) plus 4.75% with an adjusted Term SOFR floor of 0.50%. The Term Loan will amortize in quarterly installments on each scheduled payment date (commencing with the scheduled payment date occurring on June 30, 2022). The new loan comes with a springing covenant, which goes into effect if the utilization on the Revolving Facility exceeds 35% of the $50,000 Revolving Facility at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40. The facility had certain financial and nonfinancial covenants, including a leverage ratio. The facility also requires that the Company delivers its consolidated financial report to its lender within 120 days of its fiscal year end, being December 31. Should the Company fail to distribute the financial report to its lender within 120 days, it is allowed an additional 30 days to cure. For the period covering June 30, 2022 through and including December 31, 2025, $5,000 of the amortization payment will be made quarterly. For March 31, 2026 (scheduled payment date) and thereafter, $7,500 of the amortization payment will be made quarterly.

The Revolving Facility will mature five years after the closing date. The interest rate on the Revolving Facility is the adjusted Term SOFR plus 2.75% with an adjusted Term SOFR floor of 0%. In March 2022, the Company borrowed

$49,000 under its Revolving Facility principally for funding of the cash portion of the purchase price consideration for the CouponFollow acquisition. As of June 30, 2022 (Successor), this amount is outstanding.

As of June 30, 2022, future minimum principal payments on long-term debt are as follows:

	Successor
	As of June 30, 2022
Remainder for 2022	$	10,000
2023	$	20,000
2024	$	20,000
2025	$	20,000
2026	$	30,000
2027	$	344,000
Total future minimum principal payment	$	444,000
Less: current portion	$	(20,000)
Long-term portion	$	424,000

Loan fees amounting to $1,197 have been offset against the loan balance.

As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan. The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America. The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern. Upon delivery of the audited financial statements by the Company, the event of default will be remediated and, once remediated, Bank of America will no longer have the ability to call the outstanding principal balances on the Term Loan and Revolving Facility.

2023 Revolving Note

On April 10, 2023, Orchid Merger Sub II, LLC (“Orchid Sub”), a wholly-owned subsidiary of the Company, entered into a $20,000 Revolving Note (the “2023 Revolving Note”) with Lone Star Friends Trust (acting by and through its trustee, Stanley Blend, “Lone Star”) and CEE Holding Trust (acting by and through its trustee, Jackson Hole Trust Company, “CEE”, and together with Lone Star, collectively, the “Lenders” and each, a “Lender”), which are trusts established for the benefit of Michael Blend (Chief Executive Officer, co-founder and stockholder) and Charles Ursini (co-founder and stockholder), respectively, in a private transaction approved by the independent and non-interested members of the Company’s Board of Directors (the “Board”). Each Lender provided a $10,000 commitment for an aggregate principal of $20,000 under the 2023 Revolving Note to Orchid Sub on a several but not joint basis (each, a “Commitment” and, collectively, the “Commitments”).

Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York plus 3.15%. Orchid Sub may borrow amounts under the 2023 Revolving Note in increments of $100, and may prepay any amounts borrowed at any time without penalty or interest (other than applicable breakage costs, if any). The Company may borrow up to its commitment amount, and may reuse the loan again after the balance has been paid down. The final maturity date under the 2023 Revolving Note is July 10, 2024. The Lenders are also entitled to (i) an unused commitment fee equal to 1.0% per annum of the actual daily amount of total unfunded Commitments

under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a closing fee equal to 12.0% of each Lender’s Commitment under the 2023 Revolving Note, payable within 180 days of April 10, 2023. In addition, Orchid Sub agreed to reimburse the Lenders for their reasonable and documented costs expenses incurred in connection with the negotiation, documentation and execution of the 2023 Revolving Note. As of the date of this filing, the available balance under the 2023 Revolving Note was $15,000.

XML

WARRANTS

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

WARRANTS

WARRANTS

In June 2020, the Company issued Public Warrants and Private Placement Warrants in conjunction with the initial public offering of Trebia. Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants became exercisable on April 18, 2022, when the S-1/A registration statement, which was required to be filed under the terms of the Warrant Agreement and the Business Combination Agreement, was declared effective. The Public Warrants will expire five years from the completion of the Merger, or earlier upon redemption or liquidation.

The Company is not obligated to deliver any shares of Class A common stock pursuant to the exercise of a Public Warrants and has no obligation to settle such Public Warrants exercises unless a registration statement under the Securities Act with respect to the Class A common stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. Warrants are exercisable and the Company is obligated to issue a share of Class A common stock upon exercise of each Warrant, as the Warrants have been registered with the SEC.

The Company is obligated to use its commercially reasonable efforts to maintain the effectiveness of a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the Warrants, and a current prospectus relating thereto, until the expiration or redemption of the Warrants in accordance with the provisions of the Warrant Agreement. If the effectiveness of a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the Warrants is not maintained, Warrant holders may exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. In addition, if the Company's Class A common stock is, at the time of any exercise of a Warrant, not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of the Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company elects to do so, the Company will not be required to file or maintain in effect a registration statement, but it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the Public Warrants for that number of shares of Class A common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the Public Warrants, multiplied the excess of the “fair market value” less the exercise price of the Public Warrants by (y) the fair market value and (B) 0.361. The “fair market value” shall mean the volume weighted average price of the Class A common stock for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.

Redemption of Warrants when the Price per Class A common stock equals or exceeds $18.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Public Warrants:

● in whole and not in part;

● at a price of $0.01 per Public Warrant;

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

● if, and only if, the last reported sale price of the Class A common stock for any 20 trading days within a 30-trading day period ending three business days before sending the notice of redemption to warrant holders

(the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like).

If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, the Company will not redeem the Warrants unless an effective registration statement under the Securities Act covering the underlying shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period.

Redemption of Warrants When the Price per Class A common stock equals or exceeds $18.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Warrants:

● in whole and not in part;

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

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

● if the Reference Value is less than $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) the Private Placement Warrants must also be concurrently -called for redemption on the same terms (except as described below with respect to a holder’s ability to cashless exercise its warrants) as the outstanding Public Warrants, as described above.

The exercise price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.

The Private Placement Warrants were identical to the Public Warrants underlying the units sold in the initial public offering of Trebia, except that (x) the Private Placement Warrants and the shares of Class A common stock issuable upon the exercise of the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Merger, subject to certain limited exceptions, (y) the Private Placement Warrants were exercised on a cashless basis. There are no outstanding Private Placement Warrants as of June 30, 2022 (Successor).

The Public and Private Placement Warrants are accounted for as liabilities and marked-to-market at each reporting period, with changes in fair value included as change in fair value of warrant liabilities in the Condensed Consolidated Statements of Operations.

In April 2022, the Private Placement Warrant holders exercised their Warrants on a cashless basis in exchange for 3,532 shares of the Company's Class A common stock. Additionally, during the three months ended June 30, 2022, Public Warrant holders exercised 437 warrants on a cash basis resulting in total proceeds paid to the Company of $5,028. The total outstanding Public Warrants as of June 30, 2022 was 16,813.

XML

FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENTThe following tables present the Company’s fair value hierarchy for liabilities measured at fair value on a recurring basis as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor):

	June 30, 2022 (Successor)
	Level 1		Level 3		Total
Warrant liabilities:
Public warrants	$	13,669	$	—	$	13,669
Contingent consideration	—		568		568
Grand total	$	13,669	$	568	$	14,237

	December 31, 2021 (Predecessor)
	Level 3		Total
Former CEO equity interest	11,132		11,132
Contingent consideration	1,682		1,682
Grand total	$	12,814	$	12,814

The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants was estimated using the Public Warrants’ quoted market price.

The fair value of the former CEO of S1 Holdco's equity profits interest was determined with an option pricing model and utilizing significant unobservable inputs for a discount for lack of marketability and projected financial information. The fair value contingent consideration was determined with an option pricing model and contains significant unobservable inputs for projected financial information.

Changes in estimated fair value of Level 1, 2 and 3 financial liabilities for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, are as follows:

	Former CEO equity profits interest*		Contingent consideration		Warrant liability
Fair value of liabilities at December 31, 2020 (Predecessor)	$	4,236	$	8,240
Settlements	—		(6,715)
Change in fair value	4,238		94
Fair value of liabilities at June 30, 2021 (Predecessor)	$	8,474	$	1,619
Fair value of liabilities at December 31, 2021 (Predecessor) and January 26, 2022 (Predecessor)	$	11,132	$	1,682
Fair value of liabilities at January 27, 2022 (Successor)			$	1,682	$	27,012
Additions			573		—
Change in fair value			—		13,761
Fair value of liabilities at March 31, 2022 (Successor)			2,255		40,773
Settlements			(1,715)		(22,965)
Change in fair value			28		(4,139)
Fair value of liabilities at June 30, 2022 (Successor)			$	568	$	13,669

*Former CEO equity profits interest as further described in executive compensation Note 11.

The total impact of the changes in fair values related to contingent consideration and the former CEO of S1 Holdco's equity profits interest are included in Selling, general and administrative expenses, and Salaries, commissions and benefits, respectively in the Condensed Consolidated Statements of Operations. There were no transfers in or out of levels during the period January 1, 2022 through January 26, 2022 (Predecessor), the period January 27, 2022 through June 30, 2022 (Successor), or for the six months ended June 30, 2021 (Predecessor).

XML

NET INCOME (LOSS) PER SHARE

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

NET INCOME (LOSS) PER SHARE

NET INCOME (LOSS) PER SHARE

For the three months ended June 30, 2021 (Predecessor), the period from January 1, 2022 through January 26, 2022 (Predecessor), and for the six months ended June 30, 2021 (Predecessor), the basic net income (loss) per unit attributable to members was calculated by dividing the net income (loss) attributable to common equity holders by the weighted-average number of membership units. For the three months ended June 30, 2022 (Successor) and the period from January 27, 2022 through June 30, 2022 (Successor), 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. Diluted net income (loss) per share gives effect to all potentially dilutive shares. Basic and diluted net income (loss) per share was calculated as follows:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Net loss per share:
Basic	$	(0.29)	n/a		$	(0.71)	n/a		n/a
Diluted	(0.33)		n/a		n/a		n/a		n/a
Numerator:
Net loss attributable to System1, Inc.	(25,737)		n/a		$	(61,806)	n/a		n/a
Change in fair value of warrant liabilities	(4,139)		n/a		n/a		n/a		n/a
Net loss used in diluted computation	$	(29,876)	n/a		n/a		n/a		n/a
Denominator:
Weighted-average common shares outstanding used in computing basic net loss per share	89,701		n/a		86,840		n/a		n/a
Adjustment for incremental shares from applying treasury stock method	1,481		n/a		n/a		n/a		n/a
Weighted-average common shares outstanding used in computing diluted net loss per share	91,182		n/a		n/a		n/a		n/a
Basic and diluted net income (loss) per unit	n/a		$	0.57	n/a		$	(1.81)	$	0.90
Numerator:
Net income (loss)	n/a		11,772		n/a		(37,061)		18,515
Denominator:
Weighted-average membership units outstanding - basic and diluted (units in thousands)	n/a		20,488		n/a		20,488		20,488

Shares of Class C common stock, warrants, and RSUs outstanding for the period January 27, 2022 through June 30, 2022 (Successor) are considered potentially dilutive of the shares of Class A common stock under the application of the treasury stock method, 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 22,077 shares of Class C common stock were excluded from the computation of net loss per share as the impact was anti-dilutive.

XML

SEGMENT REPORTING

6 Months Ended

Jun. 30, 2022

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

ASC 280-10, Segment Reporting, establishes standards for reporting information about operating 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. System1’s Chief Executive Officer, who is considered to be its 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 operating revenues as well as adjusted gross profit and other measures. The Company defines and calculates adjusted gross profit as revenue less advertising expense and agency fees to acquire users (refer to Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES), as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, credit card processing fees, and licensing costs related to the antivirus and other software available via APIs for sale and distribution of its SaaS products to end customers. The Company excludes the following items from segment adjusted gross profit: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment adjusted gross profit, they are included in reported consolidated net income from operations before income tax and are included in the reconciliation that follows.

The Company’s computation of segment adjusted gross profit may not be comparable to other similarly-titled measures computed by other companies because all companies do not calculate segment Adjusted Gross Profit in the same fashion.

Operating segments do not sell products and services across segments, and, accordingly, there are no intersegment revenues to be reported. The accounting policies for segment reporting are the same as for System1 as a whole.

The CODM of the Company reviews operating results, assesses performance and makes decisions by operating segment. Management views each of the Company’s business lines as an operating segment. The Company has four business lines and operating segments: Publishing and Lead Generation, Search & Applications, Partner Network, and Subscription.

The Publishing and Lead Generation and Search & Applications operating segments are aggregated into one reportable segment, referred to as Owned and Operated, based on their similar economic characteristics, technology platform utilized, types of services provided, Advertising Partners, and cost structures. The Company has three reportable segments: Owned and Operated, Partner Network and Subscription.

The following summarizes revenue by reportable segments:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	157,952	$	160,816	$	284,836	$	49,249	$	300,242
Partner Network	19,077		8,763		30,427		3,463		16,898
Subscription	42,768		—		70,642		—		—
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

The following summarizes adjusted gross profit by reportable segments:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	36,799	$	37,572	$	66,217	$	8,768	$	69,700
Partner Network	13,908		8,763		22,321		3,012		16,898
Subscription	22,890		—		35,537		—		—
Adjusted gross profit	$	73,597	$	46,335	$	124,075	$	11,780	$	86,598
Other cost of revenues	6,358		2,923		11,112		575		6,410
Salaries, commissions and benefits	49,511		17,698		97,709		31,181		32,893
Selling, general and administrative	16,747		6,277		31,835		15,665		13,227
Depreciation and amortization	32,094		3,112		54,022		1,000		6,801
Interest expense	7,324		4,476		12,100		1,049		8,524
Change in fair value of warrant liabilities	(4,139)		—		9,622		—		—
Net income (loss) before income tax	$	(34,298)	$	11,849	$	(92,325)	$	(37,690)	$	18,743

The following table presents the revenues disaggregated by geographic region.

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Geographic Region
United States	$	167,872	$	163,072	$	302,480	$	51,701	$	307,630
United Kingdom	42,924		168		70,643		—		169
Other international	9,001		6,339		12,782		1,011		9,341
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

XML

RELATED-PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2022

Related Party Transactions [Abstract]

RELATED-PARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

On October 16, 2018, S1 Holdco and its subsidiaries purchased a 50.1% interest in a UK-based company, Protected.net Group Ltd., for $55,000. At the time of the transaction, an investment vehicle known as Lone Investment Holdings (LIH) was a shareholder and creditor of Protected. LIH owned 7.7% of the equity of Protected, and also was a creditor for $10,500, with respect to shareholder loans for which Protected was the obligor. LIH’s shareholders primarily consist of members of the Company’s management team. As a result of the Merger, LIH’s shareholder loan to Protected was repaid, with interest, and LIH also received $1,158 in proceeds from the sale of its equity.

Additionally, during 2021, S1 Holdco extended a loan of $1,500 to its former CEO in connection with his separation agreement. In January 2022, in conjunction with the consummation of the Merger, the loan was repaid in full.

Protected utilizes multiple payment processors in order to process credit card payments from its subscription customers, including Paysafe Financial Services Limited (“Paysafe”). Paysafe recently completed a merger with Foley Trasimene Acquisition Corp. II, a special purpose acquisition company sponsored by entities affiliated with William Foley, who was also a sponsor of Trebia Acquisition Corp. and a member of the Company’s Board of Directors. Protected’s payment processing agreement with Paysafe was negotiated before the announcements of both (i) the Merger as well as (ii) the business combination between Paysafe and Foley Trasimene. The amount due from Paysafe was $1,347 as of June 30, 2022 (Successor).

The Company has agreements with JDI Property Holdings Limited (“JDI”), an entity controlled by a director of the Company, which allows for the Company to occupy desks at JDI’s property in such a place as JDI specifies from time to time in exchange for GBP 42 per month. The agreements with JDI expire on October 31, 2026.

Additionally, the Company utilizes a JDI credit card and the Company reimburses JDI monthly. As of June 30, 2022 (Successor), the Company owes $149 to JDI.

XML

SHARE-BASED PAYMENTS

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

SHARE-BASED PAYMENTS

SHARE-BASED PAYMENTS

Pursuant to the Merger, the Company is required to replace certain profits interests awards with restricted stock units (“RSUs”) in System 1 (the “Replacement Awards”). The Replacement Awards will continue to vest over the original vesting schedule of the original underlying awards. The Company recognized a total stock-based compensation expense of $23,705 upon the Merger transaction during the period January 1, 2022 through January 26, 2022 (Predecessor). Subsequent to the Merger, the remaining amount of $30,724 will be amortized over the weighted average period of 2.3 years. The Company recognized stock-based compensation expense of $15,547 under these awards during the period January 27, 2022 through June 30, 2022 (Successor). The unrecognized stock-based compensation expense associated with these unvested Replacement Awards at June 30, 2022 was $21,241.

In addition to the Replacement Awards, the Company issued 1,450 Class D shares that were exchanged for 1,450 Trebia's legacy shares, in a like for like transaction ("Sponsor RSAs"). The founders of S1 Holdco and Protected were also issued with 1,450 Class D shares ("Seller RSUs"). The Sponsor RSAs and Seller RSUs vested if the Company’s common stock traded at a VWAP equal or exceeding $12.50 per share for any 20 trading days within a 30 trading day period. When the VWAP of the Company’s common stock price exceeded the threshold in March 2022 the Sponsor RSAs and Seller RSUs vested, and the Company recorded their conversion from Class D common stock to Class A common stock on its Condensed Consolidated Statements of Changes in Stockholders' Equity. The Company also recorded $12,745 in stock-based compensation expense associated with the vesting of the Seller RSUs during the period January 27, 2022 through March 31, 2022 (Successor). Since these Sponsor RSAs and Seller RSUs had a market condition to vest, the Company estimated the fair values of these market-based RSUs and RSAs using a Monte Carlo simulation.

The key assumptions used to determine the fair value of these market-based RSUs and RSAs were as follows:

Inputs
Risk-free interest rate	1.6		%
Expected stock price volatility	50.0		%
Cost of equity	23.6		%
Expected term (years)	5
Fair Value of Class A Common Stock	$	10.00

The Company recorded $7,706 in stock-based compensation expense for Sponsor Promote Shares during the period January 27, 2022 through March 31, 2022 (Successor).

The Company recorded the following total share-based compensation expense for the periods presented:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		s	Six Months Ended June 30, 2021
Share-based compensation expense	$	25,168	$	120	$	57,470	$	23,705		$	266

On April 27, 2022, the Company registered the System1, Inc. 2022 Incentive Award Plan ("Award Plan”). On May 10, 2022, the Company’s Board of Directors authorized the issuance of 1,900 replacement RSU’s in connection with S1 Holdco unvested value creation units at the time of the Merger as required per the Business Combination Agreement and 4,900 RSUs from the authorized Award Plan pool of shares (as defined in the Award Plan).

Protected.net Incentive Plan

In connection with the Merger and acquisition of Protected.net described in Note 3, which was consummated on January 26, 2022, the Company effected an incentive plan for eligible recipients as defined in the Business Combination Agreement (see Note 3), which may include employees and non-employees, including the Protected CEO, totaling up to $100,000 payable in fully-vested shares of the Company’s Class A Common Stock. As defined in the Business Combination Agreement, if the Protected business exceeds last twelve months (“LTM”) Cash EBITDA (as defined in the Business Combination Agreement) of $55,000 on or prior to December 31, 2023, a pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2023 Award”) shall be allocated to eligible recipients as of December 31, 2023. Shares under the 2023 Award will be issued to eligible recipients within 30 days of December 31, 2023. Further, if the Protected business exceeds LTM Cash EBITDA (as defined in the Business Combination Agreement) of $65,000 on or prior to December 31, 2024, a separate pool of $50,000 payable in fully-vested shares of the Company’s Class A Common Stock (the “2024 Award") shall be allocated to eligible recipients as of December 31, 2024. Shares under the 2024 Award will be issued to eligible recipients within 30 days of December 31, 2024. The number of shares payable under the 2023 and 2024 Awards will be determined based on the volume-weighted average price of the Company’s Class A Common Stock over the 20 consecutive trading days preceding the 5 trading days prior to settlement. The distribution of shares to eligible recipients for both the 2023 and 2024 Awards shall be at the sole discretion of the Protected CEO, or the System1, Inc. Board if the Protected CEO is no longer employed by the Company.

