What changed in this filing

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Item 9A. Controls and Procedures

2022-03-01 compared with 2021-03-11 · 2169 added, 2347 removed, 322 unchanged (93% of the section changed)

Controls and Procedures

Evaluation of Disclosure Controls and

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 that the Company’s disclosure controls and procedures were effective as

of December 31, 2020 at the reasonable assurance level.

Management’s Annual Report on

Internal Controls Over Financial Reporting

Our management is

responsible for establishing and maintaining adequate internal control over financial reporting.

of Disclosure Controls and Procedures

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.

Based on this evaluation, our management concluded that our internal controls over financial reporting were

effective as of December 31, 2020.

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.

Previously Reported Material Weakness

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 20 – 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

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 our previously reported material weakness 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.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Purple Innovation, Inc.

Opinion on Internal Control over Financial

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 maintained, in all material respects, effective internal

control over financial reporting as of December 31, 2020, based on the COSO criteria .

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 and our

report dated March 11, 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 Control over Financial

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on

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

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

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.

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.

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;

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.

the participation of our management, including our Chief Executive Officer (“CEO”) and Interim Chief Financial Officer

(“CFO”), 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.

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

March 11, 2021

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.

upon this evaluation and the above criteria, our CEO and CFO concluded that due to the previously reported material weakness described

below, the Company’s disclosure controls and procedures were not effective as of December 31, 2021.

Annual Report on Internal Controls Over Financial Reporting

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, 2021, based on the criteria established

in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management concluded that due to the previously reported material weakness described below, our internal

controls over financial reporting were not effective as of December 31, 2021.

effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 has been audited by BDO USA, LLP,

an independent registered public accounting firm, as stated in their report which appears herein.

Reported Material Weakness

previously reported, we determined a material weakness existed relating to ineffective information technology general controls (“ITGCs”)

in the areas of user access and segregation of duties related to certain information technology (“IT”) systems that support

the Company’s financial reporting processes.

We believe that these control deficiencies were a result of turnover of critical IT

insufficient training of IT personnel;

and inadequate risk-assessment processes to identify and assess user access in certain

IT systems that could impact internal controls over financial reporting.

As a result, we determined that we did not have effective controls

to prevent or detect a material financial statement misstatement on a timely basis.

response to this material weakness, management, with oversight of the Audit Committee of the Board of Directors, has identified and is

in the process of implementing steps to remediate the material weakness.

The Company has allocated resources to remediate user access

related control and segregation of duties deficiencies.

Our remediation efforts also include providing training to personnel associated

with reviewing IT user access.

In addition, we continue to engage consultants to advise us on making further improvements to our ITGCs.

Although we intend to complete the remediation process as promptly as possible, we cannot at this time estimate how long it will take

to remediate this material weakness.

Until this material weakness is remediated, we plan to continue to perform additional analyses and

other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.

in Internal Control over Financial Reporting

than the remediation efforts related to the design and implementation of sufficient controls and processes around ITGCs, there were no

changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or

are reasonably likely to materially affect, our internal control over financial reporting.

of Independent Registered Public Accounting Firm

and Board of Directors

Innovation, Inc.

on Internal Control over Financial Reporting

have audited Purple Innovation, Inc.’s (the “Company’s”) internal control over financial reporting as of December

31, 2021, 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, 2021, based on the COSO criteria.

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.

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, 2021 and 2020, the related consolidated statements of operations, stockholders’

equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively

referred to as “the financial statements”) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

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 Control 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.

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.

that our audit provides a reasonable basis for our opinion.

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 effective information

technology general controls (“ITGCs”) in the areas of user access and segregation of duties related to certain information

technology (“IT”) systems that support the Company’s financial reporting processes has been identified and described

in management’s assessment.

This material weakness was considered in determining the nature, timing, and extent of audit tests

applied in our audit of the 2021 financial statements, and this report does not affect our report dated March 1, 2022 on those financial

and Limitations of Internal Control over Financial Reporting

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

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

(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.

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.

Lake City, Utah

Other Information

Bylaw Amendment

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

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.

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.

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

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.

Directors, Executive Officers

and Corporate Governance

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,

Information concerning our executive officers is included in Part I of this report under the caption “Information

About Our Executive Officers.”

Amendment to 2020 Credit Agreement

On February 28, 2022, the Company entered

into a First Amendment to 2020 Credit Agreement (the “Amendment”).

The Amendment changes LIBOR to SOFR

with a floor of 0.50%.

Until a compliance certificate is delivered showing a consolidated leverage ratio of less than 3.00 to 1.00, the

borrowing rates are set at term SOFR plus (a) 4.75% if the Company is greater than or equal to the then applicable liquidity threshold

and (b) 9.00% if the Company’s liquidity is less than the then applicable liquidity threshold.

Once a compliance certificate is

delivered showing a consolidated leverage ratio of less than 3.00 to 1.00, pricing will range from SOFR plus a 3.00% to 3.75% margin based

upon a consolidated leverage ratio, unless there have been no outstanding revolving loans for a specified period of time, in which case

pricing will be based upon a consolidated net leverage ratio.

The amount of the excess cash flow mandatory prepayment is now based upon

a consolidated leverage ratio, unless there have been no outstanding revolving loans for a specified period of time, in which case it

will be based on a consolidated net leverage ratio.

The Amendment also adds a covenant amendment

period that starts on the Amendment effective date and lasts until the later of (a) delivery of the June 30, 2023 compliance certificate

and (b) the 5th business day after a compliance certificate is delivered showing a consolidated leverage ratio of less than 2.00x for

two consecutive quarters.

Monthly, during the covenant amendment period and quarterly thereafter, the Company must provide to the lenders

reports containing showroom sales performance and bi-weekly a rolling 13-week cash flow forecast.

Incremental term loan commitments

and incremental revolving loan commitments are not available during the covenant amendment period.

The Amendment adds a new mandatory prepayment

requirement, providing that if any revolving loans are outstanding and the aggregate amount of cash and cash equivalents exceed $25.0

million, the Company must prepay the revolving loans in the amount of the lesser of (i) the outstanding revolving loans and (ii) the amount

of cash and cash equivalents in excess of $25.0 million.

The Amendment also adds a limitation on borrowings under the revolver, prohibiting

additional borrowings under the revolver if after giving effect to any borrowing and any transactions to be consummated therewith, the

aggregate amount of cash and cash equivalents exceeds $25.0 million.

In addition, swing loans are now discretionary rather than mandatory

even if all conditions have been satisfied.

The Amendment provides that the consolidated

net leverage ratio and fixed charge coverage ratio financial covenants will not be tested for the fiscal quarter ended December 31, 2021

through the fiscal quarter ending June 30, 2022, and beginning with the fiscal quarter ending September 30, 2022 a consolidated leverage

ratio financial covenant goes into effect at a level of 5.75 to 1.00, stepping down to 3.00 to 1.00 at December 31, 2022 and 2.50 to 1.00

The Amendment also adds an additional financial covenant relating to minimum liquidity which is applicable during the covenant

amendment period and a negative covenant restricting the Company from entering into new leases unless certain financial tests are satisfied.

The covenant limiting certain capital expenditures is not being tested for the fiscal year ending December 31, 2021, total capital expenditures

are capped at $17.5 million for the fiscal quarter ending June 30, 2022 and growth capital expenditures are capped at $37.5 million for

the fiscal year ending December 31, 2022, $41.0 million for the fiscal year ending December 31, 2023, and $41.5 million for the fiscal

year ending December 31, 2024.

The Amendment also eliminates the availability

of certain baskets under certain negative covenants during the covenant amendment period, including but not limited to consolidations,

mergers, acquisitions, asset sales, statutory divisions, liens, indebtedness, investments, guaranty obligations, and restricted payments.

Pursuant to the Amendment, the Company

paid fees and expenses of $0.9 million and prepaid all principal payments due in 2022 of $2.5 million.

The foregoing summary of the Amendment does not

purport to be complete and is subject to, and qualified in its entirety by, the full text of the Amendment, a copy of which is attached

as Exhibit 10.60 to this 10-K and is incorporated by reference herein.

Appointment of Permanent Chief Executive Officer

On March 1, 2022, the Board appointed Robert DeMartini as the Company’s

permanent Chief Executive Officer, effective upon the execution of an amended and restated employment agreement.

DeMartini has served

as the Company’s Acting CEO since January 2022.

There are no related party transactions between Mr.

DeMartini and the Company as

defined in Item 404(a) of Regulation S-K.

There are no family relationships between Mr.

DeMartini and any other director, executive officer

or person nominated or chosen to be a director or executive officer of the Company.

DeMartini’s biographical information is

included under Part I, Item 1, “Information About our Executive Officers” above.

Disclosure Regarding Foreign Jurisdictions that Prevent

Not applicable.

Directors, Executive Officers and Corporate Governance

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, 2021.

concerning our executive officers is included in Part I of this report under the caption “Information About Our Executive Officers.”

Executive Compensation

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.

Security Ownership of Certain Beneficial Owners

and Management and Related Stockholder Matters

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.

Certain Relationships and Related

Transactions, and Director Independence

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.

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, 2021.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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, 2021.

Certain Relationships and Related Transactions, and Director Independence

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, 2021.

Principal Accountant Fees and Services

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.

Exhibits and Financial Statement

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, 2021.

Exhibits and Financial Statement Schedules

following documents are filed as part of this Report:

(1) Financial

The following financial statements are

included in Part II, Item 8 of this Form 10-K:

Report of Independent Registered

Public Accounting Firm

following financial statements are included in Part II, Item 8 of this Form 10-K:

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

Salt Lake City, Utah;

PCAOB ID#243)

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’

Equity (Deficit)

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

2 unchanged sentences

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.

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.

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.

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 .

EXHIBIT INDEX

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.

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

001-37523) filed with the SEC on November 3, 2017)

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.

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

001-37523) filed with the SEC on January 8, 2018)

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

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.

filed with the SEC on May 15, 2018)

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

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)

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form

10-Q (File No.

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q

001-37523) filed with the SEC on November 6, 2019)

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)

Amendment No.

1 to the Amended and Restated Bylaws

001-37523) filed with the

SEC on February 8, 2018)

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)

of Class A Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No.

