KPLT 10-K & 10-Q changes, risk factors and insider trading
Katapult Holdings, Inc. · Nasdaq · Services-Equipment Rental & Leasing, Nec · CIK 1785424 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Risks Related to our Proposed Mergers with CCFI and Aaron’s”
New heading “Risks Related to our Preferred Stock”
New heading “Risks Related to the Loan Agreement and our Indebtedness”
New heading “None of us, CCFI or Aaron’s can be sure if or when the Mergers will be completed.”
New heading “The market price of the Company’s common stock following the Mergers may decline as a result of the Mergers.”
New heading “The parties’ equityholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with or following the Mergers.”
New heading “Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.”
New heading “Each party is subject to business uncertainties and contractual restrictions while the Mergers are pending, which could adversely affect each party’s business and operations.”
New heading “Our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock could further reduce the voting power and dilute the ownership of holders of our common stock and may adversely affect the market price of our common stock.”
New heading “Until the later of the date the Preferred Stock Investment Stockholder Approval is obtained, if at all, and the date of our 2026 Annual Meeting of Stockholders, and if the Hawthorn Preferred Stock Exchange is not consummated the Katapult Convertible Preferred Stock will accrue dividends at an annual rate of at least 18% compounding weekly. Thereafter, the Katapult Convertible Preferred Stock will continue to accrue dividends at an annual rate of 12% compounding quarterly”
New heading “If the Preferred Stock Investment Stockholder Approval is obtained, the Katapult Convertible Preferred Stock would be convertible without regard to the Ownership Limitation and would allow the holder(s) thereof to become the majority owner(s) of the Company.”
New heading “If the Lender’s waiver of our existing event of default expires and is not otherwise extended, or if we trigger another event of default under the Loan Agreement and such event of default is not waived by our Lender, the Loan Agreement would terminate and our obligations under the Loan Agreement would accelerate, which would have a material adverse effect on our business, results of operations and financial position.”
Removed heading “Risks Related to Our Indebtedness”
Removed heading “We may not be able to refinance our indebtedness on favorable terms, or at all. Our inability to refinance our indebtedness would have a material adverse effect on our business, financial condition, results of operations, and prospects.”
Removed heading “A Change of Control as defined by our Credit Agreement could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.”
Removed heading “We previously identified control deficiencies that in the aggregate constituted material weaknesses, for which we implemented certain remediation measures. This remediation is now complete. However, we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, our ability to accurately and timely report our financial results could be adversely affected.”
Removed heading “We face risks related to the restatement of our previously issued consolidated financial statements and financial information as of and for the fiscal year ended December 31, 2022, as well as for the interim financial periods for 2022 and 2023, which may adversely impact our business.”
Removed heading “Delayed filing of our Annual Report on Form 10-K has made us currently ineligible to use certain registration statements to register the offer and sale of securities, which could adversely affect our ability to raise future capital or complete acquisitions.”
Removed heading “We have previously fallen out of compliance with Nasdaq’s requirements for continued listing, and any future failure to comply with Nasdaq’s listing requirements could result in our common stock being delisted from the Nasdaq Global Market, which could have a material adverse effect on us and our stockholders.”
Largest changes
“We have been in the past unable to comply with the financial covenants in the Loan Agreement and the financial covenants and certain reporting covenants in the 2019 Loan Agreement and may in the future be unable to comply with such covenants in the Loan Agreement, and we may from time to time fail to comply with (or breach) other covenants or requirements of the Loan Agreement. …”see in full comparison
“The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. …”see in full comparison
“Federal and state agencies have increased their focus on consumer financial products and services. State law enforcement agencies and regulators appear to have increased their scrutiny of entities operating within the personal property rental-purchase, or “lease-to-own”, industry. For example, in July 2023, the Consumer Financial Protection Bureau filed a case in federal district court in Utah again Snap Finance alleging, in summary, that certain rent-to-own transactions were credit transactions falling under federal law. …”see in full comparison
“We believe that we will not have sufficient cash available to repay our outstanding indebtedness if it were accelerated upon an event of default or at its scheduled maturity in December 2026 absent refinancing or extension. In addition, our credit facility contains financial covenants and future compliance with certain covenants may require additional waivers from the lender. There can be no assurance that we will be able to maintain compliance with these covenants or obtain such waivers. . …”see in full comparison
“If we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could fail to meet our reporting obligations or they could result in material misstatements of our financial statements, and we could also be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. …”see in full comparison
We are required to comply with a variety of reporting, accounting and other rules and regulations. As a public reporting company subject to the rules and regulations established from time to time by the SEC and Nasdaq, we are required to, among other things, establish and periodically evaluate procedures with respect to our disclosure controls and procedures. In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can certify, on an annual basis, that our internal control over financial reporting is effective. As such, we maintain a system of internal control over financial reporting, but there are limitations inherent in internal control systems. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resourcesee in full comparisonconstraintsconstraints, and the benefit of controls must be appropriate relative to their costs. Furthermore, compliance with existing requirements is expensive and we may need to implement additional finance and accounting and other systems, procedures and controls to satisfy our reporting requirements. We have in the past, and may in the future, identify deficiencies in our internal controls that, individually or in the aggregate, constitute material weaknesses. If we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could fail to meet our reporting obligations or they could result in material misstatements of our financial statements, and we could also be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. If our internal control over financial reporting is determined to be ineffective, such failure could cause investors to lose confidence in our reported financial information, negatively affect the market price of our common stock, subject us to regulatory investigations and penalties, and adversely impact our business and financial condition.
Full comparison: every changed paragraph (189)
Risks Related to our Proposed Mergers with CCFI and Aaron’s
•None of us, CCFI or Aaron’s can be sure if or when the Mergers will be completed.
•The market price of the Company’s common stock following the Mergers may decline as a result of the Mergers.
•The parties’ equityholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with or following the Mergers.
•Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
•Each party is subject to business uncertainties and contractual restrictions while the Mergers are pending, which could adversely affect each party’s business and operations.
Risks Related to our Preferred Stock
•Our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock could further reduce the voting power and dilute the ownership of existing holders of our common stock and may adversely affect the market price of our common stock.
•Until the Preferred Stock Investment Stockholder Approval is obtained, if at all, the Katapult Convertible Preferred Stock will accrue dividends at an annual rate of at least 18% compounding weekly.
•If the Preferred Stock Investment Stockholder Approval is obtained, the Katapult Convertible Preferred Stock would be convertible in full and would allow the holders thereof to become the majority owners of the Company.
Risks Related to the Loan Agreement and our Indebtedness
•If we trigger an event of default under the Loan Agreement and such event of default is not waived by our Lender, the Loan Agreement would terminate and our obligations under the Loan Agreement would accelerate, which would have a material adverse effect on our business, results of operations and financial position.
•The Loan Agreement governing the New Revolving Facility includes restrictive covenants and financial maintenance covenants, which could restrict our operations or ability to pursue growth strategies or initiatives including potential mergers and acquisitions opportunities. Failure to comply with these covenants could result in an acceleration of repayment of the indebtedness under the Loan Agreement, which would have a material adverse effect on our business, financial condition and results of operations.
•If we fail to maintain customer satisfaction and trust in our brand,brand our business, results of operations, financial condition and prospects would be materially and adversely affected.
Risks Related to Our Indebtedness
•We may not be able to refinance our indebtedness on favorable terms, or at all. Our inability to refinance our indebtedness would have a material adverse effect on our business, financial condition, results of operations, and prospects.
•The Credit Agreement governing the total aggregate indebtedness under the Term Loan and Credit Facility includes restrictive covenants and financial maintenance covenants, which could restrict our operations or ability to pursue growth strategies or initiatives, including potential mergers and acquisitions opportunities. Failure to comply with these covenants could result in an acceleration of repayment of the indebtedness under the Credit Agreement, which would have a material adverse effect on our business, financial condition and results of operations.
•A Change of Control as defined by our Credit Agreement could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.
•We rely on card issuers and payment processors. If we fail to comply with the applicable requirements of Visa, MastercardMastercard, or other payment processors, those payment processors could seek to fine us, suspend us or terminate our registrations which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
•Our results depend on continued integration and support of our platforms, including our direct and/or waterfall integration technologies,technologies by our merchant partners.
•We rely on KPay enabled merchants to allow access to their stores through our mobileKatapult appApp and our desktop and mobile websites.
•Failure to adequately obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights could harm our business, operating results and financial condition.
•We have previously identified control deficiencies that in the aggregate constituted material weaknesses.
•We face risks related to the restatement of our previously issued consolidated financial statements and financial information as of and for the fiscal year ended December 31, 2022, as well as for the interim financial periods for 2022 and 2023, which may adversely impact our business.
•Delayed filing of our Annual Report on Form 10-K has made us currently ineligible to use certain registration statements to register the offer and sale of securities, which could adversely affect our ability to raise future capital or complete acquisitions.
•We have previously fallen out of compliance with Nasdaq’s requirements for continued listing, and any future failure to comply with Nasdaq’s listing requirements could result in our common stock being delisted from the Nasdaq Global Market, which could have a material adverse effect on us and our stockholders.
•Uncertain market and economic conditions have had, and may in the future have, seriousa material adverse consequenceseffect on our business, financial condition and share price.
Other Risks
Risks Related to Ourour Business,Proposed StrategyMergers with CCFI and GrowthAaron’s
None of us, CCFI or Aaron’s can be sure if or when the Mergers will be completed.
Consummation of the Mergers is contingent upon the satisfaction of a number of conditions, some of which are beyond our, CCFI’s or Aaron’s control including, among others, (a) the expiration or termination of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (b) the absence of any law or governmental order preventing the consummation of the Mergers, corporate reorganization steps contemplated by the Mergers or the Katapult Stock Issuance, (c) the effectiveness of the registration statement pursuant to which the issuance of shares of our common stock to be issued in the Mergers will be registered with the SEC, (d) the shares of our common stock to be issued in the Katapult Stock Issuance having been approved for listing on Nasdaq, subject only to official notice of issuance, (e) receipt of required approvals from the equityholders of each of us, CCFI and Aaron’s, (f) the parties’ representations and warranties being true and correct (subject to certain customary materiality exceptions), (g) compliance by the parties with their respective covenants, (h) the absence of a material adverse effect on any of the parties’ businesses that is continuing and (i) delivery and execution of certain documents by the parties. Under certain circumstances, we would be required to pay CCFI and Aaron’s a termination fee of $1.5 million, of which 85% shall be paid to CCFI and 15% shall be paid to Aaron’s.
