What changed in this filing

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Item 9A. Controls and Procedures

2023-03-22 compared with 2022-03-01 · 2541 added, 2085 removed, 406 unchanged (92% of the section changed)

Controls and Procedures

of Disclosure Controls and Procedures

Under the supervision and with

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

Evaluation of Disclosure Controls and Procedures

Under the supervision and

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

(“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term

11 unchanged sentences

to allow timely decisions regarding required disclosure.

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

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

Annual Report on Internal Controls Over Financial Reporting

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

Under the supervision

and with the participation of our management, including our principal executive officer and principal financial officer, we conducted

an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the criteria established

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

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

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

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

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

Reported Material Weakness

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

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

the Company’s financial reporting processes.

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

insufficient training of IT personnel;

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

IT systems that could impact internal controls over financial reporting.

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

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

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

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

The Company has allocated resources to remediate user access

related control and segregation of duties deficiencies.

Our remediation efforts also include providing training to personnel associated

with reviewing IT user access.

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

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

to remediate this material weakness.

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

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

in Internal Control over Financial Reporting

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

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

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

of Independent Registered Public Accounting Firm

and Board of Directors

Innovation, Inc.

on Internal Control over Financial Reporting

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

31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring

Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material

respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by

the Company after the date of management’s assessment.

also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),

the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’

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

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

Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment

of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report

on Internal Control over Financial Reporting.

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

financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent

with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require

that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was

maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing

the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

that our audit provides a reasonable basis for our opinion.

material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is

a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented

or detected on a timely basis.

A material weakness regarding management’s failure to design and maintain effective information

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

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

in management’s assessment.

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

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

and Limitations of Internal Control over Financial Reporting

company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance

with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of

any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

Lake City, Utah

Based upon this evaluation

and the above criteria, our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31,

2022 at the reasonable assurance level.

Management’s Annual Report on Internal

Controls Over Financial Reporting

Our management is responsible

for establishing and maintaining adequate internal control over financial reporting.

Under the supervision and with the participation

of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness

of our internal control over financial reporting as of December 31, 2022, based on the criteria established in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation,

our management concluded that our internal controls over financial reporting were effective as of December 31, 2022.

On August 31, 2022, we acquired

Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”).

We are currently in the process of integrating Intellibed

into our assessment of our internal control over financial reporting.

Management’s assessment and conclusions on the effectiveness

of our internal control over financial reporting as of December 31, 2022 excludes an assessment of the internal control over financial

reporting of Intellibed.

Intellibed represents approximately 1.7% of the Company’s total revenues for the 12 months ending December

The effectiveness of the

Company’s internal control over financial reporting as of December 31, 2022 has been audited by BDO USA, LLP, an independent registered

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

Previously Reported Material Weakness

previously reported, during the quarter ended September 30, 2022, we determined a material weakness existed relating to ineffective ITGCs

in the areas of user access and segregation of duties related to certain IT systems that support the Company’s financial reporting

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

insufficient training of IT

and inadequate risk-assessment processes to identify and assess user access in certain IT systems that could impact internal

controls over financial reporting.

As a result, we determined that we did not have effective controls to prevent or detect a material

financial statement misstatement on a timely basis.

In response to this material weakness, management,

with oversight of the Audit Committee of the Board, effectively implemented a software solution to assist in managing access and segregation

of duties, provided enhanced training to those responsible for IT systems, and implemented improvements to ITGC processes.

Based on these

measures, management has tested the ITGCs, found them effective, and concluded that the previously reported material weakness described

above has been remediated as of December 31, 2022 .

Changes in Internal Control over Financial Reporting

Other than the remediation efforts related to the design and implementation

of sufficient controls and processes around ITGCs, there were no changes in our internal control over financial reporting during the quarter

ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial

Report of Independent Registered Public Accounting

Shareholders and Board of Directors

Purple Innovation, Inc.

Opinion on Internal Control over Financial

We have audited Purple Innovation, Inc.’s

(the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in

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

(the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial

reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public

Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December

31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of

the three years in the period ended December 31, 2022, and the related notes (collectively referred to as “the financial statements”)

and our report dated March 22, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible

for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over

financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

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

a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over

financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,

and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included

performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis

for our opinion.

Definition and Limitations of Internal Control

over Financial Reporting

A company’s internal control over financial

reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control

over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,

accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition

of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Salt Lake City, Utah

March 22, 2023

Other Information

Amendment to 2020 Credit Agreement

On February 28, 2022, the Company entered

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

The Amendment changes LIBOR to SOFR

with a floor of 0.50%.

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

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

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

Once a compliance certificate is

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

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

pricing will be based upon a consolidated net leverage ratio.

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

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

will be based on a consolidated net leverage ratio.

The Amendment also adds a covenant amendment

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

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

two consecutive quarters.

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

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

Incremental term loan commitments

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

The Amendment adds a new mandatory prepayment

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

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

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

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

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

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

In addition, swing loans are now discretionary rather than mandatory

even if all conditions have been satisfied.

The Amendment provides that the consolidated

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

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

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

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

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

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

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

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

year ending December 31, 2024.

The Amendment also eliminates the availability

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

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

Pursuant to the Amendment, the Company

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

The foregoing summary of the Amendment does not

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

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

Appointment of Permanent Chief Executive Officer

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

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

DeMartini has served

as the Company’s Acting CEO since January 2022.

There are no related party transactions between Mr.

DeMartini and the Company as

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

There are no family relationships between Mr.

DeMartini and any other director, executive officer

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

DeMartini’s biographical information is

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

Disclosure Regarding Foreign Jurisdictions that Prevent

Not applicable.

Directors, Executive Officers and Corporate Governance

Directors, Executive Officers and

Corporate Governance

information required under the captions “Directors” and “Corporate Governance” is incorporated herein by reference

3 unchanged sentences

Executive Compensation

information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to

Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close

of the Company’s fiscal year ended December 31, 2021.

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

information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to

Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close

of the Company’s fiscal year ended December 31, 2021.

Certain Relationships and Related Transactions, and Director Independence

information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to

Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close

of the Company’s fiscal year ended December 31, 2021.

The information required

under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which

proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s

fiscal year ended December 31, 2022.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

The information required

under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which

proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s

fiscal year ended December 31, 2022.

Certain Relationships and Related

Transactions, and Director Independence

The information required

under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which

proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s

fiscal year ended December 31, 2022.

Principal Accountant Fees and Services

information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to

Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close

of the Company’s fiscal year ended December 31, 2021.

Exhibits and Financial Statement Schedules

The information required

under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which

proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s

fiscal year ended December 31, 2022.

Exhibits and Financial Statement

following documents are filed as part of this Report:

(1) Financial

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

The following financial statements

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

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

3 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

2 unchanged sentences

Statements Schedule

other financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the

required information is presented in the consolidated financial statements and notes thereto in Item 15 of Part IV below.

hereby file as part of this report the exhibits listed in the attached Exhibit Index.

Exhibits which are incorporated herein by reference

can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C.

20549 at prescribed rates or on the SEC website at www.sec.gov .

and Plan of Merger, dated November 2, 2017, by and among Global Partner Acquisition Corp., PRPL Acquisition, LLC, Purple Innovation,

LLC, InnoHold, LLC and Global Partner Sponsor I LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File

All other financial statement

schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is

presented in the consolidated financial statements and notes thereto in Item 15 of Part IV below.

We hereby file as part of

this report the exhibits listed in the attached Exhibit Index.

Exhibits which are incorporated herein by reference can be inspected and

copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C.

20549 at prescribed

rates or on the SEC website at www.sec.gov .

EXHIBIT INDEX

Agreement and Plan of Merger, dated November 2, 2017, by and among Global Partner Acquisition Corp., PRPL Acquisition, LLC, Purple Innovation, LLC, InnoHold, LLC and Global Partner Sponsor I LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No.

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

1 to Agreement and Plan of Merger, dated January 8, 2018, by and among Global Partner Acquisition Corp., Purple Innovation, LLC,

PRPL Acquisition, LLC and other parties named therein (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K

Amendment No.

1 to Agreement and Plan of Merger, dated January 8, 2018, by and among Global Partner Acquisition Corp., Purple Innovation, LLC, PRPL Acquisition, LLC and other parties named therein (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No.

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

2 to Agreement and Plan of Merger, dated May 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global Partner

Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q (File No.

Amendment No.

2 to Agreement and Plan of Merger, dated May 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global Partner Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q (File No.

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

3 to Agreement and Plan of Merger, dated June 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global

Partner Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q (File No.

Amendment No.

3 to Agreement and Plan of Merger, dated June 14, 2018, by and among Purple Innovation, Inc., Purple Innovation, LLC, Global Partner Sponsor I LLC and InnoHold, LLC (incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on August 9, 2018)

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

Merger Agreement, dated as of August 31, 2022, by and among Purple Innovation, Inc., Gelato Intermediate, LLC, Gelato Merger Sub, Inc., Advanced Comfort Technologies, Inc., and D.

Scott Peterson (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on September 1, 2022).

Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No.

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

and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No.

001-37523) filed with the

SEC on February 8, 2018)

1 to the Amended and Restated Bylaws (incorporated by reference into Exhibit 3.3 to the Annual Report on Form 10-K (File No.

001-37523) filed with the SEC on March 11, 2021)

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

Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on December 15, 2022).

Certificate of Designation of the Preferred Stock of the Company, dated September 26, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on September 27, 2022).

Certificate of Designation of Proportional Representation Preferred Linked Stock of the Company, dated February 14, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on February 14, 2023).

of Class B Common Stock certificate (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No.

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

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

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

333-204907) filed

with the SEC on July 13, 2015)

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

to Exhibit 4.1 to the Current Report on Form 8-K (File No.

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

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

Form of Class B Common Stock certificate (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File No.

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

of Registered Securities (incorporated by reference into Exhibit 4.6 to the Annual Report on Form 10-K (File No.

001-37523) filed

with the SEC on March 11, 2021)

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

001-37523) filed

with the SEC on May 15, 2018)

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

Description of Registered Securities.

Stockholder Rights Agreement, dated as of September 25, 2022, by and between the Company and Pacific Stock Transfer Company, as rights agent (which includes the Form of Rights Certificate as Exhibit B thereto) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on September 27, 2022).

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

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

of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.

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

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

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

Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.

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

of Stock Bonus Award Agreement (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No.

Form of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No.

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

Agreement, dated February 2, 2018, by and between Purple Innovation, Inc., Purple Innovation, LLC and InnoHold, LLC (incorporated

by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

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

Receivable Agreement, dated February 2, 2018, by and between Purple Innovation, Inc.

and InnoHold, LLC (incorporated by reference

to Exhibit 10.2 to the Current Report on Form 8-K (File No.

Form of Stock Bonus Award Agreement (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (File No.

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

Exchange Agreement, dated February 2, 2018, by and between Purple Innovation, Inc., Purple Innovation, LLC and InnoHold, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

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

Rights Agreement, dated February 2, 2018, by and among Purple Innovation, Inc., InnoHold, LLC and Global Partner Sponsor I LLC (incorporated

by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No.

Tax Receivable Agreement, dated February 2, 2018, by and between Purple Innovation, Inc.

and InnoHold, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No.

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

Non-Competition

and Non-Solicitation Agreement, dated February 2, 2018, by and among Purple Innovation, Inc., InnoHold, LLC, Purple Innovation, LLC,

Terry Pearce and Tony Pearce (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No.

001-37523) filed

with the SEC on February 8, 2018)

Agreement, dated February 2, 2018, between Purple Innovation, Inc.

and Tony Pearce (incorporated by reference to Exhibit 10.6 to

the Current Report on Form 8-K (File No.

Employment Agreement, dated February 2, 2018, between Purple Innovation, Inc.

and Tony Pearce (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No.

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

Agreement, dated February 2, 2018, between Purple Innovation, Inc.

and Terry Pearce (incorporated by reference to Exhibit 10.7 to

the Current Report on Form 8-K (File No.

Employment Agreement, dated February 2, 2018, between Purple Innovation, Inc.

and Terry Pearce (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K (File No.

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

Innovation, Inc.

Purple Innovation, Inc.

2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K (File No.

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

and Backstop Agreement, dated January 29, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Baleen Capital

Investors II LLC, Baleen Capital Fund LP, Greenhaven Road Capital Fund 1, L.P., Royce Value Trust, Inc., David Capital Partners Fund,

LP, Pleiades Investment Partners – DC, L.P.

and Dane Capital Fund LP (incorporated by reference to Exhibit 10.12 to the Current

Report on Form 8-K (File No.

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

to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental

Stock Transfer and Trust Company, Baleen Capital Investors II LLC, Baleen Capital Fund LP, Greenhaven Road Capital Fund 1, L.P.,

Royce Value Trust, Inc., David Capital Partners Fund, LP, Pleiades Investment Partners – DC, L.P.

and Dane Capital Fund LP

(incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on February

Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Baleen Capital Investors II LLC, Baleen Capital

Fund LP, Greenhaven Road Capital Fund 1, L.P., Royce Value Trust, Inc., David Capital Partners Fund, LP, Pleiades Investment Partners

and Dane Capital Fund LP (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K (File No.

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

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

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

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

and Blackwell Partners LLC – Series A (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K (File No.

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

to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental

Stock Transfer and Trust Company, Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P.

Agreement to Assign Sponsor Warrants, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company, Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P.

(incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K (File No.

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

to Assign Founder Shares, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental

Stock Transfer and Trust Company and Coliseum Capital Partners, L.P., Blackwell Partners, LLC (incorporated by reference to Exhibit

10.17 to the Current Report on Form 8-K (File No.

Agreement to Assign Founder Shares, dated February 2, 2018, between Global Partner Acquisition Corp., Global Partner Sponsor I LLC, Continental Stock Transfer and Trust Company and Coliseum Capital Partners, L.P., Blackwell Partners, LLC (incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K (File No.

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

Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Coliseum Capital Partners, L.P., Blackwell Partners,

LLC and Coliseum Co-Invest Debt Fund, L.P.

Registration Rights Agreement, dated February 2, 2018, between Global Partner Acquisition Corp., Coliseum Capital Partners, L.P., Blackwell Partners, LLC and Coliseum Co-Invest Debt Fund, L.P.

(incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K (File No.

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

Agreement with the Company and Joseph B.

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

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

Letter between the Company and Mark A.

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

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

and Restated Option Grant Agreement between the Company and Mark A.

Watkins (incorporated by reference to Exhibit 10.3 to the Current

Report on Form 8-K/A (File No.

001-37523) filed with the SEC on November 9, 2018)

Amended and Restated Confidential Assignment and License Back Agreement between the Company and EdiZONE (incorporated by reference

to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

Second Amended and Restated Confidential Assignment and License Back Agreement between the Company and EdiZONE (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

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

Letter between Purple Innovation, LLC and John Legg dated January 12, 2019 (incorporated by reference to Exhibit 10.2 to the Current

Report on Form 8-K (File No.

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

Grant Agreement dated February 21, 2019 between Purple Innovation, Inc.

and John Legg (incorporated by reference to Exhibit 10.7

to the Current Report on Form 8-K (File No.

Option Grant Agreement dated February 21, 2019 between Purple Innovation, Inc.

and John Legg (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K (File No.

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

Rights Agreement dated February 26, 2019 between and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners

LLC – Series A and Coliseum Co-Invest Debt Fund, L.P.

(incorporated by reference to Exhibit 10.3 to the Current Report on Form

8-K (File No.

Registration Rights Agreement dated February 26, 2019 between and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A and Coliseum Co-Invest Debt Fund, L.P.

(incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No.

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

of Work agreement dated March 1, 2019 by and between Purple Innovation, Inc.

Statement of Work agreement dated March 1, 2019 by and between Purple Innovation, Inc.

and FTI Consulting, Inc.

(incorporated by reference

to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 7, 2019)

Retailer Agreement dated September 18, 2018 by and between Purple Innovation LLC and Mattress Firm, Inc.

(incorporated by reference

to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No.

(incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 7, 2019)

Innovation, Inc.

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

Master Retailer Agreement dated September 18, 2018 by and between Purple Innovation LLC and Mattress Firm, Inc.

(incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 7, 2019)

Innovation, Inc.

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

Purple Innovation, Inc.

2019 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

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

Agreement dated June 10, 2019 between Purple Innovation, LLC and North Slope One, LLC (incorporated by reference to Exhibit 10.1

to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on August 13, 2019)

and General Release of Claims Agreement dated May 28, 2019 between Purple Innovation, Inc.

and Mark Watkins (incorporated by reference

to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No.

Lease Agreement dated June 10, 2019 between Purple Innovation, LLC and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on August 13, 2019)

Agreement between the Company and Craig L.

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

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

Grant Agreement between the Company and Craig L.

Phillips (incorporated by reference to Exhibit 10.2 to the Current Report on Form

8-K (File No.

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

Amendment to Lease dated November 19, 2019 between the Company and North Slope One, LLC (incorporated by reference to Exhibit 10.1

to the Current Report on Form 8-K (File No.

First Amendment to Lease dated November 19, 2019 between the Company and North Slope One, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

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

to TNT Holdings Amended and Restated Lease Agreement dated April 23, 2020 (incorporated by reference to Exhibit 10.1 to the Quarterly

Report on Form 10-Q (File No.

Amendment to TNT Holdings Amended and Restated Lease Agreement dated April 23, 2020 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on May 11, 2020)

Agreement between Purple Innovation, LLC and PNK S2, LLC dated July 21, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly

Report on Form 10-Q (File No.

Lease Agreement between Purple Innovation, LLC and PNK S2, LLC dated July 21, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on August 14, 2020)

Agreement dated September 3, 2020 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association,

and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

Credit Agreement dated September 3, 2020 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

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

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

Pledge and Security Agreement dated September 3, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No.

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

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

001-37523) filed with

the SEC on September 3, 2020)

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

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

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

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

Collateral Assignment of Patents dated September 3, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No.

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

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

Collateral Assignment of Trademarks dated September 3, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No.

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

Collateral Assignment of Copyrights dated September 3, 2020 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No.

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

Innovation, Inc.

2020 Short-Term Cash Incentive Plan (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form

10-Q (File No.

001-37523) filed with the SEC on November 10, 2020)

Transfer and IP Assignment Agreement between Purple Innovation, LLC and EdiZONE, LLC dated August 14, 2020 (incorporated by reference

to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

License Transfer and IP Assignment Agreement between Purple Innovation, LLC and EdiZONE, LLC dated August 14, 2020 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on November 10, 2020)

Indemnification

Agreement between Purple Innovation, Inc.

and Paul Zepf dated August 18, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly

Report on Form 10-Q (File No.

Indemnification Agreement between Purple Innovation, Inc.

and Paul Zepf dated August 18, 2020 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.

001-37523) filed with the SEC on November 10, 2020)

Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital

Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated March 27, 2020 (incorporated by reference

to Exhibit 10.1 to the Current Report on Form 8-K (File No.

First Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated March 27, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on March 30, 2020)

Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital

Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated May 15, 2020 (incorporated by reference

to Exhibit 10.1 to the Current Report on Form 8-K (File No.

Second Amendment to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated May 15, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

37523) filed with the SEC on May 18, 2020)

and Consent to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital

Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated August 20, 2020 (incorporated by reference

into Exhibit 10.1 to the Current Report on Form 8-K (File No.

Waiver and Consent to Amended and Restated Credit Agreement by and among Purple Innovation, LLC, Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC-Series A, and Coliseum Co-Invest Debt Fund, L.P.

dated August 20, 2020 (incorporated by reference into Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on August 21, 2020)

16 unchanged sentences

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

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

and Joseph B.

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

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

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

and Robert T.

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

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

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

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

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

First Amendment to the 2020 Credit Agreement dated February 28, 2022 between and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.60 to the Annual Report on Form 10-K (File No.

001-37523) filed with the SEC on March 1, 2022).

Amended and Restated Employment Agreement, dated as of March 19, 2022, by and among Robert T.

DeMartini and Purple Innovation, Inc.

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

001-37523) filed with the SEC on March 22, 2022).

Second Amendment to the 2020 Credit Agreement dated March 23, 2022 by and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on March 24, 2022).

Offer letter dated as of April 29, 2022, signed by Eric Haynor (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on May 3, 2022).

Purple Innovation, Inc.

2022 Short-Term Cash Incentive Plan, dated as of May 26, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on June 1, 2022).

Second Amendment to Purple Innovation, Inc.

2017 Equity Incentive Plan dated June 2, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on June 3, 2022).

Second Consultancy Agreement, dated as of August 11, 2022, by and among Bennett Nussbaum and Purple Innovation, Inc.

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

001-37523) filed with the SEC on August 16, 2022).

Separation Agreement entered into between Purple Innovation, LLC and Patrice Varni dated November 5, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on November 8, 2022).

Fifth Amendment to the 2020 Credit Agreement dated February 17, 2023 by and among Purple Innovation, LLC, Purple Innovation, Inc., KeyBank National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-37523) filed with the SEC on February 21, 2023) .

Code of Ethics of Purple Innovation, Inc.

1 unchanged sentence

001-37523) filed with the SEC on March 11, 2021)

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

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

List of Subsidiaries of the Registrant.

Consent of Independent Registered Public Accounting Firm

Power of Attorney (included on signature page)

Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

4 unchanged sentences

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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

and exhibits to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

The Company hereby undertakes

to furnish supplementally a copy of any omitted schedules and exhibits to the Securities and Exchange Commission upon request.

management contract or compensatory plan.

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

Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File (formatted as Inline

XBRL and contained in Exhibit 101).

Schedules and exhibits

to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

The Company hereby undertakes to furnish

supplementally a copy of any omitted schedules and exhibits to the Securities and Exchange Commission upon request.

Indicates management contract

or compensatory plan.

Confidential treatment

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

Form 10-K Summary

INNOVATION, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Not applicable.

PURPLE INNOVATION, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Notes to Consolidated Financial Statements F-7

of Independent Registered Public Accounting Firm

and Board of Directors

Innovation, Inc.

Opinion on the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Purple Innovation, Inc.

Opinion on the Consolidated

Financial Statements

We have audited the accompanying

7 unchanged sentences

in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards

of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial

reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued

by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed

an adverse opinion thereon because of a material weakness.

We also have audited, in accordance with the standards of the Public

Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting

as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee

of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 22, 2023 expressed an unqualified

opinion thereon.