As of June 30, 2022, although neither of the LTM Cash EBITDA targets for the 2023 Award and 2024 Award were met, the Company determined that they were both probable of achievement, and accordingly, it recorded a portion of the $100,000 payable for these awards, within salaries, commissions, and benefits on the Consolidated Statement of

Operations for the three months ended June 30, 2022. As of June 30, 2022, $18,163 of stock-based compensation has been recorded as a liability for these awards within “Protected Incentive Plan Liability”. The remaining liability for these awards will be recorded over the remaining service period to the extent that management determines that the achievement of the LTM Cash EBITDA targets and issuance of the Series A common stock is considered probable.

CouponFollow Incentive Plan

In connection with the acquisition of CouponFollow described in Note 4, which was consummated on March 4, 2022, the Company approved and adopted the CouponFollow Incentive Plan, which includes CouponFollow’s key employees, including CouponFollow’s founder (“Principal Participant” and together collectively the “Participants”). The CouponFollow Incentive Plan provides for total payments of $35,000 payable at the Company’s option in cash or in fully-vested shares of the Company’s Class A common stock, consisting of a fixed amount of $10,000 and contingent amounts of $25,000, which can be earned over a three calendar year period between each January 1 to December 31 of 2022, 2023 and 2024 (each a “Performance Period” and collectively, the “Performance Periods”). In order to receive any payments under the CouponFollow Incentive Plan, the Participants must maintain continuous employment through the last day of each Performance Period to be eligible for the following earnout payment amounts (with the exception of the Principal Participant who is still eligible if terminated without cause or if he terminates his employment for good reason) in the amounts and at the times set forth below:

•Fixed Amount. Over the course of the Performance Periods, the Company shall pay to each of the employed eligible Participants a total of $10,000 (the “Fixed Amount”) in three substantially equal pro rata installment payments (as set forth in each Participant’s applicable award agreement) within 60 days of the end of each Performance Period.

•Tier 1 Target. If, during any of the Performance Periods, the CouponFollow business achieves the first tier TTM EBITDA (as defined in the CouponFollow Incentive Plan) for the first time (the “Tier 1 Target”), the Company will pay a total of $10,000 (the “Tier 1 Amount”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

•Tier 2 Target. If, during any of the Performance Periods, the CouponFollow business achieves the second tier TTM EBITDA for the first time (the “Tier 2 Target”), the Company will pay an additional $7,500 (the “Tier 2 Amount”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

•Tier 3 Target. If, during any of the Performance Periods, the CouponFollow business achieves the third tier TTM EBITDA for the first time (the “Tier 3 Target” and together with the Tier 1 Target and Tier 2 Target, collectively the “Targets”), the Company will pay an additional $7,500 (the “Tier 3 Amount” and together with the Tier 1 Amount and the Tier 2 Amount, collectively the “Tier Amounts”) in substantially equal pro rata amounts (as set forth in each Participant’s applicable award agreement) at the times in the table set forth below.

•

Performance Period*	Fixed Amount		Tier 1 Amount**		Tier 2 Amount**		Tier 3 Amount**		Total Maximum Payment per Performance Period
Dec. 31, 2022	$	3,333	$	3,333	$	—	$	—	$	6,666
Dec. 31, 2023	3,333		3,333		3,750		—		10,416
Dec. 31, 2024	3,334		3,334		3,750		7,500		17,918
	$	10,000	$	10,000	$	7,500	$	7,500	$	35,000
*Payments for each applicable Performance Period are paid within 60 calendar days of the end of the applicable Performance Period.
**If the Tier 1 Amount is not achieved in the first Performance Period but is achieved in the second Performance Period, the Tier 1 Amount for the first Performance Period shall be paid out at the end of the second Performance Period and if achieved in the third Performance period the full amount will be paid at the end of the third Performance Period. If the Tier 2 Amount is not achieved in the second Performance Period but is achieved in the third Performance Period, the Tier 2 Amount will be paid at the end of the third Performance Period. If the Tier 2 Amount or the Tier 3 Amount is achieved in the first Performance Period, such Tier Amounts shall be paid as noted in the table above.

If a Participant’s continued employment is terminated prior to applicable payment date(s), with the exception of the Principal Participant as discussed above, the Company will reverse all prior liabilities for their pro rata share of any Tier Amounts associated with that Participant. If the Company elects to settle the payment obligations with respect to any Tier Amount in shares of the Company’s Class A common stock, the number of shares payable under the CouponFollow Incentive Plan will be determined based on the VWAP of the Company’s Class A common stock over the 30 trading day period immediately preceding the respective settlement date, but in any event, shall be capped at 4,667 shares of the Company’s Class A common stock in the aggregate. Any amount over the maximum number of shares is to be settled in cash.

As of June 30, 2022, the Company has determined that it was not probable that the CouponFollow business would achieve any of the Targets during the Performance Periods, and accordingly, it did not record a liability for any of the Tier Amounts set forth in the CouponFollow Incentive Plan. During the three and six months ended June 30, 2022, the Company recognized $1,001 and $1,309, respectively, for the Fixed Amount, within Salaries, commissions, and benefits on the condensed consolidated statements of operations.

XML

SUBSEQUENT EVENT	6 Months Ended
	Jun. 30, 2022
Subsequent Events [Abstract]
SUBSEQUENT EVENT	SUBSEQUENT EVENTIn August 2022, the Company's Board of Directors authorized up to $25,000 for the repurchase of its Class A Common Stock and Public Warrants.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and

regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022 (Successor periods) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter.

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.

Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and

regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the three months ended June 30, 2022 and for the period from January 27, 2022 through June 30, 2022 (Successor periods) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter.

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.

Recent Accounting Pronouncements

ASC 842 AdoptionOn January 1, 2022, the Company adopted ASC 842, Leases, under the modified transition approach. This lease accounting standard provides several optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption. Accordingly, for those leases that qualify, the Company did not recognize a right-of-use asset or lease liability, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The adoption of the lease standard did not have any effect on its previously reported Condensed Consolidated Statements of Operations and did not result in a cumulative catch-up adjustment to opening equity.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including subsequent amendments, Measurement of Credit Losses on Financial Instruments (Topic 326), which modifies the accounting methodology for most financial instruments. The guidance requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. This guidance is effective for the Company for annual periods beginning after December 15, 2022, and early adoption is permitted. The Company does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to: (1) valuation of goodwill, acquired intangible assets and long-lived assets for impairment, (2) valuation and recognition of the Company's share-based compensation awards, (3) income taxes, (4) variable and contingent consideration and (5) determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements.

Cash and cash equivalents

Cash and Cash Equivalents

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

Accounts Receivable

Accounts Receivable

Accounts receivable primarily represent amounts due from Advertising Partners, and these accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company does not require collateral for its accounts receivable. The Company considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer and current economic industry trends. These accounts receivables have historically been paid on a timely basis. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection and

therefore no allowance for doubtful accounts was required as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor). The payment terms for the Company's accounts receivable are typically 30 days.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. 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, the Company has not experienced any losses related to these cash balances and believes that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits.

Accounts receivable are primarily derived from Advertising Partners located within the United States.

Foreign Currency

Foreign Currency

The Company’s reporting currency is the U.S. dollar. The balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. The statement of operations amounts have been translated using the average exchange rate for the month in which the activity related. Accumulated net translation adjustments and foreign currency transaction gains/losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the functional currency were not material.

Warrant Liability

Warrant Liability

The Company accounts for the Public Warrants and Private Placement Warrants (collectively, the “Warrants”; which are discussed in further detail in Note 13 and Note 14) in accordance with ASC 815-40 under which the Warrants do not meet the criteria for equity classification, and therefore must be recorded as liabilities. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the fair value of the Public Warrants.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.

The provisions of ASC 820 relate to financial and nonfinancial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date.

The Company measures 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 the Company’s own assumptions about current market conditions and require significant management judgment or estimation.

Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, 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. The carrying amount of the Company’s outstanding debt approximates the fair value, as the debt bears interest at a rate that approximates the prevailing market rate. The Company classifies the fair value of debt within Level 2 in the fair value hierarchy.

The Company does not have any assets, with the exception of cash, cash equivalents and restricted cash, that are required to be carried at fair value on a recurring basis at June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company’s liabilities measured at fair value relate to the former CEO of S1 Holdco's equity profits interest liability (Level 3), contingent consideration (Level 3), Public Warrant liabilities (Level 1) and Private Placement Warrant liabilities (Level 2). In January 2022, as part of the Merger, S1 Holdco settled the equity profits interest liability with S1 Holdco's former CEO.

Certain assets, including goodwill and intangible 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. The fair value of these assets is determined using unobservable inputs to present value the assets.

Restricted cash

Restricted Cash

The Company had restricted cash of $7,024 and $743 as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The amount of restricted cash as of December 31, 2021 (Predecessor) relates to cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its corporate office in Marina del Rey, California. The Company’s restricted cash as of June 30, 2022 (Successor) primarily consists of (i) cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility, (ii) merchant reserve balances with its credit card processors held due to arrangements under which the Company's credit card processors withhold certain credit card funds to cover potential charge backs initiated by the Company’s customers, (iii) the escrow account balance related to the portion of unvested equity awards as of the closing of the Merger that will be cash settled and will be released to the Company's employees as the service requirement is completed and (iv) the escrow account balance related to post-close adjustments and indemnifications from the RoadWarrior acquisition.

Property and Equipment, net

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 the Condensed Consolidated Statement of Operations.

The estimated useful lives of the Company’s property and equipment for purposes of computing depreciation are as follows:

	(Years)
Computer equipment	3
Office equipment	3
Software	4
Furniture, fixtures and equipment	3	-	7
Motor vehicles	4
Leasehold improvements	Shorter of the remaining lease term or estimated useful life for leasehold improvements.

Internal-use software development costs, net and Intangible assets

Internal-use software development costs, net

Internal-use software development costs are stated at cost, less accumulated amortization. The Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure, including continuing to develop and deploy its RAMP platform. These costs include personnel and related employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as external direct costs of materials and services consumed in developing or obtaining the software. Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and correspondingly recorded in Salaries, commissions, and benefits expense in the Condensed 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. The Company capitalizes costs associated with software developed for internal use when 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. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for deployment for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software or lease its software to third parties.

Intangible Assets

Intangible assets primarily consist of acquired technology, customer relationships and trade names/trademarks. The Company determines 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 amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Certain customer relationship intangibles are amortized on an accelerated basis based upon the expected timing of economic benefits which are derived from an analysis of customer attrition rates over the expected life. The fair value of the intangible assets acquired is determined using either the income or market methodologies.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company assesses the recoverability of its 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 its previously estimated useful life. The Company performs 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. The Company assesses recoverability of a long-lived asset by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives. 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 charged to operations in the period in which management determines such impairment has occurred. For the periods presented in this quarterly report, Management has determined there to be no impairment of long-lived assets.

Business Combinations

Business Combinations

The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which the Company's management believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations.

Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value during each reporting period through the Company’s Condensed Consolidated Statements of Operations.

Goodwill

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350,

Intangibles—Goodwill and Other, which requires the Company to test goodwill at the reporting unit level for impairment at least annually.

The Company has the option (i) 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 (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than carrying amount, an impairment loss is recognized in an amount equal to the excess.

The determination of fair value(s) requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected cash flows from a market participant perspective, and discount rates. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

The Company tests for goodwill impairment annually at December 31st. For the periods presented in this quarterly report, there were no triggering events identified, and therefore no impairment charges recorded on goodwill during the interim periods were required.

Leases

Leases

On January 1, 2022, the Company adopted ASC 842, Leases, and recognized right-of-use assets and lease liabilities in its Condensed Consolidated Balance Sheet.

A contract is or contains a lease when, (1) the contract contains an explicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at commencement of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date, on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company’s right to use the underlying asset over the period of use.

The Company’s leases are operating leases and operating lease right-of-use (“ROU”) asset and lease liabilities are recorded in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2022 (Successor). An ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments include taxes, insurance, utilities and maintenance costs.

As most of the Company’s leases do not provide an implicit interest rate, the incremental borrowing rate based on the information available on the commencement date of the lease is used to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and lease incentives. The lease terms may include options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for as a single lease component.

See Note 7 for additional details.

Revenue

Revenue

The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:

•Identification of a contract with a customer,

•Identification of the performance obligations in the contract,

•Determination of the transaction price,

•Allocation of the transaction price to the performance obligations in the contract, and

•Recognition of revenue when or as the performance obligations are satisfied.

The Company’s revenue is principally derived from the following areas:

Advertising and Other Revenue

Revenue is earned from revenue-sharing arrangements with the Company’s Network Partners for the use of its RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. The Company has determined it is the agent in these transactions and reports revenue on a net basis, because (a) the Company does not control the underlying advertising space, (b) the Company does not acquire the traffic and does not have risk of loss in connection therewith and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. The Company reports this revenue on a net basis with respect to the amount retained under its revenue-sharing arrangements, which represents the difference between amounts received by the Company from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts.

The Company also earns revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, the Company is the principal in the transaction and reports revenue on a gross basis for the amount(s) received from its Advertising Partners. For this revenue, the Company has determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with its Advertising Partners, and, in the case of its owned and operated websites, the Company maintains the website, provides the content and bears the cost and risk of loss associated with its websites’ advertising space.

The Company recognizes revenue upon delivering traffic to its Advertising Partners based on a cost-per-click or cost-per-thousand impression basis.

Subscription Revenue

In connection with the Merger of Protected discussed in Note 3, the Company is also engaged in selling security software as a service subscription to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, ad-blocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. The Company’s services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period.

The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

Cost of Revenues

Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, and costs related to the utilization of antivirus engine

licensing related to APIs for the antivirus product. The Company does not pay any up-front payments. Incentive payments or bonuses and such costs are expensed as incurred.

Salaries, Commissions, and Benefits

Salaries, Commissions, and Benefits

Salaries, commissions and benefits expenses include salaries, bonuses, stock-based compensation, non-capitalized personnel costs incurred in the capitalized internal use software development, and employee benefits costs.

Share-Based Compensation

Share-Based Compensation

Compensation cost related to share-based payments is measured based on the fair value of the units issued and recognized within “Salaries, commissions, and benefits” in the Company’s Condensed Consolidated Statement of Operations. The Company has elected to treat share-based payment awards with time-based service condition(s) only as a single award and recognizes share-based compensation expense on a straight-line basis over the vesting period, which is generally four years. The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following:

•Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist.

•Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. For non-employees, the expected life equals the contractual term of the option.

•Risk-free Interest Rate: The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options.

•Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies.

Replacement Awards

Prior to the Merger, S1 Holdco had outstanding both, Value Creation Units (“VCU’s”) and Class F Units. The VCU’s and Class F Units were concluded to be profits interests units granted to employees. The VCU’s shall become fully vested upon the satisfaction of both a service condition and a performance condition determined to be a change in control event effectuated by the Merger. The Class F Units are subject to vesting conditions where the units will vest at the later of (i) a change in control event or (ii) four-year anniversary of issuance.

Pursuant to the Merger, the Company was 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 System1 and a cash award (collectively, the "Replacement Awards”). The fair value of the Replacement Awards was derived utilizing the transaction closing price of $10.00. 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 are included in the total consideration transferred, with the exception of the unvested awards subject to service vesting conditions where the service condition has not been completed. With regards to the remaining unvested portion of the Replacement Awards, the Company continues to recognize compensation expense on a straight-line basis over the original requisite service period and recognizes forfeitures as they occur. For VCU Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the remaining unvested shares, as a share of the Company’s Class A Common Stock becomes issuable to the previous investors for each VCU Replacement Award forfeited. For Cash Replacement Awards forfeited prior to vesting, the Company recognizes accelerated compensation expense for the unpaid amount, as that cash amount becomes payable to the previous investors.

Post-Combination Awards

For awards granted subsequent to the Merger, the Company’s fair value of the related restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. As these awards are subject only to time-based service conditions, the Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Liability Awards

In connection with the Merger and acquisition of Protected.net described in Note 3, the Company effected an incentive plan for eligible recipients which is payable in a fixed value of fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “Protected.net Incentive Plan”).

In connection with the acquisition of CouponFollow described in Note 4 the Company effected an incentive plan for eligible recipients, which, at the Company’s option, is payable in cash or fully-vested shares of the Company’s Class A common stock upon the satisfaction of certain performance and service conditions (the “CouponFollow Incentive Plan”).

The Company recognizes compensation cost for these 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 adjusted to reflect the completed portion of the service period with a graded vesting attribution.

After the Merger, the Company’s fair value of its restricted stock units was derived from the market price of its Class A common stock, which is traded on the NYSE. The Company recognizes compensation on a straight-line basis over the requisite service period for each award and recognizes forfeitures as they occur.

Selling, General, and Administrative

Selling, General, and Administrative

Selling, general, and administrative expenses consist of fees for professional services, occupancy costs, travel and entertainment. These costs are expensed as incurred.

Depreciation and Amortization

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to the Company’s capital investments and consist of fixed asset depreciation and amortization of intangible assets with finite lives.

Income Taxes

Income Taxes

The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its condensed consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco. Various subsidiaries of the Company are subject to income tax in the United States and in other countries.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) 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 recent operations. If the Company determines that it would not be able to realize its DTAs in the future in excess of their net recorded amount, it would make an adjustment to the DTA valuation allowance, which would increase the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes both accrued interest and penalties, when appropriate, in the provision for income taxes in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

For the periods presented in this quarterly report, the Company had not incurred any related interest and penalties.

Non-Controlling Interest

Non-Controlling Interest

The Company reports a non-controlling interest representing the economic interest in S1 Holdco held by certain individuals and entities other than the Company. The non-controlling interest is comprised of certain selling equity holders of S1 Holdco that retained an economic interest in S1 Holdco through their ownership of Class B units in S1 Holdco, along with the same number of corresponding shares of Class C common stock in the Company. The non-controlling interest holders may, from time to time, require the Company to convert all or a portion of their economic interest via a redemption of their Class B units in S1 Holdco together with surrendering their corresponding shares of Class C common stock in the Company in exchange for shares of Class A common stock on a one-for-one basis. As future redemptions occur, this will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS (Tables)

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Total Revenue

Revenue attributable to the United States of the total revenue were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
United States	76	%	96	%	78	%	98	%	97	%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Summary of Table Illustrates the Level of Concentration as a Percentage of Total Revenues

The following table illustrates the level of concentration as a percentage of total revenues:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Google	69	%	84	%	71	%	88	%	83	%
Microsoft	3	%	5	%	3	%	4	%	5	%

Schedule of Estimated Useful Lives of Property and Equipment

The estimated useful lives of the Company’s property and equipment for purposes of computing depreciation are as follows:

	(Years)
Computer equipment	3
Office equipment	3
Software	4
Furniture, fixtures and equipment	3	-	7
Motor vehicles	4
Leasehold improvements	Shorter of the remaining lease term or estimated useful life for leasehold improvements.

Property and equipment, net as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following:

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Computer equipment	$	604	$	415
Motor vehicles	234		—
Furniture and equipment	918		475
Leasehold improvements	2,833		976
Property and equipment—gross	4,589		1,866
Less accumulated depreciation	(259)		(1,036)
Property and equipment—net	$	4,330	$	830

Total depreciation expense on property and equipment were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Depreciation expense	$	149	$	89	$	268	$	16	$	170

Schedule of Finite-Lived Intangible Assets

The estimated useful lives of the Company’s intangible assets are as follows:

	Useful Life
	(Years)
Developed technology	4
Customer relationships	3	-	5
Trademarks and trade names	10
Other intangibles	4

Internal-use software development costs and intangible assets consisted of the following:

	June 30, 2022 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	3,985	$	(375)	$	3,610
Intangibles:
Developed technology	$	196,000	$	(20,822)	$	175,178
Trademarks and trade names	287,852		(11,803)		276,049
Software	5,100		(428)		4,672
Customer relationships	121,000		(20,558)		100,442
Total intangible costs	$	609,952	$	(53,611)	$	556,341

	December 31, 2021 (Predecessor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	21,274	$	(10,061)	$	11,213
Intangibles:
Developed technology	$	8,398	$	(7,242)	$	1,156
Trademarks and trade names	69,007		(21,375)		47,632
Professional service agreement	3,100		(2,359)		741
Customer relationships	1,500		(661)		839
Total intangible costs	$	82,005	$	(31,637)	$	50,368

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

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Amortization expense for internal-use software development	$	78	$	921	$	143	$	355	$	2,245
Amortization expense for intangible assets	$	31,867	$	2,102	$	53,611	$	629	$	4,386

Schedule of Ownership Interest by Other Entities

The following table summarizes the ownership interest in S1 Holdco as of June 30, 2022 (Successor).

