UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.WASHINGTON, DC 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017FOR THE QUARTERLY PERIOD ENDED March 31, 2023

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  __________ to __________FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number: 001-37523

GLOBAL PARTNER ACQUISITION CORP. 

PURPLE INNOVATION, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (646) 756-2877(801) 756-2600

Not applicable

 (Former name or former address, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐   No ☐☒

As of November 7, 2017, there were 15,989,770May 9, 2023, 105,065,112 shares of the Company’sregistrant’s Class A common stock, issued$0.0001 par value per share, and 428,280 shares of the registrant’s Class B common stock, $0.0001 par value per share, were outstanding.

GLOBAL PARTNER ACQUISITION CORP.PURPLE INNOVATION, INC.

Table of ContentsQUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United States (“U.S.”) dollars.

We have several trademarks registered with the U.S. Patent and Trademark Office (USPTO), including EquaPressure^®, WonderGel^® and EquaGel^® (for cushions), and Purple^®, No Pressure^®, Hyper-Elastic Polymer^®, Somnigel^®, Gel Matrix^®, Matrix^®, Gelee^®, Ascent^®, Softstretch^®, Purple Powerbase^®, Sleep Genius^®, Firm and Soft^®, Intellipillow^®, and Intellibed^® (for plasticized elastomeric gel and certain types of products including mattresses, seat cushions, bed linen, mattress foundation and others). Additional registered trademarks include, but are not limited to, Purple Grid^®, Reinventing Comfort^®, Comfort Reinvented^®, TwinCloud^®, Purple Cloud^®, Purple Pillow^®, The Purple Mattress^®, Purple Hybrid^®, Purple Hybrid Premier^®, The Purple Mattress^®, The Purple Plus^®, Gelflex^® and registration of the color purple as a trademark (for mattresses, pillows, and seat cushions). Applications are pending for registration of additional trademarks and some of these listed trademarks for additional classes of goods both in the U.S. and internationally. Our Purple, No Pressure and Hyper-Elastic Polymer trademarks are also registered and have applications pending for various classes of goods in numerous foreign jurisdictions, some of which include Australia, Canada, China, Europe, United Kingdom, Japan and Korea. Certain international trademark applications previously resided with EdiZONE, LLC, which is an entity owned by our founders, and were licensed to Purple LLC and we have taken the necessary steps to have those trademarks assigned to Purple LLC upon registration.

We also have a number of common law trademarks, including Sleep Purple, Live BetterÔ, New DayÔ, RestoreÔ, RestorePlusÔ, RestorePremierÔ, RejuvenateÔ, RejuvenatePlusÔ,RejuvenatePremierÔ, Perfectstay™, TempBalance™, Success Happens Overnight™, Overnight Success™, Harmony™, Purple Harmony Pillow™, Harmony Pillow™, Purple +™, Purple Plus™, +™, Find Comfort™, Dreams On Dreams™, Reinventing Sleep™, Gelflex Grid™, Gelflex Grid Plus™, Purple Ascent™, ™, Purple Squishy™, Purple Powerbase Premier™, Purple Powerbase Plus™, Purple Glove™, Eidertech™, Mattress Max™, WonderGel Original™, WonderGel Extreme™, DoubleGel™, DoubleGel Plus™, DoubleGel Ultra™, Roll n’ Go™, Fold N’ Go™, Purple Bed™, Purple Top™, Purple Pillow™, Portable Purple™, Everywhere Purple™, Simply Purple™, Lite Purple™, Royal Purple™, Double Purple™, Deep Purple™, Ultimate Purple™, Purple Back™, EquaGel Straight Comfort™, EquaGel General™, EquaGel Protector™, and EquaGel Adjustable™.

Many of the common law marks have registrations pending with the USPTO and other international jurisdictions. Solely for convenience, we refer to our trademarks in this Quarterly Report without the ^™ or ^® symbol, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks.

In addition, we maintain copyrights, many of which are registered, to past and present versions of purple.com, onpurple.com, equapressure.com, wondergel.com, marketing content, blogs, logos, graphics, videos and other marketing and promotional materials promoting our products.

We protect and enforce our intellectual property rights, including through litigation as necessary.

PART I –I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for par value)

GLOBAL PARTNER ACQUISITION CORP.

CONDENSED BALANCE SHEETS

SeeThe accompanying notes to theare an integral part of these unaudited condensed consolidated financial statements.

GLOBAL PARTNER ACQUISITION CORP.PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

CONDENSED STATEMENTS OF OPERATIONS(unaudited – in thousands, except per share amounts)

(unaudited)

SeeThe accompanying notes to theare an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited – in thousands)

GLOBAL PARTNER ACQUISITION CORP.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

For the nine months ended September 30, 2017

(unaudited)

SeeThe accompanying notes to theare an integral part of these unaudited condensed consolidated financial statements.

GLOBAL PARTNER ACQUISITION CORP.PURPLE INNOVATION, INC.

CONDENSED STATEMENTS OF CASH FLOWSCondensed Consolidated Statements of Cash Flows

(unaudited)(unaudited – in thousands)

SeeThe accompanying notes to theare an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

GLOBAL PARTNER ACQUISITION CORP.
Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Organization

The Company’s mission is to help people feel and live better through innovative comfort solutions.

NOTE 1 – DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Organization and General:

Global Partner Acquisition Corp.Purple Innovation, Inc. collectively with its subsidiary (the “Company” or “Purple Inc.”) began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and is now omni-channel. 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 owned retail showrooms, and third-party online retailers.

The Company was incorporated in Delaware on May 19, 2015. The2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”). On February 2, 2018, the Company was formed forconsummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the purpose of effectingCompany acquired a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a)portion of the Securities Actequity of 1933, as amended, orPurple Innovation, LLC (“Purple LLC”). At the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

At September 30, 2017, the Company had not commenced any operations. All activity for the period from May 19, 2015 (inception) through September 30, 2017 relates to the Company’s formation and the initial public offering (“Public Offering”) described below and, subsequent to the Public Offering, locating and completing a suitable Business Combination. The Company has not and will not generate any operating revenues until after completionclosing of the Business Combination at(the “Closing”), the earliest. The Company generates non-operating income inbecame the formsole managing member of interest income on cash fromPurple LLC, and GPAC was renamed Purple Innovation, Inc.

As the proceedssole 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 Public Offering and a concurrent private placement.day-to-day business affairs of Purple LLC without the approval of any other member.