Basis for Opinion

21 unchanged sentences

Critical Audit Matters

The critical audit matters communicated below

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

The critical audit matter communicated below is

a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(1) relates to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter

The communication of the critical audit matter does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

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

Deferred Tax Asset

Valuation Allowance

As described in Notes 2 and

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

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets

will be realized.

We identified the Company’s

evaluation of whether certain of its deferred tax assets are realizable as a critical audit matter.

Significant management judgments are

required in evaluating and weighting the collective positive and negative evidence that are used to assess the realizability of deferred

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

and the rate of expected growth.

Auditing these elements involved especially complex auditor judgment due to the nature and extent of

audit effort required to address these matters, including the need to involve personnel with specialized skill and knowledge.

The primary procedures

we performed to address this critical audit matter included:

- Assessing the reasonableness of the Company’s ability to generate future income and utilize the

deferred tax assets by evaluating forecasts of future income and the rate of expected growth against the Company’s historical performance

and performing independent estimates of the expected rate of continued growth to evaluate the changes in realizability of deferred tax

assets that would result from changes in those assumptions.

- Utilizing personnel with specialized knowledge and skill in income taxes to assist in the evaluation of

the Company’s assessment of positive and negative evidence, and whether the estimated future sources of taxable income were sufficient

to utilize the deferred tax assets in the relevant time period.

matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Warranty Accrual

7 unchanged sentences

recognized at the time of sale in cost of revenues.

We identified the Company’s

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

Specifically, the evaluation includes

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

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

in evaluating the warranty liability.

We identified the warranty

accrual as a critical audit matter because of certain significant assumptions used by management to estimate warranty costs at the time

of sale, specifically, estimated future warranty claims and estimated costs to remedy warranty claims.

Auditing these certain significant

management assumptions involved especially complex and subjective auditor judgment due to the nature and extent of audit effort required

to address these matters.

The primary procedures

we performed to address this critical audit matter included:

- Obtaining an understanding, evaluating the design and testing the

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

Specifically, we tested controls over

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

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

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

costs incurred.

- Assessing the accuracy of management’s estimation by performing

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

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

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

Evaluating management’s estimate of future warranty claims and estimated costs to remedy warranty claims by testing key inputs, including historical claims made and actual warranty costs incurred.

the accuracy of management’s estimation of future warranty claims by performing a lookback

analysis, which compared the amount of claims accrued in prior years to actual claims made

in subsequent periods.

Assessing management’s estimate of future warranty claims and estimated costs to remedy warranty claims by evaluating management’s analysis of the Company’s warranty expense as a percentage of revenues compared to that of peer companies based on available public information.

/s/ BDO USA, LLP

1 unchanged sentence

Salt Lake City, Utah

INNOVATION, INC.

Balance Sheets

thousands, except for par value)

Current assets:

and cash equivalents

receivable, net

current assets

March 22, 2023

PURPLE INNOVATION, INC.

Consolidated Balance Sheets

(In thousands, except for par value)

Current assets:

and equipment, net

lease right-of-use assets

long-term assets

and Stockholders’ Equity

sales returns

rebates and allowances

lease obligations – current portion

current liabilities

Cash, cash equivalents and restricted cash

Accounts receivable, net

Inventories, net

Prepaid expenses

Other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Deferred income taxes

Other long-term assets

Liabilities and Stockholders’ Equity

Current liabilities:

net of current portion

lease obligations, net of current portion

receivable agreement liability, net of current portion

long-term liabilities, net of current portion

and contingencies (Note 12)

Stockholders’

Accounts payable

Accrued sales returns

Accrued compensation

Customer prepayments

Accrued sales and use tax

Accrued rebates and allowances

Operating lease obligations – current portion

Other current liabilities

Total current liabilities

Debt, net of current portion

Operating lease obligations, net of current portion

Warrant liabilities

Tax receivable agreement liability, net of current portion

Other long-term liabilities, net of current portion

Total liabilities

Commitments and contingencies (Note 14)

Stockholders’ equity:

Class A common stock;

4 unchanged sentences

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

paid-in capital

stockholders’ equity attributable to Purple Innovation, Inc.

Noncontrolling

stockholders’ equity

liabilities and stockholders’ equity

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

INNOVATION, INC.

Statements of Operations

thousands, except per share amounts)

Ended December 31,

and administrative

and development

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity attributable to Purple Innovation, Inc.

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Operations

(In thousands, except per share amounts)

Year Ended December 31,

Revenues, net

Cost of revenues

Operating expenses:

income (loss)

income (expense):

income (expense), net

on extinguishment of debt

in fair value – warrant liabilities

receivable agreement income (expense)

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating income (loss)

Other income (expense):

Interest expense

Other income (expense), net

income (loss) before income taxes

tax benefit (expense)

income (loss)

income (loss) attributable to noncontrolling interest

income (loss) attributable to Purple Innovation, Inc.

$ ( 236,867 )

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Tax receivable agreement income (expense)

Total other income (expense), net

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Weighted average

common shares outstanding:

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

INNOVATION, INC.

Statements of Stockholders’ Equity (Deficit)

Net income (loss) attributable to noncontrolling interest

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

$ ( 236,867 )

Net income (loss) per share:

Weighted average common shares outstanding:

The accompanying notes are an integral part of

these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Stockholders’

Equity (Deficit)

(In thousands)

Stockholders’

Noncontrolling

— December 31, 2018

of stock option

of unvested stock

tax distributions

of transactions affecting NCI

– December 31, 2019

income (loss)

of incremental loan warrants

of stock options

receivable agreement liability

tax distributions

of unvested stock

of transactions affecting NCI

– December 31, 2020

Balance — December 31, 2019

Net income (loss)

Stock-based compensation

Exchange of stock

Exercise of warrants

Exercise of incremental loan warrants

Exercise of stock options

Tax receivable agreement liability

Deferred income taxes

Accrued tax distributions

Issuance of stock

Forfeiture of unvested stock

Impact of transactions affecting NCI

Balance – December 31, 2020

$ ( 265,856 )

income (loss)

of stock options

receivable agreement liability

tax distributions

of common stock

indemnification payment

of transactions affecting NCI

– December 31, 2021

Net income (loss)

Stock-based compensation

Exchange of stock

Exercise of warrants

Exercise of stock options

Tax receivable agreement liability

Deferred income taxes

Accrued tax distributions

Issuance of stock

InnoHold indemnification payment

Impact of transactions affecting NCI

Balance – December 31, 2021

$ ( 261,825 )

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

INNOVATION, INC.

Statements of Cash Flows

Stock-based compensation

Exercise of stock options

Issuance of stock upon underwritten public offering, net of costs

Issuance of stock for acquisition

Accrued distributions

Issuance of stock under equity compensation plans

Impact of transactions affecting NCI

Balance – December 31, 2022

$ ( 351,514 )

The accompanying notes are an integral part of

these consolidated financial statements.

PURPLE INNOVATION, INC.

Consolidated Statements of Cash Flows

(In thousands)

Ended December 31,

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on extinguishment of debt

on disposal of property and equipment

in fair value – warrant liabilities

receivable agreement (income) expense

lease expense

from effective settlement of preexisting relationship

in operating assets and liabilities:

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rebates and allowances

lease obligations

accrued liabilities

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flows from investing activities:

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

of property and equipment

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flows from financing activities:

from related-party loan

from term loan

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from revolving line of credit

on revolving line of credit

from stock offering

for stock offering costs

from exercise of warrants

from exercise of stock options

of stock options

for debt issuance costs

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and equipment included in accounts payable

of liability warrants

of stock for acquisition

leasehold improvements

tax distributions

distributions

receivable agreement liability

of liability warrants

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

INNOVATION, INC.

to the Consolidated Financial Statements

Company’s mission is to help people feel and live better through innovative comfort solutions.

Purple Innovation, Inc., collectively

with its subsidiary (the “Company” or “Purple Inc.”) is a digitally-native vertical brand founded on comfort product

innovation with premium offerings.

The Company designs and manufactures a variety of innovative, branded and premium comfort products,

including mattresses, pillows, cushions, bases, sheets, and other products.

The Company markets and sells its products through its e-commerce

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

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

Corp (“GPAC”).

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

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

At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple

LLC, and GPAC was renamed Purple Innovation, Inc.

the sole managing member of Purple LLC, Purple Inc.

through its officers and directors is responsible for all operational and administrative

decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member.

Summary of Significant Accounting Policies

summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements.

The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their

integrity and objectivity.

of Presentation and Principles of Consolidation

consolidated financial statements include the accounts of Purple Inc.

and its controlled subsidiary Purple LLC.

All intercompany balances

and transactions have been eliminated in consolidation.

As of December 31, 2021, Purple Inc.

held approximately 99% of the common units

of Purple LLC and other Purple LLC Class B Unit holders held approximately 1% of the common units in Purple LLC.

The accompanying notes are an integral part of

these consolidated financial statements.

PURPLE INNOVATION, INC.

Notes to the Consolidated Financial Statements

The Company’s mission

is to help people feel and live better through innovative comfort solutions.

Purple Innovation, Inc., collectively with its subsidiary (the “Company”

or “Purple Inc.”) began as a digitally-native vertical brand founded on comfort product innovation with premium offerings,

and is now omni-channel.

The Company designs and manufactures a variety of innovative, branded and premium comfort products, including

mattresses, pillows, cushions, bases, sheets, and other products.

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

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

The Company was incorporated

in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”).

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.

On August 31, 2022, the Company

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

to an Agreement and Plan of Merger (the “Merger Agreement”), in 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.

On October 3, 2022,

contributed 100 % of the membership interest in Intellibed to Purple LLC and Intellibed became a wholly owned subsidiary of

For further discussion see Note 4 — Acquisition.

of Significant Accounting Policies

This summary of significant

accounting policies is presented to assist in understanding the Company’s consolidated financial statements.

The consolidated financial

statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.

Basis of Presentation and Principles of

Consolidation

The consolidated financial

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

subsidiary, from the date of acquisition.

All intercompany balances and transactions have been eliminated in consolidation.

As of December

31, 2022, Purple Inc.

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

in Purple LLC.

The accompanying consolidated

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These accounting policies have been consistently applied in the preparation of the consolidated financial statements.

Interest Entities

Purple LLC is a variable interest

The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to

direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive

benefits that are potentially significant.

Variable Interest Entities

Purple LLC is a variable interest entity.

The Company determined that

it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant

to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant.

At December 31, 2022, Purple Inc.

had approximately a 99 % economic interest in Purple LLC and

consolidated 100 % of Purple LLC’s assets, liabilities and results of operations in the Company’s consolidated financial statements

contained herein.

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

in Purple LLC as of December 31, 2021.

had a 99.5 % economic interest in Purple LLC and consolidated 100 % of Purple LLC’s assets, liabilities

and results of operations in the Company’s consolidated financial statements contained herein.

The holders of Class B Units held

0.5 % of the economic interest in Purple LLC as of December 31, 2022.

For further discussion see Note 16— Stockholders’ Equity .

Reclassification

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

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

Prepaid expenses, previously included in the consolidated

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

Also, the change in accrued rebates and allowances, previously

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

The preparation of consolidated

financial statements in conformity with U.S.

generally accepted accounting principles requires the Company to establish accounting policies

and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting

The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results

of which form the basis for making judgments about the carrying values of assets and liabilities.

The Company regularly makes significant

estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and allowance

for doubtful accounts, valuation of inventories, sales returns, warranty returns, warrant liabilities, stock based compensation, the recognition

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

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

Predicting future events is

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

Actual results could differ materially from those estimates.

and Cash Equivalents

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

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

Receivable and Allowance for Doubtful Accounts

receivable are recorded net of an allowance for expected losses and consist primarily of receivables from wholesale customers and receivables

from third-party consumer financing partners and credit card processors.

The allowance is recognized in an amount equal to anticipated

future write-offs.

Management estimates the allowance for doubtful accounts based on delinquencies, aging trends, industry risk trends,

historical experience and current trends.

Account balances are charged off against the allowance when management believes it is probable

the receivable will not be recovered.

The allowance for doubtful accounts as of December 31, 2021 and 2020 was not material.

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

inventory consists of raw material, direct labor and manufacturing overhead costs.

Certain prior year amounts

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

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

The change in operating leases, previously reflected

as two line items within cash flows from operating activities, is now presented on a net basis as a single line item within the changes

in operating assets and liabilities section of the consolidated statement of cash flows.

Use of Estimates

The preparation of consolidated financial statements in conformity

generally accepted accounting principles requires the Company to establish accounting policies and to make estimates and judgments

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated

financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company bases its estimates on

historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments

about the carrying values of assets and liabilities.

The Company regularly makes significant estimates and assumptions including, but

not limited to, estimates that affect revenue recognition, accounts receivable and allowance for doubtful accounts, valuation of inventories,

sales returns, warranty returns, fair value of assets acquired and liabilities assumed in a business combination, 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.

Cash, Cash Equivalents and Restricted Cash

The Company considers all

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

The carrying value of cash, cash equivalents

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

At December 31, 2022, cash,

cash equivalents and restricted cash included $ 1.7 million of restricted cash deposited by Intellibed in a separate account pursuant to

an escrow agreement with the Company.

For further discussion regarding restricted cash, see Note 4 — Acquisition.

Accounts Receivable and Allowance for Doubtful

Accounts receivable are recorded

net of an allowance for expected losses and consist primarily of receivables from wholesale customers and receivables from third-party

consumer financing partners and credit card processors.

The allowance is recognized in an amount equal to anticipated future write-offs.

Management estimates the allowance for doubtful accounts based on delinquencies, aging trends, industry risk trends, historical experience

and current trends.

Account balances are charged off against the allowance when management believes it is probable the receivable will

not be recovered.

The allowance for doubtful accounts at both December 31, 2022 and 2021 was not material.

Inventories are comprised

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

Manufactured inventory

consists of raw material, direct labor and manufacturing overhead costs.

Inventory cost is calculated using a method that approximates

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adjustments when necessary.

Once established, the original cost of the inventory less the related inventory allowance represents the

new cost basis of such products.

and Equipment

and equipment are stated at cost, net of depreciation.

Property and equipment are depreciated using the straight-line method over the

estimated useful lives of the respective assets, ranging from 1 to 16 years, as follows:

Once established, the original cost of the inventory less the related inventory allowance represents the new

cost basis of such products.

Property and Equipment

Property and equipment are

stated at cost, net of depreciation.

Property and equipment are depreciated using the straight-line method over the estimated useful lives

of the respective assets, ranging from 1 to 17 years , as follows:

Furniture and fixtures

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Leasehold improvements

renewals and betterments that increase value or extend useful life are capitalized.

The Company records depreciation and amortization

in cost of sales for long-lived assets used in the manufacturing process, and within each line item of operating expenses for all other

long-lived assets.

Leasehold improvements are amortized over the shorter of the useful life of the leasehold improvements or the

contractual term of the lease, with consideration of lease renewal options if exercise is reasonably certain.

The cost and related accumulated

depreciation of assets sold or retired is removed from the accounts with any resulting gain or loss included in the consolidated statement

of operations.

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

Interest capitalization ceases

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

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

When no debt is specifically

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

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

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

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

key information about an entity’s leasing arrangements.

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

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

The adoption of ASC 842 and all related amendments

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

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

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

Pre-existing liabilities for deferred rent and various

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

of ASC 842 did not have a material impact on the Company’s consolidated results of operations or cash flows and had no impact on

retained earnings.

At January 1, 2020, the effective date of adoption, the Company’s finance ROU assets and lease liabilities were

not material.

Company determines if an agreement contains a lease at the inception of a contract.

For leases with an initial term greater than 12 months,

a related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully

collateralized incremental borrowing rate (discount rate) corresponding with the lease term.

In addition, a ROU asset is recorded as

Major renewals and betterments

that increase value or extend useful life are capitalized.

The Company records depreciation and amortization in cost of sales for long-lived

assets used in the manufacturing process, and within each line item of operating expenses for all other long-lived assets.

Leasehold improvements

are amortized over the shorter of the useful life of the leasehold improvements or the contractual term of the lease, with consideration

of lease renewal options if exercise is reasonably certain.

The cost and related accumulated depreciation of assets sold or retired is

removed from the accounts with any resulting gain or loss included in the consolidated statement of operations.

The Company capitalizes interest

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

Interest capitalization ceases once a project is substantially

complete or no longer undergoing construction activities to prepare it for its intended use.

Capitalized interest is added to the cost

of the underlying assets and is amortized over the useful lives of the assets.

When no debt is specifically identified as being incurred

in connection with a construction project, the Company capitalizes interest on amounts expended on the project using the weighted average

cost of the Company’s outstanding borrowings.

The Company determines if

an agreement contains a lease at the inception of a contract.

For leases with an initial term greater than 12 months, a related lease

liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental

borrowing rate (discount rate) corresponding with the lease term.

In addition, a right-of-use (“ROU”) asset is recorded as

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

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non-lease components for all real estate leases.

Company calculates the present value of future payments using its incremental borrowing rate when the discount rate implicit in the lease

is not known.

The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis

over a similar term at an amount equal to the lease payments in a similar economic environment.

The Company determines the applicable

incremental borrowing rate at the lease commencement date based on the rates of its secured borrowings, which is then adjusted for the

appropriate lease term and risk premium.

In determining the Company’s ROU assets and operating lease liabilities, the Company applies

these incremental borrowing rates to the minimum lease payments within each lease agreement.

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

Tenant incentive allowances received from the lessor are amortized

through the right-of-use asset as a reduction of rent expense over the lease term.

The Company calculates the

present value of future payments using its incremental borrowing rate when the discount rate implicit in the lease is not known.

The incremental

borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount

equal to the lease payments in a similar economic environment.

The Company determines the applicable incremental borrowing rate at the

lease commencement date based on the rates of its secured borrowings, which is then adjusted for the appropriate lease term and risk premium.

In determining the Company’s ROU assets and corresponding lease liabilities, the Company applies these incremental borrowing rates

to the minimum lease payments within each lease agreement.

Lease expense is recognized

on a straight-line basis over the lease term.

Tenant incentive allowances received from the lessor are amortized through the ROU asset

as a reduction of rent expense over the lease term.

Any variable lease costs are expensed as incurred.

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

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

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

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

not be recoverable.

to fiscal 2020 , total lease payments over the non-cancellable term of a lease were recognized as rent expense on a straight-line

basis over the lease term, with the excess of expense recognized over lease payments made recorded as a deferred rent liability on the

balance sheet.

Any lease incentive payments received from lessors were recorded as a liability on the balance sheet and amortized as

a reduction of rent expense over the term of the lease.

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

patent and trademark related costs.

Definite-lived intangible assets are being amortized using the straight-line method over their estimated

lives, ranging from three to 15 years .

Leases with an initial term

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

Short-term lease expense

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

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

is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Business Combinations

The Company accounts for business

combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations.

When the Company

completes an acquisition, the assets acquired and the liabilities assumed are recognized separately from goodwill at their acquisition

date fair values.

Goodwill as of the acquisition date is measured as the excess of the fair value of consideration transferred over the

net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While best estimates and assumptions are used

to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable,

the Company’s estimates are inherently uncertain and subject to refinement.

If the Company obtains new information within the measurement

period (up to one year from the acquisition date) about facts and circumstances that existed as of the acquisition date that,

if known, would have affected the measurement of the amounts recognized as of that date, the Company records adjustments to the assets

acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination

of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are reflected in the consolidated

statement of operations.

In the event an acquisition

involves an entity with which the Company has a preexisting relationship, the Company will generally recognize a gain or loss

within the consolidated statement of operations to settle that relationship as of the acquisition date.

Transaction costs associated with

business combinations are expensed as incurred.

Company accounts for goodwill in a business combination as the excess of the cost over the fair value of net assets acquired and is assigned

to the reporting unit in which the acquired business will operate.

The Company does not amortize goodwill but tests it for impairment

each fiscal year or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including

goodwill, to the fair value of the reporting unit.

The Company may elect to perform a qualitative assessment to determine whether it is

more likely than not that a reporting unit is impaired.

If the qualitative assessment is not performed or if the Company determines that

it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the Company determines the fair value

of its reporting units based on an average weighting of both projected discounted future results and the use of comparative market multiples.

If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a loss recognized in the amount

equal to that excess.

Intangible Assets

Intangible assets include

a customer relationship intangible associated with the Intellibed acquisition, developed technologies by Purple and Intellibed, trade

names and trademarks, internal-use software, domain name costs, license fees and other patent and trademark related costs.

Definite-lived

intangible assets are being amortized using the straight-line method over their estimated lives, ranging from two to 15 years.

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

internal-use software.

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

involved with the development of such applications.

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

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

Capitalized software costs are amortized on a straight-line

basis over three years .

Impairment Charges

Definite-lived

Intangible Assets – Definite-lived intangible assets are reviewed for impairment annually or whenever events or changes in

circumstances indicate impairment may have occurred.

Any identified impairment would result in an adjustment to the Company’s results

of operations.

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

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

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

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

with the development of such applications.

Capitalized costs related to internal-use software under development are treated as construction-in-progress

until the program, feature or functionality is ready for its intended use, at which time amortization commences.

Capitalized software

costs are amortized on a straight-line basis over three years .

Asset Impairment Charges

Definite-lived Intangible

Assets – Definite-lived intangible assets are reviewed for impairment annually or whenever events or changes in circumstances

indicate impairment may have occurred.

Any identified impairment would result in an adjustment to the Company’s results of operations.

There were no impairment charges realized on definite-lived intangible assets during the years ended December 31, 2022 and 2021.

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

related to a vendor supply and services agreement.

For further discussion see Note 9— Intangible Assets.

Indefinite-lived

Intangible Assets – Intangible assets that have indefinite lives are not amortized but are reviewed for impairment annually

or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values.

testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants

would use in making their estimates of fair value.

Accounting guidance provides for the performance of either a quantitative assessment

or a qualitative assessment before calculating the fair value of an asset.

Indefinite-lived Intangible

Assets – Intangible assets that have indefinite lives are not amortized but are reviewed for impairment annually or when events

or changes in circumstances indicate the carrying value of these assets might exceed their current fair values.

Impairment testing is

based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would

use in making their estimates of fair value.

Accounting guidance provides for the performance of either a quantitative assessment or a

qualitative assessment before calculating the fair value of an asset.

For its indefinite lived intangibles assets, the Company assessed

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the period in which the impairment occurs.

Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying

amount of an asset may not be recoverable.

Recoverability of long-lived assets is assessed by a comparison of the carrying amount of

the asset to the estimated future undiscounted net cash flows expected to be generated by the asset or group of assets.

future undiscounted net cash flows are less than the carrying amount of the asset or group of assets, the asset is considered impaired

and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value.