3 unchanged sentences

Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1/A (File No.

filed with the SEC on July 13, 2015)

333-204907) filed

with the SEC on July 13, 2015)

Agreement dated July 29, 2015, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference

1 unchanged sentence

001-37523) filed with the SEC on August 4, 2015)

of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File

of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No.

filed with the SEC on February 27, 2019)

Description of Registered Securities

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)

of Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.

filed with the SEC on May 15, 2018)

of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File

001-37523) filed

with the SEC on May 15, 2018)

of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

filed with the SEC on May 15, 2018)

of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File

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)

of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q

of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File

001-37523) filed with the SEC on May 15, 2018)

8 unchanged sentences

001-37523) filed with the SEC on February 8, 2018)

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)

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.

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)

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)

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.

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)

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.

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)

Innovation, Inc.

2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K (File

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)

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.

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)

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.

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)

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.

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

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.

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

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)

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.

Agreement, dated February 1, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Coliseum Capital Partners,

and Blackwell Partners LLC – Series A (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on February 8, 2018)

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)

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

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.

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)

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)

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.

Megibow (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on September 25, 2018)

Letter between the Company and Mark A.

Watkins (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K

Watkins (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on October 4, 2018)

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.

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)

2 unchanged sentences

001-37523) filed with the SEC on November 14, 2018)

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.

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)

3 unchanged sentences

001-37523) filed with the SEC on February 27, 2019)

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.

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)

5 unchanged sentences

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.

(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)

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.

2019 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K

001-37523) filed with the SEC on May 14, 2019)

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.

2019 Short-Term Cash Incentive Plan (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K

001-37523) filed with the SEC on May 14, 2019)

3 unchanged sentences

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.

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)

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.

Agreement between the Company and Craig L.

Phillips (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K

001-37523) filed with the SEC on October 4, 2019)

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.

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)

2 unchanged sentences

001-37523) filed with the SEC on November 25, 2019)

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.

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)

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.

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)

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)

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.

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.

filed with the SEC on September 3, 2020)

Guaranty dated September 3, 2020 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No.

and Security Agreement dated September 3, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on September 3, 2020)

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.

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)

Assignment of Patents dated September 3, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on September 3, 2020)

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.

Assignment of Trademarks dated September 3, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File

001-37523) filed with the SEC on September 3, 2020)

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.

Assignment of Copyrights dated September 3, 2020 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File

001-37523) filed with SEC on September 3, 2020)

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.

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)

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.

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)

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.

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)

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.

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)

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.

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)

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.

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)

Amendment to Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated March 4, 2021 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 17, 2021)

Second Amendment to Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated March 26, 2021 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 17, 2021)

Amendment to Purple Innovation, Inc.

2017 Equity Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on July 12, 2021)

Restated and Amended Purple Innovation, Inc.

2019 Long-Term Equity Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on July 12, 2021)

Form of Restricted Share Unit Agreement (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on July 12, 2021)

Form of Performance-Based Share Unit Agreement (incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on July 12, 2021)

Purple Innovation, Inc.

2021 Short-Term Cash Incentive Plan dated July 12, 2021 (incorporated by reference to Exhibit 99.5 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on July 12, 2021)

Separation Agreement and General Release, dated December 13, 2021, by and between Purple Innovation, Inc.

and Joseph B.

Megibow (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on December 13, 2021)

Employment Agreement, dated December 13, 2021, by and between Purple Innovation, Inc.

and Robert T.

DeMartini (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on December 13, 2021)

Amended and Restated Consultancy Agreement, dated December 13, 2021, by and between Purple Innovation, Inc.

and Bennett Nussbaum (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on December 13, 2021)

First Amendment to the 2020 Credit Agreement dated February 28, 2022 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto

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)

List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Current Report on Form 8-K (File No.

5 unchanged sentences

Certification of the Principal Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.

XBRL Instance Document

XBRL Taxonomy Extension Schema

XBRL Taxonomy Calculation Linkbase

XBRL Taxonomy Label Linkbase

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.

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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.

management contract or compensatory plan.

treatment of certain provisions has been granted by the Securities and Exchange Commission.

Form 10-K Summary

Not applicable.

PURPLE INNOVATION, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting

Consolidated Balance Sheets as of December 31,

2020 and 2019

Consolidated Statements of Operations for the

years ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’

Equity (Deficit) for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the

years ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Purple Innovation, Inc.

Opinion on the Consolidated

Financial Statements

INNOVATION, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

Salt Lake City, Utah;

PCAOB ID# 243 ) F-2

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4

Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 F-5

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2021, 2020 and 2019 F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 F-7

Notes to Consolidated Financial Statements F-8

of Independent Registered Public Accounting Firm

and Board of Directors

Innovation, Inc.

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, expressed an unqualified opinion thereon.

Changes in Accounting Method

As discussed in Note 2 to the consolidated

financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of Accounting Standards

Codification (“ASC”) Topic 842, Leases .

As discussed in Note

2 to the consolidated financial statements, the Company changed its method of accounting for revenues in 2019 due to the adoption

of ASC 606 – Revenue from Contracts with Customers .

(the “Company”) as of December 31, 2021 and 2020, the related consolidated

statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December

31, 2021, 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, 2021

and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 ,

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, 2021, 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 1, 2022 expressed

an adverse opinion thereon because of a material weakness.

Basis for Opinion

3 unchanged sentences

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.

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 a critical

audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,

by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or

disclosures to which it relates.

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 Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate 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 critical audit matters 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

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Deferred Tax Asset

Valuation Allowance

As described in Notes 2 and 20 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.

As described in Notes 2 and

19 to the Company’s consolidated financial statements, the Company has approximately $217.8 million of net deferred income tax assets.

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.

We identified the Company’s

evaluation of whether certain of its 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

This evidence includes various assumptions surrounding cumulative income in recent years, projected future taxable income,

and the rate of expected 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.

- 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 expected 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 income 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.

Warranty Accrual

At December 31, 2021,

the Company’s accrued warranty liability was $15.0 million.

As discussed in Note 2 to the consolidated financial statements, the

Company provides a limited warranty on most of its products sold.

Warranty costs are estimated 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.

These costs are

recognized at the time of sale in cost of revenues.

We identified the Company’s

evaluation of the completeness and valuation of the warranty accrual as a critical audit matter.

Specifically, the evaluation includes

various management assumptions, including estimated future warranty claims and estimated costs to remedy warranty claims.

accrued warranty liability involved especially complex and subjective auditor judgment due to significant management judgment required

in evaluating the warranty liability.

The primary procedures

we performed to address this critical audit matter included:

- Obtaining an understanding, evaluating the design and testing the

operating effectiveness of controls over the completeness and valuation of the warranty liability.

Specifically, we tested controls over

management’s review of inputs into the warranty calculation (historical returns by year, actual warranty costs incurred and estimated

warranty costs on products sold), as well as their review of mathematical calculation of the warranty liability.

- Testing a sample of key inputs to the warranty liability, including actual claims made and actual warranty

costs incurred.

- Assessing the accuracy of management’s estimation by performing

a lookback analysis, which compared the amount of claims accrued in prior years to actual claims made in subsequent periods.

- Comparing the Company’s warranty expense as a percentage of revenues to available public information

to determine if the Company’s warranty expense was consistent with peer companies.

/s/ BDO USA, LLP

We have served as the Company's auditor

We have served as the Company's auditor since

Salt Lake City, Utah

March 11, 2021

PURPLE INNOVATION, INC.

Consolidated Balance Sheets

(In thousands, except for par value)

INNOVATION, INC.

Balance Sheets

thousands, except for par value)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Inventories, net

Prepaid inventory

Other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Deferred income taxes

Other long-term assets

Liabilities and Stockholders’ Equity (Deficit)

and cash equivalents

receivable, net

current assets

and equipment, net

lease right-of-use assets

long-term assets

and Stockholders’ Equity

sales returns

rebates and allowances

lease obligations – current portion

current liabilities

Accounts payable

Accrued sales returns

Accrued compensation

Customer prepayments

Accrued sales tax

Accrued rebates and allowances

Operating lease obligations – current portion

Other current liabilities

Total current liabilities

Debt, net of current portion

Operating lease obligations, net of current portion

Warrant liabilities

Tax receivable agreement liability

Other long-term liabilities, net of current portion

Total liabilities

Commitments and contingencies (Note 13)

Stockholders’ equity (deficit):

current liabilities

net of current portion

lease obligations, net of current portion

receivable agreement liability, net of current portion

long-term liabilities, net of current portion

and contingencies (Note 12)

Stockholders’

Class A common stock;

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448 issued and outstanding at December 31, 2021 and 536 issued and outstanding at December 31, 2020

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity (deficit)

Noncontrolling interest

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

The accompanying notes are an integral

part of these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Operations

(In thousands, except per share amounts)

Revenues, net

Cost of revenues

paid-in capital

stockholders’ equity attributable to Purple Innovation, Inc.

Noncontrolling

stockholders’ equity

liabilities and stockholders’ equity

accompanying notes are an integral part of these consolidated financial statements.

INNOVATION, INC.

Statements of Operations

thousands, except per share amounts)

Ended December 31,

and administrative

and development

operating expenses

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating income

Other income (expense):

Interest expense

income (loss)

income (expense):

income (expense), net

on extinguishment of debt

in fair value – warrant liabilities

receivable agreement income (expense)

other income (expense), net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Tax receivable agreement expense

Total other expense, net

Net loss before income taxes

Income tax benefit (expense)

income (loss) before income taxes

tax benefit (expense)

income (loss)

income (loss) attributable to noncontrolling interest

income (loss) attributable to Purple Innovation, Inc.

$ ( 236,867 )

Net income (loss)

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to Purple Innovation, Inc.

Net income (loss) per share:

Weighted average common shares outstanding:

The accompanying notes are an integral

part of these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Stockholders’

Equity (Deficit)

(In thousands)

Total Stockholders’

Weighted average

common shares outstanding:

accompanying notes are an integral part of these consolidated financial statements.

INNOVATION, INC.