Sponsor and Financing:

The Company’s sponsor is Global Partner Sponsor I LLC, a Delaware limited liability corporation (the “Sponsor” or the “initial stockholder”). The registration statement for the Public Offering (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on July 29, 2015. The Company intends to finance an Initial Business Combination with proceeds from $155,250,000 of gross proceeds from the Public Offering, including the underwriters’ exercise of the over-allotment option in full (as described in Note 3) and approximately $6,408,000 of gross proceeds from a concurrent private placement (Note 3). Upon the closing of the Public Offering and the private placement, $155,250,000 was deposited in a trust account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below. See below as well as Notes 4, 5 and6 regarding redemptions of common stock and the release of a portion of the funds from the Trust Account in connection with stockholder approval, inOn August 2017, to amend the Company’s amended and restated certificate of incorporation to extend the date by which31, 2022, the Company must complete its Initial Business Combination.

The Trust Account:

The fundsacquired 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 the Trust Account may be invested only in U.S. government treasury billswhich Gelato Merger Sub, Inc., a wholly owned subsidiary of Purple Inc., merged with and into Intellibed, with Intellibed continuing as a maturitywholly owned subsidiary of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the Initial Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds of the Public Offering outside the Trust Account may be used to pay for business, legal and accounting due diligence expenses for prospective acquisition targets and continuing general and administrative expenses.

The Company’s amended and restated certificate of incorporation originally provided that, other than the withdrawal of interest to pay taxes, if any, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Initial Business Combination; or (ii) the redemption ofPurple Inc. On October 3, 2022, Purple Inc. contributed 100% of the sharesmembership interest in Intellibed to Purple LLC and Intellibed became a wholly owned subsidiary of common stock included inPurple LLC. For further discussion see Note 4 — Acquisition.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the Units (as defined below) sold in the Public Offering if the Company is unable to complete an Initial Business Combination within 24 monthsaccounts of Purple Inc., its controlled subsidiary Purple LLC, and Intellibed, Purple LLC’s wholly owned subsidiary, from the closingdate of acquisition. All intercompany balances and transactions have been eliminated in consolidation. As of March 31, 2023, Purple Inc. held 99.6% of the Public Offering (subject to the requirementscommon units of law).

However, on August 3, 2017, the stockholdersPurple LLC and other Purple LLC Class B Unit holders held 0.4% of the Company approved an amendment to the Company’s amended and restated certificate of incorporation to extend the date on which the Company must liquidate the Trust Account if the Company has not completed an initial business combination, from August 4, 2017 to November 6, 2017 (or February 5, 2018 if the Company has executed a definitive agreement for an initial business combination by November 6, 2017), and to permit the withdrawal of funds from the Trust Account to pay stockholders who properly exercise their redemption rightscommon units in connection with the extension. Stockholders representing 3,416,480 shares elected to redeem their shares as further discussed in Notes 5 and 6. As discussed further in Note 8, on November 2, 2017, the Company entered into a definitive agreement for an Initial Business Combination, thereby extending the date to complete an Initial Business Combination to February 5, 2018.Purple LLC.

Initial Business Combination:

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating an Initial Business Combination with a Target Business. As used herein, a “Target Business” is one or more businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the Company signing a definitive agreement in connection with the Initial Business Combination. There is no assurance that the Company will be able to successfully effect an Initial Business Combination.

The Company, after signing a definitive agreement for an Initial Business Combination, will either (i) seek stockholder approval of the Initial Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Initial Business Combination, for cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to have their shares redeemed by the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement of the tender offer, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Initial Business Combination or will allow stockholders to redeem their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval unless a vote is required by NASDAQ rules. If the Company seeks stockholder approval, it will complete its Initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Initial Business Combination. However, in no event will the Company redeem its Public Shares (as defined below) in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its Public Shares and the related Initial Business Combination.

If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. As a result, such shares of common stock are recorded at redemption amount and classified as temporary equity upon the completion of the Public Offering, in accordance with Financial Accounting Standards, Board (“FASB”) Accounting Standards Update (“ASC”) 480, “Distinguishing Liabilities from Equity.”

On August 3, 2017, the Company’s stockholders agreed to amend the Company’s amended and restated certificate of incorporation to extend the date by which the Company must consummate an Initial Business Combination from August 4, 2017 to February 5, 2018 or such earlier date as determined by the Board of Directors of the Company. Under the Extension Amendment, public stockholders had the right to redeem their pro rata portion of the funds in the Trust Account and stockholders representing 3,416,480 shares elected to redeem their shares as further discussed in Notes 4 and 5. SeeLiquidation and Going Concern below.

Liquidation and Going Concern:

As noted inInitial Business Combination above, the Company will have until February 5, 2018 to complete an Initial Business Combination. If the Company does not complete an Initial Business Combination by that date, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of common stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable (less up to $50,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its creditors and remaining stockholders, as part of its plan of dissolution and liquidation. The initial stockholders have entered into letter agreements with the Company, pursuant to which they have waived their rights to participate in any redemption with respect to their initial shares; however, if the Sponsor or any of the Company’s officers, directors or affiliates acquire shares of common stock in or after the Public Offering, they will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company does not complete the Initial Business Combination within the required time period.

This mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern at September 30, 2017. No adjustments have been made to the carrying amounts of assets or liabilities as of such date should the Company be required to liquidate after February 5, 2018.

In the event of liquidation, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per unit in the Public Offering.

At September 30, 2017, the Company had current liabilities of approximately $1,015,000 and negative working capital of approximately $622,000. Of these amounts, approximately $204,000 represents accrued taxes (which can be paid with interest earned from the Trust Account), approximately $20,000 represents unpaid administrative fees payable to our Sponsor and approximately $791,000 largely represents amounts owed to professionals, consultants, advisors and others for their services. Funds in the Trust Account are not generally available to pay professionals, consultants, advisors and others absent an Initial Business Combination and the majority of such parties have agreed to waive any claims against the Trust Account. The Company believes that such professionals, consultants, advisors and others will continue assisting the Company with completing the Initial Business Combination and, excluding our independent registered public accounting firm, defer a portion of their fees until such completion or on a contingency basis. Subsequent to September 30, 2017, on November 2, 2017, the Company drew $600,000 under a Sponsor note executed on November 1, 2017. Further, the Company continues to generate interest income that is available to pay taxes. As such, the Company believes that it has sufficient working capital at September 30, 2017 (assuming the subsequent receipt of the additional funding from the Sponsor which is not currently in place) to fund its operations until completion of its Initial Business Combination or, if necessary, through February 5, 2018.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosureapplicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding interim financial reporting and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, as of September 30, 2017 and December 31, 2016, and the results of operations and cash flows forof the periods presented.Company. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a full year.

The accompanyingAs such, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K filed byfor the Company withfiscal year ended December 31, 2022. The unaudited condensed consolidated financial statements were prepared on the SEC. All dollar amounts are roundedsame basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the nearest thousand dollars.

