kplt-20251231
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2025
OR
For the transition period from _____ to _____
Commission file number 001-39116
Katapult Holdings, Inc.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(833) 528-2785
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 per share KPLT The Nasdaq Stock Market LLC
Redeemable Warrants KPLTW The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes☐ No☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☐No☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Based on the closing sale price of $8.01 for our common stock on The Nasdaq Capital Market on June 30, 2025, the aggregate market value of outstanding shares of common stock held by non-affiliates was approximately $23.3 million. This calculation excludes shares of the registrant's common stock held by current executive officers, directors and stockholders that the registrant has concluded are affiliates of the registrant. This determination of affiliate status is not a determination for other purposes.
The number of shares of the registrant's common stock outstanding as of March 9, 2026 was 4,765,058
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for our 2025 Annual Meeting, expected to be filed within 120 days of our fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
KATAPULT HOLDINGS, INC.
2025 FORM 10-K ANNUAL REPORT
Table of Contents
Page
Part I 1
Item 1. Business 1
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 43
Item 1C. Cybersecurity 43
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
Item 6. [Reserved] 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60
Item 8. Financial Statements and Supplementary Data 61
Consolidated Balance Sheets 64
Consolidated Statements of Operations and Comprehensive Income (Loss) 65
Consolidated Statements of Mezzanine Equity and Stockholders’ Deficit 66
Consolidated Statements of Cash Flows 67
Notes to Consolidated Financial Statements 69
Item 9A. Controls and Procedures 94
Item 9B. Other Information 94
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 94
Part III 95
Item 10. Directors, Executive Officers and Corporate Governance 95
Item 11. Executive Compensation 95
Item 14. Principal Accounting Accountant Fees and Services 95
Item 15. Exhibits, Financial Statement Schedules 96
CERTAIN DEFINITIONS
In this report, unless otherwise stated or the context otherwise indicates, the terms "we," "us," "our," the "Company," or "Katapult" refer to Katapult Holdings, Inc. and its subsidiaries.
“2019 Loan Agreement” means the Loan and Security Agreement, dated May 14, 2019, by and among the Credit Parties, Midtown Madison Management LLC and the other lenders party thereto (as amended, amended and restated, supplemented, revised or otherwise modified from time to time prior to June 12, 2025).
“2025 Loan Agreement” means that certain Amended and Restated Loan and Security Agreement, dated June 12, 2025, by and among the Credit Parties, Midtown Madison Management LLC, and the lenders party thereto, which amended and restated the 2019 Loan Agreement in its entirety.
“2026 Plan” means the incentive plan to be approved with terms substantially comparable to the Katapult 2021 Plan (as defined in the Merger Agreement), authorizing at least 9,000,000 shares of Katapult common stock for issuance.
“2026 Plan Proposal” means the proposal for the holders of Katapult common stock to approve the 2026 Plan.
“Aaron’s MIP” means Aaron’s MIP Holdings, LLC, a Delaware limited liability company and management incentive plan entity adopted by The Aaron’s Company to align the interests of the Aaron’s management team with IQV Holdco.
“Aaron’s MIP Exchange” means the exchange of Aaron’s MIP Units for Aaron’s MIP Rollover Interests.
“Aaron’s MIP Holders” means the holders of Aaron’s MIP Units.
“Aaron’s MIP Rollover Interests” means 943,580 shares of Katapult common stock issued to the Aaron’s MIP Holders pursuant to the Aaron’s MIP Exchange.
“Aaron’s MIP Units” means the Class A Unit and Class B membership interests of Aaron’s MIP.
“Adjournment Proposal” means the proposal to adjourn the Special Meeting, ifdetermined by the Katapult board or any committee thereof to be necessary, to solicit additional proxies if there are not sufficient votes in favor ofthe Stock Issuance Proposal or ifa quorum is not present at the Special Meeting.
“CCFI MIP” shall mean CCFI MIP Holdings LLC, a Delaware limited liability company and management incentive plan entity adopted by CCFI to align the interests of the CCFI management team with CCFI equityholders.
“CCFI MIP Equity” means the equity interests of CCFI MIP.
“CCFI MIP Exchange” means the exchange of CCFI MIP Equity for CCFI MIP Rollover Interests.
“CCFI MIP Holders” means the holders of CCFI MIP Equity.
“CCFI MIP Rollover Interests” means 11,011,927 shares of Katapult common stock issued to the CCFI MIP Holders pursuant to the CCFI MIP Exchange.
“Closing” means the consummation of the Mergers.
“Compensation Proposal” means the proposal for the holders of Katapult common stock to approve, on a non-binding advisory basis, the merger-related compensation that may be paid or become payable to Katapult’s named executive officers in connection with the Mergers.
“Credit Parties” means Katapult SPV-1 LLC, Katapult Group, Inc., and Katapult.
“First Amendment” means that certain Limited Waiver and First Amendment to Amended and Restated Loan and Security Agreement, dated November 2, 2025, among the Credit Parties, Midtown Madison Management LLC, and the lenders party thereto.
“First Warrants” means the warrants to purchase an aggregate of 160,000 shares of Katapult common stock at $0.25 per share held by Hawthorn.
“Hawthorn Preferred Stock Exchange” means Katapult’s repurchase of all outstanding shares of Katapult Convertible Preferred Stock issued to Hawthorn immediately prior to the consummation of the Mergers pursuant to the Hawthorn Side Letter.
“Hawthorn Side Letter” means that certain side letter, dated December 11, 2025, by and among Katapult, Aaron’s, CCFI and Hawthorn to effectuate the Hawthorn Preferred Stock Exchange.
“Hawthorn Warrant Exercise” means Hawthorn’s exercise of the Katapult Private Warrants on a cashless basis in full for shares of Katapult common stock pursuant to the Hawthorn Side Letter.
“IQV Holdco” means IQV Holdco, LLC, a Delaware limited liability company.
“Katapult 2014 Plan” means the Cognical Holdings, Inc. 2014 Stock Incentive Plan.
“Katapult 2021 Plan” means the Katapult Holdings, Inc. 2021 Equity Incentive Plan, as amended.
“Katapult common stock” means shares of common stock of Katapult, par value $0.0001 per share.
“Katapult Convertible Preferred Stock” means the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock.
“Katapult Private Warrants” means the First Warrants and Second Warrants held by Hawthorn.
“Katapult Public Warrants” means public warrants of Katapult, each exercisable for 1/25th of a share of Katapult common stock.
“Katapult Stock Issuance” means the issuance of shares of Katapult common stock to the stockholders of Aaron’s, the Aaron’s MIP Holders, the unitholders of CCFI and the CCFI MIP Holders, pursuant to the terms of the Merger Agreement.
“Loan Agreement” means that certain Amended and Restated Loan and Security Agreement, dated June 12, 2025, by and among the Credit Parties, Midtown Madison Management LLC, and the lenders party thereto (as amended by the Limited Waiver dated September 15, 2025, the First Amendment, the Second Amendment and as further amended, amended and restated, supplemented, revised, or otherwise modified from time to time prior to the date hereof).
“New Revolving Facility” means the amended and upsized revolving credit facility provided for by the Loan Agreement.
“Ownership Limitation” means that, pursuant to the terms of those certain Certificates of Designations dated November 3, 2025, no holder of Katapult Convertible Preferred Stock may convert shares of Katapult Convertible Preferred Stock, pursuant to either an optional or a mandatory conversion, into shares of Katapult common stock if and to the extent that such conversion would result in such holder beneficially owning in excess of 19.99% of all outstanding shares of Katapult common stock as of November 3, 2025.
“Preferred Stock Investment Stockholder Approval” means the approval of Katapult’s stockholders to remove the Ownership Limitation as contemplated by the Nasdaq Rules to effectuate the Hawthorn Preferred Stock Exchange.
“Second Amendment” means that certain Limited Waiver and Second Amendment to Amended and Restated Loan and Security Agreement, dated December 11, 2025, among the Credit Parties, Midtown Madison Management LLC, and the lenders party thereto.
“Second Warrants” means warrants to purchase an aggregate of 486,264 Katapult common stock at an exercise price of $0.01 per share held by Hawthorn.
“Series A Convertible Preferred Stock” means the 35,000 shares of Katapult Preferred Stock designated as “Series A Convertible Preferred Stock”.
“Series A Investment Agreement” means that certain Series A Investment Agreement, dated November 3, 2025, by and between Katapult and Hawthorn.
“Series B Convertible Preferred Stock” means the 30,000 shares of Katapult Preferred Stock designated as “Series B Convertible Preferred Stock”.
“Series B Investment Agreement” means that certain Series B Investment Agreement, dated November 3, 2025, by and between Katapult and Hawthorn.
“Special Meeting” means the special meeting of Katapult stockholders to obtain approval of the Stock Issuance Proposal.
“Stock Issuance Proposal” means the proposal for Katapult stockholders to approve the issuance of Katapult common stock pursuant to the Merger Agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, (“Annual Report” or “Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Securities Act”), , that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this report, including statements regarding our opportunity, our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “assume” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will,” “would,” or the negative of these terms or other similar expressions. Certain capitalized terms used in this Annual Report have the meanings set forth in the section entitled “Certain Definitions”. These forward-looking statements include, but are not limited to, statements concerning the following:
•the outcome and impact of the Mergers (as defined herein), including our ability to recognize the anticipated objectives and benefits thereof;
•the occurrence of any event, change or other circumstances that could give rise to the right of one or all of the Company, CCFI (as defined herein) and Aaron’s (as defined herein) to terminate the Merger Agreement (as defined herein);
•the possibility that the Mergers do not close when expected or at all because the conditions to closing are not received or satisfied on a timely basis or at all;
•the potential disruptions the Mergers may cause in the business operations of the Company, CCFI and Aaron’s;
•potential adverse effects of the Mergers on the business relationships of the Company, CCFI and Aaron’s while the Mergers are pending;
•changes in our share price following the closing of the Mergers;
•meeting future liquidity requirements and complying with restrictive covenants related to indebtedness;
•our ability to obtain, and the impact of, Preferred Stock Investment Stockholder Approval;
•potential impact of the Katapult Convertible Preferred Stock;
•executing on our business strategy, including expanding information and technology capabilities;
•our market opportunity, our ability to acquire and retain new and existing merchants and customers;
•customer adoption and continued growth of our mobile app featuring Katapult Pay® (“KPay”);
•the timing and impact of our growth initiatives on our future financial performance and the impact of our business growth strategy;
•anticipating the occurrence and timing of prime lending tightening and impact on our results of operations;
•general economic conditions in the markets where we operate, the cyclical nature of consumer spending, and seasonal sales and spending patterns of consumers;
•factors affecting consumer spending that are not under our control, including, among others, levels of employment, disposable consumer income, inflation, prevailing interest rates, consumer debt and availability of credit, pandemics (such as COVID-19), consumer confidence in future economic conditions, political conditions, and consumer perceptions of personal well-being and security and willingness and ability of consumers to pay for the goods they lease through us when due;
•risks relating to uncertainty of our estimates of market opportunity and forecasts of market growth, including the home furnishings and retail environment;
•risks related to the concentration of a significant portion of our transaction volume with a single merchant, or type of merchant or industry;
•the effects of competition on our future business;
•the impact of unstable market and economic conditions such as impact of tariffs, rising inflation and interest rates;
•reliability of our platform and effectiveness of our risk models;
•data security breaches or other information technology incidents or disruptions, including cyber-attacks, and the protection of confidential, proprietary, personal and other information, including personal data of consumers;
•attracting and retaining employees, executive officers or directors;
•obtaining additional capital, including equity or debt financing and servicing our indebtedness;
•enhancing future operating and financial results;
•anticipating rapid technological changes, including artificial intelligence and other new technologies;
•staying abreast of modified or new laws and regulations and complying with laws and regulations applicable to our business, including laws and regulations related to rental purchase transactions, U.S. federal income tax, and data privacy and security;
•responding to uncertainties associated with product and service developments and market acceptance;
•identifying material weaknesses in our internal controls over financial reporting which, if not remediated, could affect the reliability of our financial statements;
•costs and effects of legal and administrative proceedings, settlements, investigations, and claims;
•litigation, regulatory matters, complaints, adverse publicity and/or misconduct by employees, vendors and/or service providers; and
•our ability to meet the minimum requirements for continued listing on the Nasdaq Capital Market ("Nasdaq").