Statements of Stockholders’ Equity (Deficit)

Stockholders’

Noncontrolling

Balance — December 31, 2018

Stock-based compensation

Repurchase of stock option

Issuance of stock

Exchange of stock

Forfeiture of unvested stock

Tax distribution

Impact of transactions affecting NCI

Balance – December 31, 2019

Stock-based compensation

Exchange of stock

Exercise of warrants

Exercise of incremental loan warrants

Exercise of stock options

Tax Receivable Agreement liability

Deferred income taxes

— December 31, 2018

of stock option

of unvested stock

tax distributions

Issuance of stock

Forfeiture of unvested stock

Impact of transactions affecting NCI

Balance – December 31, 2020

The accompanying notes are an integral

part of these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Cash Flows

(In thousands)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Non-cash interest

Paid-in-kind interest

Loss on extinguishment of debt

Loss on change in fair value – warrant liabilities

Tax Receivable Agreement expense

Stock-based compensation

Non-cash lease expense

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Prepaid inventory and other assets

Accounts payable

Accrued sales returns

Accrued compensation

Customer prepayments

Operating lease obligations

Other accrued liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchase of property and equipment

Investment in intangible assets

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from related-party loan

Proceeds from term loan

Payments on related-party loan

Payments on term loan

Proceeds from exercise of warrants

Proceeds from exercise of stock options

Repurchase of stock options

Payments for debt issuance costs

Distributions to members

Net cash provided by financing activities

Net increase in cash

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

Supplemental disclosures of cash flow information:

Cash paid during the year for interest

Cash paid during the year for income taxes

Supplemental schedule of non-cash investing and financing activities:

Property and equipment included in accounts payable

Issuance of liability warrants

Non-cash leasehold improvements

Tax distribution payable

Tax Receivable Agreement liability

Deferred income taxes

Exercise of liability warrants

The accompanying notes are an integral

part of these consolidated financial statements.

PURPLE INNOVATION, INC.

Notes to the Consolidated Financial

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.

of transactions affecting NCI

– December 31, 2019

income (loss)

of incremental loan warrants

of stock options

receivable agreement liability

tax distributions

of unvested stock

of transactions affecting NCI

– December 31, 2020

$ ( 265,856 )

income (loss)

of stock options

receivable agreement liability

tax distributions

of common stock

indemnification payment

of transactions affecting NCI

– December 31, 2021

$ ( 261,825 )

accompanying notes are an integral part of these consolidated financial statements.

INNOVATION, INC.

Statements of Cash Flows

Ended December 31,

flows from operating activities:

income (loss)

$ ( 229,780 )

to reconcile net loss to net cash provided by (used in) operating activities:

and amortization

on extinguishment of debt

in fair value – warrant liabilities

receivable agreement (income) expense

lease expense

in operating assets and liabilities:

expenses and other assets

sales returns

rebates and allowances

lease obligations

accrued liabilities

cash provided by (used in) operating activities

flows from investing activities:

of property and equipment

in intangible assets

cash used in investing activities

flows from financing activities:

from related-party loan

from term loan

on related-party loan

from revolving line of credit

from exercise of warrants

from exercise of stock options

of stock options

for debt issuance costs

receivable agreement payments

from InnoHold indemnification payment

Distributions

cash provided by financing activities

increase (decrease) in cash

and cash equivalents, beginning of the year

and cash equivalents, end of the year

disclosures of cash flow information:

paid during the year for interest, net of amounts capitalized

paid during the year for income taxes

schedule of non-cash investing and financing activities:

and equipment included in accounts payable

of liability warrants

leasehold improvements

tax distributions

receivable agreement liability

of liability warrants

accompanying notes are an integral part of these consolidated financial statements.

INNOVATION, INC.

to the Consolidated Financial Statements

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 e-commerce

online channels, retail brick-and-mortar wholesale partners, Purple retail showrooms, and third-party online retailers.

Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition

Corp (“GPAC”).

On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization

(the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple

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.

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.

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 3— 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.

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.

of Presentation and Principles of Consolidation

consolidated financial statements include the accounts of Purple Inc.

and its controlled subsidiary Purple LLC.

All intercompany balances

and transactions have been eliminated in consolidation.

As of December 31, 2021, 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.

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

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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

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.

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.

As the shutdowns

were lifted and stores began to open again, demand through the wholesale channel increased to more normal levels.

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

The increase in

DTC demand allowed us to work through a portion of our on-hand inventory and required us to ramp up production.

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.

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.

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.

On December 31, 2020, the Company ceased to be 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.

Interest Entities

Purple LLC is a variable interest

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, 2021, Purple Inc.

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 15— Stockholders’ Equity (Deficit) .

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.

The holders of Purple LLC Class B Units (the “Class B Units”) held approximately 1 % of the economic interest

in Purple LLC as of December 31, 2021.

For further discussion see Note 14— Stockholders’ Equity .

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

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

prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect

on previously reported net income (loss), cash flows or stockholders’ equity.

Prepaid expenses, previously included in the consolidated

balance sheet within other current assets, are now presented separately.

Also, the change in accrued rebates and allowances, previously

reflected in the consolidated statement of cash flows within the change in other accrued liabilities, is now presented separately.

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

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, sales returns, warranty returns, warrant liabilities, stock based compensation, the recognition

and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts

associated with the Company’s tax receivable agreement with InnoHold, LLC (“InnoHold”).

Predicting future events is

inherently an imprecise activity and, as such, requires the use of judgment.

Actual results could differ materially from those estimates.

and Cash Equivalents

Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments.

Receivable and Allowance for Doubtful 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.

1 unchanged sentence

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 consist

of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value.

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, 2021 and 2020 was not material.

are comprised of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value.

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.

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:

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.

and Equipment

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:

Furniture and fixtures

Computer equipment and software

Office equipment

Leasehold improvements

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

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.

1 unchanged sentence

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.

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

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.

Company capitalizes interest on borrowings during the active construction period of major capital projects.

Interest capitalization ceases

once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use.

interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets.

When no debt is specifically

identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project

using the weighted average cost of the Company’s outstanding borrowings.

February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases

(“ ASC 842 ”) , which required an entity to recognize lease liabilities and assets on the balance sheet and to disclose

key information about an entity’s leasing arrangements.

Because the Company ceased being an EGC on December 31, 2020, the standard

became effective for the Company for its annual reporting period beginning January 1, 2020.

The adoption of ASC 842 and all related amendments

using the modified retrospective transition approach effective for the Company’s annual reporting period beginning January 1, 2020

resulted in the initial recognition of operating lease right-of-use (“ROU”) assets of $ 27.9 million and operating lease

liabilities of $ 33.0 million in the Company’s consolidated balance sheet.

Pre-existing liabilities for deferred rent and various

lease incentives totaling $ 5.1 million were reclassified to operating lease ROU assets in connection with 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.

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 ROU asset is recorded as

the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any

initial direct costs incurred, less any tenant improvement allowance incentives received.

The Company elected not to separate lease and

non-lease components for all real estate leases.

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

1 unchanged sentence

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.

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.

lease expense is recognized on a straight-line basis over the lease term.

Tenant incentive allowances received from the lessor are amortized

1 unchanged sentence

Any variable lease costs are expensed as incurred.

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.

Intangible Assets

Intangible assets

include developed technologies and trade names / trademarks, internal-use software, domain name costs, license fees and other

with an initial term of 12 months or less (short-term leases) are not recorded as ROU assets and corresponding lease liabilities.

lease expense is recognized on a straight-line basis over the lease term.

ROU assets are assessed for impairment as part of long-lived

assets, which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may

not be recoverable.

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.

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 are being amortized using the straight-line method over their estimated

lives, ranging from three to 15 years .

software developed or obtained for internal use, the Company capitalizes direct external costs associated with developing or obtaining

internal-use software.

In addition, the Company capitalizes certain payroll and payroll-related costs for employees who are directly

involved with the development of such applications.

Capitalized costs related to internal-use software under development are treated

as construction-in-progress until the program, feature or functionality is ready for its intended use, at which time amortization commences.

Capitalized software costs are amortized on a straight-line

basis over three years .

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 8— Intangible

There were no impairment charges realized on definite-lived intangible assets during the year ended December 31, 2019.

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.

There were no impairment charges realized on definite-lived intangible assets during the years ended December 31, 2021

During the year ended December 31, 2020, an impairment charge of $ 0.6 million was recorded to write-off the unamortized portion

of license costs related to a vendor supply and services agreement.

For further discussion see Note 7— Intangible Assets.

Indefinite-lived

1 unchanged sentence

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

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

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.

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.

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.

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

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

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.

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

The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2021, 2020 or 2019.

Advertising, Rebate and Other Promotion Programs

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

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 recorded, when incurred,

as components of marketing and sales expenses in the accompanying consolidated statements of operations.

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 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.

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

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 4 – 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

Advertising expense was $ 149.8 million, $ 130.3 million and $ 112.1 million for the years ended December 31, 2021, 2020

and 2019, respectively.

Advertising costs in 2021 and 2020 included $ 2.7 million and $ 1.2 million, respectively, related to shared advertising

costs that the Company incurred under its cooperative advertising programs to the extent the fair value of the distinct good or service

were reasonably estimable.

There were no cooperative advertising costs in 2019.

The Company markets and sells its products through e-commerce online channels,

retail brick-and-mortar wholesale partners, Purple retail showrooms, and third-party online retailers.

Revenue is recognized when the

Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer.

principle is achieved in the following steps:

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 .

Company does not have significant costs to obtain contracts with customers.

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 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.

does not provide an option to its customers to purchase future products at a discount and therefore there are no material option

Determine the transaction

Payment for sale of products through the direct-to-consumer online channels and third-party online retailers is collected

The Company does not provide an option

to its customers to purchase future products at a discount and therefore there are no material option rights.

Determine the transaction price .

Payment for sale of products through the e-commerce online channel, Purple retail showrooms and third-party online retailers is collected

at point of sale in advance of shipping the products.

Amounts received for unshipped products are recorded as customer prepayments.

Payment by traditional wholesale customers is due under customary fixed payment terms.

None of the Company’s contracts contain

a significant financing component.

Revenue is recorded at the net sales price, which includes estimates of variable consideration

such as product returns, volume rebates, 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

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.

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.

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.

does not have service revenue.

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

associated with net revenues are recorded in cost of revenues in the same period in which related sales have been recorded.

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

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.

Cost of sales also includes shipping and handling costs associated with

the delivery of goods to customers.

Company’s policy provides customers up to 100-days to return a mattress, pet bed or pillow and up to 30-days to return all other

products (except power bases) for a full refund.

