UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 001-39214
Casper Sleep Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware46-3987647
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Three World Trade Center
175 Greenwich Street Floor 39
New York, NY
10007
(Address of principal executive offices)(Zip Code)
 
(347) 941-1871
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.000001 par value per shareCSPRThe New York Stock Exchange
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  ☐
 
1


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý   No  ¨
1


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer¨
Non-accelerated filerýSmaller reporting company☒☐
Emerging growth company☒
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ☐  No  ý
The number of shares of registrant's common stock outstanding as of August 10, 202015, 2021 was 40,151,546.41,448,753.
 


2


TABLE OF CONTENTS
Page
 FINANCIAL INFORMATION (unaudited)
Item 1.
Item 2.
Item 3.
Item 4.
 OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

3


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements about our future results of operations and financial position; anticipated trends in our operating expenses; the anticipated impact of the novel coronavirusCOVID-19 pandemic on our business; our business strategy, and plans and objectives of management for future operations, including, among others, statements regarding our ongoing actions in response to the novel coronavirus outbreak,COVID-19 pandemic and continuing industry-wide supply chain constrains, expected growth and market position, future capital expenditures and debt service obligations. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: the novel coronavirus outbreakCOVID-19 pandemic could adversely impact our business, financial condition and results of operations; our ability to compete successfully in the highly competitive industries in which we operate; our ability to maintain and enhance our brand; the success of our retail store and retail partnerships expansion plans; our ability to successfully implement our growth strategies related to launching new products; the effectiveness and efficiency of our marketing programs; our ability to manage our current operations and to manage future growth effectively; our past results may not be indicative of our future operating performance; our ability to attract new customers or retain existing customers; the growth of the market for sleep as a retail category and our ability to become a leader or maintain our leadership in the category; the impact of social media and influencers on our reputation; our ability to protect and maintain our intellectual property; our exclusive reliance on third-party contract manufacturers and distributors whose efforts we are unable to fully control; our ability to effectively implement strategic initiatives; our ability to manage our supply chain commensurate with demand and successfully and timely deliver merchandise to our retail partners and customers; our ability to transfer our supply chain and other business processes to a global scale; risks related to fluctuations in the cost and availability of raw materials and fuel; risks relating to our international operations and expansion; we are dependent on our retail partners; general economic and business conditions; we or our service providers could be subject to system failures or interruptions, cyber-based attacks and security breaches;breaches or other incidents; risks relating to changing legal and regulatory requirements, and any failure to comply with applicable laws and regulations; we may be subject to product liability claims and other litigation; we may experience fluctuations in our quarterly operating results; we have and expect to continue to incur significant losses; risks relating to our indebtedness; our need for additional funding, which may not be available; risks relating to taxes; our ability to attract and retain qualified personnel; future sales by us our stockholders may cause the market price of our stock to decline; risks and additional costs relating to our status as a new public company; and the other important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated in Item 1A, Part II of this Quarterly Report on Form 10-Q.2020. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
4


BASIS OF PRESENTATION
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Casper,” and similar references refer to Casper Sleep Inc. together with its subsidiaries.
Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.

5


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Casper Sleep Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
As of
AssetsJune 30, 2021December 31, 2020
Current assets:
Cash and cash equivalents$49,658 $88,922 
Restricted cash0 3,162 
Accounts receivable, net33,045 27,663 
Prepaid expenses and other current assets13,098 11,026 
Inventory, net58,050 35,531 
Total current assets153,851 166,304 
Property and equipment, net55,934 66,529 
Other assets1,342 1,368 
Total assets$211,127 $234,201 
Liabilities and Stockholders’ (Deficit) / Equity
Current liabilities:
Accounts payable$54,713 $47,612 
Accrued expenses66,129 54,741 
Deferred revenue9,596 7,430 
Short-term debt16,000 0 
Other current liabilities10,907 9,498 
Total current liabilities157,345 119,281 
Long-term debt50,375 65,546 
Other liabilities25,488 23,907 
Total liabilities233,208 208,734 
Stockholders’ (deficit) / equity:
Common stock, $0.000001 par value - 170,000 and 170,000 shares authorized; 41,451 and 40,539 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively0 0 
Additional paid-in capital447,626 440,248 
Accumulated other comprehensive income34 34 
Accumulated deficit(469,741)(414,815)
Total stockholders’ (deficit)/equity(22,081)25,467 
Total liabilities and stockholders’ (deficit) / equity$211,127 $234,201 
As of
AssetsJune 30, 2020December 31, 2019
Current assets:
Cash and cash equivalents$98,218  $67,578  
Accounts receivable, net23,375  31,059  
Prepaid expenses and other current assets14,134  23,924  
Inventory, net37,220  39,358  
Total current assets172,947  161,919  
Property and equipment, net68,849  66,262  
Other assets1,367  2,137  
Total assets$243,163  $230,318  
Liabilities, Convertible Preferred Stock and Stockholders’ Equity/(Deficit)
Current liabilities:
Accounts payable27,260  30,734  
Accrued expenses60,811  73,130  
Deferred revenue7,220  9,673  
Other current liabilities25,889  34,422  
Total current liabilities121,180  147,959  
Other liabilities73,992  69,492  
Total liabilities195,172  217,451  
Convertible preferred stock, $0.000001 par value - 0 and 19,213 shares authorized; 0 and 19,181 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively—  319,961  
Stockholders’ equity/(deficit):
Common stock, $0.000001 par value - 170,000 and 0 shares authorized; 39,743 and 0 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively—  —  
Additional paid-in capital432,143  18,097  
Accumulated other comprehensive (loss) income(221) 69  
Accumulated deficit(383,931) (325,260) 
Total stockholders’ equity/(deficit)47,991  (307,094) 
Total liabilities, convertible preferred stock and stockholders’ equity/(deficit)$243,163  $230,318  

See accompanying notes to consolidated financial statements (unaudited).
6

Casper Sleep Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)


Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenue$110,196  $95,227  $223,240  $184,664  
Cost of goods sold53,131  48,535  113,211  94,400  
Gross profit57,065  46,692  110,029  90,264  
Operating expenses
Sales and marketing expenses33,181  39,838  70,655  69,443  
General and administrative expense42,017  33,250  89,004  64,134  
Restructuring expenses4,129  —  5,440  —  
Total operating expenses79,327  73,088  165,099  133,577  
Loss from operations(22,262) (26,396) (55,070) (43,313) 
Other (income) expense
Net interest expense2,152  285  4,308  542  
Other (income) expense, net(219) 279  (733) 554  
Total other expenses, net1,933  564  3,575  1,096  
Loss before income taxes(24,195) (26,960) (58,645) (44,409) 
Income tax expense10  (33) 26  (33) 
Net loss(24,205) (26,927) (58,671) (44,376) 
Other comprehensive income (loss)
Currency translation adjustment(737) (103) (290) 95  
Total comprehensive loss$(24,942) $(27,030) $(58,961) $(44,281) 
Net loss per share attributable to common stockholders, basic and diluted$(0.61) $(2.56) $(1.74) $(4.24) 
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted39,708,401  10,537,349  33,808,771  10,476,854  

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue$151,756 $110,196 $279,434 $223,240 
Cost of goods sold79,223 53,131 140,218 113,211 
Gross profit72,533 57,065 139,216 110,029 
Operating expenses
Sales and marketing expenses39,897 33,181 80,427 70,655 
General and administrative expense48,159 42,017 92,663 89,004 
Restructuring expenses17,584 4,129 17,985 5,440 
Total operating expenses105,640 79,327 191,075 165,099 
Loss from operations(33,107)(22,262)(51,859)(55,070)
Other (income) expense
Net interest expense1,781 2,152 4,297 4,308 
Other (income) expense, net(1,159)(219)(1,266)(733)
Total other expenses, net622 1,933 3,031 3,575 
Loss before income taxes(33,729)(24,195)(54,890)(58,645)
Income tax expense17 10 36 26 
Net loss(33,746)(24,205)(54,926)(58,671)
Other comprehensive income (loss)
Currency translation adjustment(53)(737)(34)(290)
Total comprehensive loss$(33,799)$(24,942)$(54,960)$(58,961)
Net loss per share attributable to common stockholders, basic and diluted$(0.81)$(0.61)$(1.34)$(1.74)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted41,439,468 39,708,401 41,118,464 33,808,771 

See accompanying notes to consolidated financial statements (unaudited).
7

Casper Sleep Inc. and Subsidiaries
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity/(Deficit)/Equity
(In thousands, except share and per share amounts)
(Unaudited)


Convertible Preferred StockCasper Sleep Inc, Stockholders
Preferred StockCommon StockClass A common stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive (loss) incomeAccumulated deficitTotal stockholders’ equity/(deficit)
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 201919,212,912  $319,961  —  $—  9,190,858  $—  1,466,078  $—  $18,097  $69  $(325,260) $(307,094) 
Initial public offering, net of issuance costs of $11.8 million—  —  8,350,000  —  —  —  —  —  88,206  —  —  88,206  
Conversion of redeemable convertible preferred stock to common stock(19,212,912) (319,961) 20,485,054  —  —  —  —  —  319,961  —  —  319,961  
Common stock conversion—  —  10,656,936  —  (9,190,858) —  (1,466,078) —  —  —  —  —  
Exercise of employee stock options—  —  4,332  —  —  —  —  —  47  —  —  47  
Exercise of stock warrants—  —  181,133  —  —  —  —  —  3  —  —  3  
Stock based compensation expense—  —  —  —  —  —  —  —  2,661  —  —  2,661  
Other comprehensive income—  —  —  —  —  —  —  —  —  447  —  447  
Net loss—  —  —  —  —  —  —  —  —  —  (34,466) (34,466) 
Balance at March 31, 2020—  $—  39,677,455  $—  —  $—  —  $—  $428,975  $516  $(359,726) $69,765  
Initial public offering, net of issuance costs of $11.8 million—  $—  —  $—  —  $—  —  $—  $(207) $—  $—  $(207) 
Exercise of employee stock options—  —  65,827  —  —  —  —  —  91  —  —  91  
Exercise of stock warrants—  —  —  —  —  —  —  —  —  —  —  —  
Stock based compensation expense—  —  —  —  —  —  —  —  3,284  —  —  3,284  
Other comprehensive income—  —  —  —  —  —  —  —  —  (737) —  (737) 
Net loss—  —  —  —  —  —  —  —  —  —  (24,205) (24,205) 
Balance at June 30, 2020—  $—  39,743,282  $—  —  $—  —  $—  $432,143  $(221) $(383,931) $47,991  
Convertible Preferred StockCasper Sleep Inc, Stockholders
Preferred StockCommon StockAdditional paid-in capitalAccumulated other comprehensive incomeAccumulated deficitTotal stockholders’
(deficit) / equity
SharesAmountSharesAmount
Balance at December 31, 2020— $— 40,538,644 $0 $440,248 $34 $(414,815)$25,467 
Exercise of employee stock options— — 130,925 — 29 — — 29 
Stock based compensation expense— — — — 3,786 — — 3,786 
Issuance of Common Stock pursuant to the 2020 Equity Plan— — 755,623 — — — — — 
Other comprehensive income— — — — — 19 — 19 
Net loss— — — — — — (21,180)(21,180)
Balance at March 31, 2021— $— 41,425,192 $— $444,063 $53 $(435,995)$8,121 
Exercise of employee stock options— — 6,000 — 0 — — 0 
Stock based compensation expense— — — — 3,563 — — 3,563 
Issuance of Common Stock pursuant to the 2020 Equity Plan— — 19,722 — — — — — 
Other comprehensive income— — — — — (19)— (19)
Net loss— — — — — — (33,746)(33,746)
Balance at June 30, 2021— $— 41,450,914 $— $447,626 $34 $(469,741)$(22,081)
8

Casper Sleep Inc. and Subsidiaries
Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity/(Deficit)/Equity
(In thousands, except share and per share amounts)
(Unaudited)

Convertible Preferred StockCasper Sleep Inc, Stockholders
Preferred StockCommon StockClass A common stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive (loss) incomeAccumulated deficitTotal stockholders’ deficit
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 201816,524,147  $238,802  —  $—  9,110,359  $—  1,287,712  $—  $8,750  $(419) $(232,220) $(223,889) 
Exercise of vested employee stock options—  —  —  —  68,499  —  8,079  —  89  —  —  89  
Common stock conversion—  —  —  —  —  —  —  —  —  —  —  —  
Stock based compensation expense—  —  —  —  —  —  —  —  1,650  —  —  1,650  
Other comprehensive income—  —  —  —  —  —  —  —  —  198  —  198  
Series D funding1,481,734  43,127  —  —  —  —  —  —  —  —  —  —  
Net loss—  —  —  —  —  —  —  —  —  —  (17,449) (17,449) 
Balance at March 31, 201918,005,881  $281,929  —  $—  9,178,858  $—  1,295,791  $—  $10,489  $(221) $(249,669) $(239,401) 
Exercise of vested employee stock options—  $—  —  $—  5,000  $—  145,889  $—  $931  $—  $—  $931  
Common stock conversion—  —  —  —  —  —  —  —  —  —  —  —  
Stock based compensation expense—  —  —  —  —  —  —  —  1,876  —  —  1,876  
Other comprehensive income—  —  —  —  —  —  —  —  —  (103) —  (103) 
Series D funding118,412  4,563  —  —  —  —  —  —  —  —  —  —  
Net loss—  —  —  —  —  —  —  —  —  —  (26,927) (26,927) 
Balance at June 30, 201918,124,293  $286,492  —  $—  9,183,858  $—  1,441,680  $—  $13,296  $(324) $(276,596) $(263,624) 

Convertible Preferred StockCasper Sleep Inc, Stockholders
Preferred StockCommon StockClass A common stockClass B common stockAdditional paid-in capitalAccumulated deficitTotal stockholders’
(deficit) / equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 201919,212,912 $319,961 0 $— 9,190,858 $— 1,466,078 $— $18,097 $69 $(325,260)$(307,094)
Initial public offering, net of issuance costs of $11.8 million— — 8,350,000 — — — — — 88,206 — — 88,206 
Conversion of redeemable convertible preferred stock to common stock(19,212,912)(319,961)20,485,054 — — — — — 319,961 — — 319,961 
Common stock conversion— — 10,656,936 — (9,190,858)— (1,466,078)— — — — — 
Exercise of employee stock options— — 4,332 — — — — — 47 — — 47 
Exercise of stock warrants— — 181,133 — — — — — 3 — — 3 
Stock based compensation expense— — — — — — — — 2,661 — — 2,661 
Other comprehensive income— — — — — — — — — 447 — 447 
Net loss— — — — — — — — — — (34,466)(34,466)
Balance at March 31, 20200 $0 39,677,455 $— 0 $— 0 $— $428,975 $516 $(359,726)$69,765 
Initial public offering, net of issuance costs of $11.8 million— — 0 — — — — — (207)— — (207)
Exercise of employee stock options— $— 65,827 — — — — — 91 — — 91 
Stock based compensation expense— $— — — — — — — 3,284 — — 3,284 
Other comprehensive income— $— — — — — — — — (737)— (737)
Net loss— — — — — — — — — — (24,205)(24,205)
Balance at June 30, 2020— $— 39,743,282 $— — $— — $— $432,143 $(221)$(383,931)$47,991 
See accompanying notes to consolidated financial statements (unaudited).
9

Casper Sleep Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands, except per share amounts)
(Unaudited)

Six Months Ended June 30,
20202019
Cash flows used in operating activities:
Net loss$(58,671) $(44,376) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2
7,735  2,525  
Stock based compensation expense5,945  3,526  
Other1,553  1,922  
Changes in assets and liabilities:
Accounts receivable, net7,684  (2,524) 
Prepaid expenses and other current assets9,790  (5,769) 
Inventory, net1,533  (5,088) 
Other assets764  (1,791) 
Accounts payable(3,019) 14,256  
Accrued expenses(12,319) 10,480  
Deferred revenue(2,453) (1,818) 
Other liabilities(4,975) 3,850  
Net cash used in operating activities(46,433) (24,807) 
Cash flows used in investing activities:
Purchases of property and equipment 1
(10,777) (25,107) 
Note receivable—  464  
Net cash used in investing activities(10,777) (24,643) 
Cash flows provided by financing activities:
Exercise of stock options and warrants141  1,020  
Proceeds from equity issuance87,999  47,690  
Proceeds from borrowings2,400  
Repayment on borrowings—  (2,922) 
Net cash provided by financing activities88,140  48,188  
Effect of exchange rate changes(290) 95  
Net change in cash and cash equivalents30,640  (1,167) 
Cash and cash equivalents at beginning of period67,578  28,355  
Cash and cash equivalents at end of the period$98,218  $27,188  
Supplemental disclosure of cash paid for:
Interest paid(2,822) (360) 
Supplemental schedule of noncash financing activity:
     Series Seed preferred units converted to common stock1,826  —  
     Series A preferred units converted to common stock12,983  —  
     Series B preferred units converted to common stock54,895  —  
     Series C preferred units converted to common stock169,098  —  
     Series D preferred units converted to common stock81,159  —  
     Class A common stock converted to common stock—  —  
     Class B common stock converted to common stock—  —  
     Reclass of deferred financing costs to additional paid in capital5,696  —  
     Deferred financing costs included in accounts payable and accrued expenses1,145  —  