Emerging Growth Company:

Section 102(b)(1)Company’s financial results. The results of the JOBS Act exempts emerging growth companies from being requiredthree months ended March 31, 2023 are not necessarily indicative of the results to comply with newbe expected for the fiscal year ending December 31, 2023 or revised financial accounting standards until private companies (thatfor any other interim period or other future year.

Variable Interest Entities

Purple LLC is thosea variable interest entity. The Company determined that have notit 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 March 31, 2023, Purple Inc. had a Securities Act registration statement declared effective or do not have a class99.6% economic interest in Purple LLC and consolidated 100% of securities registered underPurple LLC’s assets, liabilities and results of operations in the Exchange Act) are required to comply with the new or revisedCompany’s unaudited condensed consolidated financial accounting standards.statements contained herein. The JOBS Act provides that a company can elect to opt outholders of Class B units held 0.4% of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt outeconomic interest in Purple LLC as of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised accounting standard at the time private companies adopt the new or revised standard.March 31, 2023. For further discussion see Note 16— Stockholders’ Equity.

Net Income (Loss) Per Common Share:

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Use of Estimates

The Company complies with the accounting and disclosure requirements in ASC Topic 260, “Earnings Per Share.” Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Shares of common stock subject to possible redemption at September 30, 2017 have been excluded from the calculation of basic income per share for the three and nine months ended September 30, 2017 since such shares, if redeemed, only participate in their pro rata sharepreparation of the Trust Account. The Company has not considered the effect of warrants sold in the Public Offering and the concurrent private placement to purchase 14,170,000 shares of common stock in the calculation of diluted income (loss) per share, since the exercise of the warrants into shares of common stock is contingent upon the occurrence of future events.

Concentration of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Financial Instruments:

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the financial statements.

Use of Estimates:

The preparation ofunaudited condensed consolidated financial statements in conformity with GAAP requires the Company’s managementCompany to establish accounting policies and to make estimates and assumptionsjudgments that affect the reported amounts of assets and liabilities and disclosure ofdisclose contingent assets and liabilities as of the date of the unaudited condensed 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 significant 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, 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.

Recent Accounting Pronouncements

Measurement of Credit Losses

In June 2016, the FASB 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 replaces the existing incurred loss impairment guidance and establishes 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 are effective for public companies, excluding Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein. The standard is effective for all other entities for annual periods beginning after December 15, 2022, including interim periods therein. This standard was adopted utilizing a modified retrospective approach. The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. Underwritten Offering 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 $3.1 million, totaled $57.2 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 is expected to increase product offerings to customers, expand market opportunities, capitalize on synergies of the combined companies, and increase 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 $28.3 million, which consisted of the following (in thousands):

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

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 are being held in escrow pending resolution of net working capital adjustments and certain indemnification matters, as described in the Merger Agreement.

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 ten 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 includes $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 income (expense), 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 at both March 31, 2023 and December 31, 2022.

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, including intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. Due to the close proximity of the acquisition date to the Company’s reporting date, the Company recorded the assets acquired and liabilities assumed at their preliminary estimated fair values. As of March 31, 2023, the Company had not 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. Consequently, during the measurement period, which could be up to one year from the acquisition date, the Company may 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 comes first, any subsequent adjustments will be reflected in the Company’s consolidated statement of operations.

Based upon the purchase price allocation, the following table summarizes the preliminary fair value of the assets acquired and liabilities assumed at the date of the financial statements. Actual results could differacquisition (in thousands):

Net tangible assets (liabilities): 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The Company believes the amount of goodwill resulting from those estimates.the purchase price allocation is primarily attributable 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 is not being amortized but instead is tested for impairment at least annually or more frequently if certain indicators of impairment are present. In the event that goodwill becomes impaired, the Company will record an expense for the amount impaired during the quarter in which the determination is made. The goodwill recorded is not deductible for income tax purposes.

The two identified definite lived intangible assets, comprised of customer relationships and developed technology, are being amortized over their estimated useful lives of ten 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.

Income Taxes:

The cash, cash equivalents and restricted cash balance acquired included $1.7 million of cash deposited by Intellibed in a separate account pursuant to an escrow agreement with the Company that will end on August 31, 2023. 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 are less than estimated, any excess cash will be returned to the previous shareholders of Intellibed. If payments for these items exceed the escrow balance, the Company will be required to pay the excess. The Company recorded the $1.7 million of cash on August 31, 2022 as an acquired restricted cash balance that is included in cash, cash equivalents and restricted cash in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022. The Company also recorded on August 31, 2022, an assumed liability totaling $1.3 million for the sales and use tax and state and local income tax liabilities exposure that existed at the date of acquisition and is reflected in the other current liabilities in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022

5. 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 (i.e., 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 Company followsclassification of fair value measurements within the assetestablished 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 and liability method of accounting for income taxes under FASB ASC, 740, “Income Taxes.” Deferred tax assetscash equivalents, receivables, accounts payable and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statementCompany’s debt obligations. The carrying amounts of existing assetscash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts. The fair value of the Company’s debt instruments is estimated to be face value based on the contractual terms of the debt arrangements and market-based expectations.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

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). In February 2023, the 1.9 million sponsor warrants outstanding expired and were cancelled pursuant to the terms of the agreement.

There were no sponsor warrants outstanding on March 31, 2023 and the 1.9 million sponsor warrants outstanding on December 31, 2022 had a negligible fair value. As a result, activity for the three months ended March 31, 2023 was de minimis. The following table summarizes the Company’s total Level 3 liability activity for the three months ended March 31, 2022.

6. Revenue from Contracts with Customers

The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple owned retail 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.

Disaggregated Revenue

The Company classifies revenue into two sales 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 owned retail showrooms channel that sells directly to consumers who purchase at a showroom location. The wholesale channel includes all product sales to our retail brick and mortar wholesale partners where consumers make purchases at their respective tax bases. Deferred tax assetsretail locations or through their online channels. The Company classifies products into two major types: sleep products and liabilitiesother. Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The following tables present the Company’s net revenue disaggregated by sales category and product type (in thousands):

Contract Balances

Payment for sale of products through the e-commerce online channel, third-party online retailers, Purple owned retail showrooms and contact center is collected at point of sale in advance of shipping the products. Amounts received for unshipped products are measured using enacted tax rates expectedrecorded as customer prepayments. Customer prepayments totaled $2.9 million and $4.5 million at March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, the Company recognized all revenue that was deferred in customer prepayments at December 31, 2022 and 2021, respectively.

7. Inventories, Net

Inventories, net consisted of the following (in thousands):

PURPLE INNOVATION, INC.
Notes to applyCondensed Consolidated Financial Statements
(unaudited)

8. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Equipment in progress reflects equipment, primarily related to taxable incomemattress manufacturing, which is being constructed and was not in service at March 31, 2023 or December 31, 2022. Interest capitalized on borrowings during the active construction period of major capital projects totaled $0.4 million and $0.2 million during the three months ended March 31, 2023 and 2022, respectively. Depreciation expense totaled $4.8 million and $3.6 million during the three months ended March 31, 2023 and 2022, respectively.

