What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 752 added, 419 removed, 944 unchanged (55% of the section changed)

3 unchanged sentences

(unaudited – in thousands, except for

September 30,

Current assets:

Cash and cash equivalents

Cash, cash equivalents and restricted cash

Accounts receivable, net

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$ 0.0001 par value, 210,000 shares authorized;

82,764 issued and outstanding at June 30, 2022 and 66,493 issued and outstanding at December 31, 2021

91,378 issued and outstanding at September 30, 2022 and 66,493 issued and outstanding at December 31, 2021

Class B common stock;

$ 0.0001 par value, 90,000 shares authorized;

448 issued and outstanding at June 30, 2022 and at December 31, 2021

448 issued and outstanding at September 30, 2022 and at December 31, 2021

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total stockholders’ equity attributable to Purple Innovation, Inc.

Noncontrolling interest

8 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Revenues, net

7 unchanged sentences

Other income (expense):

Interest expense

Interest income (expense), net

Other income (expense), net

Change in fair value – warrant liabilities

Tax receivable agreement expense

Total other income (expense), net

Tax receivable agreement income

Total other income, net

Net income (loss) before income taxes

10 unchanged sentences

(unaudited – in thousands)

Stockholders’

Total Stockholders’

Noncontrolling

Innovation, Inc.

Balance - December 31, 2021

$ ( 261,825 )

Stock-based compensation

3 unchanged sentences

Accrued distributions

Impact of transactions affecting

Impact of transactions affecting NCI

Balance – March 31, 2022

$ ( 275,327 )

Stock-based compensation

Issuance of common stock under equity compensation

Issuance of common stock under equity compensation plans

Additional costs associated with underwritten public stock offering

Impact of transactions affecting

Impact of transactions affecting NCI

Balance – June 30, 2022

Stockholders’

$ ( 283,667 )

Stock-based compensation

Issuance of common stock under equity compensation plans

Issuance of common stock for Intellibed acquisition

Impact of transactions affecting NCI

Balance – September 30, 2022

$ ( 281,389 )

Total Stockholders’

Noncontrolling

- December 31, 2020

Balance - December 31, 2020

$ ( 265,856 )

of stock options

Receivable Agreement liability

distributions

indemnification payment

of transactions affecting NCI

– March 31, 2021

Stock-based compensation

Exchange of stock

Exercise of warrants

Exercise of stock options

Tax Receivable Agreement liability

Deferred income taxes

Accrued distributions

InnoHold indemnification payment

Impact of transactions affecting NCI

Balance – March 31, 2021

$ ( 245,032 )

income (loss)

of stock options

Receivable Agreement liability

distributions

of common stock

of transactions affecting NCI

– June 30, 2021

Net income (loss)

Stock-based compensation

Exercise of warrants

Exercise of stock options

Tax Receivable Agreement liability

Deferred income taxes

Accrued distributions

Issuance of common stock

Impact of transactions affecting NCI

Balance – June 30, 2021

$ ( 242,454 )

Net income (loss)

Stock-based compensation

Exercise of warrants

Exercise of stock options

Tax Receivable Agreement liability

Deferred income taxes

Accrued distributions

Impact of transactions affecting NCI

Balance – September 30, 2021

$ ( 240,283 )

The accompanying notes are an integral part of

3 unchanged sentences

(unaudited – in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to

net cash provided by (used in) operating activities:

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

Depreciation and amortization

1 unchanged sentence

Change in fair value – warrant liabilities

Tax receivable agreement expense

Tax receivable agreement (income) expense

Stock-based compensation

Gain from effective settlement of preexisting relationship

Deferred income taxes

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Cash flows from investing activities:

Cash, cash equivalents and restricted cash acquired from acquisition, net of cash paid

Purchase of property and equipment

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Net decrease in cash

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the period

Cash, cash equivalents and restricted cash, beginning of the year

Cash, cash equivalents and restricted cash, end of the period

Supplemental disclosures of cash flow information:

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Property and equipment included in accounts payable

Issuance of common stock for Intellibed acquisition

Non-cash leasehold improvements

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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 LLC”).

At the closing of

the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed

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.

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.

On August 31, 2022, the Company

acquired all of the issued and outstanding stock of Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) pursuant

to an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Gelato Merger Sub, Inc., a wholly owned subsidiary

of Purple Inc., merged with and into Intellibed, with Intellibed continuing as a wholly owned subsidiary of Purple Inc.

For further discussion

see Note 4 — Acquisition.

Summary of Significant Accounting Policies

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The condensed 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 June 30, 2022, Purple Inc.

held 99.5 % of the common units of Purple LLC and Purple LLC Class

B Unit holders held 0.5 % of the common units in Purple LLC.

financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC and its wholly owned subsidiary, Intellibed,

from the date of acquisition.

All intercompany balances and transactions have been eliminated in consolidation.

As of September 30, 2022,

held 99.5 % of the common units of Purple LLC and Purple LLC Class B Unit holders held 0.5 % of the common units in Purple LLC.

The accompanying unaudited

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normal recurring nature) considered necessary to present fairly the Company’s financial results.

The results of the three and six

months ended June 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or

for any other interim period or other future year.

The results of the three and nine

months ended September 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022

or for any other interim period or other future year.

Variable Interest Entities

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benefits that are potentially significant.

At June 30, 2022, Purple Inc.

At September 30, 2022, Purple Inc.

had a 99.5 % economic interest in Purple LLC and consolidated

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The holders of Purple LLC Class B Units (the “Class B Units”) held 0.5 % of the economic interest

in Purple LLC as of June 30, 2022.

in Purple LLC as of September 30, 2022.

For further discussion see Note 16 — Stockholders’ Equity.

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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 measurement of loss contingencies, business combinations, 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”).

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

Actual results could differ materially from

those estimates.

Restructuring Charges

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result of the realignment and restructuring, the Company reduced employee headcount and incurred severance charges of $ 2.0 million during

the six months ended June 30, 2022.

the nine months ended September 30, 2022.

In June 2022, the Company

incurred a one-time separation fee of $ 3.1 million with a professional services provider for not continuing with their services.

recorded as general and administrative expense in the condensed consolidated statement of operations for the three months ended June 30,

The Company has also initiated other cost reduction and efficiency

efforts to improve costs, increase margins and ensure compliance with debt covenants.

If the Company’s cash flow from operations

or other sources of financing are less than anticipated, the Company believes it will be able to fund operating expenses and comply with

debt covenants based on its ability to scale back operations, reduce marketing spend, use the liquidity available under its revolving

line of credit and postpone or discontinue growth strategies.

In addition, in order to continue satisfying the conditions of the debt

agreement the Company may be required to scale back operations, reduce marketing spend, prepay debt and postpone or discontinue our growth

was recorded as general and administrative expense in the condensed consolidated statement of operations for the nine months ended September

The Company has also initiated

other cost reduction and efficiency efforts to improve costs, increase margins and ensure compliance with debt covenants.

If the Company’s

cash flow from operations or other sources of financing are less than anticipated, the Company believes it will be able to fund operating

expenses and comply with debt covenants based on its ability to scale back operations, reduce marketing spend, use the liquidity available

under its revolving line of credit and postpone or discontinue growth strategies.

In addition, in order to continue satisfying the conditions

of the debt agreement the Company may be required to scale back operations, reduce marketing spend, prepay debt and postpone or discontinue

our growth strategies.