Fair value generally

is determined from estimated discounted future net cash flows (for assets held for use) or net realizable value (for assets held for

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

Advertising, Rebate and Other Promotion Programs

Company enters into programs with certain wholesale partners to provide funds for advertising and promotions as well as volume and other

rebate programs.

When sales are made to these customers, the Company records liabilities pursuant to these programs.

The Company periodically

assesses these liabilities based on actual sales to determine whether all of the cooperative advertising earned will be used by the customer

or whether the customer will meet the requirements to receive rebate funds.

Significant estimates are required at any point in time with

regard to the ultimate reimbursement to be claimed by the customers.

Subsequent revisions to the estimates are recorded and charged to

earnings in the period in which they are identified.

Rebates and certain cooperative advertising amounts are classified as a reduction

of revenue and presented within net revenues in the accompanying consolidated statements of operations.

Cooperative advertising expenses

that can be identified as a distinct good or service and for which the fair value can be reasonably estimated are recorded, when incurred,

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

Company incurs advertising costs associated with print, digital and broadcast advertisements.

Advertising costs are expensed when the

advertisements are run for the first time and included in marketing and selling expenses in the accompanying consolidated statements

of operations.

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

and 2019, respectively.

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

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

were reasonably estimable.

There were no cooperative advertising costs in 2019.

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

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

Revenue is recognized when the

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

principle is achieved in the following steps:

the contract with the customer.

A contract with a customer exists when (i) the Company enters into an enforceable contract with a

customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these

goods, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration

for the goods that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

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

the performance obligations in the contract .

The Company’s contracts with customers do not include multiple performance obligations

to be completed over a period of time.

The performance obligations generally relate to delivering products to a customer, subject to

the shipping terms of the contract.

The Company has made an accounting policy election to account for shipping and handling activities

performed after a customer obtains control of the goods, including “white glove” delivery services, as activities to fulfill

the promise to transfer the goods.

Long-Lived Assets –

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may not be recoverable.

Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset to the estimated

future undiscounted net cash flows expected to be generated by the asset or group of assets.

If estimated future undiscounted net cash

flows are less than the carrying amount of the asset or group of assets, the asset is considered impaired and an expense is recorded in

an amount required to reduce the carrying amount of the asset to its then fair value.

Fair value generally is determined from estimated

discounted future net cash flows (for assets held for use) or net realizable value (for assets held for sale).

The Company did not record

any impairment losses on long-lived assets during the years ended December 31, 2022, 2021 or 2020.

Cooperative Advertising, Rebate and Other

Promotion Programs

The Company enters into programs

with certain wholesale partners to provide funds for advertising and promotions as well as volume and other rebate programs.

are made to these customers, the Company records liabilities pursuant to these programs.

The Company periodically assesses these liabilities

based on actual sales to determine whether all of the cooperative advertising earned will be used by the customer or whether the customer

will meet the requirements to receive rebate funds.

Significant estimates are required at any point in time with regard to the ultimate

reimbursement to be claimed by the customers.

Subsequent revisions to the estimates are recorded and charged to earnings in the period

in which they are identified.

Rebates and certain cooperative advertising amounts are classified as a reduction of revenue and presented

within net revenues in the accompanying consolidated statements of operations.

Cooperative advertising expenses that can be identified

as a distinct good or service and for which the fair value can be reasonably estimated are recorded, when incurred, as components of marketing

and sales expenses in the accompanying consolidated statements of operations.

Marketing and sales expense in 2022, 2021 and 2020 included

$ 4.1 million, $ 2.7 million and $ 1.2 million, respectively, related to shared advertising costs that the Company incurred under its cooperative

advertising programs to the extent the fair value of the distinct good or service were reasonably estimable.

Advertising Costs

The Company incurs advertising

costs associated with print, digital and broadcast advertisements.

Advertising costs are expensed when the advertisements are run for

the first time and included in marketing and selling expenses in the accompanying consolidated statements of operations.

Advertising expense

was $ 61.0 million, $ 149.8 million and $ 130.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Revenue Recognition

The Company markets and sells

its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple owned retail showrooms, and third-party

online retailers.

Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring

the promised products to the customer.

This principle is achieved in the following steps:

Identify the contract with the customer.

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s

rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial

substance and, (iii) the Company determines that collection of substantially all consideration for the goods that are transferred is probable

based on the customer’s intent and ability to pay the promised consideration.

The Company does not have significant costs to obtain

contracts with customers.

Identify the performance obligations

in the contract .

The Company’s contracts with customers do not include multiple performance obligations to be completed over

a period of time.

The performance obligations generally relate to delivering products to a customer, subject to the shipping terms of

the contract.

The Company has made an accounting policy election to account for shipping and handling activities performed after a customer

obtains control of the goods, including “white glove” delivery services, as activities to fulfill the promise to transfer

The Company does not offer extended warranty or service plans.

The Company does not provide an option

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

The Company does not provide an option to its customers to purchase

future products at a discount and therefore there are no material option rights.

Determine the transaction price .

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

at point of sale in advance of shipping the products.

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

collected at point of sale in advance of shipping the products.

Amounts received for unshipped products are recorded as customer prepayments.

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

None of the Company’s contracts contain a significant

financing component.

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns,

volume rebates, and other adjustments.

The estimates of variable consideration are based on historical return experience, historical

and projected sales data, and current contract terms.

Variable consideration is included in revenue only to the extent that it is probable

that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration

is subsequently resolved.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded

from revenues.

the transaction price to performance obligations in the contract.

The Company’s contracts with customers do not include multiple

performance obligations.

Therefore, the Company recognizes revenue upon transfer of the product to the customer’s control at contractually

stated pricing.

revenue when or as we satisfy a performance obligation.

The Company satisfies performance obligations at a point in time upon either

shipment or delivery of goods, in accordance with the terms of each contract with the customer.

With the exception of third-party “white

glove” delivery and certain wholesale partners, revenue generated from product sales is recognized at shipping point, the point

in time the customer obtains control of the products.

Revenue generated from sales through third-party “white glove” delivery

is recognized at the point in time when the product is delivered to the customer.

Revenue generated from certain wholesale partners is

recognized at a point in time when the product is delivered to the wholesale partner’s warehouse.

The Company does not have service

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

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

None of the Company’s contracts contain a

significant financing component.

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

product returns, volume rebates, and other adjustments.

The estimates of variable consideration are based on historical return experience,

historical and projected sales data, and current contract terms.

Variable consideration is included in revenue only to the extent that

it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable

consideration is subsequently resolved.

Taxes collected from customers relating to product sales and remitted to governmental authorities

are excluded from revenues.

Allocate the transaction price to

performance obligations in the contract.

The Company’s contracts with customers do not include multiple performance obligations.

Therefore, the Company recognizes revenue upon transfer of the product to the customer’s control at contractually stated pricing.

Recognize revenue when or as we satisfy

a performance obligation.

The Company satisfies performance obligations at a point in time upon either shipment or delivery of goods,

in accordance with the terms of each contract with the customer.

With the exception of third-party “white glove” delivery

and certain wholesale partners, revenue generated from product sales is recognized at shipping point, the point in time the customer obtains

control of the products.

Revenue generated from sales through third-party “white glove” delivery is recognized at the point

in time when the product is delivered to the customer.

Revenue generated from certain wholesale partners is recognized at a point in time

when the product is delivered to the wholesale partner’s warehouse.

The Company does not have service revenue.

Cost of Revenues

includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods during the period, as well as depreciation

and amortization of long-lived assets used in these processes.

Cost of sales also includes shipping and handling costs associated with

the delivery of goods to customers.

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

products (except power bases) for a full refund.

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

of sale and recorded as a liability on the balance sheet, are based on historical trends and product return rates and are adjusted for

any current or expected trends as appropriate.

Costs associated with net

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

Cost of revenues includes the

costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods during the period, as well as depreciation and amortization

of long-lived assets used in these processes.

Cost of sales also includes shipping and handling costs associated with the delivery of

goods to customers.

Sales Returns

The Company’s policy

provides customers up to 100-days to return a mattress, pet bed or pillow and up to 30-days to return all other products (except power

bases) for a full refund.

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

as a liability on the balance sheet, are based on historical trends and product return rates and are adjusted for any current or expected

trends as appropriate.

Actual sales returns could differ from these estimates.

The Company regularly assesses

and adjusts the estimate of accrued sales returns by updating the return rates for actual trends and projected costs.

The Company classifies

the estimated sales returns as a current liability as they are expected to be paid out in less than one year.

As of December 31, 2021

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

Company had the following activity for sales returns:

Ended December 31,

at beginning of period

that reduced net revenue

from reserves for current year returns

at end of period

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

The estimated warranty costs, which are expensed at the time of sale

and included in cost of revenues, are based on the results of product testing, industry and historical trends and warranty claim rates

incurred, and are adjusted for any current or expected trends as appropriate.

The Company regularly assesses and adjusts the estimate

of accrued sales returns by updating the return rates for actual trends and projected costs.

The Company classifies the estimated sales

returns as a current liability as they are expected to be paid out in less than one year.

As of December 31, 2022 and 2021, $ 5.1 million

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

The Company had the following

activity for sales returns:

Years Ended December 31,

(in thousands)

Balance at beginning of period

Additions that reduced net revenue

Deduction from reserves for current year returns

Balance at end of period

Warranty Liabilities

The Company provides a limited warranty on most of the products sold.

The estimated warranty costs, which are expensed at the time of sale and included in cost of revenues, are based on the results of product

testing, industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate.

Actual warranty claim costs could differ from these estimates.

The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected

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

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

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

consolidated balance sheets, respectively.

Company had the following activity for warranty liabilities:

Ended December 31,

at beginning of period

charged to expense for current year sales

from reserves for current year claims

at end of period

Issuance Costs and Discounts

issuance costs and discounts that relate to borrowings are presented in the consolidated balance sheet as a direct reduction from the

carrying amount of the related debt liability and are amortized into interest expense using an effective interest rate over the duration

Debt issuance costs that relate to revolving lines of credit are carried as an asset in the consolidated balance sheet and

amortized to interest expense on a straight-line basis over the term of the related line of credit facility.

Refer to Note 9 –

Company accounted for its incremental loan warrants as liability warrants under the provisions of ASC 480, Distinguishing Liabilities

from Equity .

ASC 480 requires the recording of certain liabilities at their fair value.

Changes in the fair value of these liabilities

are recognized in earnings.

These warrants contained a repurchase provision which, upon an occurrence of a fundamental transaction as

defined in the warrant agreement, could have given rise to an obligation of the Company to pay cash to the warrant holders.

other provisions may have led to a reduction in the exercise price of the warrants.

The Company determined the fundamental transaction

provisions required the warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair

value recognized in earnings in the period of change.

The Company used the Monte Carlo Simulation of a Geometric Brownian Motion stock

path model to determine the fair value of the liability.

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

value of common stock, risk free interest rate, warrant life, expected volatility and the probability of a warrant re-price.

incremental loan warrants were exercised during fiscal 2020.

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

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

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

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

in the period of change.

The Company regularly assesses and adjusts the estimate of accrued warranty

claims by updating claims rates for actual trends and projected claim costs.

The Company expects the estimated warranty liability

to continue to increase as the Company has not reached a full 10-years of history on its 10-year mattress warranty.

The Company classifies

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

As of December 31, 2022 and 2021, $ 5.0

million and $ 3.9 million of warranty liabilities are included in other current liabilities and $ 15.7 million and $ 11.1 million of

warranty liabilities are included in other long-term liabilities on the accompanying consolidated balance sheets, respectively.

The Company had the following

activity for warranty liabilities:

Years Ended December 31,

(in thousands)

Balance at beginning of period

Additions charged to expense for current year sales

Deduction from reserves for current year claims

Balance at end of period

Debt Issuance Costs and Discounts

Debt issuance costs and discounts

that relate to borrowings are presented in the consolidated balance sheet as a direct reduction from the carrying amount of the related

debt liability and are amortized into interest expense using an effective interest rate over the duration of the debt.

Debt issuance costs

that relate to revolving lines of credit are carried as an asset in the consolidated balance sheet and amortized to interest expense on

a straight-line basis over the term of the related line of credit facility.

Refer to Note 11 – Debt.

Warrant Liabilities

The Company accounted for

its incremental loan warrants as liability warrants under the provisions of ASC 480, Distinguishing Liabilities from Equity .

480 requires the recording of certain liabilities at their fair value.

Changes in the fair value of these liabilities are recognized in

These warrants contained a repurchase provision which, upon an occurrence of a fundamental transaction as defined in the warrant

agreement, could have given rise to an obligation of the Company to pay cash to the warrant holders.

In addition, other provisions may

have led to a reduction in the exercise price of the warrants.

The Company determined the fundamental transaction provisions required

the warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in

earnings in the period of change.

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

the fair value of the liability.

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

risk free interest rate, warrant life, expected volatility and the probability of a warrant re-price.

All of the incremental loan warrants

were exercised during fiscal 2020.

The Company accounted for

its public warrants in accordance with ASC 815, Derivatives and Hedging—Contracts in Entity’s Own Equity , under which

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

Since the public warrants met the

definition of a derivative as contemplated in ASC 815, these warrants were measured at fair value at inception and at each reporting date

in accordance with ASC 820, Fair Value Measurement , with changes in fair value recognized in earnings in the period of change.

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

public warrants were exercised during fiscal 2020.

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

classification and must be recorded as liabilities.

Since the sponsor warrants meet the definition of a derivative as contemplated in

ASC 815, these warrants are measured at fair value at inception and at each reporting date in accordance with ASC 820 with changes in

fair value recognized in earnings in the period of change.

The Company uses the Black Scholes model to determine the fair value of the

liability associated with the sponsor warrants.

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

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

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

Value Measurements

Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date, essentially an exit price, based on the highest and best use of the asset or liability.

The levels of the fair

value hierarchy are:

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

2—Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or

similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves,

and market-corroborated inputs);

3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

The classification of fair

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

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

payable, and the Company’s debt obligations.

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

All of the public warrants were exercised

during fiscal 2020.

The Company accounts for its sponsor warrants in accordance with ASC

815, under which these warrants do not meet the criteria for equity classification and must be recorded as liabilities.

Since the sponsor

warrants meet the definition of a derivative as contemplated in ASC 815, these warrants are measured at fair value at inception and at

each reporting date in accordance with ASC 820 with changes in fair value recognized in earnings in the period of change.

uses the Black-Scholes model to determine the fair value of the liability associated with the sponsor warrants.

The model uses key assumptions

and inputs such as exercise price, fair market value of common stock, risk free interest rate, warrant life and expected volatility.

December 31, 2022, there were 1.9 million sponsor warrants outstanding.

On February 3, 2023 all outstanding warrants expired.

Fair Value Measurements

The Company uses the fair

value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the price that would be

received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,

essentially an exit price, based on the highest and best use of the asset or liability.

The levels of the fair value hierarchy are:

Level 1—Quoted market prices in

active markets for identical assets or liabilities;

Level 2—Significant other observable

inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not

active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs);

Level 3—Unobservable inputs in

which there is little or no market data, which require the reporting unit to develop its own assumptions.

The classification of fair value measurements within the established

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

Financial instruments, although

not recorded at fair value on a recurring basis include cash, cash equivalents and restricted cash, receivables, accounts payable, and

the Company’s debt obligations.

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

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

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

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

public warrant liabilities are Level 1 instruments as they have quoted market prices in an active market.

The sponsor and incremental

loan warrant liabilities are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable

inputs which requires determination of relevant inputs and assumptions.

Accordingly, changes in these unobservable inputs may have a

significant impact on fair value.

Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected

These Level 3 liabilities generally decrease (increase) in value based upon an increase (decrease) in risk free interest

rate and expected dividend yield.

Conversely, the fair value of these Level 3 liabilities generally increase (decrease) in value

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

following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis and indicates

the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

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

exercised during 2020.

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

Loan Warrants

Level 3 Liabilities

value as of December 31, 2018

value transfer to Level 1 measurement

in valuation inputs (1)

Fair value as of

December 31, 2019

value transfer to Level 1 measurement

Fair value of warrants

in valuation inputs (1)

Fair value as of

December 31, 2020

value transfer to Level 1 measurement

Fair value of warrants

in valuation inputs (1)

value as of December 31, 2021

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

in the consolidated statement of operations.

Based Compensation

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

This standard

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

2021, 2020 and 2019, the Company granted stock options under the Company’s 2017 Equity Incentive Plan to certain officers, executives

and employees of the Company.

The fair value for these awards was determined using the Black-Scholes option valuation model at the date

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

Option pricing models

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

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

Changes in these assumptions can

materially affect the fair value estimate.

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

2021, 2020 and 2019, the Company granted stock awards under the 2017 Equity Incentive Plan to members of the Company’s Board of

Directors and Board advisor for services performed.

Stock based compensation for these stock awards was determined on the grant date

based on the publicly quoted closing price of our common stock and was expensed on the grant date since all the awards were immediately

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

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

The estimated fair value of the restricted

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

The estimated

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

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

The estimated fair value of these

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

of whether the market condition is met.

May and June 2020, the Company granted restricted stock awards under the Company’s 2017 Equity Incentive Plan to certain employees

The fair value of the Company’s debt instruments are

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

The public warrant liabilities

are Level 1 instruments as they use quoted market prices from an active market.

The sponsor and incremental loan warrant liabilities are

Level 3 instruments that use internal models to estimate fair value based on certain significant unobservable inputs which requires determination

of relevant inputs and assumptions.

Accordingly, changes in these unobservable inputs may have a significant impact on fair value.

inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility.

These Level 3 liabilities

generally decrease (increase) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield.

the fair value of these Level 3 liabilities generally increase (decrease) in value if the expected average life or expected volatility

were to increase (decrease).

The following table presents

information about the Company’s liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy

of the valuation inputs the Company utilized to determine such fair value:

(In thousands)

Sponsor warrants

The 1.9 million sponsor warrants

outstanding at December 31, 2022 had a negligible fair value.

The following table summarizes

the Company’s total Level 3 liability activity for the years ended December 31, 2022, 2021 and 2020:

(In thousands)

Fair value as of December 31, 2019

Initial measurement

Fair value transfer to Level 1 measurement

Change in valuation inputs (1)

Fair value as of December 31, 2020

Fair value transfer to Level 1 measurement

Fair value of warrants exercised

Change in valuation inputs (1)

Fair value as of December 31, 2021

Fair value transfer to Level 1 measurement

Fair value of warrants exercised

Change in valuation inputs (1)

Fair value as of December 31, 2022

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

Stock Based Compensation

The Company accounts for stock-based

compensation under the provisions of ASC 718, Compensation—Stock Compensation .

This standard requires the Company to record

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

During 2022, 2021 and 2020, the Company granted stock options under

the Company’s 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”) to certain officers, executives and employees

of the Company.

The stock awards vest over 3 to 4 years.

The estimated fair value of restricted stock is measured on the grant date and

is recognized as expense over the vesting period.

March 2020, the Company granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s

independent Board advisor and GPAC observer.

The fair value for these awards was determined using the Black-Scholes option valuation model at the date of grant.

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

Option pricing models require the input

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

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

Changes in these assumptions can materially

affect the fair value estimate.

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

During 2022, 2021 and 2020,

the Company granted stock awards under the 2017 Equity Incentive Plan to independent directors on the Company’s Board for services

Since all of these awards vested immediately, stock-based compensation was recorded on the grant date using the publicly quoted

closing price of the Company’s common stock on that date as fair value.

During 2022 and 2021, the

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

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

The estimated fair value of the restricted stock units that

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

The estimated fair value of the

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

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

The estimated fair value of these awards is recognized

over the derived service period (as determined by the valuation model), with such recognition occurring regardless of whether the market

condition is met.

In May and June 2020, the

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

stock awards vest over 3 to 4 years.

The estimated fair value of restricted stock is measured on the grant date and is recognized as expense

over the vesting period.

In March 2020, the Company

granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s independent Board advisor

and GPAC observer.

The stock award vested in March 2021.

As this award included a service condition, the estimated

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

The Company determined that

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

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

months ended March 31, 2022.

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

on that date.

As this award included a market vesting condition, stock-based compensation was determined as the estimated fair value

of the restricted stock measured on the grant date using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model which

incorporated the probability of vesting occurring.

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

which ended when all of the shares became issuable.

Deferred tax assets and liabilities are recognized

for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets

and liabilities and their respective tax bases.

In assessing the realizability of deferred tax assets, management considers whether it

is more-likely-than-not that the deferred tax assets will be realized.

Deferred tax assets and liabilities are calculated by applying

existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to

be recovered or settled.

As this award included a service condition, the estimated fair value of the restricted

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

The Company determined that the fair value of the restricted

stock on the grant date was immaterial.

During 2019, the Company granted

a restricted stock award that had certain vesting conditions which could be met at the earliest in the twelve months ended March 31, 2022.

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

As this award

included a market vesting condition, stock-based compensation was determined as the estimated fair value of the restricted stock measured

on the grant date using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model which incorporated the probability of

vesting occurring.

The fair value of the restricted stock was expensed over the derived service period which ended when all of the shares

became issuable.

Deferred tax assets and liabilities

are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts

of existing assets and liabilities and their respective tax bases.

In assessing the realizability of deferred tax assets, management considers

whether it is more-likely-than-not that the deferred tax assets will be realized.

Deferred tax assets and liabilities are calculated by

applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected

to be recovered or settled.

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

2 unchanged sentences

interest and changes in our valuation allowance.

Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to

be taken in a tax return, which are subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain

tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities

based on technical merits of the position.

The amount of the tax benefit recognized is the largest amount of the benefit that has

a greater than 50 % likelihood of being realized upon ultimate settlement.

The effective tax rate and the tax basis of assets

and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties.

The Company recognizes penalties

and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated

statements of operations.

Company files U.S.

federal and certain state income tax returns.

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

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

income tax returns are filed.

Receivable Agreement

connection with the Business Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the

payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company

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

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

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

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

from, payments it makes under the Tax Receivable Agreement.

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

a liability under the Tax Receivable Agreement (a “TRA Liability”) may be recorded based on 80 % of the estimated future cash

tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company

as a result of such exchange or redemption.