Six Months Ended June 30,
20212020
Cash flows used in operating activities:
Net loss$(54,926)$(58,671)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1
7,967 7,735 
Stock based compensation expense7,349 5,945 
Asset impairments8,933 0 
Other(2,641)1,553 
Changes in assets and liabilities:
Accounts receivable, net(5,382)7,684 
Prepaid expenses and other current assets(2,072)9,790 
Inventory, net(22,519)1,533 
Other assets22 764 
Accounts payable7,772 (3,019)
Accrued expenses11,388 (12,319)
Deferred revenue2,166 (2,453)
Other liabilities6,461 (4,975)
Net cash used in operating activities(35,482)(46,433)
Cash flows used in investing activities:
Purchases of property and equipment 2
(6,974)(10,777)
Net cash used in investing activities(6,974)(10,777)
Cash flows (used in) provided by financing activities:
Exercise of stock options and warrants29 141 
Proceeds from equity issuance0 87,999 
Proceeds from borrowings3,000 0 
Repayment on borrowings(3,000)0 
Net cash (used in) provided by financing activities29 88,140 
Effect of exchange rate changes1 (290)
Net change in cash, cash equivalents, and restricted cash(42,426)30,640 
Cash, cash equivalents, and restricted cash at beginning of period92,084 67,578 
Cash, cash equivalents, and restricted cash at end of the period$49,658 $98,218 
Supplemental disclosure of cash paid for:
Interest paid$(3,187)$(2,822)
1 Depreciation and amortization for the six months ended June 30, 2021 and 2020 consists of $7,967 and $6,344 recorded in general and administrative expenses and $0 and $1,391 recorded in restructuring expenses, respectively, on the Consolidated Statements of Operations and Comprehensive Loss.
2 Purchases of property and equipment is net of fixed assets purchases that are included in accounts payable amounting to $19$115 and $19 at June 30, 2021 and 2020, and $1,988 at June 30, 2019.
10

2 .Depreciation and amortization for the six months ended June 30, 2020 consists of $6,344 recorded in general and administrative expenses and $1,391 recorded in restructuring expenses on the Consolidated Statements of Operations and Comprehensive Loss.

respectively.

See accompanying notes to consolidated financial statements (unaudited)
11

10
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

(1)  Description of Business
Casper Sleep Inc. and its subsidiaries (the “Company” or “Casper”) design and sell premium sleep products including mattresses, pillows, sheets, and other sleep-centric products. The Company’s head office is located at 175 Greenwich Street, 3 World Trade Center, New York, NY, and theNY. The Company has additional office locations in Berlin, Germany, and San Francisco, CA, as well as retail locations and pop-up stores throughout the United States (“U.S.”) and Canada.
The Company comprises Casper Sleep Inc. and its wholly-owned subsidiaries, Casper Science LLC, Casper Sleep Retail LLC, and Casper Sleep Limited (“Casper UK Holdco”). Casper UK Holdco wholly-owns Casper Sleep GmbH, Casper Sleep (UK) Limited, and Casper Sleep SAS.
(2) Initial Public Offering

On February 10, 2020, the Company completed the initial public offering (the “IPO”) of its common stock pursuant to a Registration Statement on Form S-1. In the IPO, the Company sold an aggregate of 8,350,000 shares of common stock at a public offering price of $12.00 per share. Upon consummation of the offering on February 10, 2020, the Company received net proceeds of approximately $88.2 million,$88,000, after deducting underwriting discounts and commissions of $6.5 million$6,500 and offering expenses of $5.5 million.$5,700. Upon the completion of the IPO, all outstanding shares of the Company's convertible preferred stock and Class A and Class B common stock were converted into common stock.

(3)  Basis of Presentation
The Company presents its financial statements on a consolidated basis of all its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. All figures expressed, except share and per share amounts, are represented in U.S. dollars in thousands.

The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our consolidated financial statements for the year ended December 31, 2019.2020. The information included in the accompanying unaudited financial statements reflects all adjustments, all of which are of a normal, recurring nature, that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The information set forth in the accompanying unaudited financial statements may be subject to normal year-end adjustments. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current period consolidated financial statements.
(4)  Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the valuation of deferred income tax assets, deferred revenue, the valuation of stock-based compensation and warrants, the product returns reserve, the inventory obsolescence reserve and accounts receivable and allowance for doubtful accounts.
11

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(5)  Summary of Significant Accounting Policies
Segment Information
The Company operates in 1 operating segment within the United States, Canada and Europe, providing sleep products through various sales channels. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer. The role of the CODM is to make decisions about allocating resources and assessing performance. The Company's business operates in 1 operating segment as all of the Company's sales channels are complementary and are analyzed in an identical way, with the CODM evaluating the Company's financial information, resources and performance of these resources on a consolidated basis. Since the Company operates in 1 operating segment, all required financial segment information can be found in the consolidated financial statements.

(a)  Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents.
(b)  Restricted Cash
Restricted cash represents cash balances held in segregated accounts used for collateralizing letters of credit with its bank. During the six months ended June 30, 2021, these letters of credits were closed and the associated restrictions on cash were relieved.
(c)  Accounts Receivable, net
AccountsAs of June 30, 2021 and December 31, 2020, accounts receivable, net was composed primarily of amounts due from retail partners, of $20,455 and $25,262, and from financial institutions related to credit card sales amountingand other receivables. Accounts receivable is recorded net of an allowance for uncollectible balances related to $3,545chargebacks or disputes raised by retail partners. The allowance is recognized in an amount equal to anticipated future uncollectible receivables. Management estimates the allowance for doubtful accounts based on delinquencies, trends and $5,797, historical experience.
as of June 30, 2020 and December 31, 2019 respectively.
(c)(d)  Inventory, net
InventoriesInventory primarily consistconsists of merchandise purchased for sale, as well as costs to deliver merchandise to Casper’s logistics providers and retail stores. The Company’s inventory is stated at cost using weighted averagestandard costing. The Company performs an analysis to determine whether it is appropriate or not to maintain a reserve for excess and obsolete inventory. The reserve is based on historical experience related to the disposal of identified inventory, specifically through sales to retail partners, clearance sales and, ultimately, the expected recoverable value. The value of older inventory can be impacted by new product launches, which can make certain older items obsolete. A lower of cost or market assessment is performed on inventory and reserves established when the net realizable value exceeds the historic cost. Most of Casper’s inventory is just-in-time and most products have been recently introduced and in existence for less than two years. The Company performs a review of all on hand inventory to determine if any items are deemed obsolete based on specific facts and circumstances.
Storage costs, indirect administrative overhead and certain selling costs related to inventories are expensed in the period incurred.
Inventory consists of the following:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Raw materialsRaw materials$500  $680  Raw materials$194 $386 
Finished goodsFinished goods33,863  32,945  Finished goods45,987 31,575 
Inventory in transitInventory in transit2,857  5,733  Inventory in transit11,869 3,570 
Total inventoryTotal inventory$37,220  39,358  Total inventory58,05035,531 


13

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Raw materials consist of replacement parts and components used in the creation of products. Finished goods is comprised of completed goods including mattresses, pillows, sheets, dog beds, Glowglow lights and furniture.
12

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Inventory in transit is either purchased inventory coming from outside the United States or inventory being transferred between warehouses or from warehouse to retail location.
The Company writes down inventory as a result of excess and obsolete inventories, or when it believes that the net realizable value of inventories is less than the carrying value, in accordance with ASU 2015-11, Simplifying the Measurement of Inventory, which was adopted in 2016.value.
(d)(e)  Revenue Recognition
Revenue transactions associated with the sale of goods and services comprise a single performance obligation, which consists of the sale of products to customers either to the Company’s retail partners or through its direct-to-consumer (“DTC”) channel. Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the customers, based on the terms of sale. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, and physical possession of, legal title to, and the risks and rewards of ownership of the goods has been transferred, and the customer has accepted the goods. Revenue from retail partnership transactions is generally recognized at the time products are shipped based on contractual terms with the customer. Revenue from our DTC channel is generally recognized at the point of sale in our retail stores and at the time of delivery for e-commerce transactions.
Revenue is recognized net of estimates of variable consideration, including product returns, customer discounts and allowances. Casper determines these estimates based on contract terms, evaluations of historical experience, anticipated trends, and other factors. The actual amount of customer returns and customer allowances, which is inherently uncertain, may differ from our estimates.
The duration of contractual arrangements with our customers is typically less than one year. Payment terms with retail partners vary depending on creditworthiness and other considerations, with the most common being net 30 days. Payment is due at the time of sale for DTC transactions.
We have elected to account for shipping and handling as fulfillment activities, and not as separate performance obligations. Shipping and handling fees billed to customers are included in net sales. All shipping and handling activity costs are recognized as costs of goods sold at the time the related revenue is recognized. Sales taxes collected from customers and remitted directly to government authorities are excluded from net sales and cost of goods sold.
Revenue is comprised of global sales through our DTC channels and our retail partnerships, and reflects the impact of product returns as well as discounts for certain sales programs and promotions.
Promotions are occasionally offered, primarily in the form of discounts, and are recorded as a reduction of gross revenue at the date of revenue recognition. We typically accept sales returns during a 30 or 100-night trial period, depending on the product, with our mattresses having a 100-night trial period. A sales return accrual is estimated based on historical return rates and is then adjusted for any current trends as appropriate. Returns are netted against the sales allowance reserve for the period. Sales are recognized as deferred revenue at the point of sale and are recognized as revenue upon the delivery to the consumer. Revenue through our DTC channels is recognized upon in-store or home delivery to the consumer, as applicable, and retail partnership revenue is recognized upon the transfer of control, on a per contract basis.
Disaggregated Revenue Data
The following tables disaggregate our net sales by geography and channel for the periods indicated:
1413

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30,
20202019
North America Region$104,967  $89,318  
EU Regions5,229  5,909  
Total$110,196  $95,227  
Direct to Consumer$80,961  $77,085  
Retail Partnerships29,235  18,142  
Total$110,196  $95,227  
Disaggregated Revenue Data

The following table disaggregates our net sales by geography and channel for the periods indicated:
Three Months Ended June 30,
20212020
North America Region$151,756 $104,967 
EU Region0 5,229 
Total$151,756 $110,196 
Direct to Consumer$99,509 $80,961 
Retail Partnerships52,247 29,235 
Total$151,756 $110,196 
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
North America RegionNorth America Region$211,326  $172,387  North America Region$279,434 $211,326 
EU Regions11,914  12,277  
EU RegionEU Region0 11,914 
TotalTotal$223,240  $184,664  Total$279,434 $223,240 
Direct to ConsumerDirect to Consumer$171,265  $157,158  Direct to Consumer$192,723 $171,265 
Retail PartnershipsRetail Partnerships51,975  27,506  Retail Partnerships86,711 51,975 
TotalTotal$223,240  $184,664  Total$279,434 $223,240 

(e)(f)   Cost of Goods Sold
Cost of goods sold consists of costs of purchased merchandise, including freight, duty, vendor rebates, and nonrefundable taxes incurred in delivering goods and services to customers and distribution centers, packaging and component costs, warehousing and fulfillment costs, damages, and excess and obsolete inventory write-downs.
(f)(g)  Sales and Marketing expenses
Sales and marketing expenses consist primarily of advertising and marketing promotions of the Company’s productsproducts as well as sponsorship costs, consulting and contractor expenses. Advertising and other promotional costs are expensed as incurred.
(g)
(h)  General and Administrative expenses
General and administrative expenses consist of personnel-related costs for our retail stores, retail operations, finance, legal, human resources, and IT functions, as well as litigation expenses, credit card fees, professional services, rent and operating costs associated with our retail stores, depreciation and amortization, and other administrative expenses. Research and development expenses are included within general and administrative and consist primarily of personnel-related expenses, consulting and contractor expenses, tooling, test equipment, and prototype materials.
(i)   Restructuring expenses
14

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Restructuring expenses consist of costs associated with implementing strategic changes in the Company's business structure including reductions in work force, lease exit costs related to the sublease and consolidation of certain corporate office space and exiting of certain lines of business or geographies.

During 2020, in response to the COVID-19 pandemic, the Company announced a number of restructuring actions focused on cost savings and renewed focus on commercial operations in North America. Restructuring expenses for the three and six months ended June 30, 2021 relate to lease exit costs and asset impairments associated with sublease and the consolidation of office space into the New York metro area as the Company continues to refine strategic shifts in its business structure including adapting to a hybrid work environment and, to a lesser extent, certain severance and other employee separation costs. Restructuring expenses for the three and six months ended June 30, 2020 relate tocosts associated with restructuring our retail operations and organizational structure, including severance, contract termination costs and other exit activities. Costs associated with these actions amounted to $17,584 and $17,985 for the three and six months ended June 30, 2021 and $4,129 and $5,440 for the three and six months ended June 30, 2020, respectively.
A summary of the charges recorded in connection with these actions during the periods presented:
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
EU ClosureUSTotalEU ClosureUSTotal
Severance and benefits$0 $0 $0 $400 $1,100 $1,500 
Contract termination0 0 0 1,327 0 1,327 
Asset impairments0 8,933 8,933 791 231 1,022 
Sublease Loss0 8,578 8,578 0 0 0 
Other expenses73 0 73 172 108 280 
Total$73 $17,511 $17,584 $2,690 $1,439 $4,129 
Six Months Ended June 30, 2021Six Months Ended June 30, 2020
EU ClosureUSTotalEU ClosureUSTotal
Severance and benefits$0 $537 $537 $400 $1,110 $1,510 
Contract termination0 0 0 1,327 320 1,647 
Asset impairments0 8,933 8,933 791 1,212 2,003 
Sublease Loss0 8,578 8,578 0 0 0 
Other expenses(75)12 (63)172 108 280 
Total$(75)$18,060 $17,985 $2,690 $2,750 $5,440 
The Company's accrued liabilities for restructuring at June 30, 2021 was $8,021, which is presented in accrued expenses in the consolidated balance sheets.
15

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(h)   Restructuring expenses
On April 21, 2020, in response to the COVID-19 pandemic, the Company announced a number of restructuring actions focused on cost savings and renewed focus on commercial operations in North America. Specifically, the Company implemented a reduction in personnel and announced the wind down of its European operations. In connection with these actions, during the second quarter of 2020, the Company incurred approximately $4,129 of restructuring expenses including $1,500 related to separation costs for 80 employees,$1,327 related to contract termination costs, $1,022 of asset impairments and $280 of other expenses.
During the three months ended March 31, 2020, the Company also announced plans to close its retail outlet stores. Costs associated with the retail store closures amounted to $1,311 and were previously presented in general and administrative expenses in the prior period consolidated financial statements. These costs have been presented in restructuring expenses in the current period consolidated financial statements.
The Company estimates total costs associated with restructuring activities announced in the second quarter to be $4,435.
Three Months Ended June 30, 2020
EU ClosureUSTotal
Severance and benefits$400  $1,100  $1,500  
Contract termination1,327  —  1,327  
Asset impairments791  231  1,022  
Other expenses172  108  280  
Total$2,690  $1,439  $4,129  

Six Months Ended June 30, 2020
EU ClosureUSTotal
Severance and benefits$400  $1,110  $1,510  
Contract termination1,327  320  1,647  
Asset impairments791  1,212  2,003  
Other expenses172  108  280  
Total$2,690  $2,750  $5,440  
The Company's accrued liabilities for the restructuring expenses at June 30, 2020 was $2,544, which is presented in accrued expenses in the consolidated balance sheets.
Accrued restructuring balance as at December 31, 20192020$—1,644 
Charges accrued during the three month period ended March 31, 20202021330 401
Payments made during the three month period ended March 31, 20202021(10)(243)
Accrued restructuringRestructuring balance as at March 31, 20202021$3201,802 
Charges accrued during the three month period ended June 30, 202020213,107 $6,362 
Payments made during the three month period ended June 30, 20202021(883)$(144)
Accrued Restructuring balance at June 30, 2021$8,021 
The Company's long term accrued liabilities for restructuring at June 30, 2021 and December 31, 2020 was $8,812 and $0, which is presented in other liabilities in the consolidated balance sheets.
Accrued Restructuring balance as of June 30, 2020at March 31, 2021$2,5440 
Charges accrued during the three month period ended June 30, 20218,812 
Payments made during the three month period ended June 30, 20210 
Accrued Restructuring balance at June 30, 2021$8,812 

16

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(i)(j)   Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of prepaid media placement for media campaigns that have not yet run, prepaid rent and office related expenses, and other prepaid expenses. In addition, the Company had tenant allowance receivable of $6,282 and $8,072$3,382 and $5,120 as of June 30, 20202021 and December 31, 20192020, respectively.
(j)(k)   Stock-Based Compensation
Compensation cost for all stock-based awards, including options to purchase stock and restricted stock units (“RSUs”) is measured at fair value on the date of grant and recognized over the service period. The fair value of stock options is estimated on the date of grant using a Black-Scholes model.

