Purple Innovation, Inc. 10-K/A

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our certifying officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation and the above criteria, our management concluded in the Original Report filed March 11, 2021 that the Company’s disclosure controls and procedures were effective as of December 31, 2020. Subsequent to performing this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that we did not maintain effective disclosure controls and procedures as of December 31, 2020, due to a material weakness in our internal control over financial reporting, described below, related to errors in our accounting for the warrants issued in connection with our IPO and a simultaneous private placement. Notwithstanding this material weakness, management has concluded that our audited consolidated financial statements included in this Annual Report on Form 10-K/A are fairly stated in all material respects in accordance with GAAP for each of the periods presented herein. Management’s Annual Report on Internal Controls Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We filed the Original Report on March 11, 2021. At that time, our Chief Executive Officer and our Chief Financial Officer had performed an evaluation and concluded that our internal control over financial reporting was effective as of December 31, 2020. Subsequent to performing this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020, due to a material weakness in our internal control over financial reporting, described below, related to errors in our accounting for warrants issued in connection with our IPO and a simultaneous private placement. Our internal control over financial reporting did not identify an error in the classification of the warrants issued in connection with our IPO and a simultaneous private placement, which we determined to be a material weakness. This error in classification and subsequent accounting was brought to our attention when the SEC issued the SEC Statement. In response to this material weakness in internal control over financial reporting related to the assessment of complex accounting issues reached in prior periods that continue to impact the Company, we will implement a new control to assess complex accounting issues reached in the past that continue to impact the Company to ensure those conclusions reached are still appropriate. Our plans include increased communication among our personnel and third-party professionals with whom we consult regarding the application of complex accounting transactions. Our remediation plan can only be accomplished over time and will be continually reviewed to determine that it is achieving its objectives. We can offer no assurance that these initiatives will ultimately have the intended effects. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears herein. 55 Previously Reported Material Weakness As previously reported, we determined a material weakness existed related to the design and implementation of sufficient controls and processes around the tax provision review process, specifically related to the review of the release of the valuation allowance and the unique recording of the Tax Receivable Agreement liability as described in Note 21 – Income Taxes. As a result, we determined that we did not have effective controls to prevent or detect a financial statement misstatement on a timely basis. To remediate the material weakness described above, we effectively implemented enhanced processes and controls to include additional steps in management’s review of unique tax transactions, and we hired an internal resource to further strengthen internal control over our quarterly tax provision preparation and review processes. We continue to engage third-party consultants to provide support over our tax provision processes and to assist us with our evaluation of complex tax accounting matters. We also continue to engage consultants to advise us on making further improvements to our internal controls over the accounting for income taxes. Based on these measures, management has tested the internal control activities and found them to be effective and has concluded that the material weakness described above has been remediated as of December 31, 2020. Changes in Internal Control over Financial Reporting Other than the remediation efforts related to the above material weakness related to the design and implementation of sufficient controls and processes around the tax provision review process and the new internal controls related to our adoption of ASC Topic 842 Leases, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 56 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Purple Innovation, Inc. Lehi, Utah Opinion on Internal Control over Financial Reporting We have audited Purple Innovation, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. In our report dated March 11, 2021, we expressed an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2020. Subsequent to March 11, 2021, the Company identified a material misstatement in its annual and quarterly consolidated financial statements for 2020 and 2019, requiring restatement of such financial statements. Management revised its assessment of internal control over financial reporting due to the identification of a material weakness, as described below, in connection with the financial statement restatement. Accordingly, our opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 expressed herein is different from that expressed in our previous report. We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as “the financial statements”), and our report dated March 11, 2021, except as to the effect of the restatement described in Note 3, which is dated May 10, 2021, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Controls over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness regarding management’s failure to design and maintain controls over the assessment of complex accounting issues reached in prior periods that continue to impact the Company has been identified and described in management’s revised assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 financial statements (as restated). Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP Salt Lake City, Utah March 11, 2021, except as to the effect of the material weakness, which is dated May 10, 2021 57 Item 9B. Other Information Bylaw Amendment On March 9, 2021, the Board approved Amendment No. 1 (the “Amendment”) to the Company’s Amended and Restated Bylaws (the “Bylaws”), with such Amendment to be effective immediately. The Amendment to the Bylaws includes the following change: Majority Voting in Election of Directors. Article II, Section 2.5(d) of the Bylaws was amended to adopt a majority voting standard for the election of directors in uncontested elections. A plurality voting standard will continue to apply in the event of a contested director election. The majority voting standard adopted by the Board includes a director resignation policy that requires an incumbent director who stands for election to the Board but who fails to receive a majority of the votes cast in an uncontested election of directors to tender his or her resignation to the Secretary of the Company promptly following certification of the election results. In such event, the Board, taking into account the recommendation of the Nominating & Governance Committee of the Board, must decide whether to accept or reject the resignation and publicly disclose its decision, including the rationale behind any decision to reject the tendered resignation, within 90 days following certification of the election results. The Nominating & Governance Committee and the Board may, in making their recommendation or decision, as applicable, consider any factors and other information that they consider appropriate and relevant. The foregoing summary of the Bylaws is qualified in its entirety by reference to the full text of the Amendment, a copy of which is attached hereto as Exhibit 3.3 and is incorporated herein by reference. Code of Ethics Amendment On March 9, 2021, the Board approved an amendment to the Company’s Code of Ethics, which amends the Code of Ethics to require existing or potential breaches to be reported to the Chair of the Audit Committee, the CEO, any senior executive, the legal department, the ethics hotline or the human resources department, as may be appropriate. Previously the Code of Ethics specified that all breaches should be reported to the Chairman of the Board. The amended Code of Ethics also states that the Company, as directed by the Board if appropriate, will investigate reported breaches; except that if a conflict of interest is present investigations shall be conducted by outside counsel as directed by the Chair of the Audit Committee. The foregoing summary of the amended Code of Ethics is qualified in its entirety by reference to the full text of the Code of Ethics, a copy of which is attached hereto as Exhibit 14.1 and is incorporated herein by reference. 58 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required under the captions “Directors” and “Corporate Governance” is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2020. Information concerning our executive officers is included in Part I of this report under the caption “Information About Our Executive Officers.” Item 11. Executive Compensation The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2020. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2020. Item 14 . Principal Accountant Fees and Services The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2020. 59 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Report: (1) Financial Statements The following financial statements are included in Part II, Item 8 of this Form 10-K/A: Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Stockholders’ Equity (Deficit) F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8 (2) Financial Statements Schedule All other financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the consolidated financial statements and notes thereto in Item 15 of Part IV below. (3) Exhibits We hereby file as part of this report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 at prescribed rates or on the SEC website at www.sec.gov . 60 EXHIBIT INDEX Exhibit No. Description 2.1# Agreement and Plan of Merger, dated November 2, 2017, by and among Global Partner Acquisition Corp., PRPL Acquisition, LLC, Purple Innovation, LLC, InnoHold, LLC and Global Partner Sponsor I LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on November 3, 2017) 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated January 8, 2018, by and among Global Partner Acquisition Corp., Purple Innovation, LLC, PRPL Acquisition, LLC and other parties named therein (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on January 8, 2018) 2.3 Amendment No. 2 to Agreement and Plan of Merger, dated May 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global Partner Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 2.4 Amendment No. 3 to Agreement and Plan of Merger, dated June 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global Partner Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 9, 2018) 3.1 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 6, 2019) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 3.3 Amendment No. 1 to the Amended and Restated Bylaws (incorporated by reference into Exhibit 3.3 to the Annual Report on Form 10-K (File No. 001-37523) filed with the SEC on March 11, 2021) 4.1 Form of Class A Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 4.2 Form of Class B Common Stock certificate (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 4.3 Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1/A (File No. 333-204907) filed with the SEC on July 13, 2015) 4.4 Warrant Agreement dated July 29, 2015, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on August 4, 2015) 4.5 Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 27, 2019) 4.6 Description of Registered Securities (incorporated by reference into Exhibit 4.6 to the Annual Report on Form 10-K (File No. 001-37523) filed with the SEC on March 11, 2021) 10.1+ Form of Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.2+ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.3+ Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.4+ Form of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.5+ Form of Stock Bonus Award Agreement (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 15, 2018) 10.6 Exchange Agreement, dated February 2, 2018, by and between Purple Innovation, Inc., Purple Innovation, LLC and InnoHold, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 61 10.7 Tax Receivable Agreement, dated February 2, 2018, by and between Purple Innovation, Inc. and InnoHold, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.8 Registration Rights Agreement, dated February 2, 2018, by and among Purple Innovation, Inc., InnoHold, LLC and Global Partner Sponsor I LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.9 Non-Competition and Non-Solicitation Agreement, dated February 2, 2018, by and among Purple Innovation, Inc., InnoHold, LLC, Purple Innovation, LLC, Terry Pearce and Tony Pearce (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.10+ Employment Agreement, dated February 2, 2018, between Purple Innovation, Inc. and Tony Pearce (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.11+ Employment Agreement, dated February 2, 2018, between Purple Innovation, Inc. and Terry Pearce (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.12+ Purple Innovation, Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.13 Subscription and Backstop Agreement, dated January 29, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Baleen Capital Investors II LLC, Baleen Capital Fund LP, Greenhaven Road Capital Fund 1, L.P., Royce Value Trust, Inc., David Capital Partners Fund, LP, Pleiades Investment Partners – DC, L.P. and Dane Capital Fund LP (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.14 Agreement to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company, Baleen Capital Investors II LLC, Baleen Capital Fund LP, Greenhaven Road Capital Fund 1, L.P., Royce Value Trust, Inc., David Capital Partners Fund, LP, Pleiades Investment Partners – DC, L.P. and Dane Capital Fund LP (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.15 Registration Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Baleen Capital Investors II LLC, Baleen Capital Fund LP, Greenhaven Road Capital Fund 1, L.P., Royce Value Trust, Inc., David Capital Partners Fund, LP, Pleiades Investment Partners – DC, L.P. and Dane Capital Fund LP (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.16 Subscription Agreement, dated February 1, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Coliseum Capital Partners, L.P. and Blackwell Partners LLC – Series A (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.17 Agreement to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company, Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.18 Agreement to Assign Founder Shares, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company and Coliseum Capital Partners, L.P., Blackwell Partners, LLC (incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 10.19 Registration Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 62 10.20+ Employment Agreement with the Company and Joseph B. Megibow (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 25, 2018) 10.21+ Offer Letter between the Company and Mark A. Watkins (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on October 4, 2018) 10.22+ Amended and Restated Option Grant Agreement between the Company and Mark A. Watkins (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K/A (File No. 001-37523) filed with the SEC on November 9, 2018) 10.23† Second Amended and Restated Confidential Assignment and License Back Agreement between the Company and EdiZONE (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 14, 2018) 10.24+ Offer Letter between Purple Innovation, LLC and John Legg dated January 12, 2019 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on January 14, 2019) 10.25 + Option Grant Agreement dated February 21, 2019 between Purple Innovation, Inc. and John Legg (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 27, 2019) 10.26 Registration Rights Agreement dated February 26, 2019 between and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A and Coliseum Co-Invest Debt Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 27, 2019) 10.27 Statement of Work agreement dated March 1, 2019 by and between Purple Innovation, Inc. and FTI Consulting, Inc. (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 7, 2019) 10.28 Master Retailer Agreement dated September 18, 2018 by and between Purple Innovation LLC and Mattress Firm, Inc. (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 7, 2019) 10.29+ Purple Innovation, Inc. 2019 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on May 14, 2019) 10.30+ Purple Innovation, Inc. 2019 Short-Term Cash Incentive Plan (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on May 14, 2019) 10.31 Lease Agreement dated June 10, 2019 between Purple Innovation, LLC and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 13, 2019) 10.32+ Settlement and General Release of Claims Agreement dated May 28, 2019 between Purple Innovation, Inc. and Mark Watkins (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 13, 2019) 10.33+ Employment Agreement between the Company and Craig L. Phillips (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on October 4, 2019) 10.34+ Option Grant Agreement between the Company and Craig L. Phillips (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on October 4, 2019) 10.35 First Amendment to Lease dated November 19, 2019 between the Company and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on November 25, 2019) 10.36 Amendment to TNT Holdings Amended and Restated Lease Agreement dated April 23, 2020 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on May 11, 2020) 63 10.37 Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated July 21, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on August 13, 2020) 10.38 Credit Agreement dated September 3, 2020 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.39 Pledge and Security Agreement dated September 3, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.40 Guaranty dated September 3, 2020 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.41 Collateral Assignment of Patents dated September 3, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.42 Collateral Assignment of Trademarks dated September 3, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on September 3, 2020) 10.43 Collateral Assignment of Copyrights dated September 3, 2020 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-37523) filed with SEC on September 3, 2020) 10.44+ Purple Innovation, Inc. 2020 Short-Term Cash Incentive Plan (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 10, 2020) 10.45 License Transfer and IP Assignment Agreement between Purple Innovation, LLC and EdiZONE, LLC dated August 14, 2020 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 10, 2020) 10.46+ Indemnification Agreement between Purple Innovation, Inc. and Paul Zepf dated August 18, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-37523) filed with the SEC on November 10, 2020) 10.47 First Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated March 27, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on March 30, 2020) 10.48 Second Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated May 15, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 37523) filed with the SEC on May 18, 2020) 10.49 Waiver and Consent to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P. dated August 20, 2020 (incorporated by reference into Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on August 21, 2020) 14.1 Code of Ethics of Purple Innovation, Inc. (incorporated by reference into Exhibit 14.1 to the Annual Report on Form 10-K (File No. 001-37523) filed with the SEC on March 11, 2021) 21.1 List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Current Report on Form 8-K (File No. 001-37523) filed with the SEC on February 8, 2018) 23.1* Consent of Independent Registered Public Accounting Firm 31.1* Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) 31.2* Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) 32.1* Certification of the Principal Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 32.2* Certification of the Principal Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Calculation Linkbase 101.LAB XBRL Taxonomy Label Linkbase 101.PRE XBRL Definition Linkbase Document 101.DEF XBRL Definition Linkbase Document * Filed herewith # Schedules and exhibits to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any omitted schedules and exhibits to the Securities and Exchange Commission upon request. + Indicates management contract or compensatory plan. † Confidential treatment of certain provisions has been granted by the Securities and Exchange Commission. Item 16. Form 10-K/A Summary Not applicable. 