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8-K

System1, Inc. (SST)

8-K 2022-05-19 For: 2022-05-18
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 18, 2022

System1, Inc.

(Exact name of registrant as specified in its charter)

Delaware 001-39331 98-1531250
(State or other jurisdiction<br>of incorporation) (Commission<br>File Number) (I.R.S. Employer<br>Identification No.)
4235 Redwood Avenue<br> <br>Marina Del Rey, California 90066
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(Address of principal executive offices) (Zip Code)

(310) 924-6037

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

Item 7.01 Regulation FD Disclosure.

On May 18, 2022, System1, Inc. (the “Company”) posted supplemental financial information for the first quarter of 2022 on the Company’s website at https://ir.system1.com. A copy of the supplemental financial information is furnished herewith as Exhibit 99.1.

The foregoing supplemental financial information (including the exhibit set forth in Item 9.01 hereto) in this Item 7.01 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit<br>No. Description
99.1 First Quarter 2022 Supplemental Financial Information.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURE

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

System1, Inc.
Date: May 18, 2022 By: /s/ Tridivesh Kidambi
Name: Tridivesh Kidambi
Title: Chief Financial Officer

EX-99.1

Exhibit 99.1

System1, Inc./S1 Holdco LLC

Unaudited Statements ofOperations

(in thousands) System1, Inc.Sucessor Period S1 Holdco LLCPredecessorPeriod S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD
1.27.22 -3.31.22 1.1.22 - 1.26.22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Revenue 166,108 52,712 199,803 171,446 169,579 147,561 135,755 117,268 100,019 122,935 688,389 488,586 317,140 475,977 340,222 222,954
Operating cost and expenses:
Cost of revenues 120,131 41,760 155,276 128,885 126,167 110,785 96,635 83,892 73,937 86,532 521,113 365,837 236,952 340,996 244,361 160,469
Salaries, commissions, and benefits 43,459 35,175 18,715 15,139 17,698 15,195 15,915 13,120 13,183 13,330 66,747 48,032 32,893 55,548 39,633 26,513
Selling, general, and administrative 14,981 14,817 14,650 7,936 6,277 6,950 5,863 7,095 4,879 5,142 35,813 21,163 13,227 22,979 17,116 10,021
Depreciation and amortization 23,311 1,000 3,625 3,459 3,112 3,689 3,082 3,331 3,889 3,530 13,885 10,260 6,801 13,832 10,750 7,419
Total operating costs and expenses 201,882 92,752 192,266 155,419 153,254 136,619 121,495 107,438 95,888 108,534 637,558 445,292 289,873 433,355 311,860 204,422
Operating income (35,774 ) (40,040 ) 7,537 16,027 16,325 10,942 14,260 9,830 4,131 14,401 50,831 43,294 27,267 42,622 28,362 18,532
Loss (gain) on Fait Value of Warrants 13,761 — — — — — — — — — — — — — — —
Interest expense 4,776 1,049 4,162 4,184 4,476 4,048 5,781 5,741 6,332 6,497 16,870 12,708 8,524 24,351 18,570 12,829
Income (loss) from continuing operations before income tax (54,311 ) (41,089 ) 3,375 11,843 11,849 6,894 8,479 4,089 (2,201 ) 7,904 33,961 30,586 18,743 18,271 9,792 5,703
Income tax expense (16,252 ) (629 ) 262 475 77 151 1,527 198 (173 ) 355 965 703 228 1,907 380 182
Net income (loss) from continuing operations (38,059 ) (40,460 ) 3,113 11,368 11,772 6,743 6,952 3,891 (2,028 ) 7,549 32,996 29,883 18,515 16,364 9,412 5,521
Net Income (Loss) Attributable To Noncontrolling Interest (8,068 ) — — — — — — — — — — — — — — —
Gain (loss) from discontinued operations, net of taxes — — — — — — 55,315 99 (4,460 ) (3,557 ) — — — 47,397 (7,918 ) (8,017 )
Net income (29,991 ) (40,460 ) 3,113 11,368 11,772 6,743 62,267 3,990 (6,488 ) 3,992 32,996 29,883 18,515 63,761 1,494 (2,496 )