The amount of the increase in asset basis, the related estimated cash tax savings and the

attendant TRA Liability to be recorded will depend on the price of the Company’s Class A Stock at the time of the relevant redemption

The estimation of liability under the Tax Receivable Agreement is by its nature imprecise and subject to significant assumptions

regarding the amount and timing of future taxable income.

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

decision maker (“CODM”).

The Company accounts for uncertainty

in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are

subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain tax position is recognized when it is

more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position.

amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50 % likelihood of being realized

upon ultimate settlement.

The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the

ultimate outcome of various tax uncertainties.

The Company recognizes penalties and interest related to uncertain tax positions within

the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.

The Company files U.S.

and certain state income tax returns.

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

federal and state taxing

authorities for various time periods, depending on those jurisdictions’ rules, generally after the income tax returns are filed.

Tax Receivable Agreement

In connection with the Business

Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the payment by the Company to InnoHold

of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company actually realizes (or is deemed to

realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC

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

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

and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under

the Tax Receivable Agreement.

As noncontrolling interest

holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of its Class B Units, a liability under the Tax

Receivable Agreement (a “TRA Liability”) may be recorded based on 80 % of the estimated future cash tax savings that the Company

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

The amount of the increase in asset basis, the related estimated cash tax savings and the attendant TRA Liability to be recorded

will depend on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange.

The estimation

of liability under the Tax Receivable Agreement is by its nature imprecise and subject to significant assumptions regarding the amount

and timing of future taxable income.

Segment Information

Operating segments are defined

as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”).

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

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

experience to its customers across multiple sales channels.

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

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

Also, the CODM

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

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

financial statements.

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

Net Income (Loss) Per

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

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

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

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

that are dilutive.

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

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

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

Accounting Pronouncements

The Company’s operations are based

on an omni-channel distribution strategy that allows the Company to offer a seamless shopping experience to its customers across multiple

sales channels.

The Company concluded its business operates in one operating segment as all of the Company’s sales channels are

complementary and analyzed in the same manner.

Also, the CODM reviews financial information presented on a consolidated basis for

the purpose of allocating resources and evaluating financial performance .

Since the Company operates

in one operating segment, all required financial segment information can be found throughout the consolidated financial statements.

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

Net Income (Loss) Per Share

Basic net income (loss) per

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

of Class A common stock outstanding during each period.

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

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

are dilutive.

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

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

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

Restructuring Activities

In February and April 2022,

because of lower-than-expected demand and higher labor and overhead costs that adversely affected our results of operations in the fourth

quarter of 2021 and the first quarter of 2022, the Company completed a restructuring of its workforce to balance production, improve efficiencies

and realign the Company’s cost structure to focus on quality of earnings in its current core business.

As a result of the realignment

and restructuring, the Company reduced employee headcount and recognized severance charges of $ 2.0 million during the year ended December

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.

was recorded as general and administrative expense in the consolidated statement of operations for the year ended December 31, 2022.

During 2022, the Company implemented additional

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

If the Company’s

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

expenses and continue satisfying the conditions of its 2020 financing arrangement, as amended, based on its ability to scale back operations,

reduce marketing spend, prepay term debt, use available liquidity under its revolving line of credit, and postpone or discontinue growth

In addition, the Company may also consider restructuring its obligations with current creditors, pursue work-out options or

seek additional funding sources including new debt or equity capital.

In December 2022, the Company

filed a registration statement on Form S-3 with the United States Securities and Exchange Commission using the “shelf” registration

As a result, the Company may offer and sell from time to time, in one or more series or issuances and on terms that the Company

will determine at the time of the offering, any combination of the securities described in the registration statement, up to an aggregate

amount of $ 90.0 million.

Recent Accounting Pronouncements

March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

8 unchanged sentences

is expected to be completed.

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

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

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

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

reference rate used.

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

related disclosures.

the Accounting for Income Taxes

December 2019, the FASB issued ASU No.

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

The new guidance

eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in

an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects

of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result

in a step-up in the tax basis of goodwill.

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

periods within those fiscal years.

Early adoption was permitted.

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

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

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.

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

a material impact on the Company’s consolidated financial statements – see Note 11— Debt for discussion

of this amendment.

of Credit Losses

June 2016, the FASB issued ASU No.

In June 2016, the FASB issued

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on

Financial Instruments (ASU 2016-13), which was further updated and clarified by the FASB through issuance of additional related ASUs.

This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets

carried at amortized cost based on expected credit losses.

The estimate of expected credit losses requires the incorporation of historical

information, current conditions, and reasonable and supportable forecasts.

These updates are effective for public companies, excluding

Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein.

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

The standard is effective for the Company’s interim and annual financial periods beginning January 1, 2023.

This standard is to

be applied utilizing a modified retrospective approach.

The Company is currently evaluating the impact of this standard on its accounts

receivable, cash and cash equivalents, and any other financial assets measured at amortized cost and does not expect that adoption will

have a material impact on its consolidated financial statements or related disclosures.

Measurement of Credit Losses on Financial Instruments

(ASU 2016-13), which was further updated and clarified by the FASB through issuance of additional related ASUs.

This guidance replaces

the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized

cost based on expected credit losses.

The estimate of expected credit losses requires the incorporation of historical information, current

conditions, and reasonable and supportable forecasts.

These updates are effective for public companies, excluding Smaller Reporting Companies

(“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein.

The standard is effective

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

This standard is to be

applied utilizing a modified retrospective approach.

The adoption of this standard on January 1, 2023 did not have a material impact on

the Company’s consolidated financial statements and related disclosures.

Underwritten Offering

In March 2022, the Company

completed an underwritten offering of 16.1 million shares of Class A common stock, which included the underwriters exercising

their over-allotment option in full to purchase an additional 2.1 million shares.

The underwriters purchased the Class A common

stock from the Company at a price of $ 5.65 per share, except that any shares sold by the underwriters to Coliseum Capital Partners, L.P.

and Blackwell Partners LLC – Series A, up to an aggregate of 29.81 % of the shares of Class A common stock pursuant to the offering,

were purchased from the Company by the underwriters at a price of $ 6.10 per share.

The aggregate net proceeds received by the Company

from the offering, after deducting offering fees and expenses of $ 5.3 million, 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 licensed to Intellibed 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 approximately 8.1 million shares of Class A common stock valued using the acquisition date closing price

The 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 consolidated statement

of operations for the year ended December 31, 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 December 31, 2022.

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 December 31, 2022, the Company had not finalized the determination

of the working capital adjustments and the fair values allocated to various assets and liabilities, income tax provision, 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

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 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.

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

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 two 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 consolidated balance sheet as of December 31, 2022.

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 consolidated balance sheet as of December 31, 2022.

The Company has included the financial results of Intellibed in its

consolidated financial statements from the date of acquisition and recorded net revenues and pre-tax income of $ 9.7 million and $ 1.6 million,

respectively, for the period from August 31, 2022 through December 31, 2022.

The transaction costs associated with the acquisition of

$ 3.9 million were recorded as general and administrative expense in the consolidated statement of operations for the year ended December

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):

Year Ended December 31,

Net income (loss)

The unaudited pro forma amounts above include the following adjustments:

● A decrease of operating expenses by $4.4 million during the year ended December 31, 2022, to eliminate costs directly related to the acquisition that do not have a continuing impact on operating results.

A decrease of operating expenses by $1.5 million during the year ended December 31, 2021 to eliminate litigation costs directly related to the lawsuit between the two Companies.

A decrease of operating expenses by $1.5 million and $0.6 million during the years ended December 31, 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 $2.2 million and $1.8 million during the years ended December 31, 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.

Revenue from Contracts with Customers

Revenue is recognized when

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

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

Disaggregated

The Company classifies revenue into two categories:

DTC and Wholesale.

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

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

The wholesale channel includes

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

online channels.

The Company classifies products into two major categories:

The Company markets and sells

its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple owned retail showrooms, and third-party

online retailers.

Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring

the promised products to the customer as described in Note 2 – Summary of Significant Accounting Policies .

Disaggregated Revenue

The Company classifies revenue

into two categories:

Direct-to-Consumer (“DTC”) and wholesale.

The DTC category is comprised of the e-commerce channel that

sells directly to consumers who purchase online and through our contact center, and the Purple owned retail showrooms channel that sells

directly to consumers who purchase at a Company showroom location.

The wholesale channel includes all product sales to our retail brick

and mortar wholesale partners where consumers make purchases at their retail locations or through their online channels.

The Company classifies

products into two major categories:

sleep products and other.

Sleep products include mattresses,

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

Sleep products include mattresses, platforms, adjustable bases, mattress

protectors, pillows and sheets.

Other products include cushions and various other products.

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

Ended December 31,

Direct-to-consumer

Ended December 31,

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

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

received for unshipped products are recorded as customer prepayments.

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

31, 2021 and 2020, respectively.

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

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

consisted of the following:

of December 31,

The following tables present

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

Years Ended December 31,

Revenues, net

Years Ended December 31,

Sleep products

Revenues, net

Contract Balances

Payment for sale of products

through the e-commerce online channel, third-party online retailers, Purple owned retail showrooms and contact center is collected at

point of sale in advance of shipping the products.

Amounts received for unshipped products are recorded as customer prepayments.

prepayments totaled $ 4.5 million and $ 10.9 million at December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022,

2021 and 2020, the Company recognized all of the revenue that was deferred in customer prepayments at December 31, 2021, 2020 and 2019,

respectively.

Inventories consisted of the

As of December 31,

(in thousands)

Raw materials

Work-in-process

obsolescence reserve

Property and Equipment

and equipment consisted of the following:

of December 31,

Finished goods

Inventory obsolescence reserve

Inventories, net

Property and Equipment

and equipment, net

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

2021 or 2020.

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

during the year ended December 31, 2021.

There was no interest capitalized during 2020 or 2019.

Depreciation expense was $ 9.2 million,

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

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

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

The Company’s

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

of up to ten years .

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

The exercise of lease renewal options

is at the Company’s discretion.

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

commencement.

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

three to five years .

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

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

Ended December 31,

2019, the Company recorded rent expense on lease payments, including those with rent escalations and rent-free periods, on a straight-line

basis over the expected lease term.

During the year ended December 31, 2019, the Company recognized rent expense of $ 3.9 million.

table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease

liabilities recorded on the consolidated balance sheet at December 31, 2021 (in thousands):

ended December 31,

operating lease payments

– lease payments representing interest

value of operating lease payments

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

Property and equipment consisted of the following:

As of December 31,

(in thousands)

Equipment in progress

Leasehold improvements

Furniture and fixtures

Office equipment

Total property and equipment

Accumulated depreciation

Property and equipment, net

Equipment in progress reflects

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at December 31, 2022 or

Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 0.7 million and $ 1.0

million during the years ended December 31, 2022 and 2021, respectively.

There was no interest capitalized during 2020.

Depreciation expense

was $ 16.2 million, $ 9.2 million and $ 5.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company leases its manufacturing

and distribution facilities, corporate offices, Purple owned retail showrooms and certain equipment under non-cancelable operating leases

with various expiration dates through 2036.

The Company’s office and manufacturing leases provide for initial lease terms up to

16 years, while Purple owned retail showrooms have initial lease terms of up to ten years .

Certain leases may contain options to extend

the term of the original lease.

The exercise of lease renewal options is at the Company’s discretion.

Any lease renewal options

are included in the lease term if exercise is reasonably certain at lease commencement.

The Company also leases vehicles and other equipment

under both operating and finance leases with initial lease terms of three to five years .

The ROU asset for finance leases was $ 1.0 million

and $ 0.7 million as of December 31, 2022 and 2021, respectively.

The following table presents

the Company’s lease costs (in thousands):

Years Ended December 31,

Operating lease costs

Variable lease costs

Short-term lease costs

Total lease costs

The table below reconciles

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

the consolidated balance sheet at December 31, 2022 (in thousands):

Year ended December 31,

Total operating lease payments

Less – lease payments representing interest

Present value of operating lease payments

(a) – Amount consists of $ 20.5 million of undiscounted cash flows offset by $ 2.2 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2023.

As of December 31, 2022 and

1 unchanged sentence

rate was 5.51 % and 5.30 %, respectively, for operating leases recognized on the consolidated balance sheet.

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

paid for amounts included in present value of operating lease liabilities

assets obtained in exchange for operating lease liabilities

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

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

During the year ended December 31, 2021,

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

The following table provides

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

Years Ended December 31,

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

ROU assets obtained in exchange for operating lease liabilities

– Operating cash flows paid for operating leases are included within the change in other assets and liabilities within the Consolidated Statement of Cash Flows offset by non-cash ROU asset amortization and lease liability accretion.

The Company initially recorded

$ 1.7 million for the present value of asset retirement obligations (ARO) to cover costs associated with the future restoration of two

leased properties.

During the years ended December 31, 2022 and 2021, the Company recorded accretion of the ARO liabilities totaling $ 0.4

million and $ 0.1 million, respectively.

The Company recorded a minimal amount of accretion in 2020.

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

Intangible Assets

following table provides the components of intangible assets:

of December 31, 2021

of December 31, 2020

(in thousands,

Indefinite-lived

non-amortizing:

Definite-lived

to the Business Combination, Purple LLC entered into an agreement pursuant to which EdiZONE transferred tangible and intellectual property

to Purple LLC that was then licensed back to EdiZONE to enable them to continue to meet certain preexisting license obligations it had

with various third parties.

On August 14, 2020, Purple LLC entered into a separate agreement whereby EdiZONE, for consideration of $ 8.5

million, assigned a license agreement with Advanced Comfort Technologies, Inc.

dba Intellibed (“ACTI”), and related royalties

payable thereunder, to Purple LLC, along with the trademarks GEL MATRIX and INTELLIPILLOW.

The payment made to EdiZONE was recorded in

the Company’s consolidated balance sheet at December 31, 2020 as an indefinite-lived non-amortizing license because the agreement

with ACTI is perpetual.

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

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

$4.0 million paid upon execution of the contract was allocated to a license for certain technologies ($2.2 million), inventory to be

utilized by the third party in the production of goods ($0.8 million) and future professional services to be delivered by the third party

($1.0 million).

On October 13, 2020, Purple LLC filed suit against ReST and its parent company for alleged violations under the contract.

The outstanding ARO liabilities totaled

$ 2.1 million and $ 0.9 million at December 31, 2022 and 2021, respectively and are recorded as other long-term liabilities, net of current

portion in the consolidated balance sheet.

The following table provides the components of

intangible assets (in thousands, except useful life):

As of December 31, 2022

As of December 31, 2021

Indefinite-lived non-amortizing:

License agreement

Definite-lived amortizing:

Internet domain

License agreement

Customer relationships

Developed technology

Internal-use software

Intangible assets, net

On January 13, 2020, Purple LLC entered into a supply and services

agreement with Responsive Surface Technology, LLC (“ReST”) whereby the Company acquired a license and made a prepayment for

future products and services to be provided by the third party.

The $4.0 million paid upon execution of the contract was allocated to

a license for certain technologies ($2.2 million), inventory to be utilized by the third party in the production of goods ($0.8 million)

and future professional services to be delivered by the third party ($1.0 million).

On October 13, 2020, Purple LLC filed suit against

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

In response, ReST filed a counter lawsuit against Purple LLC.

These lawsuits effectively ended any future performance under the contract.

As a result, during the third quarter of fiscal 2020, the Company recorded as cost of revenues in its consolidated statement of operations

an impairment charge of $ 0.6 million for unamortized license costs.

The Company also recorded write-offs of $ 0.8 million, and $ 0.3 million

for prepaid professional services and prepaid inventory, respectively.

Refer to Note 12 — Commitments and Contingencies — Legal

Proceedings for additional information.

lawsuits effectively ended any future performance under the contract.

As a result, during the third quarter of fiscal 2020, the Company

recorded as cost of revenues in its consolidated statement of operations an impairment charge of $ 0.6 million for unamortized license

The Company also recorded write-offs of $ 0.8 million, and $ 0.3 million for prepaid professional services and prepaid inventory,

respectively.

Refer to Note 14— Commitments and Contingencies — Legal Proceedings for additional information.

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

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

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

ended December 31,

future amortization for definite-lived intangible assets

Other Current Liabilities

Company’s other current liabilities consisted of the following:

of December 31,

accrual - current portion

debt and unamortized issuance costs - current portion

receivable agreement liability – current portion

Amortization expense for intangible

assets was $ 1.2 million, $ 0.3 million and $ 2.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Estimated amortization expense for definite-lived

intangible assets is expected to be as follows for the next five years (in thousands):

Year ended December 31,

Total future amortization for definite-lived intangible assets

Other Current Liabilities

consisted of the following (in thousands):

line of credit

The Company’s other

current liabilities consisted of the following (in thousands):

As of December 31,

Warranty accrual - current portion

Long-term debt and unamortized issuance costs - current portion

Insurance financing

Accrued sales tax liability assumed in acquisition

Accrued affiliate marketing

Tax Receivable Agreement Liability – current portion

Total other current liabilities

Debt consisted of the following

(in thousands):

Revolving line of credit

unamortized debt issuance costs

Current portion of debt and unamortized issuance costs

net of current portion

Loan and Revolving Line of Credit

September 3, 2020, Purple LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions

Debt, net of current portion

Term Loan and Revolving Line of Credit

On September 3, 2020, Purple

LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions (the “2020 Credit

The 2020 Credit Agreement provides for a $ 45.0 million term loan and a $ 55.0 million revolving line of credit.

term loan will be repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part at any time without

premium or penalty, subject to reimbursement of certain costs.

The revolving credit facility has a term of five years and carries the

same interest provisions as the term debt.

A commitment fee is due quarterly based on the applicable margin applied to the unused total

revolving commitment.

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

Pursuant to a Pledge and Security Agreement between Purple LLC, KeyBank

and the Company (the “Security Agreement”), the 2020 Credit Agreement is secured by a perfected first-priority security interest

in the assets of Purple LLC and the Company, including a security interest in all intellectual property.

Also, the Company agreed to an

unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the 2020 Credit Agreement.

The Security Agreement

contains a pledge, as security for the Company’s guaranty, of all its ownership interest in Purple LLC.

The 2020 Credit Agreement

The 2020 Credit Agreement provides for a $ 45.0 million term loan and a $ 55.0 million revolving

line of credit.

borrowing rates for the term loan are based on Purple LLC’s leverage ratio, as defined in the 2020 Credit Agreement, and can

range from LIBOR plus a 3.00 % to 3.75 % margin with a LIBOR minimum of 0.50%.

The current borrowing rate of 3.50% is based on LIBOR

The term loan will be repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part

at any time without premium or penalty, subject to reimbursement of certain costs.

There may be mandatory prepayment obligations

based on excess cash flow.

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

to a Pledge and Security Agreement between Purple LLC, KeyBank and the Company (the “Security Agreement”), the 2020 Credit

Agreement is secured by a perfected first-priority security interest in the assets of Purple LLC and the Company, including a security

interest in all intellectual property.

Also, the Company agreed to an unconditional guaranty of the payment of all obligations and liabilities

of Purple LLC under the 2020 Credit Agreement.

The Security Agreement contains a pledge, as security for the Company’s guaranty,

of all its ownership interest in Purple LLC.

The 2020 Credit Agreement also provides for standard events of default, such as for non-payment

and failure to perform or observe covenants, and contains standard indemnifications benefitting the lenders.

2020 Credit Agreement includes representations, warranties and certain covenants of Purple LLC and the Company.

While any amounts are

outstanding under the 2020 Credit Agreement, Purple LLC is subject to several affirmative and negative covenants, including covenants

regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence

of additional indebtedness, and transactions with affiliates, among other customary covenants, subject to certain exceptions.

In particular,

Purple LLC is (i) subject to annual capital expenditure limits that can be adjusted based on the Company achieving certain net leverage

ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from incurring additional debt up to certain amounts, subject

to limited exceptions, as set forth in the 2020 Credit Agreement, and (iii) maintain minimum consolidated net leverage and fixed charge

coverage ratio thresholds at certain measurement dates (as defined in the 2020 Credit Agreement).

Purple LLC is also restricted from

paying dividends or making other distributions or payments on its capital stock, subject to limited exceptions.

If the Company or Purple

LLC fail to perform their obligations under these and other covenants, or should any event of default occur, the revolving loan commitments

under the 2020 Credit Agreement may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately

due and payable.

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

for the year ended December 31, 2021.

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

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

$ 55.0 million revolving credit facility established under the 2020 Credit Agreement has a term of five years and carries the same

interest provisions as the term debt.

A commitment fee is due quarterly based on the applicable margin applied to the unused total revolving

The agreement for this revolving credit facility contains customary covenants and events of default.

In November 2021, pursuant

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

available under the revolving credit facility.

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

Company incurred $ 2.5 million in debt issuance costs for the 2020 Credit Agreement.

These costs relate to the entire credit arrangement

and therefore were allocated between the term loan and the revolving line of credit.

The Company determined $ 1.1 million of the debt

issuance costs related to the term debt and are presented in the consolidated balance sheet as a direct reduction from the carrying amount

of the debt liability.

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

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

This amount is classified as

other assets and is being amortized to interest expense on a straight-line basis over the term of the revolving credit facility.

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

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

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

February 2, 2018, Purple LLC entered into a financing arrangement with Coliseum Capital Partners, L.P.

(“CCP”), Blackwell

Partners LLC – Series A (“Blackwell”) and Coliseum Co-invest Debt Fund, L.P.

(“CDF” and together with CCP

and Blackwell, the “Lenders”), pursuant to which the Lenders agreed to make a loan (the “2018 Credit Agreement”)

in an aggregate principal amount of $ 25.0 million (the “Original Loan”).

January 28, 2019, Purple LLC entered into a First Amendment to the 2018 Credit Agreement (the “First Amendment”) whereby

Purple LLC agreed to enter into the Amended and Restated Credit Agreement, under which two of the Lenders (“Incremental Lenders”)

agreed to provide an incremental loan of $10.0 million (the “Incremental Loan”) such that the total amount of principal indebtedness

provided to Purple LLC was increased to $35.0 million.

Upon funding the $10.0 million Incremental Loan on February 26, 2019, the Company

issued to the Incremental Lenders 2.6 million warrants (“Incremental Loan Warrants”) to purchase 2.6 million shares of the

Company’s Class A Stock at a price of $5.74 per share, subject to certain adjustments.

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

The Company concluded there were separate lenders for purposes of determining if there was an extinguishment or modification.

The amended debt terms with CDF were not determined to be substantial and therefore the existing debt attributable to CDF was accounted

for as a modification of debt.