64 PURPLE INNOVATION, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-7 Notes to Consolidated Financial Statements F-8 F- 1 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Purple Innovation, Inc. Lehi, Utah Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Purple Innovation, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 11, 2021, except as to the effect of the material weakness, which is dated May 10, 2021, expressed an adverse opinion thereon. Restatement to Correct 2020 and 2019 Misstatement As discussed in Note 3 to the consolidated financial statements, the 2020 and 2019 financial statements have been restated to correct a misstatement. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F- 2 Deferred Tax Asset Valuation Allowance As described in Notes 2 and 21 to the Company’s consolidated financial statements, the Company released approximately $35.5 million of the valuation allowance on its deferred tax assets, with a valuation allowance remaining over certain deferred tax assets. In evaluating the Company’s ability to realize the deferred tax assets management considered available positive and negative evidence, including projected future taxable income exclusive of reversing temporary differences, tax-planning strategies, and results of recent operations. During fiscal 2020, the Company was no longer in a three-year cumulative loss position. As a result of the removal of this negative evidence and other items of positive evidence, the Company has determined that the deferred tax assets are now more likely than not to be realized. We identified the Company’s evaluation of whether the deferred tax assets are realizable as a critical audit matter. Significant management judgments are required in evaluating and weighting the collective positive and negative evidence that are used to assess the realizability of deferred tax assets. This evidence includes various assumptions surrounding cumulative losses in recent years, results of recent operations and projected future taxable income, and the rate of continued growth. Auditing these elements involved especially complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the need to involve personnel with specialized skill and knowledge. The primary procedures we performed to address this critical audit matter included: - Assessing the reasonableness of the Company’s ability to generate future income and utilize the deferred tax assets by evaluating forecasts of future income and the rate of continued growth against the Company’s historical performance and performing independent estimates of the expected rate of continued growth to evaluate the changes in realizability of deferred tax assets that would result from changes in those assumptions. - Utilizing personnel with specialized knowledge and skill in taxes to assist in the evaluation of the Company’s assessment of positive and negative evidence, and whether the estimated future sources of taxable income were sufficient to utilize the deferred tax assets in the relevant time period. /s/ BDO USA, LLP We have served as the Company's auditor since 2017. Salt Lake City, Utah March 11, 2021, except as to the effect of the restatement described in Note 3, which is dated May 10, 2021 F- 3 PURPLE INNOVATION, INC. Consolidated Balance Sheets (In thousands, except for par value) December 31, 2020 2019 As Restated As Restated Assets Current assets: Cash and cash equivalents $ 122,955 $ 33,478 Accounts receivable, net 29,111 28,692 Inventories, net 65,726 47,628 Prepaid inventory 826 879 Other current assets 10,453 3,442 Total current assets 229,071 114,119 Property and equipment, net 61,486 31,979 Operating lease right-of-use assets 41,408 — Intangible assets, net 9,945 1,101 Deferred income taxes 211,244 — Other long-term assets 1,578 525 Total assets $ 554,732 $ 147,724 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 69,594 $ 50,240 Accrued sales returns 8,428 7,271 Accrued compensation 14,209 7,954 Customer prepayments 6,253 6,258 Accrued sales tax 6,015 5,602 Accrued rebates and allowances 10,891 5,311 Operating lease obligations – current portion 3,235 — Other current liabilities 13,583 4,229 Total current liabilities 132,208 86,865 Debt, net of current portion 41,410 35,399 Operating lease obligations, net of current portion 48,936 — Warrant liabilities 92,708 45,430 Tax receivable agreement liability 165,426 — Other long-term liabilities, net of current portion 6,503 8,570 Total liabilities 487,191 176,264 Commitments and contingencies (Note 14) Stockholders’ equity (deficit): Class A common stock; $ 0.0001 par value, 210,000 shares authorized; 63,914 issued and outstanding at December 31, 2020 and 22,494 issued and outstanding at December 31, 2019 6 2 Class B common stock; $ 0.0001 par value, 90,000 shares authorized; 536 issued and outstanding at December 31, 2020 and 31,394 issued and outstanding at December 31, 2019 — 3 Additional paid-in capital 333,047 2,822 Accumulated deficit ( 265,856 ) ( 28,989 ) Total stockholders’ equity (deficit) 67,197 ( 26,162 ) Noncontrolling interest 344 ( 2,378 ) Total stockholders’ equity (deficit) 67,541 ( 28,540 ) Total liabilities and stockholders’ equity (deficit) $ 554,732 $ 147,724 The accompanying notes are an integral part of these consolidated financial statements. F- 4 PURPLE INNOVATION, INC. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2020 2019 As Restated As Restated Revenues, net $ 648,471 $ 428,358 Cost of revenues 343,374 239,387 Gross profit 305,097 188,971 Operating expenses: Marketing and sales 187,991 141,975 General and administrative 39,925 26,918 Research and development 5,955 3,864 Total operating expenses 233,871 172,757 Operating income 71,226 16,214 Other income (expense): Interest expense ( 4,654 ) ( 5,180 ) Other income (expense), net ( 91 ) 545 Loss on extinguishment of debt ( 5,782 ) ( 6,299 ) Change in fair value – warrant liabilities ( 300,073 ) ( 35,304 ) Tax receivable agreement expense ( 34,155 ) ( 501 ) Total other expense, net ( 344,755 ) ( 46,739 ) Net loss before income taxes ( 273,529 ) ( 30,525 ) Income tax benefit (expense) 43,749 ( 400 ) Net loss ( 229,780 ) ( 30,925 ) Net income (loss) attributable to noncontrolling interest 7,087 ( 8,352 ) Net loss attributable to Purple Innovation, Inc. $ ( 236,867 ) $ ( 22,573 ) Net loss per share: Basic $ ( 6.04 ) $ ( 2.26 ) Diluted $ ( 6.04 ) $ ( 2.26 ) Weighted average common shares outstanding: Basic 39,219 10,006 Diluted 39,219 10,006 The accompanying notes are an integral part of these consolidated financial statements. F- 5 PURPLE INNOVATION, INC. Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands) Class A Class B Additional Total Stockholders’ Total Common Stock Common Stock Paid-in Accumulated Equity Noncontrolling Equity Shares Par Value Shares Par Value Capital Deficit (Deficit) Interest (Deficit) Balance — December 31, 2018, as previously reported 9,731 $ 1 44,071 $ 4 $ 3,655 $ ( 4,322 ) $ ( 662 ) $ ( 1,349 ) $ ( 2,011 ) Adjustments — — — — ( 3,168 ) ( 2,094 ) ( 5,262 ) — ( 5,262 ) Balance — December 31, 2018, as restated 9,731 1 44,071 4 487 ( 6,416 ) ( 5,924 ) ( 1,349 ) ( 7,273 ) Net loss, as restated — — — — — ( 22,573 ) ( 22,573 ) ( 8,352 ) ( 30,925 ) Stock-based compensation — — — — 10,063 — 10,063 — 10,063 Repurchase of stock option — — — — ( 97 ) — ( 97 ) — ( 97 ) Issuance of stock 96 — — — — — — — — Exchange of stock 12,670 1 ( 12,670 ) ( 1 ) — — — — — Forfeiture of unvested stock ( 3 ) — ( 7 ) — — — — — Tax distribution — — — — ( 308 ) — ( 308 ) — ( 308 ) Impact of transactions affecting NCI — — — ( 7,323 ) — ( 7,323 ) 7,323 — Balance – December 31, 2019, as restated 22,494 $ 2 31,394 $ 3 $ 2,822 $ ( 28,989 ) $ ( 26,162 ) $ ( 2,378 ) $ ( 28,540 ) Net income, as restated — — — — — ( 236,867 ) ( 236,867 ) 7,087 ( 229,780 ) Stock-based compensation — — — — 2,185 — 2,185 — 2,185 Exchange of stock 30,858 3 ( 30,858 ) ( 3 ) — — — — — Exercise of warrants, as restated 7,621 1 — — 218,113 — 218,114 — 218,114 Exercise of incremental loan warrants 2,613 — — — 81,040 — 81,040 — 81,040 Exercise of stock options 281 — — — 2,007 — 2,007 — 2,007 Tax Receivable Agreement liability — — — ( 137,314 ) — ( 137,314 ) — ( 137,314 ) Deferred income taxes — — — — 165,676 — 165,676 — 165,676 Tax distributions — — — — ( 5,847 ) — ( 5,847 ) — ( 5,847 ) Issuance of stock 83 — — — — — — — — Forfeiture of unvested stock ( 36 ) — — — — — — — — Impact of transactions affecting NCI — — — 4,365 — 4,365 ( 4,365 ) — Balance – December 31, 2020, as restated 63,914 $ 6 536 $ — $ 333,047 $ ( 265,856 ) $ 67,197 $ 344 $ 67,541 The accompanying notes are an integral part of these consolidated financial statements. F- 6 PURPLE INNOVATION, INC. Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2020 2019 As Restated As Restated Cash flows from operating activities: Net loss $ ( 229,780 ) $ ( 30,925 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 7,899 4,308 Non-cash interest 3,105 3,313 Paid-in-kind interest ( 6,616 ) — Loss on extinguishment of debt 5,782 6,299 Loss on change in fair value – warrant liabilities 300,073 35,304 Tax Receivable Agreement expense 34,155 501 Stock-based compensation 2,185 10,063 Non-cash lease expense 3,128 — Deferred income taxes ( 45,812 ) — Changes in operating assets and liabilities: Accounts receivable ( 419 ) ( 18,451 ) Inventories ( 18,098 ) ( 24,688 ) Prepaid inventory and other assets ( 5,047 ) ( 2,557 ) Accounts payable 16,049 25,132 Accrued sales returns 1,157 1,814 Accrued compensation 6,255 5,263 Customer prepayments ( 5 ) ( 1,264 ) Operating lease obligations ( 1,732 ) — Other accrued liabilities 8,978 8,768 Net cash provided by operating activities 81,257 22,880 Cash flows from investing activities: Purchase of property and equipment ( 27,878 ) ( 10,459 ) Investment in intangible assets ( 11,261 ) ( 320 ) Net cash used in investing activities ( 39,139 ) ( 10,779 ) Cash flows from financing activities: Proceeds from related-party loan — 10,000 Proceeds from term loan 45,000 — Payments on related-party loan ( 37,497 ) — Payments on term loan ( 563 ) — Proceeds from exercise of warrants 46,359 — Proceeds from exercise of stock options 2,007 — Repurchase of stock options — ( 97 ) Payments for debt issuance costs ( 2,460 ) ( 758 ) Distributions to members ( 5,487 ) — Net cash provided by financing activities 47,359 9,145 Net increase in cash 89,477 21,246 Cash and cash equivalents, beginning of the year 33,478 12,232 Cash and cash equivalents, end of the year $ 122,955 $ 33,478 Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 8,167 $ 1,869 Cash paid during the year for income taxes $ 2,060 $ 122 Supplemental schedule of non-cash investing and financing activities: Property and equipment included in accounts payable $ 3,305 $ 743 Issuance of liability warrants $ — $ 4,864 Non-cash leasehold improvements $ 5,147 $ 1,938 Tax distribution payable $ 668 $ 308 Tax Receivable Agreement liability $ 137,314 $ — Deferred income taxes $ 165,676 $ — Exercise of liability warrants $ 252,796 $ — The accompanying notes are an integral part of these consolidated financial statements. F- 7 PURPLE INNOVATION, INC. Notes to the Consolidated Financial Statements 1. Organization The Company’s mission is to help people feel and live better through innovative comfort solutions. Purple Innovation, Inc., collectively with its subsidiary (the “Company” or “Purple Inc.”) is a digitally-native vertical brand founded on comfort product innovation with premium offerings. The Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products. The Company markets and sells its products through its direct-to-consumer (“DTC”) online channels, retail brick-and-mortar wholesale partners, third-party online retailers and Company showrooms. The Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company and one or more businesses. On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple LLC”). At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc. As the sole managing member of Purple LLC, Purple Inc. through its officers and directors is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. 2. Summary of Significant Accounting Policies This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Basis of Presentation and Principles of Consolidation The Company consists of Purple Inc. and its consolidated subsidiary Purple LLC. Pursuant to the Business Combination described in Note 4— Business Combination , Purple Inc. acquired approximately 18% of the common units of Purple LLC, while InnoHold, LLC (“InnoHold”) retained approximately 82% of the common units in Purple LLC. As of December 31, 2020, Purple Inc. held approximately 99% of the common units of Purple LLC and other Purple LLC Class B Unit holders held approximately 1% of the common units in Purple LLC. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the financial position, results of operations and cash flows of the Company. On December 31, 2020, the Company lost its status as an emerging growth company (“EGC”) and was no longer exempt from certain reporting requirements that apply to public companies. As an EGC prior to this date, Purple Inc. had elected to use extended transition periods available to private companies for complying with new or revised accounting standards. These accounting policies have been consistently applied in the preparation of the consolidated financial statements. COVID-19 Pandemic Developments The COVID-19 pandemic has impacted many aspects of our operations, directly and indirectly, including disruption of our employees, consumer behavior, distribution and logistics, our suppliers, and the market overall. The scope and nature of these impacts continue to evolve. Because of the COVID-19 pandemic, we have taken precautionary measures to manage our resources and mitigate the adverse impact of the pandemic, which is intended to help minimize the risk to our Company, employees, customers, and the communities in which we operate. Employees at the Company’s headquarters and certain other employees have been asked to work from home where possible, with only limited access given to employees to work in the office when necessary. For roles that require employees to be on-site, such as our manufacturing facility and distribution center, we mandate protective equipment be worn, perform temperature testing at the start of each shift and again during the shift, contact trace when risk of exposure is known, stagger shifts to reduce concentration of employees, follow social distancing guidelines and sanitize daily including complete weekly anti-viral fumigation. The State of Utah is where all our manufacturing operations took place as of December 31, 2020. If the State of Utah, as part of its efforts to control the resurgence of COVID-19, requires us to close our facilities temporarily or to reduce the number of employees working in our manufacturing facility at a given time, our business and operations could be significantly adversely affected. F- 8 Despite the ongoing challenges from COVID-19, the Company has been able to capitalize on the opportunities created by this situation. We continue to serve our customers through our Direct to Consumer (“DTC”) channel, which has remained strong throughout the year as consumer demand for our premium, differentiated product offerings shifted to our DTC channel. We continue to focus our efforts in our DTC core competencies resulting in a continued strength in DTC channel sales across all our product categories throughout the year. There can be no assurance that this trend of strong demand through our DTC channel will continue. We experienced a decline in wholesale demand during the second quarter of fiscal 2020 as temporary shutdowns of non-essential businesses and shelter-at-home directives occurred in most U.S. states. As the shutdowns were lifted and stores began to open again, demand through the wholesale channel increased to more normal levels. We currently have all our showrooms open and servicing our customers. Also, in July 2020, we signed a new lease for a manufacturing facility in Georgia and are continuing to proceed with the buildout and purchasing of equipment to begin production in the first quarter of 2021. The increase in DTC demand allowed us to work through a portion of our on-hand inventory and required us to ramp up production. We continue to take advantage of our vertically integrated business model to adjust production schedules to leverage inventory on hand and manage labor costs. We also continue to dynamically adjust our significant discretionary online advertising spend in response to any changes in DTC trends as they develop. Our supply chain has not been significantly affected by COVID-19. Suppliers in China were temporarily closed because of the pandemic, but we had sufficient inventory on hand. These suppliers have resumed production and are able to supply materials as needed. Most of our domestic suppliers are able to continue operations and provide necessary materials when needed. We have experienced some constraints from certain suppliers due to our increased production to meet demand. We have also experienced some shipping delays in the delivery of our product to our customers. This is due to the increased nationwide demand placed on delivery companies. Although the Company has taken measures to protect the business, we cannot predict the specific duration for which these precautionary measures will stay in effect, and we may elect or need to take additional measures as the information available to us continues to develop, including with respect to our employees, manufacturing facilities and distribution center, and relationships with our suppliers and customers. Whereas most state and local governments have eased restrictions on commercial retail activity, it is possible that a resurgence in COVID -19 cases could prompt a return to tighter restrictions in certain areas of the country. Furthermore, while the bedding industry has fared much better during the pandemic than certain other sectors of the economy, continued economic weakness may eventually have an adverse impact upon our business. Therefore, significant uncertainty remains regarding the ongoing impact of the COVID- 19 outbreak upon our financial condition and future results of operations, as well as upon the significant estimates and assumptions we utilize in reporting certain assets and liabilities. F- 9 Variable Interest Entities Purple LLC is a variable interest entity (“VIE”). The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At December 31, 2020, Purple Inc. had approximately a 99% economic interest in Purple LLC and consolidated 100% of Purple LLC’s assets, liabilities and results of operations in the Company’s consolidated financial statements contained herein. At December 31, 2020, other Purple LLC Class B Unit holders had approximately 1% of the economic interest in Purple LLC. For further discussion see Note 16— Stockholders’ Equity (Deficit) . Reclassification Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no impact on net loss, cash flows or shareholders’ deficit previously reported. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company regularly makes significant estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and allowance for doubtful accounts, valuation of inventories, cost of revenues, sales returns, warranty returns, the warrant liability, stock based compensation, the recognition and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s Tax Receivable Agreement with InnoHold (the “Tax Receivable Agreement” or “TRA”). Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ materially from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments. Cash and cash equivalents are invested in money market funds. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded net of an allowance for expected losses and consist primarily of receivables from wholesale customers and receivables from third-party consumer financing partners and credit card processors. The allowance is recognized in an amount equal to anticipated future write-offs. Management estimates the allowance for doubtful accounts based on delinquencies, aging trends, industry risk trends, historical experience and current trends. Account balances are charged off against the allowance when management believes it is probable the receivable will not be recovered. The allowance for doubtful accounts as of December 31, 2020 and 2019 was not material. Inventories Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value. Manufactured inventory consists of raw material, direct labor and manufacturing overhead costs. Inventory cost is calculated using a method that approximates average cost. The Company reviews the components of its inventory on a regular basis for excess and obsolete inventory and makes appropriate adjustments when necessary. Once established, the original cost of the inventory less the related inventory allowance represents the new cost basis of such products. As of December 31, 2020 and 2019, the reserve for inventory obsolescence was $ 0.5 million and $ 0.8 million, respectively. F- 10 Property and Equipment Property and equipment are stated at cost, net of depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, ranging from 1 to 16 years, as follows: Years Equipment 10 Furniture and fixtures 7 Computer equipment and software 3 Leasehold improvements 1 - 16 Major renewals and betterments that increase value or extend useful life are capitalized. The Company records depreciation and amortization in cost of sales for long-lived assets used in the manufacturing process, and within each line item of operating expenses for all other long-lived assets. Leasehold improvements are amortized over the shorter of the useful life of the leasehold improvements or the contractual term of the lease, with consideration of lease renewal options if exercise is reasonably certain. The cost and related accumulated depreciation of assets sold or retired is removed from the accounts with any resulting gain or loss included in the consolidated statement of operations. Leases Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ ASC 842 ”) using the modified retrospective approach. See Accounting Pronouncements Adopted in 2020 below, which discusses the initial adoption of this new guidance. The Company determines if an agreement contains a lease at the inception of a contract. For leases with an initial term greater than 12 months, a related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) corresponding with the lease term. In addition, a right-of-use (“ROU”) asset is recorded as the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. The Company calculates the present value of future payments using its incremental borrowing rate when the discount rate implicit in the lease is not known. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company determines the applicable incremental borrowing rate at the lease commencement date based on the rates of its secured borrowings, which is then adjusted for the appropriate lease term and risk premium. In determining the Company’s ROU assets and operating lease liabilities, the Company applies these incremental borrowing rates to the minimum lease payments within each lease agreement. Operating lease expense is recognized on a straight-line basis over the lease term. Tenant incentive allowances received from the lessor are amortized through the right-of-use asset as a reduction of rent expense over the lease term. Any variable lease costs are expensed as incurred. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet. Short-term lease expense is recognized on a straight-line basis over the lease term. ROU assets are assessed for impairment as part of the impairment of long-lived assets, which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. At December 31, 2020, the Company’s finance ROU assets and associated lease liabilities were not material. Prior to fiscal 2020 , total lease payments over the non-cancellable term of a lease were recognized as rent expense on a straight-line basis over the lease term, with the excess of expense recognized over lease payments made recorded as a deferred rent liability on the balance sheet. Any lease incentive payments received from lessors were recorded as a liability on the balance sheet and amortized as a reduction of rent expense over the term of the lease. F- 11 Intangible Assets Intangible assets include developed technologies and trade names / trademarks, internal-use software, domain name costs, license fees and other patent and trademark related costs. Definite-lived intangible assets are being amortized using the straight-line method over their estimated lives, ranging from three to 15 years . Asset Impairment Charges Definite-lived Intangible Assets – Definite-lived intangible assets are reviewed for impairment annually or whenever events or changes in circumstances indicate impairment may have occurred. Any identified impairment would result in an adjustment to the Company’s results of operations. An impairment charge of $ 0.6 million was recorded during the third quarter of fiscal 2020 to write-off the unamortized portion of license costs related to a vendor supply and services agreement. For further discussion see Note 9— Intangible Assets. There were no impairment charges realized on definite-lived intangible assets during the year ended December 31, 2019. Indefinite-lived Intangible Assets – Intangible assets that have indefinite lives are not amortized but are reviewed for impairment annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Accounting guidance provides for the performance of either a quantitative assessment or a qualitative assessment before calculating the fair value of an asset. For its indefinite lived intangibles assets, the Company assessed qualitative factors to determine whether any events or circumstances existed which indicated that it was more likely than not that the fair value of its indefinite lived assets did not exceed their carrying values. The Company concluded no such events or circumstances existed which would require an impairment test be performed beyond the qualitative assessment. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs. Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset or group of assets. If estimated future undiscounted net cash flows are less than the carrying amount of the asset or group of assets, the asset is considered impaired and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value. Fair value generally is determined from estimated discounted future net cash flows (for assets held for use) or net realizable value (for assets held for sale). The Company did not identify any indicators of impairment for the years ended December 31, 2020 or 2019. Cooperative Advertising, Rebate and Other Promotion Programs The Company enters into programs with certain wholesale partners to provide funds for advertising and promotions as well as volume and other rebate programs. When sales are made to these customers, the Company records liabilities pursuant to these programs. The Company periodically assesses these liabilities based on actual sales to determine whether all of the cooperative advertising earned will be used by the customer or whether the customer will meet the requirements to receive rebate funds. Significant estimates are required at any point in time with regard to the ultimate reimbursement to be claimed by the customers. Subsequent revisions to the estimates are recorded and charged to earnings in the period in which they are identified. Rebates and certain cooperative advertising amounts are classified as a reduction of revenue and presented within net revenues in the accompanying consolidated statements of operations. Cooperative advertising expenses that can be identified as a distinct good or service and for which the fair value can be reasonably estimated are reported, when incurred, as components of selling and marketing expenses in the accompanying consolidated statements of operations. F- 12 Advertising Costs The Company incurs advertising costs associated with print, digital and broadcast advertisements. Advertising costs are expensed when the advertisements are run for the first time and included in marketing and selling expenses in the accompanying consolidated statements of operations. Advertising expense was $ 130.3 million and $ 112.1 million for the years ended December 31, 2020 and 2019, respectively. Advertising costs include expenditures for shared advertising costs that the Company incurs under its cooperative advertising programs to the extent the fair value of the distinct good or service can reasonably be estimated. Revenue Recognition The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2019 on a modified retrospective basis. Topic 606 outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most previous revenue recognition guidance, including industry-specific guidance. Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on the Company’s financial position, results of operations, or cash flows. As such, the Company did not record a cumulative adjustment to the opening equity balance of accumulated deficit as of January 1, 2019. However, additional disclosures were added in accordance with the requirements of Topic 606 and are reflected in Note 5 – Revenue from Contracts with Customers. The Company markets and sells its products through direct-to-consumer online channels, traditional wholesale partners, third-party online retailers and Company showrooms. Revenue is recognized when the Company satisfies its performance obligations under the contract which is transferring the promised products to the customer. This principle is achieved in the following steps: Identify the contract with the customer. A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for the goods that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company does not have significant costs to obtain contracts with customers. Identify the performance obligations in the contract . The Company’s contracts with customers do not include multiple performance obligations to be completed over a period of time. The performance obligations generally relate to delivering products to a customer, subject to the shipping terms of the contract. The Company has made an accounting policy election to account for shipping and handling activities performed after a customer obtains control of the goods, including “white glove” delivery services, as activities to fulfill the promise to transfer the goods. The Company does not offer extended warranty or service plans. The Company does not provide an option to its customers to purchase future products at a discount and therefore there are no material option rights. Determine the transaction price . Payment for sale of products through the direct-to-consumer online channels and third-party online retailers is collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Payment by traditional wholesale customers is due under customary fixed payment terms. None of the Company’s contracts contain a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, volume rebates, and other adjustments. The estimates of variable consideration are based on historical return experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. Allocate the transaction price to performance obligations in the contract. The Company’s contracts with customers do not include multiple performance obligations. Therefore, the Company recognizes revenue upon transfer of the product to the customer’s control at contractually stated pricing. Recognize revenue when or as we satisfy a performance obligation. The Company satisfies performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. With the exception of third-party “white glove” delivery and certain wholesale partners, revenue generated from product sales is recognized at shipping point, the point in time the customer obtains control of the products. Revenue generated from sales through third-party “white glove” delivery is recognized at the point in time when the product is delivered to the customer. Revenue generated from certain wholesale partners is recognized at a point in time when the product is delivered to the wholesale partner’s warehouse. The Company does not have service revenue. F- 13 Cost of Revenues Costs associated with net revenues are recorded in cost of revenues in the same period in which related sales have been recorded. Cost of revenues includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods during the period, as well as depreciation and amortization of long-lived assets used in these processes. Cost of sales also includes shipping and handling costs associated with the delivery of goods to customers. Sales Returns The Company offers up to 100-days to return a mattress, pet bed or pillow and up to 30-days to return all other products (except power bases) for a full refund. The Company’s policy grants to customers a right of return requiring the Company to reduce the amount of revenue recognized by the amount of estimated returns. The estimated sales returns, which are recorded as a reduction of revenue at the time of sale and recorded as a liability on the balance sheet, are based on historical trends and product return rates and are adjusted for any current or expected trends as appropriate. Actual sales returns could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued sales returns by updating the return rates for actual trends and projected costs. The Company classifies the estimated sales returns as a current liability as they are expected to be paid out in less than one year. As of December 31, 2020 and 2019, $ 8.4 million and $ 7.3 million, respectively, were included as accrued sales returns in the accompanying consolidated balance sheets. The Company had the following activity for sales returns: Years Ended December 31, (in thousands) 2020 2019 Balance at beginning of period $ 7,271 $ 5,457 Additions that reduced net revenue 50,504 34,390 Deduction from reserves for current year returns ( 49,347 ) ( 32,576 ) Balance at end of period $ 8,428 $ 7,271 Warranty Liabilities The Company provides a limited warranty on most of the products sold. The estimated warranty costs, which are expensed at the time of sale and included in cost of revenues, are based on the results of product testing, industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. Actual warranty claim costs could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs. The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability. As of December 31, 2020 and 2019, $ 2.8 million and $ 1.6 million of warranty liabilities are included in other current liabilities and $ 5.6 million and $ 3.1 million of warranty liabilities are included in other long-term liabilities on the accompanying consolidated balance sheets, respectively. The Company had the following activity for warranty liabilities: Years Ended December 31, (in thousands) 2020 2019 Balance at beginning of period $ 4,621 $ 2,009 Additions charged to expense for current year sales 6,399 4,185 Deduction from reserves for current year claims ( 2,623 ) ( 1,573 ) Balance at end of period $ 8,397 $ 4,621 Debt Issuance Costs and Discounts Debt issuance costs and discounts that relate to borrowings are presented in the consolidated balance sheet as a direct reduction from the carrying amount of the related debt liability and are amortized into interest expense using an effective interest rate over the duration of the debt. Debt issuance costs that relate to revolving lines of credit are carried as an asset in the consolidated balance sheet and amortized to interest expense on a straight-line basis over the term of the related line of credit facility. Refer to Note 11 – Debt. F- 14 Warrants The Company accounts for its Incremental Loan Warrants as liability warrants under the provisions of the ASC 480 - Distinguishing Liabilities from Equity . ASC 480 requires the recording of certain liabilities at their fair value. Changes in the fair value of these liabilities are recognized in earnings. These warrants contained a repurchase provision which, upon an occurrence of a fundamental transaction as defined in the warrant agreement, could have given rise to an obligation of the Company to pay cash to the warrant holders. In addition, other provisions may have led to a reduction in the exercise price of the warrants. The Company determined the fundamental transaction provisions required the warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. The Company uses the Monte Carlo Simulation of a Geometric Brownian Motion stock path model to determine the fair value of the liability associated with the Incremental Loan Warrants. The model uses key assumptions and inputs such as exercise price, fair market value of common stock, risk free interest rate, warrant life, expected volatility and the probability of a warrant re-price. The Company accounts for the public and sponsor warrants issued in connection with its IPO and a simultaneous private placement in accordance with ASC 815, under which certain provisions in the public and sponsor warrant agreements do not meet the criteria for equity classification and therefore the warrants must be recorded as liabilities. Since the public and sponsor warrants both meet the definition of a derivative as contemplated in ASC 815, these warrants are measured at fair value at inception and at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in earnings in the period of change. The Company uses the Black Scholes model to determine the fair value of the sponsor warrant liability. The model uses key assumptions and inputs such as exercise price, fair market value of warrants, risk free interest rate, warrant life and expected volatility. The Company determined the fair value of the public warrants based on their public trading price. Fair Value Measurements The Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1—Quoted market prices in active markets for identical assets or liabilities; Level 2—Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions. The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. Financial instruments, although not recorded at fair value on a recurring basis include cash and cash equivalents, receivables, accounts payable, and the Company’s debt obligations. The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts. The fair value of the Company’s debt instruments are estimated to be face value based on the contractual terms of the debt arrangements and market-based expectations. The public warrant liabilities are Level 1 instruments as they have quoted market prices in an active market. The sponsor and Incremental Loan warrant liabilities are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable inputs which requires determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities would decrease (increase) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities would generally increase (decrease) in value if the expected average life or expected volatility were to increase (decrease). F- 15 The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value: December 31, (In thousands) Level 2020 2019 Public Warrants 1 $ — $ 16,119 Sponsor Warrants 3 92,708 7,689 Incremental Loan Warrants 3 — 21,622 The following table summarizes the Company’s total Level 3 liability activity for the years ended December 31, 2020 and 2019: (In thousands) Sponsor Warrants Incremental Loan Warrants Total Level 3 Liabilities Fair value as of December 31, 2018 $ 2,673 $ — $ 2,673 Initial measurement — 4,864 4,864 Fair value transfer to Level 1 measurement ( 321 ) — ( 321 ) Change in valuation inputs (1) 5,337 16,758 22,095 Fair value as of December 31, 2019 $ 7,689 $ 21,622 $ 29,311 Fair value transfer to Level 1 measurement ( 1,275 ) — ( 1,275 ) Fair value of warrants exercised ( 3,690 ) ( 81,040 ) ( 84,730 ) Change in valuation inputs (1) 89,984 59,418 149,402 Fair value as of December 31, 2020 $ 92,708 $ — $ 92,708 (1) Changes in valuation inputs are recognized in the change in fair value – warrant liabilities in the Consolidated Statement of Operations. Stock Based Compensation The Company has accounted for stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation. This standard requires the Company to record an expense associated with the fair value of stock-based compensation over the requisite service period. During 2020 and 2019, the Company granted stock awards under the 2017 Equity Incentive Plan to members of the Company’s Board of Directors and Board advisor for services performed. Stock based compensation for these stock awards was determined on the grant date based on the publicly quoted closing price of our common stock and was expensed on the grant date since all the awards were immediately vested. In March 2020, the Company granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s independent Board advisor and GPAC observer. The stock award vests in March 2021. As this award includes a service condition, the estimated fair value of the restricted stock is measured on the grant date and is recognized over the service period. The Company determined that the fair value of the restricted stock on the grant date was immaterial. In May and June 2020, the Company granted restricted stock awards under the Company’s 2017 Equity Incentive Plan to certain employees of the Company. The stock awards vest over 3 to 4 years. The estimated fair value of restricted stock is measured on the grant date and is recognized as expense over the vesting period. During 2019, the Company granted a restricted stock award that has certain vesting conditions which could be met at the earliest in the twelve months ended March 31, 2022. As this award includes a market vesting condition, stock-based compensation is determined as the estimated fair value of the restricted stock measured on the grant date using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model which incorporates the probability of vesting occurring. The fair value of the restricted stock is expensed over the derived service period. During 2020 and 2019, the Company granted stock options under the Company’s 2017 Equity Incentive Plan to certain officers, executives and employees of the Company. The fair value for these awards was determined using the Black-Scholes option valuation model at the date of grant. Stock based compensation on these awards is expensed on a straight-line basis over the vesting period. Option pricing models require the input of subjective assumptions including the expected term of the stock option, the expected price volatility of the Company’s common stock over the period equal to the expected term of the grant, and the expected risk-free rate. Changes in these assumptions can materially affect the fair value estimate. The Company estimates forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. F- 16 Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. The Company’s effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest and changes in our valuation allowance. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations. The Company files U.S. federal and certain state income tax returns. The income tax returns of the Company are subject to examination by U.S. federal and state taxing authorities for various time periods, depending on those jurisdictions’ rules, generally after the income tax returns are filed. Tax Receivable Agreement In connection with the Business Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the Tax Receivable Agreement. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of its Class B Units, a liability under the Tax Receivable Agreement (a “TRA Liability”) may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant TRA Liability to be recorded will depend on the price of the Company’s Class A Stock at the time of the relevant redemption or exchange. The estimation of liability under the Tax Receivable Agreement is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. As a result of the Business Combination, subsequent exchanges of 43.5 million Class B Units for Class A Stock and changes in estimates relating to the expected tax benefits associated with the Tax Receivable Agreement, the Company increased the Tax Receivable Agreement liability from $0.5 million at December 31, 2019 to $172.0 million at December 31, 2020. Of the total liability recorded during 2020, $137.3 million relates to current year exchanges and was recorded as an adjustment to equity and $34.2 million was recorded to expense in order to re-establish the TRA related to prior year exchanges. Net Loss Per Share Basic net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of Class A Stock outstanding each period. Diluted net income per share adds to those shares the incremental shares that would have been outstanding assuming exchanges of the Company’s outstanding Class B Stock and warrants for Class A Stock, and the vesting of unvested and restricted Class A Stock. An anti-dilutive impact represents an increase in net income per share or a reduction in net loss per share resulting from the conversion, exercise or contingent issuance of certain securities. The Company uses the “if-converted” method to determine the potential dilutive effect of conversions of its outstanding Class B Stock, and the treasury stock method to determine the potential dilutive effect of its outstanding warrants and stock options exercisable for shares of Class A Stock and the vesting of unvested Class A Stock. During the years ended December 31, 2020 and 2019, there was no impact from these methods on net loss per share due to their anti-dilutive effect that resulted from the net loss position of the Company. F- 17 Accounting Pronouncements Adopted in 2020 Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842, which required an entity to recognize lease liabilities and ROU assets on the balance sheet and to disclose key information about an entity’s leasing arrangements. Subsequent to this, the FASB issued various amendments to ASC 842, which affected certain aspects of the previously issued guidance. One of the amendments included an additional transition option that allowed entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings. These updates were effective for public companies for annual periods beginning after December 15, 2018, including interim periods therein. Because the Company lost its EGC status on December 31, 2020, the standard became effective for the Company for its annual period beginning January 1, 2020, and interim periods within the annual period beginning January 1, 2021. The Company adopted ASC 842 and all related amendments effective January 1, 2020 using the modified retrospective transition approach. The Company elected the package of practical expedients upon adoption, which permitted the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to separate lease and non-lease components for all real estate leases and did not elect the hindsight practical expedient. Lastly, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less. The adoption of ASC 842 effective January 1, 2020 resulted in the recognition of operating lease ROU assets of $ 27.9 million and operating lease liabilities of $ 33.0 million in the Company’s consolidated balance sheet. In connection with the adoption, pre-existing liabilities for deferred rent and various lease incentives totaling $ 5.1 million were reclassified to the operating lease ROU assets. The Company’s financial position and operating results for reporting periods prior to January 1, 2020 have not been adjusted and continue to be presented in accordance with the accounting standard in effect at that time. The adoption of ASC 842 did not have a material impact on the Company’s consolidated results of operations or cash flows and had no impact on retained earnings. At January 1, 2020, the effective date of adoption, the Company’s finance ROU assets and lease liabilities were not material. Internal-Use Software In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350) (“ASU 2018-15”). The objective of ASU 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The amendments can be applied either retrospectively or prospectively. Because the Company lost its EGC status on December 31, 2020, the standard became effective for the Company for its annual period beginning January 1, 2020, and interim periods within the annual period beginning January 1, 2021. The Company elected to apply the amendments on a prospective basis. Adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows. Recent Accounting Pronouncements Not Yet Adopted Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. This standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022, when the reference rate replacement activity is expected to be completed. The interest rate on the Company’s term loan is based on LIBOR. The Company plans to apply the amendments in this update to account for any contract modifications that result from changes in the reference rate used. The Company does not expect these amendments to have a material impact on its consolidated financial statements and related disclosures. F- 18 Simplifying the Accounting for Income Taxes In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU No. 2019-12). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position and results of operations. Measurement of Credit Losses In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which was further updated and clarified by the FASB through issuance of additional related ASUs. This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on expected credit losses. The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts. These updates are effective for public companies, excluding Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein. The standard is effective for all other entities for annual periods beginning after December 15, 2022, including interim periods therein. The standard is effective for the Company’s interim and annual financial periods beginning January 1, 2023. This standard is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the impact of this standard on its accounts receivable, cash and cash equivalents, and any other financial assets measured at amortized cost and does not expect that adoption will have a material impact on its consolidated financial statements or related disclosures. 3. Restatement of Previously Issued Consolidated Financial Statements On April 12, 2021, the Securities and Exchange Commission issued a public statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). The SEC Statement addressed certain accounting and reporting considerations related to warrants of a kind similar to those issued by the Company at the time of its initial public offering (“IPO”). As a result of the SEC Statement, the Company reevaluated the accounting treatment of 15.5 million public warrants issued in connection with GPAC’s formation and IPO and 12.8 million sponsor warrants issued pursuant to a simultaneous private placement. The warrants have a five-year term which commenced on March 2, 2018, 30 days after the completion of the Business Combination, and will expire on February 2, 2023, or earlier upon redemption or liquidation. The Company had been accounting for these warrants as components of equity. The guidance in ASC 815, stipulates warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as liabilities at their estimated fair values. In periods after issuance, changes in the estimated fair value of the derivative instruments should be reported in the consolidated statement of operations. Based on the SEC Statement and the guidance in ASC 815, the Company concluded that its consolidated financial statements should be restated to reflect both the public warrants and sponsor warrants as liabilities, with subsequent changes in their estimated fair value recorded as non-cash income or expense in the consolidated statements of operations for all periods after issuance. As a result, the Company has restated its consolidated financial statements as of December 31, 2020 and 2019 and for the years then ended, as well as the unaudited condensed consolidated financial statements for each of the quarterly and year-to-date periods within those years. F- 19 The following table sets forth the consolidated balance sheets, including the balances as reported, adjustments and the as restated balances as of December 31, 2020 and 2019: As of December 31, 2020 2019 (In thousands) As Reported Adjustment As Restated As Reported Adjustment As Restated Warrant liabilities $ — $ 92,708 $ 92,708 $ 21,622 $ 23,808 $ 45,430 Total liabilities 394,483 92,708 487,191 152,456 23,808 176,264 Additional paid-in capital 164,460 168,587 333,047 5,990 ( 3,168 ) 2,822 Accumulated deficit ( 4,561 ) ( 261,295 ) ( 265,856 ) ( 8,349 ) ( 20,640 ) ( 28,989 ) Total stockholders’ equity (deficit) 159,905 ( 92,708 ) 67,197 ( 2,354 ) ( 23,808 ) ( 26,162 ) Total equity (deficit) $ 160,249 $ ( 92,708 ) $ 67,541 $ ( 4,732 ) $ ( 23,808 ) $ ( 28,540 ) The following table sets forth the consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 (In thousands, except per share amounts) As Reported Adjustment As Restated As Reported Adjustment As Restated Change in fair value - warrant liabilities ( 59,418 ) ( 240,655 ) ( 300,073 ) ( 16,758 ) ( 18,546 ) ( 35,304 ) Total other expense, net ( 104,100 ) ( 240,655 ) ( 344,755 ) ( 28,193 ) ( 18,546 ) ( 46,739 ) Net loss before income taxes ( 32,874 ) ( 240,655 ) ( 273,529 ) ( 11,979 ) ( 18,546 ) ( 30,525 ) Net income (loss) 10,875 ( 240,655 ) ( 229,780 ) ( 12,379 ) ( 18,546 ) ( 30,925 ) Net income (loss) attributable to Purple Innovation, Inc. $ 3,788 $ ( 240,655 ) $ ( 236,867 ) $ ( 4,027 ) $ ( 18,546 ) $ ( 22,573 ) Net loss per common share - basic $ 0.10 $ ( 6.14 ) $ ( 6.04 ) $ ( 0.40 ) $ ( 1.86 ) $ ( 2.26 ) Net loss per common share - diluted $ 0.08 $ ( 6.12 ) $ ( 6.04 ) $ ( 0.40 ) $ ( 1.86 ) $ ( 2.26 ) The following table sets forth the consolidated statements of stockholders’ equity (deficit), including the balances as reported, adjustments and the as restated balances for the years ended December 31, 2020 and 2019: (In thousands) Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Total Equity (Deficit) Balance at December 31, 2020, as reported $ 164,460 $ ( 4,561 ) $ 159,905 $ 160,249 Adjustments 168,587 ( 261,295 ) ( 92,708 ) ( 92,708 ) Balance at December 31, 2020, as restated 333,047 ( 265,856 ) 67,197 67,541 Balance at December 31, 2019, as reported $ 5,990 $ ( 8,349 ) $ ( 2,354 ) $ ( 4,732 ) Adjustments ( 3,168 ) ( 20,640 ) ( 23,808 ) ( 23,808 ) Balance at December 31, 2019, as restated 2,822 ( 28,989 ) ( 26,162 ) ( 28,540 ) Balance at December 31, 2018, as reported $ 3,655 $ ( 4,322 ) $ ( 662 ) $ ( 2,011 ) Adjustments ( 3,168 ) ( 2,094 ) ( 5,262 ) ( 5,262 ) Balance at December 31, 2018, as restated 487 ( 6,416 ) ( 5,924 ) ( 7,273 ) The following table sets forth the consolidated statements of cash flows from operating activities, including the balances as reported, adjustments and the as restated balances for the years ended December 31, 2020 and 2019 Year Ended December 31, 2020 2019 (In thousands) As Reported Adjustment As Restated As Reported Adjustment As Restated Cash flows from operating activities: Net income (loss) $ 10,875 $ ( 240,655 ) $ ( 229,780 ) $ ( 12,379 ) $ ( 18,546 ) $ ( 30,925 ) Loss on change in fair value – warrant liabilities 59,418 240,655 300,073 16,758 18,546 35,304 Net cash provided by operating activities $ 81,257 $ — $ 81,257 $ 22,880 $ — $ 22,880 The adjustment had no impact on cash flows from investing or operating activities. F- 20 The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three and nine months ended September 30, 2020: Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 (In thousands, except per share amounts) As Reported Adjustment As Restated As Reported Adjustment As Restated Change in fair value – warrant liabilities $ ( 17,971 ) $ ( 85,991 ) $ ( 103,962 ) $ ( 43,308 ) $ ( 169,285 ) $ ( 212,593 ) Total other expense, net ( 25,549 ) ( 85,991 ) ( 111,540 ) ( 86,538 ) ( 169,285 ) ( 255,823 ) Net loss before income taxes ( 1,275 ) ( 85,991 ) ( 87,266 ) ( 22,808 ) ( 169,285 ) ( 192,093 ) Net income (loss) ( 1,169 ) ( 85,991 ) ( 87,160 ) 13,010 ( 169,285 ) ( 156,275 ) Net income (loss) attributable to Purple Innovation, Inc. $ ( 1,022 ) $ ( 85,991 ) $ ( 87,013 ) $ 5,832 $ ( 169,285 ) $ ( 163,453 ) Net income (loss) per common share - basic $ ( 0.02 ) $ ( 1.95 ) $ ( 1.97 ) $ 0.18 $ ( 5.27 ) $ ( 5.09 ) Net income (loss) per common share - diluted $ ( 0.02 ) $ ( 1.95 ) $ ( 1.97 ) $ 0.16 $ ( 5.25 ) $ ( 5.09 ) The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three and six months ended June 30, 2020: Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 (In thousands, except per share amounts) As Reported Adjustment As Restated As Reported Adjustment As Restated Change in fair value – warrant liabilities $ ( 38,970 ) $ ( 91,294 ) $ ( 130,264 ) $ ( 25,337 ) $ ( 83,294 ) $ ( 108,631 ) Total other expense, net ( 73,201 ) ( 91,294 ) ( 164,495 ) ( 60,989 ) ( 83,294 ) ( 144,283 ) Net loss before income taxes ( 41,250 ) ( 91,294 ) ( 132,544 ) ( 21,533 ) ( 83,294 ) ( 104,827 ) Net income (loss) ( 5,822 ) ( 91,294 ) ( 97,116 ) 14,179 ( 83,294 ) ( 69,115 ) Net income (loss) attributable to Purple Innovation, Inc. $ ( 1,981 ) $ ( 91,294 ) $ ( 93,275 ) $ 6,854 $ ( 83,294 ) $ ( 76,440 ) Net income (loss) per common share - basic $ ( 0.07 ) $ ( 3.12 ) $ ( 3.19 ) $ 0.26 $ ( 3.20 ) $ ( 2.94 ) Net income (loss) per common share - diluted $ ( 0.11 ) $ ( 3.08 ) $ ( 3.19 ) $ 0.26 $ ( 3.20 ) $ ( 2.94 ) The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three months ended March 31, 2020: Three Months Ended March 31, 2020 (In thousands, except per share amounts) As Reported Adjustment As Restated Change in fair value – warrant liabilities $ 13,633 $ 8,000 $ 21,633 Total other income (expense), net 12,212 8,000 20,212 Net income before income taxes 19,717 8,000 27,717 Net income 20,001 8,000 28,001 Net income attributable to Purple Innovation, Inc. $ 8,835 $ 8,000 $ 16,835 Net income per common share - basic $ 0.39 $ 0.35 $ 0.74 Net income per common share - diluted $ 0.11 $ 0.32 $ 0.43 The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three and nine months ended September 30, 2019: Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 (In thousands, except per share amounts) As Reported Adjustment As Restated As Reported Adjustment As Restated Change in fair value - warrant liabilities ( 1,384 ) ( 1,200 ) ( 2,584 ) ( 3,372 ) ( 5,043 ) ( 8,415 ) Total other expense, net ( 2,602 ) ( 1,200 ) ( 3,802 ) ( 13,099 ) ( 5,043 ) ( 18,142 ) Net income (loss) before income taxes 8,411 ( 1,200 ) 7,211 350 ( 5,043 ) ( 4,693 ) Net income (loss) 8,411 ( 1,200 ) 7,211 350 ( 5,043 ) ( 4,693 ) Net income (loss) attributable to Purple Innovation, Inc. $ 1,594 $ ( 1,200 ) $ 394 $ 126 $ ( 5,043 ) $ ( 4,917 ) Net income (loss) per common share - basic $ 0.18 $ ( 0.14 ) $ 0.04 $ 0.01 $ ( 0.58 ) $ ( 0.57 ) Net income (loss) per common share - diluted $ 0.16 $ ( 0.12 ) $ 0.04 $ 0.01 $ ( 0.58 ) $ ( 0.57 ) F- 21 The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three and six months ended June 30, 2019: Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 (In thousands, except per share amounts) As Reported Adjustment As Restated As Reported Adjustment As Restated Change in fair value - warrant liabilities ( 3,685 ) ( 3,936 ) ( 7,621 ) ( 1,988 ) ( 3,843 ) ( 5,831 ) Total other expense, net ( 4,980 ) ( 3,936 ) ( 8,916 ) ( 10,497 ) ( 3,843 ) ( 14,340 ) Net loss before income taxes ( 7,341 ) ( 3,936 ) ( 11,277 ) ( 8,061 ) ( 3,843 ) ( 11,904 ) Net loss ( 7,341 ) ( 3,936 ) ( 11,277 ) ( 8,061 ) ( 3,843 ) ( 11,904 ) Net loss attributable to Purple Innovation, Inc. $ ( 1,338 ) $ ( 3,936 ) $ ( 5,274 ) $ ( 1,468 ) $ ( 3,843 ) $ ( 5,311 ) Net loss per common share - basic and diluted $ ( 0.16 ) $ ( 0.46 ) $ ( 0.62 ) $ ( 0.17 ) $ ( 0.46 ) $ ( 0.63 ) The following table sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances for the three months ended March 31, 2019: Three Months Ended March 31, 2019 (In thousands, except per share amounts) As Reported Adjustment As Restated Change in fair value – warrant liabilities 1,697 93 1,790 Total other expense, net ( 5,517 ) 93 ( 5,424 ) Net loss before income taxes ( 720 ) 93 ( 627 ) Net loss ( 720 ) 93 ( 627 ) Net loss attributable to Purple Innovation, Inc. $ ( 130 ) $ 93 $ ( 37 ) Net loss per common share - basic and diluted $ ( 0.02 ) $ 0.01 $ ( 0.01 ) The following table sets forth the consolidated statements of stockholders’ equity (deficit), including the balances as reported, adjustments and the as restated balances for the periods ended September 30, 2020, June 30, 2020 and March 31, 2020: (In thousands) Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Total Equity (Deficit) Balance at September 30, 2020, as reported $ 44,032 $ ( 2,517 ) $ 41,520 $ 41,564 Adjustments 1,379 ( 189,925 ) ( 188,546 ) ( 188,546 ) Balance at September 30, 2020, as restated 45,411 ( 192,442 ) ( 147,026 ) ( 146,982 ) Balance at June 30, 2020, as reported $ 20,584 $ ( 1,495 ) $ 19,095 $ 17,469 Adjustments ( 3,155 ) ( 103,934 ) ( 107,089 ) ( 107,089 ) Balance at June 30, 2020, as restated 17,429 ( 105,429 ) ( 87,994 ) ( 89,620 ) Balance at March 31, 2020, as reported $ 5,955 $ 486 $ 6,446 $ 15,114 Adjustments ( 3,163 ) ( 12,640 ) ( 15,803 ) ( 15,803 ) Balance at March 31, 2020, as restated 2,792 ( 12,154 ) ( 9,357 ) ( 689 ) F- 22 The following table sets forth the consolidated statements of stockholders’ equity (deficit), including the balances as reported, adjustments and the as restated balances for the periods ended September 30, 2019, June 30, 2019 and March 31, 2019: (In thousands) Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Total Equity (Deficit) Balance at September 30, 2019, as reported $ 5,748 $ ( 4,196 ) $ 1,557 $ 7,983 Adjustments ( 3,168 ) ( 7,138 ) ( 10,306 ) ( 10,306 ) Balance at September 30, 2019, as restated 2,580 ( 11,334 ) ( 8,749 ) ( 2,323 ) Balance at June 30, 2019, as reported $ 10,364 $ ( 5,790 ) $ 4,579 $ ( 3,363 ) Adjustments ( 3,168 ) ( 5,938 ) ( 9,106 ) ( 9,106 ) Balance at June 30, 2019, as restated 7,196 ( 11,728 ) ( 4,527 ) ( 12,469 ) Balance at March 31, 2019, as reported $ 3,728 $ ( 4,452 ) $ ( 719 ) $ ( 2,658 ) Adjustments ( 3,168 ) ( 2,002 ) ( 5,170 ) ( 5,170 ) Balance at March 31, 2019, as restated 560 ( 6,454 ) ( 5,889 ) ( 7,828 ) The following table sets forth the consolidated statements of cash flows from operating activities, including the balances as reported, adjustments and the as restated balances for the nine months ended September 30, 2020 and 2019 Nine Months Ended September 30, 2020 2019 (In thousands) As Reported Adjustment As Restated As Reported Adjustment As Restated Cash flows from operating activities: Net income (loss) $ 13,010 $ ( 169,285 ) $ ( 156,275 ) $ 350 $ ( 5,043 ) $ ( 4,693 ) Loss on change in fair value – warrant liabilities 43,308 169,285 212,593 3,372 5,043 8,415 Net cash provided by operating activities $ 87,400 $ — $ 87,400 $ 15,819 $ — $ 15,819 The following table sets forth the consolidated statements of cash flows from operating activities, including the balances as reported, adjustments and the as restated balances for the six months ended June 30, 2020 and 2019 Six Months Ended June 30, 2020 2019 (In thousands) As Reported Adjustment As Restated As Reported Adjustment As Restated Cash flows from operating activities: Net income (loss) $ 14,179 $ ( 83,294 ) $ ( 69,115 ) $ ( 8,061 ) $ ( 3,843 ) $ ( 11,904 ) Loss on change in fair value – warrant liabilities 25,337 83,294 108,631 1,988 3,843 5,831 Net cash provided by operating activities $ 72,346 $ — $ 72,346 $ 2,135 $ — $ 2,135 The following table sets forth the consolidated statements of cash flows from operating activities, including the balances as reported, adjustments and the as restated balances for the three months ended March 31, 2020 and 2019: Three Months Ended March 31, 2020 2019 (In thousands) As Reported Adjustment As Restated As Reported Adjustment As Restated Cash flows from operating activities: Net income (loss) $ 20,001 $ 8,000 $ 28,001 $ ( 720 ) $ 93 $ ( 627 ) Gain on change in fair value – warrant liabilities ( 13,633 ) ( 8,000 ) ( 21,633 ) ( 1,697 ) ( 93 ) ( 1,790 ) Net cash used in operating activities $ ( 264 ) $ — $ ( 264 ) $ ( 8,296 ) $ — $ ( 8,296 ) The adjustment had no impact on cash flows from investing or operating activities for each of the quarterly periods. In addition to the amounts noted above, impacted disclosures included in Notes 12, 16 and 17 have been restated to properly reflect this error correction., F- 23 4. Business Combination On February 2, 2018, upon consummation of the Business Combination, Purple LLC merged with and into a wholly owned subsidiary of GPAC (PRPL Acquisition, LLC), with Purple LLC being the survivor pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), by and among GPAC, PRPL Acquisition, LLC, a Delaware limited liability company and a wholly owned subsidiary of GPAC (“Merger Sub”), Purple LLC and InnoHold. In connection with the Closing, GPAC was renamed “Purple Innovation, Inc.” and its articles of incorporation were amended to rename its common stock to Class A common stock (“Class A Stock”) and created a new class of stock named Class B common stock (“Class B Stock”) of which 44.1 million shares of Class B Stock were issued to InnoHold (refer to Note 16 — Stockholders’ Equity for a description of the Class A Stock and Class B Stock). 