System1, Inc./S1 Holdco LLC

Unaudited Condensed Balance Sheet

(in thousands) System1, Inc. S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC S1 Holdco LLC
31-Mar-22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20
ASSETS
Current Assets:
Cash and cash equivalents $ 42,178 $ 47,896 $ 36,209 $ 34,567 $ 30,853 $ 29,013 $ 37,657 $ 33,985 $ 55,763
Accounts receivable, net of allowance for doubtful accounts 99,976 90,203 85,588 79,446 75,610 71,140 58,404 53,662 66,331
Restricted cash 4,895 — — — — — — — —
Prepaid expenses and other current assets 14,468 7,689 7,236 4,870 3,996 3,016 4,012 4,825 5,739
Assets of discontinued operations — — — — — — 20,602 13,936 13,229
Total current assets 161,517 145,788 129,033 118,883 110,459 103,169 120,675 106,408 141,062
Restricted Cash $ 3,034 $ 743 $ — $ — $ — $ — $ — $ — $ —
Property and equipment, net 2,855 830 836 916 976 1,057 1,137 1,139 1,243
Internal-use software development costs, net 10,704 11,213 11,012 10,578 9,764 9,660 10,079 9,414 9,045
Intangible assets, net 568,675 50,368 52,534 54,698 56,740 59,009 60,829 52,638 54,764
Goodwill 907,009 44,820 44,820 44,820 44,820 44,820 44,820 54,566 54,898
Due from related party — 2,469 2,469 2,453 1,222 969 969 — —
Operating lease<br>right-of-use assets 6,388
Other assets 808 680 529 — — — — — —
Assets of discontinued operations — — — — — — 67,714 69,138 70,101
Total Assets $ 1,660,990 $ 256,911 $ 241,233 $ 232,348 $ 223,981 $ 218,684 $ 306,223 $ 293,304 $ 331,114
LIABILITIES AND MEMBERS’ DEFICIT
Current Liabilities:
Accounts payable $ 76,004 $ 72,846 $ 64,625 $ 60,659 $ 57,410 $ 52,104 $ 40,690 $ 34,058 $ 42,476
Accrued expenses and other current liabilities 67,635 31,284 20,319 18,814 9,988 17,150 15,987 14,312 17,806
Deferred Revenue 64,810 1,971 2,100 2,383 2,053 1,889 2,727 2,453 2,242
Operating lease liabilities, current 1,895 — — — — — — — —
Due to related party 80 — — — — — — — —
Notes payable, current 14,822 170,453 171,780 4,739 9,374 9,374 19,347 24,347 44,237
Liabilities of discontinued operations — — — — — — 62,523 56,303 47,141
Total current liabilities 225,246 276,554 258,824 86,595 78,825 80,517 141,274 131,473 153,902
Operating lease liabilities, non current $ 5,645 $ — $ — $ — $ — $ — $ — $ — $ —
Notes payable, non-current 409,777 — — 168,226 169,411 170,595 226,417 228,469 229,432
Warrant liability 40,773 — — — — — — — —
Deferred tax liability 144,027 — — — — — — — —
Other long-term liabilities 5,804 8,758 9,368 9,051 16,497 15,801 12,935 11,821 13,208
Liabilities of discontinued operations — — — — — — — — —
Total liabilities $ 831,272 $ 285,312 $ 268,192 $ 263,872 $ 264,733 $ 266,913 $ 380,626 $ 371,763 $ 396,543
Commitments and contingencies (Note 8)
Members’ deficit:
Class A common stock $ 9 $ — $ — $ — $ — $ — $ — $ — $ —
Class C common stock 2 — — — — — — — —
Additional paid-in capital 728,540 — — — — — — — —
Accumulated deficit (89,175 ) — — — — — — — —
Members’ deficit in S1 Holdco — (28,829 ) (27,182 ) (31,646 ) (40,850 ) (47,886 ) (74,078 ) (78,017 ) (64,753 )
Noncontrolling interest 190,370 — — — — — — — —
Accumulated other comprehensive income (28 ) 428 223 122 98 (343 ) (325 ) (443 ) (675 )
Total members’ deficit 829,718 (28,401 ) (26,959 ) (31,524 ) (40,752 ) (48,229 ) (74,403 ) (78,460 ) (65,428 )
Total Liabilities And Members’ Deficit $ 1,660,990 $ 256,911 $ 241,233 $ 232,348 $ 223,981 $ 218,684 $ 306,223 $ 293,303 $ 331,115

