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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 March 31, 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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per shareSSTThe New York Stock Exchange
Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per shareSST.WSThe 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 May 17, 2022, there were 90,566,172 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 March 31, 2022, including the S1 Holdco LLC ("S1 Holdco") predecessor period from January 1, 2022 to January 26, 2022 and the successor period from January 27, 2022 to March 31, 2022 presented therein, as originally filed with the Securities and Exchange Commission (“SEC”) on May 19, 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 Original Report, (ii) as of and for the three and six month periods ended June 30, 2022 (“Q2 2022”) included in the Company’s Form 10-Q filed with the SEC on August 15, 2022 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 March 31, 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 March 31, 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 (ii) the certain credit agreement, dated as of January 27, 2022 (the "Credit Agreement"), by and among Orchid Merger Sub II, LLC and Bank of America, N.A. in connection



with the Company's Term Loan and Revolving Facility (as such terms are defined in this Form 10-Q/A) and (iii) 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 March 31, 2022 included in this Form 10-Q/A, we are also restating our unaudited interim condensed consolidated financial statements and related disclosures for the quarters ended June 30, 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 June 30, 2022 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 these periods.



Table of Contents
Page

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)
1


SuccessorPredecessor
March 31, 2022December 31, 2021
As Restated
ASSETS
Current assets:
Cash and cash equivalents$42,182 $47,896 
Restricted cash, current4,801 — 
Accounts receivable100,268 90,203 
Prepaid expenses and other current assets15,409 7,689 
Total current assets162,660 145,788 
Restricted cash, non-current2,836 743 
Property and equipment, net2,855 830 
Internal-use software development costs, net1,344 11,213 
Intangible assets, net587,089 50,368 
Goodwill878,396 44,820 
Due from related party— 2,469 
Operating lease right-of-use assets6,388 — 
Other non-current assets830 680 
Total assets$1,642,398 $256,911 
LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Current liabilities:
Accounts payable$76,004 72,846 
Accrued expenses and other current liabilities59,735 31,284 
Deferred revenue64,810 1,971 
Operating lease liabilities, current1,895 — 
Due to related party80 — 
Notes payable, current14,822 170,453 
Total current liabilities217,346 276,554 
Operating lease liabilities, non-current5,645 — 
Notes payable, non-current409,777 — 
Warrant liability40,773 — 
Deferred tax liability138,738 7,789 
Other liabilities5,595 969 
Total liabilities817,874 285,312 
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Class A Common stock - $0.0001 par value; 500,000 shares authorized, 86,597 Class A shares issued and outstanding as of March 31, 2022
$— 
Class C Common stock - $0.0001 par value; 25,000 shares authorized, 22,077 Class C shares issued and outstanding as of March 31, 2022
— 
Additional paid-in capital777,325 — 
Accumulated deficit(143,866)— 
 Members’ deficit— (28,829)
Accumulated other comprehensive (loss) income103 428 
Total stockholders’ equity/members’ deficit633,573 (28,401)
Non-controlling interest190,951 — 
Total stockholders’ equity/members’ deficit824,524 (28,401)
Total liabilities and stockholders’ equity/members’ deficit$1,642,398 $256,911 
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)
SuccessorPredecessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022Three Months Ended March 31, 2021
As RestatedAs Restated
Revenue$166,108 $52,712 $147,561 
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)120,384 41,507 110,785 
Salaries, commissions, and benefits48,198 31,181 15,195 
Selling, general, and administrative15,088 15,665 6,950 
Depreciation and amortization21,928 1,000 3,689 
Total operating costs and expenses205,598 89,353 136,619 
Operating (loss) income(39,490)(36,641)10,942 
Interest expense4,776 1,049 4,048 
Loss on warrant fair value13,761 — — 
(Loss) income before income tax(58,027)(37,690)6,894 
Income tax (benefit) expense(14,649)(629)151 
Net (loss) income$(43,378)$(37,061)$6,743 
Net (loss) attributable to non-controlling interest(7,309)— — 
Net (loss) income attributable to System1, Inc.$(36,069)$(37,061)$6,743 
Basic net (loss) per share$(0.44)n/an/a
Diluted net (loss) per share$(0.44)n/an/a
Weighted average number of shares outstanding - basic82,708 n/an/a
Weighted average number of shares outstanding - diluted82,708 n/an/a
Basic net (loss) income per unitn/a$(1.81)$0.33 
Diluted net (loss) income per unitn/a$(1.81)$0.33 
Weighted average units outstanding - basicn/a20,488 20,488 
Weighted average units outstanding - dilutedn/a20,488 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)

SuccessorPredecessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022Three Months Ended March 31, 2021
As RestatedAs Restated
Net income (loss)$(43,378)$(37,061)$6,743 
Other comprehensive income (loss)
Foreign currency translation income103 87 441 
Comprehensive income (loss)$(43,275)$(36,974)$7,184 
Comprehensive loss attributable to non-controlling interest(7,233)— — 
Comprehensive income (loss) attributable to System1, Inc.$(36,042)$(36,974)$7,184 






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 March 31, 2022
BALANCE—January 26, 202251,750 $— $— — $— $574,003 $(107,797)$— $— $466,211 
Effect of the Merger29,017 22,077 1,450 — 148,359 — — 198,691 347,055 
BALANCE—January 27, 202280,767 22,077 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 the Merger, net of offering costs, underwriting discounts and commissions930 — — — — — 661 — — — 661 
Issuance of common stock in connection with the acquisition of business2,000 — — — — — 25,500 — — — 25,500 
Issuance of market-based restricted stock units upon vesting— — — — 1,450 — — — — — — 
Conversion of Class D shares to Class A shares2,900 — — (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— — — — — — — — 103 (184)(81)
Share-based compensation— — — — — — 31,398 — — — 31,398 
Distribution to members— — — — — — — — — (247)(247)
BALANCE—March 31, 202286,597 $22,077 $— $— $777,325 $(143,866)$103 $190,951 $824,524 


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’ DeficitAccumulated Other Comprehensive Income (Loss)Total Members’ Deficit
Predecessor:As RestatedAs Restated
For the period January 1, 2022 to January 26, 2022
BALANCE—January 1, 2022$(28,829)$428 $(28,401)
Net loss(37,061)— (37,061)
Accumulated other comprehensive income— 87 87 
Share-based compensation expense23,705 — 23,705 
BALANCE—January 26, 2022$(42,185)$515 $(41,670)
Members’ DeficitAccumulated Other Comprehensive Income (Loss)Total Members’ Deficit
Predecessor:
For the period January 1, 2021 to March 31, 2021
BALANCE—January 1, 2021$(47,886)$(343)$(48,229)
Net income6,743 — 6,743 
Accumulated other comprehensive income— 441 441 
Share-based compensation expense146 — 146 
Contribution from OpenMail147 — 147 
BALANCE—March 31, 2021$(40,850)$98 $(40,752)


