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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company”, or “Katapult” refer to Katapult Holdings, Inc and its subsidiaries.

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. All dollar amounts are in thousands, unless otherwise specified.

In this Annual Report on Form 10-K, we have restated our previously issued consolidated financial statements as of and for the year ended December 31, 2022. Refer to the "Explanatory Note" preceding Item 1. Business, for background on the restatement, the fiscal periods impacted and other information. We have also restated certain previously reported financial information as of and for the year ended December 31, 2022 in this Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations to conform the discussion with the appropriate restated amounts. See Note 2 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for additional information related to the restatement, including descriptions of the errors and the impact to our consolidated financial statements.

OVERVIEW (dollars in thousands)

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 customers. Through our POS integrations and innovative mobile app featuring Katapult Pay, customers who may be unable to access traditional financing can shop a growing network of our merchants.

Recent Developments:

Reverse Stock Split

On July 27, 2023, we amended our Certificate of Incorporation to effect, effective as of 5:00 p.m. Eastern Time, the Reverse Stock Split of our common stock. At the effective time of the Reverse Stock Split, every twenty-five shares of our common stock either issued and outstanding or held as treasury stock were automatically reclassified into one new share of our Common Stock. The Reverse Stock Split was approved by our stockholders at the Annual Meeting of Stockholders on June 6, 2023 and approved by our Board of Directors on July 11, 2023. The primary goals of the Reverse Stock Split were to increase the share price in order to meet the minimum per share bid price requirement for continued listing on Nasdaq as well as to improve the perception of our common stock as an investment security and make our common stock more attractive to a broader range of institutional investors that may have minimum share price targets for new investments. However, there can be no assurance that the foregoing goals will be realized or maintained. The common stock began trading on Nasdaq on a reverse split-adjusted basis on July 28, 2023 under the existing trading symbol “KPLT.” The effects of the Reverse Stock Split have been reflected in this Annual Report on Form 10-K for all periods presented. For additional information on the Reverse Stock Split, see Note 1 to our Consolidated Financial Statements included within Part II, Item 8, contained in this Annual Report on

Form 10-K.

Segment Information

We conduct our business within one business segment, which is defined as providing lease payment options to customers for the purchase of durable goods from e-commerce partners. Our operations are aggregated into a single reportable operating segment based upon similar economic and operating characteristics as well as similar markets.

Key Performance Metrics

We regularly review several metrics, including the following GAAP and non-GAAP key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor.

Gross Originations

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 potential revenue streams as a percentage of revenue is realized in the quarter in which the gross originations occurs and increases cumulatively over the following quarters. Gross originations have historically reached approximately 70-75% of revenue realized within two quarters from when the originations occurred. We believe this is a useful operating metric for investors to use in assessing the volume of transactions that take place on our platform.

The following table presents gross originations for the years ended December 31, 2023 and 2022, respectively:

Year Ended December 31, Change

Wayfair represented 52% and 57% of gross originations during the years ended December 31, 2023 and2022, respectively.

The increase in gross originations during the year ended December 31, 2023 was predominately a result of our mobile app featuring Katapult PayTM., which we launched in the third quarter of 2022, growth from our direct merchants and higher wallet capture during tax season. During the year ended December 31, 2023, we generated $42,006 of gross originations through Katapult PayTM.

Total Revenue

Total revenue represents the sum of rental revenue and other revenue. We record revenue in accordance with ASC 842 and as a result we record revenue when earned and cash is collected. The following table presents total revenue for the years ended December 31, 2023 and2022:

Year Ended December 31,

(As Restated)

Gross Profit

Gross profit represents total revenue less cost of revenue, and is a measure presented in accordance with U.S. GAAP. We also use adjusted gross profit as a key performance indicator to provide an understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue.

Adjusted Gross Profit

Adjusted gross profit represents gross profit less variable operating expenses, 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. See “—Non-GAAP Financial Measures” section below for a reconciliation of adjusted gross profit, which is a non-GAAP measure utilized by management, to gross profit.

Adjusted EBITDA

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 warrant liability, provision (benefit) for income taxes, depreciation and amortization on property and equipment and capitalized software, impairment of leased assets, loss on partial extinguishment of debt, stock-based compensation expense and litigation expenses. 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 loss.

Components of Results of Operations

Revenue

Revenue consists of rental revenue and other revenue. Rental revenue consists of revenue earned from property held for lease and agreed-upon charges related to lease-purchase agreements. Other revenue consists primarily of asset sales revenue related to the sale of property held for lease which are considered recurring and ordinary in nature to our business. Also included in other revenue is revenue from merchant partnerships, and infrequent sales of property formerly on lease when customers terminate a lease and elect to return the property to us rather than our retail partners.

Cost of Revenue

Cost of revenue consists primarily of depreciation expense related to property held for lease, impairment of property held for lease, net book value of property buyouts, payment processing fees, and other costs associated with offering lease-purchase transactions to customers.

Operating Expenses

Operating expenses consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, compensation costs and general and administrative expense. Servicing costs primarily consist of permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs from customer underwriting models. Professional and consulting fees primarily consist of corporate legal and accounting costs. Technology and data analytics expense primarily consist of 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 consist primarily of occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software.

RESULTS OF OPERATIONS (amounts in thousands, except per share

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022:

In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The following tables are references for the discussion that follows.

Year Ended December 31,

(As Restated)

Revenue

Operating expenses:

Loss on partial extinguishment of debt (2,391) — (2,391) — %

(Provision) benefit for income taxes (165) 50 (215) (430.0 %)

Net loss per common share - basic and diluted $ (8.97) $ (10.30) $ 1.33 (12.9 %)

nm - not meaningful

Rental revenue. The increase in rental revenue of $12,976, or 6.3%, was primarily due to a 15.1% increase in year-over-year gross originations during 2023 as compared to 2022. Write-offs as a percentage of total revenue was 8.9% and 7.6% (as restated) during 2023 and 2022, respectively. The increase in write-offs as a percentage of total revenue was due to lower write-offs and impairment charges related to our 2021 gross originations due to COVID and other stimulus-related repayment patterns that year. As a result, 2022 write-offs were lower than our long-term target for write-offs as a percent of revenue of 8% to 10%.

Other revenue.The decrease in other revenue of $885, or 21.4%, was primarily the result of a decrease in lease sales during 2023 as compared to 2022.

Cost of Revenue. The increase in cost of revenue of $7,789, or 4.5%, was primarily due to an increase in depreciation expense and impairment charges related to property held for lease, net, due to higher year-over-year gross originations during 2023 as compared to 2022 partially offset by a decline in early lease buyouts and stronger collections and underwriting performance during 2023 as compared to 2022 Gross profit as a percentage of total revenue decreased to 18.8% for the year ended December 31, 2023 compared to 17.9% (as restated) for the same period in 2022.

Professional and consulting fees. The decrease in professional and consulting fees of $3,845, or 36.5%,was primarily driven by a decrease in consulting, accounting and recruiting fees as part of our operating expense reduction initiatives that began in the fourth quarter of 2022 and continued through 2023 partially offset by an increase in legal fees due to non-recurring legal matters during 2023 as compared to 2022.

Technology and data analytics. The decrease in technology and data analytics of $2,484 or 26.5%, was primarily due to a reduction in employee and developer headcount, as part of our operating expense reduction initiatives that began in the fourth quarter of 2022 and continued through 2023.

Compensation costs. The decrease in compensation costs of during 2023 of $2,358, or 9.4%, was primarily due to the previously mentioned head count reduction during the three months ended March 31, 2023 partially offset by an increase in stock-based compensation related to the vesting of restricted stock awards during 2023 which increased $595 period-over-period, as well as by a one-time severance expense related to headcount reductions during 2023, as part of our operating expense reduction initiatives that began in the fourth quarter of 2022 and continued through 2023.

General and administrative. The decrease in general and administrative expenses of $3,346, or 23.4%, was primarily due to a decrease in insurance related costs, marketing and advertising costs and software related expenses during 2023 as compared to 2022.

Litigation expense, net. Litigation expense, net represents litigation settlement expense from our ongoing shareholder litigation. Refer to Note 13, Commitments and Contingencies, included in Part II, Item 8 of this Annual Report on Form 10-K for more details.

Loss on partial extinguishment of debt. During 2023, we recorded a $2,391 loss on partial extinguishment of debt, as a result of our debt refinancing in March 2023.

