Purple Innovation, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO” and together with the CEO, the “Certifying Officers”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, and the above criteria, our Certifying Officers concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2023, due to the material weakness in our internal control over financial reporting, described below. Management’s Annual Report on Internal Controls Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: ● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the Company; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and the directors of the Company; and, ● Provide reasonable assurance regarding prevention or timely detection of unauthorized use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Under the supervision and with the participation of our management, including our Certifying Officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to the previously reported material weakness that continued to exist at December 31, 2023. 65 Previously Reported Material Weakness As previously reported, we identified a material weakness related to the review and evaluation of wholesale customer contracts, specifically as it relates to variable consideration, including wholesale warranty obligations. Specifically, we did not design and maintain effective controls over the review and evaluation of the accounting relating to contract terms agreed upon with our wholesale customers and the identification and calculation of the related wholesale accrued warranty liabilities. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their report included herein. Plans for Remediation of Material Weakness In response to the material weakness, we have designed and implemented a control over the review of all wholesale customer contracts to ensure the terms contained therein are appropriately evaluated and recorded. This control includes increased rigor and participation among our legal and accounting personnel regarding the appropriate consideration and application of contractual terms. We are also implementing a new control over credit memo review and approval. Further, we are implementing a new control over the evaluation and review of accrued wholesale warranty liabilities. The Company will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. The Company may also identify additional measures that may be required to remediate the material weakness in the Company’s internal control over financial reporting, necessitating further action. Changes in Internal Control over Financial Reporting Other than the remediation efforts described above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Purple Innovation, Inc. Lehi, Utah Opinion on Internal Control over Financial Reporting We have audited Purple Innovation, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as “the financial statements”) and our report dated March 12, 2024 expressed an unqualified opinion thereon. 66 Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness regarding management’s failure to design and maintain controls over review and evaluation of wholesale customer contracts, specifically as it relates to variable consideration, including wholesale warranty obligations, has been identified and described in management’s assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated March 12, 2024 on those financial statements. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, P.C. Salt Lake City, Utah March 12, 2024 Item 9B. Other Information During the quarter ended December 31, 2023, none of our directors or executive officers adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 67 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required under the captions “Directors” and “Corporate Governance” is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of the Company’s year ended December 31, 2023. Information concerning our executive officers is included in Part I of this report under the caption “Information About Our Executive Officers.” We have adopted a Code of Ethics that applies to all officers, directors, employees and contractors. The Code of Ethics is posted on our website at https://investors.purple.com/governance. We intend to disclose on our website any amendments, or waiver from, a provision to the Code of Ethics by posting the information on our website at the address specified above. Item 11. Executive Compensation The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of the Company’s year ended December 31, 2023. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of the Company’s year ended December 31, 2023. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of the Company’s year ended December 31, 2023. Item 14 . Principal Accountant Fees and Services The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of the Company’s year ended December 31, 2023. 68 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Report: (1) Financial Statements The following financial statements are included in Part II, Item 8 of this Form 10-K: Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Salt Lake City, Utah; PCAOB ID#243) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders’ Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to the Consolidated Financial Statements F-7 (2) Financial Statements Schedule All other financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in our consolidated financial statements and notes thereto in Item 15 of Part IV below. (3) Exhibits We hereby file as part of this report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 at prescribed rates or on the SEC website at www.sec.gov . 69 EXHIBIT INDEX Exhibit No. Description 2.5# Merger Agreement, dated as of August 31, 2022, by and among Purple Innovation, Inc., Gelato Intermediate, LLC, Gelato Merger Sub, Inc., Advanced Comfort Technologies, Inc., and D. Scott Peterson (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 1, 2022). 3.1 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 6, 2019) 3.2 Third Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the Commission on April 21, 2023). 3.3 Certificate of Designation of the Preferred Stock of the Company, dated September 26, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 27, 2022). 3.4 Certificate of Designation of Proportional Representation Preferred Linked Stock of the Company, dated February 14, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 14, 2023). 3.6 Certificate of Elimination of the Series A Junior Participating Preferred Stock, dated April 27, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 27, 2023). 3.7 Certificate of Elimination of the Proportional Representation Preferred Linked Stock, dated April 27, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 27, 2023). 4.1 Form of Class A Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 4.2* Description of Registered Securities. 4.3 Stockholder Rights Agreement, dated as of September 25, 2022, by and between the Company and Pacific Stock Transfer Company, as rights agent (which includes the Form of Rights Certificate as Exhibit B thereto) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 27, 2022). 4.4 First Amendment to Stockholder Rights Agreement, dated April 27, 2023, by and between Purple Innovation, Inc. and Pacific Stock Transfer Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 27, 2023). 10.1+ Form of Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.2+ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.3+ Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.4+ Form of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.5+ Form of Stock Bonus Award Agreement (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.6 Subscription Agreement, dated February 1, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Coliseum Capital Partners, L.P. and Blackwell Partners LLC – Series A (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.7 Exchange Agreement, dated February 2, 2018, by and between Purple Innovation, Inc., Purple Innovation, LLC and InnoHold, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 70 10.8 Agreement to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company, Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.9 Agreement to Assign Founder Shares, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company and Coliseum Capital Partners, L.P., Blackwell Partners, LLC (incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.10 Registration Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.11 Tax Receivable Agreement, dated February 2, 2018, by and between Purple Innovation, Inc. and InnoHold, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.12+ Purple Innovation, Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.13+ Amendment to Purple Innovation, Inc. 2017 Equity Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on July 13, 2021) 10.14+ Second Amendment to Purple Innovation, Inc. 2017 Equity Incentive Plan dated June 2, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on June 3, 2022). 10.15+ Purple Innovation, Inc. Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the S-8 (File No. 333-272712) filed with the SEC on June 16, 2023). 10.16+ Form of Restricted Share Unit Agreement pursuant to the Purple Innovation, Inc. 2017 Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on April 19, 2023). 10.17† Second Amended and Restated Confidential Assignment and License Back Agreement between the Company and EdiZONE (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 14, 2018) 10.18 Master Retailer Agreement dated September 18, 2018 by and between Purple Innovation LLC and Mattress Firm, Inc. (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 7, 2019) 10.19 Registration Rights Agreement dated February 26, 2019 between and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 27, 2019) 10.20+ Purple Innovation, Inc. 2019 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on May 14, 2019) 10.21+ Restated and Amended Purple Innovation, Inc. 2019 Long-Term Equity Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on July 13, 2021) 10.22 Lease Agreement dated June 10, 2019 between Purple Innovation, LLC and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 13, 2019) 71 10.23 First Amendment to Lease dated November 19, 2019 between the Company and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on November 25, 2019) 10.24 First Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated March 27, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on March 30, 2020) 10.25 Second Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated May 15, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 37523) filed with the SEC on May 18, 2020) 10.26 Waiver and Consent to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated August 20, 2020 (incorporated by reference into Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on August 21, 2020) 10.27 Amendment to TNT Holdings Amended and Restated Lease Agreement dated April 23, 2020 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 11, 2020) 10.28 Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated July 21, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 14, 2020) 10.29 License Transfer and IP Assignment Agreement between Purple Innovation, LLC and EdiZONE, LLC dated August 14, 2020 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 10, 2020) 10.30 Credit Agreement dated September 3, 2020 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.31 Pledge and Security Agreement dated September 3, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.32 Guaranty dated September 3, 2020 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.33 Collateral Assignment of Patents dated September 3, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.34 Collateral Assignment of Trademarks dated September 3, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.35 Collateral Assignment of Copyrights dated September 3, 2020 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-37523) filed with SEC on September 3, 2020) 10.36 Amendment to Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated March 4, 2021 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 17, 2021) 10.37 Second Amendment to Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated March 26, 2021 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 17, 2021) 72 10.38+ Form of Restricted Share Unit Agreement (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on July 13, 2021) 10.39+ Amended and Restated Restricted Share Unit Agreement dated March 15, 2023, between the Company and Robert T. DeMartini (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 21, 2023). 10.40+ Amended and Restated Restricted Share Unit Agreement (Reissued) dated March 15, 2023, between the Company and Robert T. DeMartini (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 21, 2023). 10.41+ Amended and Restated Restricted Share Unit Agreement (Reissued Excess Subject to Approval) dated March 15, 2023, between the Company and Robert T. DeMartini (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on March 21, 2023). 10.42+ Purple Innovation, Inc. 2021 Short-Term Cash Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.5 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on July 13, 2021) 10.43 First Amendment to the 2020 Credit Agreement dated February 28, 2022 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.60 to the Annual Report on Form 10-K (File No. 001-37523) filed with the SEC on March 1, 2022). 10.44 Second Amendment to the 2020 Credit Agreement dated March 23, 2022 by and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on March 24, 2022). 10.45 Fifth Amendment to the 2020 Credit Agreement dated February 17, 2023 by and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 21, 2023). 10.46 Sixth Amendment to the 2020 Credit Agreement dated May 10, 2023 by and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC and KeyBank National Association (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37523) filed on May 10, 2023). 10.47+ Amended and Restated Employment Agreement, dated as of March 19, 2022, by and among Robert T. DeMartini and Purple Innovation, Inc. (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on March 22, 2022). 10.48+ Offer letter dated as of April 29, 2022, signed by Eric Haynor (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on May 3, 2022). 10.49+ Separation Agreement entered into between Purple Innovation, LLC and Patrice Varni dated November 5, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on November 8, 2022). 10.50+ Amended and Restated Option Grant Agreement dated March 15, 2023, between the Company and Robert T. DeMartini (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 21, 2023). 10.51+ Amended and Restated Option Grant Agreement (Reissued Excess Subject to Approval) dated March 15, 2023, between the Company and Robert T. DeMartini (incorporated by reference to exhibit 10.6 to the Company’s Current Report on Form 8-K filed on March 21, 2023). 10.52+ Purple Innovation, Inc. 2023 Short-Term Cash Incentive Plan, dated as of April 13, 2023 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on April 19, 2023). 10.53+ Form of Performance-Based Share Unit Agreement (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on April 19, 2023). 10.54 Cooperation Agreement between Purple Innovation, Inc. and Coliseum Capital Management, LLC, dated April 19, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 21, 2023). 73 10.55 Term Loan Credit Agreement dated as of August 7, 2023 between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the Term Loan Agent and the Term Loan Lenders (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37523) filed on August 9, 2023). 10.56 Term Loan Pledge and Security Agreement dated as of August 7, 2023 (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37523) filed on August 9, 2023). 10.57 First Amendment to Term Loan Credit Agreement and Limited Waiver, dated November 6, 2023, between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the Term Loan Agent, and the Term Loan Lenders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on November 9, 2023). 10.58 ABL Credit Agreement dated as of August 7, 2023 between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the ABL Agent, the Swing Line Lender, the Letter of Credit Issuer and the ABL Lenders (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37523) filed on August 9, 2023). 10.59 ABL Pledge and Security Agreement dated as of August 7, 2023 (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37523) filed on August 9, 2023). 10.60 First Amendment to Credit Agreement and Limited Waiver, dated November 6, 2023, between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the ABL Lenders, the ABL Agent, the Swing Line Lender, and the Letter of Credit Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on November 9, 2023). 10.61 Amended and Restated Credit Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Purple Innovation, LLC, Intellibed, LLC, Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A, Harvest Small Cap Partners Master, Ltd., Harvest Small Cap Partners, L.P., HSCP Strategic IV, L.P., and Delaware Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on January 23, 2024). 10.62+ Offer Letter Entered into between Purple Innovation, LLC and Todd E. Vogensen dated September 19, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on September 21, 2023). 10.63 Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on January 23, 2024). 10.64 Amended and Restated Registration Rights Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A, Coliseum Capital Co-Invest III, L.P., Harvest Small Cap Partners Master, Ltd., Harvest Small Cap Partners, L.P., and HSCP Strategic IV, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on January 23, 2024). 10.65 Amended and Restated Pledge and Security Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Purple Innovation, LLC, Intellibed, LLC, and Delaware Trust Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on January 23, 2024). 10.66+ Amendment to the Amended and Restated Employment Agreement dated January 26, 2024, between the Company and Robert T. DeMartini (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on January 26, 2024). 10.67+ Separation Agreement, dated February 2, 2024, between the Company and Casey McGarvey (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.001-37523) filed with the SEC on February 5, 2024) 21.1* List of Subsidiaries of the Registrant. 