5. Revenue from Contracts with Customers The Company markets and sells its products through direct-to-consumer online channels, traditional wholesale partners, third-party online retailers and Company showrooms. Revenue is recognized when the Company satisfies its performance obligations under the contract which is transferring the promised products to the customer as described in Note 2 – Summary of Significant Accounting Policies . Disaggregated Revenue The Company sells products through two channels: Direct-to-Consumer and Wholesale. The Direct-to-Consumer channel includes product sales through various direct-to-consumer channels including Company showrooms and contact center. The Wholesale channel includes all product sales to traditional third-party retailers for their in store and online channels. The Company classifies products into two major categories: Bedding and Other. Bedding products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products. The following table presents the Company’s revenue disaggregated by sales channel and product category (in thousands): Year Ended December 31, Channel 2020 2019 Direct-to-consumer $ 485,305 $ 265,205 Wholesale 163,166 163,153 Revenues, net $ 648,471 $ 428,358 Year Ended December 31, Product 2020 2019 Bedding $ 598,046 $ 401,499 Other 50,425 26,859 Revenues, net $ 648,471 $ 428,358 Contract Balances Payment for sale of products through the direct-to-consumer online channels, third-party online retailers, Company showrooms and contact center is collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled $ 6.3 million at December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, the Company recognized all of the revenue that was deferred in customer prepayments at December 31, 2019 and 2018, respectively. 6. Inventories Inventories consisted of the following: As of December 31, (in thousands) 2020 2019 Raw materials $ 26,372 $ 16,220 Work-in-process 3,593 2,713 Finished goods 36,280 29,485 Inventory obsolescence reserve ( 519 ) ( 790 ) Inventories, net $ 65,726 $ 47,628 F- 24 7. Property and Equipment Property and equipment consisted of the following: As of December 31, (in thousands) 2020 2019 Equipment $ 30,508 $ 20,423 Equipment in progress 18,648 5,278 Leasehold improvements 15,758 7,040 Furniture and fixtures 5,160 4,252 Office equipment 3,185 1,523 Total property and equipment 73,259 38,516 Accumulated depreciation ( 11,773 ) ( 6,537 ) Property and equipment, net $ 61,486 $ 31,979 Equipment in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at December 31, 2020 or December 31, 2019. Depreciation expense was $ 5.5 million and $ 3.6 million for the years ended December 31, 2020 and 2019, respectively. 8. Leases The Company leases its manufacturing and distribution facilities, corporate offices, showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036. The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while retail showrooms have initial lease terms of up to five years . Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s discretion. Any lease renewal options are included in the lease term if exercise is reasonably certain at lease commencement. In connection with leases entered into during 2020, the Company recorded an asset retirement obligation for the restoration of leased property in the amount of $ 0.9 million at inception of the lease and as of December 31, 2020. The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of three to five years . The ROU asset for finance leases was $ 0.6 million at both January 1, 2020, the adoption date of ASC 842, and as of December 31, 2020. The following table presents the Company’s lease costs (in thousands): Year Ended December 31, 2020 Operating lease costs $ 5,736 Variable lease costs 317 Short-term lease costs 34 Total lease costs $ 6,087 The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on the consolidated balance sheet at December 31, 2020 (in thousands): Year ended December 31, 2021 $ 2,806 2022 7,078 2023 6,281 2024 6,274 2025 6,273 Thereafter 47,711 Total operating lease payments 76,423 Less – lease payments representing interest ( 24,252 ) Present value of operating lease payments $ 52,171 F- 25 As of December 31, 2020, the weighted-average remaining term of operating leases was 11.8 years and the weighted-average discount rate was 6.18 % for operating leases recognized in the consolidated balance sheet. The following table provides supplemental information related to the Company’s consolidated statement of cash flows for the year ended December 31, 2020: Year Ended December 31, 2020 Cash paid for amounts included in present value of operating lease liabilities $ 1,732 Right-of-use assets obtained in exchange for operating lease liabilities 17,216 In 2019, the Company recognized rent expense on lease payments, including those with rent escalations and rent-free periods, on a straight-line basis over the expected lease term. During the year ended December 31, 2019, the Company recognized rent expense of $ 3.9 million and at December 31, 2019 had deferred rent of $ 5.1 million all of which was long-term and included in other long-term liabilities in the consolidated balance sheet. Future minimum lease payments for each of the next five years and thereafter at December 31, 2019 are as follows (in thousands) Year ended December 31, 2020 $ 4,336 2021 4,944 2022 4,796 2023 4,040 2024 4,162 Thereafter 14,444 Total $ 36,722 9. Intangible Assets The following table provides the components of intangible assets: As of December 31, 2020 As of December 31, 2019 (in thousands, Useful life Gross Accumulated Net Carrying Gross Accumulated Net Carrying except useful life) (years) Cost Amortization Value Cost Amortization Value Indefinite-lived non-amortizing: License agreement $ 8,456 $ — $ 8,456 $ — $ — $ — Trademarks 30 — 30 67 ( 67 ) — Definite-lived amortizing: Patents 14 - 18 — — — 564 ( 564 ) — Internet domain 15 900 ( 190 ) 710 900 ( 130 ) 770 License agreement 1 2,220 ( 2,220 ) — — — — Internal-use software 3 921 ( 172 ) 749 366 ( 35 ) 331 Intangible assets, net $ 12,527 $ ( 2,582 ) $ 9,945 $ 1,897 $ ( 796 ) $ 1,101 Prior to the Business Combination discussed in Note 4, Purple LLC entered into an agreement pursuant to which EdiZONE transferred tangible and intellectual property to Purple LLC that was then licensed back to EdiZONE to enable them to continue to meet certain preexisting license obligations it had with various third parties. On August 14, 2020, Purple LLC entered into a separate agreement whereby EdiZONE, for consideration of $ 8.5 million, assigned a license agreement with Advanced Comfort Technologies, Inc. dba Intellibed (“ACTI”), and related royalties payable thereunder, to Purple LLC, along with the trademarks GEL MATRIX and INTELLIPILLOW. The payment made to EdiZONE was recorded in the Company’s consolidated balance sheet at December 31, 2020 as an indefinite-lived non-amortizing license because the agreement with ACTI is perpetual. F- 26 On January 13, 2020, Purple LLC entered into a supply and services agreement with a third party whereby the Company acquired a license and made a prepayment for future products and services to be provided by the third party. The $4.0 million paid upon execution of the contract was allocated to a license for certain technologies ($2.2 million), inventory to be utilized by the third party in the production of goods ($0.8 million) and future professional services to be delivered by the third party ($1.0 million). On October 13, 2020, Purple LLC filed suit against the third party for alleged violations under the contract. In response, the third party filed a counter lawsuit against Purple LLC. These lawsuits effectively ended any future performance under the contract. As a result, during the third quarter of fiscal 2020, the Company recorded in its consolidated statement of operations an impairment charge of $ 0.6 million for unamortized license costs. The Company also recorded write-offs of $ 0.8 million, and $ 0.3 million for prepaid professional services and prepaid inventory, respectively. Refer to Note 14 — Commitments and Contingencies — Legal Proceedings for additional information. Amortization expense for intangible assets was $ 2.4 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively. There were no impairment charges related to intangible assets in 2019. Estimated amortization expense for definite-lived intangible assets is expected to be as follows for the next five years: (in thousands) Year ended December 31, 2021 $ 359 2022 325 2023 245 2024 60 2025 60 Thereafter 410 Total future amortization for definite-lived intangible assets $ 1,459 10. Other Current Liabilities The Company’s other current liabilities consisted of the following: As of December 31, (in thousands) 2020 2019 Warranty accrual - current portion $ 2,806 $ 1,567 Long-term debt - current portion 2,004 — Insurance financing 910 350 Tax Receivable Agreement liability – current portion 6,545 501 Other 1,318 1,811 Total other current liabilities $ 13,583 $ 4,229 11. Debt Debt consists of the following (in thousands): December 31, December 31, 2020 2019 Term loan $ 44,438 $ — Related party loan — 39,202 Less: unamortized debt issuance costs ( 1,024 ) — Less: unamortized loan discounts — ( 3,803 ) Total debt 43,414 35,399 Less: current portion of debt ( 2,004 ) — Long-term debt, net $ 41,410 $ 35,399 F- 27 Term Loan and Revolving Line of Credit On September 3, 2020, Purple LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions (the “2020 Credit Agreement”). The 2020 Credit Agreement provides for a $ 45.0 million term loan and a $ 55.0 million revolving line of credit. The borrowing rates for the term loan are based on Purple LLC’s leverage ratio, as defined in the 2020 Credit Agreement, and can range from LIBOR plus a 3.00 % to 3.75 % margin with a LIBOR minimum of 0.50%. The initial borrowing rate of 3.50% is based on LIBOR plus 3.00%. The term loan will be repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. There may be mandatory prepayment obligations based on excess cash flow. Pursuant to a Pledge and Security Agreement between Purple LLC, KeyBank and the Company (the “Security Agreement”), the 2020 Credit Agreement is secured by a perfected first-priority security interest in the assets of Purple LLC and the Company, including a security interest in all intellectual property. Also, the Company agreed to an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the 2020 Credit Agreement. The Security Agreement contains a pledge, as security for the Company’s guaranty, of all its ownership interest in Purple LLC. The 2020 Credit Agreement also provides for standard events of default, such as for non-payment and failure to perform or observe covenants, and contains standard indemnifications benefitting the lenders. The 2020 Credit Agreement includes representations, warranties and certain covenants of Purple LLC and the Company. While any amounts are outstanding under the 2020 Credit Agreement, Purple LLC is subject to several affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness, and transactions with affiliates, among other customary covenants, subject to certain exceptions. In particular, Purple LLC is (i) subject to annual capital expenditure limits that can be adjusted based on the Company achieving certain net leverage ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the 2020 Credit Agreement, and (iii) maintain minimum consolidated net leverage and fixed charge coverage ratio thresholds at certain measurement dates (as defined in the 2020 Credit Agreement). Purple LLC is also restricted from paying dividends or making other distributions or payments on its capital stock, subject to limited exceptions. If the Company or Purple LLC fail to perform their obligations under these and other covenants, or should any event of default occur, the revolving loan commitments under the 2020 Credit Agreement may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately due and payable. As of December 31, 2020, the Company was in compliance with all of the covenants related to the 2020 Credit Agreement. The $ 55.0 million revolving credit facility established under the 2020 Credit Agreement has a term of five years and carries the same interest provisions as the term debt. A commitment fee is due quarterly based on the applicable margin applied to the unused total revolving commitment. The agreement for this revolving credit facility contains customary covenants and events of default. As of December 31, 2020, there was no balance outstanding on the revolving credit facility. The Company incurred $ 2.5 million in debt issuance costs for the 2020 Credit Agreement. These costs relate to the entire credit arrangement and therefore were allocated between the term loan and the revolving line of credit. The Company determined $ 1.1 million of the debt issuance costs related to the term debt and are presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability. This amount is being amortized into interest expense using an effective interest rate over the duration of the debt. The remaining $ 1.4 million of debt issuance costs were allocated to the revolving line of credit facility. This amount is classified as other assets and is being amortized to interest expense on a straight-line basis over the term of the revolving credit facility. Related Party Loan On February 2, 2018, Purple LLC entered into a financing arrangement with Coliseum Capital Partners, L.P. (“CCP”), Blackwell Partners LLC – Series A (“Blackwell”) and Coliseum Co-invest Debt Fund, L.P. (“CDF” and together with CCP and Blackwell, the “Lenders”), pursuant to which the Lenders agreed to make a loan (the “2018 Credit Agreement”) in an aggregate principal amount of $ 25.0 million (the “Original Loan”). In conjunction with the 2018 Credit Agreement, Global Partner Sponsor I LLC (the “Sponsor”) agreed to assign to the Lenders an aggregate of 2.5 million warrants to purchase 1.3 million shares of its Class A Stock. F- 28 On January 28, 2019, Purple LLC entered into a First Amendment to the 2018 Credit Agreement (the “First Amendment”) whereby Purple LLC agreed to enter into the Amended and Restated Credit Agreement, under which two of the Lenders (“Incremental Lenders”) agreed to provide an incremental loan of $10.0 million (the “Incremental Loan”) such that the total amount of principal indebtedness provided to Purple LLC was increased to $35.0 million. Upon funding the $10.0 million Incremental Loan on February 26, 2019, the Company issued to the Incremental Lenders 2.6 million warrants (“Incremental Loan Warrants”) to purchase 2.6 million shares of the Company’s Class A Stock at a price of $5.74 per share, subject to certain adjustments. All indebtedness under the Amended and Restated Credit Agreement bore interest at 12.00% per annum and was payable on the last business day of each fiscal quarter, provided that Purple LLC was required to pay up to an additional 4.00% of interest per annum if it failed to meet certain EBITDA thresholds and an additional 2.00% of interest per annum if the Company was not in material compliance with the Sarbanes-Oxley Act of 2002. In addition, Purple LLC had the option to elect for interest in excess of 5.00% per annum to be capitalized and added to the principal amount. Any principal pre-payments in the first year were subject to a make-whole payment, while principal pre-payments in years two through four were subject to certain pre-payment penalties. The Amended and Restated Credit Agreement provided for certain remedies to the Lenders in the event of customary events of default and provided for standard indemnification of the Lenders. In February 2019, the Company accounted for the debt restructuring under the Amended and Restated Credit Agreement in accordance with ASC 470 - Debt . The Company determined there were separate lenders for purposes of determining if there was an extinguishment or modification. The amended debt terms with CDF were not determined to be substantial and therefore the existing debt attributable to CDF was accounted for as a modification of debt. The amended debt terms with the Incremental Lenders were determined to be substantially different terms from the existing debt agreement and therefore required to be accounted for as an extinguishment of existing debt. Accordingly, the Company recognized a loss on the extinguishment of its existing debt of $ 6.3 million during the first quarter of fiscal 2019. This was a non-cash expense primarily associated with the recognition of related unamortized debt discount and debt issuance costs and the $ 4.9 million fair value of the incremental warrants at the time of issuance. On March 27, 2020, the Company entered into the First Amendment to the Amended and Restated Credit Agreement with the Lenders. Pursuant to the Amendment, the Company deferred and capitalized the full amount of the interest payments due on March 31, 2020 and June 30, 2020 to reduce cash disbursements during the COVID-19 pandemic. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 - Debt . On September 3, 2020, the Company paid $ 45.0 million to retire, in full, all indebtedness related to Purple LLC’s 2018 Credit Agreement and all its related amendments and agreements. The payment included $ 25.0 million for the Original Loan, $ 10.0 for the Incremental Loan, $ 6.6 million of paid-in-kind interest, $ 2.5 million in a prepayment fee and $ 0.9 million in accrued interest. The Company accounted for the debt retirement of the 2018 Credit Agreement and all its subsequent agreements and amendments as an extinguishment of debt in accordance with ASC 470 - Debt . Accordingly, the Company recognized a $ 5.8 million loss during the third quarter of fiscal 2020. The loss amount consisted of $ 2.5 million in prepayment fees and $ 3.3 million in the recognition of related unamortized debt discount and debt issuance costs. Interest expense for debt was $ 4.7 million and $ 4.4 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the scheduled maturities of long-term debt outstanding for each of the next five years and thereafter are as follows (in thousands): Year ended December 31, Total 2021 $ 2,250 2022 2,532 2023 3,375 2024 3,656 2025 32,625 Thereafter — Total $ 44,438 F- 29 12. Warrant Liabilities The Incremental Loan Warrants issued in conjunction with the Amended and Restated Credit Agreement contain a warrant repurchase provision which, upon an occurrence of a fundamental transaction, as defined in the warrant agreement, could have given rise to an obligation of the Company to pay cash to the warrant holders. In addition, upon the occurrence of any of the following events: (1) a fundamental transaction; (2) acquisition of 25% or more of the total voting power of all the securities of the entity by any one person or group of affiliated persons or entities; (3) Tony Pearce or Terry Pearce individually or together ceasing to beneficially own at least 50% of the voting securities of the Company; or (4) the Board of Directors ceasing to be comprised of a majority of independent directors as defined under NASDAQ Global Market rules, the exercise price of the warrant was subject to reduction by a value based upon a formula model established in the agreement. The formula model used was a Black Scholes valuation model which used the following inputs: (1) share price was the greater of the volume weighted average price (“VWAP”) of the common stock for the prior 30 days before the applicable event date or the VWAP of the trading day immediately preceding the event date; (2) exercise price of $5.74, unless previously adjusted under other terms of the warrant; (3) volatility was the greater of 100% and the historical volatility of the Company’s common stock for the ninety days preceding the date of the triggering event; and (4) the assumed risk-free interest rate corresponded to the US Treasury rate for a period equal to the remaining term of this warrant. In May 2020, Tony Pearce or Terry Pearce individually or together ceased to beneficially own at least 50% of the voting securities of the Company. As a result, the exercise price of the warrants was reduced to zero based on the formula established in the agreement. The Company determined that the fundamental transaction provisions required the warrants to be accounted for as a liability at fair value on the date of the transaction under guidance prescribed in ASC 480 - Distinguishing Liabilities from Equity . The liability for the warrants was subsequently re-measured to fair value at each reporting date with changes in the fair value included in earnings. On November 9, 2020, the Company issued 2.6 million shares of Class A common stock for the exercise of Incremental Loan Warrants held by the Incremental Lenders. The Company determined the fair value of the Incremental Loan Warrants to be $ 81.0 million at the time of the exercise. The fair value of the Incremental Loan Warrants was $ 21.6 million at December 31, 2019. The Company recorded losses of $ 59.4 million and $ 16.8 million related to increases in the fair value of the Incremental Loan Warrants for the years ended December 31, 2020 and 2019, respectively. The fair value of the Incremental Loan Warrants was calculated using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model. The following are the assumptions used in calculating fair value on the date of the exercise: Trading price of common stock on measurement date $ 31.00 Exercise price — Risk free interest rate 0.90 % Warrant life in years 0.07 Expected volatility 45.46 % Expected dividend yield — Probability of an event causing a warrant re-price 100.00 % The following are the assumptions used in calculating fair value on December 31, 2019: Trading price of common stock on measurement date $ 8.71 Exercise price $ 5.74 Risk free interest rate 1.69 % Warrant life in years 4.2 Expected volatility 36.82 % Expected dividend yield — Probability of warrant re-price 95 % The public and sponsor warrants that were issued in connection with the Company’s IPO and a simultaneous private placement contain certain provisions that do not meet the criteria for equity classification and therefore must be recorded as liabilities. The liability for the warrants was recorded at fair value on the date of the Business Combination and subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. During the year ended December 31, 2020, 15.5 million public warrants and 4.3 million sponsor warrants were exercised resulting in the issuance of 7.6 million shares of Class A Stock and cash proceeds to the Company of $ 46.4 million. There were no public warrants or sponsor warrants exercised during 2019. The 8.5 million sponsor warrants outstanding at December 31, 2020 had a fair value of $ 92.7 million. The fair value of the public and sponsor warrants outstanding at December 31, 2019 was $ 23.8 million. F- 30 The Company determined the fair value of the public warrants based on their public trading price. The Company determined the fair value of the sponsor warrants using a Black Scholes model with the following assumptions: December 31, 2020 2019 Trading price of common stock on measurement date $ 32.94 $ 8.71 Exercise price $ 5.75 $ 5.75 Risk free interest rate 0.13 % 1.62 % Warrant life in years 2.1 3.1 Expected volatility 50.64 % 38.06 % Expected dividend yield — — During the years ended December 31, 2020 and 2019, the Company recognized losses of $ 240.7 million and $ 18.5 million, respectively, in its consolidated statement of operations related to increases in the fair value of the public and sponsor warrants exercised during the respective periods or that were outstanding at the end of the respective periods. 13. Other Long-Term Liabilities Other long-term liabilities consist of the following as of December 31, 2020 and 2019: As of December 31, (in thousands) 2020 2019 Deferred rent expense $ — $ 5,115 Warranty accrual 8,397 4,621 Other 912 488 Total 9,309 10,224 Less: current portion of warranty accrual ( 2,806 ) ( 1,654 ) Other long-term liabilities, net of current portion $ 6,503 $ 8,570 14. Commitments and Contingencies Required Member Distributions Prior to the Business Combination and pursuant to the then applicable First Amended and Restated Limited Liability Company Agreement (the “First Purple LLC Agreement”), Purple LLC was required to distribute to its members an amount equal to 45 percent of Purple LLC’s net taxable income following the end of each fiscal year. The First Purple LLC Agreement was amended and replaced by the Second Amended and Restated Limited Liability Company Agreement (the “Second Purple LLC Agreement”) on February 2, 2018 as part of the Business Combination. The Second Purple LLC Agreement was amended and replaced by the Third Amended and Restated Limited Liability Company Agreement (the “Third Purple LLC Agreement”) on September 3, 2020. The Second Purple LLC Agreement and the Third Purple LLC Agreement do not include any mandatory distributions, other than tax distributions. No distributions were made under the Second Purple LLC Agreement in 2019. During the year ended December 31, 2020, the Company paid $ 5.5 . million in tax distributions under the Second Purple LLC Agreement. At December 31, 2020, the Company’s consolidated balance sheet had $ 0.7 million of accrued tax distributions included in other current liabilities. Service Agreement In October 2017, the Company entered into an electric service agreement with the local power company. The agreement provided for the construction and installation of certain utility improvements to provide increased power capacity to the manufacturing and warehouse facility in Grantsville, Utah. The Company prepaid $0.5 million related to the improvements and agreed to a minimum contract billing amount over a 15-year period based on regulated rate schedules and changes in actual demand during the billing period. The agreement includes an early termination clause that requires the Company to pay a pro-rata termination charge if the Company terminates within the first 10-years of the service start date. The original early termination charge was $1.3 million and is reduced annually on a straight-line basis over the 10-year period. During 2018, the utility improvements construction was completed and were made available to the Company. As of December 31, 2020, the early termination penalty was $ 0.9 million and the Company expects to fulfill its commitments under the agreement in the normal course of business, and as such, no liability has been recorded. Purchase Agreement In February 2018, the Company entered into a purchase contract with a supplier of mineral oil that includes a minimum purchase commitment over a two-year period. In April 2019, the contract was amended to provide for a minimum purchase commitment over a four-year period ending in April 2023. In exchange, the Company agreed to a further discount per gallon. During the years ended December 31, 2020 and 2019, the Company made purchases under the contract totaling $ 11.8 million and $ 8.9 million, respectively. As of December 31, 2020, approximately $ 2.8 million remains on the purchase contract. The Company expects to fulfill its commitments under the agreement in the normal course of business, and as such, no liability has been recorded. F- 31 Indemnification Obligations From time to time, the Company enters into contracts that contingently require it to indemnify parties against claims. These contracts primarily relate to provisions in the Company’s services agreements with related parties that may require the Company to indemnify the related parties against services rendered; and certain agreements with the Company’s officers and directors under which the Company may be required to indemnify such persons for liabilities. In connection with the Business Combination, to secure the payment of a certain portion of specified post-closing indemnification rights of the Company under the Merger Agreement, 0.5 million shares of Class B Stock and 0.5 million Class B Units otherwise issuable to InnoHold as equity consideration were deposited in an escrow account for up to three years from the date of the Business Combination pursuant to a contingency escrow agreement. In September 2020, an amendment to the escrow agreement was signed whereby the 0.5 million shares of Class B Stock and 0.5 million Class B Units held in escrow were exchanged for $5.0 million to be held in escrow. As of December 31, 2020, the Company has estimated amounts totaling $4.1 million that would qualify for indemnification. At that time, no claims had been submitted by the Company and $5.0 million remained deposited in the escrow account. Subscription Agreement and Preemptive Rights In February 2018, in connection with the Business Combination, the Company entered into a subscription agreement with CCP and Blackwell, pursuant to which CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A Stock at a purchase price of $10.00 per share (the “Coliseum Private Placement”). In connection with the Coliseum Private Placement, the Sponsor assigned (i) an aggregate of 1.3 million additional shares of Class A Stock to CCP and Blackwell and (ii) an aggregate of 3.3 million warrants to purchase 1.6 million shares of Class A Stock to CCP, Blackwell, and CDF. The subscription agreement provides CCP and Blackwell with preemptive rights with respect to future sales of the Company’s securities. It also provides them with a right of first refusal with respect to certain debt and preferred equity financings by the Company. The Company also entered into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A Stock issued and assigned to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A Stock underlying the warrants received by CCP, Blackwell and CDF. The Company has filed a registration statement with respect to such securities. Rights of Securities Holders The holders of certain Warrants exercisable into Class A Stock, including CCP, Blackwell and CDF, were entitled to registration rights pursuant to certain registration rights agreements of the Company as of the Business Combination date. In March 2018, the Company filed a registration statement registering the Warrants (and any shares of Class A Stock issuable upon the exercise of the Warrants), and certain unregistered shares of Class A Stock. The registration statement was declared effective on April 3, 2018. Under the Registration Rights Agreement dated February 2, 2018 between the Company and CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors have the right to make written demands for up to three registrations of certain Warrants and shares of Class A Stock held by them, including in underwritten offerings. In an underwritten offering of such Warrants and shares of Class A Stock by the Coliseum Investors, the Company will pay underwriting discounts and commissions and certain expenses incurred by the Coliseum Investors. The holders of the Incremental Loan Warrants exercisable into Class A Stock were entitled to registration rights pursuant to the registration rights agreement of the Company in connection with the Amended and Restated Credit Agreement. In March 2019, the Company filed a registration statement registering the Warrants (and any shares of Class A Stock issuable upon the exercise of the Warrants). The registration statement was declared effective on May 17, 2019, pursuant to which, the Company issued 2.6 million shares of Class A common stock in exchange for the Incremental Loan Warrants on November 9, 2020. On February 2, 2018, in connection with the closing of the Business Combination, the Company entered into a Registration Rights Agreement with InnoHold and the Parent Representative (the “InnoHold Registration Rights Agreement”). Under the InnoHold Registration Rights Agreement, InnoHold holds registration rights that obligate the Company to register for resale under the Securities Act, all, or any portion, of the Equity Consideration (including Class A Stock issued in exchange for the equity consideration received in the Business Combination) (the “Registrable Securities”). InnoHold is entitled to make a written demand for registration under the Securities Act of all or part of its Registrable Securities (up to a maximum of three demands in total). Pursuant to the InnoHold Registration Rights Agreement, the Company filed a registration statement on Form S-3 that was declared effective on November 8, 2019, pursuant to which InnoHold, Tony Pearce and Terry Pearce sold 11.5 million shares of Class A Stock. The Company filed a second registration statement on Form S-3 that was declared effective on May 14, 2020, pursuant to which InnoHold sold 12.4 million shares of Class A Stock. The Company filed a third and final registration statement on Form S-3 that was declared effective on September 9, 2020, pursuant to which InnoHold sold 16.8 million shares of Class A Stock. F- 32 Purple LLC Class B Unit Exchange Right On February 2, 2018, in connection with the closing of the Business Combination, the Company entered into an exchange agreement with Purple LLC, InnoHold and Class B Unit holders who become a party thereto (the “Exchange Agreement”), which provides for the exchange of Purple LLC Class B Units (the “Class B Units”) and shares of Class B Stock (together with an equal number of Class B Units, the “Paired Securities”) for, at the Company’s option, either (A) shares of Class A Stock at an initial exchange ratio equal to one Paired Security for one share of Class A Stock or (B) a cash payment equal to the product of the average of the volume-weighted closing price of one share of Class A Stock for the ten trading days immediately prior to the date InnoHold or other Class B Unit holders deliver a notice of exchange multiplied by the number of Paired Securities being exchanged. In December 2018, InnoHold distributed Paired Securities to Terry Pearce and Tony Pearce who also agreed to become parties to the Exchange Agreement. In June 2019, InnoHold distributed Paired Securities to certain current and former employees who also agreed to become parties to the exchange agreement. Holders of Class B Units may elect to exchange all or any portion of their Paired Securities as described above by delivering a notice to Purple LLC. In certain cases, adjustments to the exchange ratio will occur in case of a split, reclassification, recapitalization, subdivision or similar transaction of or relating to the Class B Units or the shares of Class A Stock and Class B Stock or a transaction in which the Class A Stock is exchanged or converted into other securities or property. The exchange ratio will also adjust in certain circumstances when the Company acquires Class B Units other than through an exchange for its shares of Class A Stock. The right of a holder of Paired Securities to exchange may be limited by the Company if it reasonably determines in good faith that such restrictions are required by applicable law (including securities laws), such exchange would not be permitted under other agreements of such holder with the Company or its subsidiaries, including the Operating Agreement, or if such exchange would cause Purple LLC to be treated as a “publicly traded partnership” under applicable tax laws. The Company and each holder of Paired Securities shall bear its own expense regarding the exchange except that the Company shall be responsible for transfer taxes, stamp taxes and similar duties. During the years ended December 31, 2020 and 2019, 30.9 million and 12.7 million, respectively, of Paired Securities were exchanged for shares of Class A Stock. Maintenance of One-to-One Ratios. The Third Purple LLC Agreement includes provisions intended to ensure that the Company at all times maintains a one-to-one ratio between (a) (i) the number of outstanding shares of Class A Stock and (ii) the number of Class A Units owned by the Company (subject to certain exceptions for certain rights to purchase equity securities of the Company under a “poison pill” or similar stockholder rights plan, if any, certain convertible or exchangeable securities issued under the Company’s equity compensation plan and certain equity securities issued pursuant to the Company’s equity compensation plan (other than a stock option plan) that are restricted or have not vested thereunder) and (b) (i) the number of other outstanding equity securities of the Company (including the warrants exercisable for shares of Class A Stock) and (ii) the number of corresponding outstanding equity securities of Purple LLC. These provisions are intended to result in non-controlling interest holders having a voting interest in the Company that is identical to their economic interest in Purple LLC. Non-Income Related Taxes The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. , No.17-494, reversed a longstanding precedent that remote sellers are not required to collect state and local sales taxes. The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce. The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet. The application of these taxes on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business. F- 33 Legal Proceedings On September 9, 2019, Purple LLC filed a Statement of Claim against PerfectSense Home Inc. and PerfectSense Trading Co. Ltd. (collectively, “PerfectSense”) in the Federal Court of Canada. PerfectSense is a manufacturer and supplier of mattresses and related products. PerfectSense owns the domain name www.purplesleep.ca , which used to, but no longer, redirects to its website at www.perfectsense.ca . In addition to this, Purple LLC has alleged that PerfectSense has: designed their mattresses with the same look as the Purple mattresses (white mattress top, purple stripe, and grey bottom); used many of the marketing elements on Purple’s website (including a similar “exploded view” image of their mattress); and adopted the color purple as their dominant marketing color. Purple LLC is suing for a declaration that PerfectSense has infringed Purple LLC’s copyright and trademark rights and committed the tort of passing off. Purple LLC is asking for injunctive relief, damages, an accounting of profits, interest, costs, and delivery up or destruction of the infringing products (including delivery up of the www.purplesleep.ca domain). After filing the statement of claim, Purple LLC posted $ 15,000 CAD as security for PerfectSense’s costs. PerfectSense brought a motion to strike that was resolved on consent. Pleadings are now closed, and the action is proceeding under case management. Counsel for the defendant was removed from the record at their own request by Court Order. The Court further ordered the defendant to either appoint counsel or file a motion to permit an officer or director to represent the defendant in legal proceedings. On November 6, 2020, the defendant informally requested that the Court permit Mr. Henderson, the CEO and shareholder of the defendant, to represent the defendant in the action until such time as a lawyer could be appointed. Purple opposed this informal request, and it was denied by the Court. After granting PerfectSense a final extension of time to either appoint counsel or file a motion to permit Mr. Henderson to represent the defendant, PerfectSense appointed new counsel. The action will now proceed with the parties scheduled to exchange affidavits of documents by March 31, 2021. On September 20, 2020, the Company filed a complaint at the U.S. Court of International Trade seeking to recover approximately $ 7.0 million of Section 301 duties paid at the time of importation on certain Chinese-origin goods. More than 4,000 other complaints have been filed by other companies seeking similar refunds. The United States has not yet filed an answer to our complaint. If successful, this litigation could result in a refund of some or all of the Section 301 duties. On October 13, 2020, Purple Innovation, LLC (“Purple”) filed a lawsuit against Responsive Surface Technology, LLC and its parent company, PatienTech, LLC (collectively referred to as “ReST”) in the United States District Court for the District of Utah. The lawsuit arises from ReST’s multiple breaches of its obligations to Purple, including infringing upon Purple’s trademarks, patents, and trade dress, among other claims. Purple seeks monetary damages, injunctive relief, and declaratory judgment based on certain conduct by ReST (“Case I”). On October 21, 2020, shortly after the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple, Gary DiCamillo, Adam Gray, Joseph Megibow, Terry Pearce, and Tony Pearce, also in the United States District Court for the District of Utah (“Case II”). Subsequently, the two cases were consolidated into one. Case II (now combined with Case I) involves many of the same facts and transactions as Case I. On January 19, 2021, ReST filed a motion to compel arbitration of the claims in Case I. On February 26, 2021, Purple opposed the motion to compel arbitration, arguing that ReST has waived any rights they may have had to arbitration and that all of the claims in both cases should stay in the courts. On March 5, 2021, Purple, Gray, Megibow, Terry Pearce, and Tony Pearce, filed a motion to dismiss the claims set forth in Case II. Purple seeks over $4 million in damages from ReST, whereas ReST claims that Purple is liable to it for tens of millions of dollars. The outcome of this litigation cannot be predicted at this early stage. However, Purple intends to vigorously pursue its claims and defend against the claims made by ReST. F- 34 On November 19, 2020, Purple Innovation, LLC sued Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) in the U.S. District Court for the District of Utah for patent infringement, trademark infringement, trade secret misappropriation, and a number of state law based claims. The principal allegations are that Intellibed has manufactured and sold unauthorized, infringing products under the Sleepy’s brand name. Purple also requested declaratory relief related to certain assignment terms of a license agreement in which Purple is the licensor and Intellibed is the licensee. On December 14, 2020, Intellibed filed a motion to dismiss Counts I through XI of Purple’s Complaint on the ground that these Counts fail to state a claim upon which relief can be granted. On December 15, 2020, Intellibed filed an Answer to Purple’s complaint and also asserted against Purple a total of eight counterclaims, including a number of declaratory judgment claims, breach of contract, and tortious interference claims. Intellibed’s main allegations are that its use of Purple’s patents, trademark, and trade secrets in connection with the Sleepy’s products is authorized under the license agreement. On January 19, 2021, Purple filed a motion to dismiss Intellibed’s fifth, sixth, seventh, and eighth counterclaims on the ground that these counterclaims fail to state a claim upon which relief can be granted. On January 19, 2021, Purple also filed an Answer to Intellibed’s counterclaims, which were not subject to Purple’s motion to dismiss. On January 27, 2021, Purple filed a First Amended Complaint in response to Intellibed’s initial motion to dismiss. On February 10, 2021, Intellibed filed a motion to dismiss Counts I through XI of Purple’s First Amended Complaint. Intellibed’s motion to dismiss and Purple’s motion to dismiss are still pending before the Court. The case is in the early stages. No substantial discovery has taken place. The Court has not yet entered a Scheduling Order governing the case. No trial date has been set. The Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company. 