Interest expense and other fees. The decrease in interest expense and other fees was primarily due to the refinancing of the Credit Agreement which occurred in March 2023 in which we repaid $25,000 of outstanding principal on the Term Loan partially offset by in an increase of 1% of the spread over the benchmark rate on the RLOC and an increase in average outstanding principal under the RLOC year over year.

Interest income. Interest income represents interest earned from cash deposited in interest bearing accounts which started in the third quarter of 2022.

Change in fair value of warrant liability. The decrease in change in fair value of warrant liability is primarily due to the decline in the fair value of our public warrants and private warrants.

(Provision) benefit for income taxes. The provision for income taxes for the year ended December 31, 2023 is primarily due to state income taxes on our estimated taxable income. The benefit for income taxes for the year ended December 31, 2022 relates primarily to reductions in certain state income tax obligations. Taxable income is expected to be generated in certain states where accelerated federal tax depreciation is disallowed.

Net loss. The decrease in net loss was due to the changes noted above.

Non-GAAP Financial Measures

In addition to gross profit and net loss, which are measures presented in accordance with U.S. GAAP, we believe that adjusted gross profit, adjusted EBITDA, adjusted net 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, adjusted EBITDA, adjusted net 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 loss should not be considered as substitutes for U.S. GAAP metrics such as gross profit, operating loss, net 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 net loss is a non-GAAP financial measure that is defined as net loss before change in fair value of warrant liability, stock-based compensation expense and litigation expense, net.

Fixed cash operating expenses is a non-GAAP measure that is defined as operating expenses less depreciation and amortization on property and equipment and capitalized software, stock-based compensation expense, litigation expense, net and variable lease costs such as servicing costs and underwriting fees. Management believes that fixed cash operating expenses provides a meaningful understanding of controllable ongoing expenses.

Adjusted gross profit, adjusted EBITDA and adjusted net loss are useful to an investor in evaluating our performance because these measures:

•Are widely used to measure a company’s operating performance;

•Are financial measurements that are used by rating agencies, lenders and other parties to evaluate our credit worthiness; and

•Are used by our management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting.

The reconciliation of gross profit to adjusted gross profit for the years ended December 31, 2023 and 2022 are as follows:

Year Ended December 31, Change

(As Restated)

Less:

The reconciliations of net loss to adjusted EBITDA for the years ended December 31, 2023 and 2022 are as follows:

Year Ended December 31, Change

(As Restated)

Add back:

Loss on partial extinguishment of debt 2,391 — 2,391 nm

The reconciliations of net loss to adjusted net loss for the years ended December 31, 2023 and 2022 are as follows:

Year Ended December 31, Change

(As Restated)

Add back:

The reconciliations of total operating expenses to fixed cash operating expenses for the years ended December 31, 2023 and 2022 are as follows:

Year Ended December 31, Change

(As Restated)

Less:

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)

Our principal sources of liquidity are our cash and cash equivalents and availability under our RLOC. Our primary uses of cash include purchases of assets held for lease and funding of ongoing operations.

Our ability to fund future operating needs will be dependent on our ability to generate positive cash flows from operations and obtain financing for growth, as needed. We believe our cash and available borrowings under our RLOC is sufficient to meet our liquidity needs for the next 12 months. We believe we will meet longer-term (beyond 12 months) cash requirements through a combination of available cash on hand, cash flows generated from operations and availability under our RLOC.

The following table presents our cash and cash equivalents and restricted cash as of December 31, 2023 and 2022:

December 31,

Total cash, cash equivalents and restricted cash (1) $ 28,811 $ 69,841

(1)Total cash, cash equivalent and restricted cash was decreased by $9,622 due to a payment delay with our third-party loan processor in December 2023, which was corrected in January 2024. Excluding this payment delay, total cash, cash equivalents and restricted cash would have been $38,433.

The following table presents cash used in operating, investing, and financing activities during the years ended December 31, 2023 and 2022:

Year Ended December 31,

Net cash used in:

(1)Total cash, cash equivalent and restricted cash was decreased by $9,622 due to a payment delay with our third-party loan processor in December 2023. Excluding this payment delay, total cash, cash equivalents and restricted cash would have been $38,433.

The decrease in cash used in operating activities for the 2023 period compared to the 2022 period was primarily the result of a decrease in net book value of property buyouts and a decline in the fair value of our public warrants and private warrants partially offset by an increase in gross originations. The decrease in cash used in investing activities for the 2023 compared to the 2022 period is primarily due to a decrease in capitalized software additions. The increase in cash used in financing activities in the 2023 period compared to the 2022 period is primarily due to the $25,000 repayment on the Term Loan partially offset by a decrease in principal repayments on the RLOC.

Financing Arrangements

Senior Secured Term Loan and RLOC

On May 14, 2019, Katapult SPV-1 LLC, as borrower (the “Borrower”), and Katapult Group, Inc. (f/k/a Cognical, Inc.) entered into a Credit Agreement with Midtown Madison Management, LLC as agent for various funds of Atalaya Capital Management (“Atalaya”), for a RLOC. The RLOC had a commitment of $125,000 that the lenders had the right to increase to $250,000. Total outstanding principal under the RLOC was $60,744 at December 31, 2023. As noted on the previous page, in December 2023, our third-party loan processor experienced a timing error in their validation processes. We alerted them to the error, temporarily covering the approved leases with $9,622 of our cash and the issue was resolved in January 2024. Excluding this payment delay, our outstanding debt under the RLOC would have been $70,366, as the RLOC has a 90% advance rate on eligible accounts receivable.

In addition, in connection with a prior amendment to the Credit Agreement entered into on December 4, 2020, Atalaya also provided us with a senior secured term loan (the “Term Loan”) commitment of up to $50,000. We drew down the full $50,000 of the Term Loan on December 4, 2020. The Term Loan bore interest at LIBOR plus 8.0% (with a 1% LIBOR floor) and an additional 3% interest per annum accrued to the principal balance as PIK interest. Total outstanding principal and PIK interest under the Term Loan was $30,340 at December 31, 2023.

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 most recent amendment in March 2023.

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 $75,000 from $125,000. The spread on the RLOC was increased to 8.5% from 7.5% while the spread on the Term Loan remained at 8%. Additionally, effective April 1, 2023, the benchmark rate for RLOC and Term Loan was changed from LIBOR to SOFR, subject in each case to a 3% floor plus applicable credit adjustment spread, which is fixed at 0.10%. Additionally, the interest rate for PIK interest on the Term Loan is (A) if Liquidity (as defined in the Credit Agreement) is greater than $25,000, 4.5% and (B) if Liquidity is less than $25,000, to 6%.

In connection with the amendment to the Credit Agreement, we repaid $25,000 of outstanding principal amount of the Term Loan and issued a warrant to purchase up to 80,000 shares of our common stock at an exercise price of $0.25 per share, which vested on September 6, 2023. Under the same warrant, on December 5, 2023, we granted an additional 80,000 shares of our common stock at an exercise price of $0.25 per share which are vested.

As of December 31, 2022, we were in compliance with all covenants of the Credit Agreement.

On April 24, 2024, the Company entered into the Limited Waiver and 16th Amendment to the Loan and Security Agreement with the Lender (the "16th Amendment"). Pursuant to such 16th Amendment, the Lender granted the Company a waiver of any Specified Defaults (as defined in the 16th Amendment) related to the accounting errors that led to the restatement of the Company’s financial statements for all reporting periods prior to the date of the amendment to the extent such financial statements and certifications were impacted by the restatement. In addition, the 16th Amendment also updated certain financial covenants each as defined in the 16th Amendment, including Minimum Adjusted EBITDA (Trailing 3 Months), Minimum Adjusted EBITDA (YTD) and Minimum Tangible Net Worth. As a result of the 16th Amendment, the Company is in compliance with all of its covenants as of December 31, 2023 and as of the issuance date of these consolidated financial statements.

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.

For additional information on our loan obligations, see Note 8 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K.