See notes to unaudited condensed consolidated financial statements.
6


System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
SuccessorPredecessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022Three Months Ended March 31, 2021
As RestatedAs Restated
Cash Flows from Operating Activities:
Net income (loss)$(43,378)$(37,061)$6,743 
Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:
Depreciation and amortization21,928 1,000 3,689 
Share-based compensation32,302 23,705 146 
Amortization of debt issuance costs911 — 565 
Noncash lease expense283 115 — 
Write-down of internal use software development costs— — 255 
Write-down of contingent consideration liability— — 63 
Change in fair value of contingent consideration and CEO equity profit interest— (9)1,412 
Change in fair value of warrants13,761 — — 
Deferred tax benefits(15,540)(816)(274)
Other661 — — 
Changes in operating assets and liabilities—net of effect of acquisitions:
Accounts receivable(14,816)11,118 (4,471)
Due from related party— — (252)
Prepaids and other assets(3,695)1,069 (1,029)
Accounts payable66,091 (67,600)5,306 
Accrued expenses and other liabilities(67,637)57,488 (958)
Deferred revenue3,654 311 164 
Long term earn-out liabilities5,595 — (27)
Other long-term liabilities(30,980)77 (1,204)
Net cash provided by (used in) operating activities(30,860)(10,603)10,128 
Cash flows from Investing Activities:
Purchases of property and equipment(1,427)— — 
Expenditures for internal-use software development costs(1,389)(441)(1,440)
Acquisition of businesses, net of cash acquired(422,974)— — 
Net cash (used in) investing activities(425,790)(441)(1,440)
Cash flows from Financing Activities:
Proceeds from term loan and line of credit449,000 — — 
Repayment of term loan(172,488)— — 
Repayment of promissory note— — (1,750)
Member capital contributions— — 147 
Payments for financing costs(24,845)— — 
Redemptions of Class A common stock
(510,469)— — 
Cash received from the Backstop246,484 — — 
Payments on contingent consideration from purchase of companies— — (5,000)
Distributions to members(463)— — 
Net cash (used in) provided by financing activities(12,781)— (6,603)
Effect of exchange rate changes in cash, cash equivalent and restricted cash1,697 (19)(245)
Net Increase (decrease) in cash(467,734)(11,063)1,840 
Cash and cash equivalents and restricted cash, beginning of the period517,553 48,639 29,013 
Cash and cash equivalents and restricted cash, end of the period$49,819 $37,576 $30,853 
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents$42,182 $36,833 $30,853 
Restricted cash7,637 743 — 
Total cash, cash equivalents and restricted cash$49,819 $37,576 $30,853 
Supplemental cash flow information:
7


Cash paid for interest$932 $— $3,762 
Cash paid for taxes$261 $241 $518 
Cash paid for operating lease liabilities$388 $175 $— 
ROU assets obtained in exchange for operating lease liabilities$— $7,987 $— 
Equity issuance to settle intercompany loan$— $941 $— 
Deferred consideration for acquisition$23,500 $— $— 
See notes to unaudited condensed consolidated financial statements.
8

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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 represents 98%, 81% and 98% of total revenue for the period January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor) and the three months ended March 31 2021 (Predecessor), respectively, and long-lived assets attributable to the United States and Canada represent 84% and 11% of total long-lived assets as of March 31, 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
9

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
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 March 31, 2022 and the condensed consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity and of cash flows for the Successor period from January 27, 2022 to March 31, 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.Errors 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 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 $10,470 and Goodwill was understated by $11,312 as of March 31, 2022 and Depreciation and amortization expense was overstated by $842 for the Successor period from January 27, 2022 through March 31, 2022;
10

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
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 $9,271 and Goodwill was overstated by $9,400 as of March 31, 2022 and Depreciation and amortization expense was understated by $129 for the Successor period from January 27, 2022 through March 31, 2022;
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 $2,668 and Goodwill was understated by $2,800 as of March 31, 2022, and Depreciation and amortization expense was overstated by $132 for the Successor period from January 27, 2022 through March 31, 2022;
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 $11,811 and Goodwill was overstated by $11,900 as of March 31, 2022 and Depreciation and amortization expense was understated by $89 for the Successor period from January 27, 2022 through March 31, 2022.

b.CouponFollow purchase consideration error- The Company identified an error in the determination of elements to be included or excluded from purchase consideration for the CouponFollow acquisition in accordance with the purchase agreement. As a result, the original purchase price determined by the Company was incorrect. The error overstated Goodwill and Accrued expenses and other current liabilities by $3,339 as of the acquisition date and March 31, 2022.

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 March 31, 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 March 31, 2022.

11

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
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 described 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 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 $5,599, and an overstatement of goodwill of $7,802 as of the Merger date and March 31, 2022;
ii.The Company identified tax related errors in the acquired assets and liabilities relating to Protected 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 March 31, 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 the Deferred tax liability by $2,802, and an understatement of Goodwill by $2,109 as of the acquisition date and March 31, 2022.