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on signature page) 31.1* Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) 31.2* Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) 32.1* Certification of the Principal Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 32.2* Certification of the Principal Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 97.1* Compensation Clawback Policy 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith # Schedules and exhibits to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any omitted schedules and exhibits to the Securities and Exchange Commission upon request. + Indicates management contract or compensatory plan. † Confidential treatment of certain provisions has been granted by the Securities and Exchange Commission. Item 16. Form 10-K Summary 74 PURPLE INNOVATION, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Salt Lake City, Utah; PCAOB ID#243) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3 Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 F-4 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2023, 2022 and 2021 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 F-6 Notes to Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Purple Innovation, Inc. Lehi, Utah Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Purple Innovation, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 , in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 12, 2024 expressed an adverse opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Accrued Warranty Liabilities As of December 31, 2023, the Company’s accrued warranty liabilities were $35.6 million. As discussed in Note 2 to the consolidated financial statements, the Company provides a limited warranty on the majority of its products sold. Accrued warranty liabilities are estimated based on the results of historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends. Estimated warranty costs for the Company’s direct to consumer customers are recognized at the time of sale in cost of revenues and warranty costs for the Company’s wholesale customers are recognized at the time of sale as an offset to net revenues. We identified the estimate of accrued warranty liabilities as a critical audit matter because of certain assumptions used by management to estimate warranty costs at the time of sale, specifically, estimated future warranty claims and estimated costs to remedy warranty claims. The principal consideration for our determination was the subjective judgment required to determine the future warranty claim rate used to estimate warranty claims through the end of the warranty period and an increased extent of audit effort to address this matter. The primary procedures we performed to address this critical audit matter included: ● Evaluating management’s ability to estimate future warranty claims by comparing management’s prior-year assumption of expected claims to actuals claims incurred during the year. ● Testing management’s process used to estimate accrued warranty liabilities, including the appropriateness of the methodology, the mathematical accuracy of the calculation, and the sources of data from which the assumptions were derived. ● Evaluating the reasonableness of estimated future warranty claims and the estimated costs to remedy warranty claims by: o Testing the key inputs that served as the basis for the estimate, including the historical claims made and actual warranty costs incurred. o Inquiring of operational management regarding their knowledge of any existing product warranty claims or product issues and evaluating whether management appropriately considered these issues in the estimation of accrued warranty liabilities. /s/ BDO USA, P.C. We have served as the Company's auditor since 2017. Salt Lake City, Utah March 12, 2024 F- 2 PURPLE INNOVATION, INC. Consolidated Balance Sheets (In thousands, except for par value) December 31, 2023 2022 Assets Current assets: Cash, cash equivalents and restricted cash $ 26,857 $ 41,754 Accounts receivable, net 37,802 34,566 Inventories 66,878 73,197 Prepaid expenses 8,536 7,821 Other current assets 1,737 4,117 Total current assets 141,810 161,455 Property and equipment, net 128,661 136,673 Operating lease right-of-use assets 95,767 102,541 Goodwill — 4,897 Intangible assets, net 22,196 26,221 Other long-term assets 2,191 1,546 Total assets $ 390,625 $ 433,333 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 49,831 $ 46,441 Customer prepayments 5,718 4,452 Accrued rebates and allowances 13,243 9,804 Accrued warranty liabilities – current portion 9,793 5,803 Operating lease obligations – current portion 14,843 13,708 Other current liabilities 17,554 17,921 Total current liabilities 110,982 98,129 Debt, net of current portion 26,909 23,657 Accrued warranty liabilities, net of current portion 25,798 18,660 Operating lease obligations, net of current portion 109,094 115,599 Asset retirement obligations 2,235 2,117 Total liabilities 275,018 258,162 Commitments and contingencies (Note 13) Stockholders’ equity: Class A common stock; $ 0.0001 par value, 210,000 shares authorized; 105,507 issued and outstanding at December 31, 2023 and 91,380 issued and outstanding at December 31, 2022 11 9 Class B common stock; $ 0.0001 par value, 90,000 shares authorized; 205 issued and outstanding at December 31, 2023 and 448 issued and outstanding at December 31, 2022 — — Additional paid-in capital 591,380 529,466 Accumulated deficit ( 475,969 ) ( 355,212 ) Total stockholders’ equity attributable to Purple Innovation, Inc. 115,422 174,263 Noncontrolling interest 185 908 Total stockholders’ equity 115,607 175,171 Total liabilities and stockholders’ equity $ 390,625 $ 433,333 The accompanying notes are an integral part of these consolidated financial statements. F- 3 PURPLE INNOVATION, INC. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2023 2022 2021 Revenues, net $ 510,541 $ 573,201 $ 724,999 Cost of revenues 338,716 365,110 431,253 Gross profit 171,825 208,091 293,746 Operating expenses: Marketing and sales 182,313 165,388 239,290 General and administrative 84,446 76,702 72,095 Research and development 11,898 8,755 6,939 Loss on impairment of goodwill 6,879 — — Total operating expenses 285,536 250,845 318,324 Operating loss ( 113,711 ) ( 42,754 ) ( 24,578 ) Other (expense) income: Interest expense ( 1,967 ) ( 3,536 ) ( 1,872 ) Other (expense) income, net ( 1,198 ) 423 ( 194 ) Loss on extinguishment of debt ( 4,331 ) — — Change in fair value – warrant liabilities — 4,343 24,054 Tax receivable agreement income — 161,970 4,016 Total other (expense) income, net ( 7,496 ) 163,200 26,004 Net (loss) income) before income taxes ( 121,207 ) 120,446 1,426 Income tax (expense) benefit ( 8 ) ( 213,169 ) 1,522 Net (loss) income ( 121,215 ) ( 92,723 ) 2,948 Net loss attributable to noncontrolling interest ( 458 ) ( 253 ) ( 166 ) Net (loss) income attributable to Purple Innovation, Inc. $ ( 120,757 ) $ ( 92,470 ) $ 3,114 Net (loss) income per share: Basic $ ( 1.17 ) $ ( 1.13 ) $ 0.05 Diluted $ ( 1.17 ) $ ( 1.13 ) $ ( 0.31 ) Weighted average common shares outstanding: Basic 103,602 81,779 65,928 Diluted 103,936 81,779 67,302 The accompanying notes are an integral part of these consolidated financial statements. F- 4 PURPLE INNOVATION, INC. Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands) Class A Common Stock Class B Common Stock Additional Paid-in Accumulated Total Stockholders’ Equity attributable to Purple Innovation, Noncontrolling Total Equity Shares Par Value Shares Par Value Capital Deficit Inc. Interest (Deficit) Balance — December 31, 2020 63,914 $ 6 536 $ — $ 333,047 $ ( 265,856 ) $ 67,197 $ 344 $ 67,541 Net (loss) income — — — — — 3,114 3,114 ( 166 ) 2,948 Stock-based compensation — — — — 3,366 — 3,366 — 3,366 Exchange of stock 88 — ( 88 ) — — — — — — Exercise of warrants 2,298 1 — — 64,426 — 64,427 — 64,427 Exercise of stock options 171 — — — 1,418 — 1,418 — 1,418 Tax receivable agreement liability — — — — ( 760 ) — ( 760 ) — ( 760 ) Deferred income taxes — — — — 2,937 — 2,937 — 2,937 Accrued tax distributions — — — — ( 401 ) — ( 401 ) — ( 401 ) Issuance of stock 22 — — — — — — — — InnoHold indemnification payment — — — — 4,142 — 4,142 — 4,142 Impact of transactions affecting NCI — — — — ( 584 ) — ( 584 ) 584 — Balance – December 31, 2021 66,493 $ 7 448 $ — $ 407,591 $ ( 262,742 ) $ 144,856 $ 762 $ 145,618 Net loss — — — — — ( 92,470 ) ( 92,470 ) ( 253 ) ( 92,723 ) Stock-based compensation — — — — 3,366 — 3,366 — 3,366 Exercise of stock options 20 — — — 166 — 166 — 166 Issuance of stock upon underwritten offering, net of costs 16,100 1 — — 92,865 — 92,866 — 92,866 Issuance of stock for acquisition 8,613 1 — — 26,105 — 26,106 — 26,106 Accrued distributions — — — — ( 228 ) — ( 228 ) — ( 228 ) Issuance of stock under equity compensation plans 154 — — — — — — — — Impact of transactions affecting NCI — — — — ( 399 ) — ( 399 ) 399 — Balance – December 31, 2022 91,380 $ 9 448 $ — $ 529,466 $ ( 355,212 ) $ 174,263 $ 908 $ 175,171 Net loss — — — — — ( 120,757 ) ( 120,757 ) ( 458 ) ( 121,215 ) Stock-based compensation — — — — 4,875 — 4,875 — 4,875 Exchange of stock 243 — ( 243 ) — — — — — — Proportional Representation Preferred Linked Stock redemption fee — — — — ( 105 ) — ( 105 ) — ( 105 ) Issuance of stock upon underwritten offering, net of costs 13,400 2 — — 56,997 — 56,999 — 56,999 Escrow shares cancelled in connection with Intellibed acquisition ( 41 ) — — — ( 118 ) — ( 118 ) — ( 118 ) Issuance of stock under equity compensation plans 525 — — — — — — — — Impact of transactions affecting NCI — — — — 265 — 265 ( 265 ) — Balance – December 31, 2023 105,507 $ 11 205 $ — $ 591,380 $ ( 475,969 ) $ 115,422 $ 185 $ 115,607 The accompanying notes are an integral part of these consolidated financial statements. F- 5 PURPLE INNOVATION, INC. Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net (loss) income $ ( 121,215 ) $ ( 92,723 ) $ 2,948 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 25,106 17,487 9,473 Non-cash interest 1,237 1,072 517 Loss on impairment of goodwill 6,879 — — Loss on extinguishment of debt 4,331 — — Loss on disposal of property and equipment 1,680 620 — Change in fair value – warrant liabilities — ( 4,343 ) ( 24,054 ) Tax receivable agreement income — ( 161,970 ) ( 4,016 ) Stock-based compensation 4,875 3,366 3,366 Gain from effective settlement of preexisting relationship — ( 1,421 ) — Deferred income taxes — 213,548 ( 3,608 ) Changes in operating assets and liabilities: Accounts receivable ( 3,651 ) ( 4,112 ) 3,681 Inventories 5,903 28,956 ( 32,964 ) Prepaid expenses and other assets 1,574 1,757 1,744 Operating leases, net 1,404 7,709 2,159 Accounts payable 4,382 ( 33,609 ) 6,796 Customer prepayments 1,266 ( 6,456 ) 4,601 Accrued rebates and allowances 3,439 ( 365 ) ( 722 ) Accrued warranty liabilities 11,128 6,854 8,195 Other accrued liabilities ( 3,000 ) ( 5,143 ) ( 9,019 ) Net cash used in operating activities ( 54,662 ) ( 28,773 ) ( 30,903 ) Cash flows from investing activities: Cash, cash equivalents and restricted cash acquired from acquisition, net of cash paid — 3,660 — Excess restricted cash returned to acquiree ( 826 ) — — Purchase of property and equipment ( 14,391 ) ( 35,376 ) ( 53,938 ) Investment in intangible assets ( 844 ) ( 2,785 ) ( 3,121 ) Net cash used in investing activities ( 16,061 ) ( 34,501 ) ( 57,059 ) Cash flows from financing activities: Proceeds from term loan 25,000 — — Proceeds from revolving line of credit 17,000 — 55,000 Payments on term loan ( 24,656 ) ( 17,531 ) ( 2,250 ) Payments on revolving line of credit ( 12,000 ) ( 55,000 ) — Proceeds from stock offering 60,300 98,210 — Payments for stock offering costs ( 3,301 ) ( 5,344 ) — Proceeds from exercise of warrants — — 116 Proceeds from exercise of stock options — 166 1,418 Payments for debt issuance costs ( 6,143 ) ( 1,242 ) — Proportional Representation Preferred Linked Stock redemption fee ( 105 ) — — Tax receivable agreement payments ( 269 ) ( 5,847 ) ( 628 ) Proceeds from InnoHold indemnification payment — — 4,142 Distributions to members — — ( 1,175 ) Net cash provided by financing activities 55,826 13,412 56,623 Net decrease in cash, cash equivalents and restricted cash ( 14,897 ) ( 49,862 ) ( 31,339 ) Cash, cash equivalents and restricted cash, beginning of the year 41,754 91,616 122,955 Cash, cash equivalents and restricted cash, end of the year $ 26,857 $ 41,754 $ 91,616 Supplemental disclosures of cash flow information: Cash paid during the year for interest, net of amounts capitalized $ 189 $ 2,693 $ 999 Cash paid during the year for income taxes $ 385 $ 303 $ 4,645 Supplemental schedule of non-cash investing and financing activities: Property and equipment included in accounts payable $ 3,232 $ 4,162 $ 6,443 Issuance of stock for acquisition $ — $ 26,106 $ — Escrow shares cancelled in connection with Intellibed acquisition $ 118 $ — $ — Non-cash leasehold improvements $ — $ — $ 3,238 Accrued distributions $ — $ 228 $ 401 Tax receivable agreement liability $ — $ — $ 760 Deferred income taxes $ — $ — $ 2,937 Exercise of liability warrants $ — $ — $ 64,311 The accompanying notes are an integral part of these consolidated financial statements. F- 6 PURPLE INNOVATION, INC. Notes to the Consolidated Financial Statements 1. Organization The Company’s mission is to help people feel and live better through innovative comfort solutions. Purple Innovation, Inc., collectively with its subsidiary (the “Company” or “Purple Inc.”), is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. The Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products. The Company markets and sells its products through its e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. The Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”). On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple LLC”). At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc. As the sole managing member of Purple LLC, Purple Inc. through its officers and directors is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. On August 31, 2022, the Company acquired all the issued and outstanding stock of Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), in which Gelato Merger Sub, Inc., a wholly owned subsidiary of Purple Inc., merged with and into Intellibed, with Intellibed continuing as a wholly owned subsidiary of Purple Inc. On October 3, 2022, Purple Inc. contributed 100 % of the membership interest in Intellibed to Purple LLC and Intellibed became a wholly owned subsidiary of Purple LLC. For further discussion see Note 4 — Acquisition. 2. Summary of Significant Accounting Policies This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Intellibed, Purple LLC’s wholly owned subsidiary, from the date of acquisition. All intercompany balances and transactions have been eliminated in consolidation. As of December 31, 2023, Purple Inc. held 99.8 % of the common units of Purple LLC and other Purple LLC Class B Unit holders held 0.2 % of the common units in Purple LLC. The Company’s consolidated financial statements did not include consolidated statements of comprehensive income since it had no items of other comprehensive income in any of the periods presented. F- 7 Variable Interest Entities Purple LLC is a variable interest entity. The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At December 31, 2023, Purple Inc. had a 99.8% economic interest in Purple LLC and consolidated 100% of Purple LLC’s assets, liabilities and results of operations in the Company’s consolidated financial statements contained herein. The holders of Class B Units held 0.2% of the economic interest in Purple LLC as of December 31, 2023. For further discussion see Note 15— Stockholders’ Equity . Reclassification Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect on previously reported net (loss) income, cash flows or stockholders’ equity. Accrued warranty liabilities, previously included in the consolidated balance sheet within other current liabilities and other long-term liabilities, net of current portion, are now presented separately. Also, the change in accrued warranty liabilities, previously reflected in the consolidated statement of cash flows within the change in other accrued liabilities, is now presented separately. In addition, accrued sales returns, accrued compensation and accrued sales and use tax, previously presented separately in the consolidated balance sheet, are now included within other current liabilities. Correspondingly, the changes in accrued sales returns and accrued compensation, previously reflected separately in the consolidated statement of cash flows, are now presented within the change in other current liabilities. Use of Estimates The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the financial position, results of operations and cash flows of the Company. The preparation of consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company regularly makes estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and allowance for credit losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and liabilities assumed in a business combination, impairment reviews of long-lived assets and definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s tax receivable agreement with InnoHold, LLC (“InnoHold”). Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ materially from those estimates. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash, cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. At December 31, 2022, cash, cash equivalents and restricted cash included $ 1.7 million of restricted cash deposited by Intellibed in a separate account pursuant to an escrow agreement with the Company. There was no restricted cash included in cash, cash equivalents and restricted cash at December 31, 2023. For further discussion regarding restricted cash, see Note 4 — Acquisition. F- 8 Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded net of an allowance for expected losses and consist primarily of receivables from wholesale customers and receivables from third-party consumer financing partners and credit card processors. The allowance is recognized in an amount equal to anticipated future write-offs over the expected life of the receivables . Management estimates the allowance for credit losses based on historical experience, customer payment practices and current economic trends. Actual credit losses could differ from those estimates . Account balances are charged off against the allowance when management believes it is probable the receivable will not be recovered. The allowance for credit losses at both December 31, 2023 and 2022 was not material. Inventories Inventories are comprised of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value. Manufactured inventory consists of raw material, direct labor and manufacturing overhead costs. Inventory cost is calculated using a method that approximates average cost. The Company reviews the components of its inventory on a regular basis for excess and obsolete inventory and makes appropriate adjustments when necessary. Once established, the original cost of the inventory less the related inventory reserves represents the new cost basis of such products. Property and Equipment Property and equipment are stated at cost, net of depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, ranging from 1 to 17 years, as follows: Years Equipment 5 - 10 Furniture and fixtures 2 - 7 Office equipment 3 - 5 Leasehold improvements 1 - 17 Major renewals and betterments that increase value or extend useful life are capitalized. The Company records depreciation and amortization in cost of sales for long-lived assets used in the manufacturing process, and within each line item of operating expenses for all other long-lived assets. Leasehold improvements are amortized over the shorter of the useful life of the leasehold improvements or the contractual term of the lease, with consideration of lease renewal options if exercise is reasonably certain. The cost and related accumulated depreciation of assets sold or retired is removed from the accounts with any resulting gain or loss included in the consolidated statement of operations. F- 9 The Company capitalizes interest on borrowings during the active construction period of major capital projects. Interest capitalization ceases once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project using the weighted average cost of the Company’s outstanding borrowings. Leases The Company determines if an agreement contains a lease at the inception of a contract. For leases with an initial term greater than 12 months, a related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) corresponding with the lease term. In addition, a right-of-use (“ROU”) asset is recorded as the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. The Company elected not to separate lease and non-lease components for all real estate leases. The Company calculates the present value of future payments using its incremental borrowing rate when the discount rate implicit in the lease is not known. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company determines the applicable incremental borrowing rate at the lease commencement date based on the rates of its secured borrowings, which is then adjusted for the appropriate lease term and risk premium. In determining the Company’s ROU assets and corresponding lease liabilities, the Company applies these incremental borrowing rates to the minimum lease payments within each lease agreement. Lease expense is recognized on a straight-line basis over the lease term. Tenant incentive allowances received from the lessor are amortized through the ROU asset as a reduction of rent expense over the lease term. Any variable lease costs are expensed as incurred. Leases with an initial term of 12 months or less (short-term leases) are not recorded as ROU assets and corresponding lease liabilities. Short-term lease expense is recognized on a straight-line basis over the lease term. ROU assets are assessed for impairment as part of long-lived assets, which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. F- 10 Business Combinations The Company accounts for business combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations. When the Company completes an acquisition, the assets acquired and the liabilities assumed are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of the fair value of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While best estimates and assumptions are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company’s estimates are inherently uncertain and subject to refinement. If the Company obtains new information within the measurement period (up to one year from the acquisition date) about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are reflected in the consolidated statement of operations. In the event an acquisition involves an entity with which the Company has a preexisting relationship, the Company will generally recognize a gain or loss within the consolidated statement of operations to settle that relationship as of the acquisition date. Transaction costs associated with business combinations are expensed as incurred. Goodwill The Company accounts for goodwill in a business combination as the excess of the cost over the fair value of net assets acquired and is assigned to the reporting unit in which the acquired business will operate. The Company does not amortize goodwill but tests it for impairment each fiscal year or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the Company determines the fair value of its reporting units based on an average weighting of both projected discounted future results and the use of comparative market multiples. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a loss recognized in the amount equal to that excess. During the year ended December 31, 2023, the Company determined goodwill was impaired and recorded an impairment charge to write off the entire $ 6.9 million balance of goodwill. For further discussion see Note 4— Acquisition. Intangible Assets Intangible assets include a customer relationship intangible associated with the Intellibed acquisition, developed technologies by Purple and Intellibed, trade names and trademarks, internal-use software, domain name costs, intellectual property and other patent and trademark related costs. Definite-lived intangible assets are being amortized using the straight-line method over their estimated lives, ranging from two to 15 years . For software developed or obtained for internal use, the Company capitalizes direct external costs associated with developing or obtaining internal-use software. In addition, the Company capitalizes certain payroll and payroll-related costs for employees who are directly involved with the development of such applications. Capitalized costs related to internal-use software under development are treated as construction-in-progress until the program, feature or functionality is ready for its intended use, at which time amortization commences. Capitalized software costs are amortized on a straight-line basis over three years . F- 11 Asset Impairment Charges Long-Lived Assets and Definite-lived Intangible Assets – The Company reviews its long-lived assets and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When evaluating long-lived assets and definite-lived intangible assets for potential impairment, the Company first determines if there are any indicators of impairment and if the carrying amount of the long-lived assets and definite-lived intangible assets might not be recoverable. If there are indicators of impairment, then the Company performs a recoverability test by comparing the carrying value of the assets to the estimated future cash flows (undiscounted and without interest charges - plus proceeds expected from disposition, if any). If the estimated undiscounted cash flows are less than the carrying value of the assets, the Company calculates an impairment loss. The impairment loss calculation compares the carrying value of its assets to the assets’ estimated fair value. When the Company recognizes an impairment loss, the carrying amount of the impaired assets are reduced to estimated fair value based on discounted cash flows, quoted market prices or other valuation techniques. Assets to be disposed of are reported at the lower of the carrying amount of the asset or fair value less costs to sell. If the Company recognizes an impairment loss for a depreciable long-lived asset, the adjusted carrying amount of the asset becomes its new cost basis and will be depreciated (amortized) over the remaining useful life of that asset. The Company concluded that as of December 31, 2023, there were indicators of impairment and a recoverability test was required. Based on the results of the recoverability test, the Company concluded that the long-lived assets and definite-lived assets were not impaired as of December 31, 2023 and no impairment charges were recorded. There were no impairment charges realized on long-lived assets and definite-lived intangible assets during the years ended December 31, 2023, 2022 or 2021. Indefinite-lived Intangible Assets – Intangible assets that have indefinite lives are not amortized but are reviewed for impairment annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Accounting guidance provides for the performance of either a quantitative assessment or a qualitative assessment before calculating the fair value of an asset. For its indefinite lived intangibles assets, the Company elected the unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative assessment to determine if their carrying values exceed their fair value. Based on the quantitative assessment, the Company concluded that the indefinite-lived intangible assets were not impaired as of December 31, 2023. In the future, if events or market conditions affect the estimated fair value to the extent that an indefinite-lived intangible asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs. Other than goodwill as discussed above, there were no impairment charges realized on indefinite-lived intangible assets during the years ended December 31, 2023, 2022 or 2021. Cooperative Advertising, Rebate and Other Promotion Programs The Company enters into programs with certain wholesale partners to provide funds for advertising and promotions as well as volume and other rebate programs. When sales are made to these customers, the Company records liabilities pursuant to these programs. The Company periodically assesses these liabilities based on actual sales to determine whether all of the cooperative advertising earned will be used by the customer or whether the customer will meet the requirements to receive rebate funds. Estimates are required at any point in time with regard to the ultimate reimbursement to be claimed by the customers. Subsequent revisions to the estimates are recorded and charged to earnings in the period in which they are identified. Rebates and certain cooperative advertising amounts are classified as a reduction of revenue and presented within net revenues in the accompanying consolidated statements of operations. Cooperative advertising expenses that can be identified as a distinct good or service and for which the fair value can be reasonably estimated are recorded, when incurred, as components of marketing and sales expenses in the accompanying consolidated statements of operations. Marketing and sales expense in 2023, 2022 and 2021 included $ 2.0 million, $ 4.1 million and $ 2.7 million, respectively, related to shared advertising costs that the Company incurred under its cooperative advertising programs. F- 12 Advertising Costs The Company incurs advertising costs associated with print, digital and broadcast advertisements. Advertising costs are expensed when the advertisements are run for the first time and included in marketing and selling expenses in the accompanying consolidated statements of operations. Advertising expense was $ 63.8 million, $ 61.0 million and $ 149.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. Revenue Recognition The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer. This principle is achieved in the following steps: Identify the contract with the customer. A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for the goods that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company does not have significant costs to obtain contracts with customers. Identify the performance obligations in the contract . The Company’s contracts with customers do not include multiple performance obligations to be completed over a period of time. The performance obligations generally relate to delivering products to a customer, subject to the shipping terms of the contract. The Company has made an accounting policy election to account for shipping and handling activities performed after a customer obtains control of the goods, including “white glove” delivery services, as activities to fulfill the promise to transfer the goods. The Company does not offer extended warranty or service plans. The Company does not provide an option to its customers to purchase future products at a discount and therefore there are no material option rights. Determine the transaction price . Payment for sale of products through the e-commerce online channel, Purple showrooms and third-party online retailers is collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Payment by traditional wholesale customers is due under customary fixed payment terms. None of the Company’s contracts contain a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, volume rebates, wholesale warranty returns, and other adjustments. The estimates of variable consideration are based on historical return experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. Allocate the transaction price to performance obligations in the contract. The Company’s contracts with customers do not include multiple performance obligations. Therefore, the Company recognizes revenue upon transfer of the product to the customer’s control at contractually stated pricing. Recognize revenue when or as we satisfy a performance obligation. The Company satisfies performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. With the exception of third-party “white glove” delivery and certain wholesale partners, revenue generated from product sales is recognized at shipping point, the point in time the customer obtains control of the products. Revenue generated from sales through third-party “white glove” delivery is recognized at the point in time when the product is delivered to the customer. Revenue generated from certain wholesale partners is recognized at a point in time when the product is delivered to the wholesale partner’s warehouse. The Company does not have service revenue. F- 13 Cost of Revenues Costs associated with net revenues are recorded in cost of revenues in the same period in which related sales have been recorded. Cost of revenues includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods during the period, as well as depreciation and amortization of long-lived assets used in these processes. Cost of sales also includes shipping and handling costs associated with the delivery of goods to customers. Sales Returns The Company’s policy provides customers up to 100-days to return a mattress, pet bed or pillow and up to 30-days to return all other products (except power bases) for a full refund. Estimated sales returns, which are recorded as a reduction of revenue at the time of sale and recorded in other current liabilities on the consolidated balance sheet, are based on historical trends and product return rates and are adjusted for any current or expected trends as appropriate. Actual sales returns could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued sales returns by updating the return rates for actual trends and projected costs. The Company classifies the estimated sales returns as a current liability as they are expected to be paid out in less than one year. The Company had the following activity for accrued sales returns: Years Ended December 31, (in thousands) 2023 2022 2021 Balance at beginning of period $ 5,107 $ 7,116 $ 8,428 Additions that reduced net revenue 34,090 35,479 45,561 Deduction from reserves for current year returns ( 33,793 ) ( 37,488 ) ( 46,873 ) Balance at end of period $ 5,404 $ 5,107 $ 7,116 Accrued Warranty Liabilities The Company provides a limited warranty on most of the products it sells. The estimated warranty costs associated with products sold through DTC channels are expensed at the time of sale and included in cost of revenues. The estimated warranty return costs associated with products sold through the wholesale channel are recorded at the time of sale and included as an offset to net revenues. Estimates for warranty costs are based on the results of historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. Actual warranty claim costs could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs. The Company expects the estimated warranty liability to continue to increase as the Company has not reached a full 10 years of history on its 10-year mattress warranty. The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability. The Company had the following activity for accrued warranty liabilities: Years Ended December 31, (in thousands) 2023 2022 2021 Balance at beginning of period $ 24,463 $ 16,241 $ 8,397 Additions charged to cost of sales 5,866 9,856 9,234 Additions that reduced net revenue 11,996 3,453 1,536 Deduction from reserves for current year claims ( 6,734 ) ( 5,087 ) ( 2,926 ) Balance at end of period $ 35,591 $ 24,463 $ 16,241 In its Form 10-Q for the quarterly period ended September 30, 2023, the Company disclosed that it had not properly accounted for the warranty terms specified in contracts with its wholesale customers when estimating the liability for warranty related returns. Based on this determination, the Company concluded that its consolidated financial statements should be revised to properly reflect the estimated liability associated with the warranty provisions in its wholesale contracts. The Company evaluated the error and determined that the related impact was not material to its results of operations or financial position for any prior annual or interim period. However, the Company corrected such errors in its consolidated financial statements as of and for the years ended December 31, 2022 and 2021. Debt Issuance Costs and Discounts Debt issuance costs and discounts that relate to borrowings are presented in the consolidated balance sheet as a direct reduction from the carrying amount of the related debt liability and are amortized into interest expense using an effective interest rate over the duration of the debt. Debt issuance costs that relate to revolving lines of credit are carried as an asset in the consolidated balance sheet and amortized to interest expense on a straight-line basis over the term of the related line of credit facility. Refer to Note 11 – Debt for more information. F- 14 Warrant Liabilities The Company issued 12.8 million sponsor warrants pursuant to a private placement conducted simultaneously with its initial public offering. The Company accounted for its sponsor warrants in accordance with ASC 815, under which these warrants did not meet the criteria for equity classification and were recorded as liabilities. Since the sponsor warrants met the definition of a derivative as contemplated in ASC 815, these warrants were measured at fair value at inception and at each reporting date in accordance with ASC 820 with changes in fair value recognized in earnings in the period of change. The Company used the Black-Scholes model to determine the fair value of the liability associated with the sponsor warrants. The model used key assumptions and inputs such as exercise price, fair market value of common stock, risk free interest rate, warrant life and expected volatility. Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration. Fair Value Measurements The Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1—Quoted market prices in active markets for identical assets or liabilities; Level 2—Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions. The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. Financial instruments, although not recorded at fair value on a recurring basis include cash, cash equivalents and restricted cash, receivables, accounts payable, and the Company’s debt obligations. The carrying amounts of cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximate fair value because of the short-term nature of these accounts. The Company’s debt arrangements are considered Level 2 instruments and fair value is estimated to be face value based on the contractual terms of the debt and market-based expectations. F- 15 The sponsor warrant liabilities (see Note 12 — Warrant Liabilities for more information) were Level 3 instruments and used internal models to estimate fair value using certain significant unobservable inputs which required determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have had a significant impact on fair value. Such inputs included risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities generally decreased (increased) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities generally increased (decreased) in value if the expected average life or expected volatility were to increase (decrease). Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration. The 1.9 million sponsor warrants outstanding at December 31, 2022 had a negligible fair value. As a result, activity for the year ended December 31, 2023 was de minimis. The following table summarizes the Company’s total Level 3 liability activity for the years ended December 31, 2022 and 2021: (In thousands) Sponsor Warrants Fair value as of December 31, 2020 $ 92,708 Fair value of warrants exercised ( 64,311 ) Change in valuation inputs (1) ( 24,054 ) Fair value as of December 31, 2021 $ 4,343 Fair value of warrants exercised — Change in valuation inputs (1) ( 4,343 ) Fair value as of December 31, 2022 $ — (1) Changes in valuation inputs are recognized as the change in fair value – warrant liabilities in the consolidated statement of operations. Stock Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718, Compensation—Stock Compensation . This standard requires the Company to record an expense associated with the fair value of stock-based compensation over the requisite service period. F- 16 During 2023, 2022 and 2021, the Company granted stock options under the Company’s 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”) to certain officers, executives and employees of the Company. The fair value for these awards was determined using the Black-Scholes option valuation model at the date of grant. Stock based compensation on these awards is expensed on a straight-line basis over the vesting period. Option pricing models require the input of subjective assumptions including the expected term of the stock option, the expected price volatility of the Company’s common stock over the period equal to the expected term of the grant, and the expected risk-free rate. Changes in these assumptions can materially affect the fair value estimate. The Company recognizes forfeitures of stock option awards as they occur. During 2023, 2022 and 2021, the Company granted stock awards under the 2017 Equity Incentive Plan to independent directors on the Company’s Board for services performed. Since all of these awards vested immediately, stock-based compensation was recorded on the grant date using the publicly quoted closing price of the Company’s common stock on that date as fair value. During 2023, 2022 and 2021, the Company granted restricted stock units under the Company’s 2017 Equity Incentive Plan to certain employees of the Company. A portion of the restricted stock units granted included a market vesting condition. The estimated fair value of the restricted stock units that do not have the market vesting condition is recognized on a straight-line basis over the vesting period. The estimated fair value of the stock units that included a market vesting condition was measured on the grant date using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model and incorporated the probability of vesting occurring. The estimated fair value of these awards is recognized over the derived service period (as determined by the valuation model), with such recognition occurring regardless of whether the market condition is met. F- 17 Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. The Company’s effective tax rate is primarily impacted by changes in our valuation allowance. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations. The Company files U.S. federal and certain state income tax returns. The income tax returns of the Company are subject to examination by U.S. federal and state taxing authorities for various time periods, depending on those jurisdictions’ rules, generally after the income tax returns are filed. Tax Receivable Agreement In connection with the Business Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the agreement. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of its Class B Units, a liability under the tax receivable agreement may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange. The estimation of liability under the agreement is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. F- 18 Segment Information Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”). The role of the CODM is to make decisions about allocating resources and assessing performance. The Company’s operations are based on an omni-channel distribution strategy that allows the Company to offer a seamless shopping experience to its customers across multiple sales channels. The Company concluded its business operates in one operating segment as all of the Company’s sales channels are complementary and analyzed in the same manner. Also, the CODM reviews financial information presented on a consolidated basis for the purpose of allocating resources and evaluating financial performance . Since the Company operates in one operating segment, all required financial segment information can be found throughout the consolidated financial statements. The Company’s chief executive officer has been identified as its CODM. Net (Loss) Income Per Share Basic net (loss) income per common share is calculated by dividing net (loss) income attributable to common stockholders by the weighted average number of shares of Class A common stock outstanding during each period. Diluted net (loss) income per share reflects the weighted-average number of common shares outstanding during the period used in the basic net (loss) income computation plus the effect of common stock equivalents that are dilutive. The Company uses the “if-converted” method to determine the potential dilutive effect of conversions of its outstanding Class B common stock, and the treasury stock method to determine the potential dilutive effect of its outstanding warrants and share-based payment awards. Recent Accounting Pronouncements Measurement of Credit Losses In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which was further updated and clarified by the FASB through issuance of additional related ASUs. This guidance replaced the incurred loss impairment guidance and established a single allowance framework for financial assets carried at amortized cost based on expected credit losses. The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts. These updates were effective for public companies, excluding Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein. The standard became effective for all other entities for annual periods beginning after December 15, 2022, including interim periods therein. This standard is to be applied utilizing a modified retrospective approach. The standard was adopted by the Company on January 1, 2023 utilizing a modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. Enhanced Segment Disclosures In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities, including those that have a single reportable segment, to provide enhanced disclosures about significant expenses. The ASU requires disclosure to include significant segment expenses that are regularly provided to the CODM, a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is currently analyzing the impact this ASU will have on its disclosures. Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU amends existing income tax disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective tax rate reconciliation. This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. The Company is currently evaluating the impact this update will have on its income tax disclosures in the consolidated financial statements. F- 19 3. Underwritten Offerings of Class A Common Stock In February 2023, the Company completed an underwritten offering of 13.4 million shares of Class A common stock at a price of $ 4.50 per share. The underwriters did not exercise their over-allotment option. The aggregate net proceeds received by the Company from the offering, after deducting offering fees and expenses of $ 3.3 million, totaled $ 57.0 million. In March 2022, the Company completed an underwritten offering of 16.1 million shares of Class A common stock, which included the underwriters exercising their over-allotment option in full to purchase an additional 2.1 million shares. The underwriters purchased the Class A common stock from the Company at a price of $ 5.65 per share, except that any shares sold by the underwriters to Coliseum Capital Partners, L.P. and Blackwell Partners LLC – Series A, up to an aggregate of 29.81 % of the shares of Class A common stock pursuant to the offering, were purchased from the Company by the underwriters at a price of $ 6.10 per share. The aggregate net proceeds received by the Company from the offering, after deducting offering fees and expenses of $ 5.3 million, totaled $ 92.9 million. 4. Acquisition On August 31, 2022, pursuant to the Merger Agreement, the Company acquired Intellibed, a premium sleep and health wellness company, offering gel-based mattresses scientifically designed for maximum back support, spinal alignment and pressure point relief. The addition of Intellibed increased product offerings to customers, expanded market opportunities, capitalized on synergies of the combined companies, and increased opportunities for innovation. In addition, the acquisition allowed the Company to consolidate ownership of its intellectual property licensed to Intellibed and more fully capitalize on growing demand for products with gel technologies. The acquisition date fair value of the consideration transferred for Intellibed was $ 28.2 million, which consisted of the following (in thousands): Fair value of Class A common stock issued at closing $ 23,069 Fair value of Class A common stock held in escrow 1,349 Fair value of contingent consideration 1,471 Fair value of effective settlement of preexisting relationships 1,672 Transaction expenses paid on behalf of Intellibed 546 Due to seller 75 Fair value of total purchase consideration $ 28,182 The fair value of common stock issued at closing consisted of approximately 8.1 million shares of Class A common stock valued using the acquisition date closing price of $2.86. The fair value of common stock held in escrow consisted of 0.5 million shares of Class A common stock valued using the acquisition date closing price of $2.86. These shares were originally held in escrow pending resolution of net working capital adjustments and certain indemnification matters. Contingent consideration represents the fair value of 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock does not equal or exceed $ 5.00 for at least 10 trading days over any period of 30 consecutive trading days during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date. The contingent shares were valued using a Monte-Carlo simulation model. Because the contingent consideration is payable with a fixed number of shares of the Company’s Class A common stock, it is classified as equity and will not require remeasurement in subsequent periods. The fair value of effective settlement of preexisting relationships included $ 1.4 million related to the fair value of a preexisting legal matter with Intellibed that was effectively settled on the acquisition date and $ 0.3 million related to the fair value of a preexisting royalty liability owed by Intellibed to the Company that was also effectively settled on the acquisition date. As a result of effectively settling the preexisting legal matter with Intellibed, the Company recorded a gain of $ 1.4 million as other (expense) income, net in the consolidated statement of operations for the year ended December 31, 2022. As a result of effectively settling the preexisting royalty liability, the Company and Intellibed recorded a corresponding receivable and payable, respectively, for the same $ 0.3 million amount that was eliminated in consolidation as of December 31, 2022. F- 20 The Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective preliminary estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed required management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and asset lives, among other items. While the Company used its best estimates and assumptions as a part of the purchase price allocation process to accurately value the assets acquired, any intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates were inherently uncertain and subject to refinement. Consequently, during the measurement period, which could have extended up to one year from the acquisition date, the Company was able record adjustments to the fair values of the assets acquired and the liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or the liabilities assumed, whichever came first, any subsequent adjustments were reflected in the Company’s consolidated statement of operations. During the measurement period that ended August 31, 2023, the Company finalized the determination of the working capital adjustments and the fair values allocated to various assets and liabilities, income tax provision, intangible assets and the residual amount allocated to goodwill. The table below reflects final measurement period adjustments made to various assets acquired and liabilities assumed based on updated information, and revisions to reflect the final fair value analysis associated with the two intangible assets. The corresponding offsets for these final measurement period adjustments was goodwill. The $ 0.1 million decrease in the acquisition date fair value of net assets acquired and liabilities assumed reflected the impact of certain Class A common shares initially held in escrow being returned to the Company upon final determination of the working capital adjustments. The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition, the final measurement period adjustments and the final adjusted balances (in thousands): Net tangible assets (liabilities): At Date of Acquisition Measurement Period Adjustments Final Adjusted Balances Cash, cash equivalents and restricted cash $ 4,194 $ ( 418 ) $ 3,776 Accounts receivable 5,051 ( 443 ) 4,608 Inventory 4,182 ( 1,135 ) 3,047 Other current assets 126 200 326 Property and equipment 7,000 — 7,000 Operating lease right-of-use assets 5,491 — 5,491 Other long-term assets 68 — 68 Accounts payable ( 2,285 ) ( 460 ) ( 2,745 ) Other current liabilities ( 2,818 ) ( 313 ) ( 3,131 ) Operating lease obligations ( 4,373 ) — ( 4,373 ) Deferred tax liabilities ( 3,868 ) ( 416 ) ( 4,284 ) Net tangible assets (liabilities) 12,768 ( 2,985 ) 9,783 Goodwill 6,441 438 6,879 Customer relationships 8,476 2,400 10,876 Developed technology 615 29 644 Net assets acquired and liabilities assumed $ 28,300 $ ( 118 ) $ 28,182 The amount of goodwill that resulted from the purchase price allocation was attributed to expected synergies from the assembled workforce, an increase in development capabilities, increased offerings to customers, expanded market opportunities, and enhanced opportunities for growth and innovation. Goodwill was not being amortized but instead tested for impairment at least annually or more frequently if certain indicators of impairment were present. The goodwill recorded was not deductible for income tax purposes. F- 21 The ongoing decline in the Company’s market capitalization, along with other qualitative considerations was determined to be a triggering event for potential goodwill impairment. Accordingly, the Company performed a goodwill impairment analysis as of September 30, 2023. The Company, considered as a single reporting unit, estimated the implied fair value of its goodwill using a variety of valuation methods, including both the income and market approaches. As a result of the impairment assessment performed, the Company determined goodwill was impaired and recorded an impairment charge to write off the entire $ 6.9 million balance of goodwill. The impairment charge was recorded in the consolidated statement of operations as a loss on impairment of goodwill. The two identified definite lived intangible assets, comprised of customer relationships and developed technology, are being amortized over their estimated useful lives of 10 and two years , respectively. The customer relationships intangible asset represents the estimated fair value of the underlying relationships with Intellibed customers, valued utilizing the multi-period excess earnings method. The developed technology intangible represents the fair value of Intellibed industry-specific cloud and mobile software and related technologies, valued using the cost to recreate method. The acquired cash, cash equivalents and restricted cash balance included $ 1.7 million of cash deposited by Intellibed in a separate account pursuant to an escrow agreement with the Company. The purpose of the escrow cash amount was to cover Intellibed’s estimated state income tax liabilities, sales tax liabilities and related filing expenses that existed prior to the acquisition date. If the actual liabilities were less than estimated, any excess cash was to be returned to the previous shareholders of Intellibed. If payments for these items exceeded the escrow balance, the Company would have been required to pay the excess. The Company recorded the escrow account balance of $1.7 million as an acquired restricted cash balance on the date of acquisition and used $0.9 million of the escrow account balance for actual expenses incurred. The excess escrow balance of $0.8 million was returned by the Company to the previous shareholders of Intellibed during the third quarter of 2023. The Company included the financial results of Intellibed in its consolidated financial statements from the date of acquisition and recorded net revenues and pre-tax income of $ 9.7 million and $ 1.6 million, respectively, for the period from August 31, 2022 through December 31, 2022. The transaction costs associated with the acquisition of $ 3.9 million were recorded as general and administrative expense in the consolidated statement of operations for the year ended December 31, 2022. The following table provides unaudited pro forma financial information as if Intellibed had been acquired by the Company as of January 1, 2021. The unaudited pro forma information reflects adjustments for transaction and litigation expenses, immediate restructuring savings and additional depreciation and amortization resulting from the fair value adjustments to assets acquired. The pro forma results do not include any other anticipated cost synergies or effects of the combined companies. Accordingly, pro forma amounts are not necessarily indicative of the results to be expected had the acquisition been completed on the date indicated, nor is it indicative of the future results of operations of the combined company (in thousands): Year Ended December 31, 2022 2021 Net revenues $ 603,739 $ 773,658 Net (loss) income ( 86,119 ) 11,680 The unaudited pro forma amounts above include the following adjustments: ● A decrease of operating expenses by $ 4.4 million during the year ended December 31, 2022, to eliminate costs directly related to the acquisition that do not have a continuing impact on results of operations. ● A decrease of operating expenses by $ 1.5 million during the year ended December 31, 2021 to eliminate litigation costs directly related to the lawsuit between the two Companies. ● A decrease of operating expenses by $ 1.5 million and $ 0.6 million during the years ended December 31, 2022 and 2021, respectively, to eliminate costs directly related to immediate restructuring that do not have a continuing impact on results of operations. ● An increase of operating expenses by $ 2.2 million and $ 1.8 million during the years ended December 31, 2022 and 2021, respectively, to reflect the additional depreciation and amortization expense related to the increase in property and equipment assets and definite lived intangible assets. ● The combined pro forma results were tax effected using the Company’s effective tax rate for the respective periods. 5. Revenue from Contracts with Customers The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer, subject to shipping terms, as described in Note 2 – Summary of Significant Accounting Policies . Disaggregated Revenue The Company classifies revenue into two categories: direct-to-consumer (“DTC”) and wholesale. The DTC category is comprised of the e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple showrooms channel that sells directly to consumers who purchase at a Company showroom location. The wholesale channel includes all product sales to our retail brick and mortar wholesale partners where consumers make purchases at their retail locations or through their online channels. The Company classifies products into two major categories: sleep products and other. Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products. F- 22 The following tables present the Company’s revenue disaggregated by sales channel and product category (in thousands): Years Ended December 31, Channel 2023 2022 2021 DTC $ 296,698 $ 330,503 $ 474,217 Wholesale 213,843 242,698 250,782 Revenues, net $ 510,541 $ 573,201 $ 724,999 Years Ended December 31, Product 2023 2022 2021 Sleep products $ 496,400 $ 556,542 $ 699,631 Other 14,141 16,659 25,368 Revenues, net $ 510,541 $ 573,201 $ 724,999 Contract Balances Payments for the sale of products through the e-commerce online channel, third-party online retailers, Purple showrooms and contact center are collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled $ 5.7 million and $ 4.5 million at December 31, 2023 and 2022, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company recognized all of the revenue that was deferred in customer prepayments at December 31, 2022, 2021 and 2020, respectively. 6. Inventories Inventories consisted of the following: As of December 31, (in thousands) 2023 2022 Raw materials $ 23,232 $ 31,167 Work-in-process 5,962 2,259 Finished goods 37,684 39,771 Inventories $ 66,878 $ 73,197 7. Property and Equipment Property and equipment consisted of the following: As of December 31, (in thousands) 2023 2022 Equipment $ 72,424 $ 66,533 Equipment in progress 15,077 19,099 Leasehold improvements 60,563 56,114 Furniture and fixtures 31,084 26,290 Office equipment 2,737 4,393 Total property and equipment 181,885 172,429 Accumulated depreciation ( 53,224 ) ( 35,756 ) Property and equipment, net $ 128,661 $ 136,673 F- 23 Equipment in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at December 31, 2023 or 2022. Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 1.5 million, $ 0.7 million and $ 1.0 million during the years ended December 31, 2023, 2022 and 2021, respectively. Depreciation expense was $ 19.7 million, $ 16.2 million and $ 9.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. 8. Leases The Company leases its manufacturing and distribution facilities, corporate offices, Purple showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036. The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while Purple showrooms have initial lease terms of up to 10 years. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s discretion. Any lease renewal options are included in the lease term if exercise is reasonably certain at lease commencement. The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of three to five years . The ROU asset for finance leases was $ 0.7 million and $ 1.0 million as of December 31, 2023 and 2022, respectively. The following table presents the Company’s lease costs (in thousands): Years Ended December 31, 2023 2022 2021 Operating lease costs $ 19,466 $ 15,743 $ 8,910 Variable lease costs 4,121 2,311 2,207 Short-term lease costs — 11 224 Total lease costs $ 23,587 $ 18,065 $ 11,341 The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on the consolidated balance sheet at December 31, 2023 (in thousands): Year ended December 31, 2024 (a) $ 20,437 2025 21,231 2026 19,847 2027 19,606 2028 19,577 Thereafter 54,259 Total operating lease payments 154,957 Less – lease payments representing interest ( 31,020 ) Present value of operating lease payments $ 123,937 (a) – Amount consists of $ 21.5 million of undiscounted cash flows offset by $ 1.1 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2024. F- 24 As of December 31, 2023 and 2022, the weighted-average remaining term of operating leases was 8.0 years and 8.8 years, respectively, and the weighted-average discount rate was 5.77 % and 5.51 %, respectively, for operating leases recognized on the consolidated balance sheet. The following table provides supplemental information related to the Company’s consolidated statement of cash flows (in thousands): Years Ended December 31, 2023 2022 2021 Cash paid for amounts included in present value of operating lease liabilities (b) $ 13,696 $ 9,003 $ 2,779 ROU assets obtained in exchange for operating lease liabilities 8,435 38,599 31,567 (b) – Operating cash flows paid for operating leases are included within the change in operating leases, net within the Consolidated Statements of Cash Flows offset by non-cash ROU asset amortization and lease liability accretion. The Company initially recorded $ 1.7 million for the present value of asset retirement obligations (ARO) to cover costs associated with the future restoration of two leased properties. During the years ended December 31, 2023, 2022 and 2021, the Company recorded accretion of the ARO liabilities totaling $ 0.1 million, $ 0.4 million and $ 0.1 million, respectively. The outstanding ARO liabilities totaled $ 2.2 million and $ 2.1 million at December 31, 2023 and 2022, respectively and are presented as asset retirement obligations in the consolidated balance sheets. 