System1, Inc./S1 Holdco LLC

Unaudited Condensed Statements of Cash Flow(in thousands) System1, Inc.Sucessor Period S1 Holdco<br>LLCPredecessor Period S1 Holdco<br>LLCQTD S1 Holdco<br>LLCQTD S1 HoldcoLLCQTD S1 HoldcoLLC<br>QTD S1 Holdco<br>LLCQTD S1 Holdco<br>LLCQTD S1 Holdco<br>LLCQTD S1 Holdco<br>LLC<br>QTD S1 Holdco<br>LLCYTD S1 Holdco<br>LLCYTD S1 Holdco<br>LLCYTD S1 Holdco<br>LLCYTD S1 Holdco<br>LLCYTD S1 Holdco<br>LLCYTD
1.27.22 - 3.31.22 1.1.22 - 1.26.22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Cash Flows From Operating Activities:
Net cash provided by operating activities of continuing operations (28,918 ) (10,490 ) 21,336 12,056 17,185 10,128 15,714 12,971 9,122 14,600 60,705 39,369 27,313 52,407 36,693 23,722
Net cash used for operating activities of discontinued operations — — — — — — (1,917 ) 1,979 (390 ) (5,532 ) — — — (5,860 ) (3,943 ) (5,922 )
Net cash provided by operating activities (28,918 ) (10,490 ) 21,336 12,056 17,185 10,128 13,797 14,950 8,732 9,068 60,705 39,369 27,313 46,547 32,750 17,800
Cash Flows From Investing Activities:
Purchases of property and equipment (1,373 ) — (49 ) — — — (11 ) (8 ) — — (49 ) — — (19 ) (8 ) —
Proceeds from sale of Protected — — — — — — 74,544 — — — — — — 74,544 —
Purchase of business, net of cash acquired (423,853 ) — — — — — — — — —
Expenditures for internal-use software development<br>costs (922 ) (441 ) (1,585 ) (1,668 ) (1,793 ) (1,440 ) (617 ) (1,632 ) (1,970 ) (1,893 ) (6,486 ) (4,901 ) (3,233 ) (6,112 ) (5,495 ) (3,863 )
Net cash provided by (used in) investing activities of continuing operations (426,148 ) (441 ) (1,634 ) (1,668 ) (1,793 ) (1,440 ) 73,916 (1,640 ) (1,970 ) (1,893 ) (6,535 ) (4,901 ) (3,233 ) 68,413 (5,503 ) (3,863 )
Net cash provided by (used in) investing activities of discontinued operations — — — — — — (142 ) (79 ) 144 (170 ) — — — (247 ) (105 ) (26 )
Net cash provided by (used in) investing activities (426,148 ) (441 ) (1,634 ) (1,668 ) (1,793 ) (1,440 ) 73,774 (1,719 ) (1,826 ) (2,063 ) (6,535 ) (4,901 ) (3,233 ) 68,166 (5,608 ) (3,889 )
Cash Flows From Financing Activities:
Proceeds from term loan and line of credit 449,000 — — — — — — — — 20,000 — — — 20,000 20,000 20,000
Repayment of line of credit — — — — (34,862 ) — — — — (34,862 ) —
Repayment of term loan (172,488 ) — (1,750 ) (1,750 ) (6,386 ) (1,750 ) (32,231 ) (7,715 ) (21,727 ) (1,750 ) (11,636 ) (9,886 ) (8,136 ) (63,423 ) (31,192 ) (23,477 )
Payments for deferred financing cost (24,423 ) — (382 ) — — — — — — — (382 ) — — — — —
Cash received from backstop 246,484 — — — — — — — — —
Member capital contributions — — (32 ) 109 3 147 206 551 747 751 227 259 150 2,255 2,049 1,498
Payments on contingent consideration — — — — (1,715 ) (5,000 ) — — (5,038 ) (462 ) (6,715 ) (6,715 ) (6,715 ) (5,500 ) (5,500 ) (5,500 )
Related party loan — — — — (1,500 ) — — — — — (1,500 ) (1,500 ) (1,500 ) — — —
Redemptions of Class A common stock (510,469 ) — — — — — — — — —
Distributions to members from sale of Protected — — — — (28,765 ) — — — — (28,765 ) —
Distributions to members (247 ) — (4,786 ) (7,102 ) (2,691 ) — (12,575 ) (1,146 ) (3,558 ) (501 ) (14,579 ) (9,793 ) (2,691 ) (17,780 ) (5,205 ) (4,059 )
Net cash provided by financing activities (12,143 ) — (6,950 ) (8,743 ) (12,289 ) (6,603 ) (108,227 ) (8,310 ) (29,576 ) 18,038 (34,585 ) (27,635 ) (18,892 ) (128,075 ) (19,848 ) (11,538 )
Effect of exchange rate changes in cash, cash equivalents and restricted cash (237 ) (132 ) (322 ) (3 ) 611 (245 ) 120 35 130 (735 ) 41 363 366 (450 ) (570 ) (605 )
Net Increase In Cash (467,446 ) (11,063 ) 12,430 1,642 3,714 1,840 (20,536 ) 4,956 (22,540 ) 24,308 19,626 7,196 5,554 (13,812 ) 6,724 1,768
Cash and restricted cash:
Beginning of period 517,553 48,639 36,209 34,567 30,853 29,013 49,549 44,593 67,133 42,825 29,013 29,013 29,013 42,825 42,825 42,825
End of period $ 50,107 $ 37,576 $ 48,639 $ 36,209 $ 34,567 $ 30,853 $ 29,013 $ 49,549 $ 44,593 $ 67,133 $ 48,639 $ 36,209 $ 34,567 $ 29,013 $ 49,549 $ 44,593