II.Equity related errors:

f.Not used

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 forfeiture of awards subsequent to the Merger. In the Predecessor period there was an understatement 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 $179, Additional paid-in capital was understated by $6,151, and Accumulated other comprehensive income was overstated by $2 as of March 31, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $10,085 for the Successor period from January 27, 2022 through March 31, 2022;
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 $1,902, and Additional paid-in capital was overstated by $5,053 as of March 31, 2022. In addition, these errors resulted in an understatement of stock-based compensation included in Salaries, commissions and benefits of $178 for the Successor period from January 27, 2022 through March 31, 2022;
12

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
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 March 31, 2022. As a result, Salaries, commissions, and benefits was overstated by $12,746 in the Successor period from January 27, 2022 to March 31, 2022 and Additional paid-in capital was overstated by $12,746 as of March 31, 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 March 31, 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 March 31, 2022. Additionally, this error resulted in an understatement of stock-based compensation expense included in Salaries, commissions and benefits of $7,706 and an understatement of Selling, general and administrative expense of $661 for the Successor period from January 27, 2022 to March 31, 2022.

h.Stock based compensation errors, other - The Company identified other immaterial errors relating to the improper accounting for equity awards, which overstated Goodwill and Additional paid-in-capital by $518 as of the Merger date and March 31, 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 of $255, an understatement of Accumulated deficit of $836, and an understatement of Non-controlling interest by $581 as of March 31, 2022. Net loss attributable to non-controlling interest was overstated and Net loss attributable to System1 was understated by $759 for the Successor period from January 27, 2022 to March 31, 2022. As a result of these adjustments, Comprehensive loss attributable to non-controlling interest was overstated by $841 for the Successor period from January 27, 2022 through March 31, 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 $1,110 as of March 31, 2022, an overstatement of Salaries, commissions, and benefits expense by $483, and an overstatement of Depreciation and amortization expense by $627 for the Successor period from January 27, 2022 through March 31, 2022.

k.Accrual related errors - The Company identified various errors in accruals 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 $261 and overstating Selling, general and administrative expense by $445 in the Successor period from January 27, 2022 to March 31, 2022 and understating Goodwill and Accrued expenses and other current liabilities by $483 and $299, respectively, as of March 31, 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
13

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
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 $681, $478, and $209, respectively, as of March 31, 2022. Additionally, Selling, general and administrative was overstated by $6 for the Successor period from January 27, 2022 to March 31, 2022.

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 overstatement of Income tax benefit for the Successor period from January 27, 2022 to March 31, 2022 by $1,603 and an understatement to Deferred tax liability by $1,603 as of March 31, 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 Deferred tax liability and an understatement to Additional paid-in capital by $4,157 as of March 31, 2022;
iii.The Company identified errors in the reconciliation of its tax accounts which resulted in an overstatement of Prepaid expenses and other current assets by $3,663, an overstatement of Accrued expenses and other current liabilities of $3,716, an understatement of Deferred tax liability by $174 and an overstatement of accumulated other comprehensive income of $121 as of March 31, 2022. The accumulated other comprehensive income adjustment was a 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 and Restricted cash, non-current by $93 and $199, respectively, and understated Accounts receivable by $292 as of March 31, 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, investing, and financing activities section required the correction of errors and the 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 statement of cash flows for the Successor period from January 27, 2022 to March 31, 2022 was an overstatement of Share-based compensation expense of $87, an overstatement of Write-down of internal-use software development cost of $676, an overstatement of increase in Prepaids and other assets of $6,388, an overstatement of increase in Accounts payable of $79, an overstatement of decrease in Accrued expenses and other liabilities of $103,721, an overstatement of increase in Long-term earn-out liabilities of $5,595, an understatement of increase in Other long term liabilities of $119,806, an understatement of Purchases of property and equipment of $54, an overstatement of Expenditures for internal-use software development costs of $16, an overstatement of Acquisitions of businesses, net of cash acquired of $3,695, an understatement of Payments for financing costs of $422 and an understatement of Distributions to members of $216. The Company also identified
14

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
other immaterial classification errors for the Successor period from January 27, 2022 to March 31, 2022 which have been corrected herein.

r.Not used

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 period from January 27, 2022 to March 31, 2022.