The fair value of RSUs awarded is estimated on the date of grant based on the fair value of our common stock. Compensation cost is recognized on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures.

See Note 8 for a complete description of the accounting for stock-based awards. The Company also issues stock-based awards to some of its non-employee consultants. The Company accounts for equity awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees, which requires the fair value of an award to a non-employee be remeasured at fair value as the award vests. Upon completion of the underlying performance obligation, or the vesting period, these cease to be revalued.
Stock-based compensation cost amounted to $3,284 and $5,945 for the three and six months ended June 30, 2020, respectively, and $1,876 and $3,526 for the three and six months ended June 30, 2019, respectively. These amounts include stock-based compensation to employees and non-employees.

(k)(l)  Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures, computers, technology hardware, and vehiclesmachinery and equipment range from 3 to 5 years. The Company’s purchased software is amortized over 7 years. Leasehold improvements are depreciated over the shorter of their useful life or the related lease term (without consideration of option renewal terms).
Property and equipment consist of the following:
June 30, 2020December 31, 2019
Leasehold improvements$47,022  $46,370  
Computer software2,226  1,733  
Furniture and fixtures21,209  21,063  
Computer Equipment4,399  3,590  
Machinery and Equipment2,033  2,185  
Construction in progress11,132  4,658  
Property and equipment, gross$88,021  $79,599  
Less: accumulated depreciation(19,172) (13,337) 
Property and equipment, net$68,849  $66,262  
1716

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

Depreciation expense related to propertyProperty and equipment was $3,606 and $7,735 forconsist of the three and six months ended June 30, 2020, respectively and $1,413 and $2,525 for the three and six months ended June 30, 2019, respectively.following:
June 30, 2021December 31, 2020
Leasehold improvements$48,608 $53,404 
Furniture and fixtures27,262 24,294 
Construction in progress4,831 6,021 
Computer Equipment5,210 4,984 
Computer software2,406 2,405 
Machinery and Equipment930 853 
Property and equipment89,247 91,961 
Less: accumulated depreciation(33,313)(25,432)
Property and equipment, net$55,934 $66,529 
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
As described in footnote (h) ("Restructuring expenses") above,During the three and six months ended June 30, 2021, the Company recorded an impairment charge related to restructuring actions of $411$8,933 and $1,391 for the three and six months ended June 30, 2020$8,933, respectively, as a result of permanently closing 3 outlet stores, abandoning selected product development activities resulting in impairment of related production assets and exiting our European operations.lease exit costs incurred. This expense is presented within restructuring expenses on the consolidated statement of operations and comprehensive loss. NaNThe Company recorded an impairment losses were recognizedcharge related to restructuring actions of $1,022 and $2,003 for the three and six months ended June 30, 2020, primarily as a result of permanently closing three outlet stores, abandoning selected product development activities resulting in 2019.impairment of related production assets. This expense is presented within restructuring expenses on the consolidated statement of operations and comprehensive loss. See Note 5(i), Restructuring expenses for additional details.
(l)(m)   Income Taxes
The Company accountsaccounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the provision for (benefit from) income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
The Company reduces deferred tax assets, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax assets. In making such a determination, the Company considers all available positive and negative evidence, including taxable income in prior carryback years (if carryback is permitted under the relevant tax law), the timing of the reversal of existing taxable temporary differences, tax planning strategies, and projected future taxable income. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
17

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
The Company recognizes interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes in the consolidated statement of operations and comprehensive loss.
(m)(n) Deferred Rent
Rental payments under operating leases are expensed on a straight-line basis after consideration of rent holidays, tenant allowances, step rent provisions and escalation clauses. Differences between rental expense (recognized from the date of possession) and actual rental payments are recorded as deferred rent. Deferred rent was $7,675 and $6,734 as of June 30, 2020 and December 31, 2019, respectively. Deferred rent is presented in other liabilities. See Note 5(q), Other Liabilities for additional information on deferred rent.
(n)(o)  Intangibles
The Company’s intangible assets consist of patents and domain names stated at cost. For intangibleIntangibles are presented in other assets whose lives are determined to be indefinite, Casper qualitatively evaluates thesein the consolidated balance sheets.

(p)  Other Current Liabilities
Other current liabilities consist of the following:
June 30, 2021December 31, 2020
Product return reserve$7,427 $7,112 
Other Taxes2,625 1,501 
Other855 885 
Total Other Current Liabilities$10,907 $9,498 

(q) Other Liabilities

Other liabilities consist of the following:
June 30, 2021December 31, 2020
Tenant Allowance$8,553 $13,006 
Deferred Rent$6,095 8,737 
Long-term accrued restructuring$8,812 0 
Contract Liability$1,875 2,125 
Other$153 39 
Total Other Liabilities$25,488 $23,907 

See Note 7, Debt for impairment.additional details.

(r) Basic and Diluted Loss per Common Share
The Company accounts for net income (loss) per common share using the treasury stock method. Basic net income (loss) per common share is computed by dividing net income (loss) for the period by the weighted-average number of common shares outstanding at the end of the period. Diluted net income (loss) per common share reflects the weighted-average number of common shares outstanding during the period used in the basic net income (loss) computation plus dilutive common stock equivalents. The computation of diluted net income (loss) per common share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on net income (loss) per common share.
(s) Foreign Currency
18

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(o)  Other Current Liabilities
Other current liabilities consist of the following:
June 30, 2020December 31, 2019
Product return reserve$7,098  $10,610  
Short term debt15,868  15,868  
Other2,923  7,944  
Total Other Current Liabilities$25,889  $34,422  


(p) Basic and Diluted Loss per Common Share
The Company uses the two-class method to compute net loss per common share because the Company has issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings of the Company. These participating securities include shares of each series of the Company’s convertible preferred stock, which have non-forfeitable rights to participate in any dividends declared on the Company’s common stock. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.
Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.
Diluted net income per common share is computed under the two-class method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options and warrants. In addition, the Company analyzes the potential dilutive effect of the outstanding participating securities under the “if-converted” method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period or date of issuance, if later. The Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during the period.
(q) Foreign Currency
The functional currency of the Company's international operating subsidiaries is the local currency. The Company translates the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates for the annual period are derived from month-end spot rates for revenues,revenue, costs and expenses. The Company records translation gains and losses in accumulated other comprehensive loss as a component of stockholders' equity/(deficit). / equity. Foreign currency transaction gains and losses are included in net loss for the period.
(r)(t) Convertible Preferred Stock
On February 10, 2020, upon the closing of the Company's IPO, all outstanding shares of convertible preferred stock were automatically converted into an aggregate of 20,485,054 shares of common stock.
(u) Segment Information
19During the six months ended June 30, 2021 and 2020, the Company operated in 1 operating segment within the United States, Canada and Europe, providing sleep products to consumers through various sales channels. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer. The role of the CODM is to make decisions about allocating resources and assessing performance. The Company's business operates in 1 operating segment as all of the Company's sales channels are complementary and are analyzed in an identical way, with the CODM evaluating the Company's financial information, resources and performance of these resources on a consolidated basis. Since the Company operates in 1 operating segment, all required financial segment information can be found in the consolidated financial statements.

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(6)  Fair Value of Financial Instruments
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 inputs are based on quoted prices in active markets for identical assets or liabilities.
•Level 2 inputs are based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 inputs are based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value. Such instruments are classified as Level 1 and are included in cash, and cash equivalents, and restricted cash on the consolidated balance sheets.

At June 30, 2021, the Company's valuation of outstanding warrants was measured using a Black-Scholes option pricing model and considered Level 2 inputs. See Note 14, Warrants for further discussion of the Company's outstanding warrants and assumptions utilized.

The following summarizes assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of June 30, 20202021 and December 31, 2019:2020:
Fair ValueCash and Cash Equivalents
June 30, 2020December 31, 2019June 30, 2020December 31, 2019
Assets
Cash38,630  22,451  38,630  22,451  
Level 1:
Money market funds59,588  45,127  59,588  45,127  
Cash and cash equivalents$98,218  67,578  $98,218  67,578  
Liabilities
Level 2:
Preferred stock warrant liabilities—  (666) —  —  
Total$98,218  66,912  $98,218  67,578  
19

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Fair ValueCash, Cash Equivalents, and Restricted Cash
June 30, 2021December 31, 2020June 30, 2021December 31, 2020
Assets
Cash$49,658 $74,013 $49,658 $74,013 
Level 1:
Money market funds— 18,071 0 18,071 
Cash, cash equivalents and restricted cash49,658 92,084 49,658 92,084 
Liabilities
Level 2:
Preferred stock warrant liabilities(113)0 0 0 
Total$49,545 $92,084 $49,658 $92,084 

As of June 30, 2021 and December 31, 2020, the Company had money market accounts of $0 and $18,071, respectively. The money market accounts are presented at fair market value based on quoted market prices and are classified within Level 1.



(7)  Debt
Senior Secured Facility

On April 27, 2016, the CompanyCasper Sleep Inc. and Casper Science LLC entered into a loan and security agreement (“Senior Secured Facility”) with Pacific Western Bank that provides(as amended, the “Senior Secured Facility” or “Prior Credit Facility”) for a $15,000 revolving credit line. The line (“was ultimately amended to a borrowing base of $25,000 and an extended the maturity date of 90 days from September 1, 2020. During the year ended December 31, 2020, the line was refinanced by entering into the Revolving Line”Credit Facility, as defined and described herein.
Revolving Credit Facility
On November 10, 2020, Company refinanced its secured revolving facility with Pacific Western Bank by entering into a credit agreement (the “Credit Agreement”) by and among the Company, Casper Science LLC and Casper Sleep Retail LLC (collectively, the “Loan Parties”), and Wells Fargo Bank, National Association (“Wells Fargo”) providing for a senior secured asset-based revolving credit facility of up to $30,000 (the "Loan Cap"), with an uncommitted accordion of an additional $15,000 (the “Revolving Credit Facility”). No significant debt issuance costs were incurred as partThe Credit Agreement provides that up to $10,000 of the transaction. Revolving Credit Facility is available for issuances of letters of credit, and up to $5,000 is available for swingline loans.

The Company is obligatedhas the option to increase the total commitment under the Revolving Credit Facility from $30,000 to $45,000, subject to certain conditions, including obtaining commitments from one or more lenders. The Company intends to use the proceeds of the Revolving Credit Facility (a) to finance the acquisition of working capital assets of the Company, including the purchase of inventory and equipment, in each case in the ordinary course of business, (b) to finance capital expenditures of the Company, (c) for general corporate purposes of the Loan Parties, (d) to pay ongoing commitment fees equal to $9 annually. On November 20, 2017, Casper amended this lineand expenses in connection with the transactions contemplated by the Credit Agreement, (e) the repayment in full of credit to raiseamounts outstanding under the borrowing limit to $30,000. On August 14, 2018, the Senior SecuredPrior Credit Facility and (e) for other lawful corporate purposes. The Prior Credit Facility was amendedterminated upon repayment in full of the amounts outstanding thereunder.

The Revolving Credit Facility matures on the earlier of November 10, 2023 and 91 days prior to modify reporting covenants. On December 12, 2018, the Senior Securedearliest maturity date of any borrowing under the Amended Subordinated Facility was modified to increase(as defined below).

20

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Borrowings under the ancillary services sublimit from $4,000Revolving Credit Facility will be subject to $10,000. On March 1, 2019,an applicable margin of (i) when average daily availability is greater than or equal to 50% of the Senior Secured Facility was amended to modify the borrowing limit to $25,000Loan Cap, 2.50% for LIBOR loans or 1.50% for base rate loans, as well as other covenants. On September 1, 2019, the Senior Secured Facility was amended to extend the maturity datea letter of credit fee of 2.50%, and (ii) when Average Daily Availability is less than 50% of the Loan Cap, 2.75% for LIBOR loans or 1.75% for base rate loans, as well as a letter of credit fee of 2.75%, in each case subject to adjustments on the first day of each fiscal quarter commencing on January 1, 2021.

The Revolving Line to September 1, 2020, increase the amount of allowable capital expenditures from $39,000 to $55,000, and increase the borrowing base percentage from 150% to 300%Credit Facility is secured by substantially all assets of the most recent average trailing three month gross profit. On August 6, 2020,Loan Parties, including intellectual property, subject to customary exceptions.

The Revolving Credit Facility contains customary covenants that limit, absent lender approval, the Senior Secured Facility was amended to extend the maturity date by 90 days.
Subject to certain termsability of the loan agreement,Company to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain transactions, repay certain indebtedness, make investments or dispose of assets. The financial covenant requires that the Company may borrow, prepay and re-borrow amounts underLoan Cap minus the Revolving Line at any time and amounts repaid or prepaid maytotal outstanding be re-borrowed. Interest rates on borrowings under the Revolving Line will be based onno less than the greater of (i) 10.0% of the prime rate or threeLoan Cap and (ii) $3,000. The Revolving Credit Facility also includes customary cash dominion terms, pursuant to which a half percent (3.5%). The prime rate isCash Dominion Event (as defined in the Credit Agreement) could become effective if the applicable triggers as set forth in the rate of interest announced by the bank.Credit Agreement were to occur.

The Senior Secured FacilityCredit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain customary financial,other indebtedness, change of control, incurrence of certain material judgments that are not stayed, satisfied, bonded or discharged within 45 days, certain events related to the Employee Retirement Income Security Act of 1974, invalidity of the credit documents, and violation of affirmative and negative covenants including a minimum net revenue, a minimum cash balance to be held at Pacific Western Bank, a limit on the Company’s ability to incur additional indebtedness, disposeor breach of assets, make certain acquisition transactions, pay dividends or make distributions,representations and certain other restrictions on the Company’s activities each defined specificallywarranties set forth in the agreement.Credit Agreement. Upon an event of default, the lenders may, subject to various customary cure rights and grace periods, require the immediate payment of all amounts outstanding and foreclose on collateral. Casper was in compliance with all terms and covenants in the Senior SecuredRevolving Credit Facility as of June 30, 2020.2021.

Given the uncertainty around when in 2022 the Company will become cash flow positive, the Company's management estimated that a Cash Dominion Event (as defined under the Credit Agreement) may be triggered based on the level of Deposited Cash (as defined in the Credit Agreement) maintained by the Company. Therefore, the Company's obligations under the Revolving Credit Facility were reclassified to short-term debt as of June 30, 2021.
The Company drew down $16,000 of the Revolving Credit Facility on November 10, 2020. The outstanding balance of the Revolving Line was $15,868$16,000 as of June 30, 2020. Interest expense incurred on the Revolving Line was $151 and $335 for2021 at an interest rate of 3.50%. During the three and six months ended June 30, 2020,2021, interest expense incurred on the Revolving Line was $208 and $581, respectively.
Amended Subordinated Facility

Subordinated Facility
On March 1, 2019, Casper Sleep Inc., Casper Science LLC and Casper Sleep Retail LLC entered into aIn connection with the secured growth capital loan and security facility agreement (the "Subordinated Facility") with TriplePoint Venture Growth BDC Corp., as lender and collateral agent, and TriplePoint Capital LLC, as lender (or, together with TriplePoint Venture Growth BDC Corp., TriplePoint)"TriplePoint"), on March 1, 2019, we entered into 2 warrant agreements with TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC for 19,201 shares of Series D preferred stock and 12,801 shares of Series D preferred stock, respectively, at an exercise price per share of $31.24715. TriplePoint’s right under the warrant agreements to purchase the Series D preferred stock will be available for seven years from March 1, 2019, subject to certain exercise conditions. In the event these warrant agreements are exercised, TriplePoint will have the right to purchase under the warrant agreements the common stock into which provided for a $50,000 growth capital loan facility (the “Subordinated Facility”). The Subordinated Facility allows for expansion up to an additional $50,000 upon request and approval following full utilizationeach share of the initial loan, and has a maturity,Series D preferred stock is convertible at our option,the time of up to five years.

such exercise.
Borrowings under the Subordinated Facility accrueaccrued interest at the prime rate (which, as defined in the Subordinated Facility, shall be as published in the Wall Street Journal with a floor of 5.25%) plus an applicable margin set forth in the table of terms. The table of terms sets forth 18 options that range on term, amortization, interest rate and other features that can range from an annual interest rate of the prime rate plus 0.0% margin for a three monthsmonth interest only term and up to a prime plus 7.25% margin for a 48 monthsmonth interest only term. End of term payments rangeranged from 0.25% of each advance for a three-month term up to 8.25% for each advance with a 48 month repayment option. The Subordinated Facility also hashad a 1.25% one-time facility fee for the committed amount, which is initially $50,000.