Estimated sales returns, which are recorded as a reduction of revenue at the time

of sale and recorded 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:

(in thousands)

Balance at beginning of period

Additions that reduced net revenue

Deduction from reserves for current year returns

Balance at end of period

Warranty Liabilities

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:

(in thousands)

Balance at beginning of period

Additions charged to expense for current year sales

Deduction from reserves for current year claims

Balance at end of period

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

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.

Note 10 – Debt.

Liability Warrants

The Company accounts

for liability warrants under the provisions of ASC 480 - Distinguishing Liabilities from Equity which requires the recording

of certain liabilities at their fair value.

Any changes in the fair value of these liabilities are recognized in earnings.

Incremental Loan Warrants issued in conjunction with the Amended and Restated Credit Agreement contained 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, other provisions may have led to a reduction in

the exercise price of the warrants.

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, with changes in fair value recognized in earnings.

The Company used the Monte Carlo Simulation of a Geometric Brownian Motion stock path model to determine the fair value of the

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 the warrant re-price.

Refer to Note 11 – Warrant Liabilities .

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 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, 2021

and 2020, $ 7.1 million and $ 8.4 million, respectively, were included as accrued sales returns in the accompanying consolidated balance

Company had the following activity for sales returns:

Ended December 31,

at beginning of period

that reduced net revenue

from reserves for current year returns

at end of period

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

The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability.

As of December 31, 2021 and 2020, $ 3.9 million and $ 2.8 million of warranty liabilities are included in other current

liabilities and $ 11.1 million and $ 5.6 million of warranty liabilities are included in other long-term liabilities on the accompanying

consolidated balance sheets, respectively.

Company had the following activity for warranty liabilities:

Ended December 31,

at beginning of period

charged to expense for current year sales

from reserves for current year claims

at end of period

Issuance Costs and Discounts

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

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 9 –

Company accounted for its incremental loan warrants as liability warrants under the provisions of 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.

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 used the Monte Carlo Simulation of a Geometric Brownian Motion stock

path model to determine the fair value of the liability.

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.

incremental loan warrants were exercised during fiscal 2020.

Company accounted for its public warrants in accordance with ASC 815, Derivatives and Hedging—Contracts in Entity’s Own

Equity , under which these warrants did not meet the criteria for equity classification and were recorded as liabilities.

public warrants met the definition of a derivative as contemplated in ASC 815, these warrants were measured at fair value at inception

and at each reporting date in accordance with ASC 820, Fair Value Measurement , with changes in fair value recognized in earnings

in the period of change.

The Company determined the fair value of the public warrants based on their public trading price.

public warrants were exercised during fiscal 2020.

Company accounts for its sponsor warrants in accordance with ASC 815, under which these warrants do not meet the criteria for equity

classification and must be recorded as liabilities.

Since the sponsor warrants 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 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

liability associated with the sponsor warrants.

The model uses key assumptions and inputs such as exercise price, fair market value of

common stock, risk free interest rate, warrant life and expected volatility.

At December 31, 2021, there were 1.9 million sponsor warrants

Value Measurements

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);

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

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 warrant liability is a Level 3 instrument and uses an internal model

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).

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

1—Quoted market prices in active markets for identical assets or liabilities;

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);

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 and accounts payable

approximate fair value because of the short-term nature of these accounts.

The fair value of the Company’s debt instruments is estimated

to be face value based on the contractual terms of the debt arrangements and market-based expectations.

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

These Level 3 liabilities generally 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 generally increase (decrease) in value

if the expected average life or expected volatility were to increase (decrease).

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:

of the public warrants (a Level 1 fair value liability) and all of the incremental loan warrants (a Level 3 fair value liability) were

exercised during 2020.

following table summarizes the Company’s total Level 3 liability activity for the years ended December 31, 2021, 2020 and

Loan Warrants

Level 3 Liabilities

value as of December 31, 2018

value transfer to Level 1 measurement

in valuation inputs (1)

Fair value as of

December 31, 2019

value transfer to Level 1 measurement

Fair value of warrants

in valuation inputs (1)

Fair value as of

December 31, 2020

value transfer to Level 1 measurement

Fair value of warrants

in valuation inputs (1)

value as of December 31, 2021

in valuation inputs are recognized as the change in fair value – warrant liabilities

in the consolidated statement of operations.

Based Compensation

Company accounts for stock-based compensation under the provisions of ASC 718, Compensation—Stock Compensation .

This standard

requires the Company to record an expense associated with the fair value of stock-based compensation over the requisite service period.

2021, 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

Stock based compensation on these awards is expensed on a straight-line basis over the vesting period.

Option pricing models

require the input of subjective assumptions including the expected term of the stock option, the expected price volatility of the Company’s

common stock over the period equal to the expected term of the grant, and the expected risk-free rate.

Changes in these assumptions can

materially affect the fair value estimate.

The Company recognizes forfeitures of stock option awards as they occur.

2021, 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.

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

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

2021, the Company granted restricted stock units under the Company’s 2017 Equity Incentive Plan to certain employees of the Company.

Approximately one-third of the restricted stock units granted included a market vesting condition.

The estimated fair value of the restricted

stock units that do not have the market vesting condition is recognized on a straight-line basis over the vesting period.

The estimated

fair value of the stock units that included a market vesting condition was measured on the grant date using a Monte Carlo Simulation

of a Geometric Brownian Motion stock path model and incorporated the probability of vesting occurring.

The estimated fair value of these

awards is recognized over the derived service period (as determined by the valuation model), with such recognition occurring regardless

of whether the market condition is met.

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 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.

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.

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.

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

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

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.

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 vested in March 2021.

As this award included a service condition, the estimated

fair value of the restricted stock was measured on the grant date and recognized over the service period.

The Company determined that

the fair value of the restricted stock on the grant date was immaterial.

2019, the Company granted a restricted stock award that had certain vesting conditions which could be met at the earliest in the twelve

months ended March 31, 2022.

All of the vesting conditions were satisfied on September 30, 2021 and all of the shares became unrestricted

on that date.

As this award included a market vesting condition, stock-based compensation was 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

incorporated the probability of vesting occurring.

The fair value of the restricted stock was expensed over the derived service period

which ended when all of the shares became issuable.

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.

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.

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

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.

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.

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.

The income tax returns of the Company are subject to examination by

federal and state taxing authorities for various time periods, depending on those jurisdictions’ rules, generally after the

income tax returns are filed.

Receivable Agreement

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

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 Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the

weighted average number of shares of Class A Stock outstanding each period.

Diluted net income (loss) 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.

Accounting Pronouncements Adopted

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.

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

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

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

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.

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

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.

segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating

decision maker (“CODM”).

The role of the CODM is to make decisions about allocating resources and assessing performance.

The Company’s operations are based on an omni-channel distribution strategy that allows the Company to offer a seamless shopping

experience to its customers across multiple sales channels.

The Company concluded its business operates in one operating segment as all

of the Company’s sales channels are complimentary and analyzed in the same manner.

Also, the CODM

reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance .

Since the Company operates in one operating segment, all required financial segment information can be found throughout the consolidated

financial statements.

The Company’s chief executive officer has been identified as its CODM.

Net Income (Loss) Per

net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average

number of shares of Class A stock outstanding during each period.

Diluted net income (loss) per share reflects the weighted-average number

of common shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock equivalents

that are dilutive.

The Company uses the “if-converted” method to determine the potential dilutive effect of conversions of

its outstanding Class B Stock, and the treasury stock method to determine the potential dilutive effect of its outstanding warrants,

share-based payment awards and the vesting of unvested Class A Stock.

Accounting Pronouncements

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.

Company plans to apply the amendments in this update to account for any contract modifications that result from changes in the

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 rates on the Company’s term loan and revolving line of credit are based on LIBOR.

2022 the Company entered into an amendment to the 2020 Credit Agreement that changed the interest reference rate from LIBOR to SOFR.

Note 20— Subsequent Events for discussion of the amendment to the 2020 Credit Agreement.

Company plans to apply the amendments in this update to account for this and 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.

Simplifying the Accounting for Income

In December 2019, the FASB issued ASU No.

2019-12, Simplifying

the Accounting for Income Taxes (ASU No.

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

The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal

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.

is effective for all other entities for annual periods beginning after December 15, 2022, including interim periods therein.

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.

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 15 — Stockholders’ Equity for a description of the Class A Stock

and Class B Stock).

The Company does not expect these amendments to have a material impact on its consolidated financial statements and

related disclosures.

the Accounting for Income Taxes

December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (ASU No.

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 became effective for fiscal years beginning after December 15, 2020 and for interim

periods within those fiscal years.

Early adoption was permitted.

The adoption of this standard by the Company on January 1, 2021 did

not have a material impact on the Company’s financial position, results of operations, or cash flows.

of Credit Losses

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.

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.

Revenue is recognized when

the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer

as described in Note 2 – Summary of Significant Accounting Policies .

Disaggregated

The Company classifies revenue into two categories:

DTC and Wholesale.

category is comprised of the e-commerce channel that sells directly to consumers who purchase online and through our contact center, and

the Purple retail showrooms channel that sells directly to consumers who purchase at a showroom location.

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.

all product sales to our retail brick and mortar wholesale partners where consumers make purchases at their retail locations or their

online channels.

The Company classifies products into two major categories:

sleep products and other.

Sleep products include mattresses,

platforms, adjustable bases, mattress protectors, pillows and sheets.

Other products include cushions and various other products.

The following table

presents the Company’s revenue disaggregated by sales channel and product category (in thousands):

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

Ended December 31,

Direct-to-consumer

Revenues, net

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.

Inventories consisted

of the following:

As of December 31,

(in thousands)

Raw materials

Ended December 31,

Payment for sale of products through the e-commerce online channel, third-party

online retailers, Purple retail showrooms and contact center is collected at point of sale in advance of shipping the products.

received for unshipped products are recorded as customer prepayments.

Customer prepayments totaled $ 10.9 million and $ 6.3 million at December

31, 2021 and 2020, respectively.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized all of the revenue that

was deferred in customer prepayments at December 31, 2020, 2019 and 2018, respectively.

consisted of the following:

of December 31,

Work-in-process

Finished goods

Inventory obsolescence reserve

Inventories, net

obsolescence reserve

Property and Equipment

Property and equipment consisted of the

As of December 31,

(in thousands)

Equipment in progress

Leasehold improvements

Furniture and fixtures

Office equipment

Total property and equipment

Accumulated depreciation

Property and equipment, net

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.