9. Leases

The Company leases its manufacturing and distribution facilities, corporate offices, Purple owned retail 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 owned retail showrooms have initial lease terms of up to ten 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 right-of-use asset for finance leases, which totaled $1.0 million at both March 31, 2023 and December 31, 2022, was included with operating lease right-of-use assets on the condensed consolidated balance sheets.

The following table presents the Company’s lease costs (in thousands):

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The table below reconciles the undiscounted cash flows for each of the first five years inand total remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet at March 31, 2023 (in thousands):

As of March 31, 2023 and December 31, 2022, the weighted-average remaining term of operating leases was 8.6 years and 8.8 years, respectively, and the weighted-average discount rate of operating leases was 5.54% and 5.51%, respectively.

The following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2023 and 2022:

10. Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

11. Debt

Debt consisted of the following (in thousands):

Term Loan and Revolving Line of Credit

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 recoveredrepaid in accordance with a five-year amortization schedule or settled.prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The effectrevolving credit facility has a term of five years and carries the same interest provisions as the term debt. A commitment fee is due quarterly based on deferred taxthe applicable margin applied to the unused total revolving commitment.

Pursuant to a Pledge and Security Agreement between Purple LLC, KeyBank and the Company (the “Security Agreement”), the 2020 Credit Agreement is secured by a perfected first-priority security interest in the assets of Purple LLC and the Company, including a security interest in all intellectual property. Also, the Company agreed to an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the 2020 Credit Agreement. The Security Agreement contains a pledge, as security for the Company’s guaranty, of all its ownership interest in Purple LLC. The 2020 Credit Agreement also provides for standard events of default, such as for non-payment and failure to perform or observe covenants, and contains standard indemnifications benefitting the lenders.

The 2020 Credit Agreement includes representations, warranties and certain covenants of Purple LLC and the Company. Under the 2020 Credit Agreement, Purple LLC is subject to several 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, subject to certain exceptions. In particular, Purple LLC is (i) subject to annual capital expenditure limits that can be adjusted based on the Company achieving certain net leverage ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the 2020 Credit Agreement, and (iii) maintain minimum consolidated net leverage and fixed charge coverage ratio thresholds at certain measurement dates (as defined in the 2020 Credit Agreement). Purple LLC is also restricted from paying dividends or making other distributions or payments on its capital stock, subject to limited exceptions. If the Company or Purple LLC fail to perform their obligations under these and other covenants, or should any event of default occur, the revolving loan commitments under the 2020 Credit Agreement may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately due and payable.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The Company’s operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under the 2020 Credit Agreement. On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default. Pursuant to this amendment, the Company incurred fees and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance sheet and made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 – Debt. This amendment also contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio were not tested for the fiscal quarters ended December 31, 2021, March 31, 2022 and June 30, 2022. Other modifications in the amendment included revised leverage ratio and fixed charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into 2023 until certain conditions are met. In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5% plus 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met. If the Company does not meet this threshold, the interest rate would increase to SOFR with a floor of 0.5% plus 9.00%. Once the Company achieves a consolidated leverage ratio that is below 3.00 to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio.

On March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement. This amendment modified the 2020 Credit Agreement to allow Coliseum Capital Management, LLC, on behalf of its funds, managed accounts and its investment affiliates (individually “CCM” and collectively “Coliseum”) to acquire 35% or more of the combined voting power of all equity interests of the Company entitled to vote for the election of members of the Company’s board of directors (“Board”) without constituting an event of default. Coliseum is considered a related party of the Company in that Adam Gray, a member of the Board, serves as a managing partner of Coliseum. Pursuant to the second amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 – Debt. For further discussion see Note 15—Related Party Transactions—Coliseum Capital Management, LLC.

On May 13, 2022 and September 9, 2022, the Company entered into third and fourth amendments, respectively, to the 2020 Credit Agreement. These amendments modified the permitted leases schedule to reflect a change in tax rates is recognized in incomeshowroom locations and a new lease for an innovation building. The amendments did not meet the criteria for a modification of existing debt and minimal costs were recorded as general and administrative expense in the periodcondensed consolidated statement of operations.

On July 14, 2022, the Company received consent under the 2020 Credit Agreement that includedallowed the enactment date. Valuation allowances are established, when necessary,Company’s acquisition of Intellibed to reduce deferred tax assetsconstitute a permitted acquisition under the 2020 Credit Agreement. The Company incurred fees and expenses of $0.3 million that were recorded as general and administrative expense in the condensed consolidated statement of operations.

In December 2022, the Company made a $15.0 million prepayment against the outstanding term loan balance without payment of a premium or penalty.

On February 17, 2023, the Company entered into a fifth amendment to the amount expected to be realized. At September 30, 2017 and December 31, 2016,2020 Credit Agreement. As a condition of entering into the amendment, the Company has a deferred tax asset of approximately $450,000 and $225,000, respectively, primarily related to start-up costs. Management has determinedrepaid the $24.7 million outstanding balance on the term loan plus accrued interest. The amendment provided that a full valuation allowance of the deferred tax asset is appropriate at this time.

FASB ASC 740 prescribes a recognition threshold and a measurement attributemaximum leverage ratio covenant will not be tested for the financial statement recognitionfirst and measurementsecond quarters of tax positions taken or expected2023, revised the ratio to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2017 or December 31, 2016. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued4.50x for the paymentthird quarter of interest2023, and penalties at September 30, 2017 or December 31, 2016.revised the ratio to 3.00x for all quarters thereafter. In addition, the minimum fixed charge coverage ratio covenant will not be tested for the first and second quarters of 2023, was revised to 1.50x for the third and fourth quarters of 2023, and was revised to 2.00x for all quarters thereafter. The amendment also revised the lease incurrence test, which allows the Company is currently not awareto incur ten new showroom leases for stores that will open in 2023 and six new leases for stores that will open in 2024. Moreover, beginning in the fourth quarter of any issues under review2023, we will be allowed to begin entering into new leases for stores that could resultwill open in significant payments, accruals or material deviation from its position. The Company is2024, subject to income tax examinations by major taxing authorities since inception.