	Units (in thousands)	Ownership %
Class A units of S1 Holdco	90,587	80	%
Class B units of S1 Holdco	22,077	20	%

XML

MERGER (Tables)

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The purchase consideration was allocated to the following assets and liabilities.

	Amount
Tangible assets acquired and liabilities assumed:
Cash and marketable securities	$	68,748
Accounts receivable	79,086
Prepaid expenses	7,807
Income tax receivable	4,566
Property, plant & equipment, net	1,551
Other assets	6,950
Accounts payable	(9,798)
Deferred revenue	(60,768)
Accrued expenses and other current liabilities	(110,004)
Income tax payable	(2,091)
Notes payable	(172,038)
Deferred tax liabilities	(138,613)
Other liabilities	(8,474)
Total tangible assets acquired and liabilities assumed	(333,078)
Intangible assets	562,100
Goodwill	821,277
Net assets acquired	$	1,050,299
Consideration:
Cash	$	440,155
Equity	411,453
Total consideration attributable to System1	851,608
Total consideration attributable to NCI	198,691
Total consideration	$	1,050,299

Schedule of Acquired Finite-Lived Intangible Assets by Major Class

The intangible assets as of the closing date of the acquisition included:

	Amount		Weighted Average Useful Life (in Years)
Trademarks	$	246,400	10
Customer relationships	119,700		4
Technology	196,000		4
Total	$	562,100

Schedule of Pro Forma Net Revenue and Net Income

The following table provides unaudited pro forma information as if the Merger and other acquisitions occurred as of January 1, 2021. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, adjustments for transaction expenses, adjustments for certain stock-based compensation and equity related expenses incurred as a result of the transaction and the resulting tax effects, as if the Merger and acquisitions of Answers, CouponFollow and RoadWarrior (each as defined in Note 4—ACQUISITIONS) occurred January 1, 2021. The pro forma results do not include any anticipated cost synergies or other effects of the merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company.

	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Pro forma revenue	$	219,912	$	219,031	$	455,836	$	412,232
Pro forma net (loss)	$	(20,474)	$	(41,112)	$	(25,436)	$	(140,549)

XML

ACQUISITIONS (Tables)

6 Months Ended

Jun. 30, 2022

Business Acquisition [Line Items]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The purchase consideration was allocated to the following assets and liabilities.

	Amount
Tangible assets acquired and liabilities assumed:
Cash and marketable securities	$	68,748
Accounts receivable	79,086
Prepaid expenses	7,807
Income tax receivable	4,566
Property, plant & equipment, net	1,551
Other assets	6,950
Accounts payable	(9,798)
Deferred revenue	(60,768)
Accrued expenses and other current liabilities	(110,004)
Income tax payable	(2,091)
Notes payable	(172,038)
Deferred tax liabilities	(138,613)
Other liabilities	(8,474)
Total tangible assets acquired and liabilities assumed	(333,078)
Intangible assets	562,100
Goodwill	821,277
Net assets acquired	$	1,050,299
Consideration:
Cash	$	440,155
Equity	411,453
Total consideration attributable to System1	851,608
Total consideration attributable to NCI	198,691
Total consideration	$	1,050,299

Answers Holdings, Inc.

Business Acquisition [Line Items]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	32
Total tangible assets acquired and liabilities assumed	32
Trademark - 10 years weighted average useful life	1,100
Goodwill	3,500
Net assets acquired	$	4,632
Consideration:
Cash	$	4,632
Total consideration	$	4,632

NextGen Shopping, Inc

Business Acquisition [Line Items]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Cash and cash equivalents	$	21,232
Accounts receivable	5,860
Other current assets	446
Accounts payable	(116)
Accrued expenses and other current liabilities	(118)
Income tax payable	(197)
Deferred tax liabilities	(10,895)
Total tangible assets acquired and liabilities assumed	16,212
Intangible assets	42,200
Goodwill	42,175
Net assets acquired	$	100,587
Consideration:
Cash	$	75,087
Equity	25,500
Total consideration	$	100,587

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination

Following are the details of the purchase price allocated to the intangible assets for the CouponFollow acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	38,100	10
Software	4,100		4
Total	$	42,200

RoadWarrior, LLC

Business Acquisition [Line Items]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The purchase consideration was allocated to the following assets and liabilities:

	Amount
Tangible assets acquired and liabilities assumed:
Working capital	$	155
Total tangible assets acquired and liabilities assumed	155
Intangible assets	4,500
Goodwill	14,981
Net assets acquired	$	19,636
Total consideration:
Cash	$	19,636

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination

Following are the details of the purchase price allocated to the intangible assets for the RoadWarrior acquisition:

	Amount		Weighted Average Useful Life (in Years)
Trademark	$	2,200	10
Software	1,000		4
Customer relationships	1,300		3
Total	$	4,500

XML

PROPERTY AND EQUIPMENT, NET (Tables)

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Schedule of Property, Equipment, Net

The estimated useful lives of the Company’s property and equipment for purposes of computing depreciation are as follows:

	(Years)
Computer equipment	3
Office equipment	3
Software	4
Furniture, fixtures and equipment	3	-	7
Motor vehicles	4
Leasehold improvements	Shorter of the remaining lease term or estimated useful life for leasehold improvements.

Property and equipment, net as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following:

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Computer equipment	$	604	$	415
Motor vehicles	234		—
Furniture and equipment	918		475
Leasehold improvements	2,833		976
Property and equipment—gross	4,589		1,866
Less accumulated depreciation	(259)		(1,036)
Property and equipment—net	$	4,330	$	830

Total depreciation expense on property and equipment were as follows:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Depreciation expense	$	149	$	89	$	268	$	16	$	170

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET (Tables)

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in goodwill by reportable segments, were as follows:

	Owned and Operated		Partner Network		Subscription		Total
Goodwill at January 27, 2022	$	—	$	—	$	—	$	—
Additions	351,849		93,400		433,184		878,433
Currency translation adjustments	(37)		—		—		(37)
Goodwill at March 31, 2022	351,812		93,400		433,184		878,396
Additions	3,500		—		—		3,500
Currency translation adjustments	$	(526)	$	—	$	—	$	(526)
Goodwill at June 30, 2022	$	354,786	$	93,400	$	433,184	$	881,370

Additions to goodwill were from the acquisitions of S1 Holdco, Protected.net, CouponFollow, RoadWarrior and Answers in 2022.

Goodwill as of December 31, 2021 (Predecessor), resulted from the acquisitions of Concourse Media, Mapquest, and Waterfox in 2019 and the prior acquisitions of InfoSpace in 2016 and Qool Media, Inc. in 2017. There was no Goodwill activity for the period January 1, 2021 through January 26, 2022 (Predecessor). Goodwill by reportable segments as of December 31, 2021 were as follows:

	Owned and Operated		Partner Network		Total
Goodwill at December 31, 2021 (Predecessor)	$	24,403	$	20,417	$	44,820

Schedule of Finite-Lived Intangible Assets

The estimated useful lives of the Company’s intangible assets are as follows:

	Useful Life
	(Years)
Developed technology	4
Customer relationships	3	-	5
Trademarks and trade names	10
Other intangibles	4

Internal-use software development costs and intangible assets consisted of the following:

	June 30, 2022 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	3,985	$	(375)	$	3,610
Intangibles:
Developed technology	$	196,000	$	(20,822)	$	175,178
Trademarks and trade names	287,852		(11,803)		276,049
Software	5,100		(428)		4,672
Customer relationships	121,000		(20,558)		100,442
Total intangible costs	$	609,952	$	(53,611)	$	556,341

	December 31, 2021 (Predecessor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	21,274	$	(10,061)	$	11,213
Intangibles:
Developed technology	$	8,398	$	(7,242)	$	1,156
Trademarks and trade names	69,007		(21,375)		47,632
Professional service agreement	3,100		(2,359)		741
Customer relationships	1,500		(661)		839
Total intangible costs	$	82,005	$	(31,637)	$	50,368

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

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Amortization expense for internal-use software development	$	78	$	921	$	143	$	355	$	2,245
Amortization expense for intangible assets	$	31,867	$	2,102	$	53,611	$	629	$	4,386

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

As of June 30, 2022 (Successor), the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs for each of the next five years, is as follows:

Amortization Expense
Remainder of 2022	$	63,901
2023	110,204
2024	101,197
2025	94,344
2026	43,380
Thereafter	146,925
Total amortization expense	$	559,951

XML

LEASES (Tables)

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Schedule of Components of Lease Expense

The components of lease expense were as follows:

	Successor		Successor		Predecessor
	Three Months Ended June 30, 2022		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022
Operating lease cost	$	585	$	982	$	142

Schedue of Supplemental Balance Sheet Information

Supplemental information related to leases was as follows:

	Successor
	As of June 30, 2022
Weighted average remaining lease terms (in years):
Operating leases	7.2
Weighted average discount rate	5.3%

Schedule of Maturities of Facility Lease Liabilities

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows as of June 30, 2022 (Successor):

	Successor
	As of June 30, 2022
Operating leases:
Remainder of 2022	$	1,240
2023	2,525
2024	2,597
2025	2,252
2026	285
Thereafter	1,588
Total lease payments	$	10,487
Less: Imputed interest	(1,349)
Present value of operating lease liabilities	$	9,138

Schedule of Future Operating Lease Obligation Under ASC 840

As of December 31, 2021 (Predecessor), the expected future operating lease obligation are as follows:

	Predecessor
	As of December 31, 2021
Year ending
2022	$	1,957
2023	$	1,950
2024	$	1,950
2025	$	1,663

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2022

Payables and Accruals [Abstract]

Schedule of Accrued Expenses and Other Liabilities

	Successor		Predecessor
	June 30, 2022		December 31, 2021
Former CEO profit interest	$	—	$	11,132
Payable to employees	11,105		10,091
Accrued legal service fees	—		6,242
Accrued marketing expenses	47,649		144
Holdback liability	1,221		—
Contingent consideration	359		1,682
VAT tax liability	9,970		—
Accrued tax liability	7,235		361
Deferred rent	—		233
Other liabilities	20,420		1,399
Accrued expenses and other current liabilities	$	97,959	$	31,284

XML

DEFERRED REVENUE (Tables)

6 Months Ended

Jun. 30, 2022

Revenue from Contract with Customer [Abstract]

Schedule of Deferred Revenue

Deferred revenue activities for the period January 1, 2021 through December 31, 2021 (Predecessor), January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 (Predecessor) through June 30, 2022 (Successor) are as follows:

	Deferred Revenue
Deferred revenue as of January 1, 2021 (Predecessor)	$	1,889
Additional amounts deferred	5,116
Deferred revenue recognized	(5,034)
Deferred revenue as of December 31, 2021 (Predecessor)	$	1,971

	Deferred Revenue
Deferred revenue as of January 1, 2022 (Predecessor)	$	1,971
Additions amounts deferred	620
Deferred revenue recognized	(309)
Deferred revenue as of January 26, 2022 (Predecessor)	$	2,282

	Deferred Revenue
Deferred revenue as of January 27, 2022 (Successor)	$	—
Additional amounts deferred*	141,941
Deferred revenue recognized	(73,573)
Deferred revenue as of June 30, 2022 (Successor)	$	68,368

* Of the additional amounts deferred during the period January 27, 2022 through June 30, 2022 (Successor), $61,156 was acquired from the acquisitions.

XML

INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Schedule of Income Tax (Benefit) Provision and the Effective Income Tax Rate

The following table presents the Company’s Income tax (benefit) provision and the effective income tax rate:

	Successor			Predecessor			Successor			Predecessor
(in thousands, except percentages)	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Period from January 27, 2022 through June 30, 2022			Period from January 1, 2022 through January 26, 2022			Six Months Ended June 30, 2021
Income tax (benefit) provision	$	(454)		$	77		$	(15,103)		$	(629)		$	228
Effective tax rate	1		%	1		%	16		%	2		%	1		%

XML

DEBT (Tables)

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Schedule of Future Minimum Principal Payments on Long-Term Debt

As of June 30, 2022, future minimum principal payments on long-term debt are as follows:

	Successor
	As of June 30, 2022
Remainder for 2022	$	10,000
2023	$	20,000
2024	$	20,000
2025	$	20,000
2026	$	30,000
2027	$	344,000
Total future minimum principal payment	$	444,000
Less: current portion	$	(20,000)
Long-term portion	$	424,000

XML

FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Schedule of Liabilities Measured at Fair Value on Recurring Basis

The following tables present the Company’s fair value hierarchy for liabilities measured at fair value on a recurring basis as of June 30, 2022 (Successor) and December 31, 2021 (Predecessor):

	June 30, 2022 (Successor)
	Level 1		Level 3		Total
Warrant liabilities:
Public warrants	$	13,669	$	—	$	13,669
Contingent consideration	—		568		568
Grand total	$	13,669	$	568	$	14,237

	December 31, 2021 (Predecessor)
	Level 3		Total
Former CEO equity interest	11,132		11,132
Contingent consideration	1,682		1,682
Grand total	$	12,814	$	12,814

Schedule of Estimated Fair Value of Liabilities

Changes in estimated fair value of Level 1, 2 and 3 financial liabilities for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, are as follows:

	Former CEO equity profits interest*		Contingent consideration		Warrant liability
Fair value of liabilities at December 31, 2020 (Predecessor)	$	4,236	$	8,240
Settlements	—		(6,715)
Change in fair value	4,238		94
Fair value of liabilities at June 30, 2021 (Predecessor)	$	8,474	$	1,619
Fair value of liabilities at December 31, 2021 (Predecessor) and January 26, 2022 (Predecessor)	$	11,132	$	1,682
Fair value of liabilities at January 27, 2022 (Successor)			$	1,682	$	27,012
Additions			573		—
Change in fair value			—		13,761
Fair value of liabilities at March 31, 2022 (Successor)			2,255		40,773
Settlements			(1,715)		(22,965)
Change in fair value			28		(4,139)
Fair value of liabilities at June 30, 2022 (Successor)			$	568	$	13,669

*Former CEO equity profits interest as further described in executive compensation Note 11.

XML

NET INCOME (LOSS) PER SHARE (Tables)

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Net Income (Loss) Per Share

Basic and diluted net income (loss) per share was calculated as follows:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Net loss per share:
Basic	$	(0.29)	n/a		$	(0.71)	n/a		n/a
Diluted	(0.33)		n/a		n/a		n/a		n/a
Numerator:
Net loss attributable to System1, Inc.	(25,737)		n/a		$	(61,806)	n/a		n/a
Change in fair value of warrant liabilities	(4,139)		n/a		n/a		n/a		n/a
Net loss used in diluted computation	$	(29,876)	n/a		n/a		n/a		n/a
Denominator:
Weighted-average common shares outstanding used in computing basic net loss per share	89,701		n/a		86,840		n/a		n/a
Adjustment for incremental shares from applying treasury stock method	1,481		n/a		n/a		n/a		n/a
Weighted-average common shares outstanding used in computing diluted net loss per share	91,182		n/a		n/a		n/a		n/a
Basic and diluted net income (loss) per unit	n/a		$	0.57	n/a		$	(1.81)	$	0.90
Numerator:
Net income (loss)	n/a		11,772		n/a		(37,061)		18,515
Denominator:
Weighted-average membership units outstanding - basic and diluted (units in thousands)	n/a		20,488		n/a		20,488		20,488

XML

SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2022

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

The following summarizes revenue by reportable segments:

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	157,952	$	160,816	$	284,836	$	49,249	$	300,242
Partner Network	19,077		8,763		30,427		3,463		16,898
Subscription	42,768		—		70,642		—		—
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

The following summarizes adjusted gross profit by reportable segments:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Owned and Operated	$	36,799	$	37,572	$	66,217	$	8,768	$	69,700
Partner Network	13,908		8,763		22,321		3,012		16,898
Subscription	22,890		—		35,537		—		—
Adjusted gross profit	$	73,597	$	46,335	$	124,075	$	11,780	$	86,598
Other cost of revenues	6,358		2,923		11,112		575		6,410
Salaries, commissions and benefits	49,511		17,698		97,709		31,181		32,893
Selling, general and administrative	16,747		6,277		31,835		15,665		13,227
Depreciation and amortization	32,094		3,112		54,022		1,000		6,801
Interest expense	7,324		4,476		12,100		1,049		8,524
Change in fair value of warrant liabilities	(4,139)		—		9,622		—		—
Net income (loss) before income tax	$	(34,298)	$	11,849	$	(92,325)	$	(37,690)	$	18,743

Schedule of Revenues Disaggregated by Geographic Region

The following table presents the revenues disaggregated by geographic region.

	Three-Month Period				Six-Month Period
	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		Six Months Ended June 30, 2021
Geographic Region
United States	$	167,872	$	163,072	$	302,480	$	51,701	$	307,630
United Kingdom	42,924		168		70,643		—		169
Other international	9,001		6,339		12,782		1,011		9,341
Total revenue	$	219,797	$	169,579	$	385,905	$	52,712	$	317,140

XML

SHARE-BASED PAYMENTS (Tables)

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Schedule of Assumptions Used To Determine Fair Value of RSUs and RSAs

The key assumptions used to determine the fair value of these market-based RSUs and RSAs were as follows:

Inputs
Risk-free interest rate	1.6		%
Expected stock price volatility	50.0		%
Cost of equity	23.6		%
Expected term (years)	5
Fair Value of Class A Common Stock	$	10.00

Schedule of Total Share-Based Compensation Expense

The Company recorded the following total share-based compensation expense for the periods presented:

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Period from January 27, 2022 through June 30, 2022		Period from January 1, 2022 through January 26, 2022		s	Six Months Ended June 30, 2021
Share-based compensation expense	$	25,168	$	120	$	57,470	$	23,705		$	266

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Total Revenue (Details)	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
United States | Geographic Concentration Risk | Revenue Benchmark
Product Information [Line Items]
Concentration risk, percentage	98.00%	76.00%	96.00%	78.00%	97.00%

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Narrative (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended		12 Months Ended
	Apr. 10, 2023	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021	Jun. 05, 2023	Dec. 31, 2022
Business Acquisition [Line Items]
Long-term debt			$ 444,000		$ 444,000	$ 444,000
Cash and cash equivalents		$ 36,833	$ 37,442	$ 34,567	37,442	$ 37,442	$ 34,567	$ 47,896
Related party loan		$ 0			$ 0
Subsequent Event
Business Acquisition [Line Items]
Cash and cash equivalents										$ 24,606
2023 Revolving Note | Subsequent Event | Revolving Credit Facility
Business Acquisition [Line Items]
Available balance									$ 15,000
May Be Called | Term Loan and Revolving Facility | Subsequent Event
Business Acquisition [Line Items]
Long-term debt									$ 430,000
2023 Revolving Note | Subsequent Event
Business Acquisition [Line Items]
Related party loan	$ 20,000
United States | Revenue Benchmark | Geographic Concentration Risk
Business Acquisition [Line Items]
Concentration risk, percentage		98.00%	76.00%	96.00%	78.00%		97.00%
United States | Long Lived Assets | Geographic Concentration Risk
Business Acquisition [Line Items]
Concentration risk, percentage						77.00%		99.00%
Canada | Long Lived Assets | Geographic Concentration Risk
Business Acquisition [Line Items]
Concentration risk, percentage						16.00%		1.00%