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Form 10-K. Other sections of this Form 10-K may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, events, or circumstances. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Form 10-K and the documents that we have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.katapultholdings.com), our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website. The contents of our website are not incorporated into this filing. We have included our investor relations website address only as an inactive textual reference and do not intend it to be an active link to our website.
Basis of Presentation
Katapult Holdings, Inc., formerly known as FinServ Acquisition Corp. (“FinServ”), was incorporated in the state of Delaware in August 2019 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 9, 2021, FinServ merged with Katapult Holdings, Inc. ("Legacy Katapult"). The merger and related transactions were completed and in connection with the closing of the merger, FinServ changed its name to Katapult Holdings, Inc.
Our wholly owned subsidiaries are Katapult Intermediate Holdings LLC, (formerly known as Keys Merger Sub 2, LLC) a Delaware limited liability company formed in December 2020, Katapult Group, Inc. (formerly known as Cognical, Inc.), a Delaware corporation incorporated in March 2012, Katapult SPV-1 LLC, a Delaware limited liability company formed in March 2019, Katapult SPV-2 LLC, a Delaware limited liability company formed in January 2025, Katapult Intermediate Holdings I, LLC, a Delaware limited liability company formed in December 2025, Katapult Intermediate Holdings II, LLC, a Delaware limited liability company formed in December 2025, Katapult Intermediate Holdings III, LLC, a Delaware limited liability company formed in December 2025, Katapult Merger Sub 1 Inc., a Delaware corporation incorporated in December 2025 and Katapult Merger Sub 2, LLC, a Delaware limited liability company formed in December 2025. Legacy Katapult was incorporated in the state of Delaware in 2016. Katapult Group, Inc. originates all of the Company's lease agreements with customers.
Unless otherwise noted, “we”, “us”, “our”, “Katapult”, and the “Company” and similar terms refer to Legacy Katapult and its subsidiaries prior to the consummation of the merger, and Katapult Holdings, Inc. and its subsidiaries after the merger. The Katapult logo, “Katapult,” “Katapult Pay,” and our other registered and common law trade names, trademarks, and service marks are the property of Katapult Holdings, Inc. or our subsidiaries. Other trade names, trademarks, and service marks used in this report are the property of their respective owners.
Part I
Item 1. Business
Company Overview
We are 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 by underserved U.S. nonprime customers. We were founded and incorporated in Delaware in 2012. We primarily operate within the virtual LTO market, which is estimated to have a total addressable market opportunity of $50 - $60 billion. We operate exclusively in the U.S. and our platform is available for use by consumers in 46 states and the District of Columbia. Based on our 2025 gross originations, we believe that we currently capture less than 1% market share.
We have entered into a definitive merger agreement with CCF Holdings LLC (“CCFI”), Aaron’s Intermediate Holdco, Inc. (“Aaron’s”), which, if completed, is expected to materially expand our business. See “Our Strategy” below.
An LTO transaction is a flexible alternative for consumers to obtain and enjoy merchandise with no long-term obligation. Goods are leased in exchange for a weekly, bi-weekly, semi-monthly or monthly payment, and customers have the option to purchase or return the items at any point during the duration of the lease-purchase agreement. These goods are available immediately to our customers upon the consummation of their lease-purchase agreement with Katapult. Our LTO platform offers consumers, particularly those with nonprime credit, an alternative path to ownership compared with traditional financing, which may not be accessible to them due to credit or other financial constraints. Many durable goods are eligible for LTO, including home furnishings, automotive goods, computers, electronics, and appliances, among others.
We are mission-driven and focused on providing underserved, nonprime consumers, with a simple, quick, transparent and fair pathway to acquiring the durable goods they need, when they need them. We believe that seeing the good in people is good for business, humanizing the way underserved, non-prime customers are able to acquire the durable goods they need with payment solutions based on fairness and dignity. By valuing the potential in individual consumers and treating them with the dignity they deserve, we believe we are creating a more inclusive economy that can better meet the needs of nonprime consumers.
For customers, our process is built to be simple, fast, and transparent. Our platform is based on a quick three-step application and a fully automated approval process that generates a decision in five seconds or less on average. Our terms are flexible and transparent and we never charge our customers late fees. Katapult’s LTO platform is differentiated from traditional installment loans, credit cards, and buy now, pay later options and we believe it can meet the needs of nonprime consumers in a way that traditional options cannot. Customers benefit from no long-term obligations, the flexibility to terminate their lease at any time without penalty, and they are only responsible for any outstanding balance up to the return date. Payment plans are convenient and tailored to suit individual needs. Our flexible terms include renewal periods of varying durations, including 12- and 18-months, and we also offer special pricing for early lease-purchase options (buyouts) within 90 days. In addition, based on our commitment to fairness and our customer-centric approach, Katapult does not increase the cash price of leased items and does not charge late or non-sufficient funds fees ("NSF fees"). We believe these principles distinguish our offering from many of our competitors. We believe we provide an affordable path to leasing or purchasing the durable goods that non-prime customers need at a total cost of ownership that is lower than many competing LTO products or other financing options that are available to them.
For merchants, our LTO solution provides access to a new customer base that historically has not qualified for traditional prime financing. By helping merchants reach this customer segment, we believe we deliver incremental sales to merchants and lower their customer acquisition costs. Ultimately, we believe merchants that work with us and reach this underserved customer segment see higher retail conversion and greater marketing spend efficiency.
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Currently, we offer four channels by which consumers can access our platform, and these products are our primary customer acquisition channels. These options are: direct integration, waterfall integration, mobile app and text-to-checkout. Some merchants can be accessed through more than one of our four channels. A direct integration is when we integrate with a merchant's digital point of sale ("POS") system to facilitate online transactions via Application Programming Interfaces or through third-party plug-ins such as Shopify, BigCommerce, WooCommerce, and Magento, among others. This option allows consumers to select a Katapult lease transaction as their method of payment at checkout. Our waterfall integration product allows us to partner with waterfall financing platforms. In a waterfall transaction, the potential customer completes a credit application, which then flows from the prime lender to other financing and lease-purchase options automatically. If our lease offer is the best match for the potential customer’s credit profile it will be presented to the consumer at the point of sale. If the consumer decides to accept our offer, they can utilize a Katapult lease to pay for their durable goods purchase at checkout. Both our direct and waterfall options involve some integration support from direct merchant partners. We refer to merchants with whom we have a direct integration or a waterfall integration as “direct merchants”. In late 2022, we launched our mobile app (the “Katapult App”), which includes a feature called KPay, that allows consumers to leverage our virtual credit card technology to shop with a variety of durable goods merchants featured in our app marketplace. This option does not require integration support from merchants and the consumer interaction begins and ends in the Katapult App. Using Katapult’s internally developed, proprietary machine learning models that
determine the eligibility of a product for lease in real-time, consumers are issued a virtual card from our issuing partner Marqeta, backed by their issuing bank Sutton Bank, that is used to complete the transaction on a merchant’s website. At the end of the transaction, consumers enter into a lease agreement with Katapult. The interaction begins and ends within the Katapult app ecosystem. This functionality has allowed Katapult to create its app marketplace, where customers can go to shop with more than 250 merchants that have either a direct or waterfall integration with Katapult or that are available for checkout via KPay. We refer to merchants that are available for checkout via KPay as “KPay enabled merchants”.
Finally, we also offer an in-store POS integration option called text-to-checkout, which simplifies the in-store leasing experience for consumers while allowing Katapult to retain control of the customer journey and ensure adherence to regulatory requirements.
All integration with merchants, except for KPay enabled merchants, are governed by one to three year master service agreements, with our standard terms containing an auto-renewal feature. These individual agreements outline primary elements of the relationship, such as marketing responsibilities, technology and development requirements, exclusivity, and economics.
Katapult’s primary source of revenue is generated from recurring payment streams related to our contracted lease payments with consumers. Katapult’s primary costs, outside of the retail price of a lease purchased item, include interest costs associated with our asset backed revolver and total servicing costs inclusive of collection activities.
(1)The total cost a customer may pay in connection with our lease-purchase transaction depends on certain factors, including, but not limited to: (1) total cost limitations, which vary across states and generally range between 2.0 and 2.5 times, depending on the duration of the renewal periods, the cash price, referred to as the Lease Multiple, (2) the maximum length of the renewal periods (typically 12-18 months), (3) whether the early purchase option is exercised, and (4) whether the customer exercises their right to terminate the lease, without penalty
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if current, thereby ending additional renewal payment obligations. In general, during the first ninety (90) days, our customers have the ability to purchase the good for the cash price of the item plus an average of 5% and any applicable fees (including initial fees, where applicable) and taxes. After ninety (90) days, but prior to reaching the maximum renewal term, the customer may exercise the purchase option at a discount on the remaining lease renewal payments (typically 55–65% of the remaining renewal payments).
(2)Customers may renew through the maximum term at which point they will have paid approximately two times the cash price to own the item. Customers have the option to terminate the lease at any time with no penalty or further obligation (other than the lease cost already incurred). Upon termination, the customer must return the durable good that had been leased, which can be returned to us or the merchant if within the merchant's return period. Lease-purchase transactions, unlike credit or a loan, are not subject to variable interest rates and do not include finance charges.
Our Strategy
Pending Strategic Mergers with CCFI and Aaron’s
On December 11, 2025, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CCFI and Aaron’s and two wholly owned indirect subsidiaries of the Company, Katapult Merger Sub 1, Inc. (“Merger Sub 1”) and Katapult Merger Sub 2, LLC (“Merger Sub 2”). Pursuant to the Merger Agreement, CCFI and Aaron’s will become wholly owned subsidiaries of the Company, and the Company will remain a publicly traded entity.
Under the terms of the Merger Agreement, one subsidiary will merge with and into Aaron’s and another subsidiary will merge with and into CCFI (collectively, the “Mergers”), with CCFI and Aaron’s each surviving as a wholly owned subsidiary of the Company. In connection with the Mergers, certain equity interests of CCFI and Aaron’s, including management incentive plan equity interests, will be contributed to and exchanged for shares of the Company’s common stock pursuant to the terms of the Merger Agreement and related agreements.
If completed, the Mergers are expected to enhance our scale and omni-channel capabilities by combining complementary platforms that serve non-prime consumers seeking access to durable goods and related financial solutions.
The Mergers are subject to customary closing conditions, including receipt of required stockholder and regulatory approvals, and are expected to close during the second quarter of 2026. There can be no assurance that the Mergers will be completed on the anticipated timeline or at all. Additional information regarding the Merger Agreement and the transactions contemplated thereby is included in the notes to our consolidated financial statements.
Our strategy supports our mission to enable consumers to get the durable goods they need when they need them and
connect retailers with a growing base of engaged and loyal consumers. To achieve this, we are focused on the following initiatives:
•Merchant Engagement: Within this initiative, we are focused on building new, and retaining existing, relationships with merchants and waterfall finance companies by continuing to enhance our innovative integrated products. We believe we have significant opportunity to grow gross origination volumes by increasing our transaction volume with merchants we currently work with and others that have yet to adopt our solution.
•Consumer Engagement: We are focused on using our app marketplace and disciplined marketing strategies to increase engagement with existing and potential customers, by growing our conversion and repeat purchase rates. Our app marketplace allows consumers to originate leases with merchants through direct or waterfall integrations on merchant websites or within the Katapult marketplace using KPay. Since we launched the app in late 2022, transactions that were completed using KPay have grown to represent 42% of our total gross originations for the year ended December 31, 2025. Approximately 62% of our 2025 gross originations started in our Katapult App, whereby the customer checked out either through a KPay or a waterfall transaction. We intend to continue to thoughtfully expand the breadth of merchants available in our marketplace as we continue to transform our Katapult App marketplace into a shopping destination. We
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believe this will allow us to grow gross originations even if merchants are not able to immediately integrate our LTO solution into their payment flows.