Redeemable Common Stock:

All of the 15,525,000 common shares sold as part of the Units in the Public Offering contain a redemption feature which allows for the redemption of common shares under the Company’s liquidation or tender offer/stockholder approval provisions. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of an entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) toleverage ratio requirements. The leverage ratio must be less than $5,000,001.2.50x to sign leases, with up to a maximum of six new leases per quarter, increasing to eight new leases per quarter if the leverage ratio is less than 2.00x. The amendment further provided certain minimum consolidated EBITDA covenants for the first and second quarters of 2023 based on our total unrestricted cash and unused revolver availability. The amendment also modified the definition of consolidated EBITDA to allow for nonrecurring / one-time and non-cash expenses and certain other expenses that are cash capped. In addition, for purposes of the definition of consolidated EBITDA, annual non-recurring and unusual out-of-pocket legal expenses were capped at $5.0 million for 2023 and $2.0 million per year thereafter. Moreover, the amendment (i) reduced the amount available under the revolving line of credit to $50.0 million, (ii) provided that the maturity date of the 2020 Credit Agreement will spring forward to June 30, 2024 if consolidated EBITDA is not greater than $15.0 million for 2023, (iii) reduced limits on maximum growth capital expenditures to $32.0 million for 2023 and $35.0 million for 2024 and 2025, and (iv) revised the current minimum liquidity covenant of $25.0 million to provide that it will increase to $30.0 million for each three-month period following the applicable fiscal quarter if the leverage ratio is greater than 3.00x for any fiscal quarter ending on or after the third quarter of 2023. 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 condensed consolidated statement of operations. For the Company to draw on its revolving line of credit, the Company must be in compliance with the covenants outlined in the fifth amendment. As of March 31, 2023, the Company complied with all the financial covenants associated with the 2020 Credit Agreement, as amended, and the full $50.0 million of the revolving line of credit was available for the Company to draw upon.

ThePURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

On April 26, 2023, the Company recognizes changesreceived 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 redemption value immediatelyan aggregate amount not to exceed $150,000 as they occur and adjustsagreed by the carrying value to equal the redemption value at the end of each reporting period. Increases or decreasesCompany in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital.

On August 3, 2017,an April 19, 2023 Cooperation Agreement (the “Cooperation Agreement”) entered into with Coliseum in connection with stockholder approvala complaint filed by Coliseum against the Company, and a waiver of anany possible default related to entering into that Cooperation Agreement prior to receiving such consent. (See Note 14—Commitments and Contingencies—Legal Proceedings for information regarding the complaint previously filed by Coliseum; Note 15—Related Party Transactions—Coliseum Capital Management, LLC for information regarding events leading up to the Company’s issuance of the PRPLS; Note 16—Shareholders’ Equity—Preferred Stock for further information regarding the issuance of the PRPLS; and Note 21—Subsequent Events—Coliseum Cooperation Agreement and Proportional Representation Preferred Linked Stock for further information regarding the terms of the Cooperation Agreement and redemption of the PRPLS.)

On May 10, 2023, the Company entered into a sixth amendment to the Company’s2020 Credit Agreement. This amendment clarified an ambiguity identified in the first sentence of Section 7.07(d), as amended by the fifth amendment, providing that Minimum Consolidated EBITDA as of each of March 31, 2023 and restated certificate of incorporation, stockholders representing 3,416,480 shares electedJune 30, 2023 pertains to redeem their shares as discussed further in Notes 5 and 6.

Accordingly, at September 30, 2017 and December 31, 2016, 11,212,713 and 14,428,805, respectively, of the 15,525,000 Public Shares were classified outside of permanent equity at their redemption value.

Recent Accounting Pronouncements:

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

NOTE 3 – PUBLIC OFFERING

On August 4, 2015, the Company closed the Public OfferingConsolidated EBITDA for each such fiscal quarter rather than Consolidated EBITDA for the saletrailing twelve-month period..

Interest expense under the 2020 Credit Agreement totaled $0.6 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively.

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 15,525,000 Units at a price of $10.00 per unit (the “Units”), includingthese warrants entitled the full exercise of the underwriters’ over-allotment option yielding gross proceeds of $155,250,000. Each Unit consists of one share of the Company’s common stock, $0.0001 par value and one redeemable common stock purchase warrant (the “Warrants”). Each Warrant entitles theregistered holder to purchase one-half of one share of the Company’s Class A common stock at a price of $5.75. No fractional shares will be issued upon exercise$5.75 per half share ($11.50 per full share), subject to adjustment pursuant to the terms of the Warrants. If, upon exercisewarrant 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 Warrants,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.

In February 2023, the 1.9 million sponsor warrants outstanding expired and were cancelled pursuant to the terms of the agreement. These sponsor warrants had no fair value on the date of expiration.

There were no sponsor warrants exercised during the three months ended March 31, 2022. The 1.9 million sponsor warrants outstanding at March 31, 2022 had a holder would be entitled to receive a fractional interest in a share,fair value of $0.4 million.

The Company determined the fair value of the sponsor warrants using the Black Scholes model with the following assumptions:

During the three months ended March 31, 2022, the Company will, upon exercise, round downrecognized a gain of $3.9 million in its condensed consolidated statements of operations related to a decrease in the fair value of the sponsor warrants outstanding at the end of the period.

13. Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

14. Commitments and Contingencies

Warranty Liabilities

The Company provides a limited warranty on most of the products it sells. The estimated warranty costs, which are expensed at the time of sale and included in cost of revenues, are based on the results of product testing, industry and 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 classifies estimated warranty costs expected to be paid beyond a year as a long-term liability.

The Company had the following activity for warranty liabilities (in thousands):

Required Member Distributions

Prior to the nearest whole numberBusiness Combination and pursuant to the numberthen 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. There were no tax distributions paid during the three months ended March 31, 2023 and 2022. At March 31, 2023, the Company’s condensed consolidated balance sheet 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 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 be issuedCCP and Blackwell and (ii) an aggregate of 3.3 million warrants to the warrant holder. Each Warrant will become exercisable on the laterpurchase 1.6 million shares of 30 days after the completionClass 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 Initial Business Combination or 12 months fromCompany’s securities. It also provides them with a right of first refusal with respect to certain debt and preferred equity financings by the closingCompany. The Company also entered into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the Public Offeringshares of Class A common stock issued and will expire five years afterassigned to CCP and Blackwell in the completionColiseum Private Placement, as well as the shares of Class A common stock underlying the Initial Business Combination or earlier upon redemption or liquidation. However, if the Company does not complete the Initial Business Combination on or prior to February 5, 2018, the Warrants will expire.warrants received by CCP, Blackwell and CDF. The Company has agreedfiled a registration statement with respect to use its best efforts following the completionsuch 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 InitialCompany as of the Business Combination to filedate. In March 2018, the Company filed a new registration statement under the Securities Act, to cover theregistering these warrants (and any shares of Class A common stock issuable upon the exercise of the warrants. Ifwarrants), 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 is unableand CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors have the right to deliver registeredmake 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.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Stockholder Rights Agreement