The Company leases its manufacturing and distribution facilities,

corporate offices, showrooms and certain equipment under non-cancelable operating leases with various expiration dates through

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 .

and equipment consisted of the following:

of December 31,

property and equipment

and equipment, net

in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at December 31,

2021 or 2020.

Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 1.0 million

during the year ended December 31, 2021.

There was no interest capitalized during 2020 or 2019.

Depreciation expense was $ 9.2 million,

$ 5.5 million and $ 3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company leases its manufacturing and distribution facilities, corporate offices,

Purple retail showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036.

The Company’s

office and manufacturing leases provide for initial lease terms up to 16 years, while Purple retail showrooms have initial lease terms

of up to ten years .

Certain leases may contain options to extend the term of the original lease.

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):

Operating lease costs

Variable lease costs

Short-term lease costs

Total lease costs

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,

Total operating lease payments

Less – lease payments representing interest

Present value of operating lease payments

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

Cash paid for amounts included in present value of operating lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities

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,

The exercise of lease renewal options

is at the Company’s discretion.

Any lease renewal options are included in the lease term if exercise is reasonably certain at lease

commencement.

The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of

three to five years .

The ROU asset for finance leases was $ 0.7 million and $ 0.6 million as of December 31, 2021 and 2020, respectively.

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

Ended December 31,

2019, the Company recorded 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.

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, 2021 (in thousands):

ended December 31,

operating lease payments

– lease payments representing interest

value of operating lease payments

(1) – Amount consists of $ 11.6 million of undiscounted cash flows offset by $ 3.2 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2022.

As of December 31, 2021 and 2020,

the weighted-average remaining term of operating leases was 10.7 years and 11.8 years, respectively, and the weighted-average discount

rate was 5.30 % and 6.18 %, respectively, for operating leases recognized on the consolidated balance sheet.

following table provides supplemental information related to the Company’s consolidated statement of cash flows (in thousands):

paid for amounts included in present value of operating lease liabilities

assets obtained in exchange for operating lease liabilities

the inception of a lease entered into in fiscal 2020, the Company recorded $ 0.9 million for the present value of an asset retirement

obligation (ARO) to cover costs associated with the future restoration of the leased property.

During the year ended December 31, 2021,

the Company recorded accretion of the ARO liability totaling $ 0.1 million.

The Company recorded a minimal amount of accretion in 2020.

The ARO liability at both December 31, 2021 and 2020 was $ 0.9 million.

Intangible Assets

The following table provides the components

of intangible assets:

As of December 31, 2020

As of December 31, 2019

following table provides the components of intangible assets:

of December 31, 2021

of December 31, 2020

(in thousands,

except useful life)

Indefinite-lived

non-amortizing:

License agreement

Definite-lived amortizing:

Internet domain

License agreement

Internal-use software

Intangible assets, net

Business Combination discussed in Note 3, 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

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

Definite-lived

to the Business Combination, 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.

January 13, 2020, Purple LLC entered into a supply and services agreement with Responsive Surface Technology, LLC (“ReST”)

whereby the Company acquired a license and made a prepayment for future products and services to be provided by the third party.

$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 ReST and its parent company for alleged violations under the contract.

In response, ReST 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 13 — Commitments and Contingencies — Legal Proceedings for additional

Amortization expense

for intangible assets was $ 2.4 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively.

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,

Total future amortization for definite-lived intangible assets

As a result, during the third quarter of fiscal 2020, the Company recorded as cost of revenues 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 12 — Commitments and Contingencies — Legal

Proceedings for additional information.

There were no impairment charges related to intangible assets in 2021 or 2019.

expense for intangible assets was $ 0.3 million, $ 2.4 million and $ 0.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

amortization expense for definite-lived intangible assets is expected to be as follows for the next five years:

ended December 31,

future amortization for definite-lived intangible assets

Other Current Liabilities

The Company’s

other current liabilities consisted of the following:

As of December 31,

(in thousands)

Warranty accrual - current portion

Long-term debt - current portion

Insurance financing

Tax Receivable Agreement liability – current portion

Total other current liabilities

Debt consists of the

following (in thousands):

Related party loan

Company’s other current liabilities consisted of the following:

of December 31,

accrual - current portion

debt and unamortized issuance costs - current portion

receivable agreement liability – current portion

other current liabilities

consisted of the following (in thousands):

line of credit

unamortized debt issuance costs

unamortized loan discounts

current portion of debt

Long-term debt, net

Term Loan and Revolving

current portion of debt and unamortized issuance costs

net of current portion

Loan and Revolving Line of Credit

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.

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

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.

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 current borrowing rate of 3.50% is based on LIBOR

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.

As of December 31, 2021, there was no mandatory prepayment obligation.

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

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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.

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.

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.

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.

The Company was unable to meet certain financial and performance covenants required pursuant to the 2020 Credit agreement

for the year ended December 31, 2021.

The Company was granted a waiver and entered into an amendment of the 2020 Credit Agreement.

Note 20— Subsequent Events for a discussion of the amendment.

$ 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

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

In November 2021, pursuant

to the 2020 Credit Agreement, the Company executed a $55.0 million draw on its revolving line of credit, which represents the full amount

available under the revolving credit facility.

The initial borrowing rate of 3.50% was based on the LIBOR floor of 0.5% plus 3.00%.

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

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”)

This amount is being amortized into interest expense using an effective interest rate over the duration of the

The remaining $ 1.4 million of debt issuance costs were allocated to the revolving line of credit.

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.

The interest rate for both the term loan and revolving credit facility throughout

the year ended December 31, 2021 was 3.5% based on the LIBOR floor of 0.5% plus 3.0%.

expense under the 2020 Credit Agreement totaled $ 2.4 million and $ 0.7 million for the years ended December 31, 2021 and 2020, respectively.

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.

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.

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.

February 2019, the Company accounted for the debt restructuring under the Amended and Restated Credit Agreement in accordance with ASC

The Company concluded 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 2019.

This was a non-cash expense primarily associated

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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.

March 27, 2020, the Company entered into the First Amendment to the Amended and Restated Credit Agreement with the Lenders.

to the Amendment, the Company deferred and capitalized the full amount of 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 .

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,

million of paid-in-kind interest, $ 2.5 million in a prepayment fee and $ 0.9 million in accrued interest.

$ 6.6 million of paid-in-kind interest, $ 2.5 million for a prepayment fee and $ 0.9 million for 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

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.

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

Year ended December 31,

for the pay off 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 in 2020 that consisted of $ 2.5 million in prepayment

fees and $ 3.3 million in the recognition of related unamortized debt discount and debt issuance costs.

expense under the 2018 Credit Agreement was $ 4.0 million and $ 4.4 million for the years ended December 31, 2020 and 2019, respectively.

of December 31, 2021, the scheduled maturities of debt outstanding for each of the next five years and thereafter are as follows

(in thousands):

ended December 31,

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

(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

(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.

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

The Company determined the fair value of the Incremental Loan Warrants to be $ 81.0 million at the time of the exercise.

On February 26, 2019, the Incremental Lenders funded the $10.0 million Incremental

Loan and received 2.6 million 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.

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 accounted for the Incremental Loan Warrants as liabilities in accordance with ASC

480 - Distinguishing Liabilities from Equity and recorded them at fair value on the date of the transaction and subsequently re-measured

to fair value at each reporting date with changes in the fair value included in earnings.

November 9, 2020, the Company issued 2.6 million shares of Class A Stock pursuant to the exercise of all of the 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 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.

following are the assumptions used in calculating fair value on the date of the exercise:

Trading price of common stock on measurement date

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.

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:

price of common stock on measurement date

Exercise price

Risk free interest rate

Warrant life in years

Expected volatility

Expected dividend yield

Probability of an event causing a warrant re-price

The following are the

assumptions used in calculating fair value on December 31, 2019:

Trading price of common stock on measurement date

free interest rate

life in years

dividend yield

of an event causing a warrant re-price

following are the assumptions used in calculating fair value on December 31, 2019:

price of common stock on measurement date

Exercise price

Risk free interest rate

Warrant life in years

Expected volatility

Expected dividend yield

Probability of warrant re-price

Other Long-Term Liabilities

free interest rate

life in years

dividend yield

of warrant re-price

public and sponsor warrants that were issued in connection with the Company’s initial public offering 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.

2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds

to the Company of $ 0.1 million.

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.

were no public warrants or sponsor warrants exercised during 2019.

The 1.9 million sponsor warrants outstanding at December 31, 2021

had a fair value of $ 4.3 million, while the 8.5 million sponsor warrants outstanding at December 31, 2020 had a fair value of $ 92.7 million.

All of the public warrants were exercised during fiscal 2020.

The fair value of the public and sponsor warrants outstanding at December

31, 2019 was $ 23.8 million.

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:

price of common stock on measurement date

Exercise price

free interest rate

life in years

dividend yield

the year ended December 31, 2021, the Company recognized a gain of $ 24.1 million in its consolidated statement of operations related

to decreases in the fair value of the sponsor warrants exercised during the respective periods or that were outstanding at the end of

the respective period.

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.

Other Long-Term Liabilities

consist of the following as of December 31, 2020 and 2019:

As of December 31,

(in thousands)

Deferred rent expense

Warranty accrual

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

of December 31,

current portion of warranty accrual

Other long-term liabilities, net of current portion

long-term liabilities, net of current portion

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

Member Distributions

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 .

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 First Purple LLC Agreement was amended and replaced by the Second Amended

and Restated Limited Liability Company Agreement (the “Second Purple LLC Agreement”) on February 2, 2018 as part of

the Business Combination.

The Second Purple LLC Agreement was amended and replaced by the Third Amended and Restated Limited Liability

Company Agreement (the “Third Purple LLC Agreement”) on September 3, 2020.

The Second Purple LLC Agreement and the Third

Purple LLC Agreement do not include any mandatory distributions, other than tax distributions.

During the years ended December 31, 2021

and 2020, the Company paid $ 1.2 million and $ 5.5 million, respectively, in tax distributions under these agreements.

At December 31,

2021, the Company’s consolidated balance sheet had a $ 0.1 million net asset associated with these tax distributions due to overpayments.