Recent Accounting Pronouncements

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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 were originally based on LIBOR.

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

to the Secured Overnight Financing Rate (“SOFR”).

The change to SOFR did not have any impact on the Company’s condensed

consolidated financial statements – see Note 10— Debt for discussion of the amendment to the 2020 Credit Agreement.

The Company does not currently have any receivables, hedging relationships, lease agreements, or debt agreements that reference LIBOR

or another reference rate expected to be discontinued.

In February 2022, the Company entered into

an amendment to its 2020 financing arrangement that changed the interest reference rate on its term loan and revolving line of credit

from LIBOR to the Secured Overnight Financing Rate (“SOFR”).

The change to SOFR did not have any impact on the Company’s

condensed consolidated financial statements – see Note 11— Debt for discussion of this amendment.

PURPLE INNOVATION, INC.

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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.

The Company is currently evaluating the impact of this standard on its accounts receivable, cash, cash equivalents

and restricted cash, and any other financial assets measured at amortized cost.

Underwritten Offering

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aggregate net proceeds totaled $ 92.9 million.

On August 31, 2022, pursuant

to the Merger Agreement, the Company acquired Intellibed, a premium sleep and health wellness company, offering gel-based mattresses scientifically

designed for maximum back support, spinal alignment and pressure point relief.

We believe that the addition of Intellibed will increase

product offerings to customers, expand market opportunities, capitalize on synergies of the combined companies, and increase opportunities

for innovation.

In addition, the acquisition allowed the Company to consolidate ownership of its intellectual property and more fully

capitalize on growing demand for products with gel technologies.

The acquisition date fair

value of the consideration transferred for Intellibed was $ 28.3 million, which consisted of the following (in thousands):

Fair value of Class A common stock issued at closing

Fair value of Class A common stock held in escrow

Fair value of contingent consideration

Fair value of effective settlement of preexisting relationships

Transaction expenses paid on behalf of Intellibed

Due to seller

Fair value of total purchase consideration

The fair value of common stock

issued at closing consisted of 8.1 million shares of Class A common stock valued using the acquisition date closing price of $2.86.

fair value of common stock held in escrow consisted of 0.5 million shares of Class A common stock valued using the acquisition date closing

price of $2.86.

These shares are being held in escrow pending resolution of net working capital adjustments and certain indemnification

matters, as described in the Merger Agreement.

Contingent consideration represents

the fair value of 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s

stock does not equal or exceed $ 5.00 for at least ten trading days over any period of 30 consecutive trading days during the period beginning

on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date.

The contingent shares were

valued using a Monte-Carlo simulation model.

Because the contingent consideration is payable with a fixed number of shares of the Company’s

Class A common stock, it is classified as equity and will not require remeasurement in subsequent periods.

The fair value of effective settlement of preexisting relationships

includes $ 1.4 million related to the fair value of a preexisting legal matter with Intellibed that was effectively settled on the acquisition

date and $ 0.3 million related to the fair value of a preexisting royalty liability owed by Intellibed to the Company that was also effectively

settled on the acquisition date.

As a result of effectively settling the preexisting legal matter with Intellibed, the Company

recorded a gain of $ 1.4 million as other income (expense), net in the condensed consolidated statement of operations for the three and

nine months ended September 30, 2022.

As a result of effectively settling the preexisting royalty liability, the Company and Intellibed

recorded a corresponding receivable and payable, respectively, for the same $ 0.3 million amount that was eliminated in consolidation as

of September 30, 2022.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company recorded the acquisition based on the fair value of the

consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their

respective preliminary estimated fair values as of the acquisition date.

Determining the fair value of assets acquired and liabilities

assumed required management to use significant judgment and estimates including the selection of valuation methodologies, estimates of

future revenues and cash flows, discount rates, and asset lives, among other items.

While the Company used its best estimates and assumptions

as a part of the purchase price allocation process to accurately value the assets acquired, including intangible assets, and the liabilities

assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement.

Due to the close proximity

of the acquisition date to the Company’s reporting date, the Company recorded the assets acquired and liabilities assumed at their

preliminary estimated fair values.

As of September 30, 2022, the Company had not finalized the determination of the working capital adjustments

and the fair values allocated to various assets and liabilities, intangible assets and the residual amount allocated to goodwill.

Consequently,

during the measurement period, which could be up to one year from the acquisition date, the Company may record adjustments to the fair

values of the assets acquired and the liabilities assumed, with a corresponding offset to goodwill.

Upon the conclusion of the measurement

period or final determination of the values of assets acquired or the liabilities assumed, whichever comes first, any subsequent adjustments

will be reflected in the Company’s condensed consolidated statement of operations.

Based upon the purchase price

allocation, the following table summarizes the preliminary fair value of the assets acquired and liabilities assumed at the date of the

acquisition (in thousands):

Net tangible assets (liabilities):

Cash, cash equivalents and restricted cash

Accounts receivable

Other current assets

Property and equipment

Operating lease right-of-use assets

Other long-term assets

Accounts payable

Other current liabilities

Operating lease obligations

Deferred tax liabilities

Net tangible assets (liabilities)

Customer relationships

Developed technology

Net assets acquired and liabilities assumed

The Company believes the amount

of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from the assembled workforce,

an increase in development capabilities, increased offerings to customers, expanded market opportunities, and enhanced opportunities for

growth and innovation.

Goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if

certain indicators of impairment are present.

In the event that goodwill has become impaired, the Company will record an expense for the

amount impaired during the quarter in which the determination is made.

The goodwill recorded is not deductible for income tax purposes.

The two identified definite

lived intangible assets, comprised of customer relationships and developed technology, will be amortized over their estimated useful lives

of ten and three years, respectively.

The customer relationships intangible asset represents the estimated fair value of the underlying

relationships with Intellibed customers, valued utilizing the multi-period excess earnings method.

The developed technology intangible

represents the fair value of Intellibed industry-specific cloud and mobile software and related technologies, valued using the cost to

recreate method.

The cash, cash equivalents

and restricted cash balance acquired includes $ 1.7 million of cash deposited by Intellibed in a separate account pursuant to an escrow

agreement with the Company.

The purpose of the escrow cash amount is to cover Intellibed’s estimated state income tax liabilities,

sales tax liabilities and related filing expenses that existed prior to the acquisition date.

If the actual liabilities are less than

estimated, any excess cash would be returned to the previous shareholders of Intellibed.

If payments for these items exceed the escrow

balance, the Company will be required to pay the excess.

The Company recorded the $ 1.7 million of cash as an acquired restricted cash

balance that is included in cash, cash equivalents and restricted cash in the condensed consolidated balance sheet as of September 30,

The Company also recorded an assumed liability totaling $ 1.3 million for the sales and use tax and state and local income tax liabilities

exposure that is reflected in other current liabilities in the condensed consolidated balance sheet as of September 30, 2022.

The Company has included the financial results of Intellibed in its condensed

consolidated financial statements from the date of acquisition and recorded net revenues and pre-tax income of $ 2.7 million and $ 1.3 million,

respectively, for the period from August 31, 2022 through September 30, 2022.

The transaction costs associated with the acquisition of

$ 2.8 million were recorded as general and administrative expense in the condensed consolidated statement of operations for the three and

nine months ended September 30, 2022.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The following table provides

unaudited pro forma financial information as if Intellibed had been acquired by the Company as of January 1, 2021.