On September 25, 2022, with the holder upon exerciseauthorization of the Warrants issued as partBoard, a special committee of independent and disinterested directors of the 15,525,000 Units duringCompany (the “Special Committee”) approved the exercise period, there will be no net cash settlementadoption of these Warrants anda limited-duration stockholder rights agreement (the “Rights Agreement”) with an expiration date of September 25, 2023. The Special Committee adopted the Warrants will expire worthless, unless they are exercised on a cashless basisRights Agreement in the circumstances describedresponse to Coliseum’s substantial increase in the warrant agreement. Once the Warrants become exercisable, the Company may redeem the outstanding Warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale priceownership of the Company’s shares ofover the last year and the Special Committee’s desire to have the time and flexibility necessary to evaluate an unsolicited and non-binding proposal from Coliseum to acquire the outstanding common stock equalsof the Company not already beneficially owned by Coliseum (See Note 15—Related Party Transactions— Coliseum Capital Management, LLC). The Rights Agreement was intended to enable the Company’s shareholders to realize the full value of their investment and to guard against any attempts to gain control of the Company without paying all shareholders an appropriate control premium. The Rights Agreement applied equally to all current and future shareholders and did not deter any offer or exceeds $24.00preclude the Special Committee from considering an offer that was fair and otherwise in the best interest of the Company’s shareholders.

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 any 20 trading days withineach outstanding share of the 30-trading day period endingCompany’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 third trading day before the Company sends the notice of redemption to the Warrant holders.

The Company paid an underwriting discount of 3%Company’s consolidated financial statements. See Note 21—Subsequent Events for information regarding dissolution of the gross proceeds of the Public Offering to the underwriters atRights Agreement.

Purple LLC Class B Unit Exchange Right

On February 2, 2018, in connection with the closing of the Public Offering (approximately $4,658,000), with an additional fee (the “Deferred Discount”) of 3% of the gross proceeds payable upon the Company’s completion of the Initial Business Combination. In July 2017, the Company reached an agreement with the underwriters to reduce the Deferred Discount from $4,657,500 to $4,000,000. The reduction was recorded as an addition to additional paid in capital in the three and nine months ended September 30, 2017. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes the Initial Business Combination.

In addition, on August 4, 2015, the Sponsor paid the Company approximately $6,408,000 in a private placement for the purchase of 12,815,000 warrants at a price of $0.50 per warrant (the “Private Placement Warrants”) - see also Note 4.

NOTE 4 – RELATED PARTY TRANSACTIONS

Founder Shares:

In May 2015, the Sponsor purchased 3,881,250 shares of common stock (the “Founder Shares”) for $25,000, or approximately $0.006 per share. The Founder Shares are identical to the common stock included in the Units sold in the Public Offering except that the Founder Shares are subject to certain transfer restrictions as described in more detail below. The Sponsor agreed to forfeit up to 506,250 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters so that the initial stockholder would own 20.0% of the Company’s issued and outstanding shares after the Public Offering. As described above, the underwriters exercised their over-allotment option in full and therefore none of the Founder Shares were forfeited.

The Company’s initial stockholder has agreed not to transfer, assign or sell any of its Founder Shares until the earlier of (A) one year after the completion of the Initial Business Combination, or earlier if, subsequent to the Initial Business Combination, the last sale priceCompany entered into an exchange agreement with Purple LLC and 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 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 Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Initial Business Combination or (B) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the Initial Business Combination that results in allaverage of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

Private Placement Warrants;

Upon thevolume-weighted closing of the Public Offering on August 4, 2015, the Sponsor paid the Company approximately $6,408,000 in a private placement for the purchase of 12,815,000 warrants (including warrants in connection with the exercise of the over-allotment option) at a price of $0.50 per warrant (the “Private Placement Warrants”). Each Private Placement Warrant entitles the holder to purchase one-half of one share of Class A common stock for the ten 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.

There were no Paired Securities exchanged for Class A common stock during the three months ended March 31, 2023 and 2022.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Maintenance of One-to-One Ratios

The Third Purple LLC Agreement includes provisions intended to ensure that the Company at $5.75 per share. Theall 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 priceequity securities of the Private Placement Warrants was addedCompany 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 proceedsCompany’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 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc., No.17-494, reversed a longstanding precedent that remote sellers are not required to collect state and local sales taxes. The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce. The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing, new or revised taxes 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 on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes. 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 September 20, 2020, Purple LLC filed a complaint in the U.S. Court of International Trade seeking to recover approximately $7.0 million of Section 301 duties paid at the time of importation on certain Chinese-origin goods. More than 4,000 other complaints have been filed by other companies seeking similar refunds. On March 12, 2021 the United States filed a master answer that applies to all the Section 301 cases, including Purple LLC’s. On July 6, 2021, the court granted a preliminary injunction against liquidation of any unliquidated entries. On April 1, 2022, the court issued an opinion that remanded the case back to the U.S. Trade Representative (“USTR”) to address certain procedural flaws in USTR’s process for determining whether certain products were subject to the Section 301 duties. On August 1, 2022, USTR issued its remand results. On September 14, 2022, the plaintiffs submitted comments on the remand results. USTR filed their response to these comments on November 4, 2022. The plaintiffs filed a reply on December 5, 2022 and the court held a hearing on February 7, 2023. On March 17, 2023, the court issued a final opinion and order upholding the remand results. As a result, the duties will stay in place and no refunds will be issued. The court’s order could be appealed to the U.S. Court of Appeals for the Federal Circuit.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

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. The lawsuit arises 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. Purple seeks monetary damages, injunctive relief, and declaratory judgment based on certain conduct by ReST (“Case I”). On October 21, 2020, shortly after the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC, and some of the Company’s board members, Gary DiCamillo, Adam Gray, Joseph Megibow, Terry Pearce, and Tony Pearce, also in the United States District Court for the District of Utah (“Case II”). Subsequently, the two cases were consolidated into one. Case II (now combined with Case I) involves many of the same facts and transactions as Case I. ReST subsequently filed a motion to compel arbitration of the claims in Case I. Purple LLC opposed the motion to compel arbitration, arguing that ReST waived any rights to arbitration and that all the claims in both cases should stay in the courts. However, the Court granted ReST’s motion to compel arbitration, and stayed the proceedings in the United States District Court for the District of Utah. Additionally, the Court ruled that ReST’s claims against the Company’s board members were not subject to arbitration, and the Court stayed ReST’s claims against those individuals.  Pursuant to the Court’s order, Purple LLC filed a demand for arbitration with the American Arbitration Association (the “AAA”) on September 1, 2021.  ReST filed its counterclaim with the AAA on September 21, 2021.  Currently, the parties are nearing the end of the fact discovery phase of the arbitration.  The parties have taken several depositions and engaged in written discovery.  The arbitration hearing is scheduled to begin on July 31, 2023.  Purple LLC seeks over $4 million in damages from ReST, whereas ReST claims that Purple LLC is liable to it for tens of millions of dollars. The outcome of this litigation cannot be predicted at this stage. However, Purple LLC intends to vigorously pursue its claims and defend against the claims made by ReST.