At December 31, 2020, the Company’s consolidated balance sheet had $ 0.7 million of accrued tax distributions included in other

current liabilities.

No distributions were made under these agreements in 2019.

October 2017, the Company entered into an electric service agreement with the local power company in Grantsville, Utah.

The agreement

provided for the construction and installation of certain utility improvements to provide increased power capacity to the manufacturing

and warehouse facility there.

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

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;

agreements with the Company’s officers and directors under which the Company may be required to indemnify such persons for

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

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, 2021, the early termination penalty was $ 0.7 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.

Indemnification

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, 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

Subscription Agreement and Preemptive

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 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.

3, 2021 the Company received $4.1 million from InnoHold as reimbursement for amounts that qualified for indemnification from the $5.0

million being held in escrow.

The remaining $ 0.9 million in escrow was returned to InnoHold.

The amount received from InnoHold was recorded

as additional paid-in capital in the fiscal 2021 consolidated balance sheet.

Agreement and Preemptive Rights

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,

3 unchanged sentences

agreement provides CCP and Blackwell with preemptive rights with respect to future sales of the Company’s securities.

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.

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.

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.

of Securities Holders

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.

May 21, 2021, 7.3 million shares of Class A common stock were sold in a secondary offering by the Coliseum Investors at a price of $ 30.00

The Company did not receive any of the proceeds from the secondary offering.

The underwriting discount, commission and other

related costs incurred by the Company for the secondary offering totaled $ 7.9 million and was recorded by the Company as general and

administrative expense in the consolidated statement of operations for the year ended December 31, 2021.

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”).

The registration statement

was declared effective on May 17, 2019.

On November 9, 2020, the Company issued 2.6 million shares of Class A common stock in exchange

for the exercised Incremental Loan Warrants.

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).

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.

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.

Purple LLC Class B Unit Exchange

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.

2018, InnoHold distributed Paired Securities to Terry Pearce and Tony Pearce who also agreed to become parties to the Exchange

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.

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.

LLC Class B Unit Exchange Right

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.

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

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.

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

Supreme Court

ruling in South Dakota v.

right of a holder of Paired Securities to exchange may be limited by the Company if it reasonably determines in good faith that such

restrictions are required by applicable law (including securities laws), such exchange would not be permitted under other agreements

of such holder with the Company or its subsidiaries, including the Third Purple LLC Agreement, or if such exchange would cause Purple

LLC to be treated as a “publicly traded partnership” under applicable tax laws.

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.

the years ended December 31, 2021 and 2020, 0.1 million and 30.9 million, respectively, of Paired Securities were exchanged for shares

of Class A Stock.

of One-to-One Ratios.

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

Related Taxes

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.

, No.17-494, reversed a longstanding precedent that remote sellers are

not required to collect state and local sales taxes.

The Company cannot predict the effect of these and other attempts to impose sales,

income or other taxes on e-commerce.

The Company currently collects and reports on sales tax in all states in which it does business.

However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, VAT and

similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over

the internet.

The application of these taxes on the Company’s business could also create significant increases in internal

costs necessary to capture data and collect and remit taxes.

There have been, and will continue to be, substantial ongoing costs

associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or

will conduct business.

Legal Proceedings

September 9, 2019, Purple LLC filed a Statement of Claim against PerfectSense Home Inc.

and PerfectSense Trading Co.

(collectively,

“PerfectSense”) in the Federal Court of Canada.

PerfectSense is a manufacturer and supplier of mattresses and related

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

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.

brought a motion to strike that was resolved on consent.

Pleadings are now closed, and the action is proceeding under case

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

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.

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

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

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.

over $4 million in damages from ReST, whereas ReST claims that Purple is liable to it for tens of millions of dollars.

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.

On November 19, 2020,

Purple Innovation, LLC sued Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) in the U.S.

Court for the District of Utah for patent infringement, trademark infringement, trade secret misappropriation, and a number of

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.

September 20, 2020, Purple LLC filed a complaint in the U.S.

Court of International Trade seeking to recover approximately $7.0 million

of Section 301 duties paid at the time of importation on certain Chinese-origin goods.

More than 4,000 other complaints have been

filed by other companies seeking similar refunds.

On March 12, 2021, the United States filed a master answer that applies to all

the Section 301 cases, including Purple LLC’s.

On July 6, 2021, the court granted a preliminary injunction against liquidation

of any unliquidated entries.

If successful, this litigation could result in a refund of some or all of the Section 301 duties.

On October 13, 2020, Purple LLC filed a lawsuit against Responsive

Surface Technology, LLC and its parent company, PatienTech, LLC (collectively referred to as “ReST”) in the

District Court for the District of Utah.

The lawsuit arises from ReST’s multiple breaches of its obligations to Purple

LLC, including infringing upon Purple LLC’s trademarks, patents, and trade dress, among other claims.

Purple seeks monetary damages,

injunctive relief, and declaratory judgment based on certain conduct by ReST (“Case I”).

On October 21, 2020, shortly

after the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC, 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 because Case II 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.

Purple LLC opposed the motion to compel arbitration,

arguing that ReST waived any rights they may have had to arbitration and that all the claims in both cases should stay in the

However, the Court granted ReST’s motion to compel arbitration, and stayed the proceedings in the United States

District Court for the District of Utah.

Additionally, the Court ruled that ReST’s claims against the Purple board

members were not subject to arbitration, and the Court stayed ReST’s claims against those individuals.

to the Court’s order, Purple filed a demand for arbitration with the American Arbitration Association (the “AAA”) on

September 1, 2021.

ReST filed its counterclaim with the AAA on September 21, 2021.

The parties have selected an

arbitrator, and they have proposed a scheduling order for the arbitrator.

The proposed scheduling order contemplates an arbitration

hearing to occur during the fourth quarter of 2022.

Purple LLC seeks $5.5 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.

Purple intends to vigorously pursue its claims and defend against the claims made by ReST.

November 19, 2020, Purple LLC sued Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) in the U.S.

Court for the District of Utah for patent infringement, trademark infringement, trade secret misappropriation, and a number of related

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.

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.

The principal allegations are that Intellibed has manufactured and sold unauthorized, infringing products under

the Sleepy’s brand name owned by third-party Mattress Firm.

Purple LLC also requested declaratory relief related to certain assignment

terms of a license agreement in which Purple LLC is the licensor and Intellibed is the licensee.

On December 14, 2020, Intellibed filed

a motion to dismiss Counts I through XI of Purple LLC’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 LLC’s complaint and also asserted against Purple

LLC a total of eight counterclaims, including a number of declaratory judgment claims, breach of contract, and tortious interference

Intellibed’s main allegations are that its use of Purple LLC’s patents, trademark, and trade secrets in connection

with Mattress Firm’s Sleepy’s products is authorized under the license agreement.

On January 19, 2021, Purple LLC 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.

Briefing on Purple LLC’s partial motion to dismiss was completed on March 2, 2021.

January 19, 2021, Purple LLC also filed an Answer to Intellibed’s counterclaims, which were not subject to Purple LLC’s motion

On January 27, 2021, Purple LLC 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 LLC’s First Amended Complaint.

on Intellibed’s partial motion to dismiss was completed on March 24, 2021.

On September 28, 2021, the District Court dismissed

Purple’s complaint without prejudice, and also dismissed ACTI’s counterclaim without prejudice, while the parties pursued

dispute-resolution procedures set out in the license agreement.

Because the Court found that the license agreement required the

parties to follow the contractual dispute-resolution procedures prior to filing a lawsuit, Purple initiated those procedures in accordance

with the license agreement and intends to continue to vigorously pursue its claims.

June 8, 2021, Serta Simmons Bedding, LLC (“SSB”) filed a Complaint against the Company in the Superior Court of Gwinnett

County, Georgia, Case No.

21-A-04413-1 (the “Georgia Litigation”).

SSB’s Complaint alleges that the Company intentionally

interfered with SSB’s business and contractual relations and violated the Georgia Trade Secrets Act by hiring one of SSB’s

former employees in the face of an allegedly valid 2015 noncompete agreement.

SSB sought compensatory damages, punitive damages, equitable

relief, and attorneys’ fees as a result of the conduct alleged in the Complaint.

SSB also initiated arbitration proceedings against

its former employee who Purple LLC agreed to indemnify, subject to certain conditions.

On July 12, 2021, the Company filed an Answer

to SSB’s Complaint in the Georgia Litigation, denying all allegations of unlawful conduct, and further moved to dismiss the Georgia

Litigation on the grounds that Georgia is an inconvenient forum and the parties’ dispute should instead be litigated in Utah.

July 9, 2021, the Company filed its own Complaint in the Fourth Judicial District Court of Salt Lake County, Utah, Case No.

(the “Utah Litigation”), seeking:

(1) a declaratory judgment that the arbitration clause in the former employee’s 2015

noncompete agreement is unenforceable, (2) a declaratory judgment that the restrictive covenants in the former employee’s 2015

noncompete agreement are unenforceable, and (3) an order enjoining arbitration proceedings initiated by SSB and currently pending against

the former employee.

The Company filed a motion for summary judgment on these claims on August 16, 2021.

SSB filed an answer on

August 18, 2021.

After attending a mediation, the parties entered into a settlement agreement on December 31, 2021 resolving all

claims in the Georgia Litigation and Utah Litigation.

The Company did not pay any monetary consideration to SSB in connection with

the settlement agreement.

On January 12, 2022, pursuant to the terms of the settlement agreement, SSB dismissed the Georgia Litigation

without prejudice and the Company dismissed the Utah Litigation without prejudice.

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.

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.

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.

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

Company had various transactions with entities or individuals which are considered related parties.

Capital Management LLC

following the Business Combination, Adam Gray was appointed to the Company’s Board.

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.

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.

2019, the Incremental Lenders agreed to provide the $10.0 million Incremental Loan and were 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, the

exercise price of the Incremental Loan Warrants was adjusted to zero pursuant to the terms of the warrant agreement.

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

(See Note 10 — Warrant Liabilities) .

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 10 — 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.

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 11 — Warrant Liabilities).

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

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.

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

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.

Founder Entities

Holdings, LLC (herein “TNT Holdings”), EdiZONE, LLC, (herein EdiZONE an entity wholly owned by TNT Holdings) and InnoHold

(collectively the “Purple Founder Entities”) were entities under common control with Purple LLC prior to the Business Combination.