The Subordinated Facility contains certain affirmative and negative covenants, including, among others, restrictions on liens, indebtedness, mergers or acquisitions, investments, dividends or distributions, fundamental changes and affiliate transactions.

As of June 30, 2020, the Company was in compliance with all covenants under the Subordinated Facility and the outstanding balance of the loans was $50,000. Interest expense incurred on the loan $1,835 and $3,670 for the three and six months ended June 30, 2020, respectively.

See Note 14 for additional information on warrants issued in conjunction with the Subordinated Facility.

(8)  Stock-Based Compensation
During the six months ended June 30, 2020, the Company granted 90,505 stock options.
21

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
which is initially $50,000. There was a 1.5% prepayment penalty in the event that the loan is prepaid within the first 18 months with 0 prepayment penalty thereafter.

The Subordinated Facility contained certain affirmative and negative covenants, including, among others, restrictions on liens, indebtedness, mergers or acquisitions, investments, dividends or distributions, fundamental changes and affiliate transactions. On November 10, 2020, the Company, Casper Science LLC and Casper Sleep Retail LLC entered into an amendment to the agreement governing the Subordinated Facility with TriplePoint Venture Growth BDC Corp., as lender and collateral agent, and TriplePoint Capital LLC, as lender (the “Amended Subordinated Facility”), to, among other things, permit the incurrence of the Revolving Credit Facility.

On August 9, 2019, Casper drew down a $25,000 forty-eight month interest only loan with an interest rate of prime plus 7.25%. The interest rate on the end of term payment is 7.50% of the drawn down amount. As of June 30, 2021, the loan was $25,000. During the three and six months ended June 30, 2021, interest expense incurred on the loan was $946 and $1,882, respectively.

On November 1, 2019, Casper drew down a $25,000 thirty-six month interest only loan with an interest rate of prime plus 6.0%. The end of term payment is 6.25% of the drawn down amount. As of June 30, 2021, the outstanding balance under the loan was $25,000. During the three and six months ended June 30, 2021, interest expense incurred on the loan was $889 and $1,771, respectively.

As of June 30, 2021, the Company was in compliance with all covenants under the Amended Subordinated Facility.
See Note 14, Warrants for additional information on warrants issued in conjunction with the Subordinated Facility.

(8)  Stock-Based Compensation
Stock-based compensation costs amounted to $3,564 and $7,349 for the three and six months ended June 30, 2021 and $3,284 and $5,945 for the three and six months ended June 30, 2020, respectively. These amounts include stock-based compensation to employees and non-employees, and is included within general and administrative expense.

The total number of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”) vested during the six months ended June 30, 2021 was 1,837,465 at a total fair value of $15,141.

During the six months ended June 30, 2020,2021, the Company extended the term of certain fully vested stock options for certain employees resulting in the immediate recognition of incremental stock-based compensation expense of $286.

During the six months ended June 30, 2021, the Company granted 167,692 stock options.

During the six months ended June 30, 2021, options to purchase 70,159136,925 shares of common stock were exercised. The intrinsic value, which is the difference between the market value of the stock and the exercise price of the stock options, of those options exercised was $389.
The total number of options vested during the six months ended June 30, 2020, was 634,701 at a total fair value of $5,693.

During the six months ended June 30, 2020, the Company extended the term of certain fully vested stock options for certain employees resulting in the immediate recognition of incremental stock-based compensation expense of $6.

Stock-based compensation cost amounted to $3,284 and $5,945 for the three and six months ended June 30, 2020, respectively, and $1,876 and $3,526 for the three and six months ended June 30, 2019, respectively. These amounts include stock-based compensation to employees and non-employees, and is included within general and administrative expense.

$1,144.
As of June 30, 2020,2021, the total unrecognized stock-based compensation expense related to stock options was $27,659.$13,873. The Company expects to recognize this expense over the remaining weighted- averageweighted-average period of approximately 2.882.28 years.

Restricted Stock Units and Performance Stock Units

In February 2020 and in connection with the IPO, the Company's Board of Directors adopted the Company's 2020 Equity Incentive Plan, which became effective upon the filing of the associated Form S-8 on February 11, 2020.

During the six months ended June 30, 2020, the Company granted 1,917,308 restricted stock units (“RSUs”), and 259,616 performance stock units (“PSUs”), of which 323,779 units were forfeited. During the three months ended June 30, 2020, the Company granted 178,780 restricted stock units (“RSUs”), and 0 performance stock units (“PSUs”), of which 320,129 units were forfeited. The fair value of the units granted was equal to the average stock price on the grant date.

Total stock-based compensation expense of $1,621 and $2,228 was recognized for the three and six months ended June 30, 2020, respectively, and is included within general and administrative expense. Total stock-based compensation expense of $0 was recognized for the three and six months ended June 30, 2019, respectively. The Company expects to recognize the expense over the remaining vesting period of four years for new hire grants, and three years for all other employee and director grants.

The PSUs earned will vest within one year from the grant date based on the Company's performance. As of June 30, 2020, the Company recognized $0 on the PSUs, as the performance metrics are not expected to be achieved based on the fiscal year 2020 forecast.

The following table summarizes the activity related to the Company's RSUs and PSUs:

22

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Restricted Stock Units and Performance Stock UnitsOutstanding sharesWeighted Average Grant Date Fair Value
Balance as of January 1, 2020—  $—  
Granted2,176,924  8.58  
Vested and converted to shares—  —  
Forfeited or canceled(323,779) 8.75  
Balance as of June 30, 20201,853,145  $8.55  

During the three months ended June 30, 2021, the Company granted 189,864 restricted stock units (“RSUs”), and 0 performance stock units (“PSUs”), of which 88,935 RSUs and 0 PSUs were forfeited. During the six months ended June 30, 2020, the Company granted 1,546,598 RSUs and 401,464 PSUs, of which 175,063 RSUs and 155,169 PSUs were forfeited. The fair value of the units granted was equal to the average stock price on the grant date.

Total stock-based compensation expense of $2,658 and $4,404 related to RSUs was recognized for the three and six months ended June 30, 2021 and 2020, respectively, and is included within general and administrative expense. The Company expects to recognize the expense for RSUs over the vesting period of four years for new hire grants and annual awards issued in 2021, three years for RSUs issued in 2020, and 1 year for director grants.

The PSUs earned will vest within two years from the grant date based on the Company's performance. During the three and six months ended June 30, 2021, the Company recognized expense related to PSUs of $191 and $493, respectively.

As of June 30, 2021, the total unrecognized stock-based compensation expense related to RSUs and PSUs was $22,148 and $2,545, respectively. As of June 30, 2021, the Company expects to recognize this expense over the remaining weighted-average period of approximately 2.75 years.

The following table summarizes the activity related to the Company's RSUs and PSUs:

Restricted Stock Units and Performance Stock UnitsOutstanding sharesAggregate Intrinsic ValueWeighted Average Grant Date Fair Value
Balance as of January 1, 20212,236,235 $8.16 
Granted1,948,062 $8.36 
Vested and converted to shares(713,220)$5,471$8.65 
Forfeited(330,232)$8.50 
Balance as of June 30, 20213,140,845 $8.12 

(9)  Significant Risks and Uncertainties Including Business and Credit Concentrations
Risks and Uncertainties
In December 2019, the COVID-19 disease caused by the novel coronavirus was reported in the media, and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On March 11, 2020, the WHO characterized COVID-19 as a pandemic. The broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance remain uncertain. The Company has experienced and may continue to experience constrainedsignificant supply or slowed customer demandchain disruptions due to extended materials and components constraints, labor shortages, and logistics delays, resulting in higher costs of goods with respect to certain products that could materially adversely impact the Company’s business, results of operations and overall financial performance in future periods. In order to protect the health and safety of our employees, we have continued to limit access to our corporate offices, and our corporate workforce has spent and continues to spend a significant amount of time working from home. We and our retail partners have been and may be required in the future to close or limit service offerings in certain of our stores in response to guidance from applicable government and public health officials, which we expect will result in depressed rates of retail foot traffic and will adversely affect our revenue. As there remains a high degree of uncertainty around the impacts of the COVID-19 pandemic, including any new strains, such as the Delta variant, the Company addresses and evaluatescontinues to closely monitor the impacts frequently.of COVID-19 on its business, customers, employees, supply chain, and retail partners.

23

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
At this stage of the Company's development, the ability to generate positive operating cash flows is a risk. The Company has incurred a net loss from operations and net operating cash outflows for the three and six months ended June 30, 2020,2021, the years 20192020 and 20182019 and since inception and has an accumulated deficit. As a result, the Company continues to rely upon investors who contributed cash to cover the Company's current operating expenses and obligations and has the ability to draw down on the line of credit. The Company's success will depend in part on its ability to continue to attract new customers, retain existing customers, and curate and market its products. There can be no assurance that the Company will be able to achieve any or all of these success factors. The Company estimates that it will have adequate liquidity to fund operations through August 12, 2021.16, 2022. In the future, if the Company is unable to attain positive cash flow from operations it will need to raise adequate financing or issue additional debt to maintain its current level of operations and growth.
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, and cash equivalents and restricted cash and accounts receivable.receivable, net. The Company places its cash investments with high-credit quality financial institutions. A significant portion of the Company’s accounts receivable, net is with its credit card processors and retail partnerships. The Company believes no significant credit risk exists with respect to these financial instruments.
Concentrations
As of June 30, 2020,2021, three customers comprised 32%46%, 18%16% and 15%16% of the Company's accounts receivable, net balance. As of December 31, 2019, one customer2020, two customers comprised 49%58% and 15% of the Company’s accounts receivable, net balance.
Revenue within North America and Europe was approximately $279,434 and $0, respectively, for the three and six months ended June 30, 2021. Revenue within North America and Europe was approximately $211,326 and $11,914, for the three and six months ended June 30, 2020.

One customer accounted for 12%16% of the Company’s revenue for the six months ended June 30, 2020. No2021. One customer accounted for more than 10%12% of the Company’s revenue in thefor the six months ended June 30, 2019.2020.

23

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(10) Leases
Rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases were $6,111$4,657 and $4,415$10,044 for the three and six months ended June 30, 2020 and 2019,2021, respectively, and $11,746$6,111 and $7,404$11,746 for the three and six months ended June 30, 2020, and 2019, respectively.
As of June 30, 2020,2021, future minimum lease payments under non-cancelable operating leases consisted of the following:
2020 (remaining six months)10,287  
202120,676  
2021 (remaining six months)2021 (remaining six months)$10,536 
2022202221,174  202221,364 
2023202321,069  202321,522 
2024202417,334  202417,739 
2025202514,394 
ThereafterThereafter85,079  Thereafter72,061 
Total minimum lease paymentsTotal minimum lease payments$175,619  Total minimum lease payments$157,616 
24

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

The Company maintains leases for its office spaces and retail locations in each location as described in Note 1.
1, Description of Business.
(11) Income Taxes
Effective Tax Rate
The Company’s effective tax rate, which is calculated by dividing each period’s income tax provision by pretax income, was 0.07%0.08% and 0.05%0.03%, for the three and six months ended June 30, 2020 and 2019,2021, respectively, and 0.06%0.05% and 0.05% during0.07% for the three and six month periodmonths ended June 30, 2020, and 2019, respectively. The effective tax rates for the periodperiods ended June 30, 20202021 generally differ from the U.S. federal statutory tax rate primarily due to a full valuation allowance related to the Company’s U.S. deferred tax assets.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law. The Company has considered the impact of the business provisions in the CARES Act and determined that there is no material impact to the Company's accounting for income taxes.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority.
The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the U.S. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions around the world. The Company currently considers U.S. federal and state to be major tax jurisdictions.
24

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future.

(12) Accrued Expense
Accrued expenses consist of the following:
June 30, 2020December 31, 2019
Tax fees$14,413  $14,033  
General trade19,190  30,568  
Marketing16,797  19,444  
Other10,411  9,085  
Total Accrued Expenses$60,811  $73,130  
June 30, 2021December 31, 2020
Marketing$19,501 $17,479 
Tax fees12,420 13,723 
General trade16,073 10,592 
Other18,135 12,947 
Total Accrued Expenses$66,129 $54,741 

25

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(13) Convertible Preferred Stock, Common Stock, and Stockholders’ Equity/(Deficit) / Equity
(a)  Common Stock
On February 10, 2020, in connection with our IPO, all shares of Class A common stock and Class B common stock were converted into common stock atwith a par value of $0.000001, per share and we issued and sold 8,350,000 shares of our common stock at a price to the public of $12.00 per share resulting in net proceeds to us of approximately $88.2 million$88,000 after deducting the underwriting discount of approximately $6.5 million$6,500 and offering expenses of approximately $5.5 million.$5,700.

As of June 30, 2020,2021, the Company had 170,000,000 shares of authorized common stock. Each holder of the Company's common stock is entitled to 1 vote per share on all matters to be voted upon by the stockholders. There are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of the Company's common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the Company's Board of Directors out of legally available funds. If there is a liquidation, dissolution or winding up of the Company, holders of the Company's common stock would be entitled to share in the Company's assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock.

Holders of the Company's common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company's common stock will be fully paid and non-assessable. The rights, preferences and privileges of the holders of the Company's common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which the Company may designate and issue in the future

(b)  Convertible Preferred Stock
On February 10, 2020, upon the closing of the Company's IPO, all outstanding shares of convertible preferred stock were automatically converted into an aggregate of 20,485,054 shares of common stock.
25

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
Series seed preferred stockSeries A
preferred stock		Series B
preferred stock		Series C
preferred stock		Series D
preferred stock
Balance at December 31, 20193,951,636  $1,826  4,753,421  $12,983  2,378,594  $54,895  5,440,496  $169,098  2,688,765  $81,159  
Conversion of redeemable convertible preferred stock to common stock(3,951,636) (1,826) (4,753,421) (12,983) (2,378,594) (54,895) (5,440,496) (169,098) (2,688,765) (81,159) 
Balance at June 30, 2020—  $—  —  $—  —  $—  —  $—  —  $—  


(14) Warrants
In 2014, the Company issued 2 warrants to purchase common stock that had an expiration date in 2024. The warrant issuances were to 1) a vendor in connection with a credit extension, and 2) a vendor in connection with the release of certain claims. Both warrants were fully vested when issued and were not provided as compensation for any service performed by the warrant holders. As such, they were marked at their fair market value on the date of issuance, and were no longer subject to re-measurement at each subsequent reporting date. The warrants were issued with an exercise price of $0.10 and were subsequently recorded at $8.9 in the consolidated statement of operations.
In connection with the IPO, the above-mentioned warrants were exercised in full and reclassified into 181,133 shares of common stock.
In connection with the Subordinated Facility, as described in Note 7, Debt, on March 1, 2019, Casper entered into 2 warrant agreements with TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC for 19,201 shares of Series D preferred stock and 12,801 shares of Series D preferred stock, respectively, at an exercise price per share of $31.24715, (the “TPC Warrants”). TriplePoint’s right under the warrant agreements to purchase the Series D preferred stock will be available for the greater of (i) seven years from March 1, 2019, or (ii) one year from the effective date of an initial public offering, subject to certain exercise conditions inconditions. In the event ourthese warrant agreements are exercised, TriplePoint will have the right to purchase under the warrant agreements the common stock is traded on a securities exchange.
The TPC Warrants may be separated and transferred frominto which each share of the debt and may be separately exercisable. Therefore, they are deemed to be freestanding financial instruments. The TPC Warrants are redeemable forSeries D preferred stock upon a deemed liquidation eventis convertible at the time of such exercise. As of June 30, 2021, TriplePoint's right under these warrant agreements to purchase 32,002 shares of common stock were still outstanding and are considered redeemable under the SEC ASR 268. Therefore, they are an obligation that require or may require repurchase of shares by transferring assets upon a deemed liquidation event.
In accordance with ASC 470-20-25-2, the proceeds of each debt issuance are allocated between the debt and the respective warrant based on their relative fair values. Each TPC Warrant is recorded as a liability upon initial recognition, with a corresponding debitwill be available for seven years from March 1, 2019, subject to record a debt discount. Each reporting period, the TPC Warrants are marked to market with changes in fair value recorded as an increase/decrease in the liability with a corresponding fair value adjustment in other income (expense). The debt discount is initially recorded with each TPC Warrant and is amortized to interest expense over the term of the associated debt using the effective interest method. The TPC Warrants were issued before a liability for the debt was recognized and, as a result, the associated debt discount is classified as a deferred asset, consistent with the treatment of the fees paid to lenders.certain exercise conditions.

(15) Recently Issued Accounting Pronouncements 
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private
26

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Adopted Accounting Pronouncement
In the first quarter of 2019, Casper adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method and applying this approach to contracts not completed as of the date of adoption. ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue under GAAP and requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires certain disclosures regarding qualitative and quantitative information with respect to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Comparative prior period information has not been restated and continues to be reported in accordance with accounting standards in effect for those periods. Please see Note 5 for additional revenue disclosures.
There was no material effect of adoption of ASC 606 on our consolidated financial statements other than the impact on disclosures.
New Accounting Pronouncements, Not Yet Adopted
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the consolidated financial statements.
Measurement of Credit Losses
26

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The standard is effective for our interim and annual financial periods beginning January 1, 2023. This standard is to be applied utilizing a modified retrospective approach. We are currently evaluating the impact of this standard on our accounts receivable, cash, cash equivalents and restricted cash, and any other financial assets measured at amortized cost and do not expect that adoption will have a material impact on our consolidated financial statements or related disclosures.

Lease Guidance
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the existing lease guidance under current U.S. GAAP. ASU 2016-02 is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard and leases continue to be classified as finance or operating. ASU 2016-02’s primary change is the requirement for entities to recognize a lease liability for payments and a right-of-use (“ROU”) asset representing the right to use the leased asset during the term of an operating lease arrangement. Lessees are permitted to make an accounting policy election not to recognize the asset and liability for leases with a term of 12 months or less. In addition, ASU 2016-02 expands the disclosure requirements of lease arrangements. Upon adoption, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, “Targeted Improvements”, which allows for a new, optional transition method that provides the option to use the effective date as the date of initial application on transition. Under this option, the comparative periods would continue to apply the legacy guidance in Accounting Standard Codification (“ASC”) 840, including the disclosure requirements, and a cumulative effect adjustment would be recognized in the period of adoption rather than the earliest period presented. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company is currently working to complete the design of new processes and internal controls, which include the implementation of a software solution and finalizing the evaluation of Casper’s population of leased assets to assess the effect of the new guidance on the financial statements. On April 8, 2020 the FASB extended the implementation deadline of ASC 842 for companies following the private company adoption calendar. As such, the Company plans to follow the private adoption calendar as permitted and adopt the new guidance effective January 1, 2022, but has not determined which transition method will be utilized. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the “package of practical expedients” which permits us not to reassess under the new
27

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements (the latter is not applicable to us). Casper expects the adoption of the new standard to have a material effect on the Consolidated Financial Statements upon adoption. While the Company continues to assess all of the effects of the adoption, it currently believes the most significant effects relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for operating leases, as well as providing significant new disclosures about leasing activities.

(16) Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):
Three months endedSix months ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Numerator
Net loss$(24,205) $(26,927) $(58,671) $(44,376) 
Numerator for basic and diluted loss per share$(24,205) $(26,927) $(58,671) $(44,376) 
Denominator
Weighted-average common shares outstanding39,708,401  10,537,349  33,808,771  10,476,854  
Denominator for basic and diluted net loss per share39,708,401  10,537,349  33,808,771  10,476,854  
Net loss per share attributable to common stockholders, basic and diluted(0.61) (2.56) (1.74) (4.24) 
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Basic net loss
CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares plus common equivalent shares for the period, including any dilutive effect from such shares. Common equivalent shares are convertible preferred stock, convertible preferred stock warrants, shares issuable upon the exercise of stock options and unvested shares of RSUs.amounts)
(Unaudited)
Three months ended
June 30, 2021June 30, 2020
Numerator
Net loss$(33,746)$(24,205)
Numerator for basic and diluted loss per share$(33,746)$(24,205)
Denominator
Denominator for basic and diluted net loss per share—weighted-average shares41,439,468 39,708,401 
Denominator for basic and diluted net loss per share41,439,468 39,708,401 
Basic and diluted loss per share$(0.81)$(0.61)
Six months ended
June 30, 2021June 30, 2020
Numerator
Net loss$(54,926)$(58,671)
Numerator for basic and diluted loss per share$(54,926)$(58,671)
Denominator
Denominator for basic and diluted net loss per share—weighted-average shares41,118,464 33,808,771 
Denominator for basic and diluted net loss per share41,118,464 33,808,771 
Basic and diluted loss per share$(1.34)$(1.74)

    Since the Company was in a loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The following securities have been excluded from the calculation of weighted average common shares outstanding because the effect is anti-dilutive for the three and six months ended June 30, 20202021 and 2019.2020.
Three months endedSix months endedThree months endedSix months ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Warrants to purchase common stockWarrants to purchase common stock33,311  214,444  33,311  214,444  Warrants to purchase common stock32,002 33,311 32,002 33,311 
Stock options and RSUsStock options and RSUs6,977,117  4,750,253  6,977,118  4,727,557  Stock options and RSUs6,774,875 6,977,117 6,928,892 6,977,118 


28

CASPER SLEEP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(17) Subsequent Events
The Company has assessed subsequent events through the date of this Quarterly Report on Form 10-Q and has concluded the following required disclosure in the consolidated financial statements.

On August 6, 2020, the Senior Secured Facility was amended to extend the maturity date by 90 days.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2019,2020 (the "2020 Form 10-K"), and other factors set forth in other parts of this Quarterly Report on Form 10-Q.
Overview
As a pioneer of the evolving business of sleep, or what we call the Sleep Economy, we bring the benefits of cutting-edge sleep technology, data, and insights directly to consumers. We focus on building direct relationships, providing a human experience, and making shopping for sleep joyful. We meet consumers wherever they are, online and in person, providing a fun and engaging experience, while reducing the hassles associated with traditional purchases.
Our products seek to address real life sleep challenges by optimizing for a variety of factors that impact sleep, like;like: the microclimate under the covers by regulating humidity and temperature; comfort and support, through the use of high-quality materials and ergonomic designs; and the ambience and sleep environment, through smart devices that provide sleep-conducive lighting. We also work to address “the little things” in our products, offering innovative features to make the sleep experience better and less stressful. Casper Labs, innovates throughout the Sleep Economy. Based in San Francisco, Casper Labs has over 25,000 square feet ofhome to our fabrication and test space, featuringfeatures state-of-the-art capabilities to test against a wide range of factors affecting sleep quality.quality, driving our innovation throughout the Sleep Economy. Casper Labs controls every aspect of our product offerings, including design and construction, material performance requirements, manufacturing protocols, supplier selection, packaging specifications, and quality assurance. We believe that no other company in the category has our level of product development talent, resources, or expertise.
We distribute our products through a flexible, multi-channel approach combining our direct-to-consumer channel, including our e-commerce platform and retail stores, with our retail partnerships. Our presence in physical retail stores has provenmulti-channel approach enables us to meet consumers where they want to shop, servicing them throughout their entire purchase journey. We believe our channels are complementary to our e-commerce channel, as we believe interaction with multiple channels has createdand creates a synergistic “network effect” that increases system-wide sales as a whole. We believewhole, As of June 30, 2021, we distributed our multi-channel expansion creates synergiesproducts directly to our customers in North America through our e-commerce platform, our 72 Casper stores, and that these channels, to date, have proven to be complementary, not cannibalistic.more than 25 retail partners.
Please see “Factors Affecting our Financial Condition and Results of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on2020 Form 10-K, filed on March 19, 2020, for a discussion of the factors that generally are expected to impact our business.
Impact of COVID-19 Pandemic
Casper iscontinues to closely monitoringmonitor how the spread of the COVID-19 pandemic caused by the novel coronavirus is affecting its employees, customers and business operations. We have developed and implemented preparedness plans to help protect the safety of our employees and customers, while safely continuing business operations.
29



In order to protect the health and safety of our employees, particularly given the severity of the pandemic in New York and California,, we have continued to limit access to our corporate offices and our corporate workforce has spent and continues to spend a significant amount of time working from home during this period. Access to our offices will remain limited until we are able to safely and responsibly re-open them on a broader basis in accordance with governmental and public health guidance, as well as health and safety policies tailored to our operations.
Beginning in mid-March 2020, we temporarily closed our retail stores in North America in response to government and public health guidance and implemented an employee furlough program, which was initially applicable to almost all of our retail employees. As regulatory restrictions on retail businesses have lifted or been modified, beginning in mid-May 2020, we have been reopening our retail store operations in North America in accordance with government and public health guidance. As of the date of this filing, 57Quarterly Report on Form 10-Q, 71 of our 72 total Casper stores have reopened. Inare open and operating (with one temporarily closed for renovations), with each instance, available services vary based on the regulatory requirements and public health guidance applicable to that location, includingoffering walk-in shopping, private in-store
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appointments, and curbside pick-up services, and virtual appointments.services. The health and safety of our customers and employees remain our top priority, and we have implemented and continuously update a suite of COVID-19-related operating policies and protocols as part of our retail operations.operations, including, where appropriate, limiting in-store hours and capacity consistent with public health guidance and best practices. We also continuously monitor developments related to COVID-19 in locations where we have retail operations, and have developed procedures to enable us to responsibly and efficiently open or close our stores and adjust our service offerings as needed in response to changing COVID-19 conditions and applicable guidance from government and public health officials. During the threesix months ended June 30, 2020,2021, the COVID-19 pandemic continued to adversely impact sales were adversely impacted in our retail stores, primarily due to temporary closures, limitations in service offerings and significant reductions incontinuing depressed rates of retail foot traffic in certain locations as a result of restrictions on retail businesses and shifting consumer preferences in response to COVID-19.

We have also workedcontinue to work with our manufacturing, logistics and other supply chain partners to build communication and monitoring processes for key aspects of our product and delivery supply chain. To date, certainDuring the second quarter of our suppliers2021, we experienced increased upstream supply chain disruptions due to industry-wide components and logistics providers have experienced supplyraw materials constraints orcritical to mattress production, extensive labor shortages due toand shipping constraints resulting, in part, from the ongoing COVID-19 outbreak.pandemic, as well as the lingering effects of severe weather in the southern region of the United States in the first quarter of 2021, among other factors. As a result of the aforementioned upstream supply chain disruptions, during the three months ended June 30, 2020,second quarter of 2021, we have been impacted by industry-wide supply chain constraints, which haveexperienced and continue to experience increased delivery times for certain of our products throughand constraints on our e-commerce platform and impacted order fulfillment for certain of our retail partners. We are actively qualifying and on-boarding new suppliers and expect these additional capabilitiesability to significantly mitigate any inventory constraints within the upcoming quarter.

As a result, the COVID-19 pandemic has impacted, and we expect will continue to impact, our revenues, results of operations and financial condition. In response, we have taken proactive measures focused on optimizing our business model and cash management. As part of these measures, we ceased or reduced rent payments to a majority of our retail store landlords during the closure period for each store. We have been actively negotiating with our landlords on rent deferrals and abatements related to this closure period and have resumed rent payments for the majority of our reopened locations. Although we expect to favorably resolve these negotiations with our landlords, there can be no assurances in that regard, and all or some of these landlords could claim that our failure to pay rent is a default under our leases. Further, beginning in mid-March 2020, we reduced our corporate personnel by approximately 21%, and in April 2020, we announced that we had initiated the wind-down of our European operations.

We are also carefully monitoring shifting consumer behaviormeet demand from physical retail stores to our online platform. Beginning in late March 2020, we have observed continued strength in our e-commerce sales due in part to changing consumer behavior during the COVID-19 pandemic, an acceleration of the shift to online shopping by consumers, and a multi-year high in e-commerce marketing efficiency due to recent declines in advertising costs. It remains uncertain, however, whether these trends will continue as the pandemic and the responses to it evolve. In addition, while the stores of certain of our retail partners wereandin our direct-to-consumer channel, as well as higher costs of goods sold with respect to certain of our products. To mitigate the impacts of these disruptions, we are actively diversifying and have remained temporarily closed dueexpanding our supplier base, continuing to work closely with our suppliers to reallocate production and increase our levels of safety stock inventory, renegotiating certain logistics costs, and planning to implement price increases across certain product lines. There remains significant uncertainty around the impact of the COVID-19 pandemic on the global supply chain, and we expect certain upstream supply chain disruptions to continue to impact our suppliers and logistics providers in the second half of 2021. We continue to partner closely with these providers to attempt to mitigate any potential product or delivery supply chain constraints in future quarters.

Substantially all of our retail partners, including our largest partners, remained open for business, both in-store and online, during the second quarter of 2021, and weas of the date of this Quarterly Report on Form 10-Q, substantially all of our retail partners have not experienced a material negative impact on retail partnership sales. Further,resumed their in-store operations. Accordingly, we have not experienced any material issues to date with respect to our accounts receivablesreceivable from our retail partners nor have weor needed to materially
30


increase our allowances for accounts receivable balances. We are, however, continuing to work closely with our retail partners to monitor the situation.

The COVID-19 pandemic has impacted, and we expect will continue to impact, our revenues, results of operations and financial condition. At this time, however, there isremains significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. We will continue to closely monitor the impact of COVID-19 on our business, including how it is impactingwith respect to our customers, employees, supply chain, and retail partners. The future impact that COVID-19 will have on our financial position and operating results however, may be affected byremains subject to numerous uncertainties, including the efficacy and rate of adoption of vaccination programs, the spread of new strains of COVID-19, such as the Delta variant, duration of the outbreak,pandemic, governmental and public health actions, impacts on our supply chain, the effect on customer demand, and changes to our operations. See “Risk Factors—The COVID-19 pandemic has affected, and could continue to adversely affect, our business, financial condition and results of operations” in Part II,I, Item 1.A. of this Quarterly Report onour 2020 Form 10-Q.10-K.

Components of our Results of Operations
Revenue
Revenue is comprised of global sales through our direct-to-consumer channels and our retail partnerships. Revenue reflects the impact of product returns as well as discounts for certain sales programs and promotions.
30


Revenue comprises the consideration received or receivable for the sale of goods and services in the ordinary course of our activities net of estimates of variable consideration, including product returns, customer discounts and promotions.allowances.
Promotions are occasionally offered, primarily in the form of discounts, and are recorded as a reduction of gross revenue at the date of revenue recognition. We typically accept sales returns during a 30- or 100-night trial period, depending on the product, with our mattresses having a 100-night trial period. A sales return accrual is estimated based on historical return rates and is then adjusted for any current trends as appropriate. Returns are netted against the sales allowance reserve for the period. Sales are recognized as deferred revenue at the point of sale and are recognized as revenue upon the delivery to the consumer. Revenue through our direct-to-consumer channels is recognized upon in-store or home delivery to the consumer, as applicable, and retail partnership revenue is recognized upon the transfer of control, on a per contract basis.
Cost of Goods Sold
Cost of goods sold consists of costs of purchased merchandise, including freight, duty, and non-refundable taxes incurred in delivering goods to our consumers and distribution centers, packaging and component costs, warehousing and fulfillment costs, damages, and excess and obsolete inventory write-downs.
Gross Profit and Gross Margin
We calculate gross profit as revenue less cost of goods sold. We calculate gross margin as gross profit divided by net revenue for a specific period of time. Gross margin in our direct-to-consumer channel, including company-owned retail stores and e-commerce sales, is generally higher than that on sales to our retail partnerships.
Our gross margin may in the future fluctuate from period to period based on a number of factors, including cost of purchased merchandise and components, the mix of products and services we sell and the mix of channels through which we sell our products. We have historically experienced that gross margin, by product, tends to increase over time as we realize cost efficiencies as a result of economies of scale, sourcing strategies and product re-engineering programs. In addition, our ability to continue to reduce the cost of our products is critical to increasing our gross margin over the long-term.
Operating Expenses
Operating expenses consist of sales and marketing, and general and administrative expenses, including research and restructuring expenses.
31


development.
Sales and Marketing Expenses.Marketing.    Sales and marketing expenses represent the largest component of our operating expenses and consist primarily of advertising and marketing costs associated withpromotions of our products and services as well as consulting and contractor expenses. While we expect a decrease in sales and marketing expenses in the short-term due to the impact of the COVID-19 pandemic, on a long-term basis, weWe expect our sales and marketing expenses to increase in absolute dollars as we continue to promote our offerings. At the same time, on a long-term basis, we also anticipate that these expenses will decrease as a percentage of our sales revenue over time, as we improve marketing efficiencies and grow channels that require lower incremental sales and marketing support.
General and Administrative Expenses.Administrative.    General and administrative expenses consist of personnel-related costs for our retail operations, finance, legal, human resources, and IT functions, as well as litigation expenses, credit card fees, professional services, rent and operating costs associated with our retail stores, depreciation and amortization, and other administrative expenses. General and administrative expenses also include research and development expenses consisting primarily of personnel related expenses, consulting and contractor expenses, tooling, test equipment and prototype materials. While we expect a decrease in general and administrative expenses in the short-term due to the impact of the COVID-19 pandemic, on a long-term basis, weWe expect our general and administrative expenses to increase in absolute dollars due to the growth of our business and related infrastructure as well as legal, accounting, insurance, investor relations and other compliance costs associated with becoming a public company. On a long-term basis,However, we also expect our general and administrative expenses to decrease as a percentage of our sales revenue over time, as we scale our business.
31
Restructuring Expenses.