The unaudited pro forma

information reflects adjustments for transaction and litigation expenses, immediate restructuring savings and additional depreciation

and amortization resulting from the fair value adjustments to assets acquired.

The pro forma results do not include any other anticipated

cost synergies or effects of the combined companies.

Accordingly, pro forma amounts are not necessarily indicative of the results to be

expected had the acquisition been completed on the date indicated, nor is it indicative of the future operating results of the combined

company (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

The unaudited pro forma amounts above include the following adjustments:

● A decrease of operating expenses by $4.4 million

during the three and nine months ended September 30, 2022, to eliminate transaction costs directly related to the acquisition that do

not have a continuing impact on operating results.

● A decrease of operating expenses by $0.4 million

and $1.3 million during the nine months ended September 30, 2022 and 2021, respectively, to eliminate litigation costs directly related

to the lawsuit between the two Companies.

● A decrease of operating expenses by $1.0 million

and $0.2 million during the three months ended September 30, 2022 and 2021, respectively and $1.5 million and $0.4 million during the

nine months ended September 30, 2022 and 2021, respectively, to eliminate costs directly related to immediate restructuring that do not

have a continuing impact on operating results.

● An increase of operating expenses by $0.5 million

and $0.4 million during the three months ended September 30, 2022 and 2021, respectively and $1.5 million and $0.8 million during the

nine months ended September 30, 2022 and 2021, respectively, to reflect the additional depreciation and amortization expense related to

the increase in property and equipment assets and definite lived intangible assets.

● The combined pro forma results were tax effected

using the Company’s effective tax rate for the respective periods.

Fair Value Measurements

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Notes to Condensed Consolidated Financial Statements

The classification of fair

value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements.

Financial instruments, although not recorded at fair value on a recurring basis include cash and cash equivalents, receivables, accounts

payable and the Company’s debt obligations.

The carrying amounts of cash and cash equivalents, receivables, accounts payable and

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

The fair value of the Company’s debt

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

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.

The sponsor warrant liabilities

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of the valuation inputs the Company utilized to determine such fair value (dollars in thousands):

September 30,

Sponsor warrants

The following table summarizes

the Company’s total Level 3 liability activity for the six months ended June 30, 2022 and 2021 (in thousands):

the Company’s total Level 3 liability activity for the nine months ended September 30, 2022 and 2021 (in thousands):

Fair value as of December 31, 2021

1 unchanged sentence

Change in valuation inputs (1)

Fair value as of June 30, 2022

Fair value as of September 30, 2022

Fair value as of December 31, 2020

1 unchanged sentence

Change in valuation inputs (1)

Fair value as of June 30, 2021

Changes in valuation

inputs are recognized as the change in fair value – warrant liabilities in the condensed consolidated statement of

Fair value as of September 30, 2021

Changes in valuation inputs are recognized as the change in fair value – warrant liabilities in the condensed consolidated statement of operations.

Revenue from Contracts with Customers

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Revenues, net

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Sleep products

6 unchanged sentences

Customer prepayments

totaled $ 5.1 million and $ 10.9 million at June 30, 2022 and December 31, 2021, respectively.

During the three months ended June 30, 2022

and 2021, the Company recognized all revenue that was deferred in customer prepayments at March 31, 2022 and 2021, respectively.

totaled $ 3.8 million and $ 10.9 million at September 30, 2022 and December 31, 2021, respectively.

During the three months ended September

30, 2022 and 2021, the Company recognized all revenue that was deferred in customer prepayments at June 30, 2022 and 2021, respectively.

Inventories, Net

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of the following (in thousands):

September 30,

Raw materials

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consisted of the following (in thousands):

September 30,

Equipment in progress

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Equipment in progress reflects

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2022 or December

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at September 30, 2022 or December

Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 0.2 million and

$ 0.4 million during the three and six months ended June 30, 2022, respectively.

There was no interest capitalized during the three and

six months ended June 30, 2021.

Depreciation expense was $ 3.6 million and $ 7.1 million during the three and six months ended June 30,

2022, respectively, and totaled $ 1.9 million and $ 3.5 million during the three and six months ended June 30, 2021, respectively.

$ 0.6 million during the three and nine months ended September 30, 2022, respectively, and totaled $ 0.8 million and $ 0.8 million during

the three and nine months ended September 30, 2021, respectively.

Depreciation expense was $ 4.3 million and $ 11.4 million during the three

and nine months ended September 30, 2022, respectively, and totaled $ 2.8 million and $ 6.2 million during the three and nine months ended

September 30, 2021, respectively.

The Company leases its manufacturing

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The right-of-use asset for finance leases was $ 1.2 million

and $ 0.7 million at June 30, 2022 and December 31, 2021, respectively.

and $ 0.7 million at September 30, 2022 and December 31, 2021, respectively.

The following table presents

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating lease costs

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the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on

the condensed consolidated balance sheet at June 30, 2022 (in thousands):

2022 (excluding the six months ended June 30, 2022) (1)

the condensed consolidated balance sheet at September 30, 2022 (in thousands):

2022 (excluding the nine months ended September 30, 2022) (1)

Total operating lease payments

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(1) Amount consists of $ 4.9 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 June 30, 2022 and December 31, 2021, the weighted-average remaining

term of operating leases was 9.7 years and 10.7 years, respectively, and the weighted-average discount rate of operating leases was 5.33 %

and 5.30 %, respectively.

As of September 30, 2022 and

December 31, 2021, the weighted-average remaining term of operating leases was 9.2 years and 10.7 years, respectively, and the weighted-average

discount rate of operating leases was 5.45 % and 5.30 %, respectively.

The following table provides

supplemental information related to the Company’s condensed consolidated statement of cash flows for the six months ended June 30,

supplemental information related to the Company’s condensed consolidated statement of cash flows for the nine months ended September

30, 2022 and 2021 (in thousands):

Six Months Ended

Nine Months Ended

September 30,

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

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consisted of the following (in thousands):

September 30,

Warranty accrual – current portion

1 unchanged sentence

Long-term debt, net of unamortized issuance costs – current portion

Accrued sales tax liability assumed in acquisition

Accrued property taxes

Accrued affiliate marketing

Tax receivable agreement liability – current portion

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(in thousands):

September 30,

Revolving line of credit

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This amendment contained a covenant

waiver period such that the net leverage ratio and fixed charge coverage ratio would not be tested for the fiscal quarters ended December 31,

waiver period such that the net leverage ratio and fixed charge coverage ratio were not tested for the fiscal quarters ended December 31,

2021, March 31, 2022 and June 30, 2022.

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on the consolidated leverage ratio.

The interest rate on the term loan was 6.07 % as of June 30, 2022.

Pursuant to the first amendment of the 2020 Credit Agreement, the Company

incurred fees and expenses of $ 0.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet and made

a $ 2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022.

The Company accounted for this amendment

as a modification of existing debt in accordance with ASC 470 – Debt .

The interest rate on the term loan was 6.07 % as of September 30, 2022.

As of September 30, 2022,

the Company was in compliance with all of the financial covenants related to the 2020 Credit Agreement, as amended.

Pursuant to the first amendment

of the 2020 Credit Agreement, the Company incurred fees and expenses of $ 0.9 million that were recorded as debt issuance costs in the

condensed consolidated balance sheet and made a $ 2.5 million payment on the term loan to cover the four quarterly principal payments due

The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 – Debt .

March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement.

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Capital Management, LLC.