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. Pursuant to the agreement, Photon was required to rebuild Purple LLC’s website architecture and checkout process. Purple LLC paid Photon $0.9 million under the Agreement. However, Photon failed to deliver any of the required deliverables as specified in the agreement. Purple LLC withheld payment of the final $0.1 million due pursuant to Photon’s invoices pending a resolution with Photon. Since resolution discussions with Photon failed, Purple LLC filed its complaint for breach of contract against Photon seeking, among other damages, reimbursement for all amounts paid to Photon under the agreement. 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 million. The litigation is presently in its discovery phase. The Company intends to vigorously litigate its claims to resolution. 

On August 5, 2022, Purple LLC filed a complaint with the U.S. International Trade Commission (“ITC”) against numerous entities and individuals from the Public Offering heldPeople’s Republic of China and South Korea (“Respondents”) that have been violating Purple LLC’s intellectual property rights related to pillow and seat cushion products.  The complaint alleged that the Respondents have been violating 19 U.S.C. § 1337 (“Section 337”) by importing into the United States, selling for importation into the United States, and/or selling in the Trust Account pendingUnited States after importation pillow and seat cushion products that infringe Purple LLC’s trade dress rights or otherwise constitute unfair competition, infringe a certain Purple LLC’s design patent, infringe Purple LLC’s trademarks, and/or infringe Purple LLC’s utility patents.  The complaint requested at least the following relief:  (i) a General Exclusion Order excluding from entry into the United States all pillow and seat cushion products that infringe any asserted intellectual property right; (ii) Limited Exclusion Orders excluding from entry into the United States all pillow and cushion products of the Respondents named in the complaint that infringe any asserted intellectual property right; and (iii) Cease and Desist Orders against the Respondents named in the complaint barring them from marketing, selling, advertising, or distributing infringing products in the United States, including via on-line retailers.  On September 6, 2022, the ITC instituted Investigation No. 337-TA-1328 in response to Purple LLC’s complaint.  Fact and expert discovery have been completed.  Purple LLC has entered into settlement agreements with a number of Respondents.  Purple LLC also has voluntarily terminated the Investigation as to a number of Respondents.  No actively litigating Respondents remain in the case.  Purple LLC also has filed a Motion for Summary Determination seeking, among other things, the imposition of a General Exclusion Order with respect to pillows that infringe an asserted utility patent.  Under the current Procedural Schedule for the Investigation, the deadline for the Administrative Law Judge to issue an Initial Determination concerning Purple LLC’s Motion for Summary Determination is June 12, 2023, and the Commission’s Target Date for completion of the Initial Business Combination.Investigation has been set for October 12, 2023.

On September 22, 2022, Purple LLC filed an action in the U.S. District Court for the District of Utah styled Purple Innovation, LLC v. Bedmate-U Co., Ltd., against numerous entities and individuals from the People’s Republic of China and South Korea (“Respondents”).  The Private Placement Warrants (includingcomplaint alleges that the Respondents have (a) violated Lanham Act § 43(a), 15 U.S.C. § 1125(a) by committing acts of trade dress infringement; (b) infringed U.S. Trademark Registration No. 5,661,556; (c) infringed U.S. Trademark Registration No. 6,551,053; (d) violated Lanham Act § 43(a), 15 U.S.C. § 1125(a) by committing acts of trademark infringement; I infringed U.S. Patent No. D909,092; (f) infringed U.S. Patent No. 10,772,445; (g) infringed U.S. Patent No. 10,863,837; (h) violated Utah Unfair Competition Act, Utah Code § 13-5a-101 et seq.; and/or (i) committed common stock issuable upon exerciselaw unfair competition.  The complaint seeks injunctive relief, compensatory damages, disgorgement of profits, punitive and exemplary damages, and attorneys’ fees and costs.  This action is in its initial stages. Purple LLC intends to vigorously litigate its claims to resolution.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

On December 16, 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. The Pearces allege that they each entered into employment agreements with Purple LLC in February 2018. The Pearces contend that certain corporate transactions between May 2019 and June 2020 reduced their “ownership interest and voting power in Purple” and that, as a result, they should have continued to be paid a salary between August 2020, when they retired from Purple LLC, and December 2021. The Pearces calculate that they are each owed “no less than $500,000” in unpaid salary. In February 2023, Purple Inc. filed a motion to dismiss the Pearces’ claims in full. The Pearces amended their complaint a month later. Purple Inc. has now moved to dismiss that amended complaint, as well, arguing that the Pearces’ amendment did not address the flaws in their legal theory and that the Pearces’ failed amendment reflects an inability to rehabilitate their claims. The Company maintains insurance to defend against claims of this nature and intends to continue to do so vigorously.

On February 21, 2023, Coliseum filed a complaint against Purple Inc. and several members of the Private Placement Warrants) are not transferable, assignable or salable until 30 days afterBoard in the completionDelaware Court of the Initial Business Combination and they are non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable byChancery, captioned Coliseum Capital Management, LLC v. Anthos, Case No. 2023-0220-PAF (Del. Ch. Feb. 21, 2023).  The complaint alleged that the Company and exercisablethe 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.  Coliseum was seeking: (1) declarations that the authorization of Proportional Representation Preferred Linked Stock violated the Company’s charter and amounted to a breach of the named directors’ fiduciary duties; (2) a declaration that the Proportional Representation Preferred Linked Stock is invalid, unenforceable, and void; (3) unspecified damages resulting from the alleged breach of duties; and (4) an award of costs and expenses incurred in pursuing the action.  The parties agreed to hold an expedited trial on Coliseum’s claims that would have resulted in a resolution of the dispute before the Company’s 2023 annual meeting of stockholders. On April 11, 2023, Coliseum and the Company resolved the litigation by such holdersentering into a binding memorandum of understanding in which the parties agreed to work together to prepare and enter into a formalized cooperation agreement. The Cooperation Agreement that embodied those material terms was signed by both parties on April 19, 2023 and became effective on April 27, 2023. See Note 21—Subsequent Events—Coliseum Cooperation Agreement for further discussion of the same basis asprovisions of the warrants includedcooperation agreement.

On April 3, 2023, InnoHold, LLC, Terry Pearce, and Tony Pearce (collectively, the “InnoHold Parties”) filed a complaint against Purple LLC in the Units sold inDelaware 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 Public Offering. Otherwise, the Private Placement Warrants have termsSecond Amended and provisions that are identical to thoseRestated Limited Liability Company Agreement of the Warrants soldPurple Innovation, LLC, dated as part of the Units in the Public Offering and have no net cash settlement provisions.