System1, Inc./S1 Holdco LLC

Non-GAAPFinancials<br><br><br>(in thousands) System1, Inc.Sucessor Period S1 Holdco LLCPredecessor<br>Period S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCQTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD S1 Holdco LLCYTD
1.27.22 - 3.31.22 1.1.22 - 1.26.22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Net income (loss) from continuing operations $ (38,059 ) $ (40,460 ) $ 3,113 $ 11,368 **** $ 11,772 $ 6,743 $ 6,952 $ 3,891 $ (2,029 ) $ 7,549 **** $ 32,996 $ 29,883 $ 18,515 $ 16,364 $ 9,412 $ 5,520 ****
Income tax expense -16,252 -629 262 475 77 151 1,527 198 (173 ) 355 965 703 228 1,907 380 183
Interest expense 4,776 1,049 4,162 4,185 4,237 4,048 5,781 5,741 6,332 6,497 16,632 12,470 8,286 24,351 18,570 12,829
Depreciation & amortization 23,311 1,000 3,625 3,458 3,113 3,689 3,082 3,331 3,889 3,530 13,884 10,259 6,801 13,832 10,750 7,419
Other income/expense (1) 1,800 -61 70 (25 ) 256 84 196 294 138 (229 ) 385 315 340 399 202 (91 )
Stock-based compensation and distributions to Members (2) 27,208 27,355 3,458 673 3,342 2,118 3,362 1,817 2,288 2,008 9,591 6,133 5,460 9,474 6,113 4,295
Revaluation of non-cash warrant liability 13,761 0 — — — — — — — — — — — — — —
Terminated product lines (3) 0 0 — — — — — — (2 ) 559 — — — 556 556 556
Costs related to acquisitions/business combinations 6,390 15,676 7,970 2,755 623 1,484 1,033 222 71 1,032 12,833 4,862 2,108 2,358 1,325 1,103
Acquisition earnout 274 9 32 31 32 63 62 2,278 373 — 158 126 95 2,713 2,651 373
Severance costs 206 0 3 118 164 330 121 393 545 21 615 612 494 1,080 960 567
Other costs, including restructuring 26 0 0 8 98 99 101 11 185 98 206 205 197 396 294 283
Adjusted EBITDA $ 23,442 **** $ 3,938 **** $ 22,696 $ 23,046 **** $ 23,715 $ 18,809 $ 22,217 $ 18,177 $ 11,616 **** $ 21,420 **** $ 88,265 $ 65,570 $ 42,524 $ 73,430 $ 51,214 $ 33,036 ****
(1) Non-cash adjustments related to foreign exchange and asset disposals<br>
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(2) Comprised of distributions to equity holders and non-cash stock-based<br>compensation
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(3) In 2020, S1 Holdco terminated its Social Publishing product line, where it created quiz content primarily for<br>the purpose of display advertising monetization. S1 Holdco has excluded revenue and direct costs associated with this product line for all presented periods
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Non-Financial Metrcis

(In thousands except ratios)

QTD QTD QTD QTD QTD QTD QTD QTD QTD YTD YTD YTD YTD YTD YTD
O&O Advertising 31-Mar-22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Revenue $ 180,049 $ 190,035 $ 162,606 $ 160,817 $ 139,426 $ 125,241 $ 108,314 $ 92,067 $ 111,878 $ 652,884 $ 462,848 $ 300,242 $ 437,501 $ 312,259 $ 203,945
Advertising Spend (1) $ 137,948 $ 152,653 $ 126,404 $ 123,244 $ 107,298 $ 93,800 $ 80,217 $ 69,406 $ 84,066 $ 509,599 $ 356,946 $ 230,542 $ 327,489 $ 233,689 $ 153,472
Adjusted Gross Profit $ 42,101 $ 37,383 $ 36,202 $ 37,572 $ 32,128 $ 31,442 $ 28,097 $ 22,661 $ 27,812 $ 143,284 $ 105,902 $ 69,700 $ 110,012 $ 78,570 $ 50,473
O&O Sessions (2) 975,025 999,975 859,392 766,293 741,122 691,279 644,780 670,112 815,554 3,366,783 2,366,807 1,507,415 2,821,726 2,130,446 1,485,666
O&O CPS (3) $ 0.14 $ 0.15 $ 0.15 $ 0.16 $ 0.14 $ 0.14 $ 0.12 $ 0.10 $ 0.10 $ 0.15 $ 0.15 $ 0.15 $ 0.12 $ 0.11 $ 0.10
O&O RPS (4) $ 0.18 $ 0.19 $ 0.19 $ 0.21 $ 0.19 $ 0.18 $ 0.17 $ 0.14 $ 0.14 $ 0.19 $ 0.20 $ 0.20 $ 0.16 $ 0.15 $ 0.14
Spread 31 % 24 % 29 % 30 % 30 % 34 % 35 % 33 % 33 % 28 % 30 % 30 % 34 % 34 % 33 %
Partner Network
Revenue $ 10,897 $ 9,768 $ 8,840 $ 8,763 $ 8,135 $ 10,514 $ 8,955 $ 7,951 $ 11,056 $ 35,505 $ 25,738 $ 16,898 $ 38,477 $ 27,963 $ 19,008
Adjusted Gross Profit $ 10,897 $ 9,768 $ 8,840 $ 8,763 $ 8,135 $ 10,514 $ 8,955 $ 7,951 $ 11,056 $ 35,505 $ 25,738 $ 16,898 $ 38,477 $ 27,963 $ 19,008
Network Sessions (5) 295,052 286,291 278,460 312,406 326,127 318,930 323,878 484,653 392,906 $ 1,203,284 916,993 638,533 1,520,367 1,201,437 877,559
Network RPS (6) $ 0.04 $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.02
O&O Advertising, Excluding Terminated Product Lines
Revenue $ 180,049 $ 190,035 $ 162,606 $ 160,817 $ 139,426 $ 125,241 $ 108,314 $ 91,712 $ 106,587 $ 652,884 $ 462,848 $ 300,242 $ 431,855 $ 306,613 $ 198,299
Advertising Spend $ 138,052 $ 152,653 $ 126,404 $ 123,244 $ 107,298 $ 93,800 $ 80,217 $ 69,053 $ 79,165 $ 509,599 $ 356,946 $ 230,542 $ 322,235 $ 228,436 $ 148,218
Adjusted Gross Profit $ 41,996 $ 37,383 $ 36,202 $ 37,572 $ 32,128 $ 31,442 $ 28,097 $ 22,659 $ 27,422 $ 143,284 $ 105,902 $ 69,700 $ 109,619 $ 78,178 $ 50,081
O&O Sessions (2) 975,025 999,975 859,392 766,293 741,122 691,279 644,780 663,135 737,243 3,366,783 2,366,807 1,507,415 2,736,438 2,045,159 1,400,378
O&O CPS (3) $ 0.14 $ 0.15 $ 0.15 $ 0.16 $ 0.14 $ 0.14 $ 0.12 $ 0.10 $ 0.11 $ 0.15 $ 0.15 $ 0.15 $ 0.12 $ 0.11 $ 0.11
O&O RPS (4) $ 0.18 $ 0.19 $ 0.19 $ 0.21 $ 0.19 $ 0.18 $ 0.17 $ 0.14 $ 0.14 $ 0.19 $ 0.20 $ 0.20 $ 0.16 $ 0.15 $ 0.14
Spread 30 % 24 % 29 % 30 % 30 % 34 % 35 % 33 % 35 % 28 % 30 % 30 % 34 % 34 % 34 %
(1) Advertising spend is the amount of advertising that is spent to acquire traffic to Owned & Operated<br>websites
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(2) O&O sessions are the total number of monetizable user visits to Owned & Operated websites<br>
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(3) CPS is advertising spend divided by O&O Sessions
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(4) RPS is O&O Revenue divided by O&O Sessions
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(5) Network sessions are the number of monetizable user visits delivered by network partners to RAMP<br>
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(6) RPS is Partner Network revenue divided by Network Sessions
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Non-Financial Metrcis