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Restatement of Previously Issued Financial Statements Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 27, 2022	Jan. 10, 2022	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Business Acquisition [Line Items]
Internal-use software development costs, net					$ 3,610			$ 3,610	$ 3,610		$ 11,213
Goodwill	$ 0			$ 878,396	881,370			881,370	881,370		44,820
Depreciation and amortization			$ 1,000		32,094	$ 3,112		54,022		$ 6,801
Intangible assets, net					556,341			556,341	556,341		50,368
Accrued expenses and other current liabilities					97,959			97,959	97,959		31,284
Additional paid-in capital					812,309			812,309	812,309		0
Accumulated deficit					(169,603)			(169,603)	(169,603)		0
Prepaid expenses and other current assets					12,298			12,298	12,298		7,689
Other non-current assets					804			804	804		3,149
Deferred tax liability					129,310			129,310	129,310		7,789
Salaries, commissions, and benefits			31,181		49,511	17,698		97,709		32,893
Share-based compensation expense			23,705	31,398	6,995	120	$ 146
Other liabilities					5,735			5,735	5,735		969
Accumulated other comprehensive income					(421)			(421)	(421)		428
Selling, general, and administrative			15,665		16,747	6,277		31,835		13,227
Non-controlling interest					181,576			181,576	181,576		0
Net loss attributable to non-controlling interest			0		(8,107)	0		(15,416)		0
Comprehensive loss attributable to non-controlling interest			0		(8,046)	0		(15,355)		0
Cost of revenues (excluding depreciation and amortization)			41,507		152,558	126,167		272,942		236,952
Income tax (benefit) provision			(629)		(454)	77		(15,103)		228
Restricted cash, current					4,572			4,572	4,572		0
Restricted cash, non-current					2,452			2,452	2,452		743
Accounts receivable					$ 93,662			93,662	93,662		90,203
Share-based compensation			23,705					57,470		224
Prepaid assets and other assets			(1,069)					2,002		1,864
Change in fair value of contingent consideration and CEO equity profit interest			(9)					(27)		4,331
Accounts receivable			11,118					(8,136)		(8,306)
Accrued expenses and other liabilities			57,488					(11,225)		(1,978)
Protected.net incentive plan liability			0					(5,694)		0
Other long-term liabilities			(77)					31,080		0
Purchases of property and equipment			0					(2,310)		0
Expenditures for internal-use software development costs			441					3,497		3,233
Purchase of businesses-net of cash acquired			0					444,074		0
Noncash lease expense			115					694		0
Diluted net (loss) per share (in dollars per share)					$ (0.33)
Total revenue			52,712		$ 219,797	169,579		385,905		317,140
Adjusted gross profit			11,780		73,597	46,335		124,075		86,598
Owned and Operated
Business Acquisition [Line Items]
Goodwill	0			351,812	354,786			354,786	354,786		24,403
Total revenue			49,249		157,952	160,816		284,836		300,242
Adjusted gross profit			8,768		36,799	37,572		66,217		69,700
Partner Network
Business Acquisition [Line Items]
Goodwill	$ 0			93,400	93,400			93,400	$ 93,400		$ 20,417
Total revenue			3,463		19,077	8,763		30,427		16,898
Adjusted gross profit			3,012		13,908	$ 8,763		22,321		$ 16,898
Business Combination Agreement
Business Acquisition [Line Items]
Goodwill			821,277
Selling, general, and administrative				$ 661
Trebia Acquisition Corporation | Class B Common Stock | Business Combination Agreement
Business Acquisition [Line Items]
Forfeited shares (in shares)									930,000
Trebia Acquisition Corporation | Class B Common Stock | Amended And Restated Backstop Facility Agreement | Business Combination Agreement
Business Acquisition [Line Items]
Forfeited shares (in shares)	2,533,000	2,600,000
Revision of Prior Period, Error Correction, Adjustment
Business Acquisition [Line Items]
Comprehensive loss attributable to non-controlling interest
Cost of revenues (excluding depreciation and amortization)					0
Change in fair value of contingent consideration and CEO equity profit interest			0
Accounts receivable			0
Protected.net incentive plan liability			0
Purchases of property and equipment			0
Expenditures for internal-use software development costs			0
Purchase of businesses-net of cash acquired			0
Noncash lease expense			0
Total revenue					0			0
Revision of Prior Period, Error Correction, Adjustment | Owned and Operated
Business Acquisition [Line Items]
Total revenue			542		5,754			9,128
Adjusted gross profit			542		5,754			9,128
Revision of Prior Period, Error Correction, Adjustment | Partner Network
Business Acquisition [Line Items]
Total revenue			542		5,754			9,128
Adjusted gross profit			91		585			1,022
Revision of Prior Period, Error Correction, Adjustment A
Business Acquisition [Line Items]
Internal-use software development costs, net					(9,352)			(9,352)	$ (9,352)
Goodwill					(7,188)			(7,188)	(7,188)
Depreciation and amortization			0		(1,133)			(1,889)
Intangible assets, net					18,428			18,428	18,428
Accumulated deficit					1,888			1,888	1,888
Revision of Prior Period, Error Correction, Adjustment A, Scenario 1
Business Acquisition [Line Items]
Internal-use software development costs, net	$ 11,312				9,352			9,352	9,352
Goodwill	11,312				11,312			11,312	11,312
Depreciation and amortization					1,118			1,960
Revision of Prior Period, Error Correction, Adjustment A, Scenario 2
Business Acquisition [Line Items]
Goodwill	9,400				9,400			9,400	9,400
Depreciation and amortization					(186)			(315)
Intangible assets, net	9,400				(9,085)			(9,085)	(9,085)
Revision of Prior Period, Error Correction, Adjustment A, Scenario 2 | Trademark
Business Acquisition [Line Items]
Intangible assets, net	(10,900)
Revision of Prior Period, Error Correction, Adjustment A, Scenario 2 | Customer relationships
Business Acquisition [Line Items]
Intangible assets, net	500
Revision of Prior Period, Error Correction, Adjustment A, Scenario 2 | Developed technology
Business Acquisition [Line Items]
Intangible assets, net	1,000
Revision of Prior Period, Error Correction, Adjustment A, Scenario 3
Business Acquisition [Line Items]
Goodwill	(2,800)				(2,800)			(2,800)	(2,800)
Depreciation and amortization					506			638
Intangible assets, net	2,800				2,163			2,163	2,163
Revision of Prior Period, Error Correction, Adjustment A, Scenario 3 | Trademark
Business Acquisition [Line Items]
Intangible assets, net	7,700
Revision of Prior Period, Error Correction, Adjustment A, Scenario 3 | Customer relationships
Business Acquisition [Line Items]
Intangible assets, net	(4,900)
Revision of Prior Period, Error Correction, Adjustment A, Scenario 4
Business Acquisition [Line Items]
Goodwill	11,900				11,900			11,900	11,900
Depreciation and amortization					(305)			(394)
Intangible assets, net	(11,900)				(11,506)			(11,506)	(11,506)
Revision of Prior Period, Error Correction, Adjustment C
Business Acquisition [Line Items]
Additional paid-in capital					31,167			31,167	31,167
Accumulated deficit					(31,167)			(31,167)	(31,167)
Revision of Prior Period, Error Correction, Adjustment D
Business Acquisition [Line Items]
Additional paid-in capital					25,336			25,336	25,336
Accumulated deficit					(25,336)			(25,336)	(25,336)
Revision of Prior Period, Error Correction, Adjustment D | Trebia Acquisition Corporation | Class B Common Stock | Amended And Restated Backstop Facility Agreement | Business Combination Agreement
Business Acquisition [Line Items]
Forfeited shares (in shares)		2,600,000
Revision of Prior Period, Error Correction, Adjustment E
Business Acquisition [Line Items]
Goodwill					(6,367)			(6,367)	(6,367)
Accrued expenses and other current liabilities					1,413			1,413	1,413
Prepaid expenses and other current assets					4,600			4,600	4,600
Other non-current assets					27			27	27
Deferred tax liability					(3,152)			(3,152)	(3,152)
Accumulated other comprehensive income					(1)			(1)	(1)
Revision of Prior Period, Error Correction, Adjustment E, Scenario 1
Business Acquisition [Line Items]
Goodwill					8,047			8,047	8,047
Accrued expenses and other current liabilities					(362)			(362)	(362)
Prepaid expenses and other current assets					(2,537)			(2,537)	(2,537)
Other non-current assets					(27)			(27)	(27)
Deferred tax liability					5,844			5,844	5,844
Revision of Prior Period, Error Correction, Adjustment E, Scenario 2
Business Acquisition [Line Items]
Goodwill					429			429	429
Accrued expenses and other current liabilities					1,744			1,744	1,744
Prepaid expenses and other current assets					2,063			2,063	2,063
Deferred tax liability					110			110	110
Revision of Prior Period, Error Correction, Adjustment E, Scenario 3
Business Acquisition [Line Items]
Goodwill					2,109			2,109	2,109
Accrued expenses and other current liabilities					693			693	693
Deferred tax liability					(2,802)			(2,802)	(2,802)
Revision of Prior Period, Error Correction, Adjustment F
Business Acquisition [Line Items]
Accrued expenses and other current liabilities					1,001			1,001	1,001
Accumulated deficit					(1,001)			(1,001)	(1,001)
Salaries, commissions, and benefits			(3,993)		1,001			1,001
Revision of Prior Period, Error Correction, Adjustment G
Business Acquisition [Line Items]
Goodwill					(11,248)			(11,248)	(11,248)
Accrued expenses and other current liabilities					(671)			(671)	(671)
Additional paid-in capital					(9,720)			(9,720)	(9,720)
Accumulated deficit					681			681	681
Salaries, commissions, and benefits			(1)		1,514			6,737
Accumulated other comprehensive income					(1)			(1)	(1)
Selling, general, and administrative								661
Revision of Prior Period, Error Correction, Adjustment G, Scenario 1
Business Acquisition [Line Items]
Goodwill					4,115			4,115	4,115
Accrued expenses and other current liabilities					159			159	159
Additional paid-in capital					(6,774)			(6,774)	(6,774)
Salaries, commissions, and benefits			(3,993)		497			10,582
Share-based compensation expense			(3,993)
Other liabilities					147			147	147
Accumulated other comprehensive income					1			1	1
Revision of Prior Period, Error Correction, Adjustment G, Scenario 2
Business Acquisition [Line Items]
Goodwill					7,133			7,133	7,133
Accrued expenses and other current liabilities					512			512	512
Additional paid-in capital					4,036			4,036	4,036
Salaries, commissions, and benefits					(1,017)			(1,195)
Other liabilities					1,390			1,390	1,390
Revision of Prior Period, Error Correction, Adjustment G, Scenario 3
Business Acquisition [Line Items]
Additional paid-in capital					(12,746)			(12,746)	(12,746)
Salaries, commissions, and benefits					0			12,746
Revision of Prior Period, Error Correction, Adjustment G, Scenario 4
Business Acquisition [Line Items]
Additional paid-in capital	8,079				(288)			(288)	(288)
Accumulated deficit	(8,079)
Salaries, commissions, and benefits					0			(7,706)
Selling, general, and administrative					0			661
Revision of Prior Period, Error Correction, Adjustment H
Business Acquisition [Line Items]
Goodwill	(518)				(518)			(518)	(518)
Additional paid-in capital	518				955			955	955
Accumulated deficit					(1,473)			(1,473)	(1,473)
Salaries, commissions, and benefits					1,473			1,473
Share-based compensation expense					(1,473)			(1,473)
Revision of Prior Period, Error Correction, Adjustment I
Business Acquisition [Line Items]
Accumulated deficit					2,420			2,420	2,420
Accumulated other comprehensive income					368			368	368
Non-controlling interest					(2,788)			(2,788)	(2,788)
Net loss attributable to non-controlling interest			0		(3,240)			(2,481)
Comprehensive loss attributable to non-controlling interest					(3,234)			(2,469)
Revision of Prior Period, Error Correction, Adjustment J
Business Acquisition [Line Items]
Internal-use software development costs, net					1,316			1,316	1,316
Depreciation and amortization					(170)			(797)
Accumulated deficit					1,316			1,316	1,316
Salaries, commissions, and benefits					(36)			(519)
Revision of Prior Period, Error Correction, Adjustment K
Business Acquisition [Line Items]
Goodwill					483			483	483
Accrued expenses and other current liabilities	(319)				836			836	836
Accumulated deficit					(353)			(353)	(353)
Prepaid expenses and other current assets	$ (164)
Selling, general, and administrative			744		537			92
Cost of revenues (excluding depreciation and amortization)			(261)		0			261
Prepaid assets and other assets			(164)
Revision of Prior Period, Error Correction, Adjustment L
Business Acquisition [Line Items]
Goodwill					(540)			(540)	(540)
Accrued expenses and other current liabilities					(337)			(337)	(337)
Accumulated deficit					6			6	6
Other liabilities					(209)			(209)	(209)
Selling, general, and administrative					0			(6)
Revision of Prior Period, Error Correction, Adjustment M
Business Acquisition [Line Items]
Accrued expenses and other current liabilities					(2,032)			(2,032)	(2,032)
Additional paid-in capital					3,573			3,573	3,573
Accumulated deficit					1,851			1,851	1,851
Prepaid expenses and other current assets					(1,973)			(1,973)	(1,973)
Deferred tax liability					(4,890)			(4,890)	(4,890)
Accumulated other comprehensive income					(475)			(475)	(475)
Income tax (benefit) provision			$ 0		(3,454)			(1,851)
Revision of Prior Period, Error Correction, Adjustment M, Scenario 1
Business Acquisition [Line Items]
Deferred tax liability					1,851			1,851	1,851
Income tax (benefit) provision					3,454			1,851
Revision of Prior Period, Error Correction, Adjustment M, Scenario 2
Business Acquisition [Line Items]
Additional paid-in capital					(3,573)			(3,573)	(3,573)
Deferred tax liability					3,573			3,573	3,573
Revision of Prior Period, Error Correction, Adjustment M, Scenario 3
Business Acquisition [Line Items]
Accrued expenses and other current liabilities					2,032			2,032	2,032
Prepaid expenses and other current assets					1,973			1,973	1,973
Deferred tax liability					(534)			(534)	(534)
Accumulated other comprehensive income					(475)			(475)	(475)
Revision of Prior Period, Error Correction, Adjustment N
Business Acquisition [Line Items]
Restricted cash, current					(1,185)			(1,185)	(1,185)
Restricted cash, non-current					920			920	920
Accounts receivable					$ 265			265	$ 265
Revision of Prior Period, Error Correction, Adjustment Q
Business Acquisition [Line Items]
Share-based compensation								38
Prepaid assets and other assets								863
Change in fair value of contingent consideration and CEO equity profit interest								45
Accounts receivable								19
Accrued expenses and other liabilities								7,274
Protected.net incentive plan liability								(5,694)
Other long-term liabilities								72
Purchases of property and equipment								(25)
Expenditures for internal-use software development costs								77
Purchase of businesses-net of cash acquired								1,886
Revision of Prior Period, Error Correction, Adjustment R
Business Acquisition [Line Items]
Noncash lease expense								$ 784
Revision of Prior Period, Error Correction, Adjustment S
Business Acquisition [Line Items]
Diluted net (loss) per share (in dollars per share)					$ (0.04)

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Balance Sheets (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	Jun. 30, 2022	Mar. 31, 2022	Jan. 27, 2022	Jan. 26, 2022	Jan. 01, 2022	Dec. 31, 2021	Jun. 30, 2021
Current assets:
Cash and cash equivalents	$ 37,442			$ 36,833		$ 47,896	$ 34,567
Restricted cash, current	4,572					0
Accounts receivable	93,662					90,203
Prepaid expenses and other current assets	12,298					7,689
Total current assets	147,974					145,788
Restricted cash, non-current	(2,452)					(743)
Property and equipment, net	4,330					830
Internal-use software development costs, net	3,610					11,213
Intangible assets, net	556,341					50,368
Goodwill	881,370	$ 878,396	$ 0			44,820
Operating lease right-of-use assets	7,533				$ 6,786	0
Other non-current assets	804					3,149
Total assets	1,604,414					256,911
Current liabilities:
Accounts payable	17,286					72,846
Accrued expenses and other current liabilities	97,959					31,284
Deferred revenue	68,368					1,971
Operating lease liabilities, current	2,065					0
Notes payable, current	14,888					170,453
Total current liabilities	200,566					276,554
Operating lease liabilities, non-current	7,073					0
Notes payable, non-current	406,026					0
Warrant liability	13,669					0
Deferred tax liability	129,310					7,789
Protected incentive plan liability	18,163					0
Other liabilities	5,735					969
Total liabilities	780,542					285,312
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	812,309					0
Accumulated deficit	(169,603)					0
Accumulated other comprehensive income	(421)					428
Total stockholders’ equity/members’ deficit	642,296					(28,401)
Non-controlling interest	181,576					0
Total stockholders’ equity/members’ deficit	823,872	824,524				(28,401)
Total liabilities and stockholders’ equity/members’ deficit	1,604,414					256,911
Class A units of S1 Holdco
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	$ 9					0
Common stock, par value (in dollars per share)	$ 0.0001
Common stock, shares authorized (in shares)	500,000,000
Common stock issued (in shares)	90,587,000
Common stock outstanding (in shares)	90,587,000
Class C Common Stock
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	$ 2					$ 0
Common stock, par value (in dollars per share)	$ 0.0001
Common stock, shares authorized (in shares)	25,000,000
Common stock issued (in shares)	22,077,000
Common stock outstanding (in shares)	22,077,000
Previously Reported
Current assets:
Cash and cash equivalents	$ 37,442
Restricted cash, current	5,757
Accounts receivable	93,397
Prepaid expenses and other current assets	9,671
Total current assets	146,267
Restricted cash, non-current	(1,532)
Property and equipment, net	4,330
Internal-use software development costs, net	11,647
Intangible assets, net	537,913
Goodwill	907,248
Operating lease right-of-use assets	7,533
Other non-current assets	779
Total assets	1,617,249
Current liabilities:
Accounts payable	17,286
Accrued expenses and other current liabilities	97,752
Deferred revenue	68,368
Operating lease liabilities, current	2,065
Notes payable, current	14,888
Total current liabilities	200,359
Operating lease liabilities, non-current	7,073
Notes payable, non-current	406,026
Warrant liability	13,669
Deferred tax liability	137,354
Protected incentive plan liability	18,163
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	761,002
Accumulated deficit	(118,373)
Accumulated other comprehensive income	179
Total stockholders’ equity/members’ deficit	642,819
Non-controlling interest	184,304
Total stockholders’ equity/members’ deficit	827,123			466,211
Total liabilities and stockholders’ equity/members’ deficit	1,617,249
Previously Reported | Class A units of S1 Holdco
Current liabilities:
Other liabilities	7,482
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	9
Previously Reported | Class C Common Stock
Current liabilities:
Total liabilities	790,126
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	2
Revision of Prior Period, Error Correction, Adjustment
Current assets:
Cash and cash equivalents	0			$ 0
Total current assets	1,707
Property and equipment, net	0
Operating lease right-of-use assets	0
Total assets	(12,835)
Current liabilities:
Accounts payable	0
Deferred revenue	0
Operating lease liabilities, current	0
Notes payable, current	0
Total current liabilities	207
Notes payable, non-current	0
Warrant liability	0
Protected incentive plan liability	0
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Total stockholders’ equity/members’ deficit	(523)
Total stockholders’ equity/members’ deficit	(3,251)	$ (5,194)
Total liabilities and stockholders’ equity/members’ deficit	(12,835)
Revision of Prior Period, Error Correction, Adjustment | Class A units of S1 Holdco
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	0
Revision of Prior Period, Error Correction, Adjustment | Class C Common Stock
Current liabilities:
Total liabilities	(9,584)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Common stock value	0
Revision of Prior Period, Error Correction, Adjustment A
Current assets:
Internal-use software development costs, net	(9,352)
Intangible assets, net	18,428
Goodwill	(7,188)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	1,888
Revision of Prior Period, Error Correction, Adjustment C
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	31,167
Accumulated deficit	(31,167)
Revision of Prior Period, Error Correction, Adjustment D
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	25,336
Accumulated deficit	(25,336)
Revision of Prior Period, Error Correction, Adjustment E
Current assets:
Prepaid expenses and other current assets	4,600
Goodwill	(6,367)
Other non-current assets	27
Current liabilities:
Accrued expenses and other current liabilities	1,413
Deferred tax liability	(3,152)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated other comprehensive income	(1)
Revision of Prior Period, Error Correction, Adjustment F
Current liabilities:
Accrued expenses and other current liabilities	1,001
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	(1,001)
Revision of Prior Period, Error Correction, Adjustment G
Current assets:
Goodwill	(11,248)
Current liabilities:
Accrued expenses and other current liabilities	(671)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	(9,720)
Accumulated deficit	681
Accumulated other comprehensive income	(1)
Revision of Prior Period, Error Correction, Adjustment G | Class A units of S1 Holdco
Current liabilities:
Other liabilities	(1,537)
Revision of Prior Period, Error Correction, Adjustment H
Current assets:
Goodwill	(518)		(518)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	955		518
Accumulated deficit	(1,473)
Revision of Prior Period, Error Correction, Adjustment I
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	2,420
Accumulated other comprehensive income	368
Non-controlling interest	(2,788)
Revision of Prior Period, Error Correction, Adjustment J
Current assets:
Internal-use software development costs, net	1,316
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	1,316
Revision of Prior Period, Error Correction, Adjustment K
Current assets:
Prepaid expenses and other current assets			(164)
Goodwill	483
Current liabilities:
Accrued expenses and other current liabilities	836		$ (319)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	(353)
Revision of Prior Period, Error Correction, Adjustment L
Current assets:
Goodwill	(540)
Current liabilities:
Accrued expenses and other current liabilities	(337)
Other liabilities	(209)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	6
Revision of Prior Period, Error Correction, Adjustment L | Class A units of S1 Holdco
Current liabilities:
Other liabilities	(209)
Revision of Prior Period, Error Correction, Adjustment M
Current assets:
Prepaid expenses and other current assets	(1,973)
Current liabilities:
Accrued expenses and other current liabilities	(2,032)
Deferred tax liability	(4,890)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	3,573
Accumulated deficit	1,851
Accumulated other comprehensive income	(475)
Revision of Prior Period, Error Correction, Adjustment N
Current assets:
Restricted cash, current	(1,185)
Accounts receivable	265
Restricted cash, non-current	(920)
Revision of Prior Period, Error Correction, Adjustment O
Current assets:
Internal-use software development costs, net	(1)
Goodwill	1
Other non-current assets	(2)
Current liabilities:
Accrued expenses and other current liabilities	(3)
Deferred tax liability	(2)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Accumulated deficit	(17)
Accumulated other comprehensive income	(39)
Non-controlling interest	60
Revision of Prior Period, Error Correction, Adjustment O | Class A units of S1 Holdco
Current liabilities:
Other liabilities	(1)
Revision of Prior Period, Error Correction, Adjustment P
Current assets:
Goodwill	(501)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
Additional paid-in capital	(4)
Accumulated deficit	(45)
Accumulated other comprehensive income	$ (452)