Pledge and Guaranty

Pursuant to the Pledge Agreement, dated as of May 14, 2019, between Katapult Group, Inc. (f/k/a Cognical, Inc.) and Midtown Madison Management, LLC, Katapult Group, Inc. pledged and granted a first priority security interest in all equity interests of the Borrower and any investment property and general intangibles evidenced by or related to such membership interests. Pursuant to the Corporate Guaranty and Security Agreement, dated as of December 4, 2020, by and among Katapult Group, Inc., Legacy Katapult and Midtown Madison Management, LLC, Katapult and Katapult Group, Inc. have granted a first priority security interest in all of their respective assets and Katapult and Katapult Group, Inc. guarantee payment of all obligations of the Borrower under the Credit Agreement.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of December 31, 2023 were as follows:

(in thousands) Payments by Year

(1) Future cash obligations include scheduled interest payments due based on the interest rate of approximately 13.9% as of December 31, 2023.

(2) Future cash obligations include scheduled interest payments due based on the interest rate of 17.9%, including 4.5% PIK interest, as of December 31, 2023.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We evaluate our significant estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

We believe that the accounting estimates described below involve a significant degree of judgment and complexity and have the greatest potential effect on our consolidated financial statements. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

For further information, see Note 3 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K.

Rental Revenue Recognition

Our lease-to-own agreements, which comprise the majority of our revenue, fall within the scope of ASC 842, Leases under lessor accounting and we are recognizing revenue from customers when revenue is earned and cash is collected. Property held for lease is leased to customers pursuant to lease-purchase agreements with an initial term: typically one week, two weeks, or one month, with non-refundable lease payments. Generally, the customer has the right to acquire title either through a 90-day promotional pricing option, an early purchase option (buyout) available prior to completion of the full agreement, or by completing all lease renewal payments, generally 10 to 18 months. On any current lease, customers have the option to terminate the agreement at any time without penalty in accordance with lease term. Accordingly, lease-purchase agreements are accounted for as operating leases with lease revenues recognized in the period they are earned and cash is collected. Amounts received from customers who elect early purchase options (buyouts) are included in rental revenue. Lease payments received prior to their due dates are deferred and recorded as unearned revenue and are recognized as rental revenue in the month in which the revenue is earned. Rental revenue also includes agreed-upon charges assessed to customer lease applications. Payments are received upon submission of the applications and execution of the lease-purchase agreements. Services are considered to be rendered and revenue earned over the initial lease term.

Revenues from leases from our direct integrations are reported net of sales taxes. For our direct integration transactions, we collect sales tax from each customer's lease payment and set up a sales tax payable for remittance to the state. For our Katapult Pay transactions, the merchant partner is funded the amount of the purchased goods including sales tax which is capitalized as part of the investment and included in property held for sale and is depreciated into cost of revenue. Revenue is recognized for our Katapult Pay transactions when lease payments are received from customers (which includes a portion of sales tax which we prepaid when the purchased good were funded).

Stock-Based Compensation

In accordance with ASC 718, we measure and record compensation expense related to stock-based awards based on the fair value of those awards as determined on the date of the grant. We recognize stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period and use the straight-line method to recognize stock-based compensation. We use the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the estimated fair value of stock-based awards. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, such as expected term and volatility, which affect the fair value of each stock option. Forfeitures are accounted for as they are incurred.

Income Taxes

We account for income taxes under the asset and liability method pursuant to ASC 740, Income Taxes. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized based on all available positive and negative evidence. The determination of whether a deferred tax asset will be realizable is a highly subjective decision based upon estimated future taxable income and could vary from actual results. We recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the local taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit greater than 50% likelihood of being realized upon settlement with the related tax authority. The changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in the provision for income taxes.

Property Held for Lease, Net of Accumulated Depreciation and Impairment

Property held for lease consists of furniture, electronics, appliances, and other durable goods offered for lease-purchase in the normal course of business. Such property is provided to customers pursuant to a lease-purchase agreement with a minimum term; typically one week, two weeks, or one month. The renewal periods of the initial lease term of the agreement are typically 10, 12 or 18 months. Customers may terminate a lease agreement at any time without penalty. The average customer continues to lease the property for approximately 8 months because the customer either exercises the buyout (early purchase) options or terminates the lease-purchase agreement prior to the end of the 10 to 18 month renewal periods. As a result, property held for lease is classified as a current asset on the consolidated balance sheets.

Property held for lease is recorded at cost, excluding shipping costs, and is carried at net book value. Depreciation for property held for lease is generally provided using the income forecasting method and is included within cost of revenue. Under the income forecasting method, property held for lease is depreciated in the proportion of rents received to total expected rents received based on historical data, which is an activity-based method similar to the units of production method. We provide for impairment for the undepreciated balance of the property held for lease assuming no salvage value with a corresponding charge to cost of revenue. Impairment expense includes expense related to property identified as impaired based on historical data, including default trends, such that the recorded amount closely approximates actual impairment expense incurred during the period. We derecognize the undepreciated net book value of property buyouts as buyouts occur with a corresponding charge to cost of revenue. We periodically evaluate fully depreciated property held for lease, net and when it is determined there is no future economic benefit, the cost of the assets are written off and the related accumulated depreciation is reversed.

There are uncertainties involved when recognizing expenses related to property held for lease due to the subjective nature of the income forecasting method and estimated salvage value, which could vary from actual results.

Recently Issued and Adopted Accounting Pronouncements

See Note 3 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.

Emerging Growth Company

As of December 31, 2023, we are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2024, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1,235,000, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700,000 of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1,000,000 in non-convertible debt securities during the previous three years.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands)

We are exposed to a variety of market and other risks, including the effects of changes in interest rates, and inflation, as well as risks to the availability of funding sources and other risks. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. The effect of a hypothetical 10% increase or decrease in interest rates would not have had a material impact on the fair market value of our investments as of December 31, 2023 and 2022.

Interest Rate Risk

The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. We manage our interest rate risk based on an ongoing assessment of trends in interest rates and economic developments, giving consideration to possible effects on both total return and reported earnings. As a result of such assessment, we may enter into swap contracts or other interest rate protection agreements from time to time to mitigate this risk.

As of December 31, 2023 and 2022, we have variable rate interest bearing debt with a principal amount of $91,084 and $111,783, respectively.

Effective April 1, 2023, both the RLOC and the Term Loan replaced LIBOR with SOFR, subject to a 3% floor plus a 0.10% credit adjustment spread. In connection with the 15th amendment to the Credit Agreement, the spread on the RLOC was increased from 7.5% to 8.5% per annum. As of December 31, 2023, the interest rate on our RLOC was 13.9%.

Our Term Loan is a variable rate loan that accrues interest at a variable rate of interest based on SOFR, subject to a 3% floor, plus 8% per annum. The spread was unchanged in connection with the 15th amendment to the Credit Agreement. As of December 31, 2023, the interest rate on our Term Loan was 17.9%, which includes 4.5% PIK interest.

Inflation Risk

Although we believe that inflation has indirectly impacted our business by negatively impacting customer spending and the sales of our key merchants, we do not believe that inflation has directly had, or currently directly has, a material effect on our results of operations or financial condition.

Foreign Currency Risk

We had no material foreign currency risk for the December 31, 2023 and 2022. Our activities to date are conducted only in the United States.

Item 8. Financial Statements and Supplementary Data

The Company's Consolidated Balance Sheets as of December 31, 2023 and 2022, and related Consolidated Statements of Operations and Comprehensive Loss, Stockholders’ Equity (Deficit) and Cash Flows for each of the years in the two-year period ended December 31, 2023, together with the reports of our independent registered public accounting firms, are incorporated herein by reference.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Katapult Holdings, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Katapult Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2023.

Philadelphia, Pennsylvania

April 24, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Katapult Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Katapult Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statement of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows, for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Restatement of the 2022 Financial Statements

As discussed in Note 2 to the financial statements, the accompanying 2022 financial statements have been restated to correct misstatements.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ DELOITTE & TOUCHE LLP

New York, NY

March 9, 2023 (April 24, 2024 as to the effects of the restatement discussed in Note 2)

We began serving as the Company’s auditor in 2018. In 2023 we became the predecessor auditor.

KATAPULT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

December 31,

(As Restated)

ASSETS

Current assets:

Prepaid expenses and other current assets 4,491 8,100

Litigation insurance reimbursement receivable (Note 13) 5,000 —

Property and equipment, net (Note 5) 327 557

Security deposits 91 91

Capitalized software and intangible assets, net (Note 6) 1,919 1,847

Right-of-use assets (Note 9) 888 772

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities:

Accrued litigation settlement (Note 13) 12,000 —

Lease liabilities, non-current (Note 9) 614 445

STOCKHOLDERS' (DEFICIT) EQUITY

Total stockholders' (deficit) equity (27,992) (2,066)

Total liabilities and stockholders' (deficit) equity $ 100,862 $ 130,052

See accompanying notes.