•Partnerships: We intend to enter new partnerships that deliver new customers, increase brand awareness and customer loyalty and enhance our product offering while requiring minimal technical investment. We believe we can leverage our technology to help partners monetize their customer bases and help Katapult grow gross originations and revenue.
•Unlock the power of our financial model: We are focused on maintaining fiscal discipline that enables us to invest in our growth opportunities while generating profitable growth. We do not incur costs associated with buying, storing and shipping inventory, which eliminates inventory risk. Over time as transaction volume grows, we are positioned to achieve operating leverage because our model is primarily driven by a technology platform that does not require significant increases in operating overhead to support sales growth. As we achieve revenue growth, we believe we can maintain and create operational efficiencies that will allow us to expand our operating margins, enhance profitability and grow cash and cash equivalents.
Operating Segments
We have one operating segment under which we report our total financial and operating performance.
Operations
We believe our LTO offerings are distinguished by the following core capabilities:
•Advanced underwriting. Katapult’s proprietary technology enables frictionless underwriting with minimal customer inputs (seven required fields) and real-time decision-making (on average, five seconds or less). There are no credit checks or requirements for bank account or payroll data.
•Our proprietary, end-to-end technology platform has been designed and built to handle high volumes of data from e-commerce transactions. The system is non-FICO credit score based, relying on internally developed underwriting models to identify appropriate customers for our LTO offering. Our underwriting models are designed to drive disciplined growth by balancing customer access with portfolio risk performance. Leveraging both internal performance data and third-party data sources, these models make real time, data driven decisions that determine whether to approve an application, the appropriate lease line exposure, and applicable pricing. The decisioning framework is multi layered, combining rules based controls with predictive risk models to detect identity fraud, assess delinquency propensity, and estimate expected loss.
•Market-leading customer experience and service. Our customer experience is grounded in transparency, respect and fairness. We have built a large and growing customer base of engaged and loyal customers who value the LTO product we offer and the way we treat our customers. We believe our customer-centric model fosters trust and customer retention. We offer hardship programs, flexible repayment options, and fair terms to meet the needs of customers throughout the US. Our net promoter score ("NPS") and our repeat purchase rate, defined as the percentage of in-quarter originations from existing customers, were 46 and 64% respectively, as of December 31, 2025. NPS is a score that measures the likelihood of users to recommend a company’s products or services to others, and ranges from a low of negative 100 to high of positive 100, and benchmark scores can vary significantly by industry. A score greater than zero represents a company having more promoters than detractors.
•Proprietary technology that powers our scalable platform. Technology is at the core of everything we do - from simplifying the customer experience, to driving repeat transactions, to launching innovative new products that benefit our merchants and customers, to managing risk. We are an e-commerce solution for customers and we believe we are one of only a few non-prime customer lease-purchase platforms focused on e-commerce. We offer a fully-digital, seamless and differentiated platform driven by proprietary
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technology and risk models that have been developed over several years. We utilize modern, cutting-edge technology including sophisticated machine learning models and cloud-based computing designed to offer a seamless digital customer experience on the front end as well as continually evolving real-time decision engine on the back end.
•Our proprietary technology drives the Katapult App and KPay by giving us the unique ability to quickly and reliably differentiate between leasable and non-leasable items in a customer's cart without a direct or waterfall integration with a merchant. Our proprietary technology platform is built on a cloud-native architecture hosted on AWS, utilizing a combination of serverless computing (AWS Lambda and AWS ECS Fargate) and containerized microservices. This architecture supports real-time processing and enables our platform to render automated underwriting decisions in approximately five seconds or less on average. At the core of our underwriting platform is our proprietary decision engine (DE), which combines internally developed machine learning models with data from both internal and third-party sources to assess identity fraud risk and default risk for each lease application. Our DE requires only a few inputs from the applicant and supplements those inputs with approximately 2,000 data elements from third-party providers as well as internally generated data about the applicant.
•Our technology also creates many benefits for our merchant-partners. The process to integrate our direct and waterfall options is quick and easy and can be completed within as few as two days. In addition, we provide merchants with insightful analytics that help them understand payment activities and performance associated with non-prime applications. The platform also offers other key insights into customers’ shopping habits to help merchants optimize customer conversion and customer acquisition costs.
•Our technology platform supports our advanced underwriting as well as our integration capabilities, decisioning, payment collection and other Katapult systems that allow us to achieve operational efficiencies and that we believe will drive economies of scale as we continue to grow.
•Marketing focused on enhancing the lifetime value of our customer base. As we continue to focus on growing our customer base, we have begun to strategically invest in marketing campaigns and initiatives. Currently, we promote our product primarily through digital marketing channels. Our efforts are focused on driving more traffic to the Katapult App, which we believe we can convert to new lease transactions. Our campaign content focuses on the strength of our product offering, including its ease-of-use, convenience and transparency, as well as our competitive pricing and access to a variety of durable goods sold by leading retailers. We believe there is a large untapped consumer base that could benefit from our LTO offering that is unfamiliar with our brand. Based on this we expect to continue scaling our marketing strategy while monitoring the return-on-investment (ROI) of our spending. We will do this by testing and learning from marketing campaigns before scaling any investment.
Our largest merchant partner is Wayfair, Inc. ("Wayfair"). We have an agreement with Wayfair dated November 24, 2020, (the "Wayfair Agreement") whereby we provide Wayfair customers with lease-purchase options for certain Wayfair products directly on Wayfair’s customer website. Wayfair1 represented 25% and 36%of our gross originations for the years ended December 31, 2025 and 2024, respectively through the Wayfair Agreement. The Wayfair Agreement continues for successive two-year terms and may be terminated by either party at any time and for any reason provided that the terminating party provides written notice sixty days prior to the date of termination. The Wayfair Agreement does not prohibit Wayfair from offering LTO options from our competitors. The Wayfair Agreement allows us to benefit from Wayfair’s broad range of product offerings and market ourselves to a larger audience of customers who may seek alternative payment options.
In addition to Wayfair, we have contractual arrangements with many of our other e-commerce partners, including Shopify, BigCommerce, WooCommerce, and Magneto among others. These arrangements typically continue for successive one-year terms and may be terminated by either party at any time and for any reasons provided that the
1Wayfair gross originations exclude transactions through KPay and only include transactions directly through Wayfair's waterfall platform.
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terminating party provides written notice thirty days prior to the end of the term. The arrangements typically do not prohibit our e-commerce partners from offering lease-to-own options from our competitors.
As of December 31, 2025, we have integrated our leasing solution with more than 250 merchants and we offer customers the ability to shop with approximately 40 merchants through our Katapult marketplace powered by KPay. Our top ten merchants in the aggregate represented approximately 76% and 78% of our total gross originations for the years ended December 31, 2025 and 2024, respectively. Other than Wayfair, none of our e-commerce partners individually account for more than 10% of our total revenue for the years ended December 31, 2025 and 2024, respectively.
Industry Overview and Competition
According to a 2024 report from the Financial Health Network ("FHN") approximately 70% of Americans consider themselves to be either financially vulnerable or financially coping. These measurements are based on responses to eight financial health survey questions. A numerical value is assigned to each of the possible responses of the eight financial health survey questions. The responses to these questions are used to calculate a FinHealth Score, which ranges from 0 to 100. Those with scores between 0 and 39 are considered “Financially Vulnerable,” consumers and those with scores ranging between 40 and 79 are defined as “Financially Coping.”
In this same FHN report, 53% report that their spending is higher than their income and only 44% report having enough savings to cover 3 or more months of living expenses. In addition, only 29% report having a prime credit score. The LTO industry provides this large base of underserved consumers with an opportunity to economically acquire durable goods that they may not have otherwise had the resources to obtain.
We compete with national, regional and local operators of LTO stores, virtual LTO companies, traditional and e-commerce retailers (including many that offer layaway programs and/or installment payment options), traditional and online sellers of new and used merchandise, and various types of consumer finance companies that may enable consumers to shop at traditional or online retailers, as well as with rental stores that do not offer their consumers a purchase option.
Seasonality
We experience seasonal fluctuations in our revenue as a result of consumer spending patterns. Historically, our revenue is strongest during the first quarter. This is primarily due to historically higher gross originations during the fourth quarter holiday season. Our first quarter revenue is also impacted because our customers receive federal and state income tax refunds in this period, which historically has led to our customers more frequently exercising the early purchase option on their existing lease agreements or purchasing durable goods during the first quarter of the year. Adverse events that occur during these months could have a disproportionate effect on our financial results for the year.
Employees and Human Capital Resources
At Katapult, our people are our most valuable resource and critical to our success. We believe in an open and collaborative work environment which drives employee accountability and ownership in their performance and development. Our executive management team creates a culture and environment focused on high employee engagement and performance. The Compensation Committee of our board of directors is engaged in the oversight of our employees and compensation practices, and receives regular updates from management on progress and developments, and our executive management team and the Compensation Committee receive regular reports on progress against our people goals.
As of December 31, 2025, we had 87 employees located in the United States. We also engage consultants and contractors to supplement our permanent workforce. We have never experienced any work stoppages and maintain good working relationships with our employees. None of our employees are subject to a collective bargaining agreement or are represented by a labor union at this time.
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Our proprietary technology platform is essential to our core operations. In order to build these proprietary, innovative and secure products, we place a significant emphasis on identifying and employing talented and driven technology-focused professionals and engineers.
We offer competitive compensation and benefits to attract and retain top talent. Our total compensation packages generally include market-competitive salary, bonus, sales commissions, and equity awards. As a remote-first company, we are able to attract highly skilled and experienced employees from a broad geographic landscape and offer market competitive compensation packages. At least annually, we review our compensation practices internally and with the assistance of a third-party compensation consultant.
Regulatory
Government Regulation
Our operations are governed by the requirements of numerous federal and state laws, and by the agencies that interpret and enforce those laws.This summary is not intended to be a complete summary of the laws referred to below or of all the laws regulating our operations.
There are currently 46 states, plus the District of Columbia, that have enacted lease-purchase statutes which set forth core requirements for our personal property lease-purchase transactions.These laws dictate our obligations with regard to consumer disclosures, pricing maximums, fees, and marketing, among other requirements. These laws may change, or the agencies charged with overseeing these laws may issue future guidance on the interpretation of these laws that is new, unforeseen, or otherwise conflicts with our current practices. Violations of these state lease-purchase laws can result in material penalties.We are unable to predict the nature or effect on our operations or earnings of unknown future legislation, regulations, agency interpretations and guidance, or judicial or administrative decisions concerning the laws governing our operations, and there can be no assurance that future laws, regulations, interpretations or decisions will not have a material adverse effect on our results of operations, financial condition and earnings.
We are also required to be licensed in certain states in order to engage in lease-purchase transactions. While we hold required licenses, such licensing requirements could unexpectedly change which in turn could impact our results of operations, financial condition, and earnings.
Regarding federal law, at the present time, no federal law specifically regulates the core lease-purchase transaction we offer. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) does not regulate leases with terms of less than 90 days. Katapult’s lease-purchase transactions carry terms of, at most, month-to-month, and therefore are less than 90 days, such that the transactions do not fall within the transactions specifically covered by Dodd-Frank. These issues notwithstanding, various aspects of our business are governed by federal laws and regulations. For example, the Federal Trade Commission (“FTC”) oversees business practices that are unfair, deceptive, or fraudulent to consumers, including within the lease-purchase industry. As such, we seek to ensure that we comply with FTC rules and regulations relating to our operations and we pursue compliance management practices to do so; however, any violation of such rules or regulations could have a material adverse impact on our results of operations, financial condition, and earnings.
Also, state and federal regulatory authorities, including state attorneys general offices, state agencies such as the California Department of Financial Protection and Innovation, and the FTC, are increasingly focused on the consumer financial marketplace and personal property leasing, generally.At any time, these agencies could initiate new investigations or otherwise take action that could result in significant adverse changes in the regulatory landscape for the lease-purchase industry in which we operate. We cannot predict whether any state attorneys general, state consumer protection agency, or federal regulatory agency will direct investigations or regulatory initiatives towards us or our industry in the future, or what the impact of any such future action(s) might be.