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Statements of Operations (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Business Acquisition [Line Items]
Total revenue	$ 52,712		$ 219,797	$ 169,579		$ 385,905	$ 317,140
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	41,507		152,558	126,167		272,942	236,952
Salaries, commissions, and benefits	31,181		49,511	17,698		97,709	32,893
Selling, general, and administrative	15,665		16,747	6,277		31,835	13,227
Depreciation and amortization	1,000		32,094	3,112		54,022	6,801
Total operating costs and expenses	89,353		250,910	153,254		456,508	289,873
Operating income (loss)	(36,641)		(31,113)	16,325		(70,603)	27,267
Interest expense	1,049		7,324	4,476		12,100	8,524
Change in fair value of warrant liabilities	0		(4,139)	0		9,622	0
Total other expense	(1,049)		(3,185)	(4,476)		(21,722)	(8,524)
Income (loss) before income tax	(37,690)		(34,298)	11,849		(92,325)	18,743
Income tax (benefit) provision	(629)		(454)	77		(15,103)	228
Net income (loss)	(37,061)	$ (43,378)	(33,844)	11,772	$ 6,743	(77,222)	18,515
Net loss attributable to non-controlling interest	0		(8,107)	0		(15,416)	0
Net income (loss) attributable to System1, Inc.	$ (37,061)		$ (25,737)	$ 11,772		$ (61,806)	$ 18,515
Basic net (loss) per share (in dollars per share)			$ (0.29)			$ (0.71)
Diluted net (loss) per share (in dollars per share)			$ (0.33)
Weighted average number of shares outstanding - basic (in shares)			89,701,000			86,840,000
Weighted average number of shares outstanding - diluted (in shares)			91,182,000
Basic net income (loss) per unit (in dollars per share)	$ (1.81)			$ 0.57			$ 0.90
Diluted net income (loss) per unit (in dollars per share)	$ (1.81)			$ 0.57			$ 0.90
Weighted average units outstanding - basic (in shares)	20,488,000			20,488,000			20,488,000
Weighted average units outstanding - diluted (in shares)	20,488,000			20,488,000			20,488,000
Previously Reported
Business Acquisition [Line Items]
Total revenue	$ 52,712		$ 219,797			$ 385,905
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	41,760		152,558			272,689
Salaries, commissions, and benefits	35,175		45,555			89,014
Selling, general, and administrative	14,817		16,167			31,148
Depreciation and amortization	1,000		33,397			56,708
Total operating costs and expenses	92,752		247,677			449,559
Operating income (loss)	(40,040)		(27,880)			(63,654)
Interest expense	1,049		7,324			12,100
Change in fair value of warrant liabilities	0		(4,139)			9,622
Total other expense	(1,049)		(3,185)			(21,722)
Income (loss) before income tax	(41,089)		(31,065)			(85,376)
Income tax (benefit) provision	(629)		3,000			(13,252)
Net income (loss)	(40,460)		(34,065)			(72,124)
Net loss attributable to non-controlling interest	0		(4,867)			(12,935)
Net income (loss) attributable to System1, Inc.	$ (40,460)		$ (29,198)			$ (59,189)
Basic net (loss) per share (in dollars per share)			$ (0.33)			$ (0.68)
Diluted net (loss) per share (in dollars per share)			$ (0.33)
Weighted average number of shares outstanding - basic (in shares)			89,701,000			87,351,000
Weighted average number of shares outstanding - diluted (in shares)			89,701,000
Basic net income (loss) per unit (in dollars per share)	$ (1.97)
Diluted net income (loss) per unit (in dollars per share)	$ (1.97)
Weighted average units outstanding - basic (in shares)	20,488,000
Weighted average units outstanding - diluted (in shares)	20,488,000
Revision of Prior Period, Error Correction, Adjustment
Business Acquisition [Line Items]
Total revenue			$ 0			$ 0
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)			0
Total operating costs and expenses	$ (3,399)		3,233			6,949
Operating income (loss)	3,399		(3,233)			(6,949)
Interest expense	0		0			0
Change in fair value of warrant liabilities	0		0			0
Total other expense	0		0			0
Income (loss) before income tax	3,399		(3,233)			(6,949)
Net income (loss)	3,399		221			(5,098)
Net income (loss) attributable to System1, Inc.	$ 3,399		$ 3,461			$ (2,617)
Basic net (loss) per share (in dollars per share)			$ 0.04			$ (0.03)
Basic net income (loss) per unit (in dollars per share)	$ 0.16
Diluted net income (loss) per unit (in dollars per share)	$ 0.16
Revision of Prior Period, Error Correction, Adjustment A
Operating costs and expenses:
Depreciation and amortization	$ 0		$ (1,133)			$ (1,889)
Revision of Prior Period, Error Correction, Adjustment F
Operating costs and expenses:
Salaries, commissions, and benefits	(3,993)		1,001			1,001
Revision of Prior Period, Error Correction, Adjustment G
Operating costs and expenses:
Salaries, commissions, and benefits	(1)		1,514			6,737
Selling, general, and administrative						661
Revision of Prior Period, Error Correction, Adjustment H
Operating costs and expenses:
Salaries, commissions, and benefits			1,473			1,473
Revision of Prior Period, Error Correction, Adjustment I
Operating costs and expenses:
Net loss attributable to non-controlling interest	0		(3,240)			(2,481)
Revision of Prior Period, Error Correction, Adjustment J
Operating costs and expenses:
Salaries, commissions, and benefits			(36)			(519)
Depreciation and amortization			(170)			(797)
Revision of Prior Period, Error Correction, Adjustment K
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	(261)		0			261
Selling, general, and administrative	744		537			92
Revision of Prior Period, Error Correction, Adjustment L
Operating costs and expenses:
Selling, general, and administrative			0			(6)
Revision of Prior Period, Error Correction, Adjustment M
Operating costs and expenses:
Income tax (benefit) provision	0		(3,454)			(1,851)
Revision of Prior Period, Error Correction, Adjustment O
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)	8					(8)
Salaries, commissions, and benefits			4			3
Selling, general, and administrative	$ 104					(103)
Revision of Prior Period, Error Correction, Adjustment P
Operating costs and expenses:
Selling, general, and administrative			$ 43			$ 43
Revision of Prior Period, Error Correction, Adjustment S
Operating costs and expenses:
Diluted net (loss) per share (in dollars per share)			$ (0.04)
Weighted average number of shares outstanding - basic (in shares)						(511,000)
Weighted average number of shares outstanding - diluted (in shares)			1,481,000

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Details) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Business Acquisition [Line Items]
Net income (loss)	$ (37,061)	$ (43,378)	$ (33,844)	$ 11,772	$ 6,743	$ (77,222)	$ 18,515
Other comprehensive income (loss)
Foreign currency translation income (loss)	87		(524)	24		(421)	465
Comprehensive income (loss)	(36,974)		(34,368)	11,796		(77,643)	18,980
Comprehensive loss attributable to non-controlling interest	0		(8,046)	0		(15,355)	0
Comprehensive income (loss) attributable to System1, Inc.	(36,974)		(26,322)	$ 11,796		(62,288)	$ 18,980
Previously Reported
Business Acquisition [Line Items]
Net income (loss)	(40,460)		(34,065)			(72,124)
Other comprehensive income (loss)
Foreign currency translation income (loss)	87		262			228
Comprehensive income (loss)	(40,373)		(33,803)			(71,896)
Comprehensive loss attributable to non-controlling interest			(4,812)			(12,886)
Comprehensive income (loss) attributable to System1, Inc.	(40,373)		(28,991)			(59,010)
Revision of Prior Period, Error Correction, Adjustment
Business Acquisition [Line Items]
Net income (loss)	3,399		221			(5,098)
Other comprehensive income (loss)
Foreign currency translation income (loss)	0
Comprehensive income (loss)	3,399		(565)			(5,747)
Comprehensive loss attributable to non-controlling interest
Comprehensive income (loss) attributable to System1, Inc.	3,399		2,669			(3,278)
Revision of Prior Period, Error Correction, Adjustment A, F, G, H, J, K, L, M, O, P
Business Acquisition [Line Items]
Net income (loss)			221			(5,098)
Revision of Prior Period, Error Correction, Adjustment G, K, O
Business Acquisition [Line Items]
Net income (loss)	$ 3,399
Revision of Prior Period, Error Correction, Adjustment M, P
Other comprehensive income (loss)
Foreign currency translation income (loss)			$ (786)			$ (649)

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Details) - USD ($) shares in Thousands, $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	$ (28,401)		$ 824,524				$ (28,401)
Net loss	(37,061)	$ (43,378)	(33,844)	$ 11,772	$ 6,743	$ (77,222)		$ 18,515
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions		661
Issuance of common stock in connection with the acquisition of business		25,500
Conversion of Class D shares to Class A shares		(1)
Exercise of warrants			27,989
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(2,596)
Other comprehensive income	87	(81)	(538)	24	441
Share-based compensation	23,705	31,398	6,995	120	146
Distribution to members		(247)	(1,254)
Ending balance		824,524	823,872			823,872	823,872
Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		466,211				466,211
Net loss	(40,460)		(34,065)			(72,124)
Ending balance	466,211		827,123			827,123	827,123
Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		466,400		$ 829,718		466,400
Net loss		(38,059)	(34,065)
Issuance of common stock in connection with the acquisition of business		25,500
Conversion of Class D shares to Class A shares		(1)
Exercise of warrants			27,989
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(6,752)	585
Other comprehensive income		(34)	262
Share-based compensation		27,167	3,888
Distribution to members		(247)	(1,254)
Ending balance	466,400		827,123		$ 829,718	827,123	827,123
Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(189)				(189)
Ending balance	(189)
Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		347,055				347,055
Ending balance	347,055
Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		355,742				355,742
Ending balance	355,742
Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(8,687)				(8,687)
Ending balance	(8,687)
Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		813,266				813,266
Ending balance	813,266
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		822,142				822,142
Ending balance	822,142
Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(8,876)				(8,876)
Ending balance	(8,876)
Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			(5,194)
Net loss	$ 3,399		221			(5,098)
Ending balance		(5,194)	(3,251)			$ (3,251)	$ (3,251)
Revision of Prior Period, Error Correction, Adjustment A, G, I, J, K, L, M, O
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss		(5,319)
Revision of Prior Period, Error Correction, Adjustment G
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions		661
Revision of Prior Period, Error Correction, Adjustment M
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		4,156	(585)
Revision of Prior Period, Error Correction, Adjustment P
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Other comprehensive income		(47)	(800)
Revision of Prior Period, Error Correction, Adjustment G, H
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share-based compensation		$ 4,231	3,107
Revision of Prior Period, Error Correction, Adjustment G, I
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss			$ 221
Common Stock | Class A units of S1 Holdco
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			86,597
Beginning balance			$ 9
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions (in shares)		930
Issuance of common stock in connection with the acquisition of business (in shares)		2,000
Conversion of Class D shares to Class A shares (in shares)		2,900
Conversion of Class D shares to Class A shares		$ (1)
Exercise of warrants (in shares)			3,969
Issuance of restricted stock, net of forfeitures and shares withheld for taxes (in shares)			21
Ending balance (in shares)		86,597	90,587			90,587	90,587
Ending balance		$ 9	$ 9			$ 9	$ 9
Common Stock | Class A units of S1 Holdco | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		51,750				51,750
Beginning balance		$ 5				$ 5
Ending balance (in shares)	51,750
Ending balance	$ 5
Common Stock | Class A units of S1 Holdco | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		52,680		86,597		52,680
Beginning balance		$ 5		$ 9		$ 5
Issuance of common stock in connection with the acquisition of business (in shares)		2,000
Conversion of Class D shares to Class A shares (in shares)		2,900
Conversion of Class D shares to Class A shares		$ (1)
Exercise of warrants (in shares)			3,969
Issuance of restricted stock, net of forfeitures and shares withheld for taxes (in shares)			21
Ending balance (in shares)	52,680		90,587		86,597	90,587	90,587
Ending balance	$ 5		$ 9		$ 9	$ 9	$ 9
Common Stock | Class A units of S1 Holdco | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		(930)				(930)
Beginning balance		$ 0				$ 0
Ending balance (in shares)	(930)
Ending balance	$ 0
Common Stock | Class A units of S1 Holdco | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		29,017				29,017
Beginning balance		$ 3				$ 3
Ending balance (in shares)	29,017
Ending balance	$ 3
Common Stock | Class A units of S1 Holdco | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		29,017				29,017
Beginning balance		$ 3				$ 3
Ending balance (in shares)	29,017
Ending balance	$ 3
Common Stock | Class A units of S1 Holdco | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class A units of S1 Holdco | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		80,767				80,767
Beginning balance		$ 8				$ 8
Ending balance (in shares)	80,767
Ending balance	$ 8
Common Stock | Class A units of S1 Holdco | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		81,697				81,697
Beginning balance		$ 8				$ 8
Ending balance (in shares)	81,697
Ending balance	$ 8
Common Stock | Class A units of S1 Holdco | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		(930)				(930)
Beginning balance		$ 0				$ 0
Ending balance (in shares)	(930)
Ending balance	$ 0
Common Stock | Class A units of S1 Holdco | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0	0
Ending balance		$ 0	$ 0			$ 0	$ 0
Common Stock | Class A units of S1 Holdco | Revision of Prior Period, Error Correction, Adjustment G
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions (in shares)		930
Common Stock | Class C Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			22,077
Beginning balance			$ 2
Ending balance (in shares)		22,077	22,077			22,077	22,077
Ending balance		$ 2	$ 2			$ 2	$ 2
Common Stock | Class C Common Stock | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class C Common Stock | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0		22,077		0
Beginning balance		$ 0		$ 2		$ 0
Ending balance (in shares)	0		22,077		22,077	22,077	22,077
Ending balance	$ 0		$ 2		$ 2	$ 2	$ 2
Common Stock | Class C Common Stock | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class C Common Stock | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		22,077				22,077
Beginning balance		$ 2				$ 2
Ending balance (in shares)	22,077
Ending balance	$ 2
Common Stock | Class C Common Stock | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		22,077				22,077
Beginning balance		$ 2				$ 2
Ending balance (in shares)	22,077
Ending balance	$ 2
Common Stock | Class C Common Stock | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class C Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		22,077				22,077
Beginning balance		$ 2				$ 2
Ending balance (in shares)	22,077
Ending balance	$ 2
Common Stock | Class C Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		22,077				22,077
Beginning balance		$ 2				$ 2
Ending balance (in shares)	22,077
Ending balance	$ 2
Common Stock | Class C Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class C Common Stock | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0	0
Ending balance		$ 0	$ 0			$ 0	$ 0
Common Stock | Class D Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			0
Beginning balance			$ 0
Issuance of market-based restricted stock units upon vesting		1,450
Conversion of Class D shares to Class A shares		$ (2,900)
Ending balance (in shares)		0	0			0	0
Ending balance		$ 0	$ 0			$ 0	$ 0
Common Stock | Class D Common Stock | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class D Common Stock | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0		0		0
Beginning balance		$ 0		$ 0		$ 0
Conversion of Class D shares to Class A shares		$ (2,900)
Ending balance (in shares)	0		0		0	0	0
Ending balance	$ 0		$ 0		$ 0	$ 0	$ 0
Common Stock | Class D Common Stock | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		0				0
Beginning balance		$ 0				$ 0
Ending balance (in shares)	0
Ending balance	$ 0
Common Stock | Class D Common Stock | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		1,450				1,450
Beginning balance		$ 0				$ 0
Ending balance (in shares)	1,450
Ending balance	$ 0
Common Stock | Class D Common Stock | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		2,900				2,900
Beginning balance		$ 0				$ 0
Ending balance (in shares)	2,900
Ending balance	$ 0
Common Stock | Class D Common Stock | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		(1,450)				(1,450)
Beginning balance		$ 0				$ 0
Ending balance (in shares)	(1,450)
Ending balance	$ 0
Common Stock | Class D Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		1,450				1,450
Beginning balance		$ 0				$ 0
Ending balance (in shares)	1,450
Ending balance	$ 0
Common Stock | Class D Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		2,900				2,900
Beginning balance		$ 0				$ 0
Ending balance (in shares)	2,900
Ending balance	$ 0
Common Stock | Class D Common Stock | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		(1,450)				(1,450)
Beginning balance		$ 0				$ 0
Ending balance (in shares)	(1,450)
Ending balance	$ 0
Common Stock | Class D Common Stock | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0	0
Ending balance		$ 0	$ 0			$ 0	$ 0
Common Stock | Class D Common Stock | Revision of Prior Period, Error Correction, Adjustment G
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in connection with the acquisition of business (in shares)		1,450
Additional Paid-In-Capital
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			777,325
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions		$ 661
Issuance of common stock in connection with the acquisition of business		25,500
Exercise of warrants			27,989
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(2,596)
Share-based compensation		31,398	6,995
Ending balance		777,325	812,309			812,309	812,309
Additional Paid-In-Capital | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		574,003				574,003
Ending balance	574,003
Additional Paid-In-Capital | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		525,579		728,540		525,579
Issuance of common stock in connection with the acquisition of business		25,500
Exercise of warrants			27,989
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(6,752)	585
Share-based compensation		27,167	3,888
Ending balance	525,579		761,002		728,540	761,002	761,002
Additional Paid-In-Capital | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		48,424				48,424
Ending balance	48,424
Additional Paid-In-Capital | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		148,359				148,359
Ending balance	148,359
Additional Paid-In-Capital | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		157,046				157,046
Ending balance	157,046
Additional Paid-In-Capital | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(8,687)				(8,687)
Ending balance	(8,687)
Additional Paid-In-Capital | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		722,362				722,362
Ending balance	722,362
Additional Paid-In-Capital | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		682,625				682,625
Ending balance	682,625
Additional Paid-In-Capital | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		39,737				39,737
Ending balance	39,737
Additional Paid-In-Capital | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			48,785
Ending balance		48,785	51,307			51,307	51,307
Additional Paid-In-Capital | Revision of Prior Period, Error Correction, Adjustment G
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in connection with Merger, net of offering costs, underwriting discounts and commissions		661
Additional Paid-In-Capital | Revision of Prior Period, Error Correction, Adjustment M
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		4,156	(585)
Additional Paid-In-Capital | Revision of Prior Period, Error Correction, Adjustment G, H
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share-based compensation		4,231	3,107
Accumulated Deficit
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			(143,866)
Net loss		(36,069)	(25,737)
Ending balance		(143,866)	(169,603)			(169,603)	(169,603)
Accumulated Deficit | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(107,797)				(107,797)
Ending balance	(107,797)
Accumulated Deficit | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(59,184)		(89,175)		(59,184)
Net loss		(29,991)	(29,198)
Ending balance	(59,184)		(118,373)		(89,175)	(118,373)	(118,373)
Accumulated Deficit | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(48,613)				(48,613)
Ending balance	(48,613)
Accumulated Deficit | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Deficit | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Deficit | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Deficit | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(107,797)				(107,797)
Ending balance	(107,797)
Accumulated Deficit | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(59,184)				(59,184)
Ending balance	(59,184)
Accumulated Deficit | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		(48,613)				(48,613)
Ending balance	(48,613)
Accumulated Deficit | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			(54,691)
Ending balance		(54,691)	(51,230)			(51,230)	(51,230)
Accumulated Deficit | Revision of Prior Period, Error Correction, Adjustment A, G, I, J, K, L, M, O
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss		(6,078)
Accumulated Deficit | Revision of Prior Period, Error Correction, Adjustment G, I
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss			3,461
Accumulated Other Comprehensive Income
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			103
Other comprehensive income	87	103	(524)	24	441
Ending balance		103	(421)			(421)	(421)
Accumulated Other Comprehensive Income | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0		(28)		0
Other comprehensive income		(28)	207
Ending balance	0		179		(28)	179	179
Accumulated Other Comprehensive Income | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Accumulated Other Comprehensive Income | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			131
Ending balance		131	(600)			(600)	(600)
Accumulated Other Comprehensive Income | Revision of Prior Period, Error Correction, Adjustment P
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Other comprehensive income		131	(731)
Non-Controlling Interest
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			190,951
Net loss		(7,309)	(8,107)
Other comprehensive income		(184)	(14)
Distribution to members		(247)	(1,254)
Ending balance		190,951	181,576			181,576	181,576
Non-Controlling Interest | Previously Reported
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Non-Controlling Interest | Previously Reported, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0		$ 190,370		0
Net loss		(8,068)	(4,867)
Other comprehensive income		(6)	55
Distribution to members		(247)	(1,254)
Ending balance	0		184,304		$ 190,370	184,304	184,304
Non-Controlling Interest | Previously Reported, Error Correction Adjustemnt
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Non-Controlling Interest | Revision of Prior Period, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		198,691				198,691
Ending balance	198,691
Non-Controlling Interest | Revision of Prior Period, Adjustment, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		198,691				198,691
Ending balance	198,691
Non-Controlling Interest | Revision of Prior Period, Adjustment, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	0
Non-Controlling Interest | Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		198,691				198,691
Ending balance	198,691
Non-Controlling Interest | Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		198,691				198,691
Ending balance	198,691
Non-Controlling Interest | Cumulative Effect, Period of Adoption, Adjusted Balance, Including Error Correction
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance		0				0
Ending balance	$ 0
Non-Controlling Interest | Revision of Prior Period, Error Correction, Adjustment
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance			581
Ending balance		581	(2,728)			$ (2,728)	$ (2,728)
Non-Controlling Interest | Revision of Prior Period, Error Correction, Adjustment A, G, I, J, K, L, M, O
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss		759
Non-Controlling Interest | Revision of Prior Period, Error Correction, Adjustment P
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Other comprehensive income		$ (178)	(69)
Non-Controlling Interest | Revision of Prior Period, Error Correction, Adjustment G, I
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss			$ (3,240)