(In thousands except ratios)

QTD QTD QTD QTD QTD QTD QTD QTD QTD YTD YTD YTD YTD YTD YTD
31-Mar-22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Billings (1) $ 45,405 $ 38,443 $ 37,632 $ 40,473 $ 37,992 $ 31,126 $ 27,758 $ 26,458 $ 22,529 $ 154,541 $ 116,097 $ 78,465 $ 107,871 $ 76,745 $ 48,987
Change in Deferred Revenue During Period $ 5,512 $ (671) $ (567) $ 4,445 $ 6,792 $ 6,287 $ 2,591 $ 4,796 $ 4,409 $ 9,999 $ 10,671 $ 11,238 $ 18,084 $ 11,796 $ 9,205
Advertising Spend (2) $ 22,296 $ 17,986 $ 16,966 $ 17,884 $ 23,626 $ 17,562 $ 18,059 $ 22,467 $ 18,575 $ 76,462 $ 58,477 $ 41,510 $ 76,664 $ 59,101 $ 41,042
Beginning Subscribers 2,208 2,208 2,187 2,128 1,905 1,770 1,586 1,357 1,234 1,905 1,905 1,905 1,234 1,234 1,234
Ending Subscribers (3) 2,284 2,208 2,208 2,187 2,128 1,905 1,770 1,586 1,357 2,208 2,208 2,187 1,905 1,770 1,586
New Subscribers (4) 388 312 298 331 462 324 341 398 275 1,403 1,091 793 1,338 1,014 673
CTA (5) $ 57.49 $ 57.73 $ 56.91 $ 54.10 $ 51.10 $ 54.23 $ 52.95 $ 56.42 $ 67.53 $ 54.51 $ 53.60 $ 52.35 $ 57.29 $ 58.27 $ 60.96
ARPU (6) $ 20.22 $ 17.41 $ 17.13 $ 18.76 $ 18.84 $ 16.94 $ 16.54 $ 17.98 $ 17.39 $ 75.15 $ 56.45 $ 38.35 $ 68.72 $ 51.09 $ 34.74
(1) Billings is the total amount billed to customers during a period
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(2) Advertising spend is the total amount spent on advertising to acquire new subscribers during a period<br>
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(3) Ending subscribers are the number of paying subscribers for its products, at the end of a period<br>
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(4) New subscribers are the number of new subscribers acquired for its products, during a period<br>
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(5) CTA is advertising spend divided by new subscribers in a period
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(6) ARPU is the billings in a period divided by average of the beginning and ending subscribers during that period<br>
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* Deferred revenue from billings is amortized on a straight line basis over the subscription period and<br>recognized as revenue in the financial statements
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** Excludes metrics for terminated product lines
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Protected.net Group Limited