KATAPULT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except per share data)

Years Ended December 31,

(As Restated)

Revenue

Operating expenses:

Technology and data analytics 6,905 9,389

Loss on partial extinguishment of debt (2,391) —

Change in fair value of warrant liability 807 6,439

(Provision) benefit for income taxes (165) 50

Weighted average common shares outstanding - basic and diluted 4,088 3,930

Net loss per common share - basic and diluted $ (8.97) $ (10.30)

See accompanying notes.

KATAPULT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(amounts in thousands)

Shares Amount

Cumulative effect for corrections of misstatements — — — (6,593) (6,593)

Stock options exercised 12 — 67 — 67

Vesting of restricted stock units 38 — — — —

Repurchase of restricted stock for payroll tax withholding (9) — (344) — (344)

Stock-based compensation expense — — 6,439 — 6,439

Stock options exercised — — 1 — 1

Vesting of restricted stock units 118 — — — —

Repurchases of restricted stock for payroll tax withholding (24) — (355) — (355)

Stock-based compensation expense — — 7,034 — 7,034

See accompanying notes.

KATAPULT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Years Ended December 31,

(As Restated)

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Net book value of property held for lease buyouts 25,784 30,576

Impairment on property held for lease expense 22,019 17,575

Change in fair value of warrants liability (807) (6,439)

Loss on partial extinguishment of debt 2,391 —

Amortization of debt discount 2,760 4,541

Amortization of debt issuance costs, net 277 361

Amortization of right-of-use assets 355 367

Change in operating assets and liabilities:

Prepaid expenses and other current assets 3,610 (3,730)

Litigation insurance reimbursement receivable (5,000) —

Accrued litigation settlement 12,000 —

Net cash used in operating activities (17,414) (20,848)

Cash flows from investing activities:

Purchases of property and equipment (20) (168)

Additions to capitalized software (954) (1,337)

Net cash used in investing activities (974) (1,505)

Cash flows from financing activities:

Proceeds from revolving line of credit 14,297 18,517

Principal repayments on revolving line of credit (11,551) (22,477)

Principal repayment on term loan (25,000) —

Payments of deferred financing costs (34) —

Repurchases of restricted stock (355) (344)

Proceeds from exercise of stock options 1 67

Net cash used in financing activities (22,642) (4,237)

Net decrease in cash, cash equivalents and restricted cash (41,030) (26,590)

Cash, cash equivalents and restricted cash at beginning of period 69,841 96,431

Cash, cash equivalents and restricted cash at end of period $ 28,811 $ 69,841

Supplemental disclosure of cash flow information:

Cash paid for income taxes $ 206 $ 446

Deferred financing costs included in accrued liabilities $ 481 $ —

Cash paid for operating leases $ 513 $ 511

See accompanying notes.

(dollars in thousands, except per share data)

1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business—Katapult Holdings, Inc.(“Katapult” or the “Company”) is a technology driven lease-to-own ("LTO") platform that integrates with omnichannel retailers and e-commerce platforms to power the purchasing of everyday durable goods for underserved U.S. non-prime customers. Katapult’s fully-digital technology platform provides non-prime customers with a flexible lease-purchase option to enable them to obtain durable goods from Katapult’s network of e-commerce retailers. Katapult's end-to-end technology platform provides seamless integration with merchants.

Subsidiaries—Our consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Katapult Intermediate Holdings, LLC (formerly known as Keys Merger Sub 2, LLC), Katapult Group, Inc. and Katapult SPV-1 LLC. which originates all of the Company’s leases.

Legacy Katapult was incorporated in Delaware in 2016 and changed its headquarters from New York, New York to Plano, Texas in December 2020. Katapult Group, Inc. was incorporated in the state of Delaware in 2012. Katapult SPV-1 LLC is a Delaware limited liability company formed in 2019.

Basis of Presentation— The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Our consolidated financial statements include the accounts of Katapult Holdings, Inc. and its wholly owned subsidiaries. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in these consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current year presentation.

Reverse Stock Split— On July 27, 2023, the Company amended the Second Amended and Restated Certificate of Incorporation to effect, effective as of July 27, 2023, the Reverse Stock Split of our common stock. At the effective time of the Reverse Stock Split, every twenty-five shares of our common stock either issued and outstanding or held as treasury stock were automatically reclassified into one new share of our common stock. The Reverse Stock Split was approved by the Company’s stockholders at the Annual Meeting of Stockholders on June 6, 2023 and approved by the Board of Directors on July 11, 2023. The common stock began trading on Nasdaq on a reverse split-adjusted basis on July 28, 2023 under the existing trading symbol “KPLT.”

As a result of the Reverse Stock Split, proportionate adjustments were made to the number of shares of common stock underlying the Company’s outstanding equity awards and the number of shares issuable under our equity incentive plans and certain existing agreements, as well as the exercise, grant and acquisition prices of such equity awards, as applicable.

In addition, proportionate adjustments were made to the Company’s outstanding warrants, resulting in: (i) each publicly traded warrant issued under the Warrant Agreement, dated October 31, 2019, exercisable for 1/25th of a share of common stock at an exercise price of $287.50 per whole share; and (ii) the warrant under the Warrant to Purchase Stock, dated March 6, 2023, issued by Katapult to Midtown Madison Management LLC, exercisable for up to 160,000 shares of common stock at an exercise price of $0.25 per share.

No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were entitled to receive fractional shares as a result of the Reverse Stock Split received one full share of post-Reverse Stock Split common stock, in lieu of receiving such fractional shares.

The effects of the Reverse Stock Split have been reflected in our consolidated financial statements for all periods presented.

(dollars in thousands, except per share data)

2.RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2023, management identified errors in previously issued financial statements. Management prepared a quantitative and qualitative analysis of the errors described below, in accordance with the SEC Staff's Accounting Bulletin ("SAB") Nos. 99 Materiality and No. 108, Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded the aggregate impact of all the errors are material to the Company's previously reported annual financial statements as of and for the year ended December 31, 2022. As a result, the accompanying consolidated financial statements as of and for the year ended December 31, 2022 have been restated from amounts previously reported. We have also restated related amounts within the accompanying footnotes to the consolidated financial statements to conform to the corrected amounts in the consolidated financial statements.

Description of Restatement Errors

The errors identified are as follows:

a.Rental revenue - The Company determined that it miscalculated sales tax payable related to certain customer lease payments going back multiple years. The Company performed an assessment of its sales tax liability across all jurisdictions for potential additional exposure and determined that there was an overstatement of rental revenue and an understatement of sales tax payable included in accrued liabilities. The impact to our consolidated financial statements is as follows:

i.Consolidated statement of operations and comprehensive loss for the year ended December 31, 2022 is a decrease to rental revenue of $2,492

ii.Consolidated balance sheet as of December 31, 2022 is an increase to sales tax payable included in accrued liabilities of $5,590

iii.Consolidated statement of stockholders' (deficit) equity is an increase of accumulated deficit as of December 31, 2021 of $3,098 for sales tax errors that impacted rental revenue that were identified for 2021 and prior

b.Other errors - There are other errors not described in item (a) of this note. These errors and related restatement adjustments include:

1.Cost of revenue- Correction to depreciation expense related to property held for lease, net of accumulated depreciation and impairment, included in cost of revenue, of $973 for certain leases originated on or before December 31, 2022. Impact to the balance sheet to correct this error is a decrease to property held for lease, net of accumulated depreciation and impairment of $936 and a decrease to prepaid expenses and other current assets of $37.

2.The errors below impacted the beginning balance of accumulated deficit as of December 31, 2021 in our consolidated statement of stockholders' (deficit) equity by $980.

•Correction to decrease debt discount amortization included in interest expense of $734;

•Correction to decrease professional and consulting fees related to recruiting expense of $367;

•Correction to increase general and administrative expense related to insurance expense of $121

3.Correction to increase deferred revenue by $2,631 on our consolidated balance sheet and decrease rental revenue by $116 related to recognition of deferred revenue. The impact to the beginning balance of accumulated deficit in our consolidated statement of stockholders' (deficit) equity for the deferred revenue impact as of December 31, 2021 is an increase of accumulated deficit as of December 31, 2021 of $2,515.