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Statements of Changes in Member's Deficit (Unaudited) (Details) - USD ($) shares in Thousands, $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Business Acquisition [Line Items]
Beginning balance	$ (28,401)	$ (41,670)		$ (40,752)	$ (48,229)	$ (41,670)	$ (48,229)
Net income (loss)	(37,061)	(43,378)	$ (33,844)	11,772	6,743	(77,222)	18,515
Accumulated other comprehensive income	87	(81)	(538)	24	441
Share-based compensation	23,705	31,398	6,995	120	146
Ending balance	(41,670)			(31,524)	(40,752)		(31,524)
Beginning balance	(28,401)		824,524
Issuance of common stock in connection with the acquisition of business		25,500
Conversion of Class D shares to Class A shares		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(2,596)
Distribution from partners		247	1,254
Exercise of warrants			27,989
Ending balance		824,524	823,872			823,872
Members’ Deficit
Business Acquisition [Line Items]
Beginning balance	(28,829)	(42,185)		(40,850)	(47,886)	(42,185)	(47,886)
Net income (loss)	(37,061)			11,772	6,743
Share-based compensation	23,705			120	146
Ending balance	(42,185)			(31,646)	(40,850)		(31,646)
Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Beginning balance	428	515		98	(343)	515	(343)
Accumulated other comprehensive income	87	103	(524)	24	441
Ending balance	515			122	98		$ 122
Beginning balance			103
Ending balance		$ 103	$ (421)			$ (421)
Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		86,597	90,587			90,587
Beginning balance			$ 9
Issuance of common stock in connection with the acquisition of business (in shares)		2,000
Conversion of Class D shares to Class A shares (in shares)		2,900
Conversion of Class D shares to Class A shares		$ 1
Exercise of warrants (in shares)			3,969
Issuance of restricted stock, net of forfeitures and shares withheld for taxes (in shares)			21
Ending balance (in shares)		86,597	90,587			90,587
Ending balance		$ 9	$ 9			$ 9
Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		22,077	22,077			22,077
Beginning balance			$ 2
Ending balance (in shares)		22,077	22,077			22,077
Ending balance		$ 2	$ 2			$ 2
Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		0	0			0
Beginning balance			$ 0
Conversion of Class D shares to Class A shares		$ 2,900
Ending balance (in shares)		0	0			0
Ending balance		$ 0	$ 0			$ 0
Additional Paid-In-Capital
Business Acquisition [Line Items]
Share-based compensation		31,398	6,995
Beginning balance			777,325
Issuance of common stock in connection with the acquisition of business		25,500
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(2,596)
Exercise of warrants			27,989
Ending balance		777,325	812,309			812,309
Accumulated Deficit
Business Acquisition [Line Items]
Net income (loss)		(36,069)	(25,737)
Beginning balance			(143,866)
Ending balance		(143,866)	(169,603)			(169,603)
Non-Controlling Interest
Business Acquisition [Line Items]
Net income (loss)		(7,309)	(8,107)
Accumulated other comprehensive income		(184)	(14)
Beginning balance			190,951
Distribution from partners		247	1,254
Ending balance		190,951	181,576			181,576
Previously Reported
Business Acquisition [Line Items]
Net income (loss)	(40,460)		(34,065)			(72,124)
Beginning balance		466,211				466,211
Ending balance	466,211		827,123			827,123
Previously Reported | Members’ Deficit
Business Acquisition [Line Items]
Beginning balance	(28,829)	(41,591)				(41,591)
Net income (loss)	(40,460)
Share-based compensation	27,698
Ending balance	(41,591)
Previously Reported | Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Beginning balance		0				0
Ending balance	$ 0
Previously Reported | Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	51,750
Beginning balance		5				5
Ending balance (in shares)	51,750
Ending balance	$ 5
Previously Reported | Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	0
Beginning balance		0				0
Ending balance (in shares)	0
Ending balance	$ 0
Previously Reported | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	0
Beginning balance		0				0
Ending balance (in shares)	0
Ending balance	$ 0
Previously Reported | Additional Paid-In-Capital
Business Acquisition [Line Items]
Beginning balance		574,003				574,003
Ending balance	574,003
Previously Reported | Accumulated Deficit
Business Acquisition [Line Items]
Beginning balance		(107,797)				(107,797)
Ending balance	(107,797)
Previously Reported | Non-Controlling Interest
Business Acquisition [Line Items]
Beginning balance		0				0
Ending balance	0
Revision of Prior Period, Error Correction, Adjustment
Business Acquisition [Line Items]
Net income (loss)	3,399		221			(5,098)
Beginning balance			(5,194)
Ending balance		(5,194)	(3,251)			(3,251)
Revision of Prior Period, Error Correction, Adjustment | Members’ Deficit
Business Acquisition [Line Items]
Beginning balance	0	(594)				(594)
Ending balance	(594)
Revision of Prior Period, Error Correction, Adjustment | Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Beginning balance			131
Ending balance		$ 131	$ (600)			$ (600)
Revision of Prior Period, Error Correction, Adjustment | Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		0	0			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0
Ending balance		$ 0	$ 0			$ 0
Revision of Prior Period, Error Correction, Adjustment | Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		0	0			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0
Ending balance		$ 0	$ 0			$ 0
Revision of Prior Period, Error Correction, Adjustment | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)		0	0			0
Beginning balance			$ 0
Ending balance (in shares)		0	0			0
Ending balance		$ 0	$ 0			$ 0
Revision of Prior Period, Error Correction, Adjustment | Additional Paid-In-Capital
Business Acquisition [Line Items]
Beginning balance			48,785
Ending balance		48,785	51,307			51,307
Revision of Prior Period, Error Correction, Adjustment | Accumulated Deficit
Business Acquisition [Line Items]
Beginning balance			(54,691)
Ending balance		(54,691)	(51,230)			(51,230)
Revision of Prior Period, Error Correction, Adjustment | Non-Controlling Interest
Business Acquisition [Line Items]
Beginning balance			581
Ending balance		$ 581	(2,728)			(2,728)
Revision of Prior Period, Error Correction, Adjustment G, K, O
Business Acquisition [Line Items]
Net income (loss)	3,399
Revision of Prior Period, Error Correction, Adjustment G, K, O | Members’ Deficit
Business Acquisition [Line Items]
Net income (loss)	3,399
Revision of Prior Period, Error Correction, Adjustment G | Members’ Deficit
Business Acquisition [Line Items]
Share-based compensation	(3,993)
Revision of Prior Period, Error Correction, Adjustment G | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Issuance of common stock in connection with the acquisition of business (in shares)		1,450
Previously Reported, Before Error Correction
Business Acquisition [Line Items]
Net income (loss)		$ (38,059)	(34,065)
Accumulated other comprehensive income		(34)	262
Share-based compensation		27,167	3,888
Beginning balance		466,400		829,718		466,400
Issuance of common stock in connection with the acquisition of business		25,500
Conversion of Class D shares to Class A shares		1
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(6,752)	585
Distribution from partners		247	1,254
Exercise of warrants			27,989
Ending balance	466,400		827,123		829,718	827,123
Previously Reported, Before Error Correction | Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Accumulated other comprehensive income		(28)	207
Beginning balance		0		(28)		0
Ending balance	$ 0		$ 179		$ (28)	$ 179
Previously Reported, Before Error Correction | Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	52,680		90,587		86,597	90,587
Beginning balance		$ 5		9		$ 5
Issuance of common stock in connection with the acquisition of business (in shares)		2,000
Conversion of Class D shares to Class A shares (in shares)		2,900
Conversion of Class D shares to Class A shares		$ 1
Exercise of warrants (in shares)			3,969
Issuance of restricted stock, net of forfeitures and shares withheld for taxes (in shares)			21
Ending balance (in shares)	52,680		90,587		86,597	90,587
Ending balance	$ 5		$ 9		$ 9	$ 9
Previously Reported, Before Error Correction | Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	0		22,077		22,077	22,077
Beginning balance		0		2		$ 0
Ending balance (in shares)	0		22,077		22,077	22,077
Ending balance	$ 0		$ 2		$ 2	$ 2
Previously Reported, Before Error Correction | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	0		0		0	0
Beginning balance		0		0		$ 0
Conversion of Class D shares to Class A shares		2,900
Ending balance (in shares)	0		0		0	0
Ending balance	$ 0		$ 0		$ 0	$ 0
Previously Reported, Before Error Correction | Additional Paid-In-Capital
Business Acquisition [Line Items]
Share-based compensation		27,167	3,888
Beginning balance		525,579		728,540		525,579
Issuance of common stock in connection with the acquisition of business		25,500
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC		(6,752)	585
Exercise of warrants			27,989
Ending balance	525,579		761,002		728,540	761,002
Previously Reported, Before Error Correction | Accumulated Deficit
Business Acquisition [Line Items]
Net income (loss)		(29,991)	(29,198)
Beginning balance		(59,184)		(89,175)		(59,184)
Ending balance	(59,184)		(118,373)		(89,175)	(118,373)
Previously Reported, Before Error Correction | Non-Controlling Interest
Business Acquisition [Line Items]
Net income (loss)		(8,068)	(4,867)
Accumulated other comprehensive income		(6)	55
Beginning balance		0		$ 190,370		0
Distribution from partners		247	1,254
Ending balance	0		$ 184,304		$ 190,370	184,304
Revision of Prior Period, Adjustment, Before Error Correction
Business Acquisition [Line Items]
Beginning balance		355,742				355,742
Ending balance	355,742
Revision of Prior Period, Adjustment, Before Error Correction | Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Beginning balance		0				0
Ending balance	$ 0
Revision of Prior Period, Adjustment, Before Error Correction | Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	29,017
Beginning balance		3				3
Ending balance (in shares)	29,017
Ending balance	$ 3
Revision of Prior Period, Adjustment, Before Error Correction | Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	22,077
Beginning balance		2				2
Ending balance (in shares)	22,077
Ending balance	$ 2
Revision of Prior Period, Adjustment, Before Error Correction | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	2,900
Beginning balance		0				0
Ending balance (in shares)	2,900
Ending balance	$ 0
Revision of Prior Period, Adjustment, Before Error Correction | Additional Paid-In-Capital
Business Acquisition [Line Items]
Beginning balance		157,046				157,046
Ending balance	157,046
Revision of Prior Period, Adjustment, Before Error Correction | Accumulated Deficit
Business Acquisition [Line Items]
Beginning balance		0				0
Ending balance	0
Revision of Prior Period, Adjustment, Before Error Correction | Non-Controlling Interest
Business Acquisition [Line Items]
Beginning balance		198,691				198,691
Ending balance	198,691
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction
Business Acquisition [Line Items]
Beginning balance		822,142				822,142
Ending balance	822,142
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Accumulated Other Comprehensive Income (Loss)
Business Acquisition [Line Items]
Beginning balance		0				0
Ending balance	$ 0
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Common Stock | Class A Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	81,697
Beginning balance		8				8
Ending balance (in shares)	81,697
Ending balance	$ 8
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Common Stock | Class C Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	22,077
Beginning balance		2				2
Ending balance (in shares)	22,077
Ending balance	$ 2
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Common Stock | Class D Common Stock
Business Acquisition [Line Items]
Beginning balance (in shares)	2,900
Beginning balance		0				0
Ending balance (in shares)	2,900
Ending balance	$ 0
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Additional Paid-In-Capital
Business Acquisition [Line Items]
Beginning balance		682,625				682,625
Ending balance	682,625
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Accumulated Deficit
Business Acquisition [Line Items]
Beginning balance		(59,184)				(59,184)
Ending balance	(59,184)
Cumulative Effect, Period of Adoption, Adjusted Balance, Before Error Correction | Non-Controlling Interest
Business Acquisition [Line Items]
Beginning balance		$ 198,691				$ 198,691
Ending balance	$ 198,691

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS - Condensed Consolidated Statements of Cash Flows (Unaudited) (Details) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	3 Months Ended			5 Months Ended	6 Months Ended
	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Jan. 27, 2022	Dec. 31, 2021
Cash flows from Operating Activities:
Net income (loss)	$ (37,061)	$ (43,378)	$ (33,844)	$ 11,772	$ 6,743	$ (77,222)		$ 18,515
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	1,000		32,094	3,112		54,022		6,801
Share-based compensation	23,705					57,470		224
Amortization of debt issuance costs	0					2,226		1,131
Noncash lease expense	115					694		0
Change in fair value of contingent consideration and CEO equity profit interest	9					27		(4,331)
Change in fair value of warrants	0		4,139			9,622		0
Deferred tax benefits	(816)					(22,746)		(603)
Other	0					661		0
Changes in operating assets and liabilities
Accounts receivable	11,118					(8,136)		(8,306)
Prepaids and other assets	1,069					(2,002)		(1,864)
Accounts payable	(67,600)					6,535		8,568
Accrued expenses and other liabilities	57,488					(11,225)		(1,978)
Protected.net incentive plan liability	0					(5,694)		0
Deferred revenue	311					7,211		494
Other long-term liabilities	77					(31,080)		0
Net cash (used in) operating activities	(10,603)					(8,303)		27,313
Cash flows from Investing Activities:
Purchases of property and equipment	0					(2,310)		0
Capitalized software development costs	(441)					(3,497)		(3,233)
Acquisition of businesses, net of cash acquired	0					(444,074)		0
Net cash used in investing activities	(441)					(449,881)		(3,233)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	0					449,000		0
Repayment of term loan	0					(177,488)		(8,136)
Payments for financing costs	0					(24,845)		0
Payments for earnouts	0					(1,715)		0
Redemptions of Class A common stock	0					(510,469)		0
Proceeds from warrant exercises	0					5,027	$ 5,028	0
Cash received from the Backstop	0					246,484		0
Distributions to members	0					(1,501)		(2,691)
Net cash used in financing activities	0					(15,507)		(18,892)
Effect of exchange rate changes in cash, cash equivalent and restricted cash	(19)					604		366
Net increase (decrease) in cash, cash equivalents and restricted cash	(11,063)					(473,087)		5,554
Cash and cash equivalents and restricted cash, beginning of the period	48,639	37,576			$ 29,013	37,576	48,639	29,013
Cash and cash equivalents and restricted cash, end of the period	37,576		44,466	34,567		44,466	44,466	34,567
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	36,833		37,442	34,567		37,442	37,442	34,567		$ 47,896
Restricted cash	743		7,024	0		7,024	7,024	0
Total cash, cash equivalents and restricted cash	37,576		44,466	$ 34,567		44,466	44,466	34,567	$ 517,553	48,639
Supplemental cash flow information:
ROU assets obtained in exchange for operating lease liabilities	7,987					2,064		0
Equity issuance to settle intercompany loan	941					0		0
Deferred consideration for acquisition	0					7,059		$ 0
Previously Reported
Cash flows from Operating Activities:
Net income (loss)	(40,460)		(34,065)			(72,124)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	1,000					56,708
Share-based compensation	27,698					49,219
Amortization of debt issuance costs	0					2,226
Noncash lease expense	115					(90)
Change in fair value of contingent consideration and CEO equity profit interest	9					72
Change in fair value of warrants	0					9,622
Deferred tax benefits	(816)					(20,893)
Other	0					0
Changes in operating assets and liabilities
Accounts receivable	11,118					(7,890)
Prepaids and other assets	905					(978)
Accounts payable	(67,600)					6,535
Accrued expenses and other liabilities	57,170					(5,466)
Protected.net incentive plan liability	0					0
Deferred revenue	311					7,211
Other long-term liabilities	78					(30,217)
Net cash (used in) operating activities	(10,490)					(6,209)
Cash flows from Investing Activities:
Purchases of property and equipment	0					(2,285)
Capitalized software development costs	(441)					(2,901)
Acquisition of businesses, net of cash acquired	0					(445,893)
Net cash used in investing activities	(441)					(451,079)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	0					449,000
Repayment of term loan	0					(177,488)
Payments for financing costs	0					(24,845)
Payments for earnouts	0					(1,715)
Redemptions of Class A common stock	0					(510,469)
Proceeds from warrant exercises	0					5,029
Cash received from the Backstop	0					246,484
Distributions to members	0					(1,501)
Net cash used in financing activities	0					(15,505)
Effect of exchange rate changes in cash, cash equivalent and restricted cash	(132)					(29)
Net increase (decrease) in cash, cash equivalents and restricted cash	(11,063)					(472,822)
Cash and cash equivalents and restricted cash, beginning of the period	48,639	37,576				37,576	48,639
Cash and cash equivalents and restricted cash, end of the period	37,576		44,731			44,731	44,731
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents			37,442			37,442	37,442
Restricted cash			7,289			7,289	7,289
Total cash, cash equivalents and restricted cash	37,576		44,731			44,731	44,731		517,553	48,639
Supplemental cash flow information:
ROU assets obtained in exchange for operating lease liabilities	7,987					2,064
Equity issuance to settle intercompany loan	0					0
Deferred consideration for acquisition	0					0
Revision of Prior Period, Error Correction, Adjustment
Cash flows from Operating Activities:
Net income (loss)	3,399		221			(5,098)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	0
Amortization of debt issuance costs	0					0
Noncash lease expense	0
Change in fair value of contingent consideration and CEO equity profit interest	0
Change in fair value of warrants	0					0
Deferred tax benefits	0
Other	0
Changes in operating assets and liabilities
Accounts receivable	0
Accounts payable	0					0
Protected.net incentive plan liability	0
Deferred revenue	0					0
Net cash (used in) operating activities	(113)					(2,094)
Cash flows from Investing Activities:
Purchases of property and equipment	0
Capitalized software development costs	0
Acquisition of businesses, net of cash acquired	0
Net cash used in investing activities	0					1,198
Cash flows from Financing Activities:
Proceeds from term loan and line of credit	0					0
Repayment of term loan	0					0
Payments for financing costs	0					0
Payments for earnouts	0					0
Redemptions of Class A common stock	0					0
Proceeds from warrant exercises	0					(2)
Cash received from the Backstop	0					0
Distributions to members	0					0
Net cash used in financing activities	0					(2)
Net increase (decrease) in cash, cash equivalents and restricted cash	0					(265)
Cash and cash equivalents and restricted cash, beginning of the period	0	$ 0				0	0
Cash and cash equivalents and restricted cash, end of the period	0		(265)			(265)	(265)
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	0		0			0	0
Restricted cash	0		(265)			(265)	(265)
Total cash, cash equivalents and restricted cash	0		(265)			(265)	$ (265)		$ 0	$ 0
Supplemental cash flow information:
ROU assets obtained in exchange for operating lease liabilities	0					0
Equity issuance to settle intercompany loan	941					0
Deferred consideration for acquisition	0					7,059
Revision of Prior Period, Error Correction, Adjustment A, F, G, H, J, K, L, M, O, P
Cash flows from Operating Activities:
Net income (loss)			$ 221			(5,098)
Revision of Prior Period, Error Correction, Adjustment G, K, O
Cash flows from Operating Activities:
Net income (loss)	3,399
Revision of Prior Period, Error Correction, Adjustment A, J
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization						(2,686)
Revision Of Prior Period, Error Correction, Adjustment G, H, O, Q
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Share-based compensation	(3,993)					8,251
Revision of Prior Period, Error Correction, Adjustment R
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Noncash lease expense						784
Revision of Prior Period, Error Correction, Adjustment Q
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Share-based compensation						38
Change in fair value of contingent consideration and CEO equity profit interest						(45)
Changes in operating assets and liabilities
Accounts receivable						19
Prepaids and other assets						(863)
Accrued expenses and other liabilities						7,274
Protected.net incentive plan liability						(5,694)
Other long-term liabilities						(72)
Cash flows from Investing Activities:
Purchases of property and equipment						(25)
Capitalized software development costs						(77)
Acquisition of businesses, net of cash acquired						(1,886)
Revision of Prior Period, Error Correction, Adjustment M, Q
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Deferred tax benefits						(1,853)
Revision of Prior Period, Error Correction, Adjustment G
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Other						661
Revision of Prior Period, Error Correction, Adjustment N, Q
Changes in operating assets and liabilities
Accounts receivable						(246)
Revision of Prior Period, Error Correction, Adjustment K, O, Q
Changes in operating assets and liabilities
Prepaids and other assets						(1,024)
Revision of Prior Period, Error Correction, Adjustment K
Changes in operating assets and liabilities
Prepaids and other assets	164
Revision of Prior Period, Error Correction, Adjustment F, K, O, Q
Changes in operating assets and liabilities
Accrued expenses and other liabilities						(5,759)
Revision of Prior Period, Error Correction, Adjustment K, O
Changes in operating assets and liabilities
Accrued expenses and other liabilities	318
Revision of Prior Period, Error Correction, Adjustment L, O, Q, R
Changes in operating assets and liabilities
Other long-term liabilities						(863)
Revision of Prior Period, Error Correction, Adjustment O
Changes in operating assets and liabilities
Other long-term liabilities	(1)
Revision of Prior Period, Error Correction, Adjustment J, Q
Cash flows from Investing Activities:
Capitalized software development costs						(596)
Revision of Prior Period, Error Correction, Adjustment O, P, Q
Cash flows from Investing Activities:
Acquisition of businesses, net of cash acquired						1,819
Revision of Prior Period, Error Correction, Adjustment P
Cash flows from Financing Activities:
Effect of exchange rate changes in cash, cash equivalent and restricted cash	$ 113					$ 633