Unaudited Statements of Operations

(in thousands) Predecessor Period QTD QTD QTD QTD QTD QTD QTD QTD YTD YTD YTD YTD YTD YTD
1.1.22 - 1.26.22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Revenue 12,016 39,115 38,199 36,028 31,199 25,149 25,415 21,965 18,379 144,541 105,426 67,227 90,908 65,759 40,345
Cost of Revenue 8,434 23,186 22,570 23,460 29,731 23,122 23,827 27,892 23,139 98,946 75,760 53,191 97,980 74,858 51,030
Gross profit (Loss) 3,582 15,929 15,629 12,568 1,469 2,027 1,587 (5,926 ) (4,759 ) 45,595 29,666 14,037 (7,072 ) (9,099 ) (10,686 )
General and administrative 1,431 4,231 3,910 5,074 2,697 2,365 1,730 1,978 637 15,912 11,681 7,771 6,711 4,346 2,616
Related party rent expense 62 208 133 180 144 111 159 116 150 665 457 324 536 425 266
Total Operating Expenses 1,493 4,440 4,042 5,254 2,841 2,476 1,889 2,094 788 16,577 12,138 8,095 7,247 4,771 2,882
Gain on sale of intangible assets — — — — — — (1,580 ) — — — — — (1,580 ) (1,580 ) —
Foreign currency transaction (gains)/losses 97 225 583 209 322 (170 ) 37 60 207 1,341 1,115 532 135 304 267
Other operating income — — (0 ) (222 ) (121 ) (18 ) (3 ) (27 ) (0 ) (343 ) (343 ) (343 ) (48 ) (30 ) (27 )
Other operating expense (income) 97 225 583 (13 ) 201 (188 ) (1,546 ) 33 207 997 772 189 (1,494 ) (1,306 ) 240
Operating income (loss) 1,992 11,264 11,004 7,326 (1,574 ) (262 ) 1,244 (8,054 ) (5,754 ) 28,020 16,757 5,753 (12,826 ) (12,564 ) (13,808 )
Related party interest expense — — — — — 105 136 130 35 — — — 406 301 165
Related party interest income (83 ) (303 ) (153 ) (328 ) (157 ) — — — — (941 ) (638 ) (485 ) — — —
Interest expense 230 53 144 235 151 29 — — — 583 530 386 29 — —
Other non-operating expenses/(income) — — — (70 ) 70 (2 ) — — — — — — (2 ) — —
Total non-operating expenses/(income), net 147 (250 ) (9 ) (163 ) 64 132 136 130 35 (358 ) (108 ) (99 ) 433 301 165
Net income (loss) before income taxes 1,844 11,514 11,013 7,489 (1,638 ) (394 ) 1,108 (8,184 ) (5,789 ) 28,378 16,865 5,852 (13,258 ) (12,865 ) (13,973 )
Income Tax Expense (Benefit) (1,688 ) (16,139 ) 966 — — — — — — (15,173 ) 966 — — — —
Net income (loss) 3,532 27,653 10,047 7,489 (1,638 ) (394 ) 1,108 (8,184 ) (5,789 ) 43,551 15,899 5,852 (13,258 ) (12,865 ) (13,973 )

Protected.net Group Limited

Unaudited Condensed Balance Sheet

(in thousands)

31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20
ASSETS
Current assets:
Cash $ 35,067 $ 21,112 $ 14,227 $ 11,296 $ 6,253 $ 7,060 $ 5,356 $ 7,020
Restricted cash 1,333 2,148 2,458 5,757 5,604 4,943 4,874 7,321
Prepaid expenses and other current assets 546 548 691 791 359 317 404 327
Deposits 15 3,000 3,000 3,000 3,000 3,000 3,000 —
Total current assets 36,963 26,807 20,376 20,844 15,216 15,320 13,634 14,667
Due from related parties 33,082 33,115 26,249 15,719 10,230 — 244 139
Property, plant and equipment 616 398 373 370 270 195 184 196
Intangible Assets 369 386 415 62 53 54 90 108
Deferred tax assets 17,237 — — — — — — —
Goodwill 284 284 284 — — — — —
Total assets $ 88,550 $ 60,991 $ 47,696 $ 36,995 $ 25,769 $ 15,568 $ 14,153 $ 15,112
Liabilities and Shareholders’ Deficit:
Accounts payable $ 216 $ 3,029 $ 732 $ 2,876 $ 3,005 $ 2,698 $ 3,739 $ 436
Accrued expenses 10,162 7,537 6,199 7,686 6,704 5,896 5,907 8,441
VAT tax liability 11,404 9,696 9,351 6,965 6,366 8,939 8,446 6,211
Deferred revenue 57,405 58,186 58,731 54,139 47,431 41,855 39,044 34,156
Related party deferred revenue 166 187 208 229 168 — — —
Current portion of note payable 2,813 2,250 2,813 2,250 1,500 — — —
Due to related party 23 — — — 4 3,501 5,599 6,243
Refund liability 537 429 449 597 512 558 405 428
Total current liabilities 82,725 81,313 78,482 74,741 65,690 63,447 63,140 55,915
Note payable, net of current portion and deferred financing costs 10,546 11,086 11,636 12,164 8,352 — — —
Deferred tax liability — 966 — — — — — —
Total liabilities $ 93,271 $ 93,365 $ 90,118 $ 86,905 $ 74,042 $ 63,447 $ 63,140 $ 55,915
Commitments and Contingencies
Shareholders’ Deficit:
Class A Preferred shares 11 11 11 11 11 11 11 11
Class B Common shares 11 11 11 11 11 11 11 11
Additional paid-in capital 40,953 40,953 40,953 40,953 40,953 40,953 40,953 40,953
Accumulated deficit (45,696 ) (73,349 ) (83,396 ) (90,885 ) (89,247 ) (88,854 ) (89,962 ) (81,778 )
Total Shareholders’ deficit (4,721 ) (32,374 ) (42,421 ) (49,911 ) (48,273 ) (47,879 ) (48,987 ) (40,803 )
Total Liabilities and Shareholders’ Deficit $ 88,550 $ 60,991 $ 47,696 $ 36,995 $ 25,769 $ 15,568 $ 14,153 $ 15,112
* Class A Preferred shares, par value £0.0001 per share, 7,992,009 shares authorized, issued, and<br>outstanding on September 30, 2021 and December 31, 2020, respectively
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** Class B Common shares, par value £0.0001 per share, 7,960,105 shares authorized, issued, and outstanding<br>on September 30, 2021 and December 31, 2020, respectively
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Protected.net Group Limited