Each of us, CCFI and Aaron’s may not be successful in our respective efforts to satisfy the closing conditions. The failure to satisfy all of the required conditions could delay the consummation of the Mergers for a significant period of time or prevent consummation from occurring at all. Any delay in consummating the Mergers could cause us, CCFI and Aaron’s not to realize some or all of the benefits, or realize them on a different timeline than expected, that we, CCFI and Aaron’s, as applicable, expects to achieve if the Mergers are successfully consummated within the expected timeframe. There can be no assurance that the conditions in the Merger Agreement will be satisfied or (to the extent permitted) waived or that the Mergers will be consummated. If the Mergers are not completed, our Board, in discharging its fiduciary obligations to its stockholders, will evaluate other strategic alternatives or financing options that may be available, which alternatives may not be as favorable to our stockholders as the Mergers. Any future sale or merger, financing or other transaction may be subject to further stockholder approval. We may also be unable to find, evaluate or complete other strategic alternatives, which may have a materially adverse effect on our business.
Our, CCFI’s and Aaron’s efforts to complete the Mergers could cause substantial disruptions in, and create uncertainty surrounding, our respective businesses, which may materially adversely affect their respective results of operation and business. Uncertainty as to whether the Mergers will be completed may affect each of the Company’s, CCFI’s and Aaron’s ability to retain and motivate existing employees. A substantial amount of the Company’s, CCFI’s and Aaron’s respective management’s and employees’ attention is being directed toward the completion of the Mergers and thus is being diverted from their respective day-to-day operations. Uncertainty as to the Company’s, CCFI’s and Aaron’s respective futures could adversely affect their business and their relationships with suppliers, vendors, regulators and other business partners. For example, vendors and other counterparties may defer decisions concerning working with us, CCFI or Aaron’s, or seek to change existing business relationships. Changes to, or termination of, existing business relationships could adversely affect the Company’s, CCFI’s or Aaron’s respective results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the Mergers could be exacerbated by any delays in completion of the Mergers or termination of the Merger Agreement.
In addition, each of the Company, CCFI and Aaron’s may terminate the Merger Agreement under certain specified circumstances, including, but not limited to: (a) if the CCFI MIP Exchange, the Aaron’s MIP Exchange, the Hawthorn Preferred Stock Exchange, the Hawthorn Warrant Exercise, the Mergers and the Katapult Stock Issuance are not consummated by September 30, 2026, subject to a 90-day extension if certain closing conditions have not yet been satisfied, (b) if a court of competent jurisdiction or other governmental body has issued a final non-appealable order or other action prohibiting the CCFI MIP Exchange, the Aaron’s MIP Exchange, the Hawthorn Preferred Stock Exchange, the Hawthorn Warrant Exercise, the Mergers and the Katapult Stock Issuance, (c) if a vote on the Katapult Stock Issuance has been held at the Special Meeting and our stockholders have not approved the Katapult Stock Issuance, or (d) if the Company, CCFI, and Aaron’s, as applicable, materially breaches any of its representations, warranties, covenants or agreements, subject in certain cases to the right of the breaching party to cure the breach. The Company, CCFI, and Aaron’s may also terminate the Merger Agreement by mutual written consent.
Until the Mergers are completed, the Merger Agreement restricts the Company, CCFI or Aaron’s from taking specified actions without the consent of the other parties and requires us to operate in the ordinary course of business consistent with past practice. These restrictions may prevent the Company, CCFI or Aaron’s from making appropriate changes to their respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the Mergers.
The market price of the Company’s common stock following the Mergers may decline as a result of the Mergers.
The market price of the Company’s common stock may decline as a result of the Mergers for a number of reasons, including if:
•investors react negatively to the prospects of the combined organization’s products, business and financial condition following the Mergers;
•the attention of the Company, CCFI or Aaron’s management is directed towards the Closing and other transaction-related considerations and is diverted from the day-to-day business operations of their respective businesses, as applicable, and matters related to the Mergers require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to the Company, CCFI or Aaron’s, as applicable;
•the effect of the Mergers on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or
•the combined organization does not achieve the perceived benefits of the Mergers as rapidly or to the extent anticipated by financial or industry analysts.
The parties’ equityholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with or following the Mergers.
After the completion of the Mergers, the current equityholders of the Company, CCFI and Aaron’s will own a smaller percentage of the combined organization than their ownership in their respective companies prior to the Mergers. Immediately after the Mergers, it is currently estimated that CCFI equityholders will own, or hold rights to acquire, approximately 79.9% of the combined organization on a fully diluted basis as described in the Merger Agreement, Aaron’s equityholders will own, or hold rights to acquire, approximately 14.1% of the combined organization on a fully diluted basis as described in the Merger Agreement and our equityholders, whose shares of our common stock will remain outstanding after the Mergers, will own, or hold rights to acquire, approximately 6% of the combined organization on a fully diluted basis as described in the Merger Agreement.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of us, CCFI and Aaron’s from: (a) soliciting, initiating, knowingly encouraging or knowingly facilitating the making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry (each as defined in the Merger Agreement) or take any action that would reasonably be expected to result in an Acquisition Proposal or Acquisition Inquiry, (b) knowingly furnishing any nonpublic information in connection with or in response to an Acquisition Proposal or Acquisition Inquiry, (c) engaging in discussions or negotiations with any person with respect to any Acquisition Proposal or Acquisition Inquiry, (d) approving, endorsing or recommending any Acquisition Proposal and (e) executing or entering into any letter of intent or similar document or any contract contemplating or otherwise relating to any Acquisition Transaction, (as defined in the Merger Agreement), except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal constitutes or would reasonably be expected to result in a superior takeover proposal and that failure to cooperate with the proponent of the proposal would reasonably be expected to be inconsistent with the applicable board’s fiduciary duties.
These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring all or a significant portion of the Company, CCFI or Aaron’s or pursuing an alternative Acquisition Transaction from considering or proposing such a transaction, even if it were prepared to pay consideration that is more favorable to be received or realized in the Mergers. In particular, a termination fee, if applicable, could result in a potential third-party acquirer or merger partner proposing to pay a lower price to Katapult’s stockholders than it might otherwise have proposed to pay absent such a fee. If the Merger Agreement is terminated in accordance with its terms, and either the Company, CCFI or Aaron’s determines to seek another business combination, the Company, CCFI or Aaron’s, as applicable, may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
Each party is subject to business uncertainties and contractual restrictions while the Mergers are pending, which could adversely affect each party’s business and operations.
In connection with the pendency of the Mergers, some customers, suppliers and other persons with whom the Company, CCFI or Aaron’s do business may delay or defer certain business decisions or terminate, change or renegotiate their relationships with the Company, CCFI or Aaron’s, as the case may be, as a result of the Mergers, which could negatively affect the Company’s, CCFI’s or Aaron’s respective revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the Mergers are consummated.
Under the terms of the Merger Agreement, each of the Company, CCFI and Aaron’s is subject to certain restrictions on the conduct of its business prior to consummating the Mergers that may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness, incur capital expenditures, settle litigation, amend organizational documents, declare dividends, enter new business lines and invest in third parties.
Such limitations could adversely affect each of the Company’s, CCFI’s and Aaron’s businesses and operations prior to the consummation of the Mergers.
Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the consummation of the Mergers.
We depend on continued relationships with Wayfair and other key merchants. Our top merchant, Wayfair, represented approximately 36% and 49% of our gross originations (which we define as the retail price of the merchandise associated with lease-purchase agreements entered into and do not represent revenue earned) for the fiscal years ended December 31, 2024 and 2023, respectively. Gross originations from Wayfair exclude transactions through Katapult Pay and only include transactions directly through the Wayfair waterfall platform. Our top ten direct merchants, which are merchants with whom we have a direct contractual arrangement, in the aggregate represented approximately 54% and 67% of our gross originations for the fiscal years ended December 31, 2024 and 2023, respectively. The loss of any of our significant merchant partners, and in particular the loss of Wayfair, would materially and adversely affect our business, results of operations, financial condition, and prospects. In addition, a material modification in the merchant agreement with Wayfair or another significant merchant or changes in the prominence of our solution on a significant merchant’s website or prioritization of our solution in a significant merchant’s waterfall could adversely affect our business, results of operations, financial condition, and prospects.
We also depend on continued relationships with key partners that assist in obtaining and maintaining our relationships with merchants. There is a risk that e-commerce platforms with which we partner (such as Shopify, BigCommerce, WooCommerce, and Magneto) may limit or prevent Katapult from being offered as a payment option at checkout. We also face the risk that our key partners could become competitors of our business.
Our strategy to grow gross originations partially depends on our ability to maintain and grow our relationships with current direct merchants, and to attract select new direct merchants that will stimulate consumer demand on our platform. The attractiveness of our platform to merchants depends on, among other things, our brand and reputation, our ability to sustain our value proposition to merchants for consumer acquisition, the attractiveness of our platform to merchants, the services, products and consumer decision standards offered by our competitors, and our ability to perform under, and maintain, our merchant agreements.
We believe our proprietary lease decisioning processes to be a key to the success of our business. The decisioning processes assume behavior and attributes observed for prior customers, among other factors, are indicative of performance by our future customers. Unexpected changes in consumer behavior caused by changing economic conditions and other factors may mean that our decisioning tools may not function as intended. As a result, we may approve customers that are not able to perform, which would lead to increased customer payment delinquencies, increased lease merchandise write-offs and decreased gross margins. When there are unexpected changes to consumer behavior, our decisioning process typically requires more frequent adjustments and the application of management analysis of the interpretation and adjustment of the results produced by our decisioning tools. If there is a challenging macro environment, we may need to make more frequent adjustments to our decisioning process in the near term. If our decisioning tools are unable to accurately predict and respond to changes to consumer behaviors as a result of general economic or other factors, our ability to manage risk and avoid charge-offs may be negatively affected, which may result in insufficient reserves and materially and adversely impact our business, financial condition, results of operations and prospects.
We are focused on our mission to provide innovative lease financing solutions to non-prime customers and to enable essential transactions at the merchant point of sale.