If the Company does not complete an Initial Business Combination, then the proceeds from the Private Placement Warrants will be part of the liquidating distribution to the public stockholdersFebruary 2, 2018 (the “LLC Agreement”), and the Private Placement Warrants will expire worthless.

Registration Rights:

The Company’s initial stockholderimplied covenant of good faith and holdersfair dealing contained therein by failing to pay the full amount of the Private Placement Warrants are entitled to registration rights pursuant to a registration rights agreement entered into in connection with the Public Offering in July 2015. The Company’s initial stockholder and holders of the Private Placement Warrants are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for saletax distributions owed under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securitiesLLC Agreement.  The complaint also asserts a claim for indemnification under the LLC Agreement.  The InnoHold Parties seek damages of approximately $3.0 million in other registration statements filed by the Company. The Company will bear theallegedly unpaid tax distributions as well as its legal fees and expenses incurred in connection with the filinglitigation. Purple LLC has not yet formally responded to the allegations in the complaint, and the outcome of the litigation cannot be predicted at this early stage.

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 registration statements.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.

15. Related Party Loans: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 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 which were also Lenders under the Amended and Restated Credit Agreement. See Note 14—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 for $4.35 per share in cash. At the time of the offer, Coliseum beneficially owned approximately 44.7% of the outstanding equity of the Company. The Coliseum proposal was conditioned upon the transaction being (a) negotiated by, and subject to the approval of, the Special Committee and (b) subject to a non-waivable condition requiring approval by the affirmative vote of a majority of the shares of common stock not owned by Coliseum or other interested parties. The Special Committee was formed by the Board to determine the necessary actions to evaluate the Coliseum proposal and determine the course of action that was in the best interests of all the Company’s shareholders. The Board expressly granted the Special Committee the ability to decline the Coliseum proposal. In addition, the Special Committee adopted the Rights Agreement to have the time and flexibility necessary to evaluate the Coliseum offer and to prevent a change of control without payment of an adequate control premium. On January 12, 2017,2023, the Company issued a promissory note topress release stating the Sponsor. The note permitted the Company to borrow money from time to time from the Sponsor in an aggregate principal amount of up to $1,200,000 with an interest rate of 7.5% per annum. During January 2017, the Company borrowed $1,200,000 under the note. The Company used the proceeds from such borrowings for ongoing operational expenses and certain other expenses in connection with the Company’s Initial Business Combination. The note was repaid, together with approximately $57,000 of accrued interest, on September 5, 2017 (see Note 7).Special Committee had rejected Coliseum’s unsolicited proposal.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

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. Each PRPLS would have voted together with the common stock in the election of directors, and related matters, and carried 10,000 votes each. Holders of PRPLS were entitled to allocate their votes among the nominees in director elections on a cumulative basis. 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 with the common stock. Any new issuance of common stock would have automatically included a proportionate number of PRPLS. The PRPLS were redeemable at any time by an affirmative vote of two-thirds of the members of the Board. PRPLS did not have any dividend rights and were entitled to only a limited payment upon any liquidation, dissolution or winding up in priority to any payments on the common stock but would not have otherwise participated in any liquidating distributions. On February 21, 2023, Coliseum filed a lawsuit in the Delaware Court of Chancery to invalidate the Company’s issued PRPLS, alleging that the issuance deprived the Company’s stockholders of a fair and democratic election of directors at the Company’s 2023 Annual Meeting and other related allegations. Prior to the trial that was set to begin on April 12, 2023, the parties agreed to resolve the litigation and enter into a cooperation agreement. On April 19, 2023, the parties entered into a Cooperation Agreement which became effective on April 27, 2023. See Note 21—Administrative Services Agreement:Subsequent Events—Coliseum Cooperation Agreement for further discussion of the provisions of the agreement.

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 also resigned as employees of Purple LLC and retired from the Company’s Board in August 2020.

TNT Holdings owned the Alpine facility Purple LLC has been leasing since 2010, and the Purple Founders informed Purple LLC that TNT Holdings recently transferred ownership to 123E LLC, an entity controlled by the Purple Founders. Effective as of October 31, 2017, Purple LLC entered into an Amended and Restated Lease Agreement with TNT Holdings. The Company determined that neither TNT Holdings nor 123E LLC are a VIE as neither the Company nor Purple LLC hold any explicit or implicit variable interest in TNT Holdings or 123E LLC and do not have a controlling financial interest in TNT Holdings or 123E LLC. Purple LLC incurred $0.3 million and $0.2 million in rent expense to 123E LLC or TNT Holdings for the building lease of the Alpine facility for the three months ended March 31, 2023 and 2022, respectively. Purple LLC continues to lease the Alpine facility that was formerly the Company headquarters, for use in research and development. In accordance with the terms of that lease, on September 3, 2021, Purple LLC gave notice to 123E LLC 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 with 123E LLC. The amendment rescinded the Company’s previous notice of termination that was scheduled to be effective September 30, 2022 and extended the term such that the lease will remain in effect until September 30, 2023.

16. Stockholders’ Equity

Class A Common Stock

The Company has agreed to pay $10,000 a month for office space, utilities and administrative support to the Sponsor. Services commenced on July 29, 2015, the date the securities were first listed on the NASDAQ Capital Market, and will terminate upon the earlier210.0 million shares of the consummation by the Company of the Initial Business Combination or the liquidation of the Company. Administrative services charges earned but not paid under the agreement aggregating $20,000 are included in accrued liabilities at September 30, 2017.

NOTE 5 - TRUST ACCOUNT AND FAIR VALUE MEASUREMENT

The Company complies with FASB ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

Upon the closing of the Public Offering and the private placement, a total of $155,250,000 was deposited into the Trust Account. All proceeds in the Trust Account may be invested in either U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, and that invest solely in U.S. government treasury obligations.

At September 30, 2017 and December 31, 2016, the proceeds of the Trust Account were invested primarily in U.S. government treasury bills. The U.S. government treasury bills held at December 31, 2016 matured in March 2017 and the U. S. government treasury bills held at September 30, 2017 matured in October 2017. The Company classifies its U.S. government treasury bills and equivalent securities as held-to-maturity in accordance with FASB ASC 320 “Investments – Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheet at September 30, 2017 and December 31, 2016 and adjusted for the amortization or accretion of premiums or discounts. Approximately $66,000 and $1,000, respectively, of the balance in the Trust Account was held in cash at September 30, 2017 and December 31, 2016. During the nine months ended September 30, 2017 and 2016, approximately $260,000 and $70,000, respectively, was released from the Trust Account to the Company to pay taxes.

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In addition, the table presents the carrying value under FASB ASC 320. Since all of the Company’s permitted investments consist of U.S. government treasury bills and cash, fair values of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities as follows: