System1 Inc

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management’s estimates are based on historical information available as of the date of the condensed consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, acquired intangible assets, assets held for sale and long-lived assets, valuation and recognition of stock-based compensation awards, income taxes, contingent consideration and determination of the fair value of the warrant liabilities. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Risks

We are subject to certain business and operational risks, including competition from alternative technologies, as well as dependence on key Advertising Partners, key employees, key contracts, and growth to achieve our business and operational objectives.

As of June 30, 2024, we hadtwo paid search advertising partnership agreements with Google andone paid search advertising partnership agreement with Microsoft. One of the Google agreements expires on February 28, 2025. Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately or with minimal notice.

During the three months ended June 30, 2024, werecorded revenue of $6.6 million from an Advertising Partner and a contra revenue liability of $5.9 million dueto certain Network Partners related to traffic sent to our platform by those Network Partners that generated search advertising revenue. We have currently withheld payment to the impacted Network Partners pending a comprehensive ongoing review of whether such traffic generating the search advertising revenue was valid or otherwise complied with the terms of our commercial arrangements with such Network Partners. For any traffic determined to be either invalid or not in compliance with such commercial arrangements, the corresponding amounts may be withheld from our Network Partners as a result of such violations and in that case, would be recognized as revenue in the period in which such final determination is made (currently expected to be in 2024).