2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Purple LLC’s wholly owned subsidiary Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”). All intercompany balances and transactions have been eliminated in consolidation. As of June 30, 2026, Purple Inc. held 99.85% of the common units of Purple LLC and Purple LLC Class B Unit holders held 0.15% of the common units in Purple LLC.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the 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. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. The unaudited condensed consolidated financial statements were prepared on the same 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 Company’s financial results. The results of the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2026 or for any other interim period or other future year.

Liquidity and Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. In connection with the preparation of the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2026, the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to its ability to continue as a going concern within one year after the date of the issuance of such financial statements.

The Company had cash and cash equivalents of approximately $23.3 million and an accumulated deficit of $659.1 million at June 30, 2026. The Company had a net loss of $33.8 million and net cash provided by operating activities and used in investing activities was $3.6 million and $4.3 million, respectively, for the six months ended June 30, 2026.

The Company has a history of recurring net losses and cash used in operations, an accumulated deficit, and requiring additional capital to fund its operations, invest in the business to expand sales and marketing efforts and invest in innovation. Debt service has consisted primarily of re-financing or extending the maturity date of the debt as well as paying-in-kind interest payments. As disclosed in Note 10 - Debt, the Company has elected to have interest paid-in-kind and added to the principal amount of the loans under the Amended and Restated Credit Agreement and on March 24, 2026, the Company executed the Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”) with the Lenders to extend the maturity date of the Amended and Restated Credit Agreement from December 31, 2026 to April 30, 2027. In addition, certain requirements and events of default relating to the going concern qualification in our December 31, 2025 financial statements were waived (see Note 10 – Debt). Management has implemented plans to both increase its revenues from the sales of its products and to achieve cost savings within the next year, sufficient to generate positive operating cash flow levels. However, the Company cannot guarantee that it will have sufficient cash flow to meet the debt obligations when they become due within the next twelve months. The Company will need to raise additional capital or secure alternative financing arrangements, both of which are uncertain and not within the control of the Company. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

The Company has taken a number of actions to increase cash flow and support its operations and strategies. In August 2024, the Company implemented the Restructuring Plan (as defined below) to consolidate manufacturing operations resulting in cost savings. The Company has realized and plans to continue to realize direct material cost savings by concentrating efforts on driving gross margin improvement through various methods such as pricing actions, continued mix shift towards the Restore and Rejuvenate collections, and by driving cost savings through supply chain initiatives and manufacturing efficiency. The Company has delivered direct material cost savings from its supplier diversification efforts, improved scrap and yield results from continuous improvements, and outbound freight costs reflect cost improvements along with improved delivery reliability. The Company has been successful in subleasing the two manufacturing facilities that were vacated as part of the Restructuring Plan. The Company has also taken additional cost-saving initiatives in 2025 and the beginning of 2026 to reduce headcount and streamline responsibilities and reporting structure. Further, management’s plans include additional actions intended to improve liquidity and reduce costs, including a planned optimization of advertising spending, pacing the number of new store openings, efforts to mitigate tariff impacts by managing the country of origin, and other cost-saving initiatives. In the latter part of the second quarter of 2026, the Company announced a pricing action to increase the sales price of our various products to offset the impact of materials and logistics inflation related to the rise of fuel prices and to maintain gross margins.

The Company is currently evaluating potential strategic alternatives and opportunities to achieve additional liquidity through one or more future debt refinancings.

The consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Revenue Recognition – Consideration Payable to Customers

There have been no material changes to the Company’s revenue recognition policies as described in the Company’s Annual Report on Form 10-K, except for the following application of accounting guidance to certain arrangements with third-party manufacturers.

The Company enters into arrangements with third-party manufacturers, including manufacturers under common control with certain customers, to produce mattress products sold to those customers. The Company evaluates these arrangements to determine whether payments to such manufacturers represent consideration payable to a customer or payments for goods or services received, in accordance with ASC 606—Revenue from Contracts with Customers. For certain customer-specific or exclusive product arrangements, the Company has concluded that payments to a manufacturer under common control with a customer are economically linked to the underlying customer arrangement and represent consideration payable to that customer. Accordingly, revenue for these arrangements is presented net of payments made to the third-party manufacturers.

Reclassification of Merchant and Financing Fees

In the second quarter of 2026, the Company changed the presentation of costs associated with merchant credit card processing fees and third-party consumer financing fees. These costs were previously presented within cost of revenues and are now presented within marketing and sales. The Company believes this presentation will enhance the comparability of our financial statements with those of our industry peers.

The table below presents the effect of the reclassification on the Company’s previously issued financial statements. This change in presentation had no impact on previously reported revenues, operating loss, net loss, or earnings per share. Additionally, the reclassifications did not impact the historical balance sheets or statement of cash flows.

The reclassifications have been reflected in all applicable financial information presented in these financial statements, including the related notes. 