9. Intangible Assets The following table provides the components of intangible assets (in thousands, except useful life): As of December 31, 2023 As of December 31, 2022 Useful life Gross Accumulated Net Carrying Gross Accumulated Net Carrying (years) Cost Amortization Value Cost Amortization Value Indefinite-lived non-amortizing: Intellectual property $ 8,456 $ — $ 8,456 $ 8,456 $ — $ 8,456 Trademarks 30 — 30 30 — 30 Definite-lived amortizing: Internet domain 15 900 ( 370 ) 530 900 ( 310 ) 590 Customer relationships 10 10,876 ( 2,286 ) 8,590 10,876 ( 187 ) 10,689 Developed technology 2 644 ( 429 ) 215 644 ( 107 ) 537 Internal-use software 3 8,423 ( 4,048 ) 4,375 7,181 ( 1,262 ) 5,919 Intangible assets, net $ 29,329 $ ( 7,133 ) $ 22,196 $ 28,087 $ ( 1,866 ) $ 26,221 Amortization expense for intangible assets was $ 5.3 million, $ 1.2 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Estimated amortization expense for definite-lived intangible assets is expected to be as follows for the next five years (in thousands): Year ended December 31, 2024 $ 4,343 2025 3,242 2026 2,399 2027 1,403 2028 791 Thereafter 1,532 Total future amortization for definite-lived intangible assets $ 13,710 F- 25 10. Other Current Liabilities The Company’s other current liabilities consisted of the following (in thousands): As of December 31, 2023 2022 Accrued sales returns $ 5,404 $ 5,107 Accrued compensation 5,064 6,691 Long-term debt and unamortized issuance costs - current portion 2,129 — Accrued sales and use tax 1,949 2,978 Insurance financing 1,079 1,010 Accrued interest 506 7 Accrued sales tax liability assumed in acquisition — 753 Tax Receivable Agreement Liability – current portion — 269 Other 1,423 1,106 Total other current liabilities $ 17,554 $ 17,921 11. Debt Debt consisted of the following (in thousands): December 31, December 31, 2023 2022 Term loan $ 25,000 $ 24,656 Revolving line of credit 5,000 — Less: unamortized debt issuance costs ( 962 ) ( 999 ) Total debt 29,038 23,657 Current portion of debt and unamortized issuance costs (c) ( 2,129 ) — Debt, net of current portion $ 26,909 $ 23,657 (c) – Amount is included.in other current liabilities in the consolidated balance sheet. 2023 Credit Agreements On August 7, 2023, Purple LLC, Purple Inc. and Intellibed, (collectively the “Loan Parties”) entered into a term loan credit agreement (the “Term Loan Agreement”) with Callodine Commercial Finance, LLC and a group of financial institutions (the “Term Loan Lenders”). Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with the Bank of Montreal and a group of financial institutions (collectively the “ABL Lenders”) that provided for a revolving asset-based credit facility (the “ABL Agreement”). Pursuant to entering into these agreements (the “2023 Credit Agreements”), the Company incurred fees and expenses of $ 3.1 million that were recorded as debt issuance costs in the third quarter of 2023. Interest expense under the 2023 Credit Agreements was $ 2.1 million for the year ended December 31, 2023. See Note 21— Subsequent Events — Amended and Restated Credit Agreement for discussion of new credit agreement entered into subsequent to year-end that resulted in the payoff of debt under the 2023 Credit Agreements. Term Loan Agreement and Term Loan Pledge and Security Agreement The Term Loan Agreement provided for up to $ 25.0 million of term loans, with up to $ 5.0 million of incremental term loans available, subject to certain conditions (collectively, the “Term Loans”). Proceeds from the Term Loans, which were fully drawn at closing, were used for general corporate purposes. The borrowing rates under the Term Loan Agreement were based on SOFR, plus a credit spread adjustment of 0.15% per annum, plus 8.5% per annum, with a SOFR floor of 2.0% per annum. The Term Loans were to be repaid at the earlier of (a) a three-year amortization schedule ending on August 7, 2026 or (b) the payment in full of the ABL Agreement. The Term Loans could be prepaid in whole or in part at any time, but subject to a prepayment premium. There were also potential mandatory prepayment obligations based on certain asset dispositions, casualty events and extraordinary receipts. Once repaid, no portion of the Term Loans could be reborrowed. F- 26 Pursuant to a pledge and security agreement, the Loan Parties’ obligations under the Term Loan Agreement were secured by a perfected second-priority security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected first-priority security interest in substantially all other assets of the Loan Parties, including, without limitation, the intellectual property and equipment of the Loan Parties, subject to certain exceptions. The Term Loan Agreement provided for customary events of default which included non-payment and failure to perform or observe covenants. The Term Loan Agreement contained customary indemnifications that benefited the Term Loan Lenders. The Term Loan Agreement also contained representations, warranties and certain covenants of the Loan Parties. While any amounts were outstanding under the Term Loan Agreement, the Loan Parties were subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness, and transactions with affiliates, among other customary covenants, each of which were subject to certain exceptions. In particular, the Loan Parties were (i) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the Term Loan Agreement, and (ii) required to maintain a minimum revolving loan availability under the ABL Agreement. Each Loan Party was also restricted from paying dividends or making other distributions or payments on its respective capital stock, subject to limited exceptions. If the Loan Parties failed to perform their obligations under these and other covenants, or any event of default occurred, the Term Loans, together with accrued interest, could have been declared immediately due and payable. ABL Agreement and ABL Pledge and Security Agreement The ABL Agreement provided for up to $ 50.0 million of revolving loans subject to a borrowing base calculation and minimum availability requirements (with sub-facilities for swing line loans and the issuance of letters of credit), with incremental increases available up to $ 20.0 million (the “ABL Loans”), subject to certain conditions, availability reserves, minimum availability requirements, borrowing base calculations, and restrictive covenants. In October 2023, the ABL Lenders implemented an availability reserve of $ 5.0 million, which reduced the amount available under the borrowing base. No funds were drawn under the ABL Agreement at closing and there was $ 5.0 million outstanding at December 31, 2023. The Company was able to use the funds drawn under the ABL Agreement to finance permitted acquisitions defined in the agreement and for working capital, capital expenditures and other general corporate purposes. Outstanding principal and accrued interest on the ABL Loans were to be repaid on August 7, 2026. The borrowing rates under the ABL Agreement accrued on a three-tiered grid based on revolving availability, ranging from (i) SOFR, plus a credit spread adjustment of 0.10% per annum, plus 2.75% per annum to (ii) SOFR, plus a credit spread adjustment of 0.10% per annum, plus 3.25% per annum, with a SOFR floor of 0% per annum. The ABL Loans could be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. There were also potential mandatory prepayment obligations based on certain asset dispositions, casualty events, equity issuances and extraordinary receipts. Pursuant to a pledge and security agreement, the Loan Parties’ obligations under the ABL Agreement were secured by a perfected first-priority security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected second-priority security interest in substantially all of the other assets of the Loan Parties, subject to certain exceptions. The ABL Agreement provided for customary events of default such as non-payment and failure to perform or observe covenants. The ABL Agreement contained customary indemnifications that benefited the ABL Lenders. F- 27 The ABL Agreement also contained representations, warranties and certain covenants of the Loan Parties. The Loan Parties were subject to affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness, and transactions with affiliates, among other customary covenants, in each case, subject to certain exceptions. In particular, the Loan Parties were (i) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the ABL Agreement, and (ii) if revolving availability under the ABL Agreement was less than a specified amount, required to maintain a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Agreement), and (iii) required to maintain a specified minimum revolving availability. Each Loan Party was also restricted from paying dividends or making other distributions or payments on its respective capital stock, subject to limited exceptions. If the Loan Parties failed to perform their obligations under these and other covenants, or if any event of default occurred, the revolving loan commitments under the ABL Agreement could have been terminated and any outstanding ABL Loans, together with accrued interest, could have been declared immediately due and payable and any outstanding letters of credit could have been made to be cash collateralized. 2023 Credit Agreement Defaults The Company, as of September 30, 2023, was not in compliance with its debt covenants under each of the 2023 Credit Agreements due to (i) the Company’s failure to (a) provide certain financial reporting and related materials on a timely basis and (b) complete certain post-closing deliverables as required under the ABL Agreement and (ii) the Company drawing on the loan under the ABL Agreement while the above events of default were in existence (collectively, the “Subject Events of Default”). On November 6, 2023, the Company entered into (i) a First Amendment and Waiver to the ABL Agreement (the “ABL Amendment”) and (ii) a First Amendment and Waiver to the Term Loan Agreement (the “Term Loan Amendment”), with the Term Loan Lenders and ABL Lenders, respectively (collectively, the “Lenders”), which included waivers of the Subject Events of Default. These amendments, among other things, included additional reporting obligations under the 2023 Credit Agreements, the appointment of a third-party consultant, and daily cash sweeps from the Loan Parties’ accounts to an account maintained at the ABL Lender. If the Company had not been able to comply with such additional requirements it may have experienced future events of default, which could have limited its ability to access the ABL Loans and adversely affected the Company’s financial position and results of operations. As of December 31, 2023, the Company was in compliance with all of the financial covenants related to the 2023 Credit Agreement, as amended. 2020 Credit Agreement On September 3, 2020, Purple LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions (the “2020 Credit Agreement”). The 2020 Credit Agreement provided for a $ 45.0 million term loan and a $ 55.0 million revolving line of credit. The term loan was to be repaid in accordance with a five-year amortization schedule or prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility had a term of five years and carried the same interest provisions as the term debt. A commitment fee was due quarterly based on the applicable margin applied to the unused total revolving commitment. In connection with the Company’s execution of the 2023 Credit Agreements, the Company terminated its 2020 Credit Agreement. The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination. On February 17, 2023, the Company entered into a fifth amendment to the 2020 Credit Agreement. The amendment, among other things, revised various covenants associated with the 2020 Credit Agreement. As a condition of entering into the amendment, the Company repaid the $ 24.7 million outstanding balance on the term loan plus accrued interest. Pursuant to this amendment, the Company incurred fees and expenses of $ 2.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The amendment was accounted for as an extinguishment of debt and $ 1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in the 2023 condensed consolidated statement of operations. On April 26, 2023, the Company received consent under the 2020 Credit Agreement that allowed the Company’s redemption of Proportional Representation Preferred Linked Stock (“PRPLS”) issued by the Company on February 24, 2023, in an aggregate amount not to exceed $ 0.2 million as agreed by the Company in an April 19, 2023 Cooperation Agreement (the “Cooperation Agreement”) entered into with Coliseum. (See Note 16— Related Party Transactions — Coliseum Capital Management, LLC for information regarding events leading up to the Company’s issuance of the PRPLS, and for information regarding terms of the Cooperation Agreement and redemption of the PRPLS.) F- 28 In connection with the Company’s execution of both the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement in August 2023. The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination. The termination was accounted for as an extinguishment of debt and $ 3.1 million of unamortized debt issuance costs related to the 2020 Credit Agreement were recorded as a loss on extinguishment of debt in the 2023 condensed consolidated statement of operations. Interest expense under the 2020 Credit Agreement totaled $ 1.3 million, $ 4.1 million and $ 2.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, the scheduled maturities of debt outstanding for each of the next five years and thereafter are as follows (in thousands): Year ended December 31, Total 2024 $ 2,500 2025 2,500 2026 25,000 2027 — 2028 — Thereafter — Total $ 30,000 12. Warrant Liabilities The Company issued 12.8 million sponsor warrants pursuant to a private placement conducted simultaneously with its initial public offering. Each of these warrants entitled the registered holder to purchase one-half of one share of the Company’s Class A common stock at a price of $ 5.75 per half share ($ 11.50 per full share), subject to adjustment pursuant to the terms of the warrant agreement. These sponsor warrants contained certain provisions that did not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for these warrants was recorded at fair value on the date of the Business Combination and subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration. The 1.9 million sponsor warrants outstanding at December 31, 2022 had a negligible fair value and no sponsor warrants were exercised in 2022. In 2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds to the Company of $ 0.1 million. The Company determined the fair value of the sponsor warrants using a Black-Scholes model with the following assumptions: December 31, 2022 2021 Trading price of common stock on measurement date $ 4.79 $ 13.27 Exercise price $ 5.75 $ 5.75 Risk free interest rate 4.04 % 0.39 % Warrant life in years 0.1 1.1 Expected volatility 80.59 % 73.78 % Expected dividend yield — — During the years ended December 31, 2022 and 2021, the Company recognized gains of $ 4.3 million and $ 24.1 million, respectively, in its consolidated statements of operations related to decreases in the fair value of the sponsor warrants exercised during the respective periods or that were outstanding at the end of the respective periods. F- 29 13. Commitments and Contingencies Required Member Distributions Prior to the Business Combination and pursuant to the then applicable First Amended and Restated Limited Liability Company Agreement (the “First Purple LLC Agreement”), Purple LLC was required to distribute to its members an amount equal to 45 percent of Purple LLC’s net taxable income following the end of each fiscal year. The First Purple LLC Agreement was amended and replaced by the Second Amended and Restated Limited Liability Company Agreement (the “Second Purple LLC Agreement”) on February 2, 2018 as part of the Business Combination. The Second Purple LLC Agreement was amended and replaced by the Third Amended and Restated Limited Liability Company Agreement (the “Third Purple LLC Agreement”) on September 3, 2020. The Second Purple LLC Agreement and the Third Purple LLC Agreement do not include any mandatory distributions, other than tax distributions. During the year ended December 31, 2021, the Company paid $ 1.2 million in tax distributions under these agreements. There were no tax distributions paid during the years ended December 31, 2023 and 2022. The Company’s consolidated balance sheets at both December 31, 2023 and 2022 had $ 0.1 million of accrued tax distributions included in other current liabilities. Subscription Agreement and Preemptive Rights In February 2018, in connection with the Business Combination, the Company entered into a subscription agreement with Coliseum Capital Partners (“CCP”) and Blackwell Partners LLC – Series A (“Blackwell”), pursuant to which CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A common stock at a purchase price of $ 10.00 per share (the “Coliseum Private Placement”). In connection with the Coliseum Private Placement, the Sponsor assigned (i) an aggregate of 1.3 million additional shares of Class A common stock to CCP and Blackwell and (ii) an aggregate of 3.3 million warrants to purchase 1.6 million shares of Class A common stock to CCP, Blackwell, and Coliseum Co-Invest Debt Fund, L.P. (“CDF”). The subscription agreement provides CCP and Blackwell with preemptive rights with respect to future sales of the Company’s securities. It also provides them with a right of first refusal with respect to certain debt and preferred equity financings by the Company. The Company also entered into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A common stock issued and assigned to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A common stock underlying the warrants received by CCP, Blackwell and CDF. The Company has filed a registration statement with respect to such securities. Rights of Securities Holders The holders of certain warrants exercisable into Class A common stock, including CCP, Blackwell and CDF, were entitled to registration rights pursuant to certain registration rights agreements of the Company as of the Business Combination date. In March 2018, the Company filed a registration statement registering these warrants (and any shares of Class A common stock issuable upon the exercise of the warrants), and certain unregistered shares of Class A common stock. The registration statement was declared effective on April 3, 2018. Under the Registration Rights Agreement dated February 2, 2018 between the Company and CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors have the right to make written demands for up to three registrations of certain warrants and shares of Class A common stock held by them, including in underwritten offerings. In an underwritten offering of such warrants and shares of Class A common stock by the Coliseum Investors, the Company will pay underwriting discounts and commissions and certain expenses incurred by the Coliseum Investors. In May 2021, the Coliseum Investors exercised the first of their three written demands for registration in an underwritten offering. On May 21, 2021, 7.3 million shares of Class A common stock were sold in a secondary offering by the Coliseum Investors at a price of $ 30.00 per share. The Company did not receive any of the proceeds from the secondary offering. The underwriting discount, commission and other related costs incurred by the Company for the secondary offering totaled $ 7.9 million and was recorded by the Company as general and administrative expense in the consolidated statement of operations for the year ended December 31, 2021. F- 30 Purple LLC