Growth of our business, including through the launch of new product offerings, requires us to invest in or expand our customer data and technology capabilities, engage and retain experienced management, and otherwise incur additional costs. For example, since we launched the app in late 2022, transactions that were completed using KPay have grown to represent 32% of our total gross originations for the year ended December 31, 2024. Approximately 54% of our 2024 gross originations started with an interaction in our mobile app.
We provide a lease-to-own financing option for qualified customers seeking to obtain durable goods from omnichannel and e-commerce merchants. If customers do not trust our brand or do not have a positive experience, they will not use our services. Consequently, our ability to retain customers and attract repeat business is highly dependent on our reputation among our existing customers and merchants. Any failure to maintain a consistently high level of customer service, or a market perception that we do not maintain high-quality customer service, would adversely affect our reputation and the number of positive customer referrals that we receive and the number of new and repeat customers. As a result, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
Our continued success depends on our ability to generate repeat use and increased gross originations from existing customers and to attract new consumers to our platform. Our ability to retain and grow our relationships with our customers depends on the willingness of customers to use our products and services, including our mobile app and Katapult Pay. The attractiveness of our Katapult App to consumers depends upon, among other things, the number and variety of our merchants and the mix of products and services available through our platform, our brand and reputation, customer experience and satisfaction, trust and perception of the value we provide, technological innovation, and the services, products and customer decisioning standards offered by our competitors. If we fail to attract new customers to our platform, products and services, or if we do not continually expand usage, repeat customers and gross originations, our results of operations, financial condition, and prospects would be materially and adversely affected.
We operate in a highly competitive industry. We face competition from a variety of businesses and new market entrants, including competitors with lease-to-own products for e-commerce goods and other types of digital payment platforms. We face competition from virtual lease-to-own companies, e-commerce retailers (including those that offer layaway programs, title or installment lending or buy now, pay later programs), online sellers of used merchandise, and various types of consumer finance companies that may enable our customers to shop at online retailers, as well as with online rental stores that do not offer their customers a purchase option. These competitors may have significantly greater financial and operating resources, greater name recognition and more developed products and services, which may allow them to grow faster. Greater name recognition, or better public perception of a competitor’s reputation, may help the competitor take market share. Some competitors may be willing to offer competing products on an unprofitable basis (or may have looser decisioning standards or be willing to relax their decisioning standards) in an effort to gain market share, which could compel us to match their pricing strategy or lose business. Moreover, prime lenders may loosen their underwriting standards and provide credit to non-prime consumers, which would impact our gross origination as well as the credit quality of our customers and our business and results of operations. In addition, some of our competitors may be willing to lease certain types of products that we will not agree to lease, enter into customer leases that have services, as opposed to goods, as a significant portion of the lease value, or engage in other practices related to pricing, compliance, and other areas that we will not, in an effort to gain market share. Our business relies heavily on relationships with our merchants. Competitors undertaking these tactics could cause our merchants to cease to offer Katapult products in favor of our competitors, or to offer our product and the products of our competitors simultaneously, which could slow growth in our business and limit or reduce profitability. Merchants could also develop their own in-house product that competes with our product. Furthermore, virtual lease-to-own competitors may deploy different business models, such as direct-to-consumer strategies, that forego reliance on merchant relationships that may prove to be more successful.
Management's Discussion & Analysis (MD&A)
New heading “Recent Developments”
New heading “Pending Strategic Mergers with CCFI and Aaron’s”
New heading “Gain on Extinguishment of Term Loan and Settlement of Derivative Liability”
New heading “Change in Fair Value of Derivative Liability and Warrants”
New heading “Net Income (Loss)”
New heading “Net Loss Attributable to Common Stockholders.”
New heading “Accumulated Undeclared Dividends on Series A and Series B Convertible Preferred Stock”
New heading “Net Loss Attributable to Common Stockholders Per Share — Basic and Diluted”
New heading “Fair Value of Convertible Preferred Derivative Liability”
Removed heading “Senior Secured Term Loan and RLOC”
Largest changes
“On April 24, 2024, we entered into the Limited Waiver and 16th Amendment to the Credit Agreement with the Lender (the "16th Amendment"). Pursuant to the 16th Amendment, the Lender granted us a waiver of any Specified Defaults (as defined in the 16th Amendment) related to the accounting errors that led to the restatement of our financial statements for all reporting periods prior to the date of the amendment. …”see in full comparison
“On February 20, 2025, the Company entered into the 18th amendment to the Credit Agreement with the Lender (“the 18th amendment”). As part of the 18th amendment, certain financial covenants, including the Minimum Liquidity and Total Advance rate were updated in addition to waiving any Default or Event of Default arising from any Borrowing Base Certificate delivered prior to February 20, 2025.”see in full comparison
“Adjusted EBITDA is a non-GAAP financial measure that is defined as net loss before interest expense and other fees, interest income, change in fair value of warrants, provision for income taxes, depreciation and amortization on property and equipment and capitalized software, provision for impairment of leased assets, loss on partial extinguishment of debt, stock-based compensation expense, and litigation settlement and other related expenses, net. We believe that adjusted EBITDA provides a meaningful understanding of our operating performance.”see in full comparison
“On March 6, 2023, we entered into the 15th amendment to the Credit Agreement. As part of the amendment, the maturity date of the RLOC and Term Loan was extended from December 4, 2023 to June 4, 2025 and the commitments under the RLOC were reduced to $75 million from $125 million. The spread on the RLOC was increased to 8.5% from 7.5% while the spread on the Term Loan remained at 8%. …”see in full comparison
“The Credit Agreement is also subject to certain negative and affirmative covenants. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral under the Credit Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Early repayments of certain amounts under the Term Loan are subject to prepayment penalties.”see in full comparison
“The Credit Agreement contains certain financial covenants including minimum Adjusted EBITDA levels, minimum tangible net worth, minimum liquidity and compliance with a total advance rate, which were amended in connection with the amendment in March 2023.”see in full comparison
Full comparison: every changed paragraph (88)
Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “CompanyCompany,”, or “Katapult” refer to Katapult Holdings, Inc. and its subsidiaries.
We are a technology driven lease-to-own platform that integrates with omnichannel retailers and e-commerce platforms to power the purchasing of everyday durable goods for underserved U.S. non-prime consumers. Our POS integrations and innovative mobile app, featuring KatapultKPay, Pay, makesmake it easier for U.S. non-prime consumers unable to access traditional financing to spend responsibilityresponsibly and with confidence, easier for merchants to convert sales and grow, and easier for commerce to thrive.
Recent Developments
Pending Strategic Mergers with CCFI and Aaron’s
On December 11, 2025, we entered into the Merger Agreement pursuant to which CCFI and Aaron’s will become wholly owned subsidiaries of the Company, and the Company will remain a publicly traded entity. The Mergers, if completed, will create a premier omni-channel platform that provides non-prime consumers access to durable goods and a comprehensive suite of innovative financial solutions tailored to their specific needs. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Mergers. The Mergers are expected to close in the second quarter of 2026, following the receipt of the requisite stockholder and regulatory approvals and other customary closing conditions.
We expect the Mergers, if completed, to significantly affect our future capital structure. Immediately following the consummation of the Mergers, the existing Katapult stockholders, CCFI equity holders, and Aaron’s equity holders, on a fully diluted basis, are expected to hold approximately 6.0%, 79.9%, and 14.1%, respectively, of the issued and outstanding shares of the combined company.
Refer to “Risk Factors” in Item 1A of Part I of this Annual Report for further discussion about the risks related to the Mergers.
We measure gross originations to assess the growth trajectory and overall size of our lease portfolio. We define gross originations as the retail price of the merchandise associated with lease-purchase agreements entered into during the period through our platform. Gross originations do not represent revenue earned but are a leading indicator of forecasted revenue. Revenue is recognized over a period of time subsequent to the gross origination (on average over 8 months). Revenue from gross originations have historically reached approximately 70-75% of total revenue within two quarters from when the originations occurred. We believe thisand is a useful operating metric for investors toas useit inprovides assessinginsight into the volume of transactions that take place on our platform.
Revenue is recognized over a period of time subsequent to the gross origination (on average over an 8 month period). Historically, we recognized approximately 70-75% of revenue from gross originations two quarters after the quarter in which the origination occurred.
Gross originations from Wayfair represented 36% and 49% of gross originations for the years ended December 31, 2024 and 2023, respectively. Gross originations from Wayfair exclude transactions through Katapult Pay and only include transactions directly through the Wayfair waterfall platform.
KatapultGross Payoriginations through KPay represented 32%42% and 19%32% of gross originations during the years ended December 31, 20242025 and 2023,2024, respectively.
Wayfair represented 25% and 36% of gross originations for the years ended December 31, 2025 and 2024, respectively. The gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform.
Total revenue represents the sum of rental revenue and other revenue. We record rental revenue in accordance with ASC 842, Leases, with revenue being recorded when earned and cash is collected. Other revenue is recorded in accordance with ASC 606, Revenue from Contracts with Customers, with revenue being recorded as performance obligations are satisfied. See “—Results of Operations" section below for total revenue amounts.
Historically, our revenue is typically strongest during the first quarter primarily due to higher gross originations during the fourth quarter holiday season. Our first quarter revenue is also positively impacted by the federal and state income tax refunds that our customers receive in the first quarter which, in the past, has led to our customers more frequently exercising the early purchase option on their lease agreements. Revenue was highest in the third quarter driven by the strong growth of gross originations in the first half of 2025. Adverse and other events that occur could have a disproportionate effect on our financial results throughout the year.
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income/ (loss) before interest expense and other fees, interesttransaction income,related changecosts, instock-based faircompensation valueexpense, ofdebt warrantrefinancing liability, provision for income taxes,costs, depreciation and amortization on property and equipment and capitalized software, litigation and settlement expenses, provision for impairment of leased assets, lossinterest income, gain on partial extinguishment of debt,term stock-based compensation expenseloan and net litigation settlement expenses. We believe that adjusted EBITDA provides a meaningful understanding of ourderivative operatingliability, performance.net, Seeand “—Non-GAAPchange Financialin Measures”fair section below for a reconciliationvalue of adjustedderivative EBITDA,liability whichand iswarrants. aTransaction-related non-GAAPcosts measureconsist utilizedprimarily byof management,professional tofees netincurred loss.and retention bonus costs in connection with the Mergers.