TNT Holdings and InnoHold are majority owned and controlled by Terry Pearce and Tony Pearce (the “Purple Founders”), who

were appointed to the Company’s Board following the Business Combination.

InnoHold was a majority shareholder of the Company until

it sold a portion of its interests in a secondary public offering in May 2020 and the remainder of its interests in a secondary public

offering in September 2020.

The Purple Founders also resigned as employees of Purple LLC and retired from the Board in August 2020.

TNT Holdings owned the Alpine facility Purple LLC has been leasing

since 2010, and the Purple Founders informed Purple LLC that TNT Holdings recently transferred ownership to 123E LLC, an entity controlled

by the Purple Founders.

Effective as of October 31, 2017, Purple LLC entered into an Amended and Restated Lease Agreement with TNT Holdings.

The Company determined that neither TNT Holdings nor 123E LLC are a VIE as neither the Company nor Purple LLC hold any explicit or implicit

variable interest in TNT Holdings or 123E LLC and do not have a controlling financial interest in TNT Holdings or 123E LLC.

incurred $ 0.9 million, $ 0.9 million and $ 1.0 million in rent expense to 123E LLC or TNT Holdings for the building lease of the Alpine

facility for the years ended December 31, 2021, 2020 and 2019, respectively.

Purple LLC continues to lease the Alpine facility that was

formerly the Company headquarters, for use in production, research and development and video production.

In accordance with the terms

of that lease, on September 1, 2021, Purple LLC gave notice to 123E LLC that it intended to exercise its right to an early termination

of the lease to occur on September 30, 2022.

the years ended December 31, 2021 and 2020, 0.1 million and 30.9 million Paired Securities, respectively, 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

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., dba Intellibed (“Intellibed”), 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 Intellibed relating to EdiZONE’s breach under the agreement.

the year ended December 31, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $ 0.6

million in required tax distributions pursuant to the Third Purple LLC Agreement.

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.

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.

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

A Common Stock

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.

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, 2021, 66.5 million shares of Class A Stock were outstanding.

In connection with

the Business Combination, all of GPAC’s issued and outstanding shares of common stock were renamed to Class A Stock.

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

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.

accordance with the terms of the Business Combination, approximately 1.3 million shares of Class A Stock were subject to vesting and

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 fiscal

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, these shares of Class A Stock are no longer subject to

vesting or forfeiture.

B Common Stock

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.

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.

All of the 0.4 million shares of Class B Stock outstanding at December 31, 2021 were held by other

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.

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

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, 2021, there were no shares of preferred stock outstanding.

and Sponsor Warrants

were 15.5 million public warrants issued in connection with GPAC’s formation and initial public offering and 12.8 million warrants issued pursuant

to a private placement simultaneously with the initial public offering.

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.

In accordance with 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.

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

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 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.

sponsor warrants are not redeemable by the Company so long as they are held by the sponsor or its permitted transferees.

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 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.

Noncontrolling Interest

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

All other terms, rights and obligations of the sponsor warrants remain the same as the public warrants.

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

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.

of the public warrants were exercised or redeemed by November 30, 2020.

2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds

to the Company of $ 0.1 million.

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 and cash proceeds to the Company of

$ 46.4 million.

There were no public warrants or sponsor warrants exercised during 2019.

At December 31, 2021 and 2020, there were 1.9

million and 8.5 million sponsor warrants outstanding, respectively.

All of the public warrants were exercised during fiscal 2020.

Loan Warrants

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.

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.

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.

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.

Net Income (Loss) Per Common Share

The following table

sets forth the calculation of basic and diluted weighted average shares outstanding and net income (loss) per share for the periods

presented (in thousands, except per share amounts):

Net income (loss) attributable to Purple Innovation, Inc.

Weighted average shares—basic

dilutive effects of equity awards

dilutive effects of incremental warrants

Weighted average shares—diluted

Noncontrolling interest (“NCI”) is the membership interest in Purple

LLC held by holders other than the Company.

At December 31, 2021 and 2020, the combined NCI percentage in Purple LLC was approximately

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.

Net Income (Loss) Per Common Share

For the year ended

December 31, 2020, the Company excluded 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

following table sets forth the calculation of basic and diluted weighted average shares outstanding and earnings (loss) per share for

the periods presented (in thousands, except per share amounts):

Ended December 31,

income (loss) attributable to Purple Innovation, Inc.

$ ( 236,867 )

Dilutive effect of change in fair value – warrant liabilities

Net loss attributable to noncontrolling interest

loss attributable to Purple Innovation, Inc.

$ ( 236,867 )

average shares – basic

Dilutive effect of equity awards

Dilutive effect of Class B shares

average shares – diluted

income (loss) per common share:

the year ended December 31, 2021, the Company excluded 2.6 million shares of Class A Stock issuable upon conversion of certain stock

options, restricted stock and Class A shares subject to vesting as the effect was anti-dilutive.

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.

1 unchanged sentence

Equity Incentive Plan

The Purple Innovation,

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

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

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.

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 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, 2021, 2.1 million shares remain available for issuance under

the 2017 Incentive Plan.

During the years ended December 31, 2021, 2020 and 2019, stock-based compensation associated with equity awards

issued under the 2017 Incentive Plan totaled $ 3.4 million, $ 2.2 million and $ 10.1 million, respectively, while the related tax benefits

recognized on these awards were $ 1.7 million, $ 5.6 million and $ 6.8 million, respectively.

A Stock Awards

May 2021, the Company granted stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the Board.

The stock awards vested immediately and the Company recognized $ 0.6 million in expense during year ended December 31, 2021, which represented

the fair value of the stock award on the grant date.

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 vested in March 2021.

As this award included a service condition, the estimated fair

value of the restricted stock was measured on the grant date and recognized over the service period.

The Company determined that the

fair value of the restricted stock on the grant date was immaterial.

2020 and 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 $ 0.5 million and $ 0.3

million in expense during the years ended December 31, 2020 and 2019, respectively, which represented the fair value of the stock awards

on the grant date.

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 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

(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.

the earliest the three vesting conditions could all be met is at some point during the twelve months ended March 31, 2022.

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

Risk free interest rate

Expected life in years

Expected volatility

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

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.

In May 2019, the Company granted

a restricted stock award to the Company’s CEO at that time pursuant to the terms of his employment agreement.

The restricted

stock award was for 0.1 million shares and had certain vesting conditions which at the earliest could be met during the twelve months

ended March 31, 2022.

As this award included a market vesting condition, stock-based compensation was 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 incorporated 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.

All of the vesting conditions were satisfied on September 30, 2021

and all of the shares became issuable on that date.

The fair value of the restricted stock was expensed over the derived service

period which ended when all of the shares became issuable.

Stock Options

the year ended December 31, 2021, the Company granted 0.2 million stock options under the Company’s 2017 Equity Incentive Plan

to certain management of the Company.

These stock options have exercise prices ranging from $22.57 to $32.28.

The stock options expire in

five years and vest over a four-year period.

The estimated fair value of the stock options, 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:

Fair market value

Risk free rate

Dividend yield

Expected volatility

Expected term in years

The stock options expire

in five years and vest over a four-year period.

The estimated fair value of the stock options is amortized over the options vesting period

on a straight-line basis.

The Company determined the fair value of the 0.2 million options granted during the year ended December 31,

2021 to be $ 2.0 million which will be expensed over the vesting period.

Included in that amount were 0.2 million stock options with a

fair value of $ 1.4 million that were subsequently forfeited in December 2021.

During the year ended December

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.

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.

The following table summarizes the Company’s

total stock option activity for the years ended December 31, 2020 and 2019:

31, 2020, the Company granted 0.5 million stock options under the Company’s 2017 Equity Incentive Plan to certain management of

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 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

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 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.

following are the weighted average assumptions used in calculating the fair value of the total stock options granted in 2021, 2020 and

2019 using the Black-Scholes method:

Ended December 31,

term in years

December 2021, 0.6 million of vested stock options related to the former Chief Executive Officer had the post-termination exercise period

extended from 90 days to 352 days upon his resignation and departure from the Company.

The $ 0.5 million of additional cost associated

with this modification was recorded as stock-based compensation expense in the 2021 consolidated statement of operations.

the year ended December 31, 2019, 0.3 million of unvested stock options were forfeited by a 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 this former CFO $0.1 million for the difference between the closing price of the stock on the date

of the settlement and the exercise strike price of $5.95.

following table summarizes the Company’s total stock option activity for the years ended December 31, 2021, 2020 and 2019:

(in thousands)

Options outstanding as of January 1, 2019

outstanding as of January 1, 2019

Forfeited/expired

Options outstanding as of December 31, 2019

Options outstanding

as of December 31, 2019

Forfeited/expired

Options outstanding as of December 31, 2020

Outstanding and exercisable stock options

as of December 31, 2020 are as follows:

Options outstanding

Options Exercisable

as of December 31, 2020

Forfeited/expired

outstanding as of December 31, 2021

and exercisable stock options as of December 31, 2021 are as follows:

(in thousands)

3 unchanged sentences

(in thousands)

The following table

summarizes the Company’s unvested stock option activity for the years ended December 31, 2020 and 2019:

following table summarizes the Company’s unvested stock option activity for the years ended December 31, 2021, 2020 and 2019:

(in thousands)

Nonvested options as of January 1, 2019

Nonvested options as of December 31, 2019

Nonvested options as of December 31, 2020

The estimated fair

value of the Company stock options, less expected forfeitures, is amortized over the options vesting period on the straight-line

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.

options as of January 1, 2019

Nonvested options

as of December 31, 2019

2020, there was $ 4.6 million of total unrecognized stock compensation cost with a remaining recognition period of 2.5 years.

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

Nonvested options

as of December 31, 2020

options as of December 31, 2021

Company recognized $ 2.1 million, $ 1.3 million and $ 0.7 million in stock-based compensation expenses related to stock options during the

years ended December 31, 2021, 2020 and 2019, respectively.

stock options outstanding as of December 31, 2021, there was $ 1.3 million of total unrecognized stock compensation cost with a remaining

recognition period of 1.6 years.

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.

received from the exercise of stock options was $ 1.4 million and $ 2.0 million for the years ended December 31, 2021 and 2020, respectively.