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In the ordinary course of our business, we collect, store, transfer and otherwise process personal data, including sensitive personal data. Accordingly, we are, or may become, subject to numerous data privacy and security obligations, including federal, state, local, and foreign laws, regulations, rules, guidance and standards related to data privacy and security.Such obligations may include, without limitation, the Federal Trade Commission Act, the Telephone Consumer Protection Act of 1991, and the California Consumer Privacy Act of 2018 as amended by the California Privacy Rights Act of 2020 (collectively “CCPA”).
The CCPA is an example of the increasingly stringent and evolving regulatory frameworks related to personal data processing that may increase our compliance obligations and exposure for any noncompliance. The CCPA imposes obligations on covered businesses to provide certain disclosures related to a business’s collection, use and disclosure of personal data and gives California residents the right to, among other things, request disclosure of personal data collected about them and whether that data has been sold to others, request deletion of personal data (subject to certain exceptions), opt out of the sale of their personal data and not be discriminated against for exercising these rights. The CCPA provides for civil penalties and a private right of action for data breaches which may include an award of statutory damages. A number of other U.S. states also have enacted, or are considering enacting, comprehensive data privacy and security laws that share similarities with the CCPA. Certain state laws and regulations may be more stringent, broader in scope, or offer greater individual rights, with respect to personal information, than federal or other state laws and regulations, and such laws and regulations may differ from each other, which may complicate compliance efforts and increase compliance costs. There are also discussions in Congress, from time-to-time, of new federal data privacy and security laws to which we may become subject if they are enacted. In addition, laws in all 50 U.S. states generally require businesses to provide notice under certain circumstances to consumers whose personal data has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Furthermore, U.S. federal and state consumer protection laws require us to publish statements that accurately and fairly describe how we handle personal data and choices individuals may have about the way we handle their personal data.
As a company, we seek to ensure that all employees act in a legal, ethical and dignified manner and carry out the Company’s business consistent with such standards and consistent with the laws discussed above. See the section titled “Risk Factors” in this Annual Report on Form 10-K for additional information about the laws and regulations to which we are or may become subject and about the risks to our business associated with such laws and regulations.
Intellectual Property
Intellectual property and other proprietary rights are important to the success of our business. We rely on a combination of patent, copyright, trademark, and trade secret laws in the United States, as well as license agreements, confidentiality procedures, non-disclosure agreements, and other contractual protections, to obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights, including our proprietary technology, software, know-how, and brand. However, these laws, agreements, and procedures provide only limited protection. As of December 31, 2025, we have one non-provisional patent application filed covering our KPay technology and we own three registered trademarks.
Although we take steps to obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, reverse engineering, circumvention, infringement, misappropriation or other violation of our intellectual property and other proprietary rights, including by third parties who may use our intellectual property or other proprietary rights to develop services that compete with ours.
See the section titled “Risk Factors” in this Annual Report on Form 10-K for a more comprehensive description of risks related to our intellectual property and other proprietary rights.
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Corporate Information
Our principal executive offices are located at Katapult Holdings, Inc., 5360 Legacy Drive, Building 2, Plano, TX 75024, and Katapult’s telephone number is (833) 528-2785. Our website address is www.katapult.com. Information contained on or accessible through our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this Annual Report on Form 10-K is an inactive textual reference only.
Available Information
We make available on our website, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the “SEC”). We also make available on our website our Code of Business Conduct and Ethics, our corporate governance principles, and the charters for the Audit, Compensation and Nominating and Corporate Governance Committees of our board of directors. The SEC maintains an internet site, www.sec.gov, containing reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
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ITEM 1A. RISK FACTORS
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our securities. The summarized risks described below are not the only risks that we face. The following summarized risks as well as risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially and adversely affect our business, results of operations, financial condition, earnings per share, cash flow or the trading price of our common stock. These summarized risks include, among others, the following:
Risks Related to our Proposed Mergers with CCFI and Aaron’s
•None of us, CCFI or Aaron’s can be sure if or when the Mergers will be completed.
•The market price of the Company’s common stock following the Mergers may decline as a result of the Mergers.
•The parties’ equityholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with or following the Mergers.
•Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
•Each party is subject to business uncertainties and contractual restrictions while the Mergers are pending, which could adversely affect each party’s business and operations.
Risks Related to our Preferred Stock
•Our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock could further reduce the voting power and dilute the ownership of existing holders of our common stock and may adversely affect the market price of our common stock.
•Until the Preferred Stock Investment Stockholder Approval is obtained, if at all, the Katapult Convertible Preferred Stock will accrue dividends at an annual rate of at least 18% compounding weekly.
•If the Preferred Stock Investment Stockholder Approval is obtained, the Katapult Convertible Preferred Stock would be convertible in full and would allow the holders thereof to become the majority owners of the Company.
Risks Related to the Loan Agreement and our Indebtedness
•If we trigger an event of default under the Loan Agreement and such event of default is not waived by our Lender, the Loan Agreement would terminate and our obligations under the Loan Agreement would accelerate, which would have a material adverse effect on our business, results of operations and financial position.
•We have substantial indebtedness, which may reduce our capability to withstand adverse developments or business conditions.
•The Loan Agreement governing the New Revolving Facility includes restrictive covenants and financial maintenance covenants, which could restrict our operations or ability to pursue growth strategies or initiatives including potential mergers and acquisitions opportunities. Failure to comply with these covenants could result in an acceleration of repayment of the indebtedness under the Loan Agreement, which would have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Business, Strategy and Growth
•A meaningful percentage of our gross originations are concentrated with a single merchant, and any deterioration in the business of, or in our relationship with this merchant or any other key merchant relationship or partner could materially and adversely affect our business, results of operations, financial condition and prospects.
•If we are unable to attract additional direct merchants and retain and grow our relationships with our existing direct merchants, our results of operations, financial condition, and prospects would be materially and adversely affected.
•Unexpected changes to consumer behavior could cause our proprietary algorithms and decisioning tools used in approving customers to no longer be indicative of our customer’s ability to perform.
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•Our success depends on the effective implementation and continued execution of our strategies.
•If we fail to maintain customer satisfaction and trust in our brand our business, results of operations, financial condition and prospects would be materially and adversely affected.
•If we are unable to attract new customers and retain and grow our relationships with our existing customers, or if attracting or retaining customers is not cost-efficient, our results of operations, financial condition, and prospects would be materially and adversely affected.
•Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves its forecasted growth, our business could fail to grow at similar rates, if at all.
•The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
Financial Risks Related to Our Business
•We have a history of operating losses and may not be profitable in the future.
•We rely on card issuers and payment processors. If we fail to comply with the applicable requirements of Visa, Mastercard, or other payment processors, those payment processors could seek to fine us, suspend us or terminate our registrations which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
Risks Related to Our Technology and Our Platform
•Real or perceived software errors, failures, bugs, defects, or outages could adversely affect our business, results of operations, financial condition, and prospects.
•Our results depend on continued integration and support of our platforms, including our direct and/or waterfall integration technologies by our merchant partners.
•We rely on KPay enabled merchants to allow access to their stores through our Katapult App and our desktop and mobile websites.
•We are subject to stringent and changing laws, regulations, rules, standards and contractual obligations related to data privacy and security, which could increase the cost of doing business, compliance risks and potential liability and otherwise negatively affect our operating results and business regulations.
•Any significant disruption in, or errors in, service on our platform or relating to vendors, including events beyond our control, could prevent us from processing transactions on our platform or posting payments and have a material and adverse effect on our business, results of operations, financial condition, and prospects.
•Data security breaches or other security incidents with respect to our information technology systems, networks or data, or those of third parties upon which we rely, could result in adverse consequences, including but not limited to regulatory investigations, litigation, fines and penalties, disruption of our business operations, reputational harm, loss of revenue or profits, and loss of customers.
•Failure to adequately obtain, maintain, protect, defend and enforce our intellectual property and other proprietary rights could harm our business, operating results and financial condition.
Legal and Compliance Risks
•We are subject to sales, income and other taxes, which can be difficult and complex to calculate due to the nature of our businesses. A failure to correctly calculate and pay such taxes, or an unfavorable outcome on uncertain tax positions we may record from time to time, may result in substantial tax liabilities and a material adverse effect on several aspects of our performance.
•If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
•Changes to tax laws or exposure to additional tax liabilities may have a negative impact on our operating results.
•We are subject to legal proceedings from time to time which seek material damages or otherwise may have a material adverse effect on our business.
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Operational Risks Related to Our Business
•Uncertain market and economic conditions have had, and may in the future have, a material adverse effect on our business, financial condition and share price.
•Failure to effectively manage our costs could have a material adverse effect on our profitability.
•Misconduct and errors by our employees, vendors, and service providers could harm our business and reputation.
Other Risks
•Our business depends on our ability to attract and retain highly skilled employees.
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our securities could decline.
Risks Related to our Proposed Mergers with CCFI and Aaron’s
None of us, CCFI or Aaron’s can be sure if or when the Mergers will be completed.
Consummation of the Mergers is contingent upon the satisfaction of a number of conditions, some of which are beyond our, CCFI’s or Aaron’s control including, among others, (a) the expiration or termination of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (b) the absence of any law or governmental order preventing the consummation of the Mergers, corporate reorganization steps contemplated by the Mergers or the Katapult Stock Issuance, (c) the effectiveness of the registration statement pursuant to which the issuance of shares of our common stock to be issued in the Mergers will be registered with the SEC, (d) the shares of our common stock to be issued in the Katapult Stock Issuance having been approved for listing on Nasdaq, subject only to official notice of issuance, (e) receipt of required approvals from the equityholders of each of us, CCFI and Aaron’s, (f) the parties’ representations and warranties being true and correct (subject to certain customary materiality exceptions), (g) compliance by the parties with their respective covenants, (h) the absence of a material adverse effect on any of the parties’ businesses that is continuing and (i) delivery and execution of certain documents by the parties. Under certain circumstances, we would be required to pay CCFI and Aaron’s a termination fee of $1.5 million, of which 85% shall be paid to CCFI and 15% shall be paid to Aaron’s.
Each of us, CCFI and Aaron’s may not be successful in our respective efforts to satisfy the closing conditions. The failure to satisfy all of the required conditions could delay the consummation of the Mergers for a significant period of time or prevent consummation from occurring at all. Any delay in consummating the Mergers could cause us, CCFI and Aaron’s not to realize some or all of the benefits, or realize them on a different timeline than expected, that we, CCFI and Aaron’s, as applicable, expects to achieve if the Mergers are successfully consummated within the expected timeframe. There can be no assurance that the conditions in the Merger Agreement will be satisfied or (to the extent permitted) waived or that the Mergers will be consummated. If the Mergers are not completed, our Board, in discharging its fiduciary obligations to its stockholders, will evaluate other strategic alternatives or financing options that may be available, which alternatives may not be as favorable to our stockholders as the Mergers. Any future sale or merger, financing or other transaction may be subject to further stockholder approval. We may also be unable to find, evaluate or complete other strategic alternatives, which may have a materially adverse effect on our business.
Our, CCFI’s and Aaron’s efforts to complete the Mergers could cause substantial disruptions in, and create uncertainty surrounding, our respective businesses, which may materially adversely affect their respective results of operation and business. Uncertainty as to whether the Mergers will be completed may affect each of the Company’s, CCFI’s and Aaron’s ability to retain and motivate existing employees. A substantial amount of the Company’s, CCFI’s and Aaron’s respective management’s and employees’ attention is being directed toward the completion of the Mergers and thus is being diverted from their respective day-to-day operations. Uncertainty as to the Company’s,
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CCFI’s and Aaron’s respective futures could adversely affect their business and their relationships with suppliers, vendors, regulators and other business partners. For example, vendors and other counterparties may defer decisions concerning working with us, CCFI or Aaron’s, or seek to change existing business relationships. Changes to, or termination of, existing business relationships could adversely affect the Company’s, CCFI’s or Aaron’s respective results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the Mergers could be exacerbated by any delays in completion of the Mergers or termination of the Merger Agreement.