Pursuant to the second amendment

of the 2020 Credit Agreement, the Company incurred fees and expenses of $ 0.4 million that were recorded as debt issuance costs in the

condensed consolidated balance sheet.

The Company accounted for this amendment as a modification of existing debt in accordance with ASC

Pursuant to the second amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of

$ 0.4 million that were recorded as debt issuance costs in the condensed consolidated balance sheet.

The Company accounted for this amendment

as a modification of existing debt in accordance with ASC 470 – Debt .

On May 13, 2022 and September

9, 2022, the Company entered into a third and fourth amendment, respectively, to the 2020 Credit Agreement.

These amendments modified

the permitted leases schedule to reflect a change in showroom locations and a new lease for an innovation building.

The amendments did

not meet the criteria for a modification of existing debt and minimal expenses were recorded as general and administrative expense in

the condensed consolidated statement of operations.

On July 14, 2022, the Company received consent under the 2020 Credit

Agreement allowing the Company’s acquisition of Intellibed to constitute a permitted acquisition under the 2020 Credit Agreement.

The Company incurred fees and expenses of $ 0.3 million that were recorded as general and administrative expense in the condensed consolidated

statement of operations.

In November 2021, the Company

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On March 31, 2022, the Company used a portion of the net proceeds received

from its March 2022 offering to repay in full the $ 55.0 million of principal outstanding on the revolving line of credit.

from its March 2022 stock offering to repay in full the $ 55.0 million of principal outstanding on the revolving line of credit.

September 30, 2022, there was no balance outstanding on the revolving credit facility.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Interest expense under the 2020 Credit Agreement totaled $ 0.9 million

and $ 2.0 million for the three and six months ended June 30, 2022, respectively, and totaled $ 0.6 million and $ 1.1 million for the three

and six months ended June 30, 2021, respectively.

Interest expense under the

2020 Credit Agreement totaled $ 0.9 million and $ 2.9 million for the three and nine months ended September 30, 2022, respectively, and

totaled $ 0.5 million and $ 1.6 million for the three and nine months ended September 30, 2021, respectively.

Warrant Liabilities

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each reporting date or exercise date with changes in the fair value included in earnings.

During the six months ended

June 30, 2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock.

were no sponsor warrants exercised during the six months ended June 30, 2022.

The 1.9 million sponsor warrants outstanding at June 30,

2022 and December 31, 2021 had fair values of $ 0.1 million and $ 4.3 million, respectively.

During the nine months ended

September 30, 2021, 6.6 million sponsor warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock.

There were no sponsor warrants exercised during the nine months ended September 30, 2022.

The 1.9 million sponsor warrants outstanding

at September 30, 2022 and December 31, 2021 had fair values of $ 0.1 million and $ 4.3 million, respectively.

The Company determined the

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

December 31, 2021

September 30,

Trading price of common stock on measurement date

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Expected dividend yield

During the three and six months

ended June 30, 2022, the Company recognized gains of $ 0.3 million and $ 4.3 million, respectively, and during the three and six months

ended June 30, 2021, the Company recognized gains of $ 4.9 million and $ 14.0 million, respectively, in its condensed consolidated statements

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 three months ended

September 30, 2022, the Company recognized a loss of $0.1 million in its condensed consolidated statement of operations related to an

increase in the fair value of the sponsor warrants outstanding at the end of the period.

For the nine months ended September 30, 2022,

the Company recognized a gain of $4.2 million and during the three and nine months ended September 30, 2021, the Company recognized gains

of $5.4 million and $19.4 million, respectively, in its condensed consolidated statements 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 periods.

Other Long-Term Liabilities

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consist of the following (in thousands):

September 30,

Warranty accrual

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Balance at beginning of period

Additions charged to expense for current period sales

Acquired warranty liability

Deduction from reserves for current period claims

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mandatory distributions, other than tax distributions.

During the six months ended June 30, 2021, the Company paid $ 0.9 million in tax

distributions under the Third Purple LLC Agreement.

There were no tax distributions paid during the six months ended June 30, 2022.

June 30, 2022, the Company’s condensed consolidated balance sheet had $ 0.1 million of accrued tax distributions included in other

current liabilities.

During the nine months ended September 30, 2021, the Company paid $ 1.0 million

in tax distributions under the Third Purple LLC Agreement.

There were no tax distributions paid during the nine months ended September

At September 30, 2022, the Company’s condensed consolidated balance sheet had $ 0.1 million of accrued tax distributions

included in other current liabilities.

Subscription Agreement

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Notes to Condensed Consolidated Financial Statements

Stockholder Rights

On September 25, 2022, with

the authorization of the Board, a special committee of independent and disinterested directors of the Company (the “Special Committee”)

approved the adoption of a limited-duration stockholder rights agreement (the “Rights Agreement”) with an expiration date

of September 25, 2023.

The Special Committee adopted the Rights Agreement in response to CCM’s substantial increase in ownership

of the Company’s shares over the last year and the Special Committee’s desire to have the time and flexibility necessary to

evaluate an unsolicited and non-binding proposal from CCM to acquire the outstanding common stock of the Company not already beneficially

owned by CCM (See Note 15— Related Party Transactions — Coliseum Capital Management, LLC ).

The Rights Agreement

is intended to enable the Company’s shareholders to realize the full value of their investment and to guard against any attempts

to gain control of the Company without paying all shareholders an appropriate control premium.

The Rights Agreement applies equally to

all current and future shareholders and does not deter any offer or preclude the Special Committee from considering an offer that is fair

and otherwise in the best interests of the Company’s shareholders.

Upon adopting the Rights Agreement, 300,000 shares of the Company’s

authorized shares of preferred stock, par value $ 0.0001 per share, were designated as Series A Junior Participating Preferred Shares (the

“Preferred Shares”).

In accordance with the Rights Agreement, on September 25, 2022, the Special Committee authorized and

declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s Class

A and Class B common stock to stockholders of record at the close of business on October 6, 2022 .

Upon the occurrence of certain triggering events , each Right entitles the holder to purchase from

the Company one one-thousandth of a share of the newly designated Preferred Shares at an

exercise price of $20.00 (the “Exercise Price”) .

The Rights will be exercisable only if a person or group acquires

beneficial ownership (including certain synthetic equity positions created by derivative securities) of 20% or more of the Company’s

outstanding shares of common stock.

Any person or group that beneficially owned more than the triggering percentage when the Board adopted

the Rights Agreement may continue to own its shares of common stock but may not acquire any additional shares without triggering the Rights

If Rights become exercisable, each holder of a Right (other than the acquiring person

or group whose Rights will automatically become void) will have the right to receive, upon exercise, Class A common stock having a value

equal to two times the exercise price of the Right.

Each Preferred Share, if issued, will not be redeemable, will entitle the holder,

when, as and if declared, to quarterly dividend payments equal to the greater of $1,000 per share or 1,000 times the amount of all cash

dividends plus 1,000 times the amount of non-cash dividends or other distributions paid on one share of common stock, will entitle the

holder to receive $1,000 plus accrued and unpaid dividends per share upon liquidation, will have the same voting power as 1,000 shares

of Class A common stock and, if shares of common stock are exchanged via merger, consolidation or a similar transaction, will entitle

the holder thereof to a per share payment equal to the payment made on 1,000 shares of common stock.

The initial issuance of the

Rights as a dividend will have no financial accounting or reporting impact.

The fair value of the Rights will be nominal since the Rights

are not exercisable when issued and no value is attributable to them.