15. Related-Party Transactions The Company had various transactions with entities or individuals which are considered related parties. Coliseum Capital Management LLC Immediately following the Business Combination, Adam Gray was appointed to the Company’s Board of Directors. Mr. Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and CDF, and he is also a managing partner of Coliseum Capital Management, LLC (“CCM”), which is the investment manager of Blackwell. Mr. Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell which were also the Lenders under the Amended and Restated Credit Agreement. In 2018, the Lenders agreed to make the Original Loan in an aggregate principal amount of $ 25.0 million pursuant to the 2018 Credit Agreement entered into as part of the Business Combination. In conjunction with the 2018 Credit Agreement, the Sponsor agreed to assign to the Lenders an aggregate of 2.5 million warrants to purchase 1.3 million shares of its Class A Stock. In 2019, the Incremental Lenders agreed to provide the $10.0 million Incremental Loan. In accordance with the First Amendment to the Amended and Restated Credit Agreement, the Company did not make any cash interest payments to the Lenders during the first and second quarters of 2020. On September 3, 2020, the Company paid $45.0 million to retire, in full, all indebtedness related to Purple LLC’s 2018 Credit Agreement. The payment included the $25.0 million Original Loan, the $10.0 Incremental Loan, $6.6 million of paid-in-kind interest, $2.5 million in a prepayment fee and $0.9 million in accrued interest (See Note 11 — Debt) . In February 2018, in connection with the Business Combination, the Company entered into a subscription agreement with CCP and Blackwell, pursuant to which CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A Stock at a purchase price of $ 10.00 per share (the “Coliseum Private Placement”). In connection with the Coliseum Private Placement, the Sponsor assigned (i) an aggregate of 1.3 million additional shares of Class A Stock to CCP and Blackwell and (ii) an aggregate of 3.3 million warrants to purchase 1.6 million shares of Class A Stock to CCP, Blackwell, and CDF. The subscription agreement provides CCP and Blackwell with preemptive rights with respect to future sales of the Company’s securities. It also provides them with a right of first refusal with respect to certain debt and preferred equity financings by the Company. The Company also entered into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A Stock issued and assigned to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A Stock underlying the warrants received by CCP, Blackwell and CDF. The Company has filed a registration statement with respect to such securities. As part of the Amended and Restated Credit Agreement, CCP and Blackwell were also granted 2.6 million warrants to purchase 2.6 million shares of the Company’s Class A Stock at a price of $ 5.74 per share, subject to certain adjustments. In May 2020, pursuant to the terms of the warrant agreement upon the condition that Tony Pearce or Terry Pearce individually or together ceased to beneficially own at least 50 % of the voting securities of the Company, the exercise price of the warrants was adjusted to zero. On November 9, 2020, the Company issued 2.6 million shares of Class A common stock in exchange for the Incremental Loan Warrants held by the Incremental Lenders. The Company determined the fair value of the Incremental Loan Warrants to be $ 81.0 million at the time of the exchange. The fair value of the Incremental Loan Warrants was $ 21.6 million at December 31, 2019. The Company recorded losses of $ 59.4 million and $ 16.8 million related to increases in the fair value of the Incremental Loan Warrants for the years ended December 31, 2020 and 2019, respectively (See Note 12 — Warrant Liabilities). F- 35 Purple Founder Entities TNT Holdings, LLC (herein “TNT Holdings”), EdiZONE, (wholly owned by TNT Holdings) and InnoHold (the “Purple Founder Entities”) were entities under common control with Purple LLC prior to the Business Combination. TNT Holdings and InnoHold are majority owned and controlled by Terry Pearce and Tony Pearce (the “Purple Founders”), who were appointed to the Company’s Board of Directors following the Business Combination. InnoHold was a majority shareholder of the Company until it sold a portion of its interests in a secondary public offering in May 2020 and the remainder of its interests in a secondary public offering in September 2020. The Purple Founders also resigned as employees of the Company and retired from the Board in August 2020. TNT Holdings owns the Alpine facility Purple LLC has been leasing since 2010. Effective as of October 31, 2017, Purple LLC entered into an Amended and Restated Lease Agreement with TNT Holdings. The Company determined that TNT Holdings is not a VIE as neither the Company nor Purple LLC hold any explicit or implicit variable interest in TNT Holdings and do not have a controlling financial interest in TNT Holdings. The Company incurred $ 0.9 million and $ 1.0 million in rent expense to TNT Holdings for the building lease of the Alpine facility for the years ended December 31, 2020 and 2019, respectively. The Company continues to lease the Alpine facility that was formerly the Company headquarters, for use in production, research and development and video production. During the year ended December 31, 2020, 30.9 million Paired Securities have been exchanged for Class A Stock by InnoHold and certain current and former employees of the Company who received distributions of such Paired Securities from InnoHold. On November 9, 2018, Purple LLC and EdiZONE executed the Second Amended and Restated Confidential Assignment and License Back Agreement (the “Revised License Agreement”), pursuant to which EdiZONE assigned all of its comfort and cushioning intellectual property to Purple LLC and further limited the subset of such intellectual property licensed back to EdiZONE to only those uses that enabled EdiZONE to comply with its obligations under previously existing contracts, agreements and licenses. On August 14, 2020, Purple LLC entered into a separate agreement whereby EdiZONE, for consideration of $ 8.5 million, assigned a license agreement with Advanced Comfort Technologies, Inc. (“ACTI”), and related royalties payable thereunder, to Purple LLC, along with the trademarks GEL MATRIX and INTELLIPILLOW. In connection with such assignment, the Company agreed to indemnify EdiZONE against claims by ACTI relating to EdiZONE’s breach under the agreement. During the year ended December 31, 2020, Purple LLC paid InnoHold either directly or through withholding payments directly to various states, an aggregate of $ 4.6 million in required tax distributions pursuant to the Second Purple LLC Agreement. 16. Stockholders’ Equity Prior to the Business Combination, GPAC was a shell company with no operations, formed as a vehicle to effect a business combination with one or more operating businesses. After the Closing, the Company became a holding company whose sole material asset consists of its interest in Purple LLC. Class A Common Stock The Company has 210.0 million shares of Class A Stock authorized at a par value of $ 0.0001 per share. Holders of the Company’s Class A Stock are entitled to one vote for each share held on all matters to be voted on by the stockholders and participate in dividends, if declared by the Board, or receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. Holders of the Class A Stock and holders of the Class B Stock voting together as a single class, have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Holders of Class A Stock and Class B Stock are entitled to one vote per share on matters to be voted on by stockholders. At December 31, 2020, 63.9 million shares of Class A Stock were outstanding. F- 36 In connection with the Business Combination, all of GPAC’s issued and outstanding shares of common stock were renamed to Class A Stock. The Company distributed approximately $ 90.6 million of the cash proceeds from the Company’s initial public offering to redeem approximately 9.0 million shares of Class A Stock, which shares were then cancelled by GPAC. In addition, the Sponsor agreed to forfeit an aggregate of 1.3 million of the 3.9 million shares of common stock it received at GPAC’s formation (the “Founder Shares”), which forfeited shares were then cancelled by the Company. GPAC issued an additional 4.0 million shares of Class A Stock to investors as part of a private investment in public equity (PIPE financing). In accordance with the terms of the Business Combination, approximately 1.3 million shares of Class A Stock were subject to vesting and forfeiture. The shares of Class A Stock subject to vesting will be forfeited eight years from the Closing, unless any of the following events (each a “Triggering Event”) occurs prior to that time: (i) the closing price of the Class A Stock on the principal exchange on which it is listed is at or above $12.50 for 20 trading days over a thirty trading day period (subject to certain adjustments), (ii) a change of control of the Company, (iii) a “going private” transaction by the Company pursuant to Rule 13e-3 under the Exchange Act or such other time as the Company ceases to be subject to the reporting obligations under Section 13 or 15(d) of the Exchange Act, or (iv) the time that the Company’s Class A Stock ceases to be listed on a national securities exchange. During the year ended December 31, 2020, a Triggering Event occurred as the closing price of the Class A Stock on the principal exchange on which it is listed was at or above $12.50 for 20 trading days over a thirty-trading day period. Accordingly, the shares of Class A Stock are no longer subject to vesting or forfeiture. Class B Common Stock The Company has 90.0 million shares of Class B Stock authorized at a par value of $ 0.0001 per share. Holders of the Company’s Class B Stock will vote together as a single class with holders of the Company’s Class A Stock on all matters properly submitted to a vote of the stockholders. Shares of Class B Stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold. A holder of Class B Stock may transfer shares of Class B Stock to any transferee (other than the Company) only if such holder also simultaneously transfers an equal number of such holder’s Purple LLC Class B units to such transferee in compliance with the Second Purple LLC Agreement. The Class B Stock is not entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. In connection with the Business Combination, approximately 44.1 million shares of Series B Stock were issued to InnoHold as part of the equity consideration. InnoHold subsequently transferred a portion of its shares to permitted transferees and exchanged its remaining shares for Class A Stock that it sold. At December 31, 2020, the 0.5 million shares of Class B Stock outstanding were all held by other parties. Preferred Stock The Company has 5.0 million shares of preferred stock authorized at a par value of $ 0.0001 per share. The preferred stock may be issued from time to time in one or more series. The directors are expressly authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, designations and other special rights or restrictions. At December 31, 2020, there were no shares of preferred stock outstanding. Public and Sponsor Warrants There were 15.5 million public warrants (the “Public Warrants”) issued in connection with GPAC’s formation and IPO and 12.8 million warrants (the “Sponsor Warrants”) issued pursuant to a private placement simultaneously with the IPO. Each of the Company’s warrants entitled the registered holder to purchase one-half of one share of the Company’s Class A Stock at a price of $5.75 per half share ($11.50 per full share), subject to adjustment pursuant the terms of the warrant agreement. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of the Class A Stock. In no event will the Company be required to net cash settle any warrant. The warrants have a five-year term which commenced on March 2, 2018, 30 days after the completion of the Business Combination, and will expire on February 2, 2023, or earlier upon redemption or liquidation. F- 37 The Company had the right to call the Public Warrants for redemption if the reported last sale price of the Class A Stock equaled or exceeded $24.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sent the notice of redemption to the warrant holders. The Sponsor Warrants are not redeemable by the Company so long as they are held by the Sponsor or its permitted transferees. In addition, with respect to the Sponsor Warrants, so long as such Sponsor Warrants are held by the Sponsor or its permitted transferee, the holder may elect to exercise the Sponsor Warrants on a cashless basis, by surrendering their Sponsor Warrants for that number of shares of Class A Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A Stock underlying the Sponsor Warrants, multiplied by the difference between the exercise price of the Sponsor Warrants and the “fair market value” (defined below), by (y) the fair market value. The “fair market value” means the average reported last sale price of the Class A Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. All other terms, rights and obligations of the Sponsor Warrants remain the same as the Public Warrants. On October 27, 2020, the Company provided notice to the holders of the Public Warrants that the Company was exercising its right under the terms of the Public Warrants to redeem such warrants by paying to the warrant holders the redemption price of $ 0.01 per warrant on November 30, 2020. Any exercise of the warrants prior to that date was to be done on a cashless basis, in accordance with the terms of the warrants. During the year ended December 31, 2020, 15.5 million Public Warrants and 4.3 million Sponsor Warrants were exercised or redeemed resulting in the issuance of 7.6 million shares of Class A common stock. At December 31, 2020, there were 8.5 million warrants outstanding all of which were Sponsor Warrants. Incremental Loan Warrants In connection with the Amended and Restated Credit Agreement, the Company issued to the Incremental Lenders 2.6 million Incremental Loan Warrants to purchase 2.6 million shares of the Company’s Class A Stock. Each Incremental Loan Warrant entitled the registered holder to purchase one share of the Company’s Class A Stock at a price of $ 5.74 per share, subject to adjustment pursuant to the terms of the warrant agreement. In May 2020, Tony Pearce or Terry Pearce individually or together ceased to beneficially own at least 50% of the voting securities of the Company. As a result, the exercise price of the warrants was reduced to zero based on the formula established in the agreement. The Company had the right to call the warrants for redemption at a price of $0.01 per Share of Class A Stock if the reported last sale price of the Class A Stock equaled or exceeded $24.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sent the notice of redemption to the warrant holders. If the Company called the Incremental Loan Warrants for redemption, it had the option to require the holder to exercise the Incremental Loan Warrants on a cashless basis, by surrendering their Incremental Loan Warrants for that number of shares of Class A Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A Stock underlying the Incremental Loan Warrants, multiplied by the difference between the exercise price of the Sponsor Warrants and the “fair market value” (defined below), by (y) the fair market value. The “fair market value” means the average reported last sale price of the Class A Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Incremental Loan Warrants. On October 27, 2020, the Company provided notice to the holders of the Incremental Loan Warrants that the Company was exercising its right to redeem such warrants by paying to the warrant holders the redemption price of $ 0.01 per warrant on November 30, 2020. Any exercise of the warrants prior to that date was to be done on a cashless basis, in accordance with the terms of the warrants. On November 9, 2020, upon the exercise of all the Incremental Loan Warrants, the Company issued 2.6 million shares of Class A common stock in exchange for the Incremental Loan Warrants held by the Incremental Lenders. F- 38 Noncontrolling Interest Noncontrolling interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company. Upon the close of the Business Combination and at December 31, 2018, InnoHold’s and other Class B Unit holders’ combined NCI percentage in Purple LLC was approximately 82 %. At December 31, 2020, the combined NCI percentage in Purple LLC was approximately 1 %. The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate interest held by all such Purple LLC Class B Unit holders as NCI. 17. Net Loss Per Common Share The following table sets forth the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands, except per share amounts): Year Ended December 31, (in thousands) 2020 2019 Restated Restated Numerator: Net loss attributable to Purple Innovation, Inc. $ ( 236,867 ) $ ( 22,573 ) Denominator: Weighted average shares—basic and diluted 39,219 10,006 Net loss per common share: Basic $ ( 6.04 ) $ ( 2.26 ) Diluted $ ( 6.04 ) $ ( 2.26 ) For the year ended December 31, 2020, the Company excluded 0.1 million shares of issued Class A Stock subject to vesting, 6.5 million shares of Class A Stock issuable upon conversion of the Company’s warrants and options, and 0.5 million Paired Securities convertible into shares of Class A Stock as the effect was anti-dilutive. For the year ended December 31, 2019, the Company excluded 1.4 million shares of issued Class A Stock subject to vesting, 18.9 million shares of Class A Stock issuable upon conversion of the Company’s warrants and options, and 31.4 million Paired Securities convertible into shares of Class A Stock as the effect was anti-dilutive. 