The amended debt terms with the Incremental Lenders were determined to be substantially different terms

from the existing debt agreement and therefore required to be accounted for as an extinguishment of existing debt.

Accordingly, the Company

recognized a loss on the extinguishment of its existing debt of $ 6.3 million during 2019.

This was a non-cash expense primarily associated

with the recognition of related unamortized debt discount and debt issuance costs and the $ 4.9 million fair value of the incremental

warrants at the time of issuance.

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

to the Amendment, the Company deferred and capitalized the full amount of interest payments due on March 31, 2020 and June 30, 2020

to reduce cash disbursements during the COVID-19 pandemic.

The Company accounted for this amendment as a modification of existing debt

in accordance with ASC 470 - Debt .

September 3, 2020, the Company paid $ 45.0 million to retire, in full, all indebtedness related to Purple LLC’s 2018 Credit Agreement

and all its related amendments and agreements.

The payment included $ 25.0 million for the Original Loan, $ 10.0 for the Incremental Loan,

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

The Company accounted

for the pay off of the 2018 Credit Agreement and all its subsequent agreements and amendments as an extinguishment of debt in accordance

also provides for standard events of default, such as for non-payment and failure to perform or observe covenants, and contains standard

indemnifications benefiting the lenders.

The 2020 Credit Agreement

includes representations, warranties and certain covenants of Purple LLC and the Company.

While any amounts are outstanding under the

2020 Credit Agreement, Purple LLC is subject to several affirmative and negative covenants, including covenants regarding dispositions

of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness,

and transactions with affiliates, among other customary covenants, subject to certain exceptions.

In particular, Purple LLC is (i) subject

to annual capital expenditure limits that can be adjusted based on the Company achieving certain net leverage ratio thresholds as provided

in the 2020 Credit Agreement, (ii) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as

set forth in the 2020 Credit Agreement, and (iii) maintain minimum consolidated net leverage and fixed charge coverage ratio thresholds

at certain measurement dates (as defined in the 2020 Credit Agreement).

Purple LLC is also restricted from paying dividends or making

other distributions or payments on its capital stock, subject to limited exceptions.

If the Company or Purple LLC fail to perform their

obligations under these and other covenants, or should any event of default occur, the revolving loan commitments under the 2020 Credit

Agreement may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately due and payable.

The Company’s operating

and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under

the 2020 Credit Agreement.

On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first

amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default.

This amendment contained a covenant

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.

Other modifications in the amendment included revised leverage ratio and fixed charge coverage

definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded

$ 25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease

incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into

2023 until certain conditions are met.

In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was

changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5%

plus an applicable margin of 4.75%, for a total rate of 5.25% if the applicable liquidity threshold is met.

If the Company does not meet

this threshold, the interest rate would increase to SOFR with a floor of 0.5% plus 9.00%.

Once the Company achieves a consolidated leverage

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

on the consolidated leverage ratio.

The interest rate on the term loan was 8.98 % at December 31, 2022.

As of December 31, 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

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 .

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

This amendment modified the 2020 Credit

Agreement to allow Coliseum Capital Management, LLC, on behalf of its funds and managed accounts (individually “CCM” and

collectively “Coliseum”) and its investment affiliates to acquire 35 % or more of the combined voting power of all equity

interests of the Company entitled to vote for the election of members of the Company’s Board without constituting an event of default.

Coliseum is considered a related party of the Company in that Adam Gray, a member of our Board, serves as a managing partner of Coliseum.

For further discussion see Note 15— Related Party Transactions — Coliseum Capital Management, LLC.

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 consolidated balance sheet.

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

with ASC 470 – Debt .

Accordingly, the Company recognized a $ 5.8 million loss in 2020 that consisted of $ 2.5 million in prepayment

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

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

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

(in thousands):

ended December 31,

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 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 consolidated statement of operations.

In November 2021, the Company

executed a $ 55.0 million draw on its revolving line of credit.

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

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

December 31, 2022, there was no balance outstanding on the revolving credit facility.

In December 2022, the Company

made a $15.0 million prepayment against the outstanding term loan without payment of a premium or penalty.

On February 17, 2023, the

Company entered into a fifth amendment to the 2020 Credit Agreement.

In accordance with this amendment, the Company repaid in full the

$ 24.7 million outstanding balance of the term loan plus accrued interest and reduced the amount available under the revolving line of

credit to $ 50.0 million.

For further discussion see Note 22 — Subsequent Events.

There are no amounts currently drawn

on the revolver and the available amount to draw is the full $ 50 million.

In order to draw any amounts on the revolver, the Company must

be in compliance with the covenants outlined in the fifth amendment.

Interest expense under the

2020 Credit Agreement totaled $ 4.1 million, $ 2.4 million and $ 0.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Related Party Loan

On February 2, 2018, Purple

LLC entered into a financing arrangement with Coliseum Capital Partners, L.P.

(“CCP”), Blackwell Partners LLC – Series

A (“Blackwell”) and Coliseum Co-invest Debt Fund, L.P.

(“CDF” and together with CCP and Blackwell, the “Lenders”),

pursuant to which the Lenders agreed to make a loan (the “2018 Credit Agreement”) in an aggregate principal amount of $ 25.0

million (the “Original Loan”).

On January 28, 2019, Purple

LLC entered into a First Amendment to the 2018 Credit Agreement (the “First Amendment”) whereby Purple LLC agreed to enter

into the Amended and Restated Credit Agreement, under which two of the Lenders (“Incremental Lenders”) agreed to provide an

incremental loan of $10.0 million (the “Incremental Loan”) such that the total amount of principal indebtedness provided to

Purple LLC was increased to $35.0 million.

Upon funding the $10.0 million Incremental Loan on February 26, 2019, the Company issued to

the Incremental Lenders 2.6 million warrants (“Incremental Loan Warrants”) to purchase 2.6 million shares of the Company’s

Class A common stock at a price of $5.74 per share, subject to certain adjustments.

On September 3, 2020, the

Company paid $ 45.0 million to retire, in full, all indebtedness related to Purple LLC’s 2018 Credit Agreement and all its related

amendments and agreements.

The payment included $ 25.0 million for the Original Loan, $ 10.0 for the Incremental Loan, $ 6.6 million of paid-in-kind

interest, $ 2.5 million for a prepayment fee and $ 0.9 million for accrued interest.

The Company accounted for the pay-off of the 2018 Credit

Agreement and all its subsequent agreements and amendments as an extinguishment of debt in accordance with ASC 470 - Debt .

the Company recognized a $ 5.8 million loss in 2020 that consisted of $ 2.5 million in prepayment fees and $ 3.3 million in the recognition

of related unamortized debt discount and debt issuance costs.

expense under the 2018 Credit Agreement was $ 4.0 million for the year ended December 31, 2020.

As of December 31,

2022, the scheduled maturities of debt outstanding for each of the next five years and thereafter are as follows (in thousands):

Year ended December 31,

Warrant Liabilities

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

Loan and received 2.6 million Incremental Loan Warrants to purchase 2.6 million shares of the Company’s Class A Stock at a price

of $5.74 per share, subject to certain adjustments.

In May 2020, Tony Pearce or Terry Pearce individually or together ceased to beneficially

own at least 50% of the voting securities of the Company.

As a result, the exercise price of the warrants was reduced to zero based on

the formula established in the agreement.

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

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

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

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

Incremental Lenders.

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

The fair value of the Incremental Loan Warrants was $ 21.6 million at December 31, 2019.

The Company recorded losses of $ 59.4 million

and $ 16.8 million related to increases in the fair value of the Incremental Loan Warrants for the years ended December 31, 2020 and 2019,

respectively.

fair value of the Incremental Loan Warrants was calculated using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model.

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

price of common stock on measurement date

Exercise price

free interest rate

life in years

dividend yield

of an event causing a warrant re-price

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

price of common stock on measurement date

On February 26, 2019, the

Incremental Lenders funded the $10.0 million Incremental Loan and received 2.6 million Incremental Loan Warrants to purchase 2.6 million

shares of the Company’s Class A common stock at a price of $5.74 per share, subject to certain adjustments.

In May 2020, Tony Pearce

or Terry Pearce individually or together ceased to beneficially own at least 50% of the voting securities of the Company.

the exercise price of the warrants was reduced to zero based on the formula established in the agreement.

The Company accounted for the

Incremental Loan Warrants as liabilities in accordance with ASC 480 - Distinguishing Liabilities from Equity and recorded them

at fair value on the date of the transaction and subsequently re-measured to fair value at each reporting date with changes in the fair

value included in earnings.

On November 9, 2020, the Company

issued 2.6 million shares of Class A common stock pursuant to the exercise of all the warrants held by the Incremental Lenders.

determined the fair value of the Incremental Loan Warrants to be $81.0 million at the time of exercise compared to $21.6 million at the

This increase in fair value of $59.4 million was recognized as a loss during the year ended December 31, 2020.

The fair value of the Incremental

Loan Warrants on the date of the exercise was calculated using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model.

The following are the assumptions used in calculating fair value:

Trading price of common stock on measurement date

Exercise price

free interest rate

life in years

dividend yield

of warrant re-price

public and sponsor warrants that were issued in connection with the Company’s initial public offering and a simultaneous private placement contain

Risk free interest rate

Warrant life in years

Expected volatility

Expected dividend yield

Probability of an event causing a warrant re-price

The public and sponsor

warrants that were issued in connection with the Company’s initial public offering and a simultaneous private placement contain

certain provisions that do not meet the criteria for equity classification and therefore must be recorded as liabilities.

2 unchanged sentences

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

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

to the Company of $ 0.1 million.

During the year ended December 31, 2020, 15.5 million public warrants and 4.3 million sponsor warrants

were exercised resulting in the issuance of 7.6 million shares of Class A Stock and cash proceeds to the Company of $ 46.4 million.

were no public warrants or sponsor warrants exercised during 2019.

The 1.9 million sponsor warrants outstanding at December 31, 2021

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

In 2021, 6.6 million sponsor

warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds to the Company of $ 0.1

During the year ended December 31, 2020, 15.5 million public warrants and 4.3 million sponsor warrants were exercised resulting

in the issuance of 7.6 million shares of Class A common stock and cash proceeds to the Company of $ 46.4 million.

At both December 31,

2022 and 2021, there were 1.9 million sponsor warrants outstanding.

The five-year term associated with the sponsor warrants will expire

on February 2, 2023.

All of the public warrants were exercised during fiscal 2020.

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

31, 2019 was $ 23.8 million.

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

The Company determined the fair value of

the sponsor warrants using a Black Scholes model with the following assumptions:

price of common stock on measurement date

The Company determined the

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

The Company determined the fair value of the sponsor warrants using

a Black-Scholes model with the following assumptions:

Trading price of common stock on measurement date

Exercise price

free interest rate

life in years

dividend yield

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

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

the respective period.

During the years ended December 31, 2020 and 2019, the Company recognized losses of $ 240.7 million and $ 18.5 million,

respectively, in its consolidated statement of operations related to increases in the fair value of the public and sponsor warrants exercised

during the respective periods or that were outstanding at the end of the respective periods.

Risk free interest rate

Warrant life in years

Expected volatility

Expected dividend yield

During the years ended December

31, 2022 and 2021, the Company recognized gains of $ 4.3 million and $ 24.1 million, respectively, in its 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.

During the year ended December 31, 2020, the Company recognized a loss of $ 240.7 million in its consolidated

statement of operations related to increases in the fair value of the public and sponsor warrants exercised during the period or that

were outstanding at the end of the period.

Other Long-Term Liabilities

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

of December 31,

Other long-term liabilities

consisted of the following (in thousands):

As of December 31,

Warranty accrual

Asset retirement obligations

current portion of warranty accrual

long-term liabilities, net of current portion

Commitments and Contingencies

Member Distributions

to the Business Combination and pursuant to the then applicable First Amended and Restated Limited Liability Company Agreement (the “First

Purple LLC Agreement”), Purple LLC was required to distribute to its members an amount equal to 45 percent of Purple LLC’s

net taxable income following the end of each fiscal year.

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

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

the Business Combination.

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

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

The Second Purple LLC Agreement and the Third

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

During the years ended December 31, 2021

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

At December 31,

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

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

current liabilities.

No distributions were made under these agreements in 2019.

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

The agreement

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

and warehouse facility there.

The Company prepaid $0.5 million related to the improvements and agreed to a minimum contract billing amount

over a 15-year period based on regulated rate schedules and changes in actual demand during the billing period.

The agreement includes

an early termination clause that requires the Company to pay a pro-rata termination charge if the Company terminates within the first

10-years of the service start date.

The original early termination charge was $1.3 million and is reduced annually on a straight-line

basis over the 10-year period.

During 2018, the utility improvements construction was completed and were made available to the Company.

As of December 31, 2021, the early termination penalty was $ 0.7 million and the Company expects to fulfill its commitments under the

agreement in the normal course of business, and as such, no liability has been recorded.

Indemnification

time to time, the Company enters into contracts that contingently require it to indemnify parties against claims.

These contracts primarily

relate to provisions in the Company’s services agreements with related parties that may require the Company to indemnify the related

parties against services rendered;

and certain agreements with the Company’s officers and directors under which the Company may

be required to indemnify such persons for liabilities.

In connection with the Business Combination, to secure the payment of a certain

portion of specified post-closing indemnification rights of the Company, 0.5 million shares of Class B Stock and 0.5 million Class B

Units otherwise issuable to InnoHold as equity consideration were deposited in an escrow account for up to three years from the date

of the Business Combination pursuant to a contingency escrow agreement.

In September 2020, an amendment to the escrow agreement was signed

whereby the 0.5 million shares of Class B Stock and 0.5 million Class B Units held in escrow were exchanged for $5.0 million.

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

million being held in escrow.

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

The amount received from InnoHold was recorded

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

Agreement and Preemptive Rights

February 2018, in connection with the Business Combination, the Company entered into a subscription agreement with CCP and Blackwell,

pursuant to which CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A Stock

at a purchase price of $10.00 per share (the “Coliseum Private Placement”).

In connection with the Coliseum Private Placement,

the Sponsor assigned (i) an aggregate of 1.3 million additional shares of Class A Stock to CCP and Blackwell and (ii) an

aggregate of 3.3 million warrants to purchase 1.6 million shares of Class A Stock to CCP, Blackwell, and CDF.

Other long-term liabilities, net of current portion

and Contingencies

Required Member Distributions

Prior to the Business Combination

and pursuant to the then applicable First Amended and Restated Limited Liability Company Agreement (the “First Purple LLC Agreement”),

Purple LLC was required to distribute to its members an amount equal to 45 percent of Purple LLC’s net taxable income following

the end of each fiscal year.

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

Company Agreement (the “Second Purple LLC Agreement”) on February 2, 2018 as part of the Business Combination.

Purple LLC Agreement was amended and replaced by the Third Amended and Restated Limited Liability Company Agreement (the “Third

Purple LLC Agreement”) on September 3, 2020.

The Second Purple LLC Agreement and the Third Purple LLC Agreement do not include any

mandatory distributions, other than tax distributions.

During the years ended December 31, 2021 and 2020, the Company paid $ 1.2 million

and $ 5.5 million, respectively, in tax distributions under these agreements.

There were no tax distributions paid during the year ended

December 31, 2022.

At December 31, 2022, the Company’s consolidated balance sheet had $ 0.1 million of accrued tax distributions

included in other current liabilities.

At December 31, 2021, the Company’s consolidated balance sheet had a $ 0.1 million net asset

associated with these tax distributions due to overpayments.

Subscription Agreement and Preemptive Rights

In February 2018, in

connection with the Business Combination, the Company entered into a subscription agreement with CCP and Blackwell, pursuant to which

CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A common stock at a purchase

price of $10.00 per share (the “Coliseum Private Placement”).

In connection with the Coliseum Private Placement, the Sponsor

assigned (i) an aggregate of 1.3 million additional shares of Class A common stock to CCP and Blackwell and (ii) an aggregate

of 3.3 million warrants to purchase 1.6 million shares of Class A common stock to CCP, Blackwell, and CDF.

The subscription

3 unchanged sentences

The Company also entered

into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A Stock

issued and assigned to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A Stock underlying the

warrants received by CCP, Blackwell and CDF.

into a registration rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A common

stock issued and assigned to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A common stock underlying

the warrants received by CCP, Blackwell and CDF.

The Company has filed a registration statement with respect to such securities.

of Securities Holders

holders of certain warrants exercisable into Class A Stock, including CCP, Blackwell and CDF, were entitled to registration rights pursuant

to certain registration rights agreements of the Company as of the Business Combination date.

In March 2018, the Company filed a registration

statement registering the warrants (and any shares of Class A Stock issuable upon the exercise of the warrants), and certain unregistered

shares of Class A Stock.

Rights of Securities Holders

The holders of certain warrants

exercisable into Class A common stock, including CCP, Blackwell and CDF, were entitled to registration rights pursuant to certain registration

rights agreements of the Company as of the Business Combination date.

In March 2018, the Company filed a registration statement registering

the warrants (and any shares of Class A common stock issuable upon the exercise of the warrants), and certain unregistered shares of Class

A common stock.

The registration statement was declared effective on April 3, 2018.

Under the Registration Rights Agreement

dated February 2, 2018 between the Company and CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors

have the right to make written demands for up to three registrations of certain warrants and shares of Class A Stock held by them, including

in underwritten offerings.

In an underwritten offering of such warrants and shares of Class A Stock by the Coliseum Investors, the Company

will pay underwriting discounts and commissions and certain expenses incurred by the Coliseum Investors.

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

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

The underwriting discount, commission and other

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

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

holders of the Incremental Loan Warrants exercisable into Class A Stock were entitled to registration rights pursuant to the registration

rights agreement of the Company in connection with the Amended and Restated Credit Agreement.

In March 2019, the Company filed a registration

statement registering the Warrants (and any shares of Class A Stock issuable upon the exercise of the Warrants).

The registration statement

was declared effective on May 17, 2019.

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

for the exercised Incremental Loan Warrants.

February 2, 2018, in connection with the closing of the Business Combination, the Company entered into a Registration Rights Agreement

with InnoHold and the Parent Representative (the “InnoHold Registration Rights Agreement”).

Under the InnoHold Registration

Rights Agreement, InnoHold holds registration rights that obligate the Company to register for resale under the Securities Act, all,

or any portion, of the Equity Consideration (including Class A Stock issued in exchange for the equity consideration received in

the Business Combination) (the “Registrable Securities”).

InnoHold is entitled to make a written demand for registration

under the Securities Act of all or part of its Registrable Securities (up to a maximum of three demands in total).

Pursuant to the InnoHold

Registration Rights Agreement, the Company filed a registration statement on Form S-3 that was declared effective on November 8, 2019,

pursuant to which InnoHold, Tony Pearce and Terry Pearce sold 11.5 million shares of Class A Stock.

The Company filed a second registration

statement on Form S-3 that was declared effective on May 14, 2020, pursuant to which InnoHold sold 12.4 million shares of Class A Stock.

The Company filed a third and final registration statement on Form S-3 that was declared effective on September 9, 2020, pursuant to

which InnoHold sold 16.8 million shares of Class A Stock.

LLC Class B Unit Exchange Right

February 2, 2018, in connection with the closing of the Business Combination, the Company entered into an exchange agreement with Purple

LLC, InnoHold and Class B Unit holders who become a party thereto (the “Exchange Agreement”), which provides for the exchange

of Purple LLC Class B Units (the “Class B Units”) and shares of Class B Stock (together with an equal number of Class B Units,

the “Paired Securities”) for, at the Company’s option, either (A) shares of Class A Stock at an initial exchange ratio

equal to one Paired Security for one share of Class A Stock or (B) a cash payment equal to the product of the average of the volume-weighted

closing price of one share of Class A Stock for the ten trading days immediately prior to the date InnoHold or other Class B Unit holders

deliver a notice of exchange multiplied by the number of Paired Securities being exchanged.

In December 2018, InnoHold distributed Paired

Securities to Terry Pearce and Tony Pearce who also agreed to become parties to the Exchange Agreement.

In June 2019, InnoHold distributed

Paired Securities to certain current and former employees who also agreed to become parties to the exchange agreement.

Holders of Class

B Units may elect to exchange all or any portion of their Paired Securities as described above by delivering a notice to Purple LLC.

certain cases, adjustments to the exchange ratio will occur in case of a split, reclassification, recapitalization, subdivision or similar

transaction of or relating to the Class B Units or the shares of Class A Stock and Class B Stock or a transaction in which the Class

A Stock is exchanged or converted into other securities or property.

The exchange ratio will also adjust in certain circumstances when

the Company acquires Class B Units other than through an exchange for its shares of Class A Stock.

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

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

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

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

Company and each holder of Paired Securities shall bear its own expense regarding the exchange except that the Company shall be responsible

for transfer taxes, stamp taxes and similar duties.

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

of Class A Stock.

of One-to-One Ratios.

Third Purple LLC Agreement includes provisions intended to ensure that the Company at all times maintains a one-to-one ratio between

(a) (i) the number of outstanding shares of Class A Stock and (ii) the number of Class A Units owned by the Company (subject to certain

exceptions for certain rights to purchase equity securities of the Company under a “poison pill” or similar stockholder rights

plan, if any, certain convertible or exchangeable securities issued under the Company’s equity compensation plan and certain equity

securities issued pursuant to the Company’s equity compensation plan (other than a stock option plan) that are restricted or have

not vested thereunder) and (b) (i) the number of other outstanding equity securities of the Company (including the warrants exercisable

for shares of Class A Stock) and (ii) the number of corresponding outstanding equity securities of Purple LLC.

These provisions are intended

to result in non-controlling interest holders having a voting interest in the Company that is identical to their economic interest in

Related Taxes

Supreme Court ruling in South Dakota v.

Under the Registration Rights Agreement dated February

2, 2018 between the Company and CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors have the right

to make written demands for up to three registrations of certain warrants and shares of Class A common stock held by them, including in

underwritten offerings.

In an underwritten offering of such warrants and shares of Class A common stock by the Coliseum Investors, the

Company will pay underwriting discounts and commissions and certain expenses incurred by the Coliseum Investors.

On May 21, 2021, 7.3 million

shares of Class A common stock were sold in a secondary offering by the Coliseum Investors at a price of $ 30.00 per share.

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

The underwriting discount, commission and other related costs incurred

by the Company for the secondary offering totaled $ 7.9 million and was recorded by the Company as general and administrative expense in

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

Stockholder Rights Agreement

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 Coliseum’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 Coliseum to acquire the outstanding common stock of the Company not already beneficially

owned by Coliseum (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 interest 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 common stock 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, subject to certain adjustments.

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 Agreement.

the 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

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 consolidated financial statements .

Purple LLC Class B Unit Exchange Right

On February 2, 2018, in connection

with the closing of the Business Combination, the Company entered into an exchange agreement with Purple LLC, InnoHold and Class B Unit

holders who become a party thereto (the “Exchange Agreement”), which provides for the exchange of Purple LLC Class B Units

(the “Class B Units”) and shares of Class B common stock (together with an equal number of Class B Units, the “Paired

Securities”) for, at the Company’s option, either (A) shares of Class A common stock at an initial exchange ratio equal to

one Paired Security for one share of Class A common stock or (B) a cash payment equal to the product of the average of the volume-weighted

closing price of one share of Class A common stock for the ten trading days immediately prior to the date InnoHold or other Class B Unit

holders deliver a notice of exchange multiplied by the number of Paired Securities being exchanged.

In December 2018, InnoHold distributed

Paired Securities to Terry Pearce and Tony Pearce who also agreed to become parties to the Exchange Agreement.

In June 2019, InnoHold

distributed Paired Securities to certain current and former employees who also agreed to become parties to the exchange agreement.

of Class B Units may elect to exchange all or any portion of their Paired Securities as described above by delivering a notice to Purple

In certain cases, adjustments

to the exchange ratio will occur in case of a split, reclassification, recapitalization, subdivision or similar transaction of or relating

to the Class B Units or the shares of Class A common stock and Class B common stock or a transaction in which the Class A common stock

is exchanged or converted into other securities or property.

The exchange ratio will also adjust in certain circumstances when the Company

acquires Class B Units other than through an exchange for its shares of Class A common stock.

The right of a holder of Paired

Securities to exchange may be limited by the Company if it reasonably determines in good faith that such restrictions are required by

applicable law (including securities laws), such exchange would not be permitted under other agreements of such holder with the Company

or its subsidiaries, including the Third Purple LLC Agreement, or if such exchange would cause Purple LLC to be treated as a “publicly

traded partnership” under applicable tax laws.

The Company and each holder

of Paired Securities shall bear its own expense regarding the exchange except that the Company shall be responsible for transfer taxes,

stamp taxes and similar duties.

There were no Paired Securities

exchanged for Class A common stock during the year ended December 31, 2022.

During the year ended December 31, 2021, 0.1 million of Paired

Securities were exchanged for shares of Class A common stock.

Maintenance of One-to-One Ratios.

The Third Purple LLC Agreement includes provisions intended to ensure

that the Company at all times maintains a one-to-one ratio between (a) (i) the number of outstanding shares of Class A common stock and

(ii) the number of Class A Units owned by the Company (subject to certain exceptions for certain rights to purchase equity securities

of the Company under our Rights Agreement, certain convertible or exchangeable securities issued under the Company’s equity compensation

plan and certain equity securities issued pursuant to the Company’s equity compensation plan (other than a stock option plan) that

are restricted or have not vested thereunder) and (b) (i) the number of other outstanding equity securities of the Company (including

the warrants exercisable for shares of Class A common stock) and (ii) the number of corresponding outstanding equity securities of Purple

These provisions are intended to result in non-controlling interest holders having a voting interest in the Company that is identical

to their economic interest in Purple LLC.

Non-Income Related Taxes

Supreme Court ruling

in South Dakota v.

Wayfair, Inc.

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

not required to collect state and local sales taxes.

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

income or other taxes on e-commerce.

, No.17-494, reversed a longstanding precedent that remote sellers are not required to collect

state and local sales taxes.

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

on e-commerce.

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

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

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

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

capture data and collect and remit taxes.

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

with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business.

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

Court of International Trade seeking to recover approximately $7.0 million

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

More than 4,000 other complaints have been

filed by other companies seeking similar refunds.

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

the Section 301 cases, including Purple LLC’s.

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

of any unliquidated entries.

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

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

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

However, the application

of existing, new or revised taxes on the Company’s business, in particular, sales taxes, VAT and similar taxes would likely increase

the cost of doing business online and decrease the attractiveness of selling products over the internet.

The application of these taxes

on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit

There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements

in the numerous markets in which the Company conducts or will conduct business.

Legal Proceedings

On September 9, 2019, Purple

LLC filed a Statement of Claim against PerfectSense Home Inc.

and PerfectSense Trading Co.

(collectively, “PerfectSense”)

in the Federal Court of Canada.

PerfectSense is a manufacturer and supplier of mattresses and related products.

PerfectSense owns the

domain name www.purplesleep.ca, which used to, but no longer, redirects to its website at www.perfectsense.ca.

addition to this, Purple LLC has alleged that PerfectSense has designed their mattresses with the same look as the Purple mattresses (white

mattress top, purple stripe, and grey bottom);

used many of the marketing elements on Purple’s website (including a similar “exploded

view” image of their mattress);

and adopted the color purple as their dominant marketing color.

Purple LLC is suing for a declaration

that PerfectSense has infringed Purple LLC’s copyright and trademark rights and committed the tort of passing off.

Purple LLC is

asking for injunctive relief, damages, an accounting of profits, interest, costs, and delivery up or destruction of the infringing products

(including delivery up of the www.purplesleep.ca domain).

After filing the statement of claim, Purple LLC posted $ 15,000 CAD

as security for PerfectSense’s costs.

PerfectSense brought a motion to strike that was resolved on consent.

Pleadings are now closed,

and the action is proceeding under case management.

Counsel for the defendant was removed from the record at their own request by

The Court further ordered the defendant to either appoint counsel or file a motion to permit an officer or director to represent

the defendant in legal proceedings.

On November 6, 2020, the defendant informally requested that the Court permit Mr.

Henderson, the CEO

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

Purple opposed

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

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

or file a motion to permit Mr.

Henderson to represent the defendant, PerfectSense appointed new counsel.

The 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) change their mattress design so as not to resemble any of Purple’s mattress designs,

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

word “Purple”, and (d) 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.

Now that the action has been discontinued, Purple has received a refund of 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.

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.

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

USTR filed their

response to these comments on November 4, 2022.

The plaintiffs filed a reply on December 5, 2022 and the court held a hearing on

February 7, 2023.

On March 17, 2023, the court issued a final opinion and order upholding the remand results.

As a result, the duties

will stay in place and no refunds will be issued.

The courts order could be appealed to the U.S.

Court of Appeals for the Federal Circuit.

On October 13, 2020, Purple

LLC filed a lawsuit against Responsive Surface Technology, LLC and its parent company, PatienTech, LLC (collectively referred to as “ReST”)

District Court for the District of Utah.

3 unchanged sentences

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

On October 21, 2020, shortly

after the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC, Gary DiCamillo, Adam Gray, Joseph Megibow,

Terry Pearce, and Tony Pearce, also in the United States District Court for the District of Utah (“Case II”).

Subsequently,

the two cases were consolidated into one case because Case II involves many of the same facts and transactions as Case I.

On January 19,

2021, ReST filed a motion to compel arbitration of the claims in Case I.

Purple LLC opposed the motion to compel arbitration,

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

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

District Court for the District of Utah.

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

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

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

September 1, 2021.

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

The parties have selected an

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

The proposed scheduling order contemplates an arbitration

hearing to occur during the fourth quarter of 2022.

Purple LLC seeks $5.5 million in damages from ReST, whereas ReST claims

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

On October 21, 2020, shortly after

the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC, Gary DiCamillo, Adam Gray, Joseph Megibow, Terry

Pearce, and Tony Pearce, also in the United States District Court for the District of Utah (“Case II”).

Subsequently, the

two cases were consolidated into one.

Case II (now combined with Case I) involves many of the same facts and transactions as Case I.

subsequently filed a motion to compel arbitration of the claims in Case I.

Purple LLC opposed the motion to compel arbitration, arguing

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

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

Additionally, the Court ruled that ReST’s claims against the Purple board members were not subject to arbitration, and

the Court stayed ReST’s claims against those individuals.

Pursuant to the Court’s order, Purple filed a demand for arbitration

with the American Arbitration Association (the “AAA”) on September 1, 2021.

ReST filed its counterclaim with the AAA

on September 21, 2021.

Currently, the parties are nearing the end of the fact discovery phase of the arbitration.

have taken several depositions and engaged in written discovery.

The arbitration hearing is scheduled to begin on July 10, 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.

District 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.

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.

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.

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 date.

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 consolidated

statement of operations for year ended December 31, 2022.

For additional information see Note 4— Acquisition .

On May 3, 2022, the Company

filed a complaint against Photon Interactive UK Limited (“Photon”) in the U.S.

District Court for the District of Delaware

regarding a Master Professional Services Agreement with Photon dated on or around November 1, 2019.

Pursuant to the agreement, Photon

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

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.

Purple withheld payment of the final

$ 0.1 million due pursuant to Photon’s invoices pending a resolution with Photon.

Since resolution discussions with Photon have failed,

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.

On August 31, 2022, the Company filed an amended complaint adding additional claims pertaining

to Photon’s failure to deliver a point of sale system pursuant to the Master Professional Services Agreement.

Through the lawsuit, the

Company seeks reimbursement of amounts paid to Photon plus indemnity in the amount paid by Company to address Photon’s failures.

the Company seeks judgment against Photon in the amount of $ 4 million.

The litigation is presently in its discovery phase.

intends to vigorously litigate its claims to resolution.

On August 5, 2022, Purple

LLC filed a complaint with the U.S.

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.

On September 6, 2022, the ITC instituted Investigation No.

337-TA-1328 in response to Purple LLC’s complaint.

The ITC Administrative

Law Judge set 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.

Upon completion of fact discovery Purple voluntarily dismissed a number

of Respondents with regard to the trade dress claims and all other Respondents have settled with regard to the patent infringement claims.

No Respondents remain in the case and all that remains is motion practice to finalize the case and the final ruling to be handed down

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 intends to vigorously litigate its claims to resolution.

On December 16, 2022, Terry

and Tony Pearce, Purple’s founders, filed a complaint against Purple Innovation Inc.

in the Fourth Judicial District Court in the

State of Utah.

The Pearces allege that they each entered into employment agreements with Purple in February 2018.

The Pearces contend

that certain corporate transactions between May 2019 and June 2020 reduced their “ownership interest and voting power in Purple”

and that, as a result, they should have continued to be paid a salary between August 2020, when they retired from Purple, and December

The Pearces calculate that they are each owed “no less than $ 500,000 ” in unpaid salary.

In February 2023, Purple filed

a motion to dismiss the Pearces’ claims in full.

The Company maintains insurance to defend against claims of this nature and intends

to do so vigorously.

On February 21, 2023, Coliseum

filed a Complaint against the Company and several members of the Board in the Delaware Court of Chancery, captioned Coliseum Capital

Management, LLC v.

Anthos , Case No.

2023-0220-PAF (Del.

The complaint alleges that the Company and the named

directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfere with Coliseum’s

nomination of a competing slate of director candidates ahead of the Company’s 2023 annual meeting of stockholders.

(1) declarations that the authorization of the PRPLS violated the Company’s charter and amounted to a breach of the

named directors’ fiduciary duties;

(2) a declaration that the PRPLS is invalid, unenforceable, and void;

(3) unspecified damages

resulting from the alleged breach of duties;

and (4) an award of costs and expenses incurred in pursuing the action.

have agreed to hold an expedited trial on Coliseum’s claims that will result in a resolution of the dispute before the Company’s

2023 annual meeting of stockholders.

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

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

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

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

state law based claims.

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

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

Purple LLC also requested declaratory relief related to certain assignment

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

On December 14, 2020, Intellibed filed

a motion to dismiss Counts I through XI of Purple LLC’s Complaint on the ground that these Counts fail to state a claim upon which

relief can be granted.

On December 15, 2020, Intellibed filed an Answer to Purple LLC’s complaint and also asserted against Purple

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

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

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

On January 19, 2021, Purple LLC filed a

motion to dismiss Intellibed’s fifth, sixth, seventh, and eighth counterclaims on the ground that these counterclaims fail to state

a claim upon which relief can be granted.

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

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

On January 27, 2021, Purple LLC filed a First Amended Complaint in response to Intellibed’s initial motion to dismiss.

On February 10, 2021, Intellibed filed a motion to dismiss Counts I through XI of Purple LLC’s First Amended Complaint.

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

On September 28, 2021, the District Court dismissed

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

dispute-resolution procedures set out in the license agreement.

Because the Court found that the license agreement required the

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

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

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

County, Georgia, Case No.

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

SSB’s Complaint alleges that the Company intentionally

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

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

SSB sought compensatory damages, punitive damages, equitable

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

SSB also initiated arbitration proceedings against

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

On July 12, 2021, the Company filed an Answer

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

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

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

(the “Utah Litigation”), seeking:

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

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

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

the former employee.

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

SSB filed an answer on

August 18, 2021.

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

claims in the Georgia Litigation and Utah Litigation.

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

the settlement agreement.

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

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

Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business.

The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might

be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

However, Purple

intends to vigorously defend against the claims made by Coliseum.

The Company is from time to

time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business.

The Company does not

believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay

by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

Related-Party Transactions

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

Capital Management LLC

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

Gray is a manager of Coliseum Capital,

LLC, which is the general partner of CCP and CDF, and he is also a managing partner of Coliseum Capital Management, LLC (“CCM”),

which is the investment manager of Blackwell.

Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell

which were also the Lenders under the Amended and Restated Credit Agreement.

In 2018, the Lenders agreed to make the Original Loan in

an aggregate principal amount of $ 25.0 million pursuant to the 2018 Credit Agreement entered into as part of the Business Combination.

In conjunction with the 2018 Credit Agreement, the Sponsor agreed to assign to the Lenders an aggregate of 2.5 million warrants to purchase

1.3 million shares of its Class A Stock.

2019, the Incremental Lenders agreed to provide the $10.0 million Incremental Loan and were granted 2.6 million warrants to purchase

2.6 million shares of the Company’s Class A Stock at a price of $5.74 per share, subject to certain adjustments.

In May 2020, the

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

On November 9, 2020,

the Company issued 2.6 million shares of Class A common stock in exchange for the Incremental Loan Warrants held by the Incremental Lenders

(See Note 10 — Warrant Liabilities) .

accordance with the First Amendment to the Amended and Restated Credit Agreement, the Company did not make any cash interest payments

to the Lenders during the first and second quarters of 2020.

On September 3, 2020, the Company paid $45.0 million to retire, in full,

all indebtedness related to Purple LLC’s 2018 Credit Agreement.

The payment included the $25.0 million Original Loan, the $10.0

Incremental Loan, $6.6 million of paid-in-kind interest, $2.5 million in a prepayment fee and $0.9 million in accrued interest (See Note

connection with the Business Combination, the Company entered into a subscription agreement with CCP and Blackwell, pursuant to which

CCP and Blackwell agreed to purchase from the Company an aggregate of 4.0 million shares of Class A Stock at a purchase price

of $ 10.00 per share (the “Coliseum Private Placement”).

In connection with the Coliseum Private Placement, the Sponsor assigned

(i) an aggregate of 1.3 million additional shares of Class A Stock to CCP and Blackwell and (ii) an aggregate of 3.3 million

warrants to purchase 1.6 million shares of Class A Stock to CCP, Blackwell, and CDF.

The subscription agreement provides CCP

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

It also provides them with a right

of first refusal with respect to certain debt and preferred equity financings by the Company.

The Company also entered into a registration

rights agreement with CCP, Blackwell, and CDF, providing for the registration of the shares of Class A Stock issued and assigned

to CCP and Blackwell in the Coliseum Private Placement, as well as the shares of Class A Stock underlying the warrants received

by CCP, Blackwell and CDF.

The Company has filed a registration statement with respect to such securities.

Founder Entities

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

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

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

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

InnoHold was a majority shareholder of the Company until

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

offering in September 2020.

The Company had various transactions

with entities or individuals which are considered related parties.

Coliseum Capital Management LLC

Immediately following the

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

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, which is the investment manager of Blackwell and also manages

investment funds and accounts.

Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell which were also

the Lenders under the Amended and Restated Credit Agreement.

On September 17, 2022, the

Company received an unsolicited and non-binding proposal from Coliseum on behalf of certain investment funds and accounts to acquire the

remaining outstanding common stock of the Company not already beneficially owned by Coliseum for $ 4.35 per share in cash.

of the offer, Coliseum beneficially owned approximately 44.7 % of the outstanding equity of the Company.

The Coliseum proposal was conditioned

upon the transaction being (a) negotiated by, and subject to the approval of, 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 Coliseum or other interested parties.

The Special Committee was formed by the Board to determine the necessary actions to evaluate the Coliseum proposal and determine the course

of action that is in the best interests of all the Company’s shareholders.

The Board expressly granted the Special Committee the

ability to decline the Coliseum proposal.

In addition, the Special Committee adopted the Rights Agreement to have the time and flexibility

necessary to evaluate the Coliseum offer and to prevent a change of control without payment of an adequate control premium.

See Note 14— Commitments

and Contingencies — Subscription Agreement and Preemptive Rights and Commitments and Contingencies — Stockholder

Rights Agreement for further discussion .

See Note 22— Subsequent Events — Coliseum for further discussion

on events occurring subsequent to December 31, 2022.

Purple Founder Entities

TNT Holdings, LLC (herein

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

with TNT Holdings and EdiZONE the “Purple Founder Entities”) were entities under common control with Purple LLC prior to the

Business Combination.

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

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

InnoHold was a majority shareholder of the Company

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

public offering in September 2020.

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

TNT Holdings owned the Alpine facility Purple LLC has been leasing

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

by the Purple Founders.

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

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

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

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

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

Purple LLC continues to lease the Alpine facility that was

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

In accordance with the terms

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

of the lease to occur on September 30, 2022.

the years ended December 31, 2021 and 2020, 0.1 million and 30.9 million Paired Securities, respectively, have been exchanged for Class

A Stock by InnoHold and certain current and former employees of the Company who received distributions of such Paired Securities from

November 9, 2018, Purple LLC and EdiZONE executed the Second Amended and Restated Confidential Assignment and License Back Agreement

(the “Revised License Agreement”), pursuant to which EdiZONE assigned all of its comfort and cushioning intellectual

property to Purple LLC and further limited the subset of such intellectual property licensed back to EdiZONE to only those uses that

enabled EdiZONE to comply with its obligations under previously existing contracts, agreements and licenses.

On August 14, 2020,

Purple LLC entered into a separate agreement whereby EdiZONE, for consideration of $ 8.5 million, assigned a license agreement with

Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”), and related royalties payable thereunder, to Purple

LLC, along with the trademarks GEL MATRIX and INTELLIPILLOW.

In connection with such assignment, the Company agreed to indemnify

EdiZONE against claims by Intellibed relating to EdiZONE’s breach under the agreement.

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

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

During the year ended December 31, 2020, Purple LLC

paid InnoHold either directly or through withholding payments directly to various states, an aggregate of $ 4.6 million in required tax

distributions pursuant to the Second Purple LLC Agreement.

Stockholders’ Equity

to the Business Combination, GPAC was a shell company with no operations, formed as a vehicle to effect a business combination with one

or more operating businesses.

After the Closing, the Company became a holding company whose sole material asset consists of its interest

in Purple LLC.

A Common Stock

Company has 210.0 million shares of Class A Stock authorized at a par value of $ 0.0001 per share.

Holders of the Company’s Class

A Stock are entitled to one vote for each share held on all matters to be voted on by the stockholders and participate in dividends,

if declared by the Board, or receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution

of assets or winding-up of the Company in excess of the par value of such stock.

Holders of the Class A Stock and holders of the Class

B Stock voting together as a single class, have the exclusive right to vote for the election of directors and on all other matters properly

submitted to a vote of the stockholders.

Holders of Class A Stock and Class B Stock are entitled to one vote per share on matters to

be voted on by stockholders.

At December 31, 2021, 66.5 million shares of Class A Stock were outstanding.

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

The shares of Class A Stock subject to vesting will be forfeited eight years from the Closing, unless any of the following

events (each a “Triggering Event”) occurs prior to that time:

(i) the closing price of the Class A Stock on the principal

exchange on which it is listed is at or above $12.50 for 20 trading days over a thirty trading day period (subject to certain adjustments),

(ii) a change of control of the Company, (iii) a “going private” transaction by the Company pursuant to Rule 13e-3 under

the Exchange Act or such other time as the Company ceases to be subject to the reporting obligations under Section 13 or 15(d) of the

Exchange Act, or (iv) the time that the Company’s Class A Stock ceases to be listed on a national securities exchange.

During fiscal

2020, a Triggering Event occurred as the closing price of the Class A Stock on the principal exchange on which it is listed was at or

above $12.50 for 20 trading days over a thirty-trading day period.

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

vesting or forfeiture.

B Common Stock

Company has 90.0 million shares of Class B Stock authorized at a par value of $ 0.0001 per share.

Holders of the Company’s Class

B Stock will vote together as a single class with holders of the Company’s Class A Stock on all matters properly submitted to a

vote of the stockholders.

Shares of Class B Stock may be issued only to InnoHold, their respective successors and assigns, as well as

any permitted transferees of InnoHold.

A holder of Class B Stock may transfer shares of Class B Stock to any transferee (other than the

Company) only if such holder also simultaneously transfers an equal number of such holder’s Purple LLC Class B units to such transferee

in compliance with the Second Purple LLC Agreement.

The Class B Stock is not entitled to receive dividends, if declared by the Board,

or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up

of the Company in excess of the par value of such stock.

connection with the Business Combination, approximately 44.1 million shares of Series B Stock were issued to InnoHold as part of the

equity consideration.

InnoHold subsequently transferred a portion of its shares to permitted transferees and exchanged its remaining

shares for Class A Stock that it sold.

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

Company has 5.0 million shares of preferred stock authorized at a par value of $ 0.0001 per share.

The preferred stock may be issued from

time to time in one or more series.

The directors are expressly authorized to provide for the issuance of shares of the preferred stock

in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting

rights, designations and other special rights or restrictions.

TNT Holdings owned the Alpine

facility Purple LLC has been leasing since 2010, and the Purple Founders informed Purple LLC that TNT Holdings recently transferred ownership

to 123E LLC, an entity controlled by the Purple Founders.

Effective as of October 31, 2017, Purple LLC entered into an Amended and Restated

Lease Agreement with TNT Holdings.

The Company determined that neither TNT Holdings nor 123E LLC are a VIE as neither the Company nor

Purple LLC hold any explicit or implicit variable interest in TNT Holdings or 123E LLC and do not have a controlling financial interest

in TNT Holdings or 123E LLC.