In addition, each of the Company, CCFI and Aaron’s may terminate the Merger Agreement under certain specified circumstances, including, but not limited to: (a) if the CCFI MIP Exchange, the Aaron’s MIP Exchange, the Hawthorn Preferred Stock Exchange, the Hawthorn Warrant Exercise, the Mergers and the Katapult Stock Issuance are not consummated by September 30, 2026, subject to a 90-day extension if certain closing conditions have not yet been satisfied, (b) if a court of competent jurisdiction or other governmental body has issued a final non-appealable order or other action prohibiting the CCFI MIP Exchange, the Aaron’s MIP Exchange, the Hawthorn Preferred Stock Exchange, the Hawthorn Warrant Exercise, the Mergers and the Katapult Stock Issuance, (c) if a vote on the Katapult Stock Issuance has been held at the Special Meeting and our stockholders have not approved the Katapult Stock Issuance, or (d) if the Company, CCFI, and Aaron’s, as applicable, materially breaches any of its representations, warranties, covenants or agreements, subject in certain cases to the right of the breaching party to cure the breach. The Company, CCFI, and Aaron’s may also terminate the Merger Agreement by mutual written consent.
Until the Mergers are completed, the Merger Agreement restricts the Company, CCFI or Aaron’s from taking specified actions without the consent of the other parties and requires us to operate in the ordinary course of business consistent with past practice. These restrictions may prevent the Company, CCFI or Aaron’s from making appropriate changes to their respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the Mergers.
The market price of the Company’s common stock following the Mergers may decline as a result of the Mergers.
The market price of the Company’s common stock may decline as a result of the Mergers for a number of reasons, including if:
•investors react negatively to the prospects of the combined organization’s products, business and financial condition following the Mergers;
•the attention of the Company, CCFI or Aaron’s management is directed towards the Closing and other transaction-related considerations and is diverted from the day-to-day business operations of their respective businesses, as applicable, and matters related to the Mergers require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to the Company, CCFI or Aaron’s, as applicable;
•the effect of the Mergers on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or
•the combined organization does not achieve the perceived benefits of the Mergers as rapidly or to the extent anticipated by financial or industry analysts.
Theparties’equityholdersmaynotrealizeabenefitfromtheMergerscommensuratewiththeownership dilution they will experience in connection with or following the Mergers.
After the completion ofthe Mergers, the current equityholders ofthe Company, CCFI and Aaron’s will ownasmallerpercentageofthecombinedorganizationthantheirownershipintheirrespectivecompanies prior to the Mergers. Immediately after the Mergers, it is currently estimated that CCFI equityholders will own, or hold rights to acquire, approximately 79.9% ofthe combined organization on a fully diluted basis as described in the Merger Agreement, Aaron’s equityholders will own, or hold rights to acquire, approximately 14.1% ofthe combined organization on a fully diluted basis as described in the Merger Agreementandourequityholders,whosesharesofour commonstockwillremainoutstanding after the Mergers, will own, or hold rights to acquire, approximately 6% ofthe combined organization ona fully diluted basis as described in the Merger Agreement.
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Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of us, CCFI and Aaron’s from: (a) soliciting, initiating, knowingly encouraging or knowingly facilitating the making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry (each as defined in the Merger Agreement) or take any action that would reasonably be expected to result in an Acquisition Proposal or Acquisition Inquiry, (b) knowingly furnishing any nonpublic information in connection with or in response to an Acquisition Proposal or Acquisition Inquiry, (c) engaging in discussions or negotiations with any person with respect to any Acquisition Proposal or Acquisition Inquiry, (d) approving, endorsing or recommending any Acquisition Proposal and (e) executing or entering into any letter of intent or similar document or any contract contemplating or otherwise relating to any Acquisition Transaction, (as defined in the Merger Agreement), except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal constitutes or would reasonably be expected to result in a superior takeover proposal and that failure to cooperate with the proponent of the proposal would reasonably be expected to be inconsistent with the applicable board’s fiduciary duties.
These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring all or a significant portion of the Company, CCFI or Aaron’s or pursuing an alternative Acquisition Transaction from considering or proposing such a transaction, even if it were prepared to pay consideration that is more favorable to be received or realized in the Mergers. In particular, a termination fee, if applicable, could result in a potential third-party acquirer or merger partner proposing to pay a lower price to Katapult’s stockholders than it might otherwise have proposed to pay absent such a fee. If the Merger Agreement is terminated in accordance with its terms, and either the Company, CCFI or Aaron’s determines to seek another business combination, the Company, CCFI or Aaron’s, as applicable, may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
EachpartyissubjecttobusinessuncertaintiesandcontractualrestrictionswhiletheMergersarepending, which could adversely affect each party’s business and operations.
In connection with the pendency ofthe Mergers, some customers, suppliers and other persons with whom the Company, CCFI or Aaron’s do business may delay or defer certain business decisions or terminate, changeorrenegotiatetheirrelationshipswiththe Company,CCFIorAaron’s,asthecasemaybe,asaresultof theMergers,whichcouldnegativelyaffectthe Company’s,CCFI’sorAaron’srespectiverevenues,earningsand cash flows, as well as the market price ofour common stock, regardless ofwhether the Mergers are consummated.
Under the terms ofthe Merger Agreement, each ofthe Company, CCFI and Aaron’s is subject to certain restrictions on the conduct ofits business prior to consummating the Mergers that may adversely affect its abilitytoexecutecertainofitsbusinessstrategies,includingtheabilityincertaincasestoenterintooramend contracts, acquire or dispose ofassets, incur indebtedness, incur capital expenditures, settle litigation, amend organizational documents, declare dividends, enter new business lines and invest in third parties.
Suchlimitationscouldadverselyaffecteachofthe Company’s,CCFI’sandAaron’sbusinessesandoperations prior to the consummation ofthe Mergers.
Eachoftherisksdescribedabovemaybeexacerbatedbydelaysorotheradversedevelopmentswith respect to the
consummation ofthe Mergers.
Risks Related to our Preferred Stock
Our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock could further reduce the voting power and dilute the ownership of holders of our common stock and may adversely affect the market price of our common stock.
As further described in Note 6 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K , on November 3, 2025, we issued and sold an aggregate of 35,000 shares of our Series A Convertible Preferred Stock and an aggregate 30,000 shares of our Series B Convertible Preferred Stock. If
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the Hawthorn Preferred Stock Exchange is not consummated, the Katapult Convertible Preferred Stock could remain outstanding following the Mergers.
Each series of the Katapult Convertible Preferred Stock ranks senior to our common stock with respect to distributions on liquidation, winding-up and dissolution and payment of dividends. In addition, subject to certain limitations, holders of the Series A Convertible Preferred Stock are entitled to vote with holders of shares of our common stock, together as one class, on all matters submitted for a vote of holders of shares of our common stock on an as-converted basis, thereby effectively reducing the voting power of holders of our common stock. Conversions of the Series B Convertible Preferred Stock into our common stock could also further reduce the voting power of holders of our common stock.
Moreover, the accrual of dividends paid in kind on the Katapult Convertible Preferred Stock has increased, and could further increase, the liquidation preference of the Katapult Convertible Preferred Stock, thereby increasing the number of shares into which the Katapult Convertible Preferred Stock is convertible and further diluting the ownership interest and voting power of holders of our common stock.
Such reductions in voting power and the substantial dilution of ownership rights resulting from the issuance, potential conversion of and accrual of dividends on, the Katapult Convertible Preferred Stock may adversely affect the market price for our common stock. Securities class action litigation is often initiated against companies whose stock price declines following significant transactions by a company, such as transactions of the type that resulted in our issuance of the Katapult Convertible Preferred Stock to Hawthorn. This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.
Until the later of the date the Preferred Stock Investment Stockholder Approval is obtained, if at all, and the date of our 2026 Annual Meeting of Stockholders, and if the Hawthorn Preferred Stock Exchange is not consummated the Katapult Convertible Preferred Stock will accrue dividends at an annual rate of at least 18% compounding weekly.Thereafter, the Katapult Convertible Preferred Stock will continue to accrue dividends at an annual rate of 12% compounding quarterly
Dividends on the Katapult Convertible Preferred Stock currently accrue at a rate of 18% per annum, payable weekly, and, if the Hawthorn Preferred Stock Exchange is not consummated, will continue to so accrue, payable weekly, until the later of (i) the date the Preferred Stock Investment Stockholder Approval (to remove the Ownership Limitation) is obtained, if at all and (ii) the date of our 2026 annual meeting of stockholders (“2026 Annual Meeting of Stockholders”). In addition, the Katapult Convertible Preferred Stock, as supplemented by a waiver entered into by Hawthorn as the sole holder of the Katapult Convertible Preferred Stock, provides that if the Preferred Stock Investment Stockholder Approval is not obtained on or before the date of our first annual or special meeting of stockholders following November 3, 2025 (“Dividend Step-up Deadline”), then the dividend rate will be increased by one percent (1%) during the period from, and including, the Dividend Step-up Deadline to, but excluding, the date when the Preferred Stock Investment Stockholder Approval is first obtained, if at all. Beginning on, and including, the later of (i) the date of the meeting at which the Preferred Stock Investment Stockholder Approval is obtained and (ii) the date of our 2026 Annual Meeting of Stockholders, dividends will accrue at a rate of 12% per annum, payable quarterly.
If the Hawthorn Preferred Stock Exchange is not consummated and the Preferred Stock Investment Stockholder Approval is not obtained, the dividend rate will remain 18% per annum, payable weekly. In addition, if the Preferred Stock Investment Stockholder Approval is not obtained by the Dividend Step-up Deadline, then the dividend rate will increase to 19% per annum, payable weekly. Under no circumstance will the dividend rate decrease below 12% per annum. The dividend rate could have adverse effects on our financial condition and results of operations and could result in additional dilution to the ownership interest and voting power of holders of our common stock. There can be no assurance that the Preferred Stock Investment Stockholder Approval will be obtained by the Dividend Step-up Deadline, or at all.
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If the Preferred Stock Investment Stockholder Approval is obtained, the Katapult ConvertiblePreferred Stock would be convertible without regard to the Ownership Limitation and would allow the holder(s) thereof to become the majority owner(s) of the Company.
Hawthorn is the current holder of all the Katapult Convertible Preferred Stock. Until the Preferred Stock Investment Stockholder Approval (to remove the Ownership Limitation) is obtained, any conversion of the Katapult Convertible Preferred Stock is subject to the limitation that no holder of the Katapult Convertible Preferred Stock may convert such shares to the extent that such conversion would result in such holder beneficially owning in excess of 19.99% of all outstanding shares of our Common Stock as of November 3, 2025.
If the Hawthorn Preferred Stock Exchange is not consummated, then following the Preferred Stock Investment Stockholder Approval, if the Preferred Stock Investment Stockholder Approval is obtained, Hawthorn, or another holder of the Katapult Convertible Preferred Stock, may convert any or all of its shares of the Katapult Convertible Preferred Stock into our common stock at any time, and may convert such shares into a number of shares of our common stock constituting a majority of the number of shares of the issued and outstanding common stock. Hawthorn, or another individual, group or company that obtains Katapult Convertible Preferred Stock that would be freely convertible into a majority of the issued and outstanding common stock of the Company (“Majority Holder”), would be able to exercise significant influence over us, including control over decisions that require the approval of stockholders, which could limit our stockholders’ ability to influence the outcome of key transactions, including a change of control. There can be no assurance that the Katapult Convertible Preferred Stock held by a Majority Holder would not be converted into a majority of the issued and outstanding common stock of the Company following the Preferred Stock Investment Stockholder Approval, or if so converted, as to the period of time during which such Majority Holder would be able to so influence and control our decisions. We expect that the Hawthorn Preferred Stock Exchange will be consummated immediately prior to the Mergers pursuant to the Hawthorn Side Letter.
Under Nasdaq rules, a company of which more than a majority of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including certain requirements regarding independence of directors and board committee members. Following the Preferred Stock Investment Stockholder Approval, we could become a “controlled company” of a Majority Holder and choose not to comply with those corporate governance requirements. Accordingly, our stockholders would not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. There can be no assurance as to the period of time during which we would remain a “controlled company” if we became one.