Unaudited Condensed Statements of Cash Flow

(in thousands) QTD QTD QTD QTD QTD QTD QTD QTD YTD YTD YTD YTD YTD YTD
31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Cash Flows From Operating Activities:
Net income (loss) 27,653 10,047 7,489 (1,638 ) (394 ) 1,108 (8,184 ) (5,789 ) 43,551 15,899 5,852 (13,258 ) (12,865 ) (13,973 )
Adjustments to reconcile net loss to net cash used in operating activities: —
Depreciation 49 39 36 28 24 18 17 15 151 102 63 75 51 33
Amortization 24 29 29 12 13 16 18 19 94 70 41 67 54 37
Gain on sale of Network Protected intangible assets — — — — — (1,580 ) — — — — — (1,580 ) (1,580 ) —
Amortization of deferred financing costs 23 13 34 13 2 — — — 82 59 46 2 — —
Interest income on loan with System 1 SS Protect Holdings, Inc. 638 (189 ) (307 ) (143 ) (2 ) — — — — (638 ) (450 ) (2 ) — —
Financing fee income on loan with System 1 SS Protect Holdings, Inc. (21 ) (21 ) (21 ) (14 ) — — — — (77 ) (56 ) (35 ) — — —
Change in operating assets and liabilities: — — — — — — — — — — — — — —
Prepaid expenses and other current assets (98 ) 143 112 (432 ) (43 ) 188 (77 ) (244 ) (275 ) (177 ) (320 ) (177 ) (134 ) (321 )
Deposits 2,985 — — — — — (3,000 ) — 2,985 — — (3,000 ) (3,000 ) (3,000 )
Accounts payable (2,813 ) 2,295 (2,471 ) (129 ) 302 (1,041 ) 3,303 (2,620 ) (3,118 ) (305 ) (2,600 ) (56 ) (358 ) 683
Accrued expenses 2,625 1,338 (1,402 ) 982 808 (11 ) (2,534 ) 3,809 3,544 918 (420 ) 2,072 1,264 1,275
VAT tax liability 1,708 345 2,385 599 (2,573 ) 494 2,235 (1,957 ) 5,037 3,329 2,984 (1,801 ) 772 278
Refund liability 108 (20 ) (148 ) 85 (46 ) 152 (22 ) 11 25 (83 ) (63 ) 95 141 (11 )
Deferred revenue (780 ) (545 ) 4,593 6,708 5,576 2,811 4,888 4,453 9,974 10,755 11,300 17,727 12,152 9,340
Deferred tax assets (17,237 ) — — — — — — — (17,237 ) — — — — —
Related party deferred revenue (21 ) (21 ) (21 ) 61 168 — — — (2 ) 19 40 168 — —
Deferred tax liability (966 ) 966 — — — — — — — 966 — — — —
Due from related party (921 ) 109 29 (83 ) (168 ) 244 (104 ) (137 ) (866 ) 55 (54 ) (165 ) 3 (241 )
Due to related party 23 — — (4 ) 1,266 (861 ) (644 ) (11 ) 18 (4 ) (4 ) (250 ) (1,516 ) (655 )
Net cash generated by (used in) operating activities 12,978 14,529 10,337 6,043 4,933 1,539 (4,105 ) (2,451 ) 43,887 30,909 16,380 (84 ) (5,017 ) (6,556 )
Cash Flows From Investing Activities:
Purchases of intangibles, property, plant and equipment (274 ) (63 ) (40 ) (147 ) 106 (29 ) (5 ) (72 ) (524 ) (250 ) (187 ) — (106 ) (77 )
Proceeds from sale of intangibles 100 — — — 1,500 — — 100 — — 1,500 1,500 —
Cash received in acquisition of Host Plus Limited, net of cash paid — — 13 — — — — — 13 13 13 — — —
Loan advanced to Just Develop It (16,223 ) (4,981 ) (8,430 ) — — — — — (29,635 ) (13,411 ) (8,430 ) — — —
Repayment of loan by Just Develop It 16,223 4,981 8,430 — (213 ) — — — 29,635 13,411 8,430 (213 ) — —
Loan advanced to Company director (228 ) (1,706 ) (282 ) — 238 (238 ) — — (2,216 ) (1,988 ) (282 ) — (238 ) —
Repayment of loan by Company director 566 1,651 — — — — — — 2,216 1,651 — — — —
Loan advanced to System 1 SS Protect Holdings, Inc. — (6,711 ) (9,948 ) (5,250 ) (10,060 ) — — — (21,909 ) (21,909 ) (15,197 ) (10,060 ) — —
Net cash used by investing activities 164 (6,829 ) (10,257 ) (5,397 ) (9,929 ) 1,234 (5 ) (72 ) (22,319 ) (22,483 ) (15,653 ) (8,773 ) 1,157 (77 )
Cash Flows From Financing Activities:
Proceeds from bank loan — — — 5,000 10,000 — — — 5,000 5,000 5,000 10,000 — —
Repayment of principal on bank loan — (1,125 ) — (375 ) — — — — (1,500 ) (1,500 ) (375 ) — — —
Proceeds from related party loans — — — — 2,000 — — 9,000 — — — 11,000 9,000 9,000
Repayment of related party loans — — — — (11,000 ) 3,000 — (3,000 ) — — — (11,000 ) — (3,000 )
Repayment of loan to Just Develop It — — (449 ) — 4,000 (4,000 ) — — (449 ) (449 ) (449 ) — (4,000 ) —
Payment of deferred financing costs — — — (75 ) (150 ) — — — (75 ) (75 ) (75 ) (150 ) — —
Net cash (used in) provided by financing activities — (1,125 ) (449 ) 4,550 4,850 (1,000 ) — 6,000 2,976 2,976 4,101 9,850 5,000 6,000
Effect of exchange rate changes on cash — — — — — — — — — — — — — —
Net change in cash 13,142 6,574 (368 ) 5,197 (147 ) 1,773 (4,110 ) 3,477 24,544 11,403 4,828 993 1,140 (633 )
Cash, beginning of period 23,259 16,685 17,053 11,856 12,003 10,230 14,341 10,863 11,856 11,856 11,856 10,863 10,863 10,863
Cash, end of period $ 36,401 $ 23,259 $ 16,685 $ 17,053 $ 11,856 $ 12,003 $ 10,230 $ 14,341 $ 36,401 $ 23,259 $ 16,685 $ 11,856 $ 12,003 $ 10,230