Restructuring.    Restructuring expenses relate toconsist of costs associated with implementing strategic shiftschanges in ourthe Company's business structure including reductions in work force, office, lease exit costs related to the sublease and consolidation of certain corporate office space and exiting of certain lines of business andor geographies. Such costs include severance and other employee separation costs, contract termination expenses and asset impairment.
Income Tax Expense
We account for income taxes in accordance with ASC Topic 740, Income Taxes—. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We classify all deferred income tax assets and liabilities as noncurrent on our balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the provision for (benefit from) income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
We reduce deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including taxable income in prior carryback years (if carryback is permitted under the relevant tax law), the timing of the reversal of existing taxable temporary differences, tax-planning strategies and projected future taxable income. Please refer to Note 1011, Income Taxes to our unaudited consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information on the composition of these valuation allowances and for information on the impact of U.S. tax reform legislation. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
We recognize interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes on our consolidated statement of operations and comprehensive loss.
Seasonality and Quarterly Comparability
Our revenue includes a seasonal component, with the highest sales activity normally occurring during the second and third quarters of the year due to back-to-school, home moves and other seasonal factors, along with seasonal promotions we offer during these quarters. The timing of on-boarding new retail partnerships, which typically launch with large inventory buy-ins, and the timing of launching new products may also impact comparability between periods. These factors can also impact our working capital and/or inventory balances in a
32


given period. Further,Our results and quarterly comparability may also be affected by broader market factors and conditions, such as the COVID-19 pandemic and industry-wide supply chain disruptions. The full extent to which the COVID-19 pandemic maythese factors impact our seasonality and quarterly comparability will depend on numerous evolving factors that we are not be able to accurately predict due to the uncertainty related to the pandemic, as of the date of this Quarterly Report on Form 10-Q.unusual weather conditions and other economic uncertainties.

Results of Operations
Three Months Ended June 30, 20202021 Compared to Three Months Ended June 30, 2019
The following table sets forth information comparing the components of operations and comprehensive loss for the periods indicated.
Three months ended June 30Period over Period ChangeThree months ended June 30
20202019DollarPercentage20202019
(in thousands, except percentages)(as a % of sales revenue net)
Revenue$110,196  $95,227  $14,969  15.7 %100.0 %100.0 %
Cost of goods sold53,131  48,535  4,596  9.5 %48.2 %51.0 %
Gross profit57,065  46,692  10,373  22.2 %51.8 %49.0 %
Operating expenses
Sales and marketing expenses33,181  39,838  (6,657) (16.7)%30.1 %41.8 %
General and administrative expense42,017  33,250  8,767  26.4 %38.1 %34.9 %
Restructuring expenses4,129  —  4,129  100.0 %3.7 %— %
Total operating expenses79,327  73,088  6,239  8.5 %72.0 %76.8 %
Loss from operations(22,262) (26,396) 4,134  (15.7)%(20.2)%(27.7)%
Other (income) expense:
Net interest expense2,152  285  1,867  655.1 %2.0 %0.3 %
Other (income) expense, net(219) 279  (498) (178.5)%(0.2)%0.3 %
Total other expenses, net1,933  564  1,369  242.7 %1.8 %0.6 %
Loss before income taxes(24,195) (26,960) 2,765  (10.3)%(22.0)%(28.3)%
Income tax (benefit) expense10  (33) 43  (129.3)%— %— %
Net loss(24,205) (26,927) 2,722  (10.1)%(22.0)%(28.3)%
Other comprehensive income (loss)
Currency translation adjustment(737) (103) (634) 615.5 %(0.7)%(0.1)%
Total comprehensive loss$(24,942) $(27,030) $2,088  (7.7)%(22.6)%(28.4)%
Revenue
Revenue was $110.2 million for the three months ended June 30, 2020 an increase of $15.0 million, or 15.7%, compared to $95.2 million for the three months ended June 30, 2019. Revenue increased as a result of increased sales through our direct-to-consumer and retail partnership channels and the introduction of new products. Direct-to-consumer sales increased $3.9 million, or 5.0% compared to the three months ended June 30, 2019 driven by the strength of our e-commerce channel, which was partially offset by the loss of sales in our retail stores due to the impact of COVID-19-related closures. The e-commerce channel benefited from an acceleration of consumer home spending to online purchases during the pandemic, as well as macro trends including a focus on comfort and wellness. We temporarily closed our North American retail stores beginning on March 17, 2020 due to the COVID-19 outbreak. Beginning in mid-May 2020, we have been reopening our retail store operations in North America with various levels of service offerings based on the applicable local government and public health guidance. We ended the second quarter with a retail presence of 59 stores, an increase of 27 net new stores
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compared with our retail footprint in the second quarter of 2019. Although 57 of our stores were open and operating as of the end of the second quarter, our revenue from our retail stores was significantly below pre-COVID-19 levels due to limited store operations. Despite certain of our retail partners' stores being temporarily closed due to the COVID-19 pandemic, our largest partners have remained open for business both in-stores and online. Sales to retail partners increased $11.1 million, or 61.1% compared to the three months ended June 30, 2019, driven by growth of sales activity with existing partners, the introduction of 6 new partners compared to the same period in the prior year to end the quarter with 18 partners, and the expansion of our product offerings.

Gross Profit and Cost of Goods Sold
Gross profit was $57.1 million for the three months ended June 30, 2020, an increase of $10.4 million, or 22.2%, compared to $46.7 million for the three months ended June 30, 2019. Cost of goods sold was $53.1 million for the three months ended June 30, 2020, an increase of $4.6 million, or 9.5%, compared to $48.5 million for the three months ended June 30, 2019. Gross margin for the three months ended June 30, 2020 was 51.8% compared to 49.0% for the three months ended June 30, 2019. The increase in gross profit was primarily driven by favorable product mix related to our new mattress line launched in March 2020, as well as lower logistics costs due to a change in service provider.

Sales and Marketing Expense
Sales and marketing expenses were $33.2 million for the three months ended June 30, 2020, a decrease of $6.7 million, or 16.7%, compared to $39.8 million for the three months ended June 30, 2019. Sales and marketing expenses decreased due to reduced advertising spend resulting from lower online and offline media costs and improved marketing efficiencies. Sales and marketing expenses as a percentage of revenue was 30.1% for the three months ended June 30, 2020, compared to 41.8% for the three months ended June 30, 2019, due to a 15.7% increase in revenue and the improved marketing efficiency.

General and Administrative Expenses
General and administrative expenses were $42.0 million for the three months ended June 30, 2020, an increase of $8.8 million, or 26.4%, compared to $33.3 million for the three months ended June 30, 2019. General and administrative expenses increased primarily due to the operating costs related to our expanded retail presence of 27 net new stores compared to the second quarter of 2019, as well as new expenses related to being a public company, such as the implementation of new equity plans.. General and administrative expenses as a percentage of revenue increased from 34.9% for the three months ended June 30, 2019 to 38.1% for the three months ended June 30, 2020 reflecting our increased investment in retail store operations and expenses related to being a public company.
Restructuring Expenses
Restructuring expenses were $4.1 million for the three months ended June 30, 2020. There were no restructuring expenses recorded in the same period of the prior year. Restructuring expenses relate to costs associated with strategic shifts in our business structure including exiting certain lines of business and geographies.Associated costs include severance and other employee separation costs, contract termination expenses and asset impairment.

Total Other Expenses, Net
Total other expenses, net were $1.9 million for the three months ended June 30, 2020, an increase of $1.4 million, or 242.7%, compared to $0.6 million for the three months ended June 30, 2019. The increase in total other expenses, net was due to interest incurred on higher outstanding balances of our debt facilities.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
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    The following table sets forth information comparing the components of operations and comprehensive loss for the periods indicated.
Six months ended June 30Period over Period ChangeSix months ended June 30Three months ended June 30Period over Period ChangeThree months ended June 30
20202019DollarPercentage2020201920212020DollarPercentage20212020
(in thousands, except percentages)(as a % of sales revenue net)(in thousands, except percentages)(as a % of Revenue)
RevenueRevenue$223,240  $184,664  $38,576  20.9 %100.0 %100.0 %Revenue$151,756 $110,196 $41,560 37.7 %100.0 %100.0 %
Cost of goods soldCost of goods sold113,211  94,400  18,811  19.9 %50.7 %51.1 %Cost of goods sold79,223 53,131 26,092 49.1 %52.2 %48.2 %
Gross profitGross profit110,029  90,264  19,765  21.9 %49.3 %48.9 %Gross profit72,533 57,065 15,468 27.1 %47.8 %51.8 %
Operating expensesOperating expensesOperating expenses
Sales and marketing expenses70,655  69,443  1,212  1.7 %31.6 %37.6 %
General and administrative expense89,004  64,134  24,870  38.8 %39.9 %34.7 %
Restructuring expenses5,440  —  5,440  100.0 %2.4 %— %
Sales and marketingSales and marketing39,897 33,181 6,716 20.2 %26.3 %30.1 %
General and administrativeGeneral and administrative48,159 42,017 6,142 14.6 %31.7 %38.1 %
RestructuringRestructuring17,584 4,129 13,455 325.9 %11.6 %3.7 %
Total operating expensesTotal operating expenses165,099  133,577  31,522  23.6 %74.0 %72.3 %Total operating expenses105,640 79,327 26,313 33.2 %69.6 %72.0 %
Loss from operationsLoss from operations(55,070) (43,313) (11,757) 27.1 %(24.7)%(23.5)%Loss from operations(33,107)(22,262)(10,845)48.7 %(21.8)%(20.2)%
Other (income) expense:Other (income) expense:Other (income) expense:
Net interest expenseNet interest expense4,308  542  3,766  694.9 %1.9 %0.3 %Net interest expense1,781 2,152 (371)(17.2)%1.2 %2.0 %
Other (income) expense, netOther (income) expense, net(733) 554  (1,287) (232.2)%(0.3)%0.3 %Other (income) expense, net(1,159)(219)(940)429.1 %(0.8)%(0.2)%
Total other expenses, netTotal other expenses, net3,575  1,096  2,479  226.2 %1.6 %0.6 %Total other expenses, net622 1,933 (1,311)(67.8)%0.4 %1.8 %
Loss before income taxesLoss before income taxes(58,645) (44,409) (14,236) 32.1 %(26.3)%(24.0)%Loss before income taxes(33,729)(24,195)(9,534)39.4 %(22.2)%(22.0)%
Income tax (benefit) expenseIncome tax (benefit) expense26  (33) 59  (179.6)%— %— %Income tax (benefit) expense17 10 7 69.3 %— %— %
Net lossNet loss(58,671) (44,376) (14,295) 32.2 %(26.3)%(24.0)%Net loss$(33,746)$(24,205)$(9,541)39.4 %(22.2)%(22.0)%
Other comprehensive income (loss)
Currency translation adjustment(290) 95  (385) (405.3)%(0.1)%0.1 %
Total comprehensive loss$(58,961) $(44,281) $(14,680) 33.2 %(26.4)%(24.0)%
Revenue
Revenue was $223.2$151.8 million for the sixthree months ended June 30, 2020,2021, an increase of $38.6$41.6 million, or 20.9%37.7%, compared to $184.7$110.2 million for the sixthree months ended June 30, 2019.2020. Revenue increased as a result of higher sales through our direct-to-consumer and retail partnership channels and the introduction of new products. Direct-to-consumer sales increased $14.1 million, or 9.0% comparedproducts, partially offset by our European operations which did not contribute to revenue for the sixthree months ended June 30, 2019 due to strength in our e-commerce channel and an expanded retail presence2021, as a result of 59 stores, a net increasethe closure of 27 stores compared with our retail footprintthese operations in the second quarter of 2019. We temporarily closed our2020. North American retail stores beginning on March 17, 2020 dueAmerica revenue was up $46.8 million, or 44.6%, for the three months ended June 30, 2021 compared to the COVID-19 outbreak. Beginningsame period in mid-Maythe prior year. Sales from our European operations, which did not contribute to revenue for the three months ended June 30, 2021, had revenue of $5.2 million for the three months ended June 30, 2020 we have been reopening. Direct-to-consumer revenue increased $18.5 million, or 22.9%, compared to the three months ended June 30, 2020, driven primarily by higher sales in our retail store operationsstores in North America with various levels of service offerings based ondue to limited operations in the applicable local government and public health guidance.prior year, partially offset by our European operations which did not contribute to revenue for the three months ended June 30, 2021. Although 57all of our 5972 stores were open and operating as of the end of the second quarter our revenue from our retail stores was significantly below pre COVID-19 levelsof 2021, operations in certain locations were limited due to limited store operations.public health and government pandemic orders. North America direct-to-consumer revenue increased $23.7 million or 31.3%, compared to the three months ended June 30, 2020. Sales to retail partners increased $24.5were up $23.0 million, or 89.0%78.7%, compared to the sixthree months ended June 30, 2019,2020. This increase was driven by revenue growth of sales activity with our existing retail partners, the introduction of 12 new retail partners compared to the samecomparable period in the prior year to end the quarter with 18more than 25 partners, and the expansion of our product offerings. North America retail partnership revenue increased $23.0 million, or 78.9%, compared to the three months ended June 30, 2020.

Gross Profit and Cost of Goods Sold
Gross profit was $110.0$72.5 million for the sixthree months ended June 30, 2020,2021, an increase of $19.8$15.5 million, or 21.9%27.1%, compared to $90.3$57.1 million for the sixthree months ended June 30, 2019.2020. Cost of goods sold was $113.2$79.2 million for the sixthree months ended June 30, 2020,2021, an increase of $18.8$26.1 million, or 19.9%49.1%, compared to $94.4$53.1 million for the three months ended June 30, 2020. Gross margin for the three months ended June 30, 2021 was 47.8% compared to 51.8% for the three months ended June 30, 2020. The decrease in gross margin was driven by a 390 basis points
3533


six months ended June 30, 2019. Gross margin for the six months ended June 30, 2020 was 49.3% compared to 48.9% for the six months ended June 30, 2019. Theimpact from an increase in gross margin in the six months ended June 30, 2020 was driven by the positive impact ofproduct costs due to supply chain initiatives designedconstraints and a shift in channel mix to reduce product unit costs, favorable product mix related to our new mattress line launched in March 2020 and, in the second quarter of 2020, lower logistics costs, partially offset by a 70 basis points charge in the first quarter of 2020 associated with a change in our logistics provider, which we expect will have an ongoing benefit to cost of goods sold, and increased discounting in the first quarter of 2020margin retail partnerships compared to the same period in the prior year mainly due to clearance sale initiatives of prior models.period.

Sales and Marketing Expense
Sales and marketing expenses were $70.7$39.9 million for the sixthree months ended June 30, 2020,2021, an increase of $1.2$6.7 million, or 1.7%20.2%, compared to $69.4$33.2 million for the sixthree months ended June 30, 2019.2020. Sales and marketing expenses increased as we continued to invest in drivingadvertising spend to drive traffic to our e-commerce website, market our products to consumers and build our brand. Sales and marketing expenses as a percentage of revenue was 26.3% for the three months ended June 30, 2021, compared to 30.1% for the three months ended June 30, 2020, due to the growth of our retail partnership channel which requires lower sales and marketing support.