Class B Unit Exchange Right On February 2, 2018, in connection with the closing of the Business Combination, the Company entered into an exchange agreement with Purple LLC, InnoHold and Class B Unit holders who become a party thereto (the “Exchange Agreement”), which provides for the exchange of Purple LLC Class B Units (the “Class B Units”) and shares of Class B common stock (together with an equal number of Class B Units, the “Paired Securities”) for, at the Company’s option, either (A) shares of Class A common stock at an initial exchange ratio equal to one Paired Security for one share of Class A common stock or (B) a cash payment equal to the product of the average of the volume-weighted closing price of one share of Class A common stock for the 10 trading days immediately prior to the date InnoHold or other Class B Unit holders deliver a notice of exchange multiplied by the number of Paired Securities being exchanged. In December 2018, InnoHold distributed Paired Securities to Terry Pearce and Tony Pearce who agreed to become parties to the Exchange Agreement. In June 2019, InnoHold distributed Paired Securities to certain current and former employees who also agreed to become parties to the exchange agreement. Holders of Class B Units may elect to exchange all or any portion of their Paired Securities as described above by delivering a notice to Purple LLC. In certain cases, adjustments to the exchange ratio will occur in case of a split, reclassification, recapitalization, subdivision or similar transaction of or relating to the Class B Units or the shares of Class A common stock and Class B common stock or a transaction in which the Class A common stock is exchanged or converted into other securities or property. The exchange ratio will also adjust in certain circumstances when the Company acquires Class B Units other than through an exchange for its shares of Class A common stock. The right of a holder of Paired Securities to exchange may be limited by the Company if it reasonably determines in good faith that such restrictions are required by applicable law (including securities laws), such exchange would not be permitted under other agreements of such holder with the Company or its subsidiaries, including the Third Purple LLC Agreement, or if such exchange would cause Purple LLC to be treated as a “publicly traded partnership” under applicable tax laws. The Company and each holder of Paired Securities shall bear its own expense regarding the exchange except that the Company shall be responsible for transfer taxes, stamp taxes and similar duties. During the years ended December 31, 2023 and 2021, 0.2 million and 0.1 million of Paired Securities were exchanged for shares of Class A common stock, respectively. There were no Paired Securities exchanged for Class A common stock during the year ended December 31, 2022. F- 31 Maintenance of One-to-One Ratios. The Third Purple LLC Agreement includes provisions intended to ensure that the Company at all times maintains a one-to-one ratio between (a) (i) the number of outstanding shares of Class A common stock and (ii) the number of Class A Units owned by the Company (subject to certain exceptions for certain rights to purchase equity securities of the Company under a “poison pill” or similar stockholder rights plan, if any, certain convertible or exchangeable securities issued under the Company’s equity compensation plan and certain equity securities issued pursuant to the Company’s equity compensation plan (other than a stock option plan) that are restricted or have not vested thereunder) and (b) (i) the number of other outstanding equity securities of the Company (including the warrants exercisable for shares of Class A common stock) and (ii) the number of corresponding outstanding equity securities of Purple LLC. These provisions are intended to result in non-controlling interest holders having a voting interest in the Company that is identical to their economic interest in Purple LLC. Non-Income Related Taxes The Company complies with current law and collects and reports on sales tax and other taxes and required fees in all states in which it does business. The application of existing, new or revised taxes and fees on the Company’s business, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet. The application of these taxes and fees on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes and pay the fees. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business. Legal Proceedings On October 13, 2020, Purple LLC filed a lawsuit against Responsive Surface Technology, LLC and its parent company, PatienTech, LLC (collectively referred to as “ReST”) in the U.S. District Court for the District of Utah. Purple LLC seeks damages from ReST’s multiple breaches of its obligations to Purple LLC, including infringing upon Purple LLC’s trademarks, patents, and trade dress, among other claims. On October 21, 2020, ReST filed a retaliatory lawsuit against Purple LLC, and some of the Company’s board members and former border members, also in the United States District Court for the District of Utah. Subsequently, the two cases were consolidated into one because the cases involve many of the same facts and transactions. ReST filed a motion to compel arbitration of most of the claims. The Court granted ReST’s motion and stayed the proceedings in the United States District Court for the District of Utah. The Court also ruled that ReST’s claims against the Company’s board members were not subject to arbitration, and the Court stayed the claims against those individuals. The parties’ claims and counterclaims subject to arbitration were then litigated before a single arbitrator with the American Arbitration Association. During the litigation, ReST was sanctioned for improper litigation conduct, and certain of its defenses and claims were stricken, and costs were ordered to be paid by ReST to Purple LLC. A two-week evidentiary arbitration hearing was held in the summer of 2023. On March 8, 2024, the Arbitrator issued his final award in Purple’s favor, awarding $ 3.3 million in damages and attorney’s fees on Purple’s affirmative claims, and only a de minimis amount to ReST on their counterclaims. Purple LLC will immediately move to convert the award into a judgment against ReST in the United States District Court for the District of Utah. Purple LLC will then seek judicial enforcement of the judgment if ReST does not voluntarily pay. F- 32 On May 3, 2022, Purple LLC filed a complaint against Photon Interactive UK Limited (“Photon”) in the U.S. District Court for the District of Delaware regarding a Master Professional Services Agreement with Photon dated on or around November 1, 2019. Photon counter-sued, seeking payment for the $ 0.1 million withheld by Purple LLC, and also advancing a vague claim for tortious interference. On August 31, 2022, Purple LLC filed an amended complaint adding additional claims pertaining to Photon’s failure to deliver a point-of-sale system pursuant to the Master Professional Services Agreement. Purple LLC is seeking judgment against Photon in the amount of $ 4.0 million. The case was stayed in September 2023 to allow the parties to mediate the dispute. Mediation did not result in a settlement. The parties are presently negotiating an amended scheduling order to set this matter for trial in late 2024 or early 2025. In December 2022, Terry and Tony Pearce, Purple’s founders, filed a complaint against Purple Inc. in the Fourth Judicial District Court in the State of Utah. In that suit, the Pearces alleged that they each entered into employment agreements with Purple LLC in February 2018. The Pearces contended that certain corporate transactions reduced their “ownership interest and voting power in Purple” and that, as a result, they should have continued to be paid a salary when they retired from Purple LLC. The Pearces calculated that they were each owed “no less than $ 500,000 ” in unpaid salary. Purple Inc. moved to dismiss the Pearces’ claims in full, arguing that the Pearces’ legal theories are flawed and that the amended pleading reflected the Pearces’ inability to rehabilitate their claims. In October 2023, the Fourth Judicial District Court granted Purple Inc.’s motion and ordered that the claims brought by the Pearces be dismissed in full, with prejudice. The Court entered a final judgment dismissing the case in January 2024. The Pearces have filed a notice reflecting their intent to appeal to either the Utah Court of Appeals or the Utah Supreme Court. The Company maintains insurance to cover the costs of defending against claims of this nature and intends to continue to vigorously defend against these claims in the course of the Pearces’ appeal. On April 3, 2023, InnoHold, LLC, Terry Pearce, and Tony Pearce (collectively, the “InnoHold Parties”) filed a complaint against Purple LLC in the Delaware Court of Chancery, captioned InnoHold, LLC et al. v. Purple Innovation, LLC , Case No. 2023-0393-PAF (Del. Ch. Apr. 3, 2023). The complaint alleges that Purple LLC breached the Second Amended and Restated Limited Liability Company Agreement of Purple Innovation, LLC, dated as of February 2, 2018 (the “LLC Agreement”), by failing to pay the full amount of tax distributions owed under the LLC Agreement. The InnoHold Parties seek damages of approximately $ 3.0 million in allegedly unpaid tax distributions as well as its legal fees and expenses incurred in connection with the litigation. On June 13, 2023, Purple LLC filed an answer to the complaint denying the InnoHold Parties’ allegations, setting forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment in Purple LLC’s favor. The outcome of the litigation cannot be predicted at this early stage in the proceedings. Purple LLC intends to vigorously defend against these claims. F- 33 On March 24, 2023, Purple LLC filed a complaint against Tempur Sealy International, Inc., Sealy Technology LLC and Sealy Mattress Manufacturing Co., LLC (collectively, “Sealy”) in the U.S. District Court for the Middle District of North Carolina for infringement of Purple LLC’s U.S. Patent No. 11,317,733 entitled “Mattress Including an Elastomeric Cushioning Element and a Pocketed Coil Layer and Related Methods.” On July 17, 2023, Purple LLC filed a First Amended Complaint further detailing Sealy’s infringement of the patent through Sealy’s direct and indirect infringement by making, using, offering for sale, and/or importing into the United States Sealy FlexGrid Hybrid Construction mattresses. Purple seeks judgment of willful infringement, trebled damages, a permanent injunction, prejudgment and post-judgment interest, costs, expenses, and attorneys’ fees. Sealy filed its response to Purple’s First Amended Complaint on July 31, 2023. Discovery is ongoing but was temporarily stayed for 30 days on March 6, 2024 to allow the parties to discuss settlement; a claim construction hearing has been scheduled for May 23, 2024. On March 12, 2024, the parties entered into a confidential settlement agreement. The parties will take all necessary actions to ensure that the action and counterclaims are dismissed with prejudice. On March 27, 2023, Sealy Technology, LLC (“Sealy Technology”) filed a Petition for Cancellation with the U.S. Patent and Trademark Office, Trademark Trial and Appeal Board (“TTAB”), seeking cancellation of Purple LLC’s Trademark Registration No. 5,416,146 for HYPER-ELASTIC POLYMER in Class 20 for “elastomeric polymer in pre-shaped form sold as an integral component of pillows” (the “Registration”). On June 18, 2023, Sealy Technology filed an Amended Petition, which seeks cancellation of the Registration on the basis that the term is generic. On September 25, 2023, the TTAB denied Purple LLC’s previously filed motion to dismiss and issued a new schedule. On October 16, 2023, Purple LLC filed its Answer to the Amended Petition. Discovery opened on November 14, 2023, and is scheduled to conclude on May 12, 2024. On March 12, 2024, the parties entered into a confidential settlement agreement. The parties will take all necessary actions to ensure that the action and counterclaims are dismissed with prejudice. On August 16, 2023, Sealy Technology filed a Notice of Opposition with the TTAB, requesting that the U.S. Patent and Trademark Office deny Purple LLC’s pending Trademark Application No. 97,650,658 for HYPER-ELASTIC POLYMER in Class 20 for “mattresses; seat cushions” (the “Application”), on the grounds that the mark is merely descriptive or deceptively misdescriptive. On September 25, 2023, Purple LLC filed a motion to dismiss all claims. On October 5, 2023, the TTAB suspended all deadlines in the proceeding, pending the outcome of the motion to dismiss. On October 17, 2023, Sealy Technology filed its opposition to the motion to dismiss. Purple LLC filed its reply in support of its motion to dismiss on November 6, 2023, and also requested that the TTAB strike Sealy Technology’s opposition as untimely. On January 1, 2024 the TTAB denied Purple LLC’s motion to dismiss and consolidated the opposition and cancellation proceedings and issued a new schedule. On March 12, 2024, the parties entered into a confidential settlement agreement. The parties will take all necessary actions to ensure that the action and counterclaims are dismissed with prejudice. The Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company. F- 34 14. Related-Party Transactions The Company had various transactions with entities or individuals which are considered related parties. Coliseum Capital Management LLC Immediately following the Business Combination, Adam Gray was appointed to the Company’s Board. Mr. Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and CDF, and he is also a managing partner of Coliseum Capital Management, LLC (“CCM”), which is the investment manager of Blackwell and also manages investment funds and accounts. Mr. Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell. See Note 13— Commitments and Contingencies — Subscription Agreement and Preemptive Rights for further discussion . On September 17, 2022, the Company received an unsolicited and non-binding proposal from Coliseum, on behalf of certain investment funds and accounts, to acquire the remaining outstanding common stock of the Company not already beneficially owned by Coliseum. At the time of the offer, Coliseum beneficially owned approximately 44.7 % of the outstanding equity of the Company. In response, the Board authorized the formation of a special committee of independent and disinterested directors of the Company (the “Special Committee”) to evaluate the Coliseum proposal and determine the course of action that was in the best interests of all the Company’s shareholders. The Special Committee approved the adoption of a limited-duration stockholder rights agreement (the “Rights Agreement”). Upon adopting the Rights Agreement, 300,000 shares of the Company’s authorized shares of preferred stock, par value $ 0.0001 per share, were designated as Series A Junior Participating Preferred Shares (the “Preferred Shares”). In accordance with the Rights Agreement, on September 25, 2022, the Special Committee authorized and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s Class A common stock and Class B common stock to stockholders of record at the close of business on October 6, 2022. The initial issuance of the Rights as a dividend had no financial accounting or reporting impact. The fair value of the Rights was nominal since the Rights were not exercisable when issued and no value was attributable to them. Additionally, the Rights did not meet the definition of a liability under GAAP and was therefore not accounted for as a long-term obligation. Accordingly, the Rights Agreement had no impact on the Company’s consolidated financial statements . On February 14, 2023, the Company declared a dividend of one new PRPLS for each 100 shares of its common stock owned by the Company’s shareholders. PRPLS holders could have allocated all, none, or a portion of their votes to each director nominee up for election at the Company’s meetings of shareholders. On February 24, 2023, the Company issued 1.0 million PRPLS shares which traded along with the common stock. While the PRPLS were outstanding, any new issuances of common stock would have automatically included a proportionate number of PRPLS. On February 21, 2023, Coliseum filed a lawsuit against the Company and several members of its Board alleging that the Company and the named directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfere with Coliseum’s nomination of a competing slate of director candidates ahead of the Company’s 2023 annual meeting of stockholders. On April 19, 2023, the Company entered into a Cooperation Agreement with Coliseum to resolve the litigation. The Cooperation Agreement, which became effective on April 27, 2023, included, among other things, the following: ● The Board was increased from seven directors to eight. ● Board member and Coliseum managing partner Adam Gray was appointed Chairman of the Board. ● The Company terminated the Rights Agreement and agreed not to adopt a new stockholder rights agreement prior to the termination of the Cooperation Agreement without Coliseum’s prior consent. As a result, all shares of preferred stock previously designated as Series A Junior Participating Preferred Stock were eliminated and returned to the status of authorized but unissued shares of preferred stock, without designation. F- 35 ● The Company redeemed all outstanding shares of PRPLS and agreed not to issue any similar security or take any other action prior to the termination of the Cooperation Agreement that would change the stockholder voting standards from those in effect prior to the issuance of the PRPLS. As a result, all shares of preferred stock previously designated as PRPLS were eliminated and returned to the status of authorized but unissued shares of preferred stock, without designation. The Company made a $ 0.1 million payment to redeem the PRPLS based on a record date as of April 28, 2023. The PRPLS redemption payment was reflected in the Company’s consolidated balance sheet as a reduction to additional paid-in capital. ● The Company agreed to reimburse Coliseum for up to $ 4.0 million of out-of-pocket fees, costs, and expenses incurred in connection with the lawsuit. ● The Company terminated the Special Committee and Coliseum dismissed its litigation against the Company. ● At both the 2023 and 2024 annual meetings of stockholders, Coliseum agreed to cause all of the common stock that it or any of its affiliates had the direct or indirect right to vote as of the applicable record date, to be present in person or by proxy for quorum purposes and to be voted (i) in favor of each of the candidates for election on the Company’s slate of nominees for election to the Board, (ii) against any stockholder nominations for any other directors, and (iii) against any proposals or resolutions to remove any member of the Board other than for cause. ● Coliseum agreed to be bound by customary standstill restrictions, including, among others, agreements not to acquire additional shares of the Company’s securities that would cause Coliseum’s ownership to exceed 44.7% of the total outstanding common stock (other than acquisitions directly from the Company), engage in proxy solicitations and related matters, form or join any “group” with respect to shares of the Company, encourage others to pursue a “contested solicitation,” or make any public proposals, subject to certain exceptions. ● Coliseum agreed to condition any proposal from it or any of its affiliates to acquire the Company or all or substantially all of the outstanding stock of the Company held by stockholders unaffiliated with Coliseum on (i) such transaction being negotiated by, and subject to the approval of, a special committee of directors of the Board who are independent with respect to Coliseum and disinterested under Delaware law and on (ii) a nonwaivable condition that such transaction be approved by the affirmative vote of the holders of a majority of the Company’s outstanding common stock not beneficially owned by Coliseum or its affiliates or other parties with a material conflict of interest in such transaction. ● The Cooperation Agreement will terminate on the day following the date on which the 2024 annual meeting of stockholders is held. Purple Founder Entities TNT Holdings, LLC (herein “TNT Holdings”), EdiZONE, LLC, (herein “EdiZONE”, an entity wholly owned by TNT Holdings), and InnoHold (collectively the “Purple Founder Entities”) were entities under common control with Purple LLC prior to the Business Combination. TNT Holdings and InnoHold are majority owned and controlled by Terry Pearce and Tony Pearce (the “Purple Founders”), who were appointed to the Company’s Board following the Business Combination. InnoHold was a majority shareholder of the Company until it sold a portion of its interests in a secondary public offering in May 2020 and the remainder of its interests in a secondary public offering in September 2020. The Purple Founders resigned as employees of Purple LLC and retired from the Board in August 2020. Purple LLC began leasing the Alpine facility from entities controlled by the Purple Founders in 2010. On September 3, 2021, in accordance with the terms of that original lease, Purple LLC gave notice that it intended to exercise its right to an early termination of the lease to occur on September 30, 2022. On July 20, 2022, the Company entered into an amendment to its Alpine facility lease agreement that rescinded the Company’s previous notice of termination and extended the term such that the lease remained in effect until September 30, 2023. The Company vacated the Alpine facility and returned the property back to its owner on September 30, 2023, in accordance with the terms of the lease agreement and notice of termination. In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $ 0.8 million, $ 1.0 million and $ 0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. F- 36 In connection with the Business Combination, to secure payment of a certain portion of specified post-closing indemnification rights of the Company under the Merger Agreement, 0.5 million shares of Class B common stock and 0.5 million Class B Units otherwise issuable to InnoHold as equity consideration were deposited in an escrow account for up to three years from the date of the Business Combination pursuant to a contingency escrow agreement. In September 2020, an amendment to the escrow agreement was signed whereby the 0.5 million shares of Class B Stock and 0.5 million Class B Units held in escrow were exchanged for $ 5.0 million. On February 3, 2021, the Company received $ 4.1 million from InnoHold as reimbursement for amounts that qualified for indemnification from the $ 5.0 million being held in escrow. The remaining $ 0.9 million in escrow was returned to InnoHold. The amount received from InnoHold was recorded as additional paid-in capital in the consolidated balance sheet. During the year ended December 31, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $ 0.6 million in required tax distributions pursuant to the Third Purple LLC Agreement. There were no such payments made by Purple LLC during the years ended December 31, 2023 and 2022. 