Refund of Tariffs

On February 20, 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). On March 6, 2026, the Company filed a lawsuit in the U.S. Court of International Trade against the U.S. Customs and Border Protection (“CBP”), the CBP commissioner, and the United States of America seeking a full refund of all IEEPA tariffs that the Company has paid to the United States. In addition, the Company filed for qualifying refunds of tariffs with the CBP. During May and June 2026, the Company received $5.5 million in refunds, including interest, representing all refunds applied for. These refunds related to cost of inventory that was sold in a prior period. Accordingly, the Company recorded $5.3 million of the recovery as a reduction of cost of sales and $0.2 million as interest income in other non-operating income for the three and six months ended June 30, 2026 in the accompanying unaudited condensed consolidated financial statements.

Reverse Stock Split

On July 2, 2026, the Company’s stockholders approved a reverse stock split of its Class A common stock and Class B common stock (collectively, the “common stock”) at a ratio ranging from any whole number between 1-for-10 to 1-for-30, with the exact ratio determined by the Company’s Board of Directors. On July 6, 2026, the Company’s Board of Directors approved a 1-for-25 reverse stock split (“Reverse Stock Split”) of the Company’s common stock that became effective on July 19, 2026. Following the effectiveness of the Reverse Stock Split, every 25 shares of the Company’s common stock that were issued and outstanding, automatically converted into one outstanding share of common stock. All stock awards and warrants of the Company outstanding immediately prior to the Reverse Stock Split were proportionally adjusted. Unless otherwise indicated, all other share and per share amounts in this quarterly report reflect the effect of the Reverse Stock Split as though the Reverse Stock Split has been effected prior to all periods presented.

The Reverse Stock Split did not change the Company’s authorized number of shares of common stock. The Reverse Stock Split did not change the par value of the common stock and, therefore, the Company reclassified an amount equal to the reduction in the number of shares of common stock at par value to additional paid-in capital. No fractional shares of common stock were issued in connection with the Reverse Stock Split. Instead, any fractional share that would otherwise result from the Reverse Stock Split were rounded up to the next whole share of common stock. Proportionate adjustments were made to the number of shares authorized under the Company’s equity incentive plans, the number of shares subject to any award or purchase right under the Company’s equity incentive plans, and the exercise price or purchase price with respect to any stock award or warrant.

Variable Interest Entities

Purple LLC is a variable interest entity. The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At June 30, 2026, Purple Inc. had a 99.85% economic interest in Purple LLC and consolidated 100% of Purple LLC’s assets, liabilities and results of operations in the Company’s unaudited condensed consolidated financial statements contained herein. The holders of Class B Units of Purple LLC (“Class B Units”) held 0.15% of the economic interest in Purple LLC as of June 30, 2026. For further discussion see Note 15 — Stockholders’ Equity.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclose 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 estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and the allowance for credit losses, valuation of inventories, sales returns, warranty returns, impairment reviews of long-lived assets and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, the recognition and measurement of restructuring and related charges, 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.

Segment Information

The Company operates in one operating segment. This is consistent with the organizational structure and internal reporting evaluated regularly by the Company’s Chief Executive Officer who is our chief operating decision maker (“CODM”) when making operational decisions and allocating resources. For additional information regarding the Company’s segment reporting, refer to Note 20 – Segment Information and Concentrations.

Recent Accounting Pronouncements

Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU No. 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements. The prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along with certain other expense disclosures already required by GAAP that would need to be integrated within the new tabular disaggregated expense disclosures. Additionally, the amendments also require the disclosure of total selling expenses and an entity’s definition of those expenses. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the potential impact this update will have on its expense disclosures in the notes to the consolidated financial statements.

Accounting for Internal-Use Software

In September 2025, the FASB issued ASU No. 2025-06, “Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” The ASU removes all references to prescriptive and sequential software development stages. The ASU requires entities to begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable that the project will be completed and the software will be used for its intended purpose. The amendments in this ASU are effective for fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact this update will have on its consolidated financial statements and related disclosures.

Interim Reporting: Narrow-Scope Improvements

In December 2025, the FASB issued ASU No. 2025-11, “Interim Reporting (Topic 270): Narrow-scope Improvements.” The ASU indicates that SEC registrants must continue to follow SEC rules for condensed financial statements. The ASU also compiles a comprehensive list of required interim disclosures for condensed statements from across the Codification. In addition, the ASU reinforces a disclosure principle requiring entities to provide interim disclosures for significant events or transactions that have a material effect since the most recent year-end, such as changes in accounting principles, key estimates, financing arrangements, long-term contracts, or the reporting entity. The amendments in this ASU are effective for public business entities for interim periods within annual periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2025-11 on its interim reporting once the ASU is adopted. As part of the ongoing evaluation, following the adoption of the ASU, the Company will ensure that the interim disclosure checklists are up-to-date and accurately reflect the required disclosures as outlined.