General and Administrative
General and administrative expenses were $48.2 million for the three months ended June 30, 2021, an increase of $6.1 million, or 14.6%, compared to $42.0 million for the three months ended June 30, 2020. General and administrative expenses increased primarily due to higher payroll to support the growth of the business, partially offset by lower occupancy expenses. General and administrative expenses as a percentage of revenue were 31.7% for the three months ended June 30, 2021 compared to 38.1% for the three months ended June 30, 2020 due primarily to improved efficiency as revenue growth outpaced operating expenses.
Restructuring
Restructuring expenses were $17.6 million for the three months ended June 30, 2021, an increase of $13.5 million compared to $4.1 million for the three months ended June 30, 2020. The increase in restructuring expenses primarily relates to lease exit costs and asset impairments associated with the sublease and consolidation of office space into the New York metro area as the Company continues to refine strategic shifts in its business structure, including adapting to a hybrid work environment.
Total Other Expense, Net
Total other expenses, net were $0.6 million for the three months ended June 30, 2021, a decrease of $1.3 million, or 67.8%, compared to $1.9 million for the three months ended June 30, 2020. The decrease in total other expenses, net was due to $1.2 million of adjustment of indirect tax provisions in addition to lower interest costs incurred on outstanding balances of our debt facilities.

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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
The following table sets forth information comparing the components of operations and comprehensive loss for the periods indicated.
Six Months Ended June 30,Period over Period ChangeSix Months Ended June 30,
20212020DollarPercentage20212020
(in thousands, except percentages)(as a % of Revenue)
Revenue$279,434 $223,240 $56,194 25.2 %100.0 %100.0 %
Cost of goods sold140,218 113,211 27,007 23.9 %50.2 %50.7 %
Gross profit139,216 110,029 29,187 26.5 %49.8 %49.3 %
Operating expenses
Sales and marketing80,427 70,655 9,772 13.8 %28.8 %31.6 %
General and administrative92,663 89,004 3,659 4.1 %33.2 %39.9 %
Restructuring17,985 5,440 12,545 230.6 %6.4 %2.4 %
Total operating expenses191,075 165,099 25,976 15.7 %68.4 %74.0 %
Loss from operations(51,859)(55,070)3,211 (5.8)%(18.6)%(24.7)%
Other (income) expense:
Net interest expense4,297 4,308 (11)(0.3)%1.5 %1.9 %
Other (income) expense, net(1,266)(733)(533)72.7 %(0.5)%(0.3)%
Total other expenses, net3,031 3,575 (544)(15.3)%1.1 %1.6 %
Loss before income taxes(54,890)(58,645)3,755 (6.4)%(19.6)%(26.3)%
Income tax (benefit) expense36 26 10 38.8 %— %— %
Net loss(54,926)(58,671)3,745 (6.4)%(19.7)%(26.3)%
Revenue
Revenue was $279.4 million for the six months ended June 30, 2021, an increase of $56.2 million, or 25.2%, compared to $223.2 million for the six months ended June 30, 2020. Revenue increased as a result of higher sales through our direct-to-consumer and retail partnership channels and the introduction of new products, offset by the closure of our European operations at the end of the second quarter of 2020. North America sales were up $68.1 million, or 32.2%, for the six months ended June 30, 2021 compared to the same period in the prior year and our European operations, which we closed at the end of the second quarter of 2020, had revenue of $11.9 million for the six months ended June 30, 2020. Direct-to-consumer revenues increased $21.5 million, or 12.5% compared to the six months ended June 30, 2020 driven primarily by higher sales in our retail stores in North America due to limited operations in the prior year, partially offset by our European operations which did not contribute to revenue for the six months ended June 30, 2021. Although all of our 72 stores were open and operating as of the end of the second quarter of 2021, operations in certain locations were limited due to public health and government pandemic orders. North America direct-to-consumer revenue increased $33.0 million, or 20.7%, compared to the six months ended June 30, 2020. Sales to retail partners increased by $34.7 million, or 66.8%, compared to the six months ended June 30, 2020. This increase was driven by revenue growth with our existing partners, the introduction of several new retail partners compared to the same comparable period in the prior year to end the quarter with more than 25 retail partners, and the expansion of our product offerings. North America retail partnership revenue increased $35.1 million, or 68.0%, compared to the six months ended June 30, 2020. Additionally, during the six months ended June 30, 2021, we believe our revenue was negatively impacted by supply chain constraints that extended the time required to fulfill customer orders and resulted in lost orders. We have taken active measures which we expect to mitigate these supply chain issues in future periods.



35


Gross Profit and Cost of Goods Sold

Gross profit was $139.2 million for the six months ended June 30, 2021, an increase of $29.2 million, or 26.5%, compared to $110.0 million for the six months ended June 30, 2020. Cost of goods sold was $140.2 million for the six months ended June 30, 2021, an increase of $27.0 million, or 23.9%, compared to $113.2 million for the six months ended June 30, 2020. Gross margin for the six months ended June 30, 2021 was 49.8% up 50 basis points from the 49.3% for the six months ended June 30, 2020. The increase in gross margin in the six months ended June 30, 2021 was driven by a 370 basis points product mix impact related to our new mattress line launched in March 2020 compared to the prior year period. This gain was coupled by a 70 basis points charge associated with a change in our logistics providers as well as a 90 basis points benefit from the discontinuation of our European operations for the six months ended June 30, 2021. These improvements were partially offset by a 470 basis points impact from higher product costs due to supply chain disruption and a shift in channel mix to lower margin retail partnerships in the six months ended June 30, 2021 compared to the prior year period.

Sales and Marketing
Sales and marketing expenses were $80.4 million for the six months ended June 30, 2021, an increase of $9.8 million, or 13.8%, compared to $70.7 million for the six months ended June 30, 2020. Sales and marketing expenses increased as we continued to invest in driving traffic to our e-commerce website, marketing our products to consumers and building our brand. Sales and marketing expenses as a percentage of revenue was 28.8% for the six months ended June 30, 2021, compared to 31.6% for the six months ended June 30, 2020, compareddue to 37.6%the growth of our retail partnership channel which requires lower sales and marketing support.
General and Administrative
General and administrative expenses were $92.7 million for the six months ended June 30, 2019, and reflective2021, an increase of our ability$3.7 million, or 4.1%, compared to maintain efficiency, even as our overall investment in sales and marketing increased.
General and Administrative Expenses
General and administrative expenses were $89.0 million for the six months ended June 30, 2020, an increase of $24.9 million, or 38.8%, compared to $64.1 million for the six months ended June 30, 2019.2020. General and administrative expenses increased primarily due to the operating costs related to our expanded retail presence of 2713 net new stores compared to the second quarterfirst half of 2019,2020, as well as expenses related to being a public company. General and administrative expenses as a percentage of revenue increaseddecreased from 34.7% for the six months ended June 30, 2019 to 39.9% for the six months ended June 30, 2020 to 33.2% for the six months ended June 30, 2021 reflecting our increased investment in retail store operations and expenses related to being a public company.improved efficiency as revenue growth outpaced operating expenses.
Restructuring Expenses
Restructuring expenses were $5.4$18.0 million for the six months ended June 30, 2021, an increase of $12.5 million compared to $5.4 million for the six months ended June 30, 2020. There were noThe increase in restructuring expenses recorded inprimarily relates to the same periodsublease and consolidation of office space as the prior year. Restructuring expenses relateCompany continues to costs associated withrefine strategic shifts in ourits business structure, including exiting certain lines of business and geographies.Associated costs includein addition to severance and other employee separation costs, contract termination expenses and asset impairment.costs.

Total Other Expenses, Net
Total other expenses, net were $3.0 million for the six months ended June 30, 2021, a decrease of $0.5 million, or 15.3%, compared to $3.6 million for the six months ended June 30, 2020, an increase of $2.5 million, or 226.2%, compared to $1.1 million for the six months ended June 30, 2019.2020. The increasedecrease in total other expenses, net was primarily due to $1.2 million of adjustment of indirect tax provisions in addition to lower interest costs incurred on higher outstanding balances of our debt facilities.
.

Key Operating Metrics and Non-GAAP Financial Measures

We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The key operating performance and financial metrics and indicators we use are set forth below. The
36


following table sets forth our key performance indicators for the three and six months ended June 30, 20202021 and 2019,2020, respectively.
Three months ended
June 30,
Six months ended
June 30,
(in thousands, except percentages)2020201920202019
Gross margin51.8 %49.0 %49.3 %48.9 %
Adjusted EBITDA(11,435) (22,661) $(34,322) $(36,994) 
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Three months ended June 30Six Months Ended June 30,
(in thousands, except percentages)2021202020212020
Gross margin47.8 %51.8 %49.8 %49.3 %
Adjusted EBITDA$(6,657)$(11,435)$(17,292)$(34,322)
Gross Margin.    Gross margin is defined as gross profit divided by revenue.
Adjusted EBITDA.     Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP.
We define Adjusted EBITDA as net loss before net interest (income) expense, income tax expense and depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense, restructuring expenses,costs, costs associated with legal settlements and expensestransactions costs incurred in connection with our initial public offering. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA in the same manner. We present Adjusted EBITDA because we consider themit to be an important supplemental measuresmeasure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.
Management uses Adjusted EBITDA:
•    as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;
•    for planning purposes, including the preparation of our internal annual operating budget and financial projections;
•    to evaluate the performance and effectiveness of our operational strategies; and
•    to evaluate our capacity to expand our business.
By providing this non-GAAP financial measure, together with the reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:
•    such measures domeasure does not reflect our cash expenditures;
•    such measures domeasure does not reflect changes in, or cash requirements for, our working capital needs;
37


•    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
•    other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, Adjusted EBITDA should not be considered as measuresa measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using thesethis non-GAAP measuresmeasure only supplementally. As noted in the table below, Adjusted
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EBITDA includes adjustments to exclude the impact of stock-based compensation expense and material infrequent items, including but not limited to the costs of our initial public offering, restructuring, and restructuring,costs associated with legal settlements, among other items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal operating results and operating results of other companies over time. In addition, Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record following our initial public offering. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss:
Three months ended June 30,Six months ended June 30,
(in thousands)2020201920202019
Net loss(24,205) (26,927) $(58,671) $(44,376) 
Income tax expense10  (33) 26  (33) 
Net interest expense2,152  285  4,308  542  
Depreciation and amortization3,195  1,534  6,343  2,686  
Stock based compensation(a)3,284  1,876  5,945  3,526  
Restructuring(b)4,129  —  5,440  —  
Legal settlements(c)—  138  1,500  138  
Transaction costs(d)—  466  787  523  
Adjusted EBITDA(11,435) (22,661) $(34,322) $(36,994) 


Three months ended
June 30,
Six months ended
June 30,
(in thousands)2021202020212020
Net loss$(33,746)$(24,205)$(54,926)$(58,671)
Income tax expense17 10 36 26 
Interest (income) expense1,781 2,152 4,297 4,308 
Depreciation and amortization4,144 3,195 7,967 6,343 
Stock based compensation(a)3,563 3,284 7,349 5,945 
Restructuring(b)17,584 4,129 17,985 5,440 
Legal settlements(c)— — — 1,500 
Transaction costs(d)— — — 787 
Adjusted EBITDA$(6,657)$(11,435)$(17,292)$(34,322)

(a)    Represents non-cash stock-based compensation expense.
(b)    RepresentsThe 2020 costs are associated with implementing strategic shiftschanges in ourthe companies' business structure including reductions in work force and exiting of certain lines of business andor geographies. AssociatedThe 2021 costs include lease exit costs and asset impairments associated with the consolidation of office space into the New York metro area and certain severance and other employee separation costs, contract termination expenses and asset impairment.costs.
(c)    Amounts related to litigation settlements.
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(d)    Represents expenses incurred for professional, consulting, legal, and accounting services performed in connection with our initial public offering, which are not indicative of our ongoing costs and which were discontinued following the completion of our initial public offering.

Liquidity and Capital Resources
Sources of Funds
Our principal sources of liquidity are our cash and cash equivalents, our Senior SecuredRevolving Credit Facility (as defined herein), our Amended Subordinated Facility (as defined herein), and working capital from operations. Cash, and cash equivalents and restricted cash consist primarily of cash on deposit with banks and investments in money market funds.banks. As of June 30, 2020,2021, we had $98.2$49.7 million of cash and cash equivalents.
Funding Requirements
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Our primary requirements for liquidity and capital are to fund operating losses as we continue to scale our business, for increased working capital requirements and inventory management to meet increased consumer demand, for increased capital expenditures to grow our retail store presence, as well as for general corporate needs. Historically, these cash requirements have been met through funds raised by the sale of common equity, utilization of our Senior SecuredRevolving Credit Facility, our Amended Subordinated Facility and cash provided by gross margin.on hand.
We believe that our sources of liquidity and capital will be sufficient to finance our growth strategy and resulting operations, planned capital expenditures and the additional expenses we expect to incur for at least the next 12 months. However, we cannot assure you that cash provided by operating activities or cash, and cash equivalents and restricted cash will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, or we are unable to refinance our Senior Secured Facility prior to its maturity, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted.diluted and this dilution could be material. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants and higher interest rates that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all. See “Risk Factors—Risks Related to Our Business—Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing” in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.
In response to the COVID-19 pandemic, we have taken proactive measures focused on optimizing our business model and cash management. We implemented an employee furlough program, which was initially applicable to almost all our retail employees, reduced our corporate personnel by approximately 21%, and initiated the wind-down of our European operations, which is expected to be largely completed by the end of 2020. In total, we expect these actions to result in more than $10 million in annualized savings and approximately $1.0 million in employee-related expenses. While the extent to which the COVID-19 pandemic will impact our business, financial condition and results of operations is uncertain, coupled with the $98.2 million in cash and cash equivalents on our balance sheet as of June 30, 2020, we believe these restructuring initiatives will further strengthen our balance sheet position and provide us with the flexibility and resilience to weather the COVID-19 pandemic. See “Risk Factors—The COVID-19 pandemic has affected, and could continue to adversely affect, our business, financial condition and results of operations” in Part II, Item 1.A. of this Quarterly Report on Form 10-Q.

10-K.
Our capital expenditures consist primarily of retail infrastructure, leasehold improvements, product development and computers and hardware. In December 2018, we signed an agreement for a headquarters in New York for a period of 15 years with a five-year renewal option. Rent payments began on the new headquarters in January 2020.
Historical Cash Flows
The following table shows summary cash flow information for the six months ended June 30, 20202021 and 2019:
Six months ended June 30,
(in thousands)20202019
Net cash flows used in operating activities:$(46,433) $(24,807) 
Net cash used in investing activities(10,777) (24,643) 
Net cash provided by financing activities88,140  48,188  
Effect of exchange rate changes(290) 95  
Net increase in cash and cash equivalents$30,640  $(1,167) 
2020:
Six months ended
June 30,
(in thousands)20212020
Net cash flows used in operating activities:$(35,482)$(46,433)
Net cash used in investing activities(6,974)(10,777)
Net cash (used in) provided by financing activities29 88,140 
Effect of exchange rate changes1 (290)
Net change in cash, cash equivalents, and restricted cash$(42,426)$30,640 
Operating Activities.    Net cash used in operating activities consists of net loss adjusted for certain non-cash items, including share-basedstock-based compensation, property and equipment depreciation, long-term deferred rent and deferred income taxes, as well as the effect of changes in inventory and other working capital amounts.
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For the six months ended June 30, 2021, net cash used in operating activities was $35.5 million and was comprised primarily of net loss of $54.9 million, decreased by $21.6 million related to non-cash adjustments, primarily related to depreciation and amortization, asset impairments and stock-based compensation. Changes in working capital increased cash used in operating activities by $2.2 million, primarily due to an increase in inventory of $22.5 million, an increase in accounts receivable of $5.4 million and a decrease in prepaid expenses of $2.1 million, partially offset by an increase in accrued expenses of $11.4 million, an increase in accounts payable of $7.8 million, and increase in other liabilities of $6.5 million and an increase in deferred revenue of $2.2 million. The increase in inventory is primarily driven by an effort to increase levels of safety stock of certain products. Despite this increase, we are experiencing industry-wide challenges to meet the volume for our higher demand mattress products.

For the six months ended June 30, 2020, net cash used in operating activities was $46.4 million and was comprised primarily of net loss of $58.7 million, decreased by $15.2 million related to non-cash adjustments, primarily related to depreciation and amortization, and share basedstock-based compensation. Changes in working capital increased cash used in operating activities by $3.0 million, primarily due to a decrease in accrued expenses of $12.3 million, a decrease in other liabilities of $5.0 million, and a decrease in accounts payable of $3.0 million, partially offset by a decrease in accounts receivable of $7.7 million and a decrease in prepaid expenses of $9.8 million.

For the six months ended June 30, 2019, net cash used in operating activities was $24.8 million and was comprised primarily of net loss of $44.4 million, decreased by $8.0 million related to non-cash adjustments, primarily related to depreciation and amortization, and share-based compensation. Changes in working capital decreased cash used in operating activities by $11.6 million, primarily due to an increase in accounts payable of $14.3 million and an increase in accrued expenses of $10.5 million, partially offset by an increase in prepaid expenses of $5.8 million and an increase in inventory of $5.1 million.