Purple LLC incurred $ 1.0 million, $ 0.9 million and $ 0.9 million in rent expense to 123E LLC or TNT Holdings

for the building lease of the Alpine facility for the years ended December 31, 2022, 2021 and 2020, respectively.

Purple LLC continues

to lease the Alpine facility that was formerly the Company headquarters, for use in production, research and development and video production.

In accordance with the terms of that lease, on September 1, 2021, Purple LLC gave notice to 123E LLC that it intended to exercise its

right to an early termination of the lease to occur on September 30, 2022.

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.

During the year ended December

31, 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 year ended December 31, 2022.

In connection with the Business

Combination, to secure payment of a certain portion of specified post-closing indemnification rights of the Company under the Merger Agreement,

0.5 million shares of Class B common stock and 0.5 million Class B Units otherwise issuable to InnoHold as equity consideration were deposited

in an escrow account for up to three years from the date of the Business Combination pursuant to a contingency escrow agreement.

2020, an amendment to the escrow agreement was signed whereby the 0.5 million shares of Class B Stock and 0.5 million Class B Units held

in escrow were exchanged for $5.0 million.

On February 3, 2021, the Company received $4.1 million from InnoHold as reimbursement for amounts

that qualified for indemnification from the $5.0 million being held in escrow.

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

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

During the year ended December

31, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $ 0.6 million in required tax

distributions pursuant to the Third Purple LLC Agreement.

There were no such payments made by Purple LLC during the year ended December

Stockholders’

Class A Common Stock

The Company has 210.0 million

shares of Class A common stock authorized at a par value of $ 0.0001 per share.

Holders of the Company’s Class A common stock are

entitled to one vote for each share held on all matters to be voted on by the stockholders and participate in dividends, if declared by

the Board, or receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets

or winding-up of the Company in excess of the par value of such stock.

Holders of Class A common stock and holders of Class B common stock

voting together as a single class, have the exclusive right to vote for the election of directors and on all other matters properly submitted

to a vote of the stockholders.

Holders of Class A common stock and Class B common stock are entitled to one vote per share on matters

to be voted on by stockholders.

At December 31, 2022, 91.4 million shares of Class A common stock were outstanding.

Class B Common Stock

The Company has 90.0 million

shares of Class B common stock authorized at a par value of $ 0.0001 per share.

Holders of the Company’s Class B common stock will

vote together as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of

the stockholders.

Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any

permitted transferees of InnoHold.

A holder may transfer their shares to any transferee (other than the Company) only if such holder also

simultaneously transfers an equal number of such holder’s Purple LLC Class B units to such transferee in compliance with the Second

Purple LLC Agreement.

The Class B common stock is not entitled to receive dividends, if declared by the Board, or to receive any portion

of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess

of the par value of such stock.

In connection with the Business

Combination, approximately 44.1 million shares of Series B Stock were issued to InnoHold as part of the equity consideration.

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

that it sold.

All of the 0.4 million shares of Class B common stock outstanding at December 31, 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.

On September 25, 2022 the Rights Agreement was adopted and 0.3 million shares of the Company’s

preferred stock were designated as Series A Junior Participating Preferred Shares.

See Note 14— Commitments and Contingencies — Stockholder

Rights Agreement for further discussion regarding preferred stock.

At December 31, 2022, there were no shares of preferred stock outstanding.

and Sponsor Warrants

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

to a private placement simultaneously with the initial public offering.

Each of the Company’s warrants entitled the registered holder to purchase one-half

of one share of the Company’s Class A Stock at a price of $5.75 per half share ($11.50 per full share), subject to adjustment pursuant

the terms of the warrant agreement.

In accordance with the warrant agreement, a warrant holder may exercise its warrants only for a whole

number of shares of the Class A Stock.

In no event will the Company be required to net cash settle any warrant.

The warrants have a five-year

term which commenced on March 2, 2018, 30 days after the completion of the Business Combination, and will expire on February 2, 2023,

or earlier upon redemption or liquidation.

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

with respect to the sponsor warrants, so long as such sponsor warrants are held by the sponsor or its permitted transferee, the holder

may elect to exercise the sponsor warrants on a cashless basis, by surrendering their sponsor warrants for that number of shares of Class

A Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A Stock underlying the sponsor warrants,

multiplied by the difference between the exercise price of the sponsor warrants and the “fair market value” (defined below),

by (y) the fair market value.

The “fair market value” means the average reported last sale price of the Class A Stock for

the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant

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

October 27, 2020, the Company provided notice to the holders of the public warrants that the Company was exercising its right under the

terms of the public warrants to redeem such warrants by paying to the warrant holders the redemption price of $ 0.01 per warrant on November

Any exercise of the warrants prior to that date was to be done on a cashless basis, in accordance with the terms of the warrants.

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

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

to the Company of $ 0.1 million.

During the year ended December 31, 2020, 15.5 million Public Warrants and 4.3 million Sponsor Warrants

were exercised or redeemed resulting in the issuance of 7.6 million shares of Class A common stock and cash proceeds to the Company of

$ 46.4 million.

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

At December 31, 2021 and 2020, there were 1.9

million and 8.5 million sponsor warrants outstanding, respectively.

All of the public warrants were exercised during fiscal 2020.

Loan Warrants

connection with the Amended and Restated Credit Agreement, the Company issued to the Incremental Lenders 2.6 million Incremental Loan

Warrants to purchase 2.6 million shares of the Company’s Class A Stock.

Each Incremental Loan Warrant entitled the registered

holder to purchase one share of the Company’s Class A Stock at a price of $ 5.74 per share, subject to adjustment pursuant to the

terms of the warrant agreement.

In May 2020, Tony Pearce or Terry Pearce individually or together ceased to beneficially own at least

50% of the voting securities of the Company.

As a result, the exercise price of the warrants was reduced to zero based on the formula

established in the agreement.

October 27, 2020, the Company provided notice to the holders of the Incremental Loan Warrants that the Company was exercising its right

to redeem such warrants by paying to the warrant holders the redemption price of $ 0.01 per warrant on November 30, 2020.

of the warrants prior to that date was to be done on a cashless basis, in accordance with the terms of the warrants.

On November 9, 2020,

upon the exercise of all the Incremental Loan Warrants, the Company issued 2.6 million shares of Class A common stock in exchange for

the Incremental Loan Warrants held by the Incremental Lenders.

Noncontrolling

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

LLC held by holders other than the Company.

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

The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate interest

held by all such Purple LLC Class B Unit holders as NCI.

Net Income (Loss) Per Common Share

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

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

Ended December 31,

income (loss) attributable to Purple Innovation, Inc.

Sponsor Warrants

There were 12.8 million sponsor

warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering.

Each of these warrants

entitled the registered holder to purchase one-half of one share of the Company’s Class A common stock at a price of $5.75 per half

share ($11.50 per full share), subject to adjustment pursuant the terms of the warrant agreement.

In accordance with the warrant agreement,

a warrant holder may exercise its warrants only for a whole number of shares of the Class A common stock.

In no event will the Company

be required to net cash settle any warrant.

The warrants have a five-year term which will expire on February 2, 2023, or earlier upon

redemption or liquidation.

The sponsor warrants are not

redeemable by the Company so long as they are held by the sponsor or its permitted transferees.

In addition, with respect to the sponsor

warrants, so long as such sponsor warrants are held by the sponsor or its permitted transferee, the holder may elect to exercise the sponsor

warrants on a cashless basis, by surrendering their sponsor warrants for that number of shares of Class A common stock equal to the quotient

obtained by dividing (x) the product of the number of shares of Class A common stock underlying the sponsor warrants, multiplied by the

difference between the exercise price of the sponsor warrants and the “fair market value” (defined below), by (y) the fair

market value.

The “fair market value” means the average reported last sale price of the Class A common stock for the 10 trading

days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.

In 2021, 6.6 million sponsor

warrants were exercised resulting in the issuance of 2.3 million shares of Class A common stock and cash proceeds to the Company of $ 0.1

There were no sponsor warrants exercised during 2022.

At both December 31, 2022 and 2021, there were 1.9 million sponsor warrants

Noncontrolling Interest

Noncontrolling interest (“NCI”)

is the membership interest in Purple LLC held by holders other than the Company.

At December 31, 2022 and 2021, the combined NCI percentage

in Purple LLC was 0.5 % and 0.7 %, respectively.

The Company has consolidated the financial position and results of operations of Purple

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

(Loss) Per Common Share

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):

Years Ended December 31,

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

$ ( 236,867 )

1 unchanged sentence

Net loss attributable to noncontrolling interest

loss attributable to Purple Innovation, Inc.

Net loss attributable to Purple Innovation, Inc.

$ ( 236,867 )

average shares – basic

Dilutive effect of equity awards

Weighted average shares – basic

Dilutive effect of warrants

Dilutive effect of Class B shares

average shares – diluted

income (loss) per common share:

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

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

For the year ended December 31, 2020,

the Company excluded 0.1 million shares of issued Class A Stock subject to vesting, 6.5 million shares of Class A Stock issuable upon

conversion of the Company’s warrants and options, and 0.5 million Paired Securities convertible into shares of Class A Stock as

the effect was anti-dilutive.

For the year ended December 31, 2019, the Company excluded 1.4 million shares of issued Class A Stock subject

to vesting, 18.9 million shares of Class A Stock issuable upon conversion of the Company’s warrants and options, and 31.4 million

Paired Securities convertible into shares of Class A Stock as the effect was anti-dilutive.

Weighted average shares – diluted

Net income (loss) per common share:

For the year ended December 31, 2022, the Company excluded 3.5 million

of Class A common shares issuable upon conversion of certain warrants, stock options, restricted stock and Class A shares subject to vesting,

and 0.4 million of Paired Securities convertible into shares of Class A common stock as their effect was anti-dilutive.

For the year ended

December 31, 2021, the Company excluded 2.6 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 year ended December 31, 2020, the Company

excluded 0.1 million shares of issued Class A common stock subject to vesting, 6.5 million shares of Class A common stock issuable upon

conversion of the Company’s warrants and options, and 0.5 million of Paired Securities convertible into shares of Class A common

stock as the effect was anti-dilutive.

Equity Compensation Plans

Equity Incentive Plan

The Purple Innovation, Inc.

2017 Equity Incentive Plan (the “2017 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted

stock and other stock-based awards.

Directors, officers and other employees and subsidiaries and affiliates, as well as others performing

consulting or advisory services for the Company and its subsidiaries, will be eligible for grants under the 2017 Incentive Plan.

The aggregate

number of shares of Common Stock which may be issued or used for reference purposes under the 2017 Incentive Plan or with respect to which

awards may be granted may not exceed 4.1 million shares.

As of December 31, 2021, 2.1 million shares remain available for issuance under

the 2017 Incentive Plan.

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

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

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

A Stock Awards

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

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

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

March 2020, the Company granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s

Board advisor and GPAC observer.

The stock award vested in March 2021.

As this award included a service condition, the estimated fair

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

The Company determined that the

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

2020 and 2019, the Company granted stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the

Board and to the Board advisor and GPAC observer.

The stock awards vested immediately and the Company recognized $ 0.5 million and $ 0.3

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

on the grant date.

May and June 2020, the Company granted restricted stock awards under the Company’s 2017 Equity Incentive Plan to certain employees

of the Company.

The stock awards vest over 3 to 4 years.

The estimated fair value of the restricted stock is measured on the grant date

and is recognized over the vesting period.

The Company determined that the fair value of the restricted stock on the grant dates was

$ 0.7 million.

2017 Equity Incentive

The 2017 Equity Incentive

Plan provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards.

Directors, officers

and other employees and subsidiaries and affiliates, as well as others performing consulting or advisory services for the Company and

its subsidiaries, will be eligible for grants under the 2017 Incentive Plan.

The aggregate number of shares of Common Stock which may

be issued or used for reference purposes under the 2017 Incentive Plan or with respect to which awards may be granted may not exceed 4.1

million shares.

As of December 31, 2022, 1.4 million shares remain available for issuance under the 2017 Incentive Plan.

During the years

ended December 31, 2022, 2021 and 2020, stock-based compensation associated with equity awards issued under the 2017 Incentive Plan totaled

$ 3.4 million, $ 3.4 million and $ 2.2 million, respectively, while the related tax benefits recognized on these awards were $ 0.9 million,

$ 1.7 million and $ 5.6 million, respectively.

Class A Common Stock

In May 2022, the Company granted

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

The restricted

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

ended March 31, 2022.

As this award included a market vesting condition, stock-based compensation was determined as the estimated fair

value of the restricted stock measured on the grant date using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model

which incorporated the probability of vesting occurring.

The Company determined the fair value of the restricted stock on the grant date

to be $ 0.2 million and the derived service period to be 2.58 years.

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

and all of the shares became issuable on that date.

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

period which ended when all of the shares became issuable.

Stock Options

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

to certain management of the Company.

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

The stock options expire

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

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

on a straight-line basis.

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

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

Included in that amount were 0.2 million stock options with a

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

stock awards under the 2017 Equity Incentive Plan to independent directors on the Board.

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 year ended December 31, 2022, which

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

In May 2021, the Company

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

The stock awards vested

immediately and the Company recognized $ 0.6 million in expense during year ended December 31, 2021, which represented the fair value

of the stock award on the grant date.

In March 2020, the Company

granted a restricted stock award under the Company’s 2017 Equity Incentive Plan to the Company’s Board advisor and GPAC observer.

The stock award vested in March 2021.

As this award included a service condition, the estimated fair value of the restricted stock was

measured on the grant date and recognized over the service period.

The Company determined that the fair value of the restricted stock

on the grant date was immaterial.

In 2020, the Company granted

stock awards under the Company’s 2017 Equity Incentive Plan to independent directors on the Board and to the Board advisor and GPAC

The stock awards vested immediately and the Company recognized $ 0.5 million in expense during the year ended December 31, 2020,

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

In May and June 2020, the

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

stock awards vest over 3 to 4 years.

The estimated fair value of the restricted stock is measured on the grant date and is recognized

over the vesting period.

The Company determined that the fair value of the restricted stock on the grant dates was $ 0.7 million.

Employee Stock Options

In March and June 2022, the

Company granted 0.5 million and 0.1 million stock options, respectively, under the 2017 Equity Incentive Plan to its chief executive officer

at an exercise price of $ 6.82 per option.

The stock options expire in five years and vest over a three -year period.

In April 2022, with

the chief executive officer’s consent, the Company rescinded and cancelled 0.4 million of the stock options granted in March 2022

because of annual limits set forth in the 2017 Equity 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.

During the year ended December

6 unchanged sentences

will be expensed over the vesting period.

Included in that amount were 0.2 million stock options with a fair value of $ 1.4 million that

were subsequently forfeited in December 2021.

During the year ended December

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

These stock options have exercise prices that range from $ 5.75 to $ 8.55 per option.

The stock options expire in five years

and vest over a four-year period.

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

a straight-line basis.

The Company determined the fair value of the 1.6 million options granted during the year ended December 31, 2019

to be $ 2.9 million which will be expensed over the vesting period.

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

2019 using the Black-Scholes method:

Ended December 31,

term in years

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

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

The $ 0.5 million of additional cost associated

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

the year ended December 31, 2019, 0.3 million of unvested stock options were forfeited by a former Chief Financial Officer (“CFO”)

of the Company upon his resignation and departure from the Company.

As the CFO, he was not permitted to exercise and sell all of his

0.1 million vested options during the limited 90-day exercise time period under the terms of his option grant.

The Company entered into

an agreement whereby the Company paid this former CFO $0.1 million for the difference between the closing price of the stock on the date

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

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

These stock options have exercise prices ranging from $ 12.76 to $ 21.70 .

The stock options expire in five years and vest over

a four -year period.

The estimated fair value of the stock options is amortized over the options vesting period on a straight-line basis.

The Company determined the fair value of the 0.5 million options granted during the year ended December 31, 2020 to be $ 3.4 million which

will be expensed over the vesting period.

The following are the weighted

average assumptions used in calculating the fair value of the total stock options granted in 2022, 2021 and 2020 using the Black-Scholes

Year Ended December 31,

Fair market value

Risk free rate

Dividend yield

Expected volatility

Expected term in years

In December 2021, 0.6 million

of vested stock options related to the former Chief Executive Officer had the post-termination exercise period extended from 90 days to

352 days upon his resignation and departure from the Company.

The $ 0.5 million of additional cost associated with this modification was

recorded as stock-based compensation expense in the 2021 consolidated statement of operations.

The following table summarizes the Company’s

total stock option activity for the years ended December 31, 2022, 2021 and 2020:

(in thousands)

outstanding as of January 1, 2019

Options outstanding as of December 31, 2019

Forfeited/expired

Options outstanding

as of December 31, 2019

Options outstanding as of December 31, 2020

Forfeited/expired

Options outstanding

as of December 31, 2020

Options outstanding as of December 31, 2021

Forfeited/expired

outstanding as of December 31, 2021

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

Options outstanding as of December 31, 2022

Outstanding and exercisable stock options as of

December 31, 2022 are as follows:

Options Outstanding

Options Exercisable

Exercise Prices

(in thousands)

3 unchanged sentences

(in thousands)

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

The following table summarizes

the Company’s unvested stock option activity for the years ended December 31, 2022, 2021 and 2020:

(in thousands)

options as of January 1, 2019

Nonvested options

as of December 31, 2019

Nonvested options

as of December 31, 2020

options as of December 31, 2021

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

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

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

recognition period of 1.6 years.

As of December 31, 2020, there was $ 4.6 million of total unrecognized stock compensation cost with a

remaining recognition period of 2.5 years.

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

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

Nonvested options as of December 31, 2019

Nonvested options as of December 31, 2020

Nonvested options as of December 31, 2021

Nonvested options as of December 31, 2022

The Company recognized $ 0.7

million, $ 2.1 million and $ 1.3 million in stock-based compensation expense related to stock options during the years ended December 31,

2022, 2021 and 2020, respectively.

There were no stock option exercises in 2019.

Restricted Stock Units

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

Plan to certain management of the Company.

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

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

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

For those awards that

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

the probability of vesting occurring.

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

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

The Company determined the weighted average

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

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

For stock options outstanding

as of December 31, 2022, there was $ 0.7 million of total unrecognized stock compensation cost with a remaining recognition period of 1.8

As of December 31, 2021, there was $ 1.3 million of total unrecognized stock compensation cost with a remaining recognition period

of 1.6 years.

Cash received from the exercise

of stock options was $ 0.2 million, $ 1.4 million and $ 2.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The tax benefit associated with the exercise of stock options was $ 0.4 million, $ 1.6 million and $ 4.5 million for the years ended December

31, 2022, 2021 and 2020, respectively.

Employee Restricted

In March and June 2022, the

Company granted 0.5 million and 0.1 million restricted stock units, respectively, under the 2017 Equity Incentive Plan to the Company’s

chief executive officer.

These restricted stock awards had a grant date fair value of $ 6.32 and $ 4.81 per share, respectively.

2022, with the chief executive officer’s consent, the Company rescinded and cancelled 0.4 million of the restricted stock units

granted in March 2022 because of annual limits set forth in the 2017 Equity Incentive Plan.

The Company determined the fair value of the

net award of 0.2 million restricted stock units to be $ 1.2 million which will be expensed on a straight-line basis over the vesting period.

During 2022, the Company granted

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

Approximately one-half of

these restricted stock unit grants included a market vesting condition.

In 2021, the Company granted 0.2 million of restricted stock units

under the Company’s 2017 Equity Incentive Plan to certain management of the Company.

Approximately one-third of these restricted

stock unit grants included a market vesting condition.

The restricted stock awards granted in 2022 and 2021 that did not have a market

vesting condition had a weighted average grant date fair value of $ 5.53 and $ 19.25 per share, respectively.

The estimated fair value of

these awards is recognized on a straight-line basis over the vesting period.

The restricted stock awards

granted in 2022 and 2021 that did have a market vesting condition had a weighted average grant date fair value of $ 3.71 and $ 16.28 per

share, respectively.

For these awards, the estimated fair value was measured on the grant date and incorporated the probability of vesting

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 of these awards

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

3 unchanged sentences

Expected dividend yield

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

Outstanding (in thousands)

restricted stock units as of January 1, 2021

restricted stock units as of December 31, 2021

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

There was no restricted stock

unit expense recorded in 2020 or 2019.

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

a remaining recognition period of 1.9 years.

Incentive Units

January 2017, pursuant to the 2016 Equity Incentive Plan approved by InnoHold and Purple LLC that authorized the issuance of 12.0 million

incentive units, Purple LLC granted 11.3 million incentive units to Purple Team LLC, an entity for the benefit of certain employees who

were participants in that plan.

In conjunction with the Business Combination, Purple Team LLC was merged into InnoHold with InnoHold

being the surviving entity and the Purple Team LLC incentive units were cancelled and new incentive units were issued by InnoHold under

its own limited liability company agreement (the “InnoHold Agreement”).

On February 8, 2019, InnoHold initiated a tender

offer to each of these incentive unit holders, some of which are current employees of Purple LLC, to distribute to each a pro rata number

of 2.5 million Paired Securities held by InnoHold in exchange for the cancellation of their ownership interests in InnoHold.

incentive unit holders accepted the offer, and the terms and distribution of each transaction were finalized and closed on June 25, 2019.

At the closing of the tender offer, those incentive unit holders received, based on their pro rata holdings of InnoHold Class B

Units, a portion of 2.5 million Paired Securities held by InnoHold.

The distribution by InnoHold to current employees of Purple

LLC as of the distribution date resulted in the recognition of non-cash stock compensation expense for Purple LLC in the amount of $ 9.0

million which represented the fair value of the Paired Securities as of the distribution date in 2019.

As of December 31, 2021, 0.4 million

of the Paired Securities remain to be exchanged for Class A Stock by the incentive unit holders.

A small number of Paired Securities

remain subject to vesting contingent upon such current employees’ continued employment with the Company.

Non-Cash Stock Compensation

Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation.

This standard

requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service

The table below summarizes the aggregate non-cash stock compensation recognized in the statement of operations for stock awards,

employee stock options and the distribution by InnoHold of Paired Securities.

The following table summarizes

the Company’s restricted stock unit activity for the years ended December 31, 2022 and 2021:

(in thousands)

Ended December 31,

Stock Compensation

and administrative

and development

non-cash stock compensation

Nonvested restricted stock units as of December 31, 2020

Nonvested restricted stock units as of December 31, 2021

Nonvested restricted stock units as of December 31, 2022

The Company recorded restricted

stock unit expense of $ 2.1 million and $ 0.5 million during the years ended December 31, 2022 and 2021, respectively.

There was no restricted

stock unit expense recorded in 2020.

For restricted stock units

outstanding as of December 31, 2022, there was $ 4.9 million of total unrecognized stock compensation cost with a remaining recognition

period of 2.2 years.

As of December 31, 2021, there was $ 2.4 million of total unrecognized stock compensation cost with a remaining recognition

period of 1.9 years.

Aggregate Non-Cash Stock Compensation

The Company has accounted

for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation.

This standard requires the Company

to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period.

The table below

summarizes the aggregate non-cash stock compensation recognized in the statement of operations for stock awards, employee stock options

and the distribution by InnoHold of Paired Securities (in thousands).

Years Ended December 31,

Cost of revenues

Marketing and sales

General and administrative

Research and development

Total non-cash stock compensation

Employee Retirement Plan

2018 the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code.

All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan.

The plan provides

for Company matching of employee contributions up to 5% of eligible earnings.

In 2018 the Company established

a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code.

All eligible employees over

the age of 18 and with 4 months’ service are eligible to participate in the plan.

The plan provides for Company matching of employee

contributions up to 5% of eligible earnings.

Company contributions immediately vest.

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

2019, respectively.

The Company matching contribution expense

was $ 3.6 million, $ 3.2 million and $ 2.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Concentrations

Company had the following revenues by product:

Ended December 31,

The Company had the following

revenues by product (in thousands):

Years Ended December 31,

Sleep products

The following disaggregates net revenues by geographic

Total revenue, net

The following disaggregates

net revenues by geographic region (in thousands):

Years Ended December 31,

(in thousands)

United States

1 unchanged sentence

Total revenue, net

The Company had one individual

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

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

Company currently obtains materials and components used in production from outside sources.

As a result, the Company is dependent upon

suppliers that in some instances, are the sole source of supply.

The Company had one individual customer that accounted for approximately

52 % and 41 % of accounts receivable at December 31, 2022 and 2021, respectively, and approximately 15 %, 15 % and 15 % of net revenue during

the years ended December 31, 2022, 2021 and 2020, respectively.

The Company currently obtains

materials and components used in production from outside sources.

As a result, the Company is dependent upon suppliers that in some instances,

are the sole source of supply.

The Company is continuing efforts to dual-source key components.

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

the results of operations.

The Company believes that it can obtain these raw materials and components from other sources of supply in

the ordinary course of business, although an unexpected loss of supply over a short period of time may not allow for the replacement

of these sources in the ordinary course of business.

Company maintains its cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance

Corporation (FDIC) up to $ 250,000 for each financial institution per entity.

At times, the Company’s cash balance deposited at

financial institutions exceed the federally insured deposit limits.

The Company has not experienced any losses in such accounts and believes

it is not exposed to any significant credit risk related to these deposits.

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

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

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

ended December 31,

tax (benefit) expense

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

The failure of one or more of the Company’s

suppliers to provide materials or components on a timely basis could significantly impact the results of operations.

The Company believes

that it can obtain these raw materials and components from other sources of supply in the ordinary course of business, although an unexpected

loss of supply over a short period of time may not allow for the replacement of these sources in the ordinary course of business.

The Company maintains its

cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance Corporation (FDIC)

up to $ 250,000 for each financial institution per entity.

At times, the Company’s cash balance deposited at financial institutions

exceed the federally insured deposit limits.

The Company has not experienced any losses in such accounts and believes it is not exposed

to any significant credit risk related to these deposits.

The Company’s income

(loss) before income taxes of $ 122.9 million, $ 2.7 million and $( 273.5 ) million during the years ended December 31, 2022, 2021 and 2020,

respectively, consisted entirely of income earned in the United States.

Income tax (benefit) expense

for the years ended December 31, 2022, 2021 and 2020 consist of the following (in thousands):

Year ended December 31,

Tax expense (benefit) at Federal statutory rate

Total current

Total deferred

Income tax (benefit) expense

Income tax (benefit) expense differs from the amount

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

Year ended December 31,

Tax benefit at Federal statutory rate

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

4 unchanged sentences

Remeasurement due to rate change

Research and development tax credits

Remeasurement of investment in Purple LLC

2 unchanged sentences

Income tax (benefit) expense

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

Deferred income taxes at December 31,

2022 and 2021 consisted of the following (in thousands):

Basis difference in Purple LLC investment

1 unchanged sentence

Start-up costs

Accruals and reserves

Stock-based compensation

Interest carryforwards

Research and development tax credits

Charitable contribution carryforwards

Net operating losses

6 unchanged sentences

income taxes.

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

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

members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed.

4 unchanged sentences

financial statements under GAAP.

As a result, the Company’s effective tax rate differs from the statutory rate.

The primary factors

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

of the change in the estimated state tax rate.

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

During fiscal 2020, the Company achieved three-year cumulative income for the first time and determined that it would likely

generate sufficient taxable income to utilize some of its deferred tax assets.

Based on this and other positive evidence, the Company

concluded it was more likely than not that some of its deferred tax assets would be realized and that a full valuation allowance for

its deferred tax assets was no longer appropriate.

As a result, $ 35.5 million of the valuation allowance associated with the Company’s

federal and state deferred tax assets was released and recorded as an income tax benefit in 2020.

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

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

As a result, the valuation

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

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

federal income taxes for 2017 through 2021.

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

state and local

income taxes generally for 2016 through 2021.

response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020.

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

Corporate taxpayers

may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed

under the 2017 Tax Act.

The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize

NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

Taxpayers may generally deduct interest up to the sum of 50% of adjusted

taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020.

CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead

of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

addition, the CARES Act raises the corporate charitable deduction limit to 25 % of taxable income and makes qualified improvement property

generally eligible for 15-year cost-recovery and 100 % bonus depreciation.

The enactment of the CARES Act resulted in two adjustments

to our income tax provision, relating to increased 2019 NOL utilization and tax benefits from NOL carrybacks.

We have recorded $ 0.2 million

in our income tax provision for the year ended December 31, 2020 related to the CARES Act.

connection with the Business Combination, the Company entered into the tax receivable agreement with InnoHold, which provides for the

payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company

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

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

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

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

from, payments it makes under the agreement.

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

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

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

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

on the price of the Company’s Class A Stock at the time of the relevant redemption or exchange.

The estimation of liability under the

tax receivable agreement is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable

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

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

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

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

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

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

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

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

Of the total liability recorded during

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

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

As a result, the Company’s effective tax rate differs materially from the statutory rate.

factors impacting expected tax are tax exempt income from the Tax Receivable Agreement, remeasurement of the deferred taxes associated

with the investment in Purple LLC, and the impact of recording a valuation allowance.

At December 31, 2019, the

Company maintained a full valuation allowance on its deferred tax assets which were more likely than not realizable at the time.

fiscal 2020, the Company achieved three-year cumulative income for the first time and determined that it would likely generate sufficient

taxable income to utilize some of its deferred tax assets.

Based on this and other positive evidence, the Company concluded it was more

likely than not that some of its deferred tax assets would be realized and that a full valuation allowance for its deferred tax assets

was no longer appropriate.

As a result, $ 35.5 million of the valuation allowance associated with the Company’s federal and state

deferred tax assets was released and recorded as an income tax benefit in 2020.

At December 31, 2021, the

Company did not record a valuation allowance on its deferred tax assets except for the tax over book basis in capital contributions, which

was determined to not be realizable.

During 2022, the Company entered into a three-year cumulative loss position and determined that it

would not be able to generate sufficient taxable income to utilize its deferred tax assets.

Based on this and other negative evidence,

the Company concluded it was more likely than not that its deferred tax assets would not be realized and that a full valuation allowance

for its deferred tax assets was required.

As a result, $ 176.9 million of the valuation allowance associated with the Company’s federal

and state deferred tax assets was recorded along with an income tax expense in 2022.

In connection with the Business

Combination, the Company entered into the Tax Receivable Agreement with InnoHold, which provides for the payment by the Company to InnoHold

of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company actually realizes (or is deemed to

realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC

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

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

and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under

the agreement.

As noncontrolling interest

holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a Tax Receivable Agreement

liability may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases

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

The amount of the increase

in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s

Class A common stock at the time of the relevant redemption or exchange.

During 2022, the Company concluded

it was more likely than not that its deferred tax assets would not be realized and a full valuation allowance for its deferred tax assets

was required and has determined the Tax Receivable Agreement liability is not probable and therefore has not recorded a tax receivable

As a result, the Company correspondingly reduced its tax receivable agreement liability to zero and the Company recognized

tax receivable agreement income of $ 162.0 million in the Company’s consolidated statement of operations for the year ended December

The estimation of liability

under the Tax Receivable Agreement is by its nature imprecise and subject to significant assumptions regarding the amount and timing of

future taxable income.

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

A common stock as of December 31, 2022 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 $0.3 million, of which $168.1 million was recorded in the year

ended December 31, 2021, offset by a $167.8 million reduction recorded in 2022.

The $167.8 million reduction in the 2022 Tax Receivable

Agreement liability reflected $162.0 million that was recorded as Tax Receivable Agreement income coupled with a payment of $5.8 million

made during the year.

As of December 31, 2022, the

Company estimated that if all the remaining 0.4 million Class B units were redeemed for shares of our Class A common stock, the Tax Receivable

Agreement liability would be approximately $ 168.8 million.

If we experience a change of control (as defined under the Tax Receivable

Agreement, which includes certain mergers, asset sales and other forms of business combinations and change of control events), we could

be required to make an immediate lump-sum payment under the terms of the Tax Receivable Agreement.

Management currently estimates the

liability associated with this lump-sum payment (or “early termination payment”) would be approximately $ 108.5 million,

This potential early termination payment can be significantly impacted by the discounted interest rate at the time of termination.

The Company estimates federal

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

The federal NOL carryforward

does not have an expiration date.

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

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

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

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

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

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line

in the accompanying consolidated statement of operations.

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

line in the consolidated balance sheet.

As of December 31, 2021 and 2020, no uncertain tax positions were recognized as liabilities in

the consolidated financial statements.

net operating loss (“NOL”) carryforwards will be approximately $ 26.3 million as of December 31, 2022, of which $ 25.9 million

do not have an expiration date and $ 0.5 million expire in 2037.

The Company also had approximately $ 6.3 million of NOL carryforwards to

reduce future state taxable income at December 31, 2022, which have various carryforward periods and begin to expire in 2026, if

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a

corporation undergoes an “ownership change” generally defined as a greater than 50 percentage point change (by value) in its

equity ownership by certain stockholders over a three-year period), the corporation’s ability to use its pre-change net operating

loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

If finalized, Treasury Regulations

currently proposed under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other tax attributes

if we undergo a future ownership change.

Thus, our ability to utilize carryforwards of our net operating losses, including net operating

losses acquired from the Intellibed acquisition, and other tax attributes to reduce future tax liabilities may be substantially restricted.

As of December 31, 2022, we have not completed a Section 382 analysis and an ownership change may have occurred.

There may be significant

annual limitations on the NOLs and other tax attributes.

Until an analysis is completed, there can be no assurance that the existing net

operating loss carry-forwards or credits are not subject to significant limitation.

The Company estimates federal

research and development (“R&D”) tax credit carryforwards will be approximately $ 0.9 million as of December 31, 2022,

which expire in 2042, if unused.

The Company also had approximately $ 0.7 million of state tax credit carryforwards to reduce future state

tax liability at December 31, 2022, which have various carryforward periods and begin to expire in 2033, if unused.

The effects of uncertain tax

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

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

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

The Company’s

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

consolidated statement of operations.

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

balance sheet.

As of December 31, 2022 and 2021, no material uncertain tax positions were recognized as liabilities in the consolidated

financial statements.

The Company remains subject

to income tax examinations for its U.S.

federal income taxes for 2016 through 2022.

The Company also remains subject to income

tax examinations for U.S.

state and local income taxes generally for 2016 through 2022.

Subsequent Events

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

This amount was reflected

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

In connection with lower-than-expected

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

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

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

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

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

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

improve efficiencies and reduce costs.

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

2020 Credit Agreement.

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

covenants required pursuant to the 2020 Credit Agreement.

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

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

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

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

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

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

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

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

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

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

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

Once the consolidated leverage

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

leverage ratio.

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

2022 of $ 2.5 million.

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

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

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

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

its behalf by the undersigned, thereunto duly authorized.

Innovation, Inc.

Tax Receivable Agreement Payments

On January 17, 2023, the Company

paid InnoHold $ 0.3 million pursuant to the terms of the Tax Receivable Agreement.

This amount was included with other current liabilities

in the accompanying consolidated balance sheet as of December 31, 2022.

Expiration of Sponsor Warrants

On February 2, 2023, the 1.9

million sponsor warrants outstanding at December 31, 2022 expired per the terms of the agreement.

Each of these warrants entitled the

registered holder to purchase one-half of one share of the Company’s Class A common stock at a price of $ 5.75 per half share ($ 11.50

per full share).

The sponsor warrants had no fair value on the date of expiration.

Underwritten Offering

On February 13, 2023, the

Company completed an underwritten offering of 13.4 million shares of Class A common stock.

The underwriters did not exercise

their over-allotment option.

The aggregate net proceeds received by the Company from the offering, after deducting offering fees and expenses

of $3.3 million, totaled $57.0 million.

Credit Agreement Amendment

On February 17, 2023, the

Company entered into a fifth amendment to the 2020 Credit Agreement.

In accordance with this amendment, the Company repaid in full the

$ 24.7 million outstanding balance of the term loan plus accrued interest.

The amendment also provides that the maximum leverage ratio

covenant will not be tested for the first and second quarters of 2023 and revises the ratio to 4.50x for the third quarter of 2023 and

3.00x for all quarters thereafter.

In addition, the minimum fixed charge coverage ratio covenant will not be tested for the first and

second quarters of 2023 and revised to 1.50 x for the third and fourth quarters of 2023, and 2.00 x for all quarters thereafter.

The amendment

will also revise the lease incurrence test which will allow us to incur ten new showroom leases for stores that will open in 2023 and

six new leases for stores that will open in 2024.

Moreover, beginning in the fourth quarter of 2023, we will be allowed to begin incurring

leases for stores that will open in 2024, subject to leverage ratio requirements.

The leverage ratio must be less than 2.50 x to sign leases,

with up to a maximum of six new leases per quarter, increasing to eight new leases per quarter if the leverage ratio is less than 2.00 x.

The amendment will also provide certain minimum consolidated EBITDA covenants for the first and second quarters of 2023 based on our total

unrestricted cash and unused revolver availability.

The amendment also modified the definition of consolidated EBITDA to allow for nonrecurring/one-time and non-cash expenses

and certain other expenses that are cash capped.

In addition, for purposes of the definition of consolidated EBITDA, annual non-recurring

and unusual out-of-pocket legal expenses will be capped at $5.0 million for 2023 and $2.0 million per year thereafter.

The amendment

also (i) reduced the amount available under the revolving line of credit to $50.0 million, (ii) provides that the

maturity date of the 2020 Credit Agreement will spring forward to June 30, 2024 if our consolidated EBITDA is not greater than $15.0 million

for 2023, (iii) reduce limits on maximum growth capital expenditures to $32.0 million for 2023 and $35.0 million for 2024 and

2025, and (iv) revises the current minimum liquidity covenant of $25.0 million to provide that it will increase to $30.0 million

for each three-month period following the applicable fiscal quarter if the leverage ratio is greater than 3.00x for any fiscal quarter

ending on or after the third quarter of 2023.

Pursuant to this amendment, we incurred fees and expenses of $2.7 million that will be recorded

as debt issuance costs.

The amendment will be accounted for as an extinguishment of debt and approximately $1.1 million of unamortized

debt issuance costs will be expensed.

There are no amounts currently drawn on the revolver and the available amount to draw is the full

$ 50 million.

In order to draw any amounts on the revolver, the Company must be in compliance with the covenants outlined in the fifth

On January 12, 2023, the Company

issued a press release stating the Special Committee had rejected Coliseum’s unsolicited proposal.

On January 13, 2023, Coliseum

submitted a letter to the chairman of the Board setting forth a cooperation proposal (the “Cooperation Proposal”).

16, 2023, the Special Committee responded to the Cooperation Proposal.

On January 17, 2023, Coliseum

filed a Schedule 13D/A with the SEC indicating that, in the absence of an agreement, Coliseum intended to nominate a slate of directors

for election at the 2023 annual meeting of the stockholders of the Company, which slate would constitute a majority of the Board.

19, 2023, the Special Committee issued a press release stating the position of the Special Committee with respect to the Coliseum proposal.

On February 13, 2023, Coliseum

submitted a notice of its intention to nominate four persons to the Board, replacing four of the seven member Board and retaining only

DeMartini, the Company’s Chief Executive Officer, Mr.

Gray, CCM’s manager, and one of the existing non-executive directors.

In response, on February 13, 2023, the Company issued a press release expressing the Special Committee’s response and position with

respect to Coliseum’s proposal.

On February 14, 2023, the

Company declared a dividend of one new PRPLS for each 100 shares of Purple common stock (“Common Stock”) owned by Purple’s

shareholders.

Each PRPLS votes together with the Common Stock in the election of directors, and related matters, and carries 10,000 votes

Holders of PRPLS will be entitled to allocate their votes among the nominees in director elections on a cumulative basis.

holders can allocate all, none, or a portion of their votes to each director nominee up for election at the Company’s meetings of

shareholders.

On February 24, 2023, the Company issued 1.0 million PRPLS shares which trade with the Common Stock.

Any new issuance of

Common Stock will automatically include a proportionate number of PRPLS.

The PRPLS are redeemable at any time by an affirmative vote of

two-thirds of the members of the Board.

PRPLS do not have any dividend rights and will be entitled to only a limited payment upon any

liquidation, dissolution or winding up in priority to any payments on the Common Stock but will not otherwise participate in any liquidating

distributions.

On February 21, 2023, Coliseum filed a lawsuit in the Delaware Court of Chancery to invalidate Purple’s issued PRPLS,

alleging that the issuance deprived Purple stockholders of a fair and democratic election of directors at the Company’s 2023 Annual

Meeting and other related allegations.

On February 21, 2023, Coliseum

filed a Complaint against the Company and several members of the Board in the Delaware Court of Chancery, captioned Coliseum Capital

Management, LLC v.

Anthos , Case No.

2023-0220-PAF (Del.

The complaint alleges that the Company and the named

directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfere with Coliseum’s

nomination of a competing slate of director candidates ahead of the Company’s 2023 annual meeting of stockholders.

(1) declarations that the authorization of the PRPLS violated the Company’s charter and amounted to a breach of the

named directors’ fiduciary duties;

(2) a declaration that the PRPLS is invalid, unenforceable, and void;

(3) unspecified damages

resulting from the alleged breach of duties;

and (4) an award of costs and expenses incurred in pursuing the action.

have agreed to hold an expedited trial on Coliseum’s claims that will result in a resolution of the dispute before the Company’s

2023 annual meeting of stockholders.

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

However, Purple

intends to vigorously defend against the claims made by Coliseum.

March 9, 2023, the Special Committee offered Coliseum a settlement proposal that included the following provisions, (i) Coliseum would

have the right to identify three of the six non-management members of a seven-member board, (ii) the other three non-management seats

would be filled by two existing independent directors and a new director who is a significant shareholder.

In addition to Dawn Zier, who

already announced her intention not to stand for election at the 2023 Annual Meeting due to other commitments, two other current directors

would retire at or before the 2023 Annual Meeting, (iii) Coliseum managing partner Adam Gray would become Chairman of the Board, (iv)

the Special Committee would name one of the existing incumbent independent directors as Lead Independent Director, and (v) Coliseum would

commit to customary standstill provisions to provide stability for the Company for approximately 18 months.

On March 16, 2023, the Special

Committee announced that Coliseum has rejected the settlement proposal.

Silicon Valley Bank

On March 10, 2023, the Federal

Deposit Insurance Corporation announced that Silicon Valley Bank (“SVB”) had been closed by the California Department of Financial

Protection and Innovation.

We have cash accounts, credit card processing and a borrowing relationship with SVB, At the time of the closure

we had cash and cash equivalents of approximately $ 4.2 million deposited with them.

SVB is also one of the Institutional Lenders under

the 2020 Credit Agreement, with $ 7.25 million of the $ 50.0 million revolving line of credit being made available through that bank.

currently have access to all of our funds and accounts at SVB.

Amended Grant Agreements

On March 15, 2023, the Company

and Robert T.

DeMartini, the Company’s Chief Executive Officer, entered into amended and restated grant agreements relating to restricted

stock units and stock options granted to Mr.

DeMartini in March 2022 and June 2022, revising the vesting schedule of the awards included

in each grant.

The amended and restated grant agreements provide that 0.33 million of the restricted stock units and stock options will

vest in full on March 25, 2023 and 0.33 million of the restricted stock units and stock options and conditionally granted restricted units

and stock options, conditioned on shareholder approval of the Company’s proposed amendments to Section 5(f) of the Plan ,will vest

on March 25, 2024.

The amendments also provide that the remaining 0.33 million conditionally granted restricted stock units and stock

options will vest in full on March 25, 2025.

The amendments will result in an acceleration of approximately $ 0.8 million of stock-based

compensation expense recognized by the Company into the first quarter of 2023 from other future periods over the previous vesting period.

Pursuant to the requirements

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

thereunto duly authorized.

Purple Innovation, Inc.

March 22, 2023

Chief Executive Officer

(Principal Executive Officer)

to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated.

Chief Executive Officer and Director

Executive Officer)

Chief Financial Officer

Financial Officer)

President, Accounting and Financial Reporting

Accounting Officer)

of the Board of Directors

Claudia Hollingsworth

POWER OF ATTORNEY

ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert T.

DeMartini and Bennett

Nussbaum, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,

for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report

on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and

Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and

thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and

agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements

of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in

the capacities and on the dates indicated.

Chief Executive Officer

(Principal Executive Officer)

Interim Chief Financial Officer

March 22, 2023

(Principal Financial Officer)

Vice President, Accounting and Financial Reporting

March 22, 2023

(Principal Accounting Officer)

Chairman of the Board of Directors

March 22, 2023

Hollingsworth

March 22, 2023

Claudia Hollingsworth

March 22, 2023

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

What changed 10-K

Item 9A. Controls and Procedures