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ASC 842 Adoption (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Jan. 01, 2022	Dec. 31, 2021
Lessee, Lease, Description [Line Items]
Operating lease right-of-use assets	$ 7,533	$ 6,786	$ 0
Present value of operating lease liabilities	$ 9,138	7,987
Accounting Standards Update 2016-02
Lessee, Lease, Description [Line Items]
Deferred rent reclassified		$ 1,201

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Capital Resources and Liquidity (Details)	Jul. 01, 2022	Aug. 01, 2021	Mar. 01, 2021	Jun. 30, 2022 partner contract agreement
Product Information [Line Items]
Number of advertising partners | partner				2
Number of contract | agreement				3
Google
Product Information [Line Items]
Number of contract				2
Number of contract, renewed				1
Contract, term		2 years	2 years
Microsoft
Product Information [Line Items]
Number of contract				1
Microsoft | Subsequent Event
Product Information [Line Items]
Contract, term	3 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Table Illustrates the Level of Concentration as a Percentage of Total Revenues (Details) - Revenue Benchmark - Advertising Partner Risk	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Google
Product Information [Line Items]
Concentration risk, percentage	88.00%	69.00%	84.00%	71.00%	83.00%
Microsoft
Product Information [Line Items]
Concentration risk, percentage	4.00%	3.00%	5.00%	3.00%	5.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounts Receivable (Details) - USD ($)	Jun. 30, 2022	Dec. 31, 2021
Accounting Policies [Abstract]
Accounts receivable, allowance fordoubtful accounts	$ 0	$ 0
Accounts receivable, payment term	30 days

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details) - installment	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Product Information [Line Items]
Number of customers	2	2
Accounts Receivable | Advertising Partner Risk | Google
Product Information [Line Items]
Concentration risk, percentage	67.00%	72.00%
Accounts Receivable | Advertising Partner Risk | Yahoo
Product Information [Line Items]
Concentration risk, percentage	11.00%	10.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Restricted Cash (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Accounting Policies [Abstract]
Restricted cash	$ 7,024	$ 743

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Estimated Useful Lives of Property and Equipment (Details)	6 Months Ended
	Jun. 30, 2022
Computer equipment
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Office equipment
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Software
Property, Plant and Equipment [Line Items]
Estimated useful life	4 years
Furniture, fixtures and equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Furniture, fixtures and equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful life	7 years
Motor vehicles
Property, Plant and Equipment [Line Items]
Estimated useful life	4 years
Internal-use software development
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Estimated Useful Life of Intangible Assets (Details)	6 Months Ended
	Jun. 30, 2022
Developed technology
Finite-Lived Intangible Assets [Line Items]
Useful Life	4 years
Customer relationships | Minimum
Finite-Lived Intangible Assets [Line Items]
Useful Life	3 years
Customer relationships | Maximum
Finite-Lived Intangible Assets [Line Items]
Useful Life	5 years
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Useful Life	10 years
Other intangibles
Finite-Lived Intangible Assets [Line Items]
Useful Life	4 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Other Information (Details)	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2022	Jun. 30, 2021 USD ($)
Accounting Policies [Abstract]
Impairment of long-lived asset	$ 0	$ 0	$ 0	$ 0		$ 0
Goodwill impairment	$ 0			$ 0		$ 0
Vesting period					4 years
Stock conversion ratio					1

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule Ownership Interests (Details) - Holdco, LLC shares in Thousands	Jun. 30, 2022 shares
Class A units of S1 Holdco | Entity A
Property, Plant and Equipment [Line Items]
Shares/Units (in shares)	90,587
Ownership %	80.00%
Class B units of S1 Holdco | Entity B
Property, Plant and Equipment [Line Items]
Shares/Units (in shares)	22,077
Ownership %	20.00%

XML

MERGER - Narrative (Details) - USD ($)				1 Months Ended	2 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 27, 2022	Jan. 26, 2022	Jan. 10, 2022	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021
Business Acquisition [Line Items]
Share based expense						$ 25,168,000	$ 120,000	$ 57,470,000		$ 266,000
Selling, general, and administrative				$ 15,665,000		$ 16,747,000	$ 6,277,000	$ 31,835,000		$ 13,227,000
Allocation and payment from the actual savings						85.00%		85.00%	85.00%
Determined fair value of obligations under agreement						$ 0		$ 0	$ 0
Restricted Stock Units
Business Acquisition [Line Items]
Share based expense				23,705,000				$ 15,547,000
Business Combination Agreement
Business Acquisition [Line Items]
Cash consideration		$ 440,155,000
Equity		411,453,000
Total consideration attributable to NCI		$ 198,691,000		$ 198,691,000
Share based expense					$ 7,706,000
Selling, general, and administrative					$ 661,000
Business Combination Agreement | Restricted Stock Units
Business Acquisition [Line Items]
Business acquisition, share price (in dollars per share)		$ 10.00		$ 10.00
Business Combination Agreement | Class B Common Stock
Business Acquisition [Line Items]
Equity		$ 610,144,000
Business acquisition, share price (in dollars per share)		$ 10.00		$ 10.00
Lock-up period, discount rate (in percent)		10.00%		10.00%
Issuance of common stock in connection with the acquisition of business (in shares)		22,077,000
Business Combination Agreement | Class A Common Stock
Business Acquisition [Line Items]
Business acquisition, share price (in dollars per share)		$ 10.00		$ 10.00
Lock-up period, discount rate (in percent)		10.00%		10.00%
Business Combination Agreement | Class D Common Stock
Business Acquisition [Line Items]
Issuance of common stock in connection with the acquisition of business (in shares)					1,450,000
Shares issued (in shares)					1,450,000
Business Combination Agreement | Class D Common Stock | Restricted Stock
Business Acquisition [Line Items]
Shares issued (in shares)									1,450,000
Business Combination Agreement | Class D Common Stock | Restricted Stock Units
Business Acquisition [Line Items]
Shares issued (in shares)									1,450,000
Business Combination Agreement | Cannae | Financial Standby Letter of Credit
Business Acquisition [Line Items]
Backstop agreement, subscription for number of shares to be redeemed (in shares)		25,000,000		25,000,000
Subscription redemption amount		$ 250,000,000		$ 250,000,000
Aggregate commitment redemption value		$ 246,484,000		$ 246,484,000
Backstop shares received (in shares)		24,648,000
Business Combination Agreement | Cannae | Class A Common Stock
Business Acquisition [Line Items]
Shares issued (in shares)	2,533,000
Business Combination Agreement | Trebia Acquisition Corporation
Business Acquisition [Line Items]
Forward purchase liability					$ 25,336,000
Business Combination Agreement | Trebia Acquisition Corporation | Restricted Stock
Business Acquisition [Line Items]
Shares issued (in shares)									1,450,000
Business Combination Agreement | Trebia Acquisition Corporation | Class B Common Stock
Business Acquisition [Line Items]
Canceled (in shares)									930,000
Business Combination Agreement | Trebia Acquisition Corporation | Class B Common Stock | Amended And Restated Backstop Facility Agreement
Business Acquisition [Line Items]
Canceled (in shares)	2,533,000		2,600,000

XML

MERGER - Fair Value of the Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Jan. 26, 2022	Jun. 30, 2022	Mar. 31, 2022	Jan. 27, 2022	Dec. 31, 2021
Tangible assets acquired and liabilities assumed:
Goodwill		$ 881,370	$ 878,396	$ 0	$ 44,820
Business Combination Agreement
Tangible assets acquired and liabilities assumed:
Cash and marketable securities	$ 68,748
Accounts receivable	79,086
Prepaid expenses	7,807
Income tax receivable	4,566
Property, plant & equipment, net	1,551
Other assets	6,950
Accounts payable	(9,798)
Deferred revenue	(60,768)
Accrued expenses and other current liabilities	(110,004)
Income tax payable	(2,091)
Notes payable	(172,038)
Deferred tax liabilities	(138,613)
Other liabilities	(8,474)
Total tangible assets acquired and liabilities assumed	(333,078)
Intangible assets	562,100
Goodwill	821,277
Net assets acquired	1,050,299
Consideration:
Cash	440,155
Equity	411,453
Total consideration	851,608
Total consideration attributable to NCI	$ 198,691

XML

MERGER - Intangible Assets (Details) - Business Combination Agreement $ in Thousands	Jan. 26, 2022 USD ($)
Business Acquisition [Line Items]
Amount	$ 562,100
Trademark
Business Acquisition [Line Items]
Amount	$ 246,400
Weighted Average Useful Life (in Years)	10 years
Customer relationships
Business Acquisition [Line Items]
Amount	$ 119,700
Weighted Average Useful Life (in Years)	4 years
Developed technology
Business Acquisition [Line Items]
Amount	$ 196,000
Weighted Average Useful Life (in Years)	4 years

XML

MERGER - Pro Forma Net Revenue and Net Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Business Combination and Asset Acquisition [Abstract]
Pro forma revenue	$ 219,912	$ 219,031	$ 455,836	$ 412,232
Pro forma net (loss)	$ (20,474)	$ (41,112)	$ (25,436)	$ (140,549)

XML

ACQUISITIONS - Narrative (Details) - USD ($) $ in Thousands				3 Months Ended	4 Months Ended	5 Months Ended
	May 04, 2022	Mar. 04, 2022	Feb. 09, 2022	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2022
Answers Holdings, Inc.
Business Acquisition, Contingent Consideration [Line Items]
Cash consideration	$ 4,632
Weighted-average useful lives in years	15 years
Acquisition related costs	$ 93
NextGen Shopping, Inc
Business Acquisition, Contingent Consideration [Line Items]
Cash consideration		$ 75,087
Weighted-average useful lives in years		15 years
Acquisition related costs		$ 813
Business acquisition, deferred		16,446
Holdback liability		$ 5,600
Discount rate for shares		7.50%
Transaction costs		$ 3,129
Net revenue				$ 5,396	$ 7,316
Net Income				1,302	$ 1,860
RoadWarrior, LLC
Business Acquisition, Contingent Consideration [Line Items]
Cash consideration			$ 19,636
Weighted-average useful lives in years			15 years
Acquisition related costs						$ 308
Net revenue				1,288			$ 2,237
Net Income				$ 908			$ 1,692
Class A Common Stock | NextGen Shopping, Inc
Business Acquisition, Contingent Consideration [Line Items]
Fair value		$ 25,500
Number of shares issued (in shares)		2,000

XML

ACQUISITIONS - Fair Value of the Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	May 04, 2022	Mar. 04, 2022	Feb. 09, 2022	Jun. 30, 2022	Mar. 31, 2022	Jan. 27, 2022	Dec. 31, 2021
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Goodwill				$ 881,370	$ 878,396	$ 0	$ 44,820
Answers Holdings, Inc.
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Working capital	$ 32
Trademark - 10 years weighted average useful life	1,100
Total tangible assets acquired and liabilities assumed	32
Goodwill	3,500
Net assets acquired	4,632
Consideration:
Cash	$ 4,632
Total consideration		$ 4,632
Weighted Average Useful Life (in Years)	15 years
Answers Holdings, Inc. | Trademark
Consideration:
Weighted Average Useful Life (in Years)	10 years
NextGen Shopping, Inc
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Cash and cash equivalents		21,232
Accounts receivable		5,860
Other current assets		446
Accounts payable		(116)
Accrued expenses and other current liabilities		(118)
Income tax payable		(197)
Deferred tax liabilities		(10,895)
Total tangible assets acquired and liabilities assumed		16,212
Goodwill		42,175
Intangible assets		42,200
Net assets acquired		100,587
Consideration:
Cash		75,087
Equity		25,500
Total consideration		$ 100,587
Weighted Average Useful Life (in Years)		15 years
NextGen Shopping, Inc | Trademark
Consideration:
Weighted Average Useful Life (in Years)		10 years
RoadWarrior, LLC
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Working capital			$ 155
Total tangible assets acquired and liabilities assumed			155
Goodwill			14,981
Intangible assets			4,500
Net assets acquired			19,636
Consideration:
Cash			$ 19,636
Weighted Average Useful Life (in Years)			15 years
RoadWarrior, LLC | Trademark
Consideration:
Weighted Average Useful Life (in Years)			10 years

XML

ACQUISITIONS - Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 04, 2022	Feb. 09, 2022
NextGen Shopping, Inc
Business Acquisition [Line Items]
Amount	$ 42,200
Weighted Average Useful Life (in Years)	15 years
NextGen Shopping, Inc | Trademark
Business Acquisition [Line Items]
Amount	$ 38,100
Weighted Average Useful Life (in Years)	10 years
NextGen Shopping, Inc | Software
Business Acquisition [Line Items]
Amount	$ 4,100
Weighted Average Useful Life (in Years)	4 years
RoadWarrior, LLC
Business Acquisition [Line Items]
Amount		$ 4,500
Weighted Average Useful Life (in Years)		15 years
RoadWarrior, LLC | Trademark
Business Acquisition [Line Items]
Amount		$ 2,200
Weighted Average Useful Life (in Years)		10 years
RoadWarrior, LLC | Software
Business Acquisition [Line Items]
Amount		$ 1,000
Weighted Average Useful Life (in Years)		4 years
RoadWarrior, LLC | Customer relationships
Business Acquisition [Line Items]
Amount		$ 1,300
Weighted Average Useful Life (in Years)		3 years

XML

PROPERTY AND EQUIPMENT, NET - Schedule Of Property And Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Property, Plant and Equipment [Line Items]
Property and equipment—gross	$ 4,589	$ 1,866
Less accumulated depreciation	(259)	(1,036)
Property and equipment—net	4,330	830
Computer equipment
Property, Plant and Equipment [Line Items]
Property and equipment—gross	604	415
Motor vehicles
Property, Plant and Equipment [Line Items]
Property and equipment—gross	234	0
Furniture and equipment
Property, Plant and Equipment [Line Items]
Property and equipment—gross	918	475
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment—gross	$ 2,833	$ 976

XML

PROPERTY AND EQUIPMENT, NET - Schedule of Total Depreciation Expense on Property and Equipment (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 16	$ 149	$ 89	$ 268	$ 170

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Goodwill (Details) - USD ($) $ in Thousands	2 Months Ended	3 Months Ended
	Mar. 31, 2022	Jun. 30, 2022	Jan. 27, 2022	Dec. 31, 2021
Goodwill [Roll Forward]
Goodwill, beginning balance		$ 878,396
Additions	$ 878,433	3,500
Currency translation adjustments	(37)	(526)
Goodwill, ending balance	878,396	881,370
Goodwill	878,396	881,370	$ 0	$ 44,820
Owned and Operated
Goodwill [Roll Forward]
Goodwill, beginning balance		351,812
Additions	351,849	3,500
Currency translation adjustments	(37)	(526)
Goodwill, ending balance	351,812	354,786
Goodwill	351,812	354,786	0	24,403
Partner Network
Goodwill [Roll Forward]
Goodwill, beginning balance		93,400
Additions	93,400	0
Currency translation adjustments	0	0
Goodwill, ending balance	93,400	93,400
Goodwill	93,400	93,400	0	$ 20,417
Subscription
Goodwill [Roll Forward]
Goodwill, beginning balance		433,184
Additions	433,184	0
Currency translation adjustments	0	0
Goodwill, ending balance	433,184	433,184
Goodwill	$ 433,184	$ 433,184	$ 0

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 609,952	$ 82,005
Accumulated Amortization	(53,611)	(31,637)
Net Carrying Amount	556,341	50,368
Total internal-use software development costs
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,985	21,274
Accumulated Amortization	(375)	(10,061)
Net Carrying Amount	3,610	11,213
Developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	196,000	8,398
Accumulated Amortization	(20,822)	(7,242)
Net Carrying Amount	175,178	1,156
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	287,852	69,007
Accumulated Amortization	(11,803)	(21,375)
Net Carrying Amount	276,049	47,632
Software
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	5,100
Accumulated Amortization	(428)
Net Carrying Amount	4,672
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	121,000	1,500
Accumulated Amortization	(20,558)	(661)
Net Carrying Amount	$ 100,442	839
Professional service agreement
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount		3,100
Accumulated Amortization		(2,359)
Net Carrying Amount		$ 741