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 corrected the following disclosure 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 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 of 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 from January 27, 2022 to March 31, 2022, Owned and Operated segment revenue was overstated and Partner Network segment revenue was understated by $3,374 and Owned and Operated adjusted gross profit was overstated by $3,374 and Partner Network adjusted gross profit was understated by $437;

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

CouponFollow Incentive Plan disclosure - The Company corrected the disclosure in Note 18 to include disclosure of the 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 March 31, 2022. The footnotes correspond to the error descriptions above:
Successor
March 31, 2022
As Previously ReportedAdjustmentsAs Restated
ASSETS
15

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
Successor
March 31, 2022
As Previously ReportedAdjustmentsAs Restated
Current assets:
Cash and cash equivalents$42,178 $(o)$42,182 
Restricted cash, current4,895 (93)(n)
(1)(o)4,801 
Accounts receivable, net of allowance for doubtful accounts99,976 292 (n)100,268 
Prepaid expenses and other current assets14,468 4,600 (e)
(3,663)(m)
(o)15,409 
Total current assets161,517 1,143 162,660 
Restricted cash, non-current3,034 (199)(n)
(o)2,836 
Property and equipment, net2,855 — 2,855 
Internal-use software development costs, net10,704 (10,470)(a)
1,110 (j)1,344 
Intangible assets, net568,675 18,414 (a)587,089 
Goodwill907,009 (7,188)(a)
(3,339)(b)
(6,122)(e)
(11,248)(g)
(518)(h)
483 (k)
(681)(l)$878,396 
Operating lease right-of-use assets6,388 — 6,388 
Other non-current assets808 27 (e)
(5)(o)830 
Total assets$1,660,990 $(18,592)$1,642,398 
LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ DEFICIT
Current liabilities:
Accounts payable$76,004 $— $76,004 
Accrued expenses and other current liabilities67,635 (3,339)(b)
1,413 (e)
(2,081)(g)
299 (k)
(478)(l)
(3,716)(m)
(o)59,735 
Deferred revenue64,810 — 64,810 
Operating lease liabilities, current1,895 — 1,895 
Due to related party80 — 80 
Notes payable, current14,822 — 14,822 
Total current liabilities225,246 (7,900)217,346 
Operating lease liabilities, non-current5,645 — 5,645 
Notes payable, non-current409,777 — 409,777 
Warrant liability40,773 — 40,773 
Deferred tax liability144,027 (2,907)(e)
(2,380)(m)
(2)(o)138,738 
Other liabilities5,804 (209)(l)5,595 
Total liabilities831,272 (13,398)817,874 
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY / MEMBERS’ DEFICIT
16

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
Successor
March 31, 2022
As Previously ReportedAdjustmentsAs Restated
Class A common stock - $0.0001 par value; 500,000 shares authorized, 86,597 Class A shares issued and outstanding as of March 31, 2022
$$— $
Class C common stock - $0.0001 par value; 25,000 shares authorized, 22,077 Class C shares issued and outstanding as of March 31, 2022
— 
Additional paid-in capital728,540 31,167 (c)
25,336 (d)
(11,360)(g)
(518)(h)
4,157 (m)
(o)777,325 
Accumulated deficit(89,175)756 (a)
(31,167)(c)
(25,336)(d)
2,195 (g)
(836)(i)
1,110 (j)
184 (k)
(l)
(1,603)(m)(143,866)
Accumulated other comprehensive (loss) income(28)(1)(e)
(2)(g)
255 (i)
(121)(m)103 
Total stockholders’ equity/members’ deficit attributable to System1, Inc.639,348 (5,775)633,573 
Non-controlling interest190,370 581 (i)190,951 
Total stockholders’ equity/members’ deficit829,718 (5,194)824,524 
Total liabilities and stockholders’ equity/members’ deficit$1,660,990 $(18,592)$1,642,398 
17