Risks Related to the Loan Agreement and our Indebtedness
If the Lender’s waiver of our existing event of default expires and is not otherwise extended, or if we trigger another event of default under the Loan Agreement and such event of default is not waived by our Lender, the Loan Agreement would terminate and our obligations under the Loan Agreement would accelerate, which would have a material adverse effect on our business, results of operations and financial position.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them. The Loan Agreement contains certain financial covenants. In particular, (1) as of the end of each month, we must maintain certain minimum Trailing Three-Month Net Originations representing net lease costs of newly originated leases in the immediately trailing three calendar month period and (2) we must maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. We have failed to comply with similar or identical obligations in the past under the 2019 Loan Agreement and may do so in the future under the Loan Agreement. We have been in the past unable to comply with the financial
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covenants and certain reporting covenants in the 2019 Loan Agreement and may in the future be unable to comply with such covenants in the Loan Agreement, and we may from time to time fail to comply with (or breach) other covenants or requirements of the Loan Agreement. For example, as of each of July 31, 2025, August 31, 2025, September 30, 2025, October 31, 2025, and December 31, 2025 we were not in compliance with the Minimum Trailing Three-Month Originations covenant and the Lender granted waivers thereof in each case. We could continue fail to comply with such covenant or any other covenant or requirement of the Loan Agreement and trigger an additional event of default under the Loan Agreement. We anticipate that we will not have sufficient cash available to repay the New Revolving Facility under the Loan Agreement in the event of default.
If we trigger another event of default under the Loan Agreement and any such event of default is not waived by our Lenders, we would not be able to borrow under the Loan Agreement, and our Lenders would have the right to terminate the loan commitments under the Loan Agreement, accelerate repayment of all obligations under the Loan Agreement, and foreclose its liens against substantially all of our assets and take possession and sell any such assets to reduce any such obligations. While the Lenders have previously granted the Company waivers of certain events of default under the 2019 Loan Agreement and the Loan Agreement there is no guarantee that they will be willing to do so in the future. In addition, the rights of the Lenders under the Loan Agreement are fully transferable and assignable and there is no guarantee that any transferee will be willing to grant any such waivers or have interests that align with the Company and its stockholders. In the case of an event of default in respect of which we are unable to negotiate with our Lenders for a waiver or dispensation or upon maturity, if we do not have sufficient liquid assets to repay amounts outstanding under the Loan Agreement, the Lenders have the right to foreclose their liens against all of our assets and take possession and sell any such assets to reduce any such obligations. As a result, we would likely be unable to continue our operations, be unable to avoid filing for bankruptcy protection and/or have an involuntary bankruptcy case filed against us. These events would have a material adverse effect on our business, results of operations and financial position.
We have substantial indebtedness, which may reduce our capability to withstand adverse developments or business conditions.
We have incurred substantial indebtedness. As of December 31, 2025, the total aggregate indebtedness under the Loan Agreement was approximately $78.7 million of principal outstanding. We, together with our wholly-owned subsidiary, Katapult Group, Inc., have guaranteed the obligations of the Borrower under the Loan Agreement. Our payments on our outstanding indebtedness are significant in relation to our revenue and cash flow, which exposes us to significant risk in the event of downturns in our business (whether through competitive pressures or otherwise), our industry or the economy generally, since our cash flows would decrease but our required payments under our indebtedness would not. Economic downturns may impact our ability to comply with the covenants and restrictions in our Loan Agreement and to make payments on our indebtedness as they become due.
Our overall leverage and the terms of our Loan Agreement could also:
•make it more difficult for us to satisfy obligations;
•limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions;
•limit our ability to service our indebtedness;
•limit our ability to adapt to changing market conditions;
•restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
•require us to dedicate a significant portion of our cash flow from operations to paying the principal and interest on our indebtedness, thereby limiting our ability to reach profitability and the availability of our cash flow to fund future capital expenditures, working capital and other corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and in our industry generally; and
•place us at a competitive disadvantage compared with competitors that have a less significant debt burden.
In addition, the Loan Agreement is secured by a pledge over all of the assets of the Borrower, is guaranteed by us and our wholly owned subsidiary, Katapult Group, Inc., which in turn is secured by a pledge over all of our assets and the assets of Katapult Group, Inc.
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The Loan Agreement governing the New Revolving Facility includes restrictive covenants and financial maintenance covenants, which could restrict our operations or ability to pursue growth strategies or initiatives, including potential mergers and acquisitions opportunities. Failure to comply with these covenants could result in an acceleration of repayment of the indebtedness under the Loan Agreement, which would have a material adverse effect on our business, financial condition and results of operations.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the Loan Agreement; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Non-scheduled repayments of certain amounts under the Loan Agreement are subject to certain restrictions. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them which would prevent us from pursuing certain growth strategies or initiatives due to this limitation. These or other limitations could decrease our operating flexibility and our ability to achieve our operating objectives. The Loan Agreement contains certain financial covenants. In particular, (1) as of the end of each month, we must maintain certain minimum Trailing Three-Month Net Originations (as defined in the Loan Agreement) representing net lease costs of newly originated leases in the immediately trailing three calendar month period and (2) we must maintain minimum liquidity of at least $5.0 million in unrestricted cash and cash equivalents as of the last business day of any calendar week. These financial covenants are restrictive and failure to comply with these covenants would have a material adverse effect on our business, financial condition, and results of operations.
We have been in the past unable to comply with the financial covenants in the Loan Agreement and the financial covenants and certain reporting covenants in the 2019 Loan Agreement and may in the future be unable to comply with such covenants in the Loan Agreement, and we may from time to time fail to comply with (or breach) other covenants or requirements of the Loan Agreement. For example, as of each of July 31, 2025, August 31, 2025, September 30, 2025, October 31, 2025, November 30, 2025 and December 31, 2025, we were not in compliance with the Minimum Trailing Three-Month Originations covenant and the Lenders granted a waiver thereof in each case. We could continue fail to comply with such covenant or any other covenant or requirement of the Loan Agreement and trigger an additional event of default under the Loan Agreement. In such event, if we are unable to negotiate with our Lenders for a waiver or dispensation under the Loan agreement, we would not be able to borrow under the Loan Agreement and our Lenders would have the right to terminate the loan commitments under the Loan Agreement and accelerate repayment of all obligations under the Loan Agreement, which would become due and payable immediately, and such an event would have a material adverse effect on our business, results of operations and financial position. While the Lenders have previously granted the Company waivers of certain events of default under the 2019 Loan Agreement and the Loan Agreement there is no guarantee that they will be willing to do so in the future. In addition, the rights of the Lenders under the Loan Agreement are fully transferable and assignable and there is no guarantee that any transferee will be willing to grant any such waivers or have interests that align with the Company and its stockholders. In the event of default or upon maturity if we do not have sufficient liquid assets to repay amounts outstanding under the Loan Agreement, the Lenders have the right to foreclose their liens against all of our assets and take possession and sell any such assets to reduce any such obligations. As a result, we would likely be unable to continue our operations, be unable to avoid filing for bankruptcy protection and/or have an involuntary bankruptcy case filed against us. These events would have a material adverse effect on our business, results of operations and financial position.
Risks Related to Our Business, Strategy and Growth
To the extent that we seek to grow through future acquisitions, or other strategic investments or alliances, we may not be able to do so effectively.
We may in the future seek to grow our business by exploring potential acquisitions or other strategic investments or alliances. We may not be successful in identifying businesses or opportunities that meet our acquisition or expansion criteria. In addition, even if a potential acquisition target or other strategic investment is identified, we may not be successful in completing such acquisition or integrating such new business or other investment. If the Hawthorn Preferred Stock Exchange is not consummated, certain business combinations, share exchanges, reclassifications or
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other corporate actions involving the Series A Convertible Preferred Stock or the Series B Convertible Preferred Stock, as the case may be, will require the approval of the holders of a majority of the outstanding shares of such series of the Katapult Convertible Preferred Stock, voting as a separate class or classes, as the case may be, unless such events do not adversely affect the rights, preferences or voting powers of the Series A Convertible Preferred Stock or the Series B Convertible Preferred Stock, as the case may be, and this requirement may limit the terms we are able to offer in a potential acquisition or investment. We may face significant competition for acquisition and other strategic investment opportunities from other well-capitalized companies, many of which have greater financial resources and greater access to debt and equity capital to secure and complete acquisitions or other strategic investments, than we do. As a result of such competition, we may be unable to acquire certain assets or businesses, or take advantage of other strategic investment opportunities that we deem attractive; the purchase price for a given strategic opportunity may be significantly elevated; or certain other terms or circumstances may be substantially more onerous.
There is no assurance that we will be able to manage our growth effectively, and any failure to do so could adversely affect our ability to generate revenue and control our expenses. Furthermore, we may be responsible for any legacy liabilities of businesses we acquire or be subject to additional liability in connection with other strategic investments. The existence or amount of these liabilities may not be known at the time of acquisition, or other strategic investment, and may have an adverse effect on our business, results of operations, financial condition, and prospects.
A meaningful percentage of our gross originations are concentrated with a single merchant, and any deterioration in the business of, or in our relationship with, this merchant or any other key merchant relationship or partner could materially and adversely affect our business, results of operations, financial condition, and prospects.
We depend on continued relationships with Wayfair and other key merchants. Our top merchant, Wayfair, represented approximately 25% and 36% of our gross originations (which we define as the retail price of the merchandise associated with lease-purchase agreements entered into and do not represent revenue earned) for the years ended December 31, 2025 and 2024, respectively. Gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform. Our top ten direct merchants, which are merchants with whom we have a direct contractual arrangement, in the aggregate represented approximately 45% and 54% of our gross originations for the years ended December 31, 2025 and 2024, respectively. The loss of any of our significant merchant partners, and in particular the loss of Wayfair, would materially and adversely affect our business, results of operations, financial condition, and prospects. In addition, a material modification in the merchant agreement with Wayfair or another significant merchant or changes in the prominence of our solution on a significant merchant’s website or prioritization of our solution in a significant merchant’s waterfall could adversely affect our business, results of operations, financial condition, and prospects.
There can be no guarantee that these direct merchant relationships will continue or, if they do continue, that these relationships will continue to be successful. There is a risk that we may lose merchants for a variety of reasons, including a failure to meet key contractual or commercial requirements, or if merchants shift to in-house solutions (including providing a service competitive to us) or competitor providers.
If our relationship with Wayfair or another key merchant deteriorates, they choose to no longer partner with us, or choose to partner with a competitor, or their business is negatively impacted by one or more factors, our business, results of operations, financial condition and prospects will be materially and adversely affected.
The concentration of a significant portion of our business and transaction volume with a single merchant or a limited number of merchants exposes us disproportionately to events, circumstances, or risks affecting such single merchant, such as Wayfair, or our other key merchants. For example, supply chain issues have in the past and may in the future negatively impact the sales of many of our merchants which in turn has contributed to a decline in our gross origination volume during the applicable periods. If our key merchant partners, in particular Wayfair, are unable to acquire new customers or retain existing customers or are otherwise negatively impacted by the macroeconomic and geopolitical conditions, our results of operations, financial condition and prospects will be negatively impacted.
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We also depend on continued relationships with key partners that assist in obtaining and maintaining our relationships with merchants. There is a risk that e-commerce platforms with which we partner (such as Shopify, BigCommerce, WooCommerce, and Magento) may limit or prevent the Company from being offered as a payment option at checkout. We also face the risk that our key partners could become competitors of our business.
If we are unable to attract additional direct merchants and retain and grow our relationships with our existing direct merchants, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
Our strategy to grow our gross originations partially depends on our ability to maintain and grow our relationships with current direct merchants and to attract select new direct merchants that will stimulate consumer demand on our platform. The attractiveness of our platform to merchants depends on, among other things, our brand and reputation, our ability to sustain our value proposition to merchants for consumer acquisition, the attractiveness of our platform to merchants, the services, products and consumer decision standards offered by our competitors, and our ability to perform under, and maintain, our merchant agreements.
The success of our business is dependent on customers making payments on their leases when due and other factors affecting consumer spending and default behavior that are not under our control.
We generate substantially all of our revenue through payments on leases we provide to customers to obtain the merchandise of our merchants and we bear the risk of non-payment or late payments by our customers. As such, the success of our business is dependent on customers making payments on their leases when due. We primarily provide leases to non-prime customers who do not have sufficient cash or credit to obtain durable goods. The ability of these customers to make payments to us when due may be impacted by a variety of factors, such as loss of employment, deteriorating economic conditions and other factors including but not limited to disposable consumer income, inflation, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security. Unfavorable changes in factors listed above could reduce demand for our products and services resulting in lower revenue and negatively impacting our business and our financial results. In addition to reducing demand for our products, these factors may unfavorably impact our customers' ability or willingness to make lease payments in a timely manner or at all, resulting in increased customer payment delinquencies and lease merchandise write-offs and decreased gross margins, which could also materially and adversely impact our business, financial condition and results of operations.
Unexpected changes to consumer behavior could cause our proprietary algorithms and decisioning tools used in approving customers to no longer be indicative of our customer’s ability to perform.
We believe our proprietary lease decisioning processes to be a key to the success of our business. The decisioning processes assume behavior and attributes observed for prior customers, among other factors, are indicative of performance by our future customers. Unexpected changes in consumer behavior caused by changing economic conditions and other factors may mean that our decisioning tools may not function as intended. As a result, we may approve customers that are not able to perform, which would lead to increased customer delinquencies, increased lease merchandise write-offs and decreased gross margins. When there are unexpected changes to consumer behavior, our decisioning process typically requires more frequent adjustments and the application of management analysis of the interpretation and adjustment of the results produced by our decisioning tools. If there is a challenging macro environment, we may need to make more frequent adjustments to our decisioning process in the near term. If our decisioning tools are unable to accurately predict and respond to changes to consumer behaviors as a result of general economic or other factors, our ability to manage risk and avoid charge-offs may be negatively affected, which may result in insufficient reserves and materially and adversely impact our business, financial condition, results of operations and prospects.
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Our success depends on the effective implementation and continued execution of our strategies.
We are focused on our mission to provide innovative lease financing solutions to non-prime customers and to enable everyday essential transactions at the merchant point of sale.
Growth of our business, including through the launch of new product offerings, requires us to invest in or expand our customer data and technology capabilities, engage and retain experienced management, and otherwise incur additional costs. For example, since we launched the app in late 2022, transactions that were completed using KPay have grown to represent 42% of our total gross originations for the year ended December 31, 2025. Approximately 62% of our 2025 gross originations started with an interaction in our Katapult App.
However, these product enhancements may not continue to generate the additional consumer and merchant engagement with our offerings that we expect. If these or other strategic initiatives are not successful longer-term, our competitiveness as well as our business and financial results may be materially and adversely affected. Our inability to address these concerns or otherwise to achieve targeted results associated with our initiatives could adversely affect our results of operations, or negatively impact our ability to successfully execute future strategies, which may result in an adverse impact on our business and financial results.
If we fail to maintain customer satisfaction and trust in our brand, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
We provide an LTO financing option for qualified customers seeking to obtain durable goods from omnichannel and e-commerce merchants. If customers do not trust our brand or do not have a positive experience, they will not use our services. Consequently, our ability to retain customers and attract repeat business is highly dependent on our reputation among our existing customers and merchants. Any failure to maintain a consistently high level of customer service, or a market perception that we do not maintain high-quality customer service, would adversely affect our reputation and the number of positive customer referrals that we receive and the number of new and repeat customers. As a result, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
If we are unable to attract new customers and retain and grow our relationships with our existing customers, or if attracting or retaining customers is not cost-efficient, our results of operations, financial condition, and prospects would be materially and adversely affected.
Our continued success depends on our ability to generate repeat use and increased gross originations from existing customers and to attract new consumers to our platform. Our ability to retain and grow our relationships with our customers depends on the willingness of customers to use our products and services, including our Katapult App and KPay. The attractiveness of our Katapult App to consumers depends upon, among other things, the number and variety of our merchants and the mix of products and services available through our platform, our brand and reputation, customer experience and satisfaction, trust and perception of the value we provide, technological innovation, and the services, products and customer decisioning standards offered by our competitors. If we fail to attract new customers to our platform, products and services, or if we do not continually expand usage, repeat customers and gross originations, our results of operations, financial condition, and prospects would be materially and adversely affected.
We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our results of operations, financial condition, and prospects.
We operate in a highly competitive industry. We face competition from a variety of businesses and new market entrants, including competitors with LTO products for e-commerce goods and other types of digital payment platforms. We face competition from virtual LTO companies, e-commerce retailers (including those that offer layaway programs, other lending options or buy now, pay later programs), online sellers of used merchandise, and various types of consumer finance companies that may enable our customers to shop at online retailers, as well as with online rental stores that do not offer their customers a purchase option. These competitors may have
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significantly greater financial and operating resources, greater name recognition and more developed products and services, which may allow them to grow faster. Greater name recognition, or better public perception of a competitor’s reputation, may help the competitor take market share. Some competitors may be willing to offer competing products on an unprofitable basis (or may have looser decisioning standards or be willing to relax their decisioning standards) in an effort to gain market share, which could compel us to match their pricing strategy or lose business. Moreover, prime lenders may loosen their underwriting standards and provide credit to non-prime consumers, which would impact our gross origination as well as the credit quality of our customers and our business and results of operations. In addition, some of our competitors may be willing to lease certain types of products that we will not agree to lease, enter into customer leases that have services, as opposed to goods, as a significant portion of the lease value, or engage in other practices related to pricing, compliance, and other areas that we will not, in an effort to gain market share. Our business relies heavily on relationships with our merchants. Competitors undertaking these tactics could cause our merchants to cease to offer the Company’s products in favor of our competitors, or to offer our product and the products of our competitors simultaneously, which could slow growth in our business and limit or reduce profitability. Merchants could also develop their own in-house product that competes with our product. Furthermore, virtual LTO competitors may deploy different business models, such as direct-to-consumer strategies, that forego reliance on merchant relationships that may prove to be more successful.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves its forecasted growth, our business could fail to grow at similar rates, if at all.
Our market opportunity estimates, including the size of the virtual LTO market, and expectations about market growth are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including our expectation with respect to the retail environment for home furnishings and other categories offered by our top merchant partners. Even if the markets in which we compete meet our size estimates and growth expectations, our business could fail to grow for a variety of reasons, which could adversely affect our results of operations.
We rely on the accuracy of third-party data, and inaccuracies in such data could adversely impact our approval process.
We use data from third parties as part of our proprietary risk model to assess whether a customer qualifies for one of our lease-purchase options. We are reliant on these third parties to ensure that the data they provide is accurate. Inaccurate data could cause us to not approve transactions that otherwise would have been approved, or instead, approve transactions that would have otherwise been denied and may lead to a higher incidence of bad debts and could have an adverse impact on our results of operations and financial condition.
The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
Our solution is a technology-driven platform that relies on innovation to remain competitive. The process of developing new technologies and products is complex, and we build our own technology, using the latest in artificial intelligence and machine learning (“AI/ML”), cloud-based technologies, and other tools to differentiate our products and technologies. See “Risks Related to Our Technology and Our Platform—We utilize AI/ML, which could expose us to liability or adversely affect our business” for more information. In addition, our dedication to incorporating technological advancements into our platform requires significant financial and personnel resources. In addition, our investment of resources to develop new products and technologies and make changes or updates to our platform may be insufficient. Our development efforts for these initiatives could divert capital and other resources from other growth initiatives important to our business. In addition, the product and technological enhancements that we introduce may not function as we intend or may not generate the benefits that we expect. We operate in an industry experiencing rapid technological change and frequent product introductions. We may not be able to make technological improvements as quickly as demanded by our customers and merchants, which could harm our ability to attract customers and merchants. In addition, we may not be able to effectively implement new technology-driven products and services as quickly as competitors or be successful in marketing these products and services to customers and merchants. If we are unable to successfully and timely innovate and continue to deliver a superior
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merchant and customer experience, the demand for our products and technologies may decrease and our growth, business, results of operations, financial condition, and prospects could be materially and adversely affected.
Our failure to accurately predict the demand or growth of our new products and technologies also could have a material and adverse effect on our business, results of operations, financial condition, and prospects. New products and technologies are inherently risky, due to, among other things, risks associated with: the product or technology not working, or not working as expected; customer and merchant acceptance; technological outages or failures; and the failure to meet customer and merchant expectations. As a result of these risks, we could experience increased claims, reputational damage, or other adverse effects, which could be material. The profile of potential customers using our new products and technologies also may not be as attractive as the profile of the customers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced. Additionally, we can provide no assurance that we will be able to develop, commercially market, and achieve acceptance of our new products and technologies. Failure to accurately predict demand or growth with respect to our new products and technologies could have a material and adverse effect on our business, results of operations, financial condition, and prospects.
Financial Risks Related to Our Business
Our ability to timely raise capital in the future may be limited, or may be unavailable on acceptable terms, if at all.
The failure to raise capital when needed could harm our business, operating results and financial condition. Debt or equity issued to raise additional capital may reduce the value of our common stock. We cannot be certain when or if the operations of our business will generate sufficient cash to fund our ongoing operations or the growth of our business. We intend to make investments to support and grow our business and may require additional funds to respond to business challenges, including the need to develop or enhance our technology, expand our sales and marketing efforts or develop new products. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results and financial condition. If we incur additional debt, the debt holders could have rights senior to holders of our common stock and/or existing debt to make claims on our assets. The terms of any additional debt could have covenants which restrict our operations, including our ability to pay dividends on our common stock, take specific actions, such as incurring additional debt, or make capital expenditures. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock including liquidation or other preferences. Because the decision to issue securities in the future offering will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future issuances of debt or equity securities. As a result, stockholders will bear the risk of future issuances of debt or equity securities reducing the value of their common stock and diluting their interest.
We have a history of operating losses and may not be profitable in the future.
We incurred net income of $1.4 million and net loss $25.9 million during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, our accumulated deficit was approximately $147.1 million. Our operating expenses decreased for the year ended December 31, 2025 compared to the year ended December 31, 2024, largely due to our efforts to continue to diligently manage our expenses and incorporate efficiencies and productivity improvements in our business while investing in areas that drive growth (technology, revenue team and underwriting). Notwithstanding the foregoing, we may need to further increase our operating expenses in the future in order to continue growing our business, attracting customers, merchants and funding sources, and further enhancing and developing our products and platforms. As we expand our offerings to additional markets, our offerings in these markets may be less profitable than the markets in which we currently operate. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We may incur net losses in the future and may not be profitable on a quarterly or annual basis.
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Our revenue and operating results may fluctuate, which could result in a decline in our profitability and make it more difficult for us to grow our business.
Our revenue and operating results have varied, and may in the future vary, from quarter to quarter and by season. Periods of decline have resulted, and could in the future result, in an overall decline in profitability and make it more difficult for us to make payments on our indebtedness and grow our business. We expect our quarterly results to fluctuate in the future due to a number of factors, including general economic conditions in the markets where we operate, and customer spending patterns, including the impact of holiday and seasonal sales and tax refunds.
Any significant disruption or errors relating to our loan providers and loan processor, could delay the processing of transactions on our platform or cause temporary fluctuations in cash use and have a material and adverse effect on our business, results of operations, financial condition, and prospects.
Pursuant to the Loan Agreement, we are required to use a designated loan processor to validate customer purchases for funding our New Revolving Facility and, thus, in the operation of our platform. The performance and accuracy of said loan processor is essential to our operations and is critical to ensuring that loans are appropriately and timely funded. We rely on the designated loan processor to ensure their systems, internal procedures, verification processes and facilities are protected against service interruptions, power or telecommunications failures, criminal acts, and similar events. We may be harmed if there is a delay, disruption, or error in loan validation. Further, if our arrangements with the designated loan processor is terminated, or if there is a lapse in service due to errors, we could experience interruptions in the provision of our leases. We may also experience increased costs and difficulties in funding leases or finding replacement loan providers or processors on commercially reasonable terms, on a timely basis, or at all.
In addition, in the event of error or interruption, we may be required to use cash to cover for any losses or uncovered leases that might occur, albeit temporarily. This could reduce our available cash or cause reputational harm, any of which could have a material and adverse effect on our business, results of operations, financial condition, and prospects.