We believe that adjusted EBITDA provides a meaningful understanding of our operating performance. See “—Non-GAAP Financial Measures” section below for a reconciliation of adjusted EBITDA, which is a non-GAAP measure utilized by management, to net income (loss).
The increase in total revenue of $25.6$44.6 million, or 11.6%,18.0%, during the year ended December 31, 20242025 as compared to the same period in 20232024 was primarily a result of gross origination growth becoming more efficient and healthy customer collections. We saw gross origination growth in 20242025 primarily as a result of our mobileKatapult appApp featuring Katapult Pay,KPay, which we launched in the third quarter of 2022 and growth from our direct merchants. Write-offs as a percentage of total revenue waswere 9.2%9.6% and 9.2% during the yearyears ended December 31, 2025 and 2024 as, compared to the same period in 2023respectively, and remains within our 8% to 10% target range. The provision for write-offs represents estimated losses based on historical results. Actual write-offs may differ from this estimate.
We experience moderate seasonal fluctuations in our revenue as a result of consumer spending patterns. Historically, our revenue is strongest during the first quarter primarily due to higher gross originations during the fourth quarter holiday season. Our first quarter revenue is also impacted by the federal and state income tax refunds that our customers receive in the first quarter which, in the past, has led to our customers more frequently exercising the early purchase option on their lease agreements. Adverse events that occur could have a disproportionate effect on our financial results throughout the year.
The increase in cost of revenue of $21.5$38.7 million, or 12.0%,19.2%, duringfor the year ended December 31, 20242025 as compared to the same period in 20232024 was a result of higher gross origination growth and capitalized property held for lease. The increase in property held for lease and historical lease portfolio collection patterns impactimpacted the associated depreciation expense, which includes accelerated depreciation for early lease-purchase options (buyouts), and accelerated depreciation for impairment charges related to property held for lease. As depreciation expense is accelerated for buyouts and impairment, the cost of sales is greater earlier in the property held for lease asset life. As a result, in periods of high gross origination growth with higher rates of property held for lease additions, cost of sales will be disproportionately higher as compared to revenue growth.
The increase in gross profit of $4.1$5.8 million, or 9.7%,12.7%, duringfor the year ended December 31, 20242025 as compared to the same period in 20232024 was due primarily to higher gross originations year-over-year,year-over-year and healthy customer collections.
Operating expenses primarily consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, compensation costs, general and administrative expense and litigation and settlement expenses. Servicing costs include permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs fromfor customer underwriting models. Professional and consulting fees include corporate legallegal, transaction related costs and accounting costs. Transaction related costs consist of professional fees and other expenses incurred in connection with the Mergers. Technology and data analytics expense includes technology costs and salaries and benefits for computer programming and data analytics employees that support our underlying technology and proprietary risk model algorithms. Compensation costs consist primarily of payroll and related costs and stock-based compensation. General and administrative expenses include insurance, occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software. Litigation and settlement expenses consistsconsist of agreed upon settlement amounts that are probable and estimable and associated legal fees.
The decrease in total operating expenses of $6.6$1.8 million, or 11.0% during the year ended December 31, 2024 as compared to the same period in 2023 was primarily due to a decrease of $3.3 million in litigation settlement costs and a decrease of $2.7 million in compensation costs3.3%, for the year ended December 31, 20242025 as compared to 2024 was primarily due to lower litigation and settlement expenses of $2.9 million, and lower stock-based compensation expense of $2.1 million, partially offset by an increase of $3.0 million of transaction related costs related to the sameMergers periodincluded in 2023.professional and consulting fees for the year ended December 31, 2025 as compared to 2024.
Gain on Extinguishment of Term Loan and Settlement of Derivative Liability
The decreaseCompany in litigation costs is due to $7.0 million incurred in 2023 asrecognized a resultgain of the shareholder litigation settlement partially offset by approximately $3.3$5.1 million of costs incurred for the year ended December 31, 20242025 related to theextinguishment Daiwaof Corporateterm Advisoryloans LLC ("DCA") litigationand settlement of the associated derivative liability, including the write-off of unamortized debt discount and legalissuance fees.costs. No such gain or loss was recognized in 2024. See Note 106 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for more details.
The decrease in compensation costs is mainly driven by a decrease in stock-based compensation related to a decline in the fair value of the stock awards granted in 2024 as compared to 2023, based on the Company's stock price on the dates of grant.
Interest Expense and Other Fees.Fees
Interest expense increased $1.7 million for the year ended December 31, 2025 as compared to 2024. The increase in interest expense for the year ended December 31, 2025 was primarily attributable to higher average outstanding principal balances under the Existing and New Revolving Facility as well as changes in the Company’s debt structure associated with the refinancing completed in June 2025. These increases were partially offset by a decline in the average Secured Overnight Financing Rate (“SOFR”) rate during the year.
Change in Fair Value of Derivative Liability and Warrants
The Company recognized a gain of $17.4 million for year ended December 31, 2025 compared to an immaterial change in 2024. The gain was primarily driven by the remeasurement of the Company’s derivative liability and warrant liabilities to fair value. These adjustments are non-cash in nature and reflect changes in the estimated fair value of these instruments at each reporting date. See Note 12 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for more details.
Net Income (Loss)
As a result of the factors discussed above, the Company generated net income of $1.4 million for the year ended December 31, 2025 compared to a net loss of $(25.9) million for the year ended December 31, 2024.
Net Loss Attributable to Common Stockholders.
Net loss attributable to common stockholders was $(0.6) million for the year ended December 31, 2025 compared to $(25.9) million for the year ended December 31, 2024. Although the Company generated net income in 2025, net income attributable to common stockholders was reduced by $1.9 million of accumulated undeclared dividends on the Company’s Series A and Series B Convertible Preferred Stock, which are deducted in calculating net income (loss) per share attributable to common stockholders.
Accumulated Undeclared Dividends on Series A and Series B Convertible Preferred Stock
Accumulated undeclared dividends on the Company’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock were $1.9 million for the year ended December 31, 2025. The Series A Convertible Preferred Stock and Series B Convertible Preferred Stock accrue cumulative dividends at the contractual rates specified in the applicable Certificate of Designations, and are recognized as a liability when declared by the Board of Directors. As of December 31, 2025, no dividends were declared and thus the accumulated undeclared dividends were deducted in calculating net income (loss) attributable to common stockholders. No such dividends were recorded in 2024. See Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K
Net Loss Attributable to Common Stockholders Per Share — Basic and Diluted
Net loss per share attributable to common stockholders, basic and diluted, was $(0.11) for the year ended December 31, 2025 compared to $(5.96) for the year ended 2024.
The increase in interest expense and other fees during the year ended December 31, 2024 as compared to 2023 was primarily due to an increase in the average outstanding principal amount under the RLOC period over period.
In addition to gross profit and net loss,income (loss), which are measures presented in accordance with U.S. GAAP, we believe that adjusted gross profit, adjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses provide relevant and useful information which is widely used by analysts, investors, and competitors in our industry in assessing performance. Adjusted gross profit, Adjustedadjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses are supplemental measures of our performance that are neither required by nor presented in accordance with U.S. GAAP. Adjusted gross profit, adjusted EBITDA and adjusted net income (loss) should not be considered as substitutes for U.S. GAAP metrics such as gross profit, operating loss,income (loss), net loss,income (loss), or any other performance measures derived in accordance with U.S. GAAP and may not be comparable to similar measures used by other companies.
Adjusted gross profit, adjusted EBITDA and adjusted net income (loss) are useful to an investor in evaluating our performance because these measures:
Adjusted EBITDA is a non-GAAP financial measure. We believe that adjusted EBITDA provides a meaningful understanding of our operating performance.
Adjusted EBITDA is a non-GAAP financial measure that is defined as net loss before interest expense and other fees, interest income, change in fair value of warrants, provision for income taxes, depreciation and amortization on property and equipment and capitalized software, provision for impairment of leased assets, loss on partial extinguishment of debt, stock-based compensation expense, and litigation settlement and other related expenses, net. We believe that adjusted EBITDA provides a meaningful understanding of our operating performance.
The reconciliations of net income (loss) to adjusted EBITDA for the years ended December 31, 20242025 and 20232024 are as follows:
Adjusted net loss is a non-GAAP financial measure that is defined as net income (loss) before transaction related costs, stock-based compensation expense, debt refinancing costs, litigation and settlement expenses, gain on extinguishment of term loan and settlement of derivative liability, net, and change in fair value of warrants,derivative stock-based compensation expense,liability and litigation settlement and other related expenses, net.warrants. The reconciliations of net income (loss) to adjusted net loss for the years ended December 31, 20242025 and 20232024 are as follows:
Fixed cash operating expenses is a non-GAAP measure that is defined as operating expenses less variable lease costs such as servicing costs and underwriting fees, transaction related costs, stock-based compensation expense, debt refinancing costs, depreciation and amortization on property and equipment and capitalized software, stock-based compensation expense,and litigation and settlement and other related expenses, net and variable lease costs such as servicing costs and underwriting fees.expenses. We believe fixed cash operating expenses illustrates our controllable ongoing expenses.
The reconciliations of operating expenses to fixed cash operating expenses for the years ended ended December 31, 20242025 and 20232024 are as follows:
LIQUIDITY,LIQUIDITY & CAPITAL RESOURCES & GOING CONCERN (dollars in thousands)
The Company’s financing generally consists of cash from leases and borrowings under the RLOC, which is fully collateralized by the Company’s assets. As of March 24, 2025, the Company had a combined principal balance outstanding of $108.8 million under the RLOC and term loan, both of which mature within 12 months of the date that these financial statements are issued. Both loans were previously refinanced on March 6, 2023 to extend the maturity date from December 4, 2023 to June 4, 2025.
As of March 24, 2025, the Company had total cash on hand of $14.5 million, including $7.3 million of unrestricted cash. The Company anticipates that it will not have sufficient cash available to repay the loans at maturity and is currently seeking to refinance the loans prior to maturity in June 2025, which raises substantial doubt about the Company’s ability to continue as a going concern.