Additionally, the Rights do not meet the definition of a liability

under GAAP and will therefore not be accounted for as a long-term obligation.

Accordingly, unless the Rights become exercisable

as discussed above, the Rights Agreement has no impact on the Company’s condensed consolidated financial statements .

Purple LLC Class B

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traded partnership” under applicable tax laws.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company and each holder

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There were no Paired Securities

exchanged for Class A common stock during the six months ended June 30, 2022.

During the six months ended June 30, 2021, 0.1 million of

Paired Securities were exchanged for shares of Class A common stock.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

exchanged for Class A common stock during the nine months ended September 30, 2022.

During the nine months ended September 30, 2021, 0.1

million of Paired Securities were exchanged for shares of Class A common stock.

Maintenance of One-to-One

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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.

opposed this informal request, and it was denied by the Court.

After granting PerfectSense a final extension of time to either appoint

counsel or file a motion to permit Mr.

Henderson, the CEO

and shareholder of the defendant, to represent the defendant in the action until such time as a lawyer could be appointed.

Purple opposed

this informal request, and it was denied by the Court.

After granting PerfectSense a final extension of time to either appoint counsel

or file a motion to permit Mr.

Henderson to represent the defendant, PerfectSense appointed new counsel.

The parties engaged

in litigation discovery, exchanged affidavits of documents and scheduled examinations for discovery.

Shortly thereafter, discovery adjourned

and continues to be stayed while the parties negotiate formal terms of settlement.

PerfectSense has not responded to Purple’s repeated

attempts to finalize the settlement.

Purple filed a motion to enforce a settlement agreement.

The Court has directed the motion

be heard before a Judge, which will likely take place in September of 2022.

On September 20, 2020, Purple

LLC filed a complaint in the U.S.

Court of International Trade seeking to recover approximately $ 7.0 million of Section 301 duties paid

at the time of importation on certain Chinese-origin goods.

More than 4,000 other complaints have been filed by other companies seeking

similar refunds.

On March 12, 2021 the United States filed a master answer that applies to all the Section 301 cases, including Purple

On July 6, 2021, the court granted a preliminary injunction against liquidation of any unliquidated entries.

1, 2022, the court issued an opinion that remanded the case back to the U.S.

Trade Representative (“USTR”) to address certain

procedural flaws in USTR’s process for determining whether certain products were subject to the Section 301 duties.

2022, USTR issued its remand results.

The court has not yet established a briefing schedule for comments on the remand results.

If successful,

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

The parties engaged in litigation

discovery, exchanged affidavits of documents and scheduled examinations for discovery.

Shortly thereafter, discovery adjourned and continues

to be stayed while the parties negotiate formal terms of settlement.

PerfectSense has not responded to Purple’s repeated attempts

to finalize the settlement.

Purple LLC filed a motion to enforce a settlement agreement.

On September 13, 2022, the Court granted

Purple’s motion to enforce the settlement agreement and deemed the action to be discontinued on a without costs basis.

the settlement, PerfectSense is required to:

(a) to change their mattress design so as not to resemble any of Purple’s mattress

designs, (b) to change their website design to move away from Purple’s product designs, (c) to not register or use any domains that

include the word “Purple”, and (d) to delete a number of domains that PerfectSense had previously registered which included

the word “Purple”.

PerfectSense was given 30 days from the date of the Court Order to comply with these terms.

Purple is continuing to monitor PerfectSense to ensure compliance with

the settlement agreement.

action has been discontinued, Purple is taking steps to have the $ 15,000 CAD that was posted as security for PerfectSense’s costs

paid out of court.

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

of International Trade seeking to recover approximately $ 7.0 million of Section 301 duties paid at the time of importation on certain

Chinese-origin goods.

More than 4,000 other complaints have been filed by other companies seeking similar refunds.

On March 12, 2021 the

United States filed a master answer that applies to all the Section 301 cases, including Purple LLC’s.

On July 6, 2021, the

court granted a preliminary injunction against liquidation of any unliquidated entries.

On April 1, 2022, the court issued an opinion

that remanded the case back to the U.S.

Trade Representative (“USTR”) to address certain procedural flaws in USTR’s

process for determining whether certain products were subject to the Section 301 duties.

On August 1, 2022, USTR issued its remand results.

On September 14, 2022, the plaintiffs submitted comments on the remand results.

USTR filed their response to these comments on November

The plaintiffs have until December 5, 2022 to file a reply.

If successful, this litigation could result in a refund of some or

all of the Section 301 duties.

PURPLE INNOVATION, INC.

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and discovery requests.

The arbitration hearing is set to begin on April 17, 2023, and it will continue through April 28, 2023.

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

of this litigation cannot be predicted at this stage.

However, Purple intends to vigorously pursue its claims and defend against the claims

made by ReST.

On November 19, 2020, Purple

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

District Court for the District of

Utah for patent infringement, trademark infringement, trade secret misappropriation, and a number of related state law based claims.

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.

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 claims.

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.

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

On January 19, 2021, Purple LLC also filed an Answer to

Intellibed’s counterclaims, which were not subject to Purple LLC’s motion to dismiss.

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.

Briefing 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.

The arbitration hearing is set to begin in July 2023.

Purple LLC seeks over $ 4 million in damages from ReST, whereas

ReST claims that Purple is liable to it for tens of millions of dollars.

The outcome of this litigation cannot be predicted at this stage.

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

On November 19, 2020, Purple LLC sued 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 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 claims.

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.

On January 19, 2021, Purple

LLC also filed an Answer to Intellibed’s counterclaims, which were not subject to Purple LLC’s motion to dismiss.

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.

Briefing 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.

On August 31, 2022, the Company acquired all of the issued and outstanding stock of Intellibed,

as discussed above.

In conjunction with the acquisition, the preexisting legal matter with Intellibed was effectively settled on the acquisition

The fair value of the effective settlement of this legal matter was estimated to be a gain of $ 1.4 million, which was

recorded by the Company as other income (expense), net in the condensed consolidated statement of operations for the three and nine months

ended September 30, 2022.

For additional information see Note 4— Acquisition .

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

On June 8, 2021, Serta Simmons

Bedding, LLC (“SSB”) filed a Complaint against the Company in the Superior Court of Gwinnett County, Georgia, Case No.

(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 seeks 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 has 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.

On July 9, 2021, the Company filed

its own Complaint in the Fourth Judicial District Court of Salt Lake County, Utah, Case No.

21040011 (the “Utah Litigation”),

(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.

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 in a settlement agreement on December 31, 2021 resolving all claims in the Georgia Litigation and Utah

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.

On May 3, 2022, the Company

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was required to rebuild Purple’s website architecture and checkout process.

Purple paid Photon $ 0.9 million under the Agreement.

The Company paid Photon $ 0.9 million under the Agreement.

However, Photon failed to deliver any of the required deliverables as specified in the agreement.

2 unchanged sentences

Since resolution discussions with Photon have failed,

Purple filed the aforementioned complaint for breach of contract against Photon seeking, among other damages, reimbursement for all amounts

paid to under the agreement.

It is anticipated that Photon will counter-sue for amounts they claim are owed.

the Company filed the aforementioned complaint for breach of contract against Photon seeking, among other damages, reimbursement for all

amounts paid to Photon under the agreement.

Photon counter-sued, seeking payment for the $ 0.1 million withheld by Purple, and also advancing

a vague claim for tortious interference.

The litigation is presently in its discovery phase.

The Company intends to vigorously litigate

its claims to resolution.

On August 5, 2022, Purple

LLC filed a Complaint with the United States International Trade Commission (“ITC”) against numerous entities and individuals

from the People’s Republic of China and South Korea (“Respondents”) that have been violating Purple’s intellectual

property rights related to pillow and seat cushion products.

The Complaint alleges that the proposed Respondents are violating 19

§ 1337 (“Section 337”) by importing into the United States, selling for importation into the United States, and/or

selling in the United States after importation pillow and seat cushion products that infringe Purple’s trade dress rights or otherwise

constitute unfair competition, infringe a certain Purple design patent, infringe Purple trademarks, and/or infringe Purple utility patents.

The Complaint requests at least the following relief:

(i) a General Exclusion Order excluding from entry into the United States

all pillow and seat cushion products that infringe any asserted Purple intellectual property right;

(ii) Limited Exclusion Orders excluding

from entry into the United States all pillow and cushion products of the proposed Respondents named in the Complaint that infringe any

asserted Purple intellectual property right;

and (iii) Cease and Desist Orders against the proposed Respondents named in the Complaint

barring them from marketing, selling, advertising, or distributing infringing products in the United States, including via on-line retailers.

The ITC Administrative Law Judge has issued a Procedural Schedule for the Investigation that includes an April 12–14, 2023, Evidentiary

Hearing and an October 12, 2023, Target Date for completion of the Investigation.

The Investigation is currently in its initial

stages and fact discovery has just commenced.

On September 22, 2022, the

Company filed an action in the U.S.

District Court for the District of Utah styled Purple Innovation , LLC v.

Bedmate-U Co., Ltd.

against numerous entities and individuals from the People’s Republic of China and South Korea (“Respondents”).

The complaint alleges that the Respondents have (a) violated Lanham Act § 43(a), 15 U.S.C.

§ 1125(a) by committing acts of trade

dress infringement;

(b) infringed U.S.

Trademark Registration No.

(d) violated Lanham Act § 43(a), 15 U.S.C.

§ 1125(a) by committing acts of trademark infringement;

(e) infringed U.S.

(f) infringed U.S.

(g) infringed U.S.

(h) violated Utah Unfair Competition

Act, Utah Code § 13-5a-101 et seq.

and/or (i) committed common law unfair competition.

The complaint seeks injunctive

relief, compensatory damages, disgorgement of profits, punitive and exemplary damages, and attorneys’ fees and costs.

action is in its initial stages.

The Company is from time to

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Coliseum Capital Management,

Immediately following the

Business Combination, Adam Gray was appointed to the Company’s Board of Directors (the “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 Lenders under the Amended and Restated Credit Agreement.

See Note 13— Commitments and

Contingencies — Subscription Agreement and Preemptive Rights for further discussion .

Immediately following the Business Combination, Adam Gray was appointed

to the Company’s Board of Directors (the “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 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 Lenders under the Amended and Restated Credit Agreement.

On September 17, 2022, the Company received an unsolicited and non-binding proposal from CCM to acquire the remaining outstanding common

stock of the Company not already beneficially owned by CCM for $ 4.35 per share in cash.

At the time of the offer, CCM beneficially owned

approximately 45 % of the outstanding equity of the Company.

The CCM proposal is conditioned upon the transaction being (a) negotiated

by, and subject to the approval of, a special committee of independent and disinterested members of the Board (the “Special Committee”)

and (b) subject to a non-waivable condition requiring approval by the affirmative vote of a majority of the shares of common stock not

owned by CCM or other interested parties.

The Special Committee was formed by the Board to determine the necessary actions to evaluate

the CCM proposal and determine the course of action that is in the best interests of all of the Company’s shareholders.

expressly granted the Special Committee the ability to decline the CCM proposal.

In addition, the Special Committee adopted the Rights

Agreement to have the time and flexibility necessary to evaluate the CCM offer.

See Note 14— Commitments and Contingencies — Subscription

Agreement and Preemptive Rights and Commitments and Contingencies — Stockholder Rights Agreement for further discussion .

Purple Founder Entities

TNT Holdings, LLC (herein

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

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

TNT Holdings and InnoHold

are majority owned and controlled by Terry Pearce and Tony Pearce (the “Purple Founders”), who were appointed to the Company’s

Board following the Business Combination.

InnoHold was a majority shareholder of the Company until it sold a portion of its interests

in a secondary public offering in May 2020 and the remainder of its interests in a secondary public offering in September 2020.

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

TNT Holdings, LLC (herein “TNT

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

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

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

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

PURPLE INNOVATION, INC.

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Purple LLC incurred $ 0.2 million and $ 0.7 million in rent expense to 123E LLC or TNT Holdings for the building

lease of the Alpine facility for the three and six months ended June 30, 2022, respectively, and $ 0.2 million and $ 0.4 million for the

three and six months ended June 30, 2021, 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

3, 2021, Purple LLC gave notice to 123E LLC that it intended to exercise its right to an early termination of the lease to occur on September

During the six months ended

June 30, 2021, certain current and former employees of Purple LLC who received distributions of Paired Securities from InnoHold exchanged

lease of the Alpine facility for the three and nine months ended September 30, 2022, respectively, and $ 0.2 million and $ 0.7 million for

the three and nine months ended September 30, 2021, 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 3, 2021, Purple LLC gave notice to 123E LLC that it intended to exercise its right to an early termination of the lease to

occur on September 30, 2022.

On July 20, 2022, the Company entered into an amendment to its Alpine facility lease agreement with 123E

The amendment rescinded the Company’s previous notice of termination that was scheduled to be effective September 30, 2022

and extended the term such that the lease will remain in effect until September 30, 2023.

During the nine months ended

September 30, 2021, certain current and former employees of Purple LLC who received distributions of Paired Securities from InnoHold exchanged

0.1 million of Paired Securities for Class A common stock.

There were no such exchanges during the six months ended June 30, 2022.

There were no such exchanges during the nine months ended September 30, 2022.

In connection with the Business

8 unchanged sentences

The amount received from InnoHold was recorded as additional paid-in capital in the condensed consolidated balance sheet.

During the six months ended

June 30, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $ 0.4 million in required

tax distributions pursuant to the Third Purple LLC Agreement.

There were no such payments made by Purple LLC during the six months ended

June 30, 2022.

During the nine months ended

September 30, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $ 0.4 million in

required tax distributions pursuant to the Third Purple LLC Agreement.

There were no such payments made by Purple LLC during the nine

months ended September 30, 2022.

Stockholders’ Equity

11 unchanged sentences

to be voted on by stockholders.

At June 30, 2022, 82.8 million shares of Class A common stock were outstanding.

At September 30, 2022, 91.4 million shares of Class A common stock were outstanding.

PURPLE INNOVATION, INC.

17 unchanged sentences

subsequently transferred a portion of its shares to permitted transfers and exchanged its remaining shares for Class A common stock that

All of the 0.4 million shares of Class B common stock outstanding at June 30, 2022 were held by other parties.

All of the 0.4 million shares of Class B common stock outstanding at September 30, 2022 were 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

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 June 30, 2022, there were no shares of preferred stock outstanding.

The Company has 5.0 million shares of preferred stock authorized at

a par value of $ 0.0001 per share.

The preferred stock may be issued from time to time in one or more series.

The directors are expressly

authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish from time to time the number

of shares to be included in each such series and to fix the voting rights, designations and other special rights or restrictions.