Protected.net Group Limited

Non-GAAP Financials

(in thousands) Predecessor Period QTD QTD QTD QTD QTD QTD QTD QTD YTD YTD YTD YTD YTD YTD
1.1.22 - 1.26.22 31-Dec-21 30-Sep-21 30-Jun-21 31-Mar-21 31-Dec-20 30-Sep-20 30-Jun-20 31-Mar-20 31-Dec-21 30-Sep-21 30-Jun-21 31-Dec-20 30-Sep-20 30-Jun-20
Net income (loss) $ 3,532 $ 27,653 $ 10,047 $ 7,489 $ (1,638 ) $ (394 ) $ 1,108 $ (8,184 ) $ (5,789 ) $ 43,551 $ 15,899 $ 5,852 $ (13,258 ) $ (12,865 ) $ (13,973 )
Income Tax Expense (1,688 ) (16,139 ) 966 — — — — — — (15,173 ) 966 — — — —
Interest expense, net 147 (56 ) (131 ) (165 ) (6 ) 93 131 176 35 (358 ) (302 ) (171 ) 435 342 211
Depreciation & amortisation 19 73 69 65 39 37 35 35 34 245 172 104 141 105 70
Terminated product lines (1) 0 (13 ) 29 3 62 (336 ) (1,691 ) 86 163 81 94 64 (1,777 ) (1,441 ) 250
Costs related to acquisitions/business combinations 104 699 196 499 297 32 — — — 1,690 991 795 32 — —
Non-cash foreign exchange adjustments 97 228 581 209 322 (194 ) 46 68 190 1,341 1,112 532 110 304 258
VAT accrual for previously uncollected VAT 368 956 1,110 1,492 1,116 615 866 1,408 46 4,675 3,718 2,608 2,934 2,319 1,453
Director salary payments — 922 936 949 — — — — — 2,806 1,885 949 — — —
Other costs including restructuring — — — — — 424 34 — — — — — 458 34 —
Adjusted EBITDA $ 2,581 **** $ 14,323 **** $ 13,803 **** $ 10,540 **** $ 193 **** $ 277 **** $ 529 **** $ (6,411 ) $ (5,320 ) $ 38,859 **** $ 24,536 **** $ 10,733 **** $ (10,925 ) $ (11,202 ) $ (11,731 )
(1) Protected terminated its Network Protect VPN product. Protected has excluded revenue, direct costs and<br>operating expenses associated with this product line from Adjusted EBITDA for all presented periods
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