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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:
SuccessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022
As Previously ReportedAdjustmentsAs RestatedAs Previously ReportedAdjustmentsAs Restated
Revenue$166,108 $— $166,108 $52,712 $— $52,712 
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization shown separately below)120,131 261 (k)41,760 (261)(k)
(8)(o)120,384 (o)41,507 
Salaries, commissions, and benefits43,459 5,223 (g)35,175 (3,993)(g)
(483)(j)(1)(o)31,181 
(1)(o)48,198 
Selling, general, and administrative14,981 661 (g)14,817 744 (k)
(445)(k)104 (o)15,665 
(6)(l)
(103)(o)15,088 
Depreciation and amortization23,311 (756)(a)1,000 — 1,000 
(627)(j)21,928 
Total operating costs and expenses201,882 3,716 205,598 92,752 (3,399)89,353 
Operating income (loss)(35,774)(3,716)(39,490)(40,040)3,399 (36,641)
Interest expense4,776 — 4,776 1,049 — 1,049 
Loss on warrant fair value13,761 — 13,761 — — — 
Income (loss) before income tax(54,311)(3,716)(58,027)(41,089)3,399 (37,690)
Income tax (benefit) expense(16,252)1,603 (m)(14,649)(629)— (629)
Net (loss) income$(38,059)$(5,319)$(43,378)$(40,460)$3,399 $(37,061)
Net (loss) attributable to non-controlling interest(8,068)759 (i)(7,309)— — — 
Net (loss) income attributable to System1, Inc.$(29,991)$(6,078)$(36,069)$(40,460)$3,399 $(37,061)
Basic and diluted net loss per share$(0.36)$(0.07)$(0.44)$(1.97)$0.17 $(1.81)
Weighted average units outstanding - basic and diluted82,210 498 (s)82,708 20,488 — 20,488 



18

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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:
SuccessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022
As Previously ReportedAdjustmentsAs RestatedAs Previously ReportedAdjustmentsAs Restated
Net (loss) income$(38,059)$(5,319)(a)(g)(j)(k)(l)(m)(o)$(43,378)$(40,460)$3,399 (g)(k)(o)$(37,061)
Other comprehensive (loss) income
Foreign currency translation income(34)137 (m)(p)103 87 — 87 
Comprehensive (loss) income$(38,093)$(5,182)$(43,275)$(40,373)$3,399 $(36,974)
Comprehensive (loss) attributable to non-controlling interest(8,074)841 (i)(p)(7,233)— — — 
Comprehensive (loss) income attributable to System1, Inc.$(30,019)$(6,023)$(36,042)$(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 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 March 31, 2022
BALANCE—January 26, 202252,680 $— $— — $— $525,579 $(59,184)$— $— $466,400 
Effect of the Merger29,017 22,077 2,900 — 157,046 — — 198,691 355,742 
BALANCE—January 27, 202281,697 22,077 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 Merger, net of offering costs, underwriting discounts and commissions— — — — — — — — — — — 
Issuance of common stock in connection with the acquisition of business2,000 — — — — — 25,500 — — — 25,500 
Issuance of market-based restricted stock units upon vesting— — — — — — — — — — — 
Conversion of Class D shares to Class A shares2,900 — — (2,900)— — — — — 
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, 202286,597 $22,077 $— $— $728,540 $(89,175)$(28)$190,370 $829,718 
19