30, 2022, there were no shares of preferred stock outstanding.

See Note 14— Commitments and Contingencies — Stockholder

Rights Agreement for further discussion regarding preferred stock.

Sponsor Warrants

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There were no sponsor warrants

exercised during the six months ended June 30, 2022.

During the six months ended June 30, 2021, 6.6 million sponsor warrants were exercised

resulting in the issuance of 2.3 million shares of Class A common stock.

There were 1.9 million sponsor warrants outstanding at June 30,

exercised during the nine months ended September 30, 2022.

During the nine months ended September 30, 2021, 6.6 million sponsor warrants

were exercised resulting in the issuance of 2.3 million shares of Class A common stock.

There were 1.9 million sponsor warrants outstanding

at September 30, 2022.

Noncontrolling Interest

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of Purple LLC and reflected the proportionate interest held by all such Purple LLC Class B Unit holders as NCI.

each interim period, the Company estimates its forecasted full-year effective tax rate.

That forecasted rate is applied to year-to-date

ordinary income or loss to compute the year-to-date income tax provision.

In order to compute the annual effective tax rate, the Company

estimates its full year ordinary income and total tax provision, including both current and deferred taxes.

At each interim period, the

Company estimates its forecasted full-year effective tax rate.

That forecasted rate is applied to year-to-date ordinary income or loss

to compute the year-to-date income tax provision.

In order to compute the annual effective tax rate, the Company estimates its full year

ordinary income and total tax provision, including both current and deferred taxes.

For annual periods, the Company

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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

Our effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest and the non-taxable

nature of the change in fair value of the warrant 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 are 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.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the

enacted rate change.

Our effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest and

the non-taxable nature of the change in fair value of the warrant liability.

As of September 30, 2022, the Company had two material assets:1) 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 and

2) Intellibed, which is taxed as a corporation for U.S.

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

Purple LLC’s net taxable income and any related tax credits are passed through to its members and are 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

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.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Deferred tax assets at June

The primary factors impacting expected tax

are the change in fair value of the warrant liabilities and adjustments for stock-based compensation.

Deferred tax assets at September

30, 2022 totaled $ 220.8 million, which is net of a $ 100.1 million valuation allowance that has been recorded against the residual outside

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As a result, there was an overall increase

of $ 23.8 million in the valuation allowance from December 31, 2021 to June 30, 2022, primarily as a result of an increase in the residual

outside partnership basis.

of $ 30.2 million in the valuation allowance from December 31, 2021 to September 30, 2022, primarily as a result of an increase in the

residual outside partnership basis.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company currently estimates

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21 % primarily due to the non-taxable nature of the change in fair value of the warrant liabilities and state and local income taxes.

For the six months ended June

30, 2022, the Company has recorded an income benefit of $ 6.0 million.

The effective tax rate for the six months ended June 30, 2022 was

This is less than the federal statutory rate due primarily to a reduction of deferred tax assets associated with adjustments for

stock based compensation and the gain relating to the change in fair value of the warrant liability is excluded from taxable income for

income tax purposes.

For the nine months ended September 30, 2022, the Company has recorded

an income tax benefit of $ 6.6 million.

The effective tax rate for the nine months ended September 30, 2022 was 25.1 %.

This rate differed

from the federal statutory rate due primarily to a reduction of deferred tax assets associated with adjustments for stock-based compensation

and the gain relating to the change in fair value of the warrant liability is excluded from taxable income for income tax purposes.

In connection with the Business

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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

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 agreement.

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.

As noncontrolling interest

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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 $ 162.2 million and $ 168.1 million as of June 30, 2022 and December 31, 2021, respectively.

reduction in the June 30, 2022 tax receivable agreement liability reflected a payment of $ 5.8 million made in January 2022.

tax receivable agreement liability was $ 162.2 million and $ 168.1 million as of September 30, 2022 and December 31, 2021, respectively.

The reduction in the September 30, 2022 tax receivable agreement liability reflected a payment of $ 5.8 million made in January 2022.

As of December 31, 2021, the

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taxable income.

The federal net operating losses may be carried forward indefinitely for U.S.

federal tax purposes, while some state carryforwards

The federal net operating losses generally can be carried forward indefinitely for U.S.

federal tax purposes with the

exception of some NOLs acquired as part of the Intellibed acquisition which are subject to expiration beginning in 2037.

Some state carryforwards

are subject to expiration beginning in 2026.

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the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate.

As of June 30, 2022, the Company has not completed its analyses in respect of Section 382 to determine whether a change

As of September 30, 2022, the Company has not completed its analyses in respect of Section 382 to determine whether a change

in ownership has occurred, the annual limitation, if any, or whether any of the tax attributes are subject to a permanent limitation.

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to significant limitation.

As of September 30, 2022, we had $ 220.8 million in net deferred tax

These deferred tax assets include approximately $ 213.5 million related to the investment in the partnership.

have considered both the positive and negative evidence in evaluating whether a valuation allowance is necessary.

The Company is in a

cumulative income position over the past 12 quarters, and we consider it more likely than not that we will have sufficient taxable income

in the future that will allow us to realize these deferred tax assets.

However, it is possible that certain economic conditions may decrease

the likelihood that we will have sufficient taxable income in the future.

Therefore, unless we are able to generate sufficient taxable

income from our operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially

increase our expenses in the period the allowance is recognized and materially adversely affect our results of operations and statement

of financial condition.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The effects of uncertain tax

positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold.

For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect

the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement.

The Company’s

policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying

consolidated statement of income.

Accrued interest and penalties would be included on the related tax liability line in the consolidated

balance sheet.

As of June 30, 2022, no uncertain tax positions were recognized as liabilities in the condensed consolidated financial

The effects of uncertain tax positions are recognized in the consolidated

financial statements if these positions meet a “more-likely-than-not” threshold.

For those uncertain tax positions that are

recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude

“more-likely-than-not” to be realized upon ultimate settlement.

The Company’s policy is to recognize interest and penalties

related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of income.

Accrued interest

and penalties would be included on the related tax liability line in the consolidated balance sheet.

As of September 30, 2022, no material

uncertain tax positions were recognized as liabilities in the condensed consolidated statements of operations.

Net Income (Loss) Per Common Share

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The 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):

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):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

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

Less – dilutive effect of change in fair value of warrant liabilities

Less – net loss attributed to noncontrolling interest

Less – dilutive effect of change in fair value – warrant liabilities

Net income (loss) attributed to noncontrolling interest

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

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Notes to Condensed Consolidated Financial Statements

For the three and six months

ended June 30, 2022, the Company excluded 3.3 million and 3.5 million, respectively, of Class A common shares issuable upon conversion

For the three and nine months

ended September 30, 2022, the Company excluded 3.2 million and 3.5 million, respectively, of Class A common shares issuable upon conversion

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

For the three

and six months ended June 30, 2021, the Company excluded 0.4 million and 0.5 million, respectively, of Paired Securities convertible into

shares of Class A Stock as the effect was anti-dilutive.

months ended September 30, 2021, the Company excluded 1.3 million shares of Class A common 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 nine months ended September 30,

2021, the Company excluded 0.5 million of Paired Securities convertible into an equal number of Class A shares as the effect was anti-dilutive.

Equity Compensation Plans

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stock units 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.

June 30, 2022, an aggregate of 1.0 million shares are available for issuance or use under the 2017 Incentive Plan.