18. Equity Compensation Plans 2017 Equity Incentive Plan The Purple Innovation, Inc. 2017 Equity Incentive Plan (the “2017 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. Directors, officers and other employees and subsidiaries and affiliates, as well as others performing consulting or advisory services for the Company and its subsidiaries, will be eligible for grants under the 2017 Incentive Plan. The aggregate number of shares of Common Stock which may be issued or used for reference purposes under the 2017 Incentive Plan or with respect to which awards may be granted may not exceed 4.1 million shares. As of December 31, 2020, approximately 1.9 million shares remain available under the 2017 Incentive Plan. Class A Stock Awards In March 2020, the Company granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s Board advisor and GPAC observer. The stock award vests in March 2021. As this award includes a service condition, the estimated fair value of the restricted stock is measured on the grant date and is recognized over the service period. The Company determined that the fair value of the restricted stock on the grant date was immaterial. During 2020, the Company granted stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the Board and to the Board advisor and GPAC observer. The stock awards vested immediately and the Company recognized $ 0.5 million in expense during the year ended December 31, 2020 which represented the fair value of the stock award on the grant date. In 2019, the Company granted stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the Board and to the Board advisor and GPAC observer. The stock awards vested immediately and the Company recognized $ 0.3 million in expense during the year ended December 31, 2019 which represented the fair value of the stock award on the grant date. F- 39 In May and June 2020, the Company granted restricted stock awards under the Company’s 2017 Equity Incentive Plan to certain employees of the Company. The stock awards vest over 3 to 4 years. The estimated fair value of the restricted stock is measured on the grant date and is recognized over the vesting period. The Company determined that the fair value of the restricted stock on the grant dates was $ 0.7 million. In May 2019, the Company granted a restricted stock award to the Company’s Chief Executive Officer (the “CEO”) pursuant to the terms of his employment agreement. The restricted stock award is for 0.1 million shares and has certain vesting conditions, including vesting on the earlier of a change in control or the satisfaction of all three specific service and market conditions. Such conditions require: (i) the CEO to stay employed as CEO through September 30, 2021, unless terminated without cause; (ii) the CEO to retain certain shares of common stock owned at the time of the grant through September 30, 2021; and (iii) the common stock of the Company to trade above $10 a share for any twenty of thirty consecutive trading days during the twelve months ended March 31, 2022. Accordingly, the earliest the three vesting conditions could all be met is at some point during the twelve months ended March 31, 2022. As this award includes a market vesting condition, the estimated fair value of the restricted stock is measured on the grant date and incorporates the probability of vesting occurring. The Company determined the fair value of the restricted stock on the grant date to be $ 0.2 million and the derived service period to be 2.58 years using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model with the following assumptions: Trading price of common stock on measurement date $ 6.56 Risk free interest rate 1.9 % Expected life in years 3.0 Expected volatility 36.5 % Expected dividend yield — The estimated fair value is recognized over the derived service period (as determined by the valuation model) on a straight-line basis, with such recognition occurring whether the instrument ultimately vests or not. During both years ended December 31, 2020 and 2019, the Company recognized a de minimis amount of expense. Employee Stock Options During the year ended December 31, 2020, the Company granted 0.5 million stock options under the Company’s 2017 Equity Incentive Plan to certain management of the Company. These stock options have exercise prices ranging from $ 12.76 to $ 21.70 . The stock options expire in five years and vest over a four-year period. The estimated fair value of the stock options, less expected forfeitures, is amortized over the options vesting period on a straight-line basis. The Company determined the fair value of the 0.5 million options granted during the year ended December 31, 2020 to be $ 3.4 million which will be expensed over the vesting period. During the year ended December 31, 2019, the Company granted 1.6 million stock options under the Company’s 2017 Equity Incentive Plan to certain management of the Company. These stock options have exercise prices that range from $ 5.75 to $ 8.55 per option. The stock options expire in five years and vest over a four-year period. The estimated fair value of the stock options, less expected forfeitures, is being amortized over the options vesting period on a straight-line basis. The Company determined the fair value of the 1.6 million options granted during the year ended December 31, 2019 to be $ 2.9 million which will be expensed over the vesting period. The following are the weighted average assumptions used in calculating the fair value of the total stock options granted in 2020 and 2019 using the Black-Scholes method: Year Ended December 31, 2020 2019 Fair market value $ 6.93 $ 6.83 Risk free rate 0.25 % 1.88 % Dividend yield — — Expected volatility 50.34 % 36.79 % Expected term in years 3.41 3.47 During the year ended December 31, 2019, 0.3 million of unvested stock options were forfeited by Mark Watkins, the former Chief Financial Officer (“CFO”) of the Company, upon his resignation and departure from the Company. As the CFO, he was not permitted to exercise and sell all of his 0.1 million vested options during the limited 90-day exercise time period under the terms of his option grant. The Company entered into an agreement whereby the Company paid Mr. Watkins a settlement amount equal to the difference between the closing price of the stock on the date of the settlement and the exercise strike price of $5.95. The Company paid Mr. Watkins $0.1 million and cancelled his vested stock options. F- 40 The following table summarizes the Company’s total stock option activity for the years ended December 31, 2020 and 2019: Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Intrinsic Value $ (in thousands) Options outstanding as of January 1, 2019 933 $ 5.96 4.8 $ — Granted 1,598 7.29 — — Exercised — — — — Forfeited/expired ( 395 ) 5.97 — — Options outstanding as of December 31, 2019 2,136 6.95 4.3 3,752 Granted 488 16.26 — — Exercised ( 281 ) 7.68 — — Forfeited/expired ( 109 ) 10.80 — — Options outstanding as of December 31, 2020 2,234 8.71 3.5 54,133 Outstanding and exercisable stock options as of December 31, 2020 are as follows: Options Outstanding Options Exercisable Exercise Prices Number of Options Outstanding (in thousands) Weighted Average Remaining Life (Years) Number of Options Exercisable (in thousands) Weighted Average Remaining Life (Years) Intrinsic Value (in thousands) $ 5.75 210 3.14 75 3.14 $ 2,028 5.95 538 2.75 292 2.75 7,866 6.51 261 3.39 86 3.39 2,275 6.65 173 3.36 52 3.36 1,371 7.99 19 3.92 3 3.92 74 8.07 5 3.65 — — — 8.17 225 3.75 42 3.75 1,045 8.32 226 3.50 64 3.50 1,580 8.55 179 3.75 52 3.75 1,276 12.76 25 4.19 — — — 13.12 191 4.38 — — — 15.12 3 4.38 — — — 21.70 179 4.75 — — — 2,234 3.49 666 3.14 17,515 The following table summarizes the Company’s unvested stock option activity for the years ended December 31, 2020 and 2019: Options (in thousands) Weighted Average Grant Date Fair Value Nonvested options as of January 1, 2019 845 $ 1.37 Granted 1,598 1.83 Vested ( 157 ) 1.39 Forfeited ( 307 ) 1.33 Nonvested options as of December 31, 2019 1,979 1.75 Granted 488 6.93 Vested ( 790 ) 1.82 Forfeited ( 109 ) 3.65 Nonvested options as of December 31, 2020 1,568 3.20 F- 41 The estimated fair value of the Company stock options, less expected forfeitures, is amortized over the options vesting period on the straight-line basis. The Company recognized $ 1.3 million and $ 0.7 million in stock-based compensation expenses related to stock options during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, there was $ 4.6 million of total unrecognized stock compensation cost with a remaining recognition period of 2.5 years. As of December 31, 2019, there was $ 2.9 million of total unrecognized stock compensation cost with a remaining recognition period of 3.2 years. InnoHold Incentive Units In January 2017, pursuant to the 2016 Equity Incentive Plan approved by InnoHold and Purple LLC that authorized the issuance of 12.0 million incentive units, Purple LLC granted 11.3 million incentive units to Purple Team LLC, an entity for the benefit of certain employees who were participants in that plan. In conjunction with the Business Combination, Purple Team LLC was merged into InnoHold with InnoHold being the surviving entity and the Purple Team LLC incentive units were cancelled and new incentive units were issued by InnoHold under its own limited liability company agreement (the “InnoHold Agreement”). On February 8, 2019, InnoHold initiated a tender offer to each of these incentive unit holders, some of which are current employees of Purple LLC, to distribute to each a pro rata number of 2.5 million Paired Securities held by InnoHold in exchange for the cancellation of their ownership interests in InnoHold. All InnoHold incentive unit holders accepted the offer, and the terms and distribution of each transaction were finalized and closed on June 25, 2019. At the closing of the tender offer, those incentive unit holders received, based on their pro rata holdings of InnoHold Class B Units, a portion of 2.5 million Paired Securities held by InnoHold. The distribution by InnoHold to current employees of Purple LLC as of the distribution date resulted in the recognition of non-cash stock compensation expense for Purple LLC in the amount of $ 9.0 million which represented the fair value of the Paired Securities as of the distribution date in 2019. As of December 31, 2020, 0.5 million of the Paired Securities remain to be exchanged for Class A Stock by the incentive unit holders. A small number of Paired Securities remain subject to vesting contingent upon such current employees’ continued employment with the Company. Aggregate Non-Cash Stock Compensation The Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation. This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period. The table below summarizes the aggregate non-cash stock compensation recognized in the statement of operations for stock awards, employee stock options and the distribution by InnoHold of Paired Securities. (in thousands) Years Ended December 31, Non-Cash Stock Compensation 2020 2019 Cost of revenues $ 169 $ 663 Marketing and sales 302 4,285 General and administrative 1,353 4,356 Research and development 361 759 Total non-cash stock compensation $ 2,185 $ 10,063 19. Employee Retirement Plan In 2018 the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code. All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan. The plan provides for Company matching of employee contributions up to 5% of eligible earnings. Company contributions immediately vest. The Company matching contribution expense was $ 2.3 million and $ 1.3 million for the years ended December 31, 2020 and 2019, respectively. F- 42 20. Concentrations The Company had the following revenues by product: Years Ended December 31, (in thousands) 2020 2019 Bedding $ 598,046 $ 401,499 Other 50,425 26,859 Total revenue, net $ 648,471 $ 428,358 Nearly all revenue was generated from sales in North America. The Company had one individual customer that accounted for approximately 79 % and 67 % of accounts receivable at December 31, 2020 and 2019, respectively, and approximately 15 % and 26 % of net revenue during the years ended December 31, 2020 and 2019, respectively. The Company currently obtains materials and components used in production from outside sources. As a result, the Company is dependent upon suppliers that in some instances, are the sole source of supply. The Company is continuing efforts to dual-source key components. The failure of one or more of the Company’s suppliers to provide materials or components on a timely basis could significantly impact the results of operations. The Company believes that it can obtain these raw materials and components from other sources of supply in the ordinary course of business, although an unexpected loss of supply over a short period of time may not allow for the replacement of these sources in the ordinary course of business. The Company maintains its cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 for each financial institution per entity. At times, the Company’s cash balance deposited at financial institutions exceed the federally insured deposit limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to these deposits. 21. Income Taxes The Company’s loss before income taxes of $ 273.5 million and $ 30.5 million during the years ended December 31, 2020 and 2019, respectively, consisted entirely of income earned in the United States. Income tax (benefit) expense for the years ended December 31, 2020 and 2019 consist of the following (in thousands): Year ended December 31, 2020 2019 Current: Federal $ 1,112 $ 88 State 951 312 Total current 2,063 400 Deferred: Federal ( 35,747 ) — State ( 10,065 ) — Total deferred ( 45,812 ) — Income tax (benefit) expense $ ( 43,749 ) $ 400 F- 43 Income tax (benefit) expense differs from that computed at the federal statutory corporate income tax rate as follows (in thousands): Year ended December 31, 2020 2019 Tax benefit at Federal statutory rate $ ( 57,441 ) $ ( 6,410 ) State income tax provision (benefit), net of federal benefit 499 3 Noncontrolling interest ( 117 ) 1,754 Tax receivable agreement liability ( 1,518 ) — Change in fair value – warrant liabilities 50,537 3,894 Change in valuation allowance ( 35,531 ) 1,088 Other ( 178 ) 71 Income tax (benefit) expense $ ( 43,749 ) $ 400 Deferred income taxes at December 31, 2020 and 2019 consisted of the following (in thousands): 2020 2019 Basis difference in Purple LLC investment $ 210,671 $ 34,384 Tax over book basis in capital contributions 51,995 8,411 Start-up costs 529 578 Accruals and reserves 38 9 Net Operating Losses 6 913 Total net deferred income tax asset 263,239 44,295 Less: Valuation allowance ( 51,995 ) ( 44,295 ) Net deferred income tax asset (liability) $ 211,244 $ — The Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC’s net taxable income and any related tax credits are passed through to its members and is included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company’s effective tax rate differs materially from the statutory rate. The primary factors impacting the expected tax are the allocation of tax benefit to noncontrolling interest and the impact of the valuation allowance. The Company has historically maintained a full valuation allowance on its net deferred tax assets which are comprised primarily of basis differences in Purple LLC. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize the deferred tax assets on income tax returns. In prior years, management made the determination that its net deferred tax assets were not more likely than not going to be realized because the Company was in a three-year cumulative loss position and the generation of future taxable income was uncertain. Considering this and other factors, the Company had a full valuation allowance of $ 44.3 million as of December 31, 2019. During fiscal 2020, the Company achieved three-year cumulative income for the first time and determined that it would likely generate sufficient taxable income to utilize some of its deferred tax assets. Based on this and other positive evidence, the Company concluded it was more likely than not that some of its deferred tax assets would be realized and that a full valuation allowance for its deferred tax assets was no longer appropriate. As a result, $ 35.5 million of the valuation allowance associated with the Company’s federal and state deferred tax assets was released and recorded as an income tax benefit. In conjunction with the removal of some of the valuation allowance, the Company recorded an additional $218.9 million in deferred tax assets primarily related to tax basis increases resulting from exchanges of Class B Paired Securities during the year ended December 31, 2020. The deferred tax assets at December 31, 2020 are $211.2 million, which is net of $52.0 million of valuation allowance that has been recorded against the residual outside partnership basis for the amount the Company believes is not more likely than not realizable. As a result, there was an overall increase of $ 7.7 million in the valuation allowance from December 31, 2019 to December 31, 2020, primarily as a result of the increase in the residual outside partnership basis, partially offset by the removal of the valuation allowance on the other existing deferred tax assets. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. F- 44 In addition, the CARES Act raises the corporate charitable deduction limit to 25 % of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100 % bonus depreciation. The enactment of the CARES Act resulted in two adjustments to our income tax provision, relating to increased 2019 NOL utilization and tax benefits from NOL carrybacks. We have recorded $ 0.2 million in our income tax provision for the year ended December 31, 2020 related to the CARES Act. In connection with the Business Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the Tax Receivable Agreement. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a TRA Liability may be recorded based on 80% of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant TRA Liability to be recorded will depend on the price of the Company’s Class A Stock at the time of the relevant redemption or exchange. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. As a result of the initial merger transaction and the subsequent exchanges of 43.5 million Class B Units for Class A Stock as of December 31, 2020, the potential future TRA liability is $172.0 million, of which all has been recorded through the year ended December 31, 2020. Due to changes in estimates relating to the expected tax benefits associated with the liability under the Tax Receivable, the estimate of $172.0 million has been recorded to date ($0.5 million in 2019 and an incremental $171.5 million through December 31, 2020). Of the total liability recorded during 2020, $137.3 million relates to current year exchanges and was recorded as an adjustment to equity and $34.2 million was recorded to expense in order to re-establish the TRA related to prior year exchanges. The Company has no federal net operating loss (“NOL”) carryforwards after utilization of the remaining carryforwards in 2020. The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of December 31, 2020 and 2019, no uncertain tax positions were recognized as liabilities in the consolidated financial statements. 22. Subsequent Events On January 15, 2021, the Company paid $0.6 million to InnoHold pursuant to the terms of the Tax Receivable Agreement. The amount paid represents 80% of the net cash savings to the Company in federal and state income taxes as a result of the tax basis increases resulting from the exchange of Paired Securities for shares of Class A Stock. During January 2021, the Company paid out $ 0.2 million in tax distributions under the Second Purple LLC Agreement. During January, February and March 2021, approximately 6.5 million Sponsor Warrants were exercised on a cashless basis and approximately 2.2 million shares of Class A Stock were issued. Of that amount, CCP, CDF and Blackwell exercised on a cashless basis approximately 5.8 million Sponsor Warrants and approximately 2.0 million shares of Class A Stock were issued to them. During January, February and March 2021, approximately 0.1 million Paired Securities were exchanged for shares of Class A Stock. On February 3, 2021 the Company received $4.1 million from InnoHold as reimbursement for amounts that qualified for indemnification from the $5.0 million held in escrow pursuant to a contingency escrow agreement. The remaining $0.9 million in escrow was returned to InnoHold. The amount received from InnoHold was recorded as additional paid-in capital. On February 4, 2021 the Company closed an industrial revenue bond transaction with Henry County Development Authority in Georgia (“Henry County”) in order to receive real and personal property tax abatements on our new facility in McDonough, Georgia. Pursuant to this transaction, Henry County issued a $ 21.0 million industrial revenue bond to the Company and will use the proceeds to purchase the property from the Company. Henry County will then lease the property back to the Company in the same amount and on the same due dates as Henry County’s debt service on the industrial revenue bond. No cash will be exchanged. On March 3, 2021, the Company began operations in its new facility in McDonough, Georgia. F- 45 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Purple Innovation, Inc. May 10, 2021 By: /s/ Joseph B. Megibow Name: Joseph B. Megibow Title: Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Position Date /s/ Joseph B. Megibow Chief Executive Officer and Director May 10, 2021 Joseph B. Megibow (Principal Executive Officer) /s/ Craig L. Phillips Chief Financial Officer May 10, 2021 Craig L. Phillips (Principal Financial and Accounting Officer) /s/ Paul J. Zepf Chairman of the Board of Directors May 10, 2021 Paul J. Zepf /s/ Pano T. Anthos Director May 10, 2021 Pano T. Anthos /s/ Gary T. DiCamillo Director May 10, 2021 Gary T. DiCamillo /s/ Adam L. Gray Director May 10, 2021 Adam L. Gray /s/ Claudia Hollingsworth Director May 10, 2021 Claudia Hollingsworth /s/ Gary A. Kiedaisch Director May 10, 2021 Gary A. Kiedaisch /s/ Dawn M. Zier Director May 10, 2021 Dawn M. Zier 65