4.In addition, we made the following corrections to our consolidated balance sheet or consolidated statement of operations and comprehensive loss:

•Correction of $876 on our consolidated balance sheet to decrease accrued liabilities and decrease property held for lease, net of accumulated depreciation and impairment

•Correction of $378 on our consolidated balance sheet to decrease prepaid expenses and increase other assets to property held for lease, net of accumulated depreciation and impairment

•Correction of $375 on our consolidated statement of operations and comprehensive loss to decrease professional and consulting fees to litigation expense, net

(dollars in thousands, except per share data)

The impact to the beginning balance of accumulated deficit as of December 31, 2021 in our consolidated statement of stockholders' (deficit) equity for all errors that were identified that impacted 2021 and prior periods described above, is an increase of accumulated deficit of $6,593.

The following tables present a reconciliation of the as previously reported consolidated financial statements to the restated amounts as of and for the year ended December 31, 2022. The reconciled consolidated financial statements as of and for the year ended December 31, 2022 include the following: (1) as restated consolidated balance sheet, (2) as restated consolidated statement of operations and comprehensive loss and (3) as restated consolidated statement of cash flows. Presented below are the changes to each financial statement line item which changed as a result of the restatement.

Consolidated Balance Sheet

As Previously Reported Restatement Adjustments Restatement Reference As Restated

Prepaid expenses and other current assets $ 8,515 $ (415) (b1)( b4) $ 8,100

Total stockholders' (deficit) equity $ 7,128 $ (9,194) $ (2,066)

Consolidated Statement of Operations and Comprehensive Loss

As Previously Reported Restatement Adjustments Restatement Reference As Restated

Litigation expense, net $ — $ 375 (b4) $ 375

Net loss per common share - basic and diluted $ (9.64) $ (0.66) $ (10.30)

(dollars in thousands, except per share data)

Consolidated Statement of Cash Flows

As Previously Reported Restatement Adjustments Restatement Reference As Restated

Net book value of property held for lease buyouts $ 30,505 $ 71 (b1) $ 30,576

Impairment on property held for lease expense $ 17,216 $ 359 (b1) $ 17,575

Prepaid expenses and other current assets $ (4,266) $ 536 (b1)(b4) $ (3,730)

Net cash used in operating activities $ (20,848) $ — $ (20,848)

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates— The preparation of the consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. The most significant estimates relate to the selection of useful lives of property and equipment, the selection of useful lives for property held for lease and the related depreciation method, determination of fair value of stock option grants, and the valuation allowance associated with deferred tax assets. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates.

Segment Information— Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company has one operating segment, and therefore, one reportable segment.

Cash and Cash Equivalents— As of December 31, 2023 and 2022, cash consists primarily of checking and savings deposits. The Company holds certain cash equivalents, which consist of highly liquid investments with original maturities of three months or less at the time of purchase.

Restricted Cash— The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash as of December 31, 2023 and 2022 consists primarily of customer lease payments received into a collection account pending release by the Company's lender. All of the Company’s restricted cash is classified as current due to its short-term nature.

The reconciliation of cash, cash equivalents and restricted cash is as follows:

December 31,

Total cash, cash equivalents and restricted cash $ 28,811 $ 69,841

(dollars in thousands, except per share data)

Property Held for Lease, Net of Accumulated Depreciation and Impairment— Property held for lease consists of furniture, mattresses, customer electronics, appliances, and other durable goods offered for lease-purchase in the normal course of business. Such property is provided to customers pursuant to a lease-purchase agreement with a minimum lease term; typically one week, two weeks, or one month. The renewal periods of the initial lease term of the agreement are typically 10, 12 or 18 months. Customers may terminate a lease agreement at any time without penalty. The average customer continues to lease the property for approximately 8 months because the customer either exercises the buyout (early purchase) options or terminates the lease purchase agreement prior to the end of the 10, 12 or 18 month renewal periods. As a result, property held for lease is classified as a current asset on the consolidated balance sheets.

Property held for lease is recorded at cost, excluding shipping costs, and is carried at net book value. Depreciation for property held for lease is determined using the income forecasting method and is included within cost of revenue. Under the income forecasting method, property held for lease is depreciated in the proportion of rents received to total expected rents received based on historical data, which is an activity-based method similar to the units of production method. The Company provides for impairment for the undepreciated balance of the property held for lease assuming no salvage value with a corresponding charge to cost of revenue. Impairment expense includes expense related to property identified as impaired based on historical data, including default trends, such that the recorded amount closely approximates actual impairment expense incurred during the period. The Company derecognizes the undepreciated net book value of property buyouts as buyouts occur with a corresponding charge to cost of revenue. The Company periodically evaluates fully depreciated property held for lease, net and when it is determined there is no future economic benefit, the cost of the assets are written off and the related accumulated depreciation is reversed.

Property and Equipment, Net—Property and equipment other than property held for lease are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method and are recorded in general and administrative expense over the estimated useful lives of the assets.The estimated useful lives of property and equipment are described below:

Property and Equipment Useful Life

Computer, office and other equipment 5 years

Computer software 3 years

Furniture and fixtures 7 years

Leasehold improvements Shorter of estimated useful life or remaining lease term

Capitalized Software—The Company capitalizes certain development costs incurred in connection with its internal use software. Costs incurred in the preliminary stages of development are expensed as incurred. Capitalization of costs begins when the preliminary project stage is completed, and it is probable that the project will be completed and used for its intended function. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional features and functionality. Maintenance costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three years. Capitalized software cost is included within the Capitalized software and intangible assets, net line item of our consolidated balance sheets. Amortization of capitalized software is included in general and administrative expenses in our consolidated statements of operations and comprehensive loss.

Debt Issuance Costs— Costs incurred in connection with the issuance of the Company’s revolving line of credit (“RLOC”) and senior secured term loan ("Term Loan") have been recorded as a direct reduction against the debt and amortized over the life of the associated debt as a component of interest expense. The amortization of the Term Loan issuance costs utilizes the effective interest method, and the amortization of the RLOC debt issuance costs utilizes the straight-line method, which is not materially different compared to the effective interest method. The amortization of debt issuance costs is recorded and included in interest expense and other fees in our consolidated statements of operations and comprehensive loss.

(dollars in thousands, except per share data)

Impairment of Long-Lived Assets— The Company assesses long-lived assets for impairment in accordance with the provisions of ASC 360, Property, Plant and Equipment. Long-lived assets, such as intangible assets and property and equipment, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.No impairment charges have been recorded during the years ended December 31, 2023 or 2022.

Rental Revenue— Our lease-to-own agreements, which comprise the majority of our revenue, fall within the scope of ASC 842, Leases under lessor accounting and we are recognizing revenue from customers when revenue is earned and cash is collected. Property held for lease is leased to customers pursuant to lease purchase agreements with an initial term: typically one week, two weeks, or one month, with non-refundable lease payments. Generally, the customer has the right to acquire title either through a 90-day promotional pricing option, an early purchase option (buyout) available prior to completion of the full agreement, or by completing all lease renewal payments, generally 10 to 18 months. On any current lease, customers have the option to terminate the agreement at any time without penalty in accordance with lease term. Accordingly, lease-purchase agreements are accounted for as operating leases under ASC 842, Leases with lease revenues recognized in the period they are earned and cash is collected. Amounts received from customers who elect early purchase options (buyouts) are included in rental revenue. Lease payments received prior to their due dates are deferred and recorded as unearned revenue and are recognized as rental revenue in the month in which the revenue is earned. Rental revenue also includes agreed-upon charges assessed for customer lease applications. Payments are received upon submission of the applications and execution of the lease-purchase agreements. Services are considered to be rendered and revenue earned over the initial lease term.

Revenues from leases from our direct integrations are reported net of sales taxes. For our direct integration transactions, we collect sales tax from each customer's lease payment and set up a sales tax payable for remittance to the respective state. For our Katapult Pay transactions, the merchant partner is funded the amount of the purchased goods including sales tax which is capitalized as part of the investment and included in property held for lease and is depreciated into cost of revenue. Revenue is recognized for our Katapult Pay transactions on gross basis when lease payments are received from customers, which includes sales tax.