Investing Activities.    Our net cash used in investing activities primarily consists of purchases of property and equipment which were $7.0 million and issuances of notes receivables.
For$10.8 million for the six months ended June 30, 2020, net cash used in investing activities was $10.8 million2021 and was comprised of purchases of property and equipment.

2020
For the six months ended June 30, 2019, net cash used in investing activities was $24.6 million and was primarily comprised of $25.1 million in purchases of property and equipment, partially offset by a $0.5 million decrease in note receivable., respectively.

Financing Activities.    For the six months ended June 30, 2021, net cash used in financing activities primarily consisted of proceeds from borrowings of $3.0, which was offset by repayments of $3.0 of borrowings resulting in net cash used in financing activities of $0.0 million.

For the six months ended June 30, 2020, net cash provided by financing activities was $88.1 million, primarily from the issuance of equity in our initial public offering and the exercise of stock options and warrants.offering.

For the six months ended June 30, 2019, net cash provided by financing activities was $48.2 million and primarily consisted of $48.7 million from the issuance of equity and the exercise of stock options, partially offset by $0.5 million net repayment of our Senior Secured Facility.
Senior SecuredRevolving Credit Facility
As of June 30,On November 10, 2020, we have a $25.0 million secured revolving credit facility (“Senior Secured Facility”)refinanced the loan and security agreement previously entered into with Pacific Western Bank as lender(as amended, the “Prior Credit Facility”) by entering into a credit agreement (the “Credit Agreement”) by and among the Company, Casper Science LLC and Casper Sleep Retail LLC (collectively, the "Loan Parties"), and Wells Fargo Bank, National Association (“Wells Fargo”), providing for a senior secured asset-based revolving credit facility of up to $30.0 million, with an uncommitted accordion of an additional $15.0 million (the “Revolving Credit Facility”). The Credit Agreement provides that becomes due and payable on December 1, 2020, pursuantup to an amendment effective as of August 6, 2020 extending the maturity$10.0 million of the Senior SecuredRevolving Credit Facility by ninety (90) days as we seek to refinance. As of June 30, 2020 we had $15.9 million outstanding and $7.6 millionis available for issuances of letters of credit, issuedand up to $5.0 million is available for swingline loans. As of the date of this Quarterly Report on Form 10-Q, we had $16.0 million outstanding pursuant to the Senior SecuredRevolving Credit Facility, with $1.5$17.0 million remaining available for borrowing.

The Revolving Credit Facility matures on the earlier of November 10, 2023 and 91 days prior to the earliest maturity date of any borrowing under the Amended Subordinated Facility (as defined below).

Borrowings under the Senior SecuredRevolving Credit Facility accrue interest atwill be subject to an annual rateapplicable margin of (i) when Average Daily Availability (as defined in the Credit Agreement) is greater than or equal to the greater of (i) the prime rate or (ii) 3.50%. The “prime rate” is defined as the variable rate of interest, per annum, most recently announced by Pacific Western Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Pacific Western Bank. A nominal annual fee is due each October 1, and, in accordance with the terms50% of the Senior Secured Facility, we paidLoan Cap (as defined in the Credit Agreement), 2.50% for LIBOR loans or 1.50% for base rate loans, as well as a one-time successletter of credit fee of $150,0002.50%, and (ii) when Average Daily Availability is less than 50% of the Loan Cap, 2.75% for LIBOR loans or 1.75% for base rate loans, as well as a letter of credit fee of 2.75%, in each case subject to Pacific Western Bank inadjustments on the first day of each fiscal quarter following the completion of our initial public offering of our equity securities.commencing on January 1, 2021.

The Senior SecuredRevolving Credit Facility contains certain affirmative and negative covenants,is secured by substantially all assets of the Loan Parties, including among other things, restrictions on indebtedness, liens, dividends and distributions, investments, mergers or consolidations and a minimum amount of cash resources or assets we are requiredintellectual property, subject to maintain. As of June 30, 2020, we were in compliance with all covenants and other obligations under the Senior Secured Facility.customary exceptions.
Subordinated Facility
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AsThe Revolving Credit Facility contains customary covenants that limit, absent lender approval, the ability of the Company to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain transactions, repay certain indebtedness, make investments or dispose of assets. The financial covenant requires that the Loan Cap minus the Total Outstandings (each as defined in the Credit Agreement) be no less than the greater of (i) 10.0% of the Loan Cap and (ii) $3,000,000. The Revolving Credit Facility also includes customary cash dominion terms, pursuant to which a Cash Dominion Event (as defined in the Credit Agreement) could become effective if the applicable triggers as set forth in the Credit Agreement were to occur.
Given the uncertainty around when in 2022 the Company will become cash flow positive, the Company's management estimated a Cash Dominion Event (as defined under the Company's Credit Agreement) may be triggered based on the level of Deposited Cash (as defined in the Credit Agreement) maintained by the Company. Therefore, the Company outstanding obligations under the Revolving Credit Facility were reclassified to short-term debt as of June 30, 2020, we have a $50.0 million2021.

Amended Subordinated Facility
Borrowings under the secured growth capital loan facility (“agreement (the “Amended Subordinated Facility”) with TriplePoint Venture Growth BDC Corp., as lender and collateral agent, and TriplePoint Capital LLC, as lender (or, together with TriplePoint Venture Growth BDC Corp., TriplePoint).
In connection with the Subordinated Facility, on March 1, 2019, we entered into two warrant agreements with TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC for 19,201 shares of Series D preferred stock and 12,801 shares of Series D preferred stock, respectively, at an exercise price per share of $31.24715. TriplePoint’s right under the warrant agreements to purchase the Series D preferred stock will be available for seven years from March 1, 2019, subject to certain exercise conditions. In the event these warrant agreements are exercised, TriplePoint will have the right to purchase under the warrant agreements the common stock into which each share of the Series D preferred stock is convertible at the time of such exercise.
Borrowings under the Subordinated Facility“TriplePoint”) accrue interest at the prime rate (which, as defined in the Amended Subordinated Facility, shall be as published in the Wall Street Journal with a floor of 5.25%) plus an applicable margin set forth in the table of terms. The table of terms sets forth 18 options that range on term, amortization, interest rate and other features that can range from an annual interest rate of the prime rate plus 0.0% margin for a three-month interest-only term and up to a prime plus 7.25% margin for a 48-month interest-only term. End of term payments rangeranged from 0.25% of each advance for a three-month term up to 8.25% for each advance with a 48-month repayment option. The Amended Subordinated Facility also hashad a 1.25% one-time facility fee for the committed amount, which is initially $50.0 million. There iswas a 1.5% prepayment penalty in the event that the loan is prepaid within the first 18 months with no prepayment penalty thereafter.
The Amended Subordinated Facility contains certain affirmative and negative covenants, including, among others, restrictions on liens, indebtedness, mergers or acquisitions, investments, dividends or distributions, fundamental changes and affiliate transactions.
As of June 30, 2020,2021, we had $50.0 million outstanding and were in compliance with all covenants and other obligations under the Amended Subordinated Facility.
Initial Public Offering
On February 10, 2020, in connection with our initial public offering, we issued and sold 8,350,000 shares of our common stock at a price to the public of $12.00 per share, resulting in net proceeds to us of approximately $88.2 million, after deducting the underwriting discount of approximately $6.5 million and offering expenses of approximately $5.5 million.

Contractual Obligations

There have been no material changes to our contractual obligations during the six months ended June 30, 20202021 from those previously disclosed in our Annual2020 Form 10-K, except the signing of a sublease executed on June 30, 2021 related to our office headquarter space and the reclassification of our obligations under the Revolving Credit Facility to short-term debt as disclosed in this Quarterly Report on Form 10-K for the year ended December 31, 2019.10-Q.
Off-Balance Sheet Arrangements
As of June 30, 2020,2021, we did not have any material off-balance sheet arrangements.arrangements other than leases. See Note 10, Leases to our unaudited consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information.
Recent Accounting Pronouncements
See Note 15, Recently Issued Accounting Pronouncements to our unaudited consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for further information on certain accounting standards
41


that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies from our disclosure reported in “Critical Accounting Policies and Estimates” of Management’s Discussion and Analysis of Financial Condition and
41


Results of Operations in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.
10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Quantitative and Qualitative Disclosures of Market Risk
We are exposed to market risk from changes in interest rates, foreign currency and inflation. All these market risks arise in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.
DuringInterest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on our Revolving Credit Facility and Amended Subordinated Facility, which carry variable interest rates. Interest rate risk is the six months endedexposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Our Revolving Credit Facility and Amended Subordinated Facility bear interest at variable rates, which exposes us to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. As of June 30, 2020, there have been2021, we had $16.0 million of variable rate debt outstanding under our Revolving Credit Facility and $50.0 million of fixed rate debt outstanding under our Amended Subordinated Facility. Based on June 30, 2021 debt levels, an increase or decrease of 100 basis points in the effective interest rate on the Revolving Credit Facility and our Amended Subordinated Facility would cause an increase in interest expense of approximately $55 thousand and no material changeschange in interest expense over the next 12 months, respectively, due to a floor rate within the information included under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”agreed upon terms. We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in our Annual Report on Form 10-K for the year ended December 31, 2019.

future.

Foreign Currency Risk

All our domestic product sales, inventory purchases, and operating expenses have been denominated in U.S. dollars. We therefore have not had any foreign currency risk associated with these activities. The functional currency of all our entities is the U.S. dollar, other than Casper Sleep (UK) Limited which is the British pound, and Casper Sleep GmbH and Casper Sleep SAS, which are the euro. Product sales and inventory purchases for these entities are primarily in their functional currency (e.g. British pounds and euros). Additionally, we incur a portion of operating expenses in Canadian dollars, British pounds and euros. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates, covering principally the British pound, the European Union euro, Canadian dollar, and Chinese RMB. However, we believe functional currency revenue and expenses mostly provide a natural hedge and that the exposure to foreign currency fluctuation from product sales and operating expenses is immaterial currently as the related product sales and costs do not constitute a significant portion of our sales revenue and expenses. As we grow our operations, our exposure to foreign currency risk could become more significant. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the
42


effects of inflation (as defined by reference to changes in the consumer price index), if any, on our historical results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

Item 4. Controls and Procedures.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2020,2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three monthsquarter ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are from time to time subject to various claims, lawsuits and other legal proceedings, including intellectual property claims. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, our potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management, with the assistance of legal counsel, periodically reviews the status of each significant matter and assesses potential financial exposure. We recognize provisions for claims or pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. If management’s estimates prove incorrect, we could incur a charge to earnings which could have a material adverse effect on our results of operations, financial condition, and cash flows. Beginning in June 2020, several putative class actions have been filed in the U.S. District Court for the Eastern District of New York and the New York State Supreme Court (New York County) by certain of our shareholdersstockholders against us, our directors, certain of our officers, and certain of the underwriters of our initial public offering alleging violationviolations of securities lawsthe Exchange Act and/or the Securities Act in connection with the initial public offering. The cases are in preliminary stages. Plaintiffs moved voluntarily to dismiss the lawsuit filed in New York State Supreme Court. The dismissal became effective upon the filing of a stipulation of discontinuance on May 3, 2021. As a result of the voluntary dismissal of the New York State Supreme Court complaint, the Company notified the Federal Court it would withdraw its pending motion to stay the Federal Action. The stay motion has since been withdrawn, and the motion to dismiss the Federal Action is scheduled to be fully briefed and filed on September 21, 2021. We believe these lawsuits are without merit and intend to vigorously defend against them.

Item 1A. Risk Factors.
In addition to the other information set forth in this report,Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes in the risks affecting the Company since the filing of our Annual Report on2020 Form 10-K for the year ended December 31, 2019, except for the following:
The COVID-19 pandemic has affected, and could continue to adversely affect, our business, financial condition and results of operations.
The COVID-19 pandemic continues to rapidly evolve. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results. We currently have third-party manufacturing partners in various locations, including China, Vietnam and the United States, among others. Certain of our suppliers and the manufacturers of certain of our products have been and may continue to be adversely impacted by the COVID-19 crisis. As a result, we have faced and may continue to face delays or difficulty sourcing products, which has negatively affected and could continue to negatively affect our business and financial results. Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our results of operations and financial condition. With respect to consumer demand, we have experienced changing consumer behavior in our direct-to-consumer channel since late February 2020, including a cessation in retail foot traffic due to the temporary closure of our North American retail stores, which has adversely affected our revenues. While the majority of our retail stores in North America have reopened as of the date of this filing, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit service offerings in certain of our retail stores in response to guidance from applicable government and public health officials, which we expect will adversely affect our revenues. The COVID-19 pandemic has also caused us to cancel planned openings of new retail store locations and certain of our retail partners to temporarily close their stores where our products are sold, both of which we expect will further reduce our revenues and adversely affect our results of operations and financial condition.

Due to the impacts of the COVID-19 pandemic on our business, operations and financial condition, we implemented an employee furlough program, which was initially applicable to almost all our retail employees. Further, we have reduced our corporate personnel by approximately 21%, initiated the wind-down of our European operations, temporarily ceased or reduced rent payments with respect to closed retail store locations, and are actively


negotiating with our landlords on rent deferrals and abatements. There can be no assurances that we will favorably resolve negotiations with our landlords, and all or some of these landlords could claim that our failure to pay rent is a default under the applicable lease. In addition, due to the severity of the outbreak in New York and California, where we have corporate offices, we continue to limit access to our offices and our corporate workforce has and continues to spend a significant amount of time working from home. Any of these actions may impact our employees’ morale and productivity and cause disruptions to our retail and corporate operations.

While the ultimate global economic impact and duration of the COVID-19 pandemic is difficult to assess or predict, the economic downturn caused by the pandemic could cause certain of our suppliers or retail partners to go out of business or otherwise cause supply chain and distribution constraints, result in increased costs or delays in the manufacturing of our products, or negatively impact consumers’ ability or willingness to pay for our products, any of which could have a material adverse effect on our business, financial condition or results of operations. The extent to which the COVID-19 pandemic will impact our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the transmission rate of the disease, the duration and extent of the pandemic, travel restrictions and social distancing in North America, the duration and extent of business closures and business disruptions, and the effectiveness of actions taken to contain, treat and prevent the disease.10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser
None.
Use of Proceeds
In connection with our initial public offering, we issued and sold 8,350,000 shares of our common stock at a price to the public of $12.00 per share resulting in net proceeds to us of approximately $88.2$88.0 million, after deducting the underwriting discount of approximately $6.5 million and offering expenses of approximately $5.5$5.7 million. All shares issued and sold were registered pursuant to a registration statement on Form S-1 (File No. 333-235874), as amended ("the Registration(the "Registration Statement"), declared effective by the SEC on February 5, 2020.
The net proceeds of approximately $88.2$88.0 million from our initial public offering have beenwere invested in money market funds.funds until the time at which they are utilized for general company operations. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, filed with the SEC on February 7, 2020 pursuant to Rule 424(b)(4) relating to our Registration Statement.



Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not applicable.

Item 5. Other Information.
On August 6, 2020, the Company's loan and security agreement ("Senior Secured Facility") with Pacific Western Bank was amended to extend the maturity date by 90 days. See Note 7 to our unaudited consolidated financial statements in this Form 10-Q for a description of the material terms of the Senior Secured Facility.None.
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Item 6. Exhibits.
Incorporated by ReferenceFiled/Furnished
Herewith
Exhibit
Number		Exhibit DescriptionFormFile No.ExhibitFiling
Date
  3.1S-8333-2363774.12/11/20
  3.2S-8333-2363774.22/11/20
10.1*
10.2*
31.1*
31.2*
32.1**
32.2**
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
Incorporated by ReferenceFiled/Furnished
Herewith
Exhibit
Number		Exhibit DescriptionFormFile No.ExhibitFiling
Date
  3.1S-8333-2363774.12/11/20
  3.210-K001-392143.22/26/21
31.1*
31.2*
32.1**
32.2**
10.1*
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
101.SCHInline XBRL Taxonomy Extension Schema Document*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
101.LABInline XBRL Taxonomy Extension Label Linkbase Document*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*
104.0Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*
*    Filed herewith.
**    Furnished herewith.


45
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CASPER SLEEP INC.
Date: August 11, 2020
16, 2021		By:/s/ Philip Krim
Philip Krim
Chief Executive Officer
(principal executive officer) 
Date: August 11, 2020
16, 2021		By:/s/ Stuart BrownMichael Monahan
Stuart BrownMichael Monahan
Interim Chief Financial Officer
(principal financial and accounting officer)

4647