15. Stockholders’ Equity Class A Common Stock The Company has 210.0 million shares of Class A common stock authorized at a par value of $ 0.0001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share held on all matters to be voted on by the stockholders and participate in dividends, if declared by the Board, or receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. Holders of Class A common stock and holders of Class B common stock voting together as a single class, have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Holders of Class A common stock and Class B common stock are entitled to one vote per share on matters to be voted on by stockholders. At December 31, 2023, 105.5 million shares of Class A common stock were outstanding. Class B Common Stock The Company has 90.0 million shares of Class B common stock authorized at a par value of $ 0.0001 per share. Holders of the Company’s Class B common stock will vote together as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders. Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold. A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder also simultaneously transfers an equal number of such holder’s Purple LLC Class B units to such transferee in compliance with the Third Purple LLC Agreement. The Class B common stock is not entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. In connection with the Business Combination, approximately 44.1 million shares of Series B Stock were issued to InnoHold as part of the equity consideration. InnoHold subsequently transferred a portion of its shares to permitted transferees and exchanged its remaining shares for Class A common stock that it sold. All of the 0.2 million shares of Class B common stock outstanding at December 31, 2023 were held by other parties. F- 37 Preferred Stock The Company has 5.0 million shares of preferred stock authorized at a par value of $ 0.0001 per share. The preferred stock may be issued from time to time in one or more series. The directors are expressly authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, designations and other special rights or restrictions. At December 31, 2023, there were no shares of preferred stock outstanding. On September 25, 2022 the Rights Agreement was adopted and 0.3 million shares of the Company’s preferred stock were designated as Series A Junior Participating Preferred Shares. See Note 14— Related Party Transactions — Coliseum Capital Management LLC for discussion regarding the Rights Agreement and the PRPLS. Sponsor Warrants There were 12.8 million sponsor warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering. Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration. There were no sponsor warrants exercised during 2023 or 2022. In 2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds to the Company of $ 0.1 million. Noncontrolling Interest Noncontrolling interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company. At December 31, 2023 and 2022, the combined NCI percentage in Purple LLC was 0.2 % and 0.5 %, respectively. The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate interest held by all such Purple LLC Class B Unit holders as NCI. F- 38 16. Net (Loss) Income Per Common Share The following table sets forth the calculation of basic and diluted weighted average shares outstanding and earnings (loss) per share for the periods presented (in thousands, except per share amounts): Years Ended December 31, 2023 2022 2021 Numerator: Net (loss) income attributable to Purple Innovation, Inc. – basic $ ( 120,757 ) $ ( 92,470 ) $ 3,114 Less: Dilutive effect of change in fair value – warrant liabilities — — ( 24,054 ) Less: Net loss attributable to noncontrolling interest ( 458 ) — ( 166 ) Net loss attributable to Purple Innovation, Inc. – diluted $ ( 121,215 ) $ ( 92,470 ) $ ( 21,106 ) Denominator Weighted average shares – basic 103,602 81,779 65,928 Add: Dilutive effect of warrants — — 920 Add: Dilutive effect of Class B shares 334 — 454 Weighted average shares – diluted 103,936 81,779 67,302 Net (loss) income per common share: Basic $ ( 1.17 ) $ ( 1.13 ) $ 0.05 Diluted $ ( 1.17 ) $ ( 1.13 ) $ ( 0.31 ) For the year ended December 31, 2023, the Company excluded 3.9 million shares of Class A common stock issuable upon conversion of certain warrants, stock options and restricted stock as the effect was anti-dilutive. For the year ended December 31, 2022, the Company excluded 3.5 million of Class A common shares issuable upon conversion of certain warrants, stock options, restricted stock and Class A shares subject to vesting, and 0.4 million of Paired Securities convertible into shares of Class A common stock as their effect was anti-dilutive. For the year ended December 31, 2021, the Company excluded 2.6 million shares of Class A common stock issuable upon conversion of certain stock options, restricted stock and Class A shares subject to vesting as the effect was anti-dilutive. 17. Equity Compensation Plans 2017 Equity Incentive Plan The 2017 Equity Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. Directors, officers and other employees and subsidiaries and affiliates, as well as others performing consulting or advisory services for the Company and its subsidiaries, will be eligible for grants under the 2017 Incentive Plan. The aggregate number of shares of Common Stock which may be issued or used for reference purposes under the 2017 Incentive Plan or with respect to which awards may be granted may not exceed 7.9 million shares. As of December 31, 2023, 2.8 million shares remain available for issuance under the 2017 Incentive Plan. During the years ended December 31, 2023, 2022 and 2021, stock-based compensation associated with equity awards issued under the 2017 Incentive Plan totaled $ 4.9 million, $ 3.4 million and $ 3.4 million, respectively, while the related tax benefits recognized on these awards were $ 1.5 million, $ 0.9 million and $ 3.9 million, respectively. F- 39 Class A Common Stock Awards In June 2023, the Company granted stock awards under the 2017 Incentive Plan to non-executive directors on the Board. The stock awards vested immediately and the Company issued 0.2 million shares of Class A common stock and recognized $ 0.6 million in expense during the year ended December 31, 2023, which represented the fair value of the stock awards on the grant date. In May 2022, the Company granted stock awards under the 2017 Equity Incentive Plan to independent directors on the Board. The stock awards vested immediately and the Company issued 0.1 million shares of Class A common stock and recognized $ 0.6 million in expense during the year ended December 31, 2022, which represented the fair value of the stock awards on the grant date. In May 2021, the Company granted stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the Board. The stock awards vested immediately and the Company recognized $ 0.6 million in expense during year ended December 31, 2021, which represented the fair value of the stock award on the grant date. Amended and Restated Grant Agreements On March 15, 2023, in accordance with the 2017 Incentive Plan, the Company entered into amended and restated grant agreements relating to stock options and restricted stock unit awards previously granted to the Company’s chief executive officer in March 2022 and June 2022. The amended agreements revised the vesting schedule of the awards included in each grant. Pursuant to these agreements, 0.3 million of restricted stock units and stock options fully vested on March 25, 2023, another 0.3 million of restricted stock units and stock options, which included conditionally granted awards that were approved by shareholders at the 2023 Annual Meeting, will vest on March 25, 2024, and the remaining 0.3 million of conditionally granted awards approved by shareholders at the 2023 Annual Meeting will vest in full on March 25, 2025. These amendments resulted in the acceleration of $ 0.8 million of stock-based compensation expense into fiscal 2023 compared to the expense that would have been recorded based on vesting under the original agreements. Employee Stock Options In June 2023, the 0.3 million of conditionally granted stock options to the Company’s chief executive officer were approved by shareholders. These stock options have an exercise price of $ 6.82 per option, expire in four years and vest over a two-year period. The fair value of this award, which was determined to be $ 0.1 million on the effective date, is being expensed over the vesting period on a straight-line basis. In March and June 2022, the Company granted 0.5 million and 0.1 million stock options, respectively, under the 2017 Equity Incentive Plan to its chief executive officer at an exercise price of $ 6.82 per option. The stock options expire in five years and were to vest over a three-year period. In April 2022, with the chief executive officer’s consent, the Company rescinded and cancelled 0.4 million of the stock options granted in March 2022 because of annual limits set forth in the 2017 Equity Incentive Plan. The Company determined the fair value of the net award of 0.2 million stock options to be $ 0.4 million which was expensed on a straight-line basis over the vesting period. During the year ended December 31, 2021, the Company granted 0.2 million stock options under the Company’s 2017 Equity Incentive Plan to certain management of the Company. These stock options have exercise prices ranging from $ 22.57 to $ 32.28 . The stock options expire in five years and vest over a four-year period. The estimated fair value of the stock options is amortized over the options vesting period on a straight-line basis. The Company determined the fair value of the 0.2 million options granted during the year ended December 31, 2021 to be $ 2.0 million which will be expensed over the vesting period. Included in that amount were 0.2 million stock options with a fair value of $ 1.4 million that were subsequently forfeited in December 2021. F- 40 The following are the weighted average assumptions used in calculating the fair value of the total stock options granted in 2023, 2022 and 2021 using the Black-Scholes method: Year Ended December 31, 2023 2022 2021 Weighted average grant date value $ 0.22 $ 2.02 $ 8.71 Risk free rate 4.48 % 2.67 % 0.58 % Dividend yield — — — Expected volatility 44.98 % 54.22 % 52.43 % Expected term in years 2.58 3.45 3.55 In December 2021, 0.6 million of vested stock options related to the former Chief Executive Officer had the post-termination exercise period extended from 90 days to 352 days upon his resignation and departure from the Company. The $ 0.5 million of additional cost associated with this modification was recorded as stock-based compensation expense in the 2021 consolidated statement of operations. The following table summarizes the Company’s total stock option activity for the year ended December 31, 2023: Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Intrinsic Value $ (in thousands) Options outstanding as of December 31, 2022 819 $ 8.68 2.3 $ — Granted 295 6.82 — — Forfeited ( 33 ) 16.20 — — Expired ( 218 ) 7.17 — — Options outstanding as of December 31, 2023 863 8.13 2.2 — Outstanding and exercisable stock options as of December 31, 2023 are as follows: Options Outstanding Options Exercisable Exercise Prices Number of Options Outstanding (in thousands) Weighted Average Remaining Life (Years) Number of Options Exercisable (in thousands) Weighted Average Remaining Life (Years) Intrinsic Value (in thousands) $ 6.51 151 0.4 151 0.4 $   — 6.82 500 3.3 167 3.3 — 7.99 19 0.9 19 0.9 — 8.32 108 0.5 108 0.5 — 13.12 61 1.4 57 1.4 — 32.28 24 2.2 24 2.2 — 863 2.2 526 1.5 $ — F- 41 The following table summarizes the Company’s unvested stock option activity for the year ended December 31, 2023: Options (in thousands) Weighted Average Grant Date Fair Value Nonvested options as of December 31, 2022 307 $ 2.84 Granted 295 0.22 Vested ( 232 ) 2.55 Forfeited ( 33 ) 5.69 Nonvested options as of December 31, 2023 337 $ 0.41 The Company recognized $ 0.5 million, $ 0.7 million and $ 2.1 million in stock-based compensation expense related to stock options during the years ended December 31, 2023, 2022 and 2021, respectively. For stock options outstanding as of December 31, 2023, there was $ 0.1 million of total unrecognized stock compensation cost with a remaining recognition period of 0.8 years. Cash received from the exercise of stock options was $ 0.2 million and $ 1.4 million in 2022 and 2021, respectively. The tax benefit associated with the exercise of these stock options was $ 0.4 million and $ 1.6 million in 2022 and 2021, respectively. The total intrinsic value of stock options exercised in 2022 and 2021 was $ 0.1 million and $ 2.7 million, respectively. There were no stock options exercised in 2023. The fair value of stock options vested in 2023, 2022 and 2021 totaled $ 0.6 million, $ 0.7 million and $ 1.9 million, respectively. Employee Restricted Stock Units In 2023, the Company granted 2.4 million restricted stock units under the 2017 Incentive Plan to certain members of the Company’s management team. Approximately one-half of the restricted stock units granted included a market vesting condition. During 2022, the Company granted 1.1 million restricted stock units under the 2017 Equity Incentive Plan to certain management of the Company. Approximately one-half of these restricted stock unit grants included a market vesting condition. In 2021, the Company granted 0.2 million of restricted stock units under the Company’s 2017 Equity Incentive Plan to certain management of the Company. Approximately one-third of these restricted stock unit grants included a market vesting condition. The restricted stock awards granted in 2023, 2022 and 2021 that did not have a market vesting condition had weighted average grant date fair values of $ 2.75 , $ 5.53 and $ 19.25 per share, respectively. The estimated fair value of these awards is recognized on a straight-line basis over the vesting period. In March and June 2022, the Company granted 0.5 million and 0.1 million restricted stock units, respectively, under the 2017 Equity Incentive Plan to the Company’s chief executive officer. These restricted stock awards had a grant date fair value of $ 6.32 and $ 4.81 per share, respectively. In April 2022, with the chief executive officer’s consent, the Company rescinded and cancelled 0.4 million of the restricted stock units granted in March 2022 because of annual limits set forth in the 2017 Equity Incentive Plan. The Company determined the fair value of the net award of 0.2 million restricted stock units to be $ 1.2 million which will be expensed on a straight-line basis over the vesting period. The restricted stock awards granted in 2023, 2022 and 2021 that did have a market vesting condition had weighted average grant date fair values of $ 1.92 , $ 3.71 and $ 16.28 per share, respectively. For these awards, the estimated fair value was measured on the grant date and incorporated the probability of vesting occurring. The estimated fair value is recognized over the derived service period (as determined by the valuation model), with such recognition occurring regardless of whether the market condition is met. The Company determined the weighted average grant date fair value of these awards using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model with the following weighted average assumptions: Year Ended December 31, 2023 2022 2021 Trading price of common stock on measurement date $ 2.72 $ 5.33 $ 24.88 Risk free interest rate 4.29 % 2.89 % 0.43 % Expected life in years 2.7 2.9 2.7 Expected volatility 89.9 % 85.1 % 77.0 % Expected dividend yield — — — F- 42 The following table summarizes the Company’s restricted stock unit activity for the year ended December 31, 2023: Options (in thousands) Weighted Average Grant Date Fair Value Nonvested restricted stock units as of December 31, 2022 1,235 $ 5.47 Granted 2,429 2.33 Vested ( 309 ) 6.32 Forfeited ( 298 ) 4.63 Nonvested restricted stock units as of December 31, 2023 3,057 $ 2.97 The Company recorded restricted stock unit expense of $ 3.7 million, $ 2.1 million and $ 0.5 million during the years ended December 31, 2023, 2022 and 2021, respectively. For restricted stock units outstanding as of December 31, 2023, there was $ 5.5 million of total unrecognized stock compensation cost with a remaining recognition period of 1.8 years. The weighted average grant date fair value of restricted stock units granted in 2022 and 2021 was $ 4.72 and $ 18.18 , respectively. Aggregate Non-Cash Stock Compensation The Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation. This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period. The table below summarizes the aggregate non-cash stock compensation recognized in the statement of operations for stock awards, employee stock options and the distribution by InnoHold of Paired Securities (in thousands). Years Ended December 31, 2023 2022 2021 Cost of revenues $ 285 $ 305 $ 303 Marketing and sales 616 863 541 General and administrative 3,730 2,033 2,472 Research and development 244 165 50 Total non-cash stock compensation $ 4,875 $ 3,366 $ 3,366 18. Employee Retirement Plan In 2018, the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code. All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan. The plan provides for Company matching of employee contributions up to 5 % of eligible earnings. Company contributions immediately vest. The Company matching contribution expense was $ 3.8 million, $ 3.6 million and $ 3.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. F- 43 19. Concentrations The Company had the following disaggregated net revenues by geographic region (in thousands): Years Ended December 31, 2023 2022 2021 United States $ 506,538 $ 563,927 $ 708,976 International 4,003 9,274 16,023 Total revenue, net $ 510,541 $ 573,201 $ 724,999 The Company had one individual customer that accounted for approximately 23 % and 52 % of accounts receivable at December 31, 2023 and 2022, respectively, and approximately 10 %, 15 % and 15 % of net revenue during the years ended December 31, 2023, 2022 and 2021, respectively. The Company currently obtains materials and components used in production from outside sources. As a result, the Company is dependent upon suppliers that in some instances, are the sole source of supply. The Company is continuing efforts to dual-source key components. The failure of one or more of the Company’s suppliers to provide materials or components on a timely basis could significantly impact the results of operations. The Company believes that it can obtain these raw materials and components from other sources of supply in the ordinary course of business, although an unexpected loss of supply over a short period of time may not allow for the replacement of these sources in the ordinary course of business. The Company maintains its cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 for each financial institution per entity. At times, the Company’s cash balance deposited at financial institutions exceed the federally insured deposit limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to these deposits. F- 44 20. Income Taxes The Company’s (loss) income before income taxes of $( 121.2 ) million, $ 120.4 million and $ 1.4 million during the years ended December 31, 2023, 2022 and 2021, respectively, consisted entirely of income earned in the United States. Income tax (benefit) expense for the years ended December 31, 2023, 2022 and 2021 consist of the following (in thousands): Year ended December 31, 2023 2022 2021 Current: Federal $ ( 167 ) $ ( 1,030 ) $ 1,692 State 217 344 699 Total current 50 ( 686 ) 2,391 Deferred: Federal ( 42 ) 169,180 ( 6,678 ) State — 44,675 2,765 Total deferred ( 42 ) 213,855 ( 3,913 ) Income tax (benefit) expense $ 8 $ 213,169 $ ( 1,522 ) Income tax (benefit) expense differs from the amount computed at the federal statutory corporate income tax rate as follows (in thousands): Year ended December 31, 2023 2022 2021 Tax (provision) benefit at Federal statutory rate $ ( 25,454 ) $ 25,293 $ 299 State income tax provision (benefit), net of federal benefit ( 6,235 ) 292 ( 821 ) Noncontrolling interest 96 59 ( 418 ) Tax receivable agreement liability — ( 34,014 ) ( 843 ) Change in fair value – warrant liabilities — ( 912 ) ( 5,051 ) Change in valuation allowance 35,592 189,870 — Remeasurement due to rate change ( 31 ) 2,530 3,287 Research and development tax credits ( 1,113 ) ( 1,763 ) — Remeasurement of investment in Purple LLC ( 4,028 ) 29,822 1,834 Nondeductible compensation 281 — 531 Stock-based compensation 605 2,303 ( 330 ) Other 295 ( 311 ) ( 10 ) Income tax (benefit) expense $ 8 $ 213,169 $ ( 1,522 ) F- 45 Deferred income taxes at December 31, 2023 and 2022 consisted of the following (in thousands): 2023 2022 Basis difference in Purple LLC investment $ 156,521 $ 131,260 Tax over book basis in capital contributions 78,158 100,413 Start-up costs 405 449 Stock-based compensation 999 874 Interest carryforwards 2,314 1,573 Research and development tax credits 2,712 1,389 Charitable contribution carryforwards 121 77 Net operating losses 62,550 32,681 Total net deferred income tax asset 303,780 268,716 Less: Valuation allowance ( 303,780 ) ( 268,716 ) Net deferred income tax asset $ — $ — The Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC’s net taxable income and any related tax credits are passed through to its members and included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company’s effective tax rate differs materially from the statutory rate. The primary factors impacting expected tax are tax exempt income from the tax receivable agreement, remeasurement of the deferred taxes associated with the investment in Purple LLC, and the impact of recording a valuation allowance. At December 31, 2021, the Company did not record a valuation allowance on its deferred tax assets except for the tax over book basis in capital contributions, which was determined to not be realizable. During 2022, the Company entered into a three-year cumulative loss position and determined that it would not be able to generate sufficient taxable income to utilize its deferred tax assets. Based on this and other negative evidence, the Company concluded it was more likely than not that its deferred tax assets would not be realized and that a full valuation allowance for its deferred tax assets was required. As a result, $ 176.9 million of the valuation allowance associated with the Company’s federal and state deferred tax assets was recorded along with an income tax expense in 2022. Income tax expense in 2023 was de minimis and the Company continues to maintain a full valuation allowance on its deferred tax assets based on its three-year cumulative loss position. In connection with the Business Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the agreement. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a Tax Receivable Agreement liability may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange. F- 46 During 2022, the Company concluded a tax receivable agreement liability was not probable and correspondingly reduced its tax receivable agreement liability to zero. As a result, the Company recognized tax receivable agreement income of $ 162.0 million in the Company’s consolidated statement of operations for the year ended December 31, 2022. There was no tax receivable agreement liability recorded during 2023. As of December 31, 2023, the Company estimates it will have approximately $ 50.0 million of tax-affected U.S. net operating loss (“NOL”) carryforwards, of which $ 49.5 million do not have an expiration date and $ 0.5 million expire in 2037. The Company also had approximately $ 12.6 million of tax-affected NOL carryforwards to reduce future state taxable income at December 31, 2023, which have various carryforward periods and begin to expire in 2026, if unused. Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. If finalized, Treasury Regulations currently proposed under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other tax attributes if we undergo a future ownership change. Thus, our ability to utilize carryforwards of our net operating losses, including net operating losses acquired from the Intellibed acquisition, and other tax attributes to reduce future tax liabilities may be substantially restricted. As of December 31, 2023, we have not completed a study to assess whether an ownership change has occurred, as defined by IRC Sections 382 and 383, or whether there have been ownership changes since the Company's formation due to the complexity and cost associated with such study, and the fact that there may be additional such ownership changes in the future. The federal and state net operating loss carryforwards and research and development credit carryforwards that can be utilized in the future could be significantly limited. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards or credit carryforwards, either due to ongoing operating losses or due to ownership change limitations. The Company estimates federal research and development (“R&D”) tax credit carryforwards will be approximately $ 2.0 million as of December 31, 2023, which begin to expire in 2042, if unused. The Company also had approximately $ 1.3 million of state tax credit carryforwards to reduce future state tax liability at December 31, 2023, which have various carryforward periods and begin to expire in 2030, if unused. The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. There were no unrecognized tax benefits recorded in the 2021 consolidated financial statements. The following table summarizes the Company’s unrecognized tax benefits for the years ended December 31, 2023 and 2022: (In thousands) Unrecognized Tax Benefits Unrecognized tax benefits as of December 31, 2021 $ — Increase due to current year tax positions 177 Increase due to prior year tax positions 264 Increase due to acquisition 152 Unrecognized tax benefits as of December 31, 2022 $ 593 Increase due to current year tax positions 215 Increase due to prior year tax positions 291 Decrease due to lapse of statute of limitations ( 153 ) Unrecognized tax benefits as of December 31, 2023 $ 946 The Company remains subject to income tax examinations for its U.S. federal income taxes for 2017 through 2023. The Company also remains subject to income tax examinations for U.S. state and local income taxes generally for 2017 through 2023. F- 47 21. Subsequent Events Amended and Restated Credit Agreement On January 23, 2024, the Loan Parties entered into a Second Amendment to the Term Loan Agreement (the “Second Amendment”) and concurrently therewith an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the Term Loan Agreement, with CCP, Blackwell, Harvest Small Cap Partners Master, Ltd. (“Harvest Master”), Harvest Small Cap Partners, L.P. (“Harvest Partners”), and HSCP Strategic IV, L.P. (“HSCP” and together with CCP, Blackwell, Harvest Master, and Harvest Partners, the “Lenders”) and Delaware Trust Company, as administrative agent. The Lenders agreed to assume the rights and obligations of the Loan Parties under the Term Loan Agreement and, pursuant to the Second Amendment and the Amended and Restated Credit Agreement, have agreed to refinance existing obligations with a new term loan to Purple LLC. The Second Amendment and the Amended and Restated Credit Agreement, among other things, included the following: ● A term loan in the amount of $ 61.0 million (the “Loan”) was funded by the Lenders that repaid in full the $ 25.0 million of Term Loans outstanding, repaid in full the $ 5.0 million of ABL Loans outstanding, paid fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to the Company (after payments of outstanding debt, unpaid accrued interest, and expenses) equal to approximately $ 27.0 million. Pursuant to entering into these agreements, the Company incurred fees and expenses of $ 3.5 million. ● In connection with the Amended and Restated Credit Agreement, all obligations under the ABL Agreement have been paid in full and the ABL Agreement has been terminated. ● Interest on the Loan is payable each month and the principal outstanding is due on December 31, 2026, the maturity date of the Loan. Purple LLC may elect for interest to be capitalized and added to the principal amount. ● The Loan bears interest at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce its cash obligations, 10.25% per annum). Any prepayments on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25%, and any prepayments on or after August 7, 2025 are subject to a prepayment penalty of 2.50%. The Amended and Restated Credit Agreement and agreements ancillary thereto provide for certain remedies to the Lenders in the event of customary events of default. ● The Company may request an additional term loan from the Lenders in an aggregate amount not to exceed $ 19.0 million on terms requested by Purple LLC to the extent agreed to by the lenders at their discretion. ● Granted a security interest to the Lenders in substantially all of the assets (subject to certain limited exceptions) of the Loan Parties to secure the Loan Parties’ obligations under the Amended and Restated Credit Agreement and any other agreements contemplated thereby (including all outstanding loans as of the date of the Amended and Restated Credit Agreement), including a security interest in the intellectual property owned by the Loan Parties and the intellectual property licenses held by the Loan Parties pursuant to the Amended and Restated Credit Agreement and an Amended and Amended and Restated Pledge and Security Agreement among the Loan Parties and the Agent (the “Security Agreement”). F- 48 ● The Loan Parties (other than Purple LLC) provided an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the Amended and Restated Credit Agreement. ● Removed restrictions and requirements typically associated with an asset-based loan. ● The Amended and Restated Credit Agreement also provides for standard indemnification of the Lenders and contains representations, warranties and certain covenants of the Loan Parties. While any amounts are outstanding under the Amended and Restated Credit Agreement, the Loan Parties are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The Loan Parties are also restricted from paying dividends or making other distributions or payments on their capital stock, subject to limited exceptions. Warrants Issued Also on January 23, 2024, in connection with the Amended and Restated Credit Agreement, the Company issued warrants to the Lenders (the “Warrants”) to purchase 20.0 million shares of the Company’s Class A common stock at a price of $ 1.50 per share, subject to certain adjustments. The terms of the Warrants are described as follows: ● Each Warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $ 1.50 per share, subject to adjustment. The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. ● The holders do not have the rights or privileges of holders of Class A common stock or any voting rights until they exercise their Warrants. After the issuance of shares of Class A common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Class A common stock held of record on all matters to be voted on by stockholders generally. ● While the Warrants are exercisable, the Company may call the Warrants for redemption in whole and not in part at any time at a price of $0.01 per share of Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption (the “45-day redemption period”) to each holder, provided that this redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds $24.00 per share on each of 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the holders. ● A holder of the Warrants will not have the right to exercise its Warrants, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9 % of the shares of Class A common stock outstanding immediately after giving effect to such exercise. ● If the number of outstanding shares of Class A common stock is increased by a stock dividend payable in shares of Class A common stock, or by a split-up of shares of Class A common stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Class A common stock issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding shares of Class A common stock. ● The issuance of the Warrants does not affect the rights of the Company’s existing security holders, other than with respect to potential dilution as a result of an increase in the number of shares of Class A common stock outstanding if the Lenders exercise the Warrants. F- 49 Registration Rights Agreement On January 23, 2024, in connection with the issuance of the Warrants, the Company entered into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with CCP, Blackwell, Coliseum Capital Co-Invest III, L.P., Harvest Master, Harvest Partners, and HSCP (the “Holders”), providing for the registration under the Securities Act of 1933, as amended (the “Securities Act”) of the Warrants and the Registrable Securities, subject to customary terms and conditions. The Registration Rights Agreement entitles the Holders to demand registration of the Registrable Securities and also to piggyback on the registration of Company securities by the Company and other Company securityholders. The Company will be responsible for the payment of the Holders’ expenses in connection with any offering or sale of Registrable Securities by the Holders, including underwriting discounts or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain Registrable Securities. The Registration Rights Agreement provides further that on or prior to February 22, 2024, the Company will be required to prepare and file with the SEC pursuant to Rule 415 of the Securities Act a registration statement to register the resale of the Registrable Securities. The Company received an extension from the Holders to file the registration statement on or prior to March 22, 2024. Amendment to Chief Executive Officer’s Employment Agreement On January 26, 2024, the Board unanimously approved an amendment to the amended and restated employment agreement of Robert T. DeMartini, the Company’s Chief Executive Officer (the “Amendment”). Under the Amendment, the Company agreed that, among other things: (1) Mr. DeMartini’s base salary will be increased, effective March 19, 2024, to $725,000; (2) Mr. DeMartini will be eligible to earn an incremental aggregate cash bonus equal to $850,000 that will vest 10% on August 1, 2024, 20% on February 1, 2025, and 70% on August 1, 2025, provided he continues to be employed by the Company and subject to Mr. DeMartini’s obligation to repay any such bonus actually received in the event his employment is terminated other than by the Company without cause prior to June 30, 2026, subject to certain conditions; and (3) Mr. DeMartini will be eligible to earn a cash payment of up to $5,000,000, less tax and other required withholdings, based on the Volume Weighted Average Price per share of the Company’s common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment with the Company, with the amount earned payable in quarterly installments commencing with the first payroll period following June 30, 2026. In addition, under the Amendment, in the event of Mr. DeMartini’s retirement, subject to certain conditions, all of Mr. DeMartini’s time-based vesting restricted stock units (“RSUs”) then outstanding and unvested will vest in accordance with the remaining schedule as if Mr. DeMartini remained employed for an additional twelve (12) months and all of Mr. DeMartini’s outstanding performance-based vesting RSUs (“PSUs”) then outstanding will be eligible to vest on a pro-rata basis, subject to the performance achieved at the same time as active Company employees with the same type of PSUs. Accordingly, the revised vesting terms in the Amendment amend the terms in Mr. DeMartini’s RSU and PSU grant agreements dated June 20, 2023. Senior Leadership Team Special Recognition Bonus On January 26, 2024, the Board unanimously approved a special recognition bonus payment to certain members of the Company’s senior leadership team. Each participant is eligible to earn a special recognition bonus payment equal to 15 months of their regular salary. The special recognition bonus payment is payable, subject to the employee’s continued employment with the Company, 10 % on August 1, 2024, 20 % on February 1, 2025, and 70 % on August 1, 2025. Contingent Shares Issued to Intellibed Security Holders The consideration transferred for the acquisition of Intellibed included contingent consideration of 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock did not equal or exceed $ 5.00 for at least 10 trading days over any period of 30 consecutive trading days during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date. Since the Company’s stock price did not meet any of the indicated thresholds during the contingency period, the 1.5 million contingent shares were issued to Intellibed security holders on March 4, 2024. Settlement of Tempur Sealy Intellectual Property Litigation On March 12, 2024, the Company, Sealy and Sealy Technology mutually entered into a settlement agreement which settled all current intellectual property litigation between the parties as described above in more detail under Note 13— Commitments and Contingencies – Legal Proceedings . The agreement provides for mutual releases, dismissals with prejudice and terminations of all existing claims among the parties. F- 50 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Purple Innovation, Inc. March 12, 2024 By: /s/ Robert T. DeMartini Name: Robert T. DeMartini Title: Chief Executive Officer (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert T. DeMartini and Tricia S. McDermott, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Position Date /s/ Robert T. DeMartini Chief Executive Officer and Director March 12, 2024 Robert T. DeMartini (Principal Executive Officer) /s/ Todd E. Vogensen Chief Financial Officer March 12, 2024 Todd E. Vogensen (Principal Financial Officer) /s/ George T. Ulrich Vice President, Accounting and Financial Reporting March 12, 2024 George T. Ulrich (Principal Accounting Officer) /s/ Adam L. Gray Chairman of the Board of Directors March 12, 2024 Adam L. Gray /s/ S. Hoby Darling Director March 12, 2024 S. Hoby Darling /s/ Gary T. DiCamillo Director March 12, 2024 Gary T. DiCamillo /s/ Claudia Hollingsworth Director March 12, 2024 Claudia Hollingsworth /s/ R. Carter Pate Director March 12, 2024 R. Carter Pate /s/ D. Scott Peterson Director March 12, 2024 D. Scott Peterson /s/ Erika Serow Director March 12, 2024 Erika Serow 75