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Narrative (Details) - USD ($)	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Finite-Lived Intangible Assets [Line Items]
Internal-use software development costs	$ 2,948,000		$ 2,540,000
Computer software impairments	0	$ 0
Impairment of intangible assets	$ 0	$ 0
Weighted Average
Finite-Lived Intangible Assets [Line Items]
Weighted average amortization period	7 years

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Amortization Expense for Internal-Use Software Development Costs and Intangible Assets (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense for internal-use software development	$ 355	$ 78	$ 921	$ 143	$ 2,245
Amortization expense for intangible assets	$ 629	$ 31,867	$ 2,102	$ 53,611	$ 4,386

XML

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Future Amortization Expense (Details) - Intangible Assets and Internal Use Software Development Costs $ in Thousands	Jun. 30, 2022 USD ($)
Finite-Lived Intangible Assets [Line Items]
Remainder of 2022	$ 63,901
2023	110,204
2024	101,197
2024	94,344
2026	43,380
Thereafter	146,925
Net Carrying Amount	$ 559,951

XML

LEASES - Components of Lease Expense (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended	5 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2022
Leases [Abstract]
Operating lease cost	$ 142	$ 585	$ 982

XML

LEASES - Schedule of Supplemental Balance Sheet Information (Details)	Jun. 30, 2022
Weighted average remaining lease terms (in years):
Operating leases	7 years 2 months 12 days
Weighted average discount rate	5.30%

XML

LEASES - Schedule of Maturities of Facility Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Jan. 01, 2022
Operating leases:
Remainder of 2022	$ 1,240
2023	2,525
2024	2,597
2025	2,252
2026	285
Thereafter	1,588
Total lease payments	10,487
Less: Imputed interest	(1,349)
Present value of operating lease liabilities	$ 9,138	$ 7,987

XML

LEASES - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021
Leases [Abstract]
Rent expense	$ 571	$ 1,062

XML

LEASES - Expected Future Operating Lease (Details) $ in Thousands	Dec. 31, 2021 USD ($)
Leases [Abstract]
2022	$ 1,957
2023	1,950
2024	1,950
2025	$ 1,663

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Former CEO profit interest	$ 0	$ 11,132
Payable to employees	11,105	10,091
Accrued legal service fees	0	6,242
Accrued marketing expenses	47,649	144
Holdback liability	1,221	0
Contingent consideration	359	1,682
VAT tax liability	9,970	0
Accrued tax liability	7,235	361
Deferred rent	0	233
Other liabilities	20,420	1,399
Accrued expenses and other current liabilities	$ 97,959	$ 31,284

XML

DEFERRED REVENUE (Details) - USD ($) $ in Thousands	1 Months Ended	5 Months Ended		12 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Contract With Customer, Liability [Roll Forward]
Beginning balance	$ 1,971	$ 2,282	$ 0	$ 1,889
Additional amounts deferred	620		141,941	5,116
Deferred revenue recognized	(309)		(73,573)	(5,034)
Ending balance	$ 2,282	68,368	$ 68,368	$ 1,971
Additional amounts deferred acquired from the acquisitions		$ 61,156

XML

DEFERRED REVENUE - Narrative (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Jan. 26, 2022	Dec. 31, 2021
Revenue Recognition and Deferred Revenue [Abstract]
Deferred revenue	$ 0	$ 309	$ 1,889

XML

INCOME TAXES - Income Tax (Benefit) Provision and the Effective Income Tax Rate (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Income Tax Disclosure [Abstract]
Income tax (benefit) provision	$ (629)	$ (454)	$ 77	$ (15,103)	$ 228
Effective tax rate	2.00%	1.00%	1.00%	16.00%	1.00%

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2022
Income Tax Disclosure [Abstract]
Unrecognized tax benefits		$ 69
Tax effect on contribution	$ 2,595

XML

COMMITMENTS AND CONTINGENCIES - Service Agreements (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 18, 2021
Commitments and Contingencies Disclosure [Abstract]
Obligated to pay, year one		$ 6,900
Obligated to pay, year two		$ 8,000
Payment service provider expenses	$ 7,424

XML

COMMITMENTS AND CONTINGENCIES - Executive Compensation (Details) - USD ($)	Apr. 10, 2019	Dec. 31, 2021	Feb. 28, 2021
Executive Compensation
Other Commitments [Line Items]
Percentage of profit cash settled	5.00%
Participation threshold	$ 300,000,000
Loss contingency, vesting term	4 years
Loss contingency accrual		$ 11,132,000
Separation Agreement
Other Commitments [Line Items]
Percentage of profit cash settled			5.00%
Percentage of profit cash settled, deemed vested			3.75%
Percentage of profit cash settled, forfeited			1.25%
Percentage of profit cash settled, increase			2.50%

XML

DEBT - Additional Information (Details) - USD ($)			1 Months Ended	5 Months Ended	6 Months Ended	9 Months Ended	12 Months Ended	42 Months Ended
	Apr. 10, 2023	Jan. 27, 2022	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2022	Dec. 31, 2026	Dec. 31, 2021	Dec. 31, 2025	Jun. 05, 2023	Sep. 30, 2021
Debt Instrument [Line Items]
Long-term debt				$ 444,000,000	$ 444,000,000
Percentage of excess free cash flow payment							50.00%
Period of financial report distribution to lender		120 days
Additional remediate period		30 days
Loan fees				1,197,000	$ 1,197,000
Related party loan			$ 0	$ 0
2023 Revolving Note | Subsequent Event
Debt Instrument [Line Items]
Related party loan	$ 20,000,000
Related party debt commitment	10,000,000
Due from related parties	$ 100,000
Unused commitment fee	1.00%
Closing fee	12.00%
Debt payable period	18000.00%
London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					7.00%
LIBOR Floor Rate
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					1.00%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate Floor | 2023 Revolving Note | Subsequent Event
Debt Instrument [Line Items]
Related party transaction rate	3.15%
Revolving Credit Facility
Debt Instrument [Line Items]
Revolving line of credit facility										$ 49,000,000
Long-term line of credit		$ 50,000,000	$ 50,000,000
Term of loan					5 years
Debt Instrument covenant percentage		35.00%
Credit agreement, lonversion ratio		5.40
Revolving Credit Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					2.75%
Revolving Credit Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate Floor
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					0.00%
Line of Credit | Revolving Credit Facility
Debt Instrument [Line Items]
Revolving line of credit facility							$ 20,000,000
Long-term line of credit							0
Term Loan | Revolving Credit Facility | Forecast
Debt Instrument [Line Items]
Amortization quarterly payment						$ 7,500,000		$ 5,000,000
Term Loan | Secured Debt
Debt Instrument [Line Items]
Long-term debt		$ 172,038,000					172,038,000
Periodic payment							$ 1,750,000
Term of loan		5 years 6 months
Principle amount		$ 400,000,000
Proceeds from term loan		$ 376,000,000
Term Loan and Revolving Facility | Subsequent Event | May Be Called
Debt Instrument [Line Items]
Long-term debt									$ 430,000,000
Term Loan and Revolving Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate		4.75%
Term Loan and Revolving Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate Floor
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate		0.50%
2023 Revolving Note | Revolving Credit Facility | Subsequent Event
Debt Instrument [Line Items]
Available balance									$ 15,000,000

XML

DEBT - Future Minimum Principal Payments on Long-Term Debt (Details) $ in Thousands	Jun. 30, 2022 USD ($)
Debt Disclosure [Abstract]
Remainder for 2022	$ 10,000
2023	20,000
2024	20,000
2025	20,000
2026	30,000
2027	344,000
Total future minimum principal payment	444,000
Less: current portion	(20,000)
Long-term portion	$ 424,000

XML

WARRANTS (Details) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended	5 Months Ended	6 Months Ended
	Jan. 26, 2022 USD ($)	Jun. 30, 2022 USD ($) shares	Jun. 30, 2022 USD ($) business_day installment $ / shares shares	Jun. 30, 2021 USD ($)	Apr. 20, 2022 shares
Derivative [Line Items]
Warrants and rights outstanding, term		5 years	5 years
Multiplier used in calculating warrant exercise price		0.361	0.361
Number of trading days on which fair market value of shares is reported | business_day			10
Threshold period for not to transfer, assign or sell any of their shares or warrants after the completion of the initial business combination			30 days
Proceeds from warrant exercises | $	$ 0	$ 5,027	$ 5,028	$ 0
Private warrants | Class A Common Stock
Derivative [Line Items]
Warrants exercised (in shares) | shares					3,532
Public Warrants
Derivative [Line Items]
Warrant outstanding (in shares) | shares		16,813	16,813
Warrants exercised (in shares) | shares		437	437
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $18.00
Derivative [Line Items]
Stock price trigger for redemption of public warrants (in dollars per share) | $ / shares			$ 18.00
Redemption price per public warrant (in dollars per share) | $ / shares			$ 0.01
Minimum threshold written notice period for redemption of public warrants			30 days
Threshold trading days for redemption of public warrants | business_day			20
Threshold consecutive trading days for redemption of public warrants | installment			30
Redemption Period			30 days
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $10.00
Derivative [Line Items]
Redemption price per public warrant (in dollars per share) | $ / shares			$ 0.10
Minimum threshold written notice period for redemption of public warrants			30 days

XML

FAIR VALUE MEASUREMENT - Schedule of Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Former CEO equity interest	$ 181,576	$ 0
Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration	568	1,682
Grand total	14,237	12,814
Recurring | Former CEO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Former CEO equity interest		11,132
Level 1 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration	0
Grand total	13,669
Level 3 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration	568	1,682
Grand total	568	12,814
Level 3 | Recurring | Former CEO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Former CEO equity interest		$ 11,132
Public Warrants | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Public warrants	13,669
Public Warrants | Level 1 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Public warrants	13,669
Public Warrants | Level 3 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Public warrants	$ 0

XML

FAIR VALUE MEASUREMENT - Schedule of Estimated Fair Value of Liabilities (Details) - USD ($) $ in Thousands	2 Months Ended	3 Months Ended	6 Months Ended
	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021
Former CEO Equity Profits Interests
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 11,132		$ 4,236
Settlements			0
Change in fair value			4,238
Ending balance			8,474
Contingent consideration
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	1,682	$ 2,255	8,240
Additions	573
Settlements		(1,715)	(6,715)
Change in fair value	0	28	94
Ending balance	2,255	568	$ 1,619
Warrant liability
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	27,012	40,773
Additions	0
Settlements		(22,965)
Change in fair value	13,761	(4,139)
Ending balance	$ 40,773	$ 13,669

XML

NET INCOME (LOSS) PER SHARE - Basic And Diluted Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Earnings Per Share [Abstract]
Basic net (loss) per share (in dollars per share)		$ (0.29)		$ (0.71)
Diluted net (loss) per share (in dollars per share)		$ (0.33)
Numerator:
Net loss attributable to System1, Inc.	$ (37,061)	$ (25,737)	$ 11,772	$ (61,806)	$ 18,515
Change in fair value of warrants	$ 0	(4,139)		$ (9,622)	$ 0
Net loss used in diluted computation		$ (29,876)
Denominator:
Weighted-average common shares outstanding used in computing basic net loss per share (in shares)		89,701,000		86,840,000
Adjustment for incremental shares from applying treasury stock method (in shares)		1,481,000
Weighted-average common shares outstanding used in computing diluted net loss per share (in shares)		91,182,000
Basic net income (loss) per unit (in dollars per share)	$ (1.81)		$ 0.57		$ 0.90
Diluted net income (loss) per unit (in dollars per share)	$ (1.81)		$ 0.57		$ 0.90
Weighted-average membership units outstanding - basic (in shares)	20,488,000		20,488,000		20,488,000
Weighted-average membership units outstanding - diluted (in shares)	20,488,000		20,488,000		20,488,000

XML

NET INCOME (LOSS) PER SHARE - Additional Information (Details) - shares shares in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Class C Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total antidilutive shares (in shares)	22,077	22,077	22,077	22,077	22,077

XML

SEGMENT REPORTING - Narrative (Details)	6 Months Ended
	Jun. 30, 2022 segment
Segment Reporting [Abstract]
Number of operating segments	4
Combined number of segments	1
Reportable segments	3

XML

SEGMENT REPORTING - Schedule of Segment Reporting Information (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Segment Reporting Information [Line Items]
Total revenue	$ 52,712	$ 219,797	$ 169,579	$ 385,905	$ 317,140
Adjusted gross profit	11,780	73,597	46,335	124,075	86,598
Other cost of revenues	575	6,358	2,923	11,112	6,410
Salaries, commissions, and benefits	31,181	49,511	17,698	97,709	32,893
Selling, general, and administrative	15,665	16,747	6,277	31,835	13,227
Depreciation and amortization	1,000	32,094	3,112	54,022	6,801
Interest expense	1,049	7,324	4,476	12,100	8,524
Change in fair value of warrant liabilities	0	(4,139)	0	9,622	0
Income (loss) before income tax	(37,690)	(34,298)	11,849	(92,325)	18,743
Owned and Operated
Segment Reporting Information [Line Items]
Total revenue	49,249	157,952	160,816	284,836	300,242
Adjusted gross profit	8,768	36,799	37,572	66,217	69,700
Partner Network
Segment Reporting Information [Line Items]
Total revenue	3,463	19,077	8,763	30,427	16,898
Adjusted gross profit	3,012	13,908	8,763	22,321	16,898
Subscription
Segment Reporting Information [Line Items]
Total revenue	0	42,768	0	70,642	0
Adjusted gross profit	$ 0	$ 22,890	$ 0	$ 35,537	$ 0

XML

SEGMENT REPORTING - Schedule of Revenues Disaggregated by Geographic Region (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	Jan. 26, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 52,712	$ 219,797	$ 169,579	$ 385,905	$ 317,140
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	51,701	167,872	163,072	302,480	307,630
United Kingdom
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	0	42,924	168	70,643	169
Other international
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 1,011	$ 9,001	$ 6,339	$ 12,782	$ 9,341

XML

RELATED-PARTY TRANSACTIONS (Details) £ in Thousands, $ in Thousands		6 Months Ended
	Oct. 16, 2018 USD ($)	Jun. 30, 2022 GBP (£)	Jun. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Lone Investment Holdings | SS Protected Limited
Related Party Transaction [Line Items]
Noncontrolling interest, ownership percentage	7.70%
SS Protected Limited
Related Party Transaction [Line Items]
Amounts of transaction	$ 55,000
Lone Investment Holdings
Related Party Transaction [Line Items]
Due to related parties	$ 10,500
Paysafe
Related Party Transaction [Line Items]
Receivable from related parties			$ 1,347
Just Develop It Limited
Related Party Transaction [Line Items]
Due to related parties			$ 149
Monthly payment for desk occupancy | £		£ 42
Purchased Interest | SS Protected Limited | Protected.net Group Ltd
Related Party Transaction [Line Items]
Ownership percentage	50.10%
Proceeds From Sale | Lone Investment Holdings
Related Party Transaction [Line Items]
Proceeds from issuance or sale of equity	$ 1,158
Extended Loans | Former CEO | Former CEO
Related Party Transaction [Line Items]
Due from related parties				$ 1,500

XML

SHARE-BASED PAYMENTS - Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended	2 Months Ended	3 Months Ended		5 Months Ended	6 Months Ended
	May 10, 2022	Mar. 04, 2022	Jan. 26, 2022	Mar. 31, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based expense					$ 25,168	$ 120	$ 57,470		$ 266
Change in fair value of contingent consideration and CEO equity profit interest			$ (9)				(27)		$ 4,331
Fixed amount recognized					1,001			$ 1,309
Business Combination Agreement
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based expense				$ 7,706
CouponFollow Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive plan for eligible recipients total		$ 35,000
Cash EBITDA		$ 10,000
Threshold trading days		60 days
CouponFollow Incentive Plan | Tier 1 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA		$ 10,000
CouponFollow Incentive Plan | Tier 2 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA		7,500
CouponFollow Incentive Plan | Tier 3 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA		7,500
Class D Common Stock | Business Combination Agreement
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Issuance of common stock in connection with the acquisition of business (in shares)				1,450,000
Shares issued (in shares)				1,450,000
20 Trading days				20 days
30 Trading days				30 days
Class D Common Stock | Business Combination Agreement | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair market value of stock (in dollars per share)				$ 12.50
Class A Common Stock | CouponFollow Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive plan for eligible recipients total		35,000
Cash EBITDA		$ 10,000
Threshold trading days		30 days
Change in fair value of contingent consideration and CEO equity profit interest		$ 25,000
Maximum shares (in shares)		4,667,000
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based expense			$ 23,705				15,547
Amount of cost not yet recognized					30,724		30,724	$ 30,724
Weighted average period								2 years 3 months 18 days
Unrecognized stock-based compensation expense					21,241		$ 21,241	$ 21,241
Restricted Stock Units | Award Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized (in shares)	1,900,000
Additional shares authorized (in shares)	4,900,000
Restricted Stock Units | Class D Common Stock | Business Combination Agreement
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued (in shares)								1,450,000
RSUs and Restricted Stock Awards (RSAs) | Business Combination Agreement
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based expense				$ 12,745
2023 Award and 2024 Award | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
20 Trading days								20 days
Threshold trading days								5 days
2023 Award and 2024 Award | Class A Common Stock | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based expense								$ 18,163
Incentive plan for eligible recipients total					$ 100,000			$ 100,000
2023 Award | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
30 Trading days								30 days
Cash EBITDA								$ 55,000
2023 Award | Class A Common Stock | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive plan for eligible recipients total								50,000
2024 Award | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA								$ 65,000
Threshold trading days								30 days
2024 Award | Class A Common Stock | Protected Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive plan for eligible recipients total								$ 50,000

XML

SHARE-BASED PAYMENTS - Equity Awards Valuation Assumptions (Details) - Market-Based RSUs and RSAs	6 Months Ended
	Jun. 30, 2022 $ / shares
Share-Based Payment Arrangement [Abstract]
Risk-free interest rate	1.60%
Expected stock price volatility	50.00%
Cost of equity	23.60%
Expected term (years)	5 years
Fair Value of Class A Common Stock (in dollars per share)	$ 10.00
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.60%
Expected stock price volatility	50.00%
Cost of equity	23.60%
Expected term (years)	5 years
Fair market value of stock (in dollars per share)	$ 10.00

XML

SHARE-BASED PAYMENTS - Total Share-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		5 Months Ended	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Share-Based Payment Arrangement [Abstract]
Share-based compensation expense	$ 25,168	$ 120	$ 57,470	$ 266

XML

SHARE-BASED COMPENSATION - Performance Period (Details) - CouponFollow Incentive Plan $ in Thousands	Mar. 04, 2022 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	$ 10,000
Total Maximum Payment per Performance Period	$ 35,000
Threshold trading days	60 days
Tier 1 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	$ 10,000
Tier 2 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	7,500
Tier 3 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	7,500
Tranche One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,333
Total Maximum Payment per Performance Period	6,666
Tranche One | Tier 1 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,333
Tranche One | Tier 2 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	0
Tranche One | Tier 3 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	0
Tranche Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,333
Total Maximum Payment per Performance Period	10,416
Tranche Two | Tier 1 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,333
Tranche Two | Tier 2 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,750
Tranche Two | Tier 3 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	0
Tranche Three
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,334
Total Maximum Payment per Performance Period	17,918
Tranche Three | Tier 1 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,334
Tranche Three | Tier 2 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	3,750
Tranche Three | Tier 3 Target
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash EBITDA	$ 7,500

XML

SUBSEQUENT EVENT (Details) $ in Thousands	Aug. 31, 2022 USD ($)
Subsequent Event | Class A Common Stock | Public Warrants
Subsequent Event [Line Items]
Stock repurchase, authorized amount	$ 25,000

XML

Label	Element	Value
Contingent Consideration [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value	us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationsRecurringBasisLiabilityValue	$ 1,682,000
Former CEO Equity Interest [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value	us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationsRecurringBasisLiabilityValue	$ 11,132,000