The tax benefit associated with the exercise of stock options was $ 1.6 million and $ 4.5 million for the years ended December 31, 2021

and 2020, respectively.

There were no stock option exercises in 2019.

Restricted Stock Units

the year ended December 31, 2021, the Company granted 0.2 million of restricted stock units under the Company’s 2017 Equity Incentive

Plan to certain management of the Company.

Approximately one-third of the restricted stock units granted included a market vesting condition.

The restricted stock awards that do not have the market vesting condition had a weighted average grant date fair value of $ 19.25 per

The estimated fair value of these awards is recognized on a straight-line basis over the vesting period.

For those awards that

include a market vesting condition, the estimated fair value of the restricted stock was measured on the grant date and incorporated

the probability of vesting occurring.

The estimated fair value is recognized over the derived service period (as determined by the valuation

model), with such recognition occurring regardless of whether the market condition is met.

The Company determined the weighted average

grant date fair value of the awards with the market vesting condition to be $ 16.28 per share using a Monte Carlo Simulation of a Geometric

Brownian Motion stock path model with the following weighted average assumptions:

Trading price of common stock on measurement date

Risk free interest rate

Expected life in years

Expected volatility

Expected dividend yield

following table summarizes the Company’s restricted stock unit activity for the year ended December 31, 2021:

Outstanding (in thousands)

restricted stock units as of January 1, 2021

restricted stock units as of December 31, 2021

Company recorded restricted stock unit expense of $ 0.5 million during the year ended December 31, 2021.

There was no restricted stock

unit expense recorded in 2020 or 2019.

restricted stock units outstanding as of December 31, 2021, there was $ 2.4 million of total unrecognized stock compensation cost with

a remaining recognition period of 1.9 years.

Incentive Units

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.

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

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.

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, 2021, 0.4 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.

Non-Cash Stock Compensation

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

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)

Ended December 31,

Stock Compensation

and administrative

and development

non-cash stock compensation

Cost of revenues

Marketing and sales

General and administrative

Research and development

Total non-cash stock compensation

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.

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.

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.

matching contribution expense was $ 2.3 million and $ 1.3 million for the years ended December 31, 2020 and 2019, respectively.

matching contribution expense was $ 3.2 million, $ 2.3 million and $ 1.3 million for the years ended December 31, 2021, 2020 and

2019, respectively.

Concentrations

The Company had the

following revenues by product:

Company had the following revenues by product:

Ended December 31,

Sleep products

The following disaggregates net revenues by geographic

Years Ended December 31,

(in thousands)

United States

International

Total revenue, net

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 had one individual

customer that accounted for approximately 41 % and 79 % of accounts receivable at December 31, 2021 and 2020, respectively, and approximately

15 %, 15 % and 26 % of net revenue during the years ended December 31, 2021, 2020 and 2019, respectively.

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.

of one or more of the Company’s suppliers to provide materials or components on a timely basis could significantly impact

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

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.

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.

The Company's

loss before income taxes of $ 32.9 million and $ 12.0 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):

Total current

Total deferred

Income tax (benefit) expense

Income tax (benefit)

expense differs from that computed at the federal statutory corporate income tax rate as follows (in thousands):

Tax benefit at Federal statutory rate

Company’s income before income taxes of $ 2.7 million and losses before income taxes of $ 273.5 million and $ 30.5 million during

the years ended December 31, 2021, 2020 and 2019, respectively, consisted entirely of income earned in the United States.

tax (benefit) expense for the years ended December 31, 2021, 2020 and 2019 consist of the following (in thousands):

ended December 31,

tax (benefit) expense

tax (benefit) expense differs from the amount computed at the federal statutory corporate income tax rate as follows (in thousands):

Year ended December 31,

Tax expense (benefit) at Federal statutory rate

State income tax provision (benefit), net of federal benefit

1 unchanged sentence

Tax receivable agreement liability

Change in fair value – warrant liabilities

Change in valuation allowance

Remeasurement due to rate change

Remeasurement of investment in Purple LLC

Nondeductible compensation

Stock-based compensation

Income tax (benefit) expense

Deferred income taxes at December 31, 2020 and 2019 consisted

of the following (in thousands):

income taxes at December 31, 2021 and 2020 consisted of the following (in thousands):

Basis difference in Purple LLC investment

2 unchanged sentences

Accruals and reserves

Stock-based compensation

Interest carryforwards

Net operating losses

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Valuation allowance

Net deferred income tax asset (liability)

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

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

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.

$ 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.

Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act).

Net deferred income tax asset

The Company’s sole material

asset is Purple LLC, which is treated as a partnership for U.S.

federal income tax purposes and for purposes of certain state and local

income taxes.

Purple LLC’s net taxable income and any related tax credits are passed through to its members and 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 from the statutory rate.

The primary factors

impacting expected tax are the change in fair value of the warrant liabilities and remeasurement of deferred taxes primarily as a result

of the change in the estimated state tax rate.

December 31, 2019, the Company maintained a full valuation allowance on its deferred tax assets which were more likely than not realizable

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 2020.

tax assets at December 31, 2021 were $217.8 million, which is net of $69.9 million of valuation allowance that was recorded against the

residual outside partnership basis for the amount the Company believes is not more likely than not realizable.

As a result, the valuation

allowance at December 31, 2021 increased $ 17.9 million compared to December 31, 2020.

The Company remains subject to income tax examinations for its U.S.

federal income taxes for 2017 through 2021.

The Company also remains subject to income tax examinations for U.S.

state and local

income taxes generally for 2016 through 2021.

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

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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

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.

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.

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.

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.

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).

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”

actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases

in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the

assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities

or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising

from, payments it makes under the agreement.

noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units,

a tax receivable agreement liability may be recorded based on 80% of the estimated future cash tax savings that the Company may realize

as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption.

The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend

on the price of the Company’s Class A 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

As a result of the initial merger transaction, the subsequent exchanges of 43.6 million Class B Units for Class A Stock as of

December 31, 2021 and changes in estimates relating to the expected tax benefits associated with the liability under the agreement, the

potential future tax receivable agreement liability was $168.1 million, of which $172.0 million was recorded in the year ended December

31, 2020, offset in part by a $3.9 million benefit recorded in 2021.

The $3.9 million reduction in the 2021 tax receivable agreement liability

reflected $4.0 million that was recorded as tax receivable agreement income coupled with a payment of $0.6 million made during the year.

These decreases in the liability were offset in part by $ 0.8 million that related to current year exchanges and was recorded as a decrease

to additional paid-in capital in the 2021 consolidated statement of stockholders’ equity.

Of the total liability recorded during

2020, $ 137.3 million related to current year exchanges and was recorded as an adjustment to equity and $ 34.2 million was recorded as tax

receivable agreement expense in the 2020 consolidated statement of operations to re-establish the liability related to prior year exchanges.

The Company estimates federal

net operating loss (“NOL”) carryforwards will be approximately $ 10.0 million as of December 31, 2021.

The federal NOL carryforward

does not have an expiration date.

The Company also had approximately $ 2.7 million of NOL carryforwards to reduce future state taxable

income at December 31, 2021, which have various carryforward periods and begin to expire in 2026, if unused.

effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not”

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.

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, 2021 and 2020, no uncertain tax positions were recognized as liabilities in

the consolidated financial statements.

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

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.

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by

the undersigned, thereunto duly authorized.

Purple Innovation, Inc.

March 11, 2021

Chief Executive

(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.

Chief Executive

Officer and Director

January 27, 2022, the Company paid InnoHold $ 5.8 million pursuant to the terms of the tax receivable agreement.

This amount was reflected

as a current liability in the December 31, 2021 consolidated balance sheet.

In connection with lower-than-expected

demand and higher material, labor and freight costs that impacted results in the second half of 2021, and are expected to adversely affect

results of operations into the first quarter of 2022, in February 2022, the Company completed a restructuring of its workforce that was

necessitated by a realignment of the Company’s cost structure.

As a result of the realignment and restructuring, the Company reduced

its employee headcount by approximately 15 % and incurred a restructuring charge of $ 1.1 million in the first quarter of 2022.

in order to improve operating margins, the Company has taken a pricing action in early 2022 and initiated a number of other projects to

improve efficiencies and reduce costs.

In February 2022 the Company entered into the first amendment of the

2020 Credit Agreement.

The operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance

covenants required pursuant to the 2020 Credit Agreement.

In order to avoid a breach of such covenants and related default and prior to

the covenant compliance certification date under the 2020 Credit Agreement, the Company entered into the first amendment of the 2020 Credit

The amendment contains a covenant waiver period for certain ratios that will not be tested for the fiscal quarter ended December

31, 2021 through the fiscal quarter ended June 30, 2022.

Other changes in the amendment include modification of leverage ratio and fixed

charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving

loan if cash exceeds $ 25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition

of a lease incurrence test for opening additional showrooms, additional negative covenants during a covenant amendment period that will

extend into 2023 until certain conditions are met, and increase in the interest rate on outstanding borrowings under the 2020 Credit Agreement

changed to an initial rate of SOFR with a floor of 0.5 % plus 4.75 %, for a total rate of 5.25 % as long as the applicable liquidity threshold

If the liquidity test is not met, then the interest rate goes to SOFR with a floor of 0.5 % plus 9.00%.

Once the consolidated leverage

ratio is below 3.00 to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00 % to 3.75% depending on the consolidated

leverage ratio.

Pursuant to the amendment, the Company paid fees and expenses of $ 0.9 million and prepaid all principal payments due in

2022 of $ 2.5 million.

The Company expects to meet the covenants included in the first amendment of the 2020 Credit Agreement.

the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating

expenses based on our ability to scale back operations, reduce marketing spend and postpone or discontinue our growth strategies.

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.

Innovation, Inc.

Chief Executive Officer

(Principal Executive Officer)

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.

Chief Executive Officer and Director

Executive Officer)

Chief Financial Officer

March 11, 2021

(Principal Financial and Accounting Officer)

Chairman of the Board of Directors

March 11, 2021

Claudia Hollingsworth

March 11, 2021

Financial Officer)

President, Accounting and Financial Reporting

Accounting Officer)

of the Board of Directors

Claudia Hollingsworth

March 11, 2021

Hollingsworth

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures