Katapult Holdings Inc.

03/11/2026 | Press release | Distributed by Public on 03/11/2026 05:56

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references in this section to "we," "us," "our," the "Company," or "Katapult" refer to Katapult Holdings, Inc. and its subsidiaries.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, "Risk Factors," and "Special Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. All dollar amounts are in thousands, unless otherwise specified.
OVERVIEW
We are a technology driven lease-to-own platform that integrates with omnichannel retailers and e-commerce platforms to power the purchasing of everyday durable goods for underserved U.S. non-prime consumers. Our POS integrations and innovative mobile app, featuring KPay, make it easier for U.S. non-prime consumers unable to access traditional financing to spend responsibly and with confidence, easier for merchants to convert sales and grow, and easier for commerce to thrive.
Recent Developments
Pending Strategic Mergers with CCFI and Aaron's
On December 11, 2025, we entered into the Merger Agreement pursuant to which CCFI and Aaron's will become wholly owned subsidiaries of the Company, and the Company will remain a publicly traded entity. The Mergers, if completed, will create a premier omni-channel platform that provides non-prime consumers access to durable goods and a comprehensive suite of innovative financial solutions tailored to their specific needs. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Mergers. The Mergers are expected to close in the second quarter of 2026, following the receipt of the requisite stockholder and regulatory approvals and other customary closing conditions.
We expect the Mergers, if completed, to significantly affect our future capital structure. Immediately following the consummation of the Mergers, the existing Katapult stockholders, CCFI equity holders, and Aaron's equity holders, on a fully diluted basis, are expected to hold approximately 6.0%, 79.9%, and 14.1%, respectively, of the issued and outstanding shares of the combined company.
Refer to "Risk Factors" in Item 1A of Part I of this Annual Report for further discussion about the risks related to the Mergers.
Key Performance Metrics
We regularly review several metrics, including the following U.S. GAAP and non-GAAP key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor.
Gross Originations
We measure gross originations to assess the growth trajectory and overall size of our lease portfolio. We define gross originations as the retail price of the merchandise associated with lease-purchase agreements entered into during the period through our platform. Gross originations do not represent revenue earned but are a leading indicator of forecasted revenue and is a useful operating metric for investors as it provides insight into the volume of transactions that take place on our platform.
Revenue is recognized over a period of time subsequent to the gross origination (on average over an 8 month period). Historically, we recognized approximately 70-75% of revenue from gross originations two quarters after the quarter in which the origination occurred.
The following tables present gross originations for the years ended December 31, 2025 and 2024:
Year Ended December 31, Change
2025 2024 $ %
Gross Originations $ 278,462 $ 237,311 $ 41,151 17.3 %
Gross originations through KPay represented 42% and 32% of gross originations during the years ended December 31, 2025 and 2024, respectively.
Wayfair represented 25% and 36% of gross originations for the years ended December 31, 2025 and 2024, respectively. The gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform.
Total Revenue
Total revenue represents the sum of rental revenue and other revenue. We record rental revenue in accordance with ASC 842, Leases, with revenue being recorded when earned and cash is collected. Other revenue is recorded in accordance with ASC 606, Revenue from Contracts with Customers,with revenue being recorded as performance obligations are satisfied. See "-Results of Operations" section below for total revenue amounts.
Historically, our revenue is typically strongest during the first quarter primarily due to higher gross originations during the fourth quarter holiday season. Our first quarter revenue is also positively impacted by the federal and state income tax refunds that our customers receive in the first quarter which, in the past, has led to our customers more frequently exercising the early purchase option on their lease agreements. Revenue was highest in the third quarter driven by the strong growth of gross originations in the first half of 2025. Adverse and other events that occur could have a disproportionate effect on our financial results throughout the year.
Gross Profit
Gross profit represents total revenue less cost of revenue, and is a measure presented in accordance with U.S. GAAP. See "-Results of Operations" section below for gross profit amounts.
Adjusted Gross Profit
Adjusted gross profit is a non-GAAP measure utilized by management representing gross profit less variable operating expenses, which are servicing costs and underwriting fees. We believe that adjusted gross profit provides a meaningful understanding of profitability when variable lease origination costs are included. See "-Non-GAAP Financial Measures" section below for a reconciliation of gross profit to adjusted gross profit.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) before interest expense and other fees, transaction related costs, stock-based compensation expense, debt refinancing costs, depreciation and amortization on property and equipment and capitalized software, litigation and settlement expenses, provision for impairment of leased assets, interest income, gain on extinguishment of term loan and settlement of derivative liability, net, and change in fair value of derivative liability and warrants. Transaction-related costs consist primarily of professional fees incurred and retention bonus costs in connection with the Mergers.
We believe that adjusted EBITDA provides a meaningful understanding of our operating performance. See "-Non-GAAP Financial Measures" section below for a reconciliation of adjusted EBITDA, which is a non-GAAP measure utilized by management, to net income (loss).
RESULTS OF OPERATIONS(amounts in thousands, except per share data)
Year Ended December 31, 2025 compared to Year Ended December 31, 2024:
Year Ended December 31,
2025 2024 $ Change % Change
Revenue
Rental revenue $ 287,161 $ 243,978 $ 43,183 17.7 %
Other revenue 4,600 3,216 1,384 43.0 %
Total revenue 291,761 247,194 44,567 18.0 %
Cost of revenue 240,158 201,423 38,735 19.2 %
Gross profit 51,603 45,771 5,832 12.7 %
Operating expenses:
Servicing costs 4,710 4,589 121 2.6 %
Underwriting fees 3,204 2,304 900 39.1 %
Professional and consulting fees 8,167 5,201 2,966 57.0 %
Technology and data analytics 6,113 7,170 (1,057) (14.7 %)
Compensation costs 17,867 20,076 (2,209) (11.0 %)
General and administrative 11,242 10,866 376 3.5 %
Litigation and settlement expenses 813 3,666 (2,853) (77.8 %)
Total operating expenses 52,116 53,872 (1,756) (3.3 %)
Loss from operations (513) (8,101) 7,588 (93.7 %)
Gain on extinguishment of term loan and settlement of derivative liability, net 5,120 - 5,120 - %
Interest expense and other fees (20,552) (18,851) (1,701) 9.0 %
Interest income 197 1,163 (966) (83.1 %)
Change in fair value of derivative liability and warrants 17,432 17 17,415 NM
Income (loss) before income taxes 1,684 (25,772) 27,456 (106.5 %)
Provision for income taxes (319) (143) (176) 123.1 %
Net income (loss) $ 1,365 $ (25,915) $ 27,280 (105.3 %)
Accumulated undeclared dividends on series A and B preferred stock
(1,922) - (1,922) - %
Net loss attributable to common stockholders
$ (557) $ (25,915) $ 25,358 (97.9 %)
Weighted average common shares outstanding - basic and diluted 5,027 4,347 680 15.6 %
Net loss per common share attributable to common stockholders - basic and diluted $ (0.11) $ (5.96) $ 5.85 (98.2 %)
Revenue
Total revenue is comprised of rental revenue and other revenue. Rental revenue is recognized in the period it is earned and cash is collected. Other revenue consists primarily of the sale of property held for lease (and lease agreements) to third parties and other immaterial sources of income from third party relationships, and is recognized as performance obligations are satisfied.
The increase in total revenue of $44.6 million, or 18.0%, during the year ended December 31, 2025as compared to the same period in 2024 was primarily a result of gross origination growth becoming more efficient and healthy customer collections. We saw gross origination growth in 2025 primarily as a result of our Katapult App featuring KPay, which we launched in the third quarter of 2022 and growth from our direct merchants. Write-offs as a percentage of total revenue were 9.6% and 9.2% during the years endedDecember 31, 2025 and 2024 , respectively, and remains within our 8% to 10% target range. The provision for write-offs represents estimated losses based on historical results. Actual write-offs may differ from this estimate.
Cost of Revenue
Cost of revenue consists primarily of depreciation expense related to property held for lease, accelerated depreciation for impairment of property held for lease, accelerated depreciation of early lease-purchase options (buyouts), payment processing fees, and other costs associated with offering lease-purchase transactions to customers.
The increase in cost of revenue of $38.7 million, or 19.2%,for the year ended December 31, 2025as compared to 2024was a result of higher gross origination growth and capitalized property held for lease. The increase in property held for lease and historical lease portfolio collection patterns impacted the associated depreciation expense, which includes accelerated depreciation for early lease-purchase options (buyouts), and accelerated depreciation for impairment charges related to property held for lease. As depreciation expense is accelerated for buyouts and impairment, the cost of sales is greater earlier in the property held for lease asset life. As a result, in periods of high gross origination growth with higher rates of property held for lease additions, cost of sales will be disproportionately higher as compared to revenue growth.
Gross Profit
The increase in gross profit of $5.8 million, or 12.7%, for the year ended December 31, 2025as compared to 2024was due primarily to higher gross originations year-over-year and healthy customer collections.
Operating Expenses
Operating expenses primarily consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, compensation costs, general and administrative expense and litigation and settlement expenses. Servicing costs include permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs for customer underwriting models. Professional and consulting fees include corporate legal, transaction related costs and accounting costs. Transaction related costs consist of professional fees and other expenses incurred in connection with the Mergers. Technology and data analytics expense includes technology costs and salaries and benefits for computer programming and data analytics employees that support our underlying technology and proprietary risk model algorithms. Compensation costs consist primarily of payroll and related costs and stock-based compensation. General and administrative expenses include insurance, occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software. Litigation and settlement expenses consist of agreed upon settlement amounts that are probable and estimable and associated legal fees.
The decrease in total operating expenses of $1.8 million, or 3.3%, for the year endedDecember 31, 2025 as compared to 2024 was primarily due to lower litigation and settlement expenses of $2.9 million, and lower stock-based compensation expense of $2.1 million,partially offset by an increase of $3.0 millionof transaction related
costs related to the Mergers included in professional and consulting fees for the year endedDecember 31, 2025 as compared to 2024.
Gain on Extinguishment of Term Loan and Settlement of Derivative Liability
The Company recognized a gain of $5.1 millionfor the year endedDecember 31, 2025 related to extinguishment of term loans and settlement of the associated derivative liability, including the write-off of unamortized debt discount and issuance costs. No such gain or loss was recognized in 2024. See Note 6 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for more details.
Interest Expense and Other Fees
Interest expense increased $1.7 million forthe year endedDecember 31, 2025 as compared to 2024. The increase in interest expense for the year endedDecember 31, 2025 was primarily attributable to higher average outstanding principal balances under the Existing and New Revolving Facility as well as changes in the Company's debt structure associated with the refinancing completed in June 2025. These increases were partially offset by a decline in the average Secured Overnight Financing Rate ("SOFR") rate during the year.
Change in Fair Value of Derivative Liability and Warrants
The Company recognized a gain of $17.4 millionfor year endedDecember 31, 2025 compared to an immaterial change in 2024. The gain was primarily driven by the remeasurement of the Company's derivative liability and warrant liabilities to fair value. These adjustments are non-cash in nature and reflect changes in the estimated fair value of these instruments at each reporting date. See Note 12 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for more details.
Net Income (Loss)
As a result of the factors discussed above, the Company generated net income of $1.4 millionfor the year endedDecember 31, 2025 compared to a net loss of $(25.9) millionfor the year ended December 31, 2024.
Net Loss Attributable to Common Stockholders.
Net loss attributable to common stockholders was $(0.6) million for the year endedDecember 31, 2025 compared to $(25.9) millionfor the year ended December 31, 2024. Although the Company generated net income in 2025, net income attributable to common stockholders was reduced by $1.9 millionof accumulated undeclared dividends on the Company's Series A and Series B Convertible Preferred Stock, which are deducted in calculating net income (loss) per share attributable to common stockholders.
Accumulated Undeclared Dividends on Series A and Series B Convertible Preferred Stock
Accumulated undeclared dividends on the Company's Series A Convertible Preferred Stock and Series B Convertible Preferred Stock were $1.9 million for the year ended December 31, 2025. The Series A Convertible Preferred Stock and Series B Convertible Preferred Stock accrue cumulative dividends at the contractual rates specified in the applicable Certificate of Designations, and are recognized as a liability when declared by the Board of Directors. As of December 31, 2025, no dividends were declared and thus the accumulated undeclared dividends were deducted in calculating net income (loss) attributable to common stockholders. No such dividends were recorded in 2024. See Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K
Net Loss Attributable to Common Stockholders Per Share - Basic and Diluted
Net loss per share attributable to common stockholders, basic and diluted, was $(0.11)for the year endedDecember 31, 2025 compared to $(5.96)for the year ended 2024.
Non-GAAP Financial Measures
In addition to gross profit and net income (loss), which are measures presented in accordance with U.S. GAAP, we believe that adjusted gross profit, adjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses provide relevant and useful information which is widely used by analysts, investors, and competitors in our industry in assessing performance. Adjusted gross profit, adjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses are supplemental measures of our performance that are neither required by nor presented in accordance with U.S. GAAP. Adjusted gross profit, adjusted EBITDA and adjusted net income (loss) should not be considered as substitutes for U.S. GAAP metrics such as gross profit, operating income (loss), net income (loss), or any other performance measures derived in accordance with U.S. GAAP and may not be comparable to similar measures used by other companies.
Adjusted gross profit, adjusted EBITDA and adjusted net income (loss) are useful to an investor in evaluating our performance because these measures:
•Are widely used to measure a company's operating performance;
•Are financial measurements that are used by rating agencies, lenders and other parties to evaluate our credit worthiness; and
•Are considered by our management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting.
Adjusted Gross Profit
Adjusted gross profit represents gross profit less variable operating expenses related to lease originations, which are servicing costs and underwriting fees. We believe that adjusted gross profit provides a meaningful understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue. The reconciliations of gross profit to adjusted gross profit for the years ended December 31, 2025 and 2024are as follows:
Year Ended December 31,
2025 2024
Total revenue $ 291,761 $ 247,194
Cost of revenue 240,158 201,423
Gross profit 51,603 45,771
Less:
Servicing costs 4,710 4,589
Underwriting fees 3,204 2,304
Adjusted gross profit $ 43,689 $ 38,878
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. We believe that adjusted EBITDA provides a meaningful understanding of our operating performance.
The reconciliations of net income (loss) to adjusted EBITDA for the years ended December 31, 2025 and 2024 are as follows:
Year Ended December 31,
2025 2024
Net income (loss) $ 1,365 $ (25,915)
Add back:
Interest expense and other fees 20,552 18,851
Transaction related costs 4,931 -
Stock-based compensation expense 3,693 5,759
Debt refinancing costs 1,489 -
Depreciation and amortization on property and equipment and capitalized software 1,228 1,219
Litigation and settlement expenses 813 3,666
Provision for impairment of leased assets 738 2,227
Provision for income taxes 319 143
Interest income (197) (1,163)
Gain on extinguishment of term loan and settlement of derivative liability, net (5,120) -
Change in fair value of derivative liability and warrants
(17,432) (17)
Adjusted EBITDA $ 12,379 $ 4,770
Adjusted Net Loss
Adjusted net loss is a non-GAAP financial measure that is defined as net income (loss) before transaction related costs, stock-based compensation expense, debt refinancing costs, litigation and settlement expenses, gain on extinguishment of term loan and settlement of derivative liability, net, and change in fair value of derivative liability and warrants. The reconciliations of net income (loss) to adjusted net loss for the years ended December 31, 2025 and 2024 are as follows:
Year Ended December 31,
2025 2024
Net income (loss) $ 1,365 $ (25,915)
Add back:
Transaction related costs 4,931 -
Stock-based compensation expense 3,693 5,759
Debt refinancing costs 1,489 -
Litigation and settlement expenses 813 3,666
Gain on extinguishment of term loan and settlement of derivative liability, net (5,120) -
Change in fair value of derivative liability and warrants (17,432) (17)
Adjusted net loss $ (10,261) $ (16,507)
Fixed Cash Operating Expenses
Fixed cash operating expenses is a non-GAAP measure that is defined as operating expenses less variable lease costs such as servicing costs and underwriting fees, transaction related costs, stock-based compensation expense, debt refinancing costs, depreciation and amortization on property and equipment and capitalized software, and litigation and settlement expenses. We believe fixed cash operating expenses illustrates our controllable ongoing expenses.
The reconciliations of operating expenses to fixed cash operating expenses for the years ended December 31, 2025 and 2024 are as follows:
Year Ended December 31,
2025 2024
Operating expenses
$ 52,116 $ 53,872
Less:
Servicing costs 4,710 4,589
Underwriting fees 3,204 2,304
Transaction related costs 4,931 -
Stock-based compensation expense
3,693 5,759
Debt refinancing costs 1,489 -
Depreciation and amortization on property and equipment and capitalized software 1,228 1,219
Litigation and settlement expenses 813 3,666
Fixed cash operating expenses $ 32,048 $ 36,335
LIQUIDITY & CAPITAL RESOURCES (dollars in thousands)
The Company's financing generally consists of cash generated from leases and borrowings under its revolving line of credit ("RLOC"), which is fully collateralized by the Company's assets. Restricted cash consists primarily of customer lease payments received in a collection account pending release by the Company's lender. Restrictions are released on a weekly basis pursuant to completion of waterfall and borrowing base requirements.
Our revenue and operating results depend significantly on gross originations, which is defined as the retail price of the merchandise associated with lease-purchase agreements entered into during the period. Gross originations are a leading indicator of potential revenue streams. Revenue is recognized over a period of time subsequent to the gross origination date (on average over 8 months). As gross originations increase, the Company may require additional borrowings under the New Revolving Facility to fund growth in property held for lease.
The following table presents cash used in operating, investing, and financing activities for the years ended December 31, 2025 and 2024:
Year Ended December 31,
2025 2024
Cash, cash equivalents and restricted cash at beginning of period $ 16,552 $ 28,811
Net cash provided by (used in):
Operating activities (11,933) (32,569)
Investing activities (1,105) (1,303)
Financing activities 19,966 21,613
Cash, cash equivalents and restricted cash at end of period
$ 23,480 $ 16,552
Net cash used in operating activities decreased by $20.6 millionin 2025 compared to 2024, primarily driven by improved net income (loss), adjusted for non-cash charges, and higher spending on property held for lease, partially offset by changes in working capital, including accrued liabilities and litigation-related balances.
Net cash used in investing activities decreased by $0.2 millionin 2025 compared to 2024, primarily due to lower capitalized software additions.
Net cash provided by financing activities decreased by $1.6 million in 2025 compared to 2024, primarily due to the $35.1 million repayment of the New Term Loan, lower borrowings and higher principal repayments under the RLOC resulting in a $26.0 million reduction in net financing inflows, and a $5.3 million increase in debt issuance costs. These outflows were partially offset by $65.0 million of proceeds from the issuance of Convertible Preferred Stock in 2025.
The New Revolving Facility provides total commitments of $110 million and matures on December 4, 2026. As the maturity date falls within twelve months of the issuance date of these financial statements and the Company does not have sufficient cash on hand to repay the outstanding borrowings at maturity absent refinancing or extension, the upcoming maturity raises substantial doubt about the Company's ability to continue as a going concern.
The New Revolving Facility contains financial covenants, and as of December 31, 2025, the Company was in compliance with all such covenants; however, future compliance with certain covenants may require additional waivers from the lender, and there can be no assurance that such waivers will be obtained.
Management intends to refinance, extend, or replace the New Revolving Facility prior maturity and continues to work closely with the Lender; however, there can be no assurance that such refinancing or extension will be completed on acceptable terms or at all.
Financing Arrangements
For additional information on our loan obligations under the Loan Agreement, see Note 6to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K.
Pledge and Guaranty
Borrowings under the New Revolving Facility are secured by substantially all of the Company's assets and the equity interests of certain subsidiaries.
Contractual Obligations and Commitments
Refer to the descriptions of our material cash commitments, financing arrangements, and contractual obligations outlined below within the following notes to our consolidated financial statements.
See Note 6 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for future payments on the Company's debt facility, including outstanding borrowings and the applicable interest rate.
See Note 11 to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for litigation related liabilities and timing of expected future payments.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We review our estimates on an ongoing basis and make judgments about the carrying values of assets and liabilities based on a number of factors. These factors include historical experience and assumptions made by management that are believed to be reasonable under the circumstances. Although management believes that the judgment applied in the preparation of estimates is reasonable based on the circumstances and information known at the time, actual results could differ materially from the estimates based on the assumptions used in the preparation of our consolidated financial statements. This section summarizes the critical accounting policies and the related judgments involved in their application.
For further information, see Note 2to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K.
Rental Revenue Recognition
Lease-purchase agreements, which comprise the majority of total revenue, fall within the scope of ASC 842, Leases,under lessor accounting and revenue is recognized in the period it is earned and cash is collected. Property held for lease is leased to customers pursuant to lease-purchase agreements with an initial term: typically one week, two weeks, or one month, with non-refundable lease payments. Generally, the customer has the right to acquire title either through a 90-day promotional pricing option, an early lease-purchase option (buyout), or by completing all lease renewal payments, generally over 12 or 18 months. On any current lease, customers have the option to terminate the agreement at any time without penalty, in accordance with the lease term. Amounts received from customers who elect early lease-purchase options (buyouts) are included in rental revenue. Lease payments received prior to their due dates are deferred and recorded as unearned revenue and are recognized as rental revenue in the period in which the revenue is earned. Rental revenue also includes an initial agreed-upon amount for executing customer lease-purchase agreements. Payments are received upon submission of the applications and execution of the lease-purchase agreements. Services are considered to be rendered and revenue earned over the lease term.
Revenues from leases that originated from merchants with a direct or waterfall integration are generally recorded net of sales taxes as sales tax is collected from each customer's lease payment and a sales tax payable is recorded for remittance to the respective state in accordance with the rules of each tax jurisdiction. For KPay transactions, all sales tax is paid by the Company upon purchase of the goods and is recorded in the cost basis of the capitalized property held for lease. Revenue is recognized for leases originating through KPay in the period it is earned and cash is collected.
Income Taxes
We account for income taxes under the asset and liability method pursuant to ASC 740, Income Taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that the Company would be able to realize deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive income (loss). As of December 31, 2025, no accrued interest or penalties are included on the related tax liability line on the consolidated balance sheet.
Property Held for Lease, Net of Accumulated Depreciation and Impairment
Property held for lease consists of furniture, mattresses, customer electronics, appliances, and other durable goods offered for lease-purchase in the normal course of business. Such property is provided to customers pursuant to a lease-purchase agreement with a minimum lease term; typically one week, two weeks, or one month. The duration of the aggregated leases are typically 12 to 18 months. Customers may terminate a lease agreement at any time without penalty. The average customer continues to lease the property for approximately 8 months because the customer either exercises the early lease-purchase option (buyout) or terminates the lease- purchase agreement prior to the end of the typical 12 or 18 month renewal periods. As a result, property held for lease is classified as a current asset on the consolidated balance sheets.
Property held for lease is recorded at cost, excluding shipping costs, and is carried at net book value. Depreciation for property held for lease is determined using the income forecasting method and is included within cost of revenue. The Company's income forecasting method evaluates the patterns of the Company's historical property held for lease portfolio to apply depreciation rates to the Company's current property held for lease portfolio. Property held for lease is depreciated in the proportion of expected rents received to total expected rents received based on the Company's historical data of lease performance. The utilization of rental merchandise occurs during periods of rental and directly coincides with the pattern of rental revenue receipts over the rental purchase agreement period. The Company also considers other qualitative factors, such as current and forecasted customer payment trends, and other risk-based factors as a component of its forecasting methodology.
The Company applies its depreciation to property held for lease as follows: (1) typical depreciation based on historical patterns of customer payments when an item is leased for the full lease duration; (2) accelerated depreciation for impaired leases, based on historical patterns of lease impairment, and (3) accelerated depreciation for leases where an early purchase option (buyout) is exercised, based on historical patterns of lease buyouts.
The Company periodically evaluates fully depreciated property held for lease, net and when it is determined there is no future economic benefit, the cost of the assets are written off and the related accumulated depreciation is reversed.
There are uncertainties involved when recognizing expenses related to property held for lease due to the subjective nature of the income forecasting method and depreciation method, which could vary from actual results.
Fair Value of Convertible Preferred Derivative Liability
The Company's Convertible Preferred Derivative represents a critical accounting estimate due to the significant estimation uncertainty and judgment required in determining its fair value and the potential for material impact on the Company's results of operations. As discussed in Note 7 - Mezzanine Equity and Note 12 - Fair Value Measurements to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K, in connection with the issuance of the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock on November 3, 2025, the Company bifurcated a compound embedded derivative related to the contingent redemption and conversion features of the preferred stock. The Convertible Preferred Derivative is recorded as a derivative liability and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.
The fair value of the Convertible Preferred Derivative is determined using a "with-and-without" valuation methodology that incorporates significant unobservable inputs, including expected time to liquidity, expected volatility of the Company's common stock, risk-free interest rates, dividend rate, discount rate, and the probability and timing of potential redemption or conversion events. Because these inputs are not directly observable in the market and require significant management judgment, the Convertible Preferred Derivative is classified as Level 3 within the fair value hierarchy.
The fair value of the Convertible Preferred Derivative is sensitive to changes in the Company's common stock price, expected volatility, and assumptions regarding liquidity or redemption events. As the derivative liability is remeasured at each reporting date, changes in these assumptions may result in material non-cash gains or losses in future periods.
Recently Issued and Adopted Accounting Pronouncements
See Note 2to our Consolidated Financial Statements included within Part II, Item 8 contained in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Smaller Reporting Company
As of December 31, 2025, we are a "smaller reporting company" as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the fair value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the fair value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.
Katapult Holdings Inc. published this content on March 11, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 11, 2026 at 11:56 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]