Other Revenue— Other revenue consists primarily of asset sales revenue related to the sale of property held for lease and transfer of related lease-purchase contracts and right to receive past due lease payments. During the year ended December 31, 2023, the Company continued to advance its strategy to focus on additional opportunities to generate revenue, which includes the sale of property held for lease to third parties. The sale of property held for lease is now considered recurring and ordinary in nature to the Company’s business. As such, these sales are accounted for within the scope of ASC 606, Revenue from Contracts with Customers. Revenue is recognized when a performance obligation is satisfied by transferring control over an asset to a customer. Revenue is recorded with corresponding costs of revenue, presented on a gross basis. We recognized revenue from sales of property held for lease of $2,846 and $3,980, for the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation— In accordance with ASC 718, we measure and record compensation expense related to stock-based awards based on the fair value of those awards as determined on the date of the grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period and uses the straight-line method to recognize stock-based compensation. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the estimated fair value of stock option awards. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. Forfeitures are accounted for as they are incurred.

The Company calculates the fair value of stock options granted to employees by using the following assumptions:

Expected Volatility—The Company estimates volatility for stock option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the stock option grant for a term that is approximately equal to the stock options’ expected term.

(dollars in thousands, except per share data)

Expected Term—The expected term of the Company’s stock options represents the period that the stock-based awards are expected to be outstanding. The Company has elected to use the midpoint of the stock options vesting term and contractual expiration period to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on US Treasury zero-coupon issues with a term that is equal to the stock options’ expected term at the grant date.

Dividend Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.

Income Taxes— The Company accounts for income taxes under the asset and liability method pursuant to ASC 740, Income Taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that the Company would be able to realize deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits in the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2023 and 2022, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.

Net Loss Per Share— The Company calculates basic and diluted net loss per share attributable to common stockholders using the two-class method required for companies with participating securities.

Under the two-class method, basic net loss per share available to stockholders is calculated by dividing the net loss available to stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share available to stockholders is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. In periods in which the Company reports a net loss available to stockholders, diluted net loss per share available to stockholders would be the same as basic net loss per share available to stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.The Company reported net loss available to common shareholders during the years ended December 31, 2023 and 2022, respectively.

Fair Value Measurements— Fair value accounting is applied for all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows the established framework for measuring fair value.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

(dollars in thousands, except per share data)

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.

The Company’s financial instruments consist of accounts payable, accrued expenses, warrant liability, the RLOC, and the Term Loan. Accounts payable and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. Our consolidated financial statements also include fair value level 3 measurements of private common stock warrants. The Company uses a third-party valuation firm to determine the fair value of certain of the Company's financial instruments. Refer to Note 14 for discussion of fair value measurements.

Concentrations of Credit Risk— Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company’s cash balances exceed those that are federally insured. To date, the Company has not recognized any losses caused by uninsured balances. As of December 31, 2023, the Company also did not have any customers that accounted for 10% or more of outstanding gross accounts receivable.

Significant customers are those which represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each balance sheet date. During the years ended December 31, 2023 and 2022, the Company did not have any customers that accounted for 10% or more of total revenue.

A significant portion of the Company’s transaction volume is with a limited number of merchants, including most significantly, Wayfair Inc.

Recently Adopted Accounting Pronouncements— In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 which deferred the sunset date of ASC 848 until December 31, 2024. This ASU did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted— In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU will improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. This update is effective for public entities for annual periods beginning after December 15, 2024 with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this ASU.

(dollars in thousands, except per share data)

4.PROPERTY HELD FOR LEASE, NET OF ACCUMULATED DEPRECIATION AND IMPAIRMENT

Property held for lease, net of accumulated depreciation and impairment consists of the following:

December 31,

(As Restated)

Less: accumulated depreciation and impairment (231,473) (247,507)

The table below details our cost of revenue for the years ended December 31, 2023 and 2022:

December 31,

(As Restated)

Depreciation expense related to property held for lease $ 125,401 $ 116,102

Impairment on property held for lease expense 22,019 17,575

(1) Other consists mainly of payment processing fees, incentives and other lease related costs.

Substantially all property held for lease, net is on-lease as of December 31, 2023 and 2022.

5.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

December 31,

Computer, office and other equipment $ 822 $ 813

Computer software 80 80

Less: accumulated depreciation (938) (688)

Property and equipment, net $ 327 $ 557

We recognized depreciation expense related to property and equipment, net of $250 and $187 for the years ended December 31, 2023 and 2022, respectively, which is included in general and administrative expenses in our consolidated statements of operations and comprehensive loss.

(dollars in thousands, except per share data)

6.CAPITALIZED SOFTWARE AND INTANGIBLE ASSETS, NET

Capitalized software and intangible assets, net consists of the following:

December 31,

Less: accumulated amortization (1,642) (760)

Capitalized software and intangible assets, net $ 1,919 $ 1,847

We recognized amortization expense for capitalized software and intangible assets of $882 and $545 for the years ended December 31, 2023 and 2022, respectively, which is included in general and administrative expenses in our consolidated statements of operations and comprehensive loss.

The following table summarizes estimated future amortization expense of capitalized software and intangible assets, net, exclusive of software not yet placed in service, as of December 31, 2023:

As of December 31, 2023 and 2022, $581 and $398 of capitalized software was not yet placed in service, respectively and such amounts are excluded from the table above.

7.ACCRUED LIABILITIES

Accrued liabilities consists of the following:

December 31,

(As Restated)

(1)Cash collected from lessees not yet remitted to the tax authority.

(2)Amounts owed to merchant partners for property held for lease.

8.DEBT

On March 6, 2023, the Company entered into the 15th amendment to the loan and security agreement with the Lender (as amended the “15th Amendment"). As part of the amendment, the maturity date of the RLOC and the Term Loan was extended to June 4, 2025 and the commitments under the RLOC were reduced to $75,000 from $125,000. The spread on the RLOC was increased to 8.5% from 7.5%, while the spread on the Term Loan remained at 8.0%. Additionally, effective April 1, 2023 ,the Secured Overnight Financing Rate (“SOFR”) replaced the London Interbank Offered Rate (“LIBOR”), plus a 0.10% credit adjustment spread, for both the RLOC and the Term Loan’s benchmark rate for interest rate calculations. As of December 31,

(dollars in thousands, except per share data)

2023, the interest rates were 13.9% and 17.9% (which includes the interest rate applicable to interest paid-in-kind (“PIK”)) for the RLOC and Term Loan, respectively.

In connection with the 15th Amendment, the Company repaid $25,000 of outstanding principal amount of the Term Loan and issued a warrant to purchase up to 80,000 shares of our common stock at an exercise price of $0.25 per share, which vested on September 6, 2023. Under the same warrant, on December 5, 2023, the Company granted an additional 80,000 shares of our common stock at an exercise price of $0.25 per share which are vested. In conjunction with the 15th amendment to the Credit Agreement, the Company incurred a loss on partial extinguishment of debt of $2,391 during the year ended December 31, 2023. The loss on partial extinguishment of debt is attributed to the derecognition of a proportionate amount of the unamortized debt discount, a result of repaying the $25,000 of outstanding principal on the Term Loan.

In addition, the 15th Amendment also updated certain financial covenants, including the Minimum Adjusted EBITDA (as defined in the 15th Amendment) Minimum Tangible Net Worth, Minimum Liquidity and compliance with a Total Advance Rate (as defined in the 15th Amendment). As of December 31, 2022, the Company was in compliance with all covenants.

A reconciliation of the outstanding principal to the carrying amount of the RLOC is as follows::

December 31,

Less: Unamortized issuance costs (397) (359)

The issuance costs are amortized over the life of the RLOC and included in interest expense and other fees in our consolidated statements of operations and comprehensive loss.

A reconciliation of the outstanding principal to the carrying amount of the Term Loan is as follows:

December 31,

Less: Unamortized debt discount and issuance costs (4,837) (5,728)

The interest rate for PIK interest on the Term Loan (as defined in the 15th Amendment) is (A) if Liquidity is greater than $25,000, 4.5% or (B) if Liquidity is less than $25,000, 6%. We recognized amortization expense related to the Term Loan discount and issuance costs of $2,760 and $4,541 (as restated) for the years ended December 31, 2023 and 2022, respectively. Amortization of debt discount and debt issuance costs is included in interest expense and other fees in our consolidated statements of operations and comprehensive loss.

The RLOC and Term Loan are also subject to certain customary representations, affirmative covenants, which consist of maintaining lease performance metrics, financial ratios related to operating results, and lease delinquency ratios, along with customary negative covenants.

(dollars in thousands, except per share data)

9.LEASES

Lessor Information— Refer to Note 3 of these consolidated financial statements for further information about the Company’s revenue generating activities as a lessor. The Company’s customer agreements are considered operating leases.

Lessee Information— The Company determines if a contract contains a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. The Company uses the incrementalborrowing rate to determine the present value of lease payments, as the implicit rate is not readily determinable. The ROU asset also includes any lease payments made. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company leases office space in New York, NY under an operating lease with a non-cancelable lease term which ends in June 2025. The Company also leases office space in Plano, TX and in December 2023 entered into a new lease agreement for new office space under an operating lease with a non-cancelable lease term which ends in June 2031. The Company recorded an ROU asset and lease liability for the Plano lease of $471 and $462, respectively. Lease expenses are included in general and administrative expenses in our consolidated statement of operations and comprehensive loss.

The following is a schedule of future minimum lease payments required under the non-cancelable leases as of December 31, 2023, reconciled to the present value of operating lease liabilities:

Year Future Minimum Lease Payments

Total future minimum lease payments $ 1,294

Less: Interest (383)

Total present value of lease liabilities $ 911

Lease Liabilities—Lease liabilities as of December 31, 2023, consists of the following:

Current portion of lease liabilities $ 297

Long-term lease liabilities, net of current portion 614

Total lease liabilities $ 911

We recognized rent expense for operating leases of $565 and $532 for the for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had a weighted average remaining lease term of 5.2 years and a weighted average discount rate of 12%.

10.STOCK-BASED COMPENSATION

The Company has two stock incentive plans, the Cognical Holdings, Inc. 2014 Stock Incentive Plan, (the “2014 Plan”) and the Katapult Holdings, Inc. 2021 Equity Incentive Plan, (the “2021 Plan”).

2014 Plan

In accordance with the 2014 Plan, the board of directors of Legacy Katapult could grant equity awards to officers, employees, directors and consultants for common stock. There were no stock options granted to non-employees during 2023 and 2022. The 2014 Plan has specific vesting for each stock option grant allowing vesting of the options over one to four years. No equity

(dollars in thousands, except per share data)

awards have been granted under the 2014 Plan since October 2020 and no new equity awards are expected to be granted under the 2014 Plan.

Stock Options

A summary of the status of the stock options under the 2014 Plan as of December 31, 2023, and changes during the year then ended is presented below (adjusted after the Reverse Stock Split):

Granted — —

The total intrinsic value of stock options exercised during the year ended December 31, 2022 was $216.

2021 Plan

On June 9, 2021, the 2021 Plan, which was previously approved by the board of directors and stockholders, became effective.

In accordance with the 2021 Plan, directors may issue equity awards, including restricted stock awards ("RSA"), restricted stock unit awards ("RSU") and stock options to officers, employees, directors and consultants to purchase common stock. The awards granted are subject to either service-based and/or performance-based vesting conditions. Awards granted under the 2021 Plan generally vest over one to four years depending upon the grantee. Following the effect of the 1-for-25 Reverse Stock Split, the total common stock authorized for issuance under our 2021 Plan is 517,286.

Stock Options

A summary of the status of the stock options under the 2021 Plan as of December 31, 2023, and changes during the year then ended is presented below (adjusted after the Reverse Stock Split):

Granted — —

Exercised — —

Forfeited — —

As of December 31, 2023, total compensation cost not yet recognized related to unvested stock options was $469, which is expected to be recognized over a period of 0.9 years. No stock options were granted under the 2021 Plan during the years ended December 31, 2023 and 2022.

(dollars in thousands, except per share data)

Restricted Stock Units

RSUs are equity awards granted to employees that entitle the holder to shares of common stock when the awards vest. RSU's are measured based on the fair value of the Company's common stock on the date of grant.

A summary of the status of RSU's under the 2021 Plan as of December 31, 2023, and changes during the year then ended is presented below (adjusted after the Reverse Stock Split):

Number of RSUs Weighted Average Grant Date Fair Value

Stock-Based Compensation Expense—We recognized stock-based compensation expense of $7,034 and $6,439 for the years ended December 31, 2023 and 2022, respectively. Stock-based compensation expense is included in compensation costs on the consolidated statements of operations and comprehensive loss.

As ofDecember 31, 2023, there was approximately $7,744 of unrecognized compensation costs related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of vested RSUs as of their respective vesting dates were $1,830.

Shares Available For Future Issuance—At December 31, 2023, there were 103,312 shares available for issuance by the Company under the 2021 Plan.

11.INCOME TAXES

The Company recorded a federal income tax loss fully related to its U.S.-based jurisdictions for the years ended December 31, 2023 and 2022, respectively. Since it maintains a full valuation allowance on all of its deferred tax assets, the Company recorded no federal provision for income tax or benefits during the years ended December 31, 2023 and 2022, respectively. The provision for income taxes for the year ended December 31, 2023 relates primarily to state income taxes. The benefit for income taxes for the year ended December 31, 2022 relates primarily to reductions in certain state income tax obligations.

(dollars in thousands, except per share data)

A reconciliation of the Company's statutory income tax rate to the Company's effective income tax rate is as follows:

Years Ended December 31,

(As Restated)

Federal statutory rate 21.0 % 21.0 %

Effect of:

State taxes, net of federal tax benefit 6.3 % 7.0 %

Change in valuation allowance (24.4 %) (29.4 %)

Warrant remeasurement 0.5 % 3.3 %

Stock compensation (3.6 %) (2.1 %)

Permanent differences (0.2 %) — %

Other, net — % 0.3 %

Effective tax rate (0.4 %) 0.1 %

The components of deferred tax assets and liabilities are as follows:

December 31,

(As Restated)

Deferred tax assets:

Federal, state and local net operating loss carryforwards 32,441 33,038

Total deferred tax asset before valuation allowance 45,642 39,640

Deferred tax asset - net of valuation allowance 5,674 8,420

Deferred tax liabilities:

Right-of-use assets (224) (195)

Depreciation & amortization (5,450) (8,225)

Total deferred tax liabilities (5,674) (8,420)

Net deferred tax asset (liability) $ — $ —

As of December 31, 2023 and 2022, the Company had a U.S. federal net operating loss carryforward of $127,800 and $134,100, respectively. As of December 31, 2023 and 2022, the Company has state net operating loss (“NOL”) carryforwards of $94,100 and $86,000, respectively. Of the $127,800 of Federal NOL carryforwards, $27,300 begins to expire in 2033 and $100,500 may be carried forward indefinitely. The state net operating loss carryforwards begin to expire in 2024.

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2023 and 2022, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of December 31, 2023 and 2022.

(dollars in thousands, except per share data)

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, or potentially significantly deferred compared to such ability in the absence of an "ownership change", which could potentially result in increased future tax liability to the Company.

The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2023 and 2022 the Company has not recorded any uncertain tax positions in our consolidated financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive loss. As of December 31, 2023 and 2022, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company's tax years are still open under statute from December 31, 2020, to the present. The resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements.

12.NET LOSS PER SHARE

As discussed in Note 8, on March 6, 2023, in connection with the 15th amendment of our Credit Agreement, the Company issued a warrant to purchase up to 80,000 shares of our common stock at an exercise price of $0.25 per share, which vested on September 6, 2023. Under the same warrant, on December 5, 2023, the Company granted an additional 80,000 shares of its common stock at an exercise price of $0.25 per share which are vested. The warrants were considered exercisable for 160,000 shares for little to no consideration and the shares are therefore included in basic shares outstanding at their issuance date.

The Company’s potentially dilutive securities, which include unvested RSUs, stock options to purchase common stock and warrants to purchase common stock, have been excluded from the computation of diluted net loss per share for certain periods, as the effect would be antidilutive. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same in periods of a net loss. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect (adjusted for after the Reverse Stock Split):

Year Ended December 31,

(dollars in thousands, except per share data)

13.COMMITMENTS AND CONTINGENCIES

Litigation risk— From time to time, the Company may become involved in various legal actions arising in the ordinary course of business. Management is of the opinion that the ultimate liability, if any, from these actions will not have a material effect on its financial condition or results of operations. The Company is not currently aware of any material indemnification or other claims, except as discussed below and has not accrued any material liabilities related to such obligations in the consolidated financial statements as of December 31, 2023 and 2022.

Except as set forth below, the Company and its subsidiaries are not a party to, and their properties are not the subject of, any material pending legal proceedings.

DCA Litigation

On April 9, 2021, Daiwa Corporate Advisory LLC (“DCA”), filed a complaint filed in the Supreme Court of the State of New York, New York County. The complaint relates to an April 11, 2018 letter agreement (the “Letter Agreement”) entered into by DCA and Legacy Katapult. Among other things, DCA alleges that Katapult breached its obligations to (i) provide DCA a right of first refusal to act as the “exclusive financial advisor” with respect to the 2020 sales transaction and the 2020 PIPE transaction, (ii) pay DCA fees in connection with such advisory roles, and (iii) pay a $100 termination fee when it terminated the Letter Agreement. DCA seeks damages in an amount to be determined by trial and seeks attorneys’ fees and costs, an award of pre- and- post -judgment interest, and such other and further relief as the Court deems just and proper.

On September 12, 2022, DCA filed a motion seeking summary judgment as to its claims, and on September 13, 2022, the Company filed a motion seeking summary judgment as to DCA’s first cause of action. The parties subsequently filed opposition and reply briefs and unsuccessfully attempted to resolve the matter via mediation. On September 6, 2023, the Court issued its decision and order on the motions, granting in part each party’s motion. It found that (1) Katapult breached its obligation to offer DCA the opportunity to act as its advisor on the 2020 sale transaction but that a triable question of fact remains regarding the damages, if any, caused by the breach (2) Katapult did not breach the contract with respect to its failure to offer DCA the opportunity to act as its advisor on the 2020 PIPE transaction; and (3) a triable question of fact remains regarding whether Katapult breached any obligations regarding the termination fee. This matter is scheduled for trial in September 2024. The Company intends to vigorously defend against the claims in this action.

Shareholder Litigation

On August 27, 2021, a putative class action lawsuit, captioned McIntosh v. Katapult Holdings, Inc., et al, was filed in the U.S. District Court for the Southern District of New York.The operative second amended complaint was filed on November 4, 2022 against Katapult Holdings, Inc., three current and former Company officers, and two FinServ officers. The second amended complaint alleges violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, and seeks an unspecified amount of damages on behalf of persons and entities that (a) beneficially owned and/or held FinServ common stock as of the close of business on May 11, 2021 and were eligible to vote at FinServ’s June 7, 2021 special meeting (the “FinServ Putative Class”); or (b) purchased or otherwise acquired Katapult securities between June 15, 2021 and August 9, 2021, inclusive (the “Katapult Putative Class”). On May 26, 2022, the Court appointed a lead plaintiff, but on August 8, 2023, the court dismissed the Katapult Putative Class’s claims which were under Sections 10(b) and 20(a) and dismissed two current and former Company officers from the case.The Court declined to dismiss certain of the FinServ Putative Class’s claims under Sections 14(a) and 20(a).

On August 25, 2022, a purported Company stockholder filed a putative class action lawsuit, captioned Saunders v. Einbinder, et al., against directors and officers of FinServ Acquisition Corp. (“FinServ”) and FinServ Holdings LLC in the Delaware Court of Chancery. The operative amended complaint was filed on January 27, 2023, alleging that defendants breached their fiduciary duties by making false and misleading disclosures to induce FinServ stockholders to approve FinServ’s merger with Katapult. On March 13, 2023, the Court granted the parties’ stipulation to dismiss FinServ Holdings LLC from the case and amended the caption as In re FinServ Acquisition Corp. SPAC Litigation.

(dollars in thousands, except per share data)

In December 2023, the Company and the plaintiffs in both the New York and Delaware class action lawsuits began mediation to reach a resolution to the pending lawsuits. After several rounds of mediated discussions, all parties have accepted the mediator's recommendation to settle the class action lawsuits. Although the settlement negotiations are ongoing, given the status of the settlement talks we were required under GAAP to accrue a liability in connection to the potential settlement. Accordingly, the Company accrued a contingent liability of $12,000 in accrued litigation settlement in current liabilities in its consolidated balance sheet as of December 31, 2023. The Company also recorded a $5,000 litigation insurance reimbursement receivable in current assets in its consolidated balance sheet as of December 31, 2023, which the insurer has agreed to pay. The Company recorded a $7,000 litigation expense, net in its consolidated statement of operations and comprehensive loss for the year ended December 31, 2023, which is net of the $5,000 litigation insurance reimbursement. The settlement, if any, may be satisfied in a combination of cash and shares.

14.FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of its warrant liability, RLOC, and Term Loan.

The estimated fair value of the Company’s RLOC, and term loan facility were as follows:

(1)Term loan outstanding principal balance and fair value includes $5,340 and $3,785 of capitalized PIK interest as of December 31, 2023 and 2022, respectively.

The estimated fair values of the Company’s RLOC and Term Loan were determined using Level 2 inputs based on an estimated credit rating for the Company and the yield for similar debt instruments with similar credit ratings.

There were no assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively. Liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 were as follows:

Fair Value Measurement Using

Liabilities: Total Level 1 Level 2 Level 3

Total Other Liabilities $ 95 $ 93 $ — $ 2

Fair Value Measurement Using

Liabilities: Total Level 1 Level 2 Level 3

Total Other Liabilities $ 902 $ 875 $ — $ 27

During the years ended December 31, 2023 and 2022, there were no transfers between Level 1 and Level 2, nor into or out of Level 3.

(dollars in thousands, except per share data)

The following table summarizes the activity for the Company’s Warrant liability measured at fair value on a recurring basis:

Warrant Liability

Changes in fair value (807)

15.SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the consolidated financial statements were issued, for events requiring adjustment to or disclosure in these consolidated financial statements. Except as discussed below, there are no events that require adjustment to or disclosure in these consolidated financial statements.

16.RESTATEMENT OF UNAUDITED QUARTERLY RESULTS (UNAUDITED)

The financial results data, presented on a quarterly basis for the years ended December 31, 2022 and 2023 are unaudited. This data has been prepared in accordance with U.S. GAAP for interim financial information and, in the opinion of management, reflect all adjustments necessary for a fair statement of the results of operations for the periods presented.

We have restated herein our previously issued unaudited quarterly financial results for the quarters ended March 31, 2022 and 2023, June 30, 2022 and 2023 and September 30, 2022 and 2023. The information has been prepared on the same basis as the consolidated financial statements. The related adjustments to the unaudited quarterly financial information resulting from similar adjustments discussed in Note 2 are also presented below. See Note 2 for descriptions of the misstatements in each category of restatements referenced by (a) and (b). In addition for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023, we decreased compensation costs in each quarter by $201 related to our bonus accrual as a result of increases to net loss in the respective periods referenced by (c) in the tables below.

Presented below are the restated condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of cash flows for each of the interim periods within the years ended December 31, 2022 and 2023.

(dollars in thousands, except per share data)

Condensed Consolidated Balance Sheet (Unaudited)

As Previously Reported Restatement Adjustments Restatement Reference As Restated

ASSETS

Current assets:

Prepaid expenses and other current assets 2,400 — 2,400

Property and equipment, net 669 — 669

Security deposits 91 — 91

Capitalized software and intangible assets, net 1,452 — 1,452

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities:

Lease liabilities, non-current 715 — 715

STOCKHOLDERS' (DEFICIT) EQUITY

Common stock — — —

Total liabilities and stockholders' (deficit) equity $ 144,152 $ — $ 144,152

(dollars in thousands, except per share data)

Condensed Consolidated Statement of Operations and Comprehensive Loss (Unaudited)

Three Months Ended March 31, 2022

As Previously Reported Restatement Adjustments Restatement Reference As Restated

Revenue

Operating expenses:

Technology and data analytics 2,410 — 2,410

Change in fair value of warrant liability 3,089 — 3,089

KPLT US Equity

KPLT · 10-K · period ended 2023-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands)

Item 8. Financial Statements and Supplementary Data

KPLT US Equity☆

KPLT · 10-K · period ended 2023-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands)

Item 8. Financial Statements and Supplementary Data

KPLT US Equity