Management plans to address this uncertainty by refinancing the loans. No adjustments have been made to the carrying amounts of assets or liabilities, as the Company intends to refinance the loans prior to the maturity on June 4, 2025. However, there can be no assurance that the Company will be able to secure such financing prior to that date or at all.
The Company’s financing generally consists of cash generated from leases and borrowings under its revolving line of credit (“RLOC”), which is fully collateralized by the Company’s assets. Restricted cash consists primarily of customer lease payments received in a collection account pending release by the Company's lender. Restrictions are released on a weekly basis pursuant to completion of waterfall and borrowing base requirements.
Our revenue and operating results depend significantly on gross originations, which is defined as the retail price of the merchandise associated with lease-purchase agreements entered into during the period. Gross originations are a leading indicator of potential revenue streams. Revenue is recognized over a period of time subsequent to the gross origination date (on average over 8 months). As gross originations increase, the Company may require additional borrowings under the New Revolving Facility to fund growth in property held for lease.
The following table presents cash used in operating, investing, and financing activities duringfor the years ended December 31, 20242025 and 20232024:
Net cash used in operating activities decreased by $20.6 million in 2025 compared to 2024, primarily driven by improved net income (loss), adjusted for non-cash charges, and higher spending on property held for lease, partially offset by changes in working capital, including accrued liabilities and litigation-related balances.
The increase in cash used in operating activities of $15.2 million in 2024 compared to 2023 is primarily driven by sales tax payments of approximately $5.9 million and litigation payments of $5.0 million.
The increase inNet cash used in investing activities ofdecreased $0.3by $0.2 million in 20242025 compared to 2023 is2024, primarily due to an increase inlower capitalized software additions.
The change inNet cash fromprovided by financing activities ofdecreased $44.3by $1.6 million in 20242025 compared to 2023 is2024, primarily due to the $25.0$35.1 million repayment onof the New Term LoanLoan, lower borrowings and higher principal repayments under the RLOC resulting in 2023a $26.0 million reduction in net financing inflows, and ana $5.3 million increase in netdebt issuance costs. These outflows were partially offset by $65.0 million of proceeds from the RLOCissuance of $19.3Convertible millionPreferred Stock in 2024.2025.
The New Revolving Facility provides total commitments of $110 million and matures on December 4, 2026. As the maturity date falls within twelve months of the issuance date of these financial statements and the Company does not have sufficient cash on hand to repay the outstanding borrowings at maturity absent refinancing or extension, the upcoming maturity raises substantial doubt about the Company’s ability to continue as a going concern.
The New Revolving Facility contains financial covenants, and as of December 31, 2025, the Company was in compliance with all such covenants; however, future compliance with certain covenants may require additional waivers from the lender, and there can be no assurance that such waivers will be obtained.
Management intends to refinance, extend, or replace the New Revolving Facility prior maturity and continues to work closely with the Lender; however, there can be no assurance that such refinancing or extension will be completed on acceptable terms or at all.
What changed in the latest 10-Q
Risk Factors
Largest changes
“The New Revolving Facility matures on December 4, 2026, which is within one year after the date these financial statements are issued. As of August 4, 2026, we do not have sufficient standalone liquidity to repay the outstanding balance of the New Revolving Facility at its contractual maturity. Accordingly, management concluded that these conditions and events raised substantial doubt about the Company's ability to continue as a going concern. Management intends to refinance, extend or replace the New Revolving Facility prior to its maturity. …”see in full comparison
Third parties may claim that the technology used in the operation of our business infringes upon their intellectual property and other proprietary rights. For example, on September 30, 2024, FlexShopper filed a complaint against us in the United States District Court for the Eastern District of Texas Marshall Division. The complaint alleges patent infringement and seeks an injunction as well as damages for alleged lost profits and willfulness. On November 24, 2025, the court granted plaintiff’s counsel’s motion to withdraw due to “irreconcilable differences” and gave the plaintiff until January 20, 2026 to find new counsel. On December 23, 2025, the plaintiff filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware. On March 3, 2026, FlexShopper was sold to ReadySett,see in full comparisonLLC,LLC (“ReadySett”), a subsidiary of Snap Finance. We have not recorded any loss contingencies associated with this litigation as loss is not probable and the amount is not reasonably estimable as of December 31, 2025.WeOnintendJuneto5,vigorously defend this case, but2026, wecannotenteredbeintocertainthe Non-Exclusive Patent License Agreement with ReadySett, the current owner of theultimatepatentsoutcome of these legal proceedings. If FlexShopper prevails in this ongoing litigation, we could be enjoined or be ordered to pay significant damages, either of which would have a material and adverse impact on our business. Even if we ultimately prevailasserted in theFlexShopperlitigation. The Non-Exclusive Patent License Agreement resolves the disputes in litigationorandotherpursuant to suchlitigation,agreement,this type of litigation is time-consumingFlexShopper andcostlyReadySetttodismisseddefend,theresultingclaims brought in thediversionlawsuit with prejudice on June 8, 2026. In accordance with the terms ofsignificanttheoperationalNon-resourcesExclusive Patent License Agreement, we shall cause a payment to be made to ReadySett in exchange for ReadySett, on behalf of itself, its successors andpotentialassigns,changesgranting to us, our affiliates and our successors and assigns, a nonexclusive, perpetual, irrevocable, fully paid-up, royalty-free, worldwide license to ourbusinessproductsmodel.under the ReadySett patents that were the subject of the complaint. Our involvement in intellectual property disputes and any failure to adequately obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights may cause our business, operating results and financial condition to suffer. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants and a financial maintenance covenant that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Non-scheduled repayments of certain amounts under the Loan Agreement are subject to certain restrictions. The financial maintenance covenant requires us to maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them which would prevent us from pursuing certain growth strategies or initiatives due to this limitation. These or other limitations could decrease our operating flexibility and our ability to achieve our operating objectives. The Loan Agreement contains the financialsee in full comparisoncovenantscovenant described above.TheseThis financialcovenantscovenantareis restrictive and failure to comply with these covenants would have a material adverse effect on our business, financial condition, and results of operations.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them. Thesee in full comparisonLoan Agreement contains certainfinancialcovenants.maintenanceIncovenantparticular,requires(1)usas of the end of each month, we must maintain certain minimum Trailing Three-Month Net Originations representing net lease costs of newly originated leases in the immediately trailing three calendar month period and (2) we mustto maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. We have been in the past unable to comply with certain financial covenants in the Loan Agreement and may in the future be unable comply with (or breach) other covenants or requirements of the Loan Agreement. For example, as of each of July 31, 2025, August 31, 2025, September 30, 2025, October 31, 2025, December 31, 2025, January 31, 2026, February 28, 2026, March 31, 2026,andApril 30, 2026 and May 31, 2026, we were not in compliance with the Minimum Trailing Three-Month Net Originations covenant (which has since been removed from the Loan Agreement pursuant to the Third Amendment) and the lenders granted (i) temporary waivers for the months of July 31, 2025, August 31, 2025, September 30, 2025 and October 31, 2025 (which initially expired at the end of the following month and were then permanently waived by the Second Amendment), and (ii) permanent waivers for the months of December 31, 2025, January 31, 2026, February 28, 2026, March 31,2026 and2026, April 30,2026.2026 and May 31, 2026 We could continue fail to comply with such covenant or any other covenant or requirement of the Loan Agreement and trigger an additional event of default under the Loan Agreement. We anticipate that we will not have sufficient cash available to repay the New Revolving Facility under the Loan Agreement in the event of default.
After the completion of the Mergers, the current equityholders of the Company, CCFI and Aaron’s will own a smaller percentage of the combined organization than their ownership in their respective companies prior to the Mergers. Immediately after the Mergers, it is currently estimated that CCFI equityholders will own, or hold rights to acquire, approximatelysee in full comparison79.9%79.7% of the combined organization on a fully diluted basis as described in the MergerAgreement,Agreement based on 5,411,322 outstanding shares of Katapult common stock as of March 31, 2026 and inclusive of the exercise of the Katapult private warrants. Aaron’s equityholders will own, or hold rights to acquire, approximately 14.1% of the combined organization on a fully diluted basis as described in the Merger Agreement and our equityholders, whose shares of our common stock will remain outstanding after the Mergers, will own, or hold rights to acquire, approximately6%6.2% of the combined organization on a fully diluted basis as described in the MergerAgreement.Agreement based on 5,411,322 outstanding shares of Katapult common stock as of March 31, 2026 and inclusive of the exercise of the Katapult private warrants..
see in full comparisonOn October 31, 2019, we entered into a warrant agreement, with FinServ Acquisition Corp., which entitles each warrant holder thereof to purchase 1/25th of a share of our common stock at a price of $287.50 per whole share, subject to adjustment. Warrants may be exercised only for a whole number of shares of common stock. In addition,Hawthorn currently owns warrants to purchase up to 160,000 shares of our common stock at an exercise price of $0.25 per share which are vested and 486,264 shares of our common stock at an exercise price of $0.01 per share which are vested.
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Consummation of the Mergers is contingent upon the satisfaction of a number of conditions, some of which are beyond our, CCFI’s or Aaron’s control including, among others, (a) the absence of any law or governmental order preventing the consummation of the Mergers, corporate reorganization steps contemplated by the Mergers or the Katapult Stock Issuance, (b) the effectiveness of the registration statement pursuant to which the issuance of shares of our common stock to be issued in the Mergers will be registered with the SEC, (c) the shares of our common stock to be issued in the Katapult Stock Issuance having been approved for listing on Nasdaq, subject only to official notice of issuance, (dc) receipt of required approvals from the equityholders of each of us, CCFI and Aaron’s, (ed) the parties’ representations and warranties being true and correct (subject to certain customary materiality exceptions), (fe) compliance by the parties with their respective covenants, (gf) the absence of a material adverse effect on any of the parties’ businesses that is continuing and (hg) delivery and execution of certain documents by the parties. Under certain circumstances, we would be required to pay CCFI and Aaron’s a termination fee of $1.5 million, of which 85% shall be paid to CCFI and 15% shall be paid to Aaron’s.
After the completion of the Mergers, the current equityholders of the Company, CCFI and Aaron’s will own a smaller percentage of the combined organization than their ownership in their respective companies prior to the Mergers. Immediately after the Mergers, it is currently estimated that CCFI equityholders will own, or hold rights to acquire, approximately 79.9%79.7% of the combined organization on a fully diluted basis as described in the Merger Agreement,Agreement based on 5,411,322 outstanding shares of Katapult common stock as of March 31, 2026 and inclusive of the exercise of the Katapult private warrants. Aaron’s equityholders will own, or hold rights to acquire, approximately 14.1% of the combined organization on a fully diluted basis as described in the Merger Agreement and our equityholders, whose shares of our common stock will remain outstanding after the Mergers, will own, or hold rights to acquire, approximately 6%6.2% of the combined organization on a fully diluted basis as described in the Merger Agreement.Agreement based on 5,411,322 outstanding shares of Katapult common stock as of March 31, 2026 and inclusive of the exercise of the Katapult private warrants..
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them. The Loan Agreement contains certain financial covenants.maintenance Incovenant particular,requires (1)us as of the end of each month, we must maintain certain minimum Trailing Three-Month Net Originations representing net lease costs of newly originated leases in the immediately trailing three calendar month period and (2) we mustto maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. We have been in the past unable to comply with certain financial covenants in the Loan Agreement and may in the future be unable comply with (or breach) other covenants or requirements of the Loan Agreement. For example, as of each of July 31, 2025, August 31, 2025, September 30, 2025, October 31, 2025, December 31, 2025, January 31, 2026, February 28, 2026, March 31, 2026, and April 30, 2026 and May 31, 2026, we were not in compliance with the Minimum Trailing Three-Month Net Originations covenant (which has since been removed from the Loan Agreement pursuant to the Third Amendment) and the lenders granted (i) temporary waivers for the months of July 31, 2025, August 31, 2025, September 30, 2025 and October 31, 2025 (which initially expired at the end of the following month and were then permanently waived by the Second Amendment), and (ii) permanent waivers for the months of December 31, 2025, January 31, 2026, February 28, 2026, March 31, 2026 and2026, April 30, 2026.2026 and May 31, 2026 We could continue fail to comply with such covenant or any other covenant or requirement of the Loan Agreement and trigger an additional event of default under the Loan Agreement. We anticipate that we will not have sufficient cash available to repay the New Revolving Facility under the Loan Agreement in the event of default.
We have incurred substantial indebtedness. As of MarchJune 31,30, 2026, the total aggregate indebtedness under the Loan Agreement was approximately $71.6$74.1 million of principal outstanding. We, together with our wholly-owned subsidiary, Katapult Group, Inc., have guaranteed the obligations of the Borrower under the Loan Agreement. Our payments on our outstanding indebtedness are significant in relation to our revenue and cash flow, which exposes us to significant risk in the event of downturns in our business (whether through competitive pressures or otherwise), our industry or the economy generally, since our cash flows would decrease but our required payments under our indebtedness would not. Economic downturns may impact our ability to comply with the covenants and restrictions in our Loan Agreement and to make payments on our indebtedness as they become due.
The Loan Agreement governing the New Revolving Facility includes restrictive covenants and a financial maintenance covenants,covenant, which could restrict our operations or ability to pursue growth strategies or initiatives, including potential mergers and acquisitions opportunities. Failure to comply with thesethis covenantscovenant could result in an acceleration of repayment of the indebtedness under the Loan Agreement, which would have a material adverse effect on our business, financial condition and results of operations.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants and a financial maintenance covenant that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Non-scheduled repayments of certain amounts under the Loan Agreement are subject to certain restrictions. The financial maintenance covenant requires us to maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them which would prevent us from pursuing certain growth strategies or initiatives due to this limitation. These or other limitations could decrease our operating flexibility and our ability to achieve our operating objectives. The Loan Agreement contains the financial covenantscovenant described above. TheseThis financial covenantscovenant areis restrictive and failure to comply with these covenants would have a material adverse effect on our business, financial condition, and results of operations.
We depend on continued relationships with Wayfair and other key merchants. Our top merchant, Wayfair, represented approximately 18%17% and 27% of our gross originations (which we define as the retail price of the merchandise associated with lease-purchase agreements entered into and do not represent revenue earned) for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and approximately 18% and 27% for the six months ended June 30, 2026 and 2025, respectively. Gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform. Our top ten direct merchants, which are merchants with whom we have a direct contractual arrangement, in the aggregate represented approximately 43%44% and 51%49% of our gross originations for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and approximately 43% and 49% for the six months ended June 30, 2026 and 2025, respectively. The loss of any of our significant merchant partners, and in particular the loss of Wayfair, would materially and adversely affect our business, results of operations, financial condition, and prospects. In addition, a material modification in the merchant agreement with Wayfair or another significant merchant or changes in the prominence of our solution on a significant merchant’s website or prioritization of our solution in a significant merchant’s waterfall could adversely affect our business, results of operations, financial condition, and prospects.
Growth of our business, including through the launch of new product offerings, requires us to invest in or expand our customer data and technology capabilities, engage and retain experienced management, and otherwise incur additional costs. For example, since we launched the app in late 2022, transactions that were completed using KPay have grown to represent 42%40% and 35%41% of our total gross originations for the three and six months ended MarchJune 31,30, 2026 and 2025,2026, respectively. Approximately 61%54% of our 2026 gross originations started with an interaction in our mobile app.
We incurred a net income (loss) of $5.7$(4.4) million and $(5.7)$1.3 million during the three and six months ended MarchJune 31,30, 2026 and March 31, 2025,2026, respectively. Net income for the threesix months ended MarchJune 31,30, 2026 was primarily driven by a non-cash gain resulting from the remeasurement of the Company’s derivative liability to fair value. As of MarchJune 31,30, 2026, our accumulated deficit was approximately $141.4$145.8 million. While our operating expenses were stagnant for the year ended December 31, 2025 compared to the year ended December 31, 2024, we may need to further increase our operating expenses in the future in order to continue growing our business, attracting customers, merchants and funding sources, and further enhancing and developing our products and platforms. As we expand our offerings to additional markets, our offerings in these markets may be less profitable than the markets in which we currently operate. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We may incur net losses in the future and may not be profitable on a quarterly or annual basis.
Third parties may claim that the technology used in the operation of our business infringes upon their intellectual property and other proprietary rights. For example, on September 30, 2024, FlexShopper filed a complaint against us in the United States District Court for the Eastern District of Texas Marshall Division. The complaint alleges patent infringement and seeks an injunction as well as damages for alleged lost profits and willfulness. On November 24, 2025, the court granted plaintiff’s counsel’s motion to withdraw due to “irreconcilable differences” and gave the plaintiff until January 20, 2026 to find new counsel. On December 23, 2025, the plaintiff filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware. On March 3, 2026, FlexShopper was sold to ReadySett, LLC,LLC (“ReadySett”), a subsidiary of Snap Finance. We have not recorded any loss contingencies associated with this litigation as loss is not probable and the amount is not reasonably estimable as of December 31, 2025. WeOn intendJune to5, vigorously defend this case, but2026, we cannotentered beinto certainthe Non-Exclusive Patent License Agreement with ReadySett, the current owner of the ultimatepatents outcome of these legal proceedings. If FlexShopper prevails in this ongoing litigation, we could be enjoined or be ordered to pay significant damages, either of which would have a material and adverse impact on our business. Even if we ultimately prevailasserted in the FlexShopperlitigation. The Non-Exclusive Patent License Agreement resolves the disputes in litigation orand otherpursuant to such litigation,agreement, this type of litigation is time-consumingFlexShopper and costlyReadySett todismissed defend,the resultingclaims brought in the diversionlawsuit with prejudice on June 8, 2026. In accordance with the terms of significantthe operationalNon- resourcesExclusive Patent License Agreement, we shall cause a payment to be made to ReadySett in exchange for ReadySett, on behalf of itself, its successors and potentialassigns, changesgranting to us, our affiliates and our successors and assigns, a nonexclusive, perpetual, irrevocable, fully paid-up, royalty-free, worldwide license to our businessproducts model.under the ReadySett patents that were the subject of the complaint. Our involvement in intellectual property disputes and any failure to adequately obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights may cause our business, operating results and financial condition to suffer. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Common stock reserved for future issuance under our equity incentive plans will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144, as applicable. As of MarchJune 31,30, 2026, there were 433,922376,261 shares of common stock available for future issuance under our 2021 equity incentive plan.
On October 31, 2019, we entered into a warrant agreement, with FinServ Acquisition Corp., which entitles each warrant holder thereof to purchase 1/25th of a share of our common stock at a price of $287.50 per whole share, subject to adjustment. Warrants may be exercised only for a whole number of shares of common stock. In addition, Hawthorn currently owns warrants to purchase up to 160,000 shares of our common stock at an exercise price of $0.25 per share which are vested and 486,264 shares of our common stock at an exercise price of $0.01 per share which are vested.
The issuances of our common stock upon the exercise of outstanding warrants will result in a significant increase in the number of shares of common stock outstanding, which means that our existing stockholders will own a smaller ownership interest in the Company, experience substantial dilution and have less ability to influence significant decisions requiring stockholder approval. If the holders of outstanding warrants exercise such warrants, our stockholders will experience substantial dilution and we may experience volatility in the price of our Common Stock. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.
If the holders of outstanding warrants exercise such warrants, our stockholders will experience substantial dilution and we may experience volatility in the price of our Common Stock. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.
The New Revolving Facility matures on December 4, 2026, which is within one year after the date these financial statements are issued. As of August 4, 2026, we do not have sufficient standalone liquidity to repay the outstanding balance of the New Revolving Facility at its contractual maturity. Accordingly, management concluded that these conditions and events raised substantial doubt about the Company's ability to continue as a going concern. Management intends to refinance, extend or replace the New Revolving Facility prior to its maturity. In addition, we expect the pending mergers with CCFI and Aaron's to close in August 2026. Following completion of the mergers, we expect to have sufficient liquidity to repay the New Revolving Facility, if necessary, and to support the refinancing, extension or replacement of the facility. Based on these plans, management concluded that it is probable the plans will be effectively implemented and will mitigate the conditions and events that raised substantial doubt. Accordingly, management concluded that substantial doubt has been alleviated.
Management's Discussion & Analysis (MD&A)
New heading “RESULTS OF OPERATIONS (amounts in thousands, except per share data)”
New heading “Interest Expense and Other Fees.”
New heading “Change in Fair Value of Derivative Liability and Warrants”
New heading “Net Income (Loss)”
New heading “Net Loss Attributable to Common Stockholders.”
New heading “Net Loss Attributable to Common Stockholders Per Share — Basic and Diluted”
New heading “Six Months Ended June 30, 2026 compared to Six Months Ended June 30, 2025:”
New heading “Cost of Revenue”
New heading “Operating Expenses”
Largest changes
“In addition, the Company expects the pending mergers with CCFI and Aaron's to close in August 2026. Following completion of the mergers, the Company expects to have sufficient liquidity to repay the New Revolving Facility, if necessary, and an improved financial position to support the refinancing, extension or replacement of the facility. Based on these plans, management concluded that substantial doubt about the Company's ability to continue as a going concern has been alleviated.”see in full comparison
The New Revolving Facility provides total commitments of $110 million and matures on December 4, 2026. As of June 30, 2026, thesee in full comparisonmaturityCompanydatewasfallsinwithincompliancetwelvewithmonthsall financial covenants under the facility. As of the issuance date of these financialstatements andstatements, the Company does not expect to have sufficientcashstandaloneon handliquidity to repay the outstandingborrowingsbalance of the New Revolving Facility atmaturityitsabsentcontractualrefinancingmaturity.orAccordingly,extension,managementtheconcludedupcomingthatmaturitythese conditions andtheeventsneed for potential waivers raiseraised substantial doubt about theCompany’sCompany's ability to continue as a going concern. The Company intends to refinance, extend or replace the New Revolving Facility prior to its December 4, 2026 maturity.
“Net Loss Attributable to Common Stockholders Per Share — Basic and Diluted”see in full comparison
“Six Months Ended June 30, 2026 compared to Six Months Ended June 30, 2025:”see in full comparison
“RESULTS OF OPERATIONS (amounts in thousands, except per share data)”see in full comparison
Full comparison: every changed paragraph (61)
On December 11, 2025, we entered into the Merger Agreement pursuant to which CCFI and Aaron’s will become wholly owned subsidiaries of the Company, and the Company will remain a publicly traded entity. The Mergers, if completed, will create a premier omni-channel platform that provides non-prime consumers access to durable goods and a comprehensive suite of innovative financial solutions tailored to their specific needs. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Mergers. The Mergers are expected to close withinin theAugust third quarter of 2026,2026 following the receipt of the requisite stockholder and regulatory approvals and other customary closing conditions.
Revenue is recognized over a period of time subsequent to the gross originations (on average over ana 87 month period). Historically, we recognized approximately 70-75% of revenue from gross originations two quarters after the quarter in which the origination occurred.
The following tables present gross originations for the three and six months ended MarchJune 31,30, 2026 and 2025:
Gross originations through KPay represented 42%40% and 35%39% of gross originations during the three months ended MarchJune 31,30, 2026 and 2025, respectively.
Wayfair represented 18%17% and 27% of gross originations during the three months ended MarchJune 31,30, 2026 and 2025, respectively. The gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform.
Gross originations through KPay represented 41% and 37% of gross originations during the six months ended June 30, 2026 and 2025, respectively.
Wayfair represented 18% and 27% of gross originations during the six months ended June 30, 2026 and 2025, respectively. The gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform.
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) before interest expense and other fees, transaction related costs, stock-based compensation expense, debt refinancing costs, depreciation and amortization on property and equipmentequipment, intangibles and capitalized software, litigation and settlement expenses, provision for impairment of leased assets, interest income, gain on extinguishment of term loan and settlement of derivative liability, net, and change in fair value of derivative liability and warrants. Transaction-related costs consist primarily of professional fees incurred and retention bonus costs in connection with the Mergers.
RESULTS OF OPERATIONS (amounts in thousands, except per share data)
Three Months Ended MarchJune 31,30, 2026 compared to the Three Months Ended MarchJune 31,30, 2025:
Total revenue is comprised of rental revenue and other revenue. Rental revenue is recognized in the period it is earned and cash is collected. Other revenue consists primarily of the sale of property held for lease (and lease agreements) to third parties and other immaterial sources of income from third party relationships, and is recognized as performance obligations are satisfied.
Revenue
The increase in total revenue of $7.1 million, or 9.8%, during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company’s lease portfolio and strong collection efforts. Gross originations remained relatively consistent period-over-period, and revenue growth was driven by a larger base of active leases generating recurring revenue, as a result of originations growth in Q4 2025 as well as increased buyout activity and improvements in recoveries.
The increase in total revenue of $2.9 million, or 4.0%, during the three months ended June 30, 2026 as compared to the same period in 2025 was primarily a result of gross originations growth and healthy customer payment collections. We saw gross originations growth during the three months ended June 30, 2026 as compared to the same period in 2025 primarily as a result of our mobile app featuring Katapult Pay and growth from our direct merchants. Write-offs as a percentage of total revenue was 9.2%9.7% and 9.0%9.8% during the three months ended MarchJune 31,30, 2026 andas 2025,compared respectively,to the same period in 2025 and remains within our 8% to 10% target range. The provision for write-offs represents estimated losses based on historical results. Actual write-offs may differ from this estimate.
Cost of revenue consists primarily of depreciation expense related to property held for lease, accelerated depreciation for impairment of property held for lease, accelerated depreciation of early lease-purchase options (buyouts), payment processing fees, and other costs associated with offering lease-purchase transactions to customers.
The increase in cost of revenue of $2.5 million, or 4.2%, during the three months ended June 30, 2026 as compared to the same period in 2025 was a result of higher gross origination growth and capitalized property held for leases. The increase in the property held for lease portfolio and the historical lease portfolio collection patterns impact the associated depreciation expense, which includes accelerated depreciation for early lease-purchase options (buyouts), and accelerated depreciation for impairment charges related to property held for lease. As depreciation expense is accelerated for buyouts and impairment, the cost of sales is greater earlier in the property held for lease asset life. As a result, in periods of high gross origination growth with higher rates of property held for lease additions, cost of sales will be disproportionately higher as compared to revenue growth.
The increase in cost of revenue of $3.2 million, or 5.6%, during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company’s lease portfolio, reflecting higher gross originations in Q4 2025. This growth resulted in higher depreciation expense, including the impact of accelerated depreciation associated with early lease-purchase options (buyouts) and impairment activity.
Gross profit as a percentage of total revenue remained relatively flat at 15.4% for the three months ended June 30, 2026 compared to 15.5% for the same period in 2025.
Gross profit as a percentage of total revenue increased to 23.0% for the three months ended March 31, 2026 compared to 19.9% for the same period in 2025 primarily due to the increase in revenue outpacing growth in cost of revenue. Revenue is impacted by growth in the Company’s lease portfolio, increased buyout activity and recoveries, and growth in KPay as outlined in the Revenue section above.
Operating expenses primarily consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, compensation costs, general and administrative expense and litigation and settlement expenses. Servicing costs include permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs for customer underwriting models. Professional and consulting fees include corporate legal, transaction related costs and accounting costs. Transaction related costs consist of professional fees and other expenses incurred in connection with the Mergers. Technology and data analytics expense includes technology costs and salaries and benefits for computer programming and data analytics employees that support our underlying technology and proprietary risk model algorithms. Compensation costs consist primarily of payroll and related costs and stock-based compensation. General and administrative expenses include insurance, occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software. Litigation and settlement expenses consist of agreed upon settlement amounts that are probable and estimable and associated legal fees. Transaction related costs consist of professional fees and other expenses incurred in connection with financing and strategic activities. The increase in total operating expenses of $0.9 million, or 6.8%, during the three months ended June 30, 2026 as compared to the same period in 2025 was primarily due to $1.4 million increase in professional and consulting fees, including $0.8 million increase in transaction-related costs, and a $0.5 million increase in litigation and settlement expenses related to the FlexShopper settlement. These increases were partially offset by a $1.0 million decrease in compensation costs.
Interest Expense and Other Fees.
Interest expense and other fees decreased $2.2 million during the three months ended June 30, 2026 as compared to the same period in 2025, primarily due to the absence of the New Term Loan following its extinguishment in November 2025, which eliminated the associated PIK interest and amortization of the related debt discount and issuance costs. The decrease was also attributable to lower average SOFR rate period-over-period.
Change in Fair Value of Derivative Liability and Warrants
The Company recognized a gain of $0.6 million during the three months ended June 30, 2026 compared to an immaterial change in 2025. The current period gain was primarily driven by the remeasurement of the Company’s derivative liability to fair value. The derivative liability was not outstanding during the three months ended June 30, 2025; prior period activity relates solely to changes in the fair value of warrant liabilities. These adjustments are non-cash in nature and reflect changes in the estimated fair value of these instruments at each reporting date. See Note 11 to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for more details.
Net Income (Loss)
As a result of the factors discussed above, the Company generated net loss of $(4.4) million during the three months ended June 30, 2026 compared to a net loss of $(7.8) million during the three months ended June 30, 2025.
Net Loss Attributable to Common Stockholders.
Net loss attributable to common stockholders was $(7.7) million during the three months ended June 30, 2026 compared to a net loss attributable to common stockholders of $(7.8) million during the three months ended June 30, 2025.
The Company generated net loss of $(4.4) million during the three months ended June 30, 2026, which, after a $(3.3) million reduction for accumulated undeclared dividends on the Company’s Series A and Series B Convertible Preferred Stock, resulted in a net loss attributable to common stockholders of $(7.7) million.
Net Loss Attributable to Common Stockholders Per Share — Basic and Diluted
Net loss per share attributable to common stockholders was $(1.41) basic and diluted for the three months ended June 30, 2026 compared to net loss per share attributable to common stockholders of $(1.63) basic and diluted for the three months ended June 30, 2025.
Six Months Ended June 30, 2026 compared to Six Months Ended June 30, 2025:
The increase in total revenue of $10.0 million, or 6.9%, during the six months ended June 30, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company’s lease portfolio and strong collection efforts. Gross originations remained relatively consistent period-over-period, and revenue growth was driven by a larger base of active leases generating recurring revenue, as a result of originations growth in Q4 2025 as well as increased buyout activity and improvements in recoveries.
Write-offs as a percentage of total revenue was 9.4% and 9.4% during the six months ended June 30, 2026 and 2025, respectively, and remains within our 8% to 10% target range. The provision for write-offs represents estimated losses based on historical results. Actual write-offs may differ from this estimate.
Cost of Revenue
The increase in cost of revenue of $5.8 million, or 4.9%, during the six months ended June 30, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company’s lease portfolio, reflecting higher gross originations in Q4 2025. This growth resulted in higher depreciation expense, including the impact of accelerated depreciation associated with early lease-purchase options (buyouts) and impairment activity.
Gross Profit
Gross profit as a percentage of total revenue increased to 19.3% for the six months ended June 30, 2026 compared to 17.7% for the same period in 2025 primarily due to the increase in revenue outpacing growth in cost of revenue. Revenue is impacted by growth in the Company’s lease portfolio, increased buyout activity and recoveries, and growth in KPay as outlined in the Revenue section above.
Operating Expenses
Total operating expenses remained relatively flat for the six months ended June 30, 2026, decreasing of $0.2 million, or 0.6%, compared with the same period in 2025.
The decrease in total operating expenses of $1.0 million, or 6.9% during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily due to lower compensation expense of $1.2 million and lower general and administrative expense of $1.0 million, partially offset by $1.7 million of transaction related costs during the three months ended March 31, 2026 as compared to the same period in 2025.
Interest expense decreased by $2.0$4.2 million during the threesix months ended MarchJune 31,30, 2026 as compared to the same period in 2025, primarily due to the absence of the Term Loan in 2026 following its extinguishment in November 2025, which eliminated PIK interest and the amortization of the related debt discount and issuance costs. The decrease was further supported by a decline in the average SOFR rate and the overall effective interest rate on the Company’s debt period-over-period.
The Company recognized a gain of $4.3$4.9 million during the threesix months ended MarchJune 31,30, 2026 compared to an immaterial change in 2025. The current period gain was primarily driven by the remeasurement of the Company’s derivative liability and warrant liabilities to fair value. The derivative liability was not outstanding during the threesix months ended MarchJune 31,30, 2025; prior period activity relates solely to changes in the fair value of warrant liabilities. These adjustments are non-cash in nature and reflect changes in the estimated fair value of these instruments at each reporting date. See Note 11 to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for more details.
As a result of the factors discussed above, the Company generated net income of $5.7$1.3 million during the threesix months ended MarchJune 31,30, 2026 compared to a net loss of $(5.713.5) million during the threesix months ended MarchJune 31,30, 2025.
Net IncomeLoss (Loss) AvailableAttributable to Common Stockholders.
Net incomeloss availableattributable to common stockholders was $0.4$(5.1) million during the threesix months ended MarchJune 31,30, 2026 compared to a net loss availableattributable to common stockholders of $(5.713.5) million during the threesix months ended MarchJune 31,30, 2025.
Although the Company generated net income of $5.7$1.3 million during the threesix months ended MarchJune 31,30, 20262026, net incomeloss availableattributable to common stockholders was reduced by $(5.36.4) million relatedof toaccumulated undeclared dividends on the Company’s Series A and Series B Convertible Preferred Stock, includingresulting accumulatedin undeclareda dividendsnet andloss allocation of undistributed earnings under the two-class method, which allocates earnings to participating securities prioravailable to common stockholders.stockholders of $5.1 million.
Net IncomeLoss (Loss) AvailableAttributable to Common Stockholders Per Share — Basic and Diluted
Net incomeloss per share availableattributable to common stockholders was $0.07$(0.92) basic and diluted for the threesix months ended MarchJune 31,30, 2026 compared to net loss per share availableattributable to common stockholders of $(1.232.87) basic and diluted for the threesix months ended MarchJune 31,30, 2025.
Adjusted gross profit represents gross profit less variable operating expenses related to lease originations, which are servicing costs and underwriting fees. We believe that adjusted gross profit provides a meaningful understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue. The reconciliations of gross profit to adjusted gross profit for the three and six months ended MarchJune 31,30, 2026 and 2025 are as follows:
The reconciliations of net income (loss) to adjusted EBITDA for the three and six months ended MarchJune 31,30, 2026 and 2025 are as follows:
The reconciliations of net income (loss) to adjusted net income (loss) for the three and six months ended MarchJune 31,30, 2026 and 2025 are as follows
The reconciliations of operating expenses to fixed cash operating expenses for the three and six months ended MarchJune 31,30, 2026 and 2025 are as follows:
The following table presents cash used in operating, investing, and financing activities during the threesix months ended MarchJune 31,30, 2026 and 2025:
The increase in cash provided by operating activities of $8.8$9.3 million for the 2026 period compared to the 2025 period is primarily driven by the improvement in net income (loss) and significant non-cash adjustments, including depreciation and amortization associated with the Company’s lease portfolio, partially offset by continuedthe investmentnon-cash gain from changes in propertythe heldfair forvalue leaseof derivative liabilities and changes in working capital.
The decreaseincrease in cash used in investing activities of seventeen$0.1 thousand dollarsmillion for the 2026 period compared to the 2025 period is primarily driven by lowerhigher purchasesadditions propertyto andcapitalized equipment.software.
The increase in cash used in financing activities of $1.9$1.1 million in the 2026 period compared to the 2025 period is primarily driven by $2.5 million higher net principal repayments on the New and Existing Revolving Facilities.Facilities, partially offset by $1.2 million decrease in payments of deferred financing costs.
The New Revolving Facility provides total commitments of $110 million and matures on December 4, 2026. As of June 30, 2026, the maturityCompany datewas fallsin withincompliance twelvewith monthsall financial covenants under the facility. As of the issuance date of these financial statements andstatements, the Company does not expect to have sufficient cashstandalone on handliquidity to repay the outstanding borrowingsbalance of the New Revolving Facility at maturityits absentcontractual refinancingmaturity. orAccordingly, extension,management theconcluded upcomingthat maturitythese conditions and theevents need for potential waivers raiseraised substantial doubt about the Company’sCompany's ability to continue as a going concern. The Company intends to refinance, extend or replace the New Revolving Facility prior to its December 4, 2026 maturity.
In addition, the Company expects the pending mergers with CCFI and Aaron's to close in August 2026. Following completion of the mergers, the Company expects to have sufficient liquidity to repay the New Revolving Facility, if necessary, and an improved financial position to support the refinancing, extension or replacement of the facility. Based on these plans, management concluded that substantial doubt about the Company's ability to continue as a going concern has been alleviated.
The New Revolving Facility contains financial covenants, and as of March 31, 2026, the Company was in compliance with all such covenants, after giving effect to limited waivers obtained subsequent to quarter end; however, future compliance with certain covenants may require additional waivers from the lenders, and there can be no assurance that such waivers will be obtained.
KPLT insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 2 filings (1 insider, 2 trade dates, 614,002 shares, about $6.5K). Net open-market shares: -614,002 (purchases minus sales); net value about -$6.5K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-11 | Hanson Kyle |
Other | 900,308 | — | — |
| 2026-08-11 | Hanson Kyle |
Grant/award | 628,931 | — | — |
| 2026-08-11 | Zayas Orlando |
Shares withheld for tax | 2,608 | $8.00 | $20.9K |
| 2026-08-11 | Zayas Orlando |
Disposition to issuer | 20,468 | — | — |
| 2026-08-11 | Hhcf Series 21 Sub Holdco, Llc |
Open-market sale | 612,985 | — | — |
| 2026-08-11 | Schutt Eugene R Jr |
Grant/award | 594,320 | — | — |
| 2026-08-11 | Miller Cory J |
Grant/award | 511,006 | — | — |
| 2026-08-11 | Miller Cory J |
Grant/award | 268,920 | — | — |
| 2026-08-11 | Baker William C |
Grant/award | 393,082 | — | — |
| 2026-08-11 | Baker William C |
Grant/award | 1,268,047 | — | — |
| 2026-08-11 | Falkenstein Russell |
Grant/award | 393,082 | — | — |
| 2026-08-11 | Falkenstein Russell |
Grant/award | 224,100 | — | — |
| 2026-08-11 | George Rachel G |
Grant/award | 179,280 | — | — |
| 2026-08-11 | George Rachel G |
Grant/award | 314,465 | — | — |
| 2026-08-11 | Heller Michael Mh |
Grant/award | 596,320 | — | — |
| 2026-08-11 | Devault Lynn |
Grant/award | 203,202 | — | — |
| 2026-08-11 | Hanson Kyle |
Grant/award | 628,931 | — | — |
| 2026-08-11 | Hanson Kyle |
Other | 900,308 | — | — |
| 2026-08-11 | Hanson Kyle |
Grant/award | 3,505,145 | — | — |
| 2026-08-11 | Baldock Jennifer A |
Grant/award | 596,320 | — | — |
| 2026-08-11 | Kmj Group Holdings, Llc |
Other | 11,369,326 | — | — |
| 2026-08-10 | Hhcf Series 21 Sub Holdco, Llc |
Option exercise | 486,264 | $0.01 | $4.9K |
| 2026-08-10 | Hhcf Series 21 Sub Holdco, Llc |
Open-market sale | 252 | $6.36 | $1.6K |
| 2026-08-10 | Hhcf Series 21 Sub Holdco, Llc |
Option exercise | 160,000 | $0.01 | $1.6K |
| 2026-08-10 | Hhcf Series 21 Sub Holdco, Llc |
Open-market sale | 765 | $6.36 | $4.9K |
| 2026-05-15 | Medlin Derek |
Shares withheld for tax | 622 | $6.76 | $4.2K |
| 2026-05-15 | Walsh Nancy A |
Shares withheld for tax | 1,424 | $6.76 | $9.6K |
| 2026-05-15 | Zayas Orlando |
Shares withheld for tax | 868 | $6.76 | $5.9K |
| 2026-04-30 | Bartow Philip K Iii |
Grant/award | 20,979 | $7.15 | $150.0K |
| 2026-04-30 | Zink Gregory L |
Grant/award | 20,979 | $7.15 | $150.0K |
| 2026-04-30 | Gayhardt Donald |
Grant/award | 20,979 | $7.15 | $150.0K |
Well-known investors holding KPLT (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 16,397 | $108.4K | 0.0% | Reduced 4% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 14,726 | $97.3K | 0.0% | New position |
| DME Capital Management (Greenlight Capital, David Einhorn) | 2026-06-30 | 262,227 | $603 | — | Sold out |