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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 March 31, 2022
BALANCE—January 26, 2022(930)$— — $— — $— $48,424 $(48,613)$— $— $(189)(c) (d) (g)
Effect of the Merger— — — — (1,450)— (8,687)— — — (8,687)(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 the Merger, net of offering costs, underwriting discounts and commissions930 — — — — — 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  (e)
Other comprehensive income— — — — — — — — 131 (178)(47) (p)
Share-based compensation— — — — — — 4,231 — — — 4,231  (g)
BALANCE—March 31, 2022— $— — $— — $— $48,785 $(54,691)$131 $581 $(5,194)
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 March 31, 2022
BALANCE—January 26, 202251,750 $— $— — $— $574,003 $(107,797)$— $— $466,211 
Effect of the Merger29,017 22,077 1,450 — 148,359 — — 198,691 347,055 
BALANCE—January 27, 202280,767 22,077 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 the Merger, net of offering costs, underwriting discounts and commissions930 — — — — — 661 — — — 661 
Issuance of common stock in connection with the acquisition of business2,000 — — — — — 25,500 — — — 25,500 
Issuance of market-based restricted stock units upon vesting— — — — 1,450 — — — — — — 
Conversion of Class D shares to Class A shares2,900 — — (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— — — — — — — — 103 (184)(81)
Share-based compensation— — — — — — 31,398 — — — 31,398 
Distribution to members— — — — — — — — — (247)(247)
BALANCE—March 31, 202286,597 $22,077 $— $— $777,325 $(143,866)$103 $190,951 $824,524 
20

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)

21

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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 statement of changes in members' deficit. The footnotes correspond to the error descriptions above:
Members’ DeficitAccumulated Other Comprehensive Income (Loss)Total Members’ Deficit
Predecessor:
For the period January 1, 2022 to January 26, 2022As Previously ReportedAdjustmentsAs RestatedAs Restated
BALANCE—January 1, 2022$(28,829)$— $(28,829)$428 $(28,401)
Net loss(40,460)$3,399 (g)(k)(o)(37,061)— (37,061)
Accumulated other comprehensive income— — — 87 87 
Share-based compensation expense27,698 (3,993)(g)23,705 — 23,705 
BALANCE—January 26, 2022$(41,591)$(594)$(42,185)$515 $(41,670)


22

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share 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 cash flows. The footnotes correspond to the error descriptions above:
23

System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except for per unit and per share amounts)
SuccessorPredecessor
Period from January 27, 2022 through March 31, 2022Period from January 1, 2022 through January 26, 2022
As Previously ReportedAdjustmentsAs RestatedAs Previously ReportedAdjustmentsAs Restated
Cash flows from Operating Activities:
Net income (loss)$(38,059)$(5,319)(a)(g)(j)(k)(l)(m)(o)$(43,378)$(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 amortization23,311 (1,383)(a)(j)21,928 1,000 — 1,000 
Share-based compensation27,167 5,135 (g)(o)(q)32,302 27,698 (3,993)(g)23,705 
Amortization of debt issuance costs911 — 911 — — — 
Noncash lease expense283 — 283 115 — 115 
Write-down of internal use software development costs676 (676)(q)— — — — 
Change in fair value of contingent consideration and CEO equity profit interest(1)(q)— (9)— (9)
Change in fair value of warrants13,761 — 13,761 — — — 
Deferred tax benefits(17,141)1,601 (m)(q)(15,540)(816)— (816)
Other— 661 (g)661 — — — 
Changes in operating assets and liabilities
Accounts receivable(14,522)(294)(n)(q)(14,816)11,118 — 11,118 
Prepaids and other assets(9,920)6,225 (k)(o)(q)(3,695)905 164 (k)1,069 
Accounts payable66,170 (79)(q)66,091 (67,600)— (67,600)
Accrued expenses and other liabilities(171,340)103,703 (k)(o)(q)(67,637)57,170 318 (k)(o)57,488 
Deferred revenue3,654 — 3,654 311 — 311 
Long term earn-out liabilities— 5,595 (q)5,595 — — — 
Other long-term liabilities88,832 (119,812)(l)(q)(30,980)78 (1)(o)77 
Net cash used in operating activities(26,216)(4,644)(30,860)(10,490)(113)(10,603)
Cash flows from Investing Activities:
Purchases of property and equipment(1,373)(54)(q)(1,427)— — — 
Expenditures for internal-use software development costs(922)(467)(j)(q)(1,389)(441)— (441)