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

As of September 30, 2022, an aggregate of 1.0 million shares are available for issuance or use under the 2017 Incentive Plan.

Class A Stock Awards

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The stock awards vested immediately and the Company

issued 0.1 million shares of Class A common stock and recognized $ 0.6 million in expense during the three months ended June 30, 2022,

issued 0.1 million shares of Class A common stock and recognized $ 0.6 million in expense during the nine months ended September 30, 2022,

which represented the fair value of the stock awards on the grant date.

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because of annual limits set forth in the 2017 Incentive Plan.

The Company determined the fair value of the net award of 0.2 million stock

options to be $ 0.4 million which will be expensed on a straight-line basis over the vesting period.

The Company determined the fair value of the net award of 0.2 million

stock options to be $ 0.4 million which will be expensed on a straight-line basis over the vesting period.

The Company determined the

fair value of the options granted during the six months ended June 30, 2022 using the Black Scholes method with the following weighted

fair value of the options granted during the nine months ended September 30, 2022 using the Black Scholes method with the following weighted

average assumptions:

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The following table summarizes the Company’s

total stock option activity for the six months ended June 30, 2022:

total stock option activity for the nine months ended September 30, 2022:

(in thousands)

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Forfeited/cancelled

Options outstanding as of June 30, 2022

Options outstanding as of September 30, 2022

PURPLE INNOVATION, INC.

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Outstanding and exercisable stock options as of

June 30, 2022 are as follows:

Options Outstanding

Options Exercisable

Exercise Prices

September 30, 2022 are as follows:

(in thousands)

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The following table summarizes

the Company’s unvested stock option activity for the six months ended June 30, 2022:

the Company’s unvested stock option activity for the nine months ended September 30, 2022:

(in thousands)

Nonvested options as of January 1, 2022

Nonvested options as of June 30, 2022

Nonvested options as of September 30, 2022

The estimated fair value of

Company stock options is amortized over the options vesting period on a straight-line basis.

For the three and six months ended June 30,

For the three and nine months ended September

30, 2022, the Company recognized stock option expense of $ 0.2 million and $ 0.5 million, respectively.

The Company recorded stock option expense

of $ 0.5 million and $ 0.9 million during the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, outstanding

stock options had $ 1.1 million of unrecognized stock compensation cost with a remaining recognition period of 2.0 years.

The Company recorded stock option

expense of $ 0.4 million and $ 1.3 million during the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022,

outstanding stock options had $ 0.9 million of unrecognized stock compensation cost with a remaining recognition period of 1.8 years.

PURPLE INNOVATION, INC.

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million restricted stock units is being recognized on a straight-line basis over the three-year vesting period.

During the second quarter of 2022, the Company granted 1.1 million

restricted stock units under the 2017 Incentive Plan to certain management of the Company.

Approximately one-half of the restricted stock

units granted included a market vesting condition.

The restricted stock awards that did not have a market vesting condition had a weighted

average grant date fair value of $ 5.53 per share.

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.

Company determined the weighted average grant date fair value of the awards with the market vesting condition to be $ 3.68 per share using

a Monte Carlo Simulation of a Geometric Brownian Motion stock path model with the following weighted average assumptions:

During the second quarter

of 2022, the Company granted 1.1 million restricted stock units under the 2017 Incentive Plan to certain management of the Company.

Approximately

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

The restricted stock awards that did not have a market

vesting condition had a weighted average grant date fair value of $ 5.53 per share.

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 $ 3.68 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

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The following table summarizes

the Company’s restricted stock unit activity for the six months ended June 30, 2022:

the Company’s restricted stock unit activity for the nine months ended September 30, 2022:

(in thousands)

Nonvested restricted stock units as of January 1, 2022

Nonvested restricted stock units as of June 30, 2022

Nonvested restricted stock units as of September 30, 2022

The Company recorded restricted

stock unit expense of $ 0.5 million and $ 0.9 million during the three and six months ended June 30, 2022, respectively.

There were no restricted

stock units outstanding and no expense recorded during the six months ended June 30, 2021.

As of June 30, 2022, outstanding

restricted stock units had $ 6.4 million of unrecognized stock compensation cost with a remaining recognition period of 2.6 years.

stock unit expense of $ 0.6 million and $ 1.5 million during the three and nine months ended September 30, 2022, respectively and $ 0.3 million

and $ 0.3 million during the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022,

outstanding restricted stock units had $ 5.7 million of unrecognized stock compensation cost with a remaining recognition period of 2.4

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Aggregate Non-Cash

Stock-Based Compensation

Aggregate Non-Cash Stock-Based

The Company has accounted

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

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The Company’s matching contribution

expense was $ 0.9 million and $ 1.9 million for the three and six months ended June 30, 2022, respectively, and $ 0.8 million and

$ 1.6 million for the three and six months ended June 30, 2021, respectively.

expense was $ 0.8 million and $ 2.7 million for the three and nine months ended September 30, 2022, respectively, and $ 0.8 million

and $ 2.3 million for the three and nine months ended September 30, 2021, respectively.

Subsequent Events

On July 20, 2022, the Company

entered into an amendment to its Alpine facility lease agreement with 123E LLC.

The amendment rescinded the Company’s previous notice

of termination that was scheduled to be effective September 30, 2022 and extended the term such that the lease will remain in effect until

September 30, 2023.

On August 5, 2022, the Company

filed a Complaint with the United States International Trade Commission (“ITC”) against numerous entities and individuals

from the People’s Republic of China and South Korea (“Respondents”) that have been violating Purple’s intellectual

property rights related to pillow and seat cushion products.

The Complaint alleges that the proposed Respondents are violating 19

§ 1337 (“Section 337”) by importing into the United States, selling for importation into the United States, and/or

selling in the United States after importation pillow and seat cushion products that infringe Purple’s trade dress rights or otherwise

constitute unfair competition, infringe a certain Purple design patent, infringe Purple trademarks, and/or infringe Purple utility patents.

The Complaint requests that the ITC issue at least the following relief:

(i) a General Exclusion Order excluding from entry into

the United States all pillow and seat cushion products that infringe any asserted Purple intellectual property right;

(ii) Limited Exclusion

Orders excluding from entry into the United States all pillow and cushion products of the proposed Respondents named in the Complaint

that infringe any asserted Purple intellectual property right;

and (iii) Cease and Desist Orders against the proposed Respondents named

in the Complaint barring them from marketing, selling, advertising, or distributing infringing products in the United States, including

via on-line retailers.

The ITC is currently determining whether to institute an unfair import investigation under Section 337 in

connection with Purple’s Complaint.

On October 3, 2022, the name

of the wholly owned surviving entity from the Merger Agreement was changed to Intellibed, LLC.

contributed 100 % of the membership

interest in Intellibed, LLC to Purple LLC and Intellibed, LLC became a wholly owned subsidiary of Purple LLC.

October 15, 2022, Keira Krausz signed an offer letter to become the Chief Marketing Officer of the Company, effective November 1, 2022.

The Company will grant to Ms.

Krausz, a one-time equity grant valued at $ 400,000 based on the market price of the Company’s Class

A Common Stock on the day of the grant as an inducement grant outside the Company’s 2017 Equity Incentive Plan in accordance with

the NASDAQ inducement grant exception found in NASDAQ Listing Rule 5635(c)(4).

This grant has not yet been awarded.

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-Q

Item 1. Financial Statements