In December 2023, the processor for our loan provider experienced a timing error in their validation processes. We alerted them to the error, temporarily covering the approved leases with our cash and the issue was resolved in January 2024. Both our loan provider and processor have since instituted changes to correct against similar interruptions in service, but there can be no assurance that a similar error will not occur in the future.
We rely on card issuers and payment processors. If we fail to comply with the applicable requirements of Visa, Mastercard or other payment processors, those payment processors could seek to fine us, suspend us or terminate our registrations, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
We rely on card issuers and payment processors and must pay a fee for this service. From time to time, payment processors such as Visa or Mastercard may increase the interchange fees that they charge for each transaction using one of their cards. The payment processors routinely update and modify their requirements. Changes in the requirements, including changes to risk management and collateral requirements, may impact our ongoing cost of doing business and we may not, in every circumstance, be able to pass through such costs to our merchants or associated participants. Furthermore, if we do not comply with the payment processors’ requirements (e.g., their rules, bylaws, and charter documentation), the payment processors could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their networks. The termination of our registration due to failure to comply with the applicable requirements of our payment processors, or any changes in the payment processors’ rules that would impair our registration, could require us to stop utilizing payment services from our payment processors, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
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Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,”generally defined as a greater than 50.0% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited or potentially significantly deferred compared to such ability in the absence of an “ownership change.” We believe that the completion of the de-SPAC transaction in June 2021 triggered such an “ownership change” resulting in limitations on our use of tax attributes from prior to the de-SPAC transaction. As a result of such an “ownership change,” our ability to use our net operating loss carryforwards and other tax credits generated since inception to offset U.S. federal taxable income may be subject to limitations. In addition, future transfers and transactions (including the pending Mergers and related transactions) that change the equity ownership of the company may trigger another “ownership change” and result in additional limitations on our ability to use our net operating loss carryforwards and other tax credits generated prior to the date of such “ownership change.” These limitations could potentially result in increased future tax liability to us and could require us to pay U.S. federal income taxes earlier than would be required if such limitations were not in effect. Similar rules and limitations may apply for state income tax purposes.
Risks Related to Our Technology and Our Platform
We utilize AI/ML, which could expose us to liability or adversely affect our business.
We use AI/ML in many aspects of our business. Our AI/ML capabilities are a combination of internally developed
proprietary models and third-party data and services. In particular, we use AI/ML to create models which provide data to assist in key aspects of our business, including fraud analysis, credit risk analysis, and product personalization. Our core decisioning technology including our proprietary decision engine, fraud propensity models, default propensity models, and our proprietary scoring system ("Zibby/Katapult Score") is developed and maintained internally by our engineering and data science teams. These internally developed models are trained on our own historical transactions, lease repayment performance data, as well as third-party data, and they power our real-time underwriting decisions, risk-based pricing engine and our patent-pending leasable product detection technology within Mobile app marketplace - Katapult Pay. In addition to our internal data and proprietary models, we rely on approximately 2,000 data elements from third-party providers to supplement the information collected directly from applicants. These third-party data sources include credit data providers, identity fraud check providers as well as digital identity intelligence and authentication platforms that assist in detecting and preventing payment fraud ensuring secure transactions. We also utilize third-party cloud infrastructure services, principally AWS, to host and operate our platform and we use certain third-party tools in areas such as marketing automation, customer engagement and collections.
Our reliance on third-party service providers, including cloud infrastructure providers and data vendors, exposes us to operational and strategic risks. If such providers experience outages, security incidents, contractual disputes, pricing changes, regulatory constraints, or discontinue services, our ability to deliver real-time underwriting decisions could be adversely affected.
There are significant risks involved in utilizing AI/ML and no assurance can be provided that our use of such AI/ML will enhance our products or services or produce the intended results. The AI/ML models that we use are trained using various data sets. If the AI/ML models are incorrectly designed, the data we use to train them is incomplete, inadequate, or biased in some way, or we do not have sufficient rights to use the data on which our AI/ML models rely, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws and regulations, third-party intellectual property, privacy, or other rights, or contracts to which we are a party. AI/ML can present ethical issues and may subject us to new or heightened legal, regulatory, ethical, or other challenges; and inappropriate or controversial data practices by developers and end-users, or other factors adversely affecting public opinion of AI/ML, could impair the acceptance of AI/ML solutions, including those incorporated in our products and services. If the AI/ML tools that we use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results. Further, there can be no assurance
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that our use of AI/ML will result in our business or operations being more efficient or profitable or otherwise result in our intended outcomes. Moreover, our competitors or other third parties may incorporate AI/ML into their products more quickly or more successfully than us, which could impair our ability to compete effectively.
Additionally, if any of our employees, contractors, consultants, vendors or service providers use any third-party AI/ML-powered software in connection with our business or the services they provide to us, it may lead to the inadvertent disclosure or incorporation of our confidential information into publicly available training sets, which may impact our ability to realize the benefit of, or adequately obtain, maintain, protect, defend and enforce our intellectual property or other property rights, harming our competitive position and business. Any output created by us using AI/ML tools may not be subject to copyright protection, which may adversely affect our intellectual property and other proprietary rights in, or ability to commercialize or use, any such content. In the United States, a number of civil lawsuits have been initiated related to the foregoing and other concerns relating to AI/ML, any one of which may, among other things, lead us to limit the ways in which our AI/ML systems are trained and may affect our ability to develop our AI/ML-powered products and solutions. To the extent that we do not have sufficient rights to use the data or other material or content used in or produced by the AI/ML tools used in our business, or if we experience cybersecurity incidents in connection with our use of AI/ML, it could adversely affect our reputation and expose us to legal liability or regulatory risk, including with respect to third-party intellectual property, data privacy and security, publicity, contractual or other rights.
In addition, regulation of AI/ML is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies. The technologies underlying AI/ML and its uses are subject to a variety of laws and regulations, including intellectual property, data privacy and security, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations. AI/ML is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, data privacy and security laws and regulations to AI/ML or are considering general legal frameworks for AI/ML. Increased regulatory scrutiny of AI/ML models, including model explainability, fairness, data privacy, and consumer protection requirements, could require us to make modifications to our models or processes, increase compliance costs, or restrict certain uses of these technologies. We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions. Furthermore, because AI/ML technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational or technological risks that may arise relating to the use of AI/ML.
Real or perceived software errors, failures, bugs, defects, or outages could adversely affect our business, results of operations, financial condition, and prospects.
Our platform and our internal systems rely on software that is highly technical and complex. In addition, our platform and our internal systems depend on the ability of such software to store, retrieve, manage and otherwise process immense amounts of data, including personal data. As a result, undetected errors, failures, bugs, or defects may be present in such software or occur in the future in such software, including open-source software and other software we license in from third parties, especially when updates or new products or services are released.
Any real or perceived errors, failures, bugs, defects, or outages in such software could result in outages or degraded quality of service on our platform or errors in our financial reporting or charges to our customers that could adversely impact our business (including through causing us not to meet contractually required service levels), as well as negative publicity, loss of or delay in market acceptance of our products and services, and harm to our brand or weakening of our competitive position. In such an event, we may be required, or may choose, to expend significant additional resources in order to correct the error, failure, bug or defect. Any real or perceived errors, failures, bugs, defects, or outages in the software we rely on could also subject us to liability claims, result in data security breaches or other security incidents, impair our ability to attract new customers, retain existing customers, or expand their use of our products and services, which would adversely affect our business, results of operations, financial condition, and prospects.
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Our results depend on continued integration and support of our platforms, including our integration with direct merchants.
We depend on our merchant partners, which generally accept most major credit cards and other forms of payment, to present our platform as a payment option and to integrate our platform into their website or in their store, such as by featuring our platform on their websites or in their stores and at checkout. The failure by our merchants to effectively present, integrate, and support our platform, or to effectively explain LTO transactions to potential customers, would have a material and adverse effect on our business, results of operations, financial condition, and prospects.
In addition, as a result of user interface or design choices, a direct merchant could modify how our platform is presented as a payment option, including adjustment of the priority of positioning. The presentation and positioning of our platform by a direct merchant is up to the discretion of the merchant. A direct/waterfall may choose to position a competitor ahead of us, reduce the prominence or positioning of our platform, or remove our platform as a payment option. We may not have visibility that a change has been made until after the fact. Any change in our presentation or positioning with a direct merchant could have a material and adverse effect on our business, results of operations, financial condition, and prospects.
We rely on KPay enabled merchants to allow access to their stores through our Katapult App and our desktop and mobile websites.
We depend on KPay enabled merchants to continue to allow our customers to utilize our platform, including our websites and Katapult App, to access and buy goods at their stores. As a result, there can be no assurance that we will be able to continue to offer our customers access to any particular KPay enabled merchant. The loss of our ability to offer our customers access to KPay enabled merchants would have a material and adverse effect on our business, results of operations, financial condition, and prospects.
We are subject to stringent and changing laws, regulations, rules, standards and contractual obligations related to data privacy and security, which could increase the cost of doing business, compliance risks and potential liability and otherwise negatively affect our operating results and business regulations.
In the ordinary course of business, we collect, receive, store, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, share and otherwise process a wide variety of data and information, including personal data and sensitive personal data, proprietary and confidential business data, trade secrets, and intellectual property. For example, we process the personal data, including sensitive personal data, of customers, including Social Security numbers. We are subject to numerous data privacy and security obligations, such as various laws, regulations, rules, standards and contractual obligations that govern the processing of personal data by us or by third parties on our behalf.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, regulations and rules including data breach notification laws, personal data privacy laws, and consumer protection laws. For example, the Telephone Consumer Protection Act (“TCPA”) imposes specific requirements relating to marketing to individuals using technology such as telephones, mobile devices, and text messages. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to $1,500 per violation imposed through private litigation or by state authorities. Class action suits are the most common method for private enforcement. We are also subject to the rules and regulations promulgated under the authority of the FTC, which regulates unfair or deceptive acts or practices, including with respect to data privacy and security. Moreover, the United States Congress has considered, and will likely in the future consider, various proposals for more comprehensive data privacy and security legislation, to which we may be subject if passed.
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Data privacy and security are also areas of increasing state legislative focus, and we are, or may in the future become, subject to various state laws and regulations regarding data privacy and security. For example, the CCPA broadly defines personal information, gives California residents expanded privacy rights and protections, including the right to opt-out of a business’s sharing of their personal information for targeted advertising purposes, and provides for civil penalties for violations and a private right of action for certain data breaches. The CCPA is indicative of a trend towards greater state-level regulation of data privacy and security in the United States. A number of other states have enacted, or are considering enacting, comprehensive data privacy and security laws that share similarities with the CCPA. In addition, laws in all 50 U.S. states generally require businesses to provide notice under certain circumstances to customers whose personal data has been disclosed as a result of a data breach. For additional information on data privacy and security laws, regulations and rules we are, or may in the future become, subject to, see the section titled “Business—Government Regulation.”
In addition, privacy advocates and industry groups have proposed, and may propose, data privacy and security standards with which we are legally or contractually bound to comply. For example, we may also be subject to the Payment Card Industry Data Security Standard (“PCI DSS”), which requires companies that process payment card data to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access.Noncompliance with PCI DSS can result in significant penalties or liability, litigation, loss of access to major payment card systems, damage to our reputation, and revenue losses. We may also rely on vendors to process payment card data, and those vendors may be subject to PCI DSS, and our business may be negatively affected if our vendors are fined or suffer other consequences as a result of PCI DSS noncompliance.
We also make public statements about our use and disclosure of personal data through our privacy policies, information on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage our reputation and adversely affect our business.
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework.Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.In addition, these obligations may require us to change our business model. Our business model materially depends on our ability to process personal data, so we are particularly exposed to the risks associated with the rapidly changing legal landscape.For example, we may be at heightened risk of regulatory scrutiny, and any changes in the regulatory framework could require us to fundamentally change our business model.
Although we endeavor to comply with all applicable data privacy and security laws, regulations, rules, standards, and contractual obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely on may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party service provider to comply with applicable laws, regulations, rules, standards and contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or others. If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences.These consequences may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class claims; damages); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data.