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Item 9A. Controls and Procedures

2024-03-12 compared with 2023-03-22 · 1863 added, 2015 removed, 932 unchanged (81% of the section changed)

Controls and Procedures

and Procedures

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

is defined in Rule 13a-15(e) under the Exchange Act).

Our disclosure controls and procedures are designed to provide reasonable assurance

that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized

and reported within the time periods specified in the SEC’s rules and forms.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can

provide only reasonable assurance of achieving their control objectives.

Under the supervision and with the participation of our management,

including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO” and together with the CEO, the

“Certifying Officers”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures

(as such term is defined in Rule 13a-15(e) under the Exchange Act).

Our disclosure controls and procedures are designed to provide reasonable

assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,

summarized and reported within the time periods specified in the SEC’s rules and forms.

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective

can provide only reasonable assurance of achieving their control objectives.

Disclosure controls and procedures include, without limitation,

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to allow timely decisions regarding required disclosure.

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.

Based upon this evaluation, and the above criteria, our Certifying

Officers concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2023, due to the

material weakness in our internal control over financial reporting, described below.

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.

Our management is responsible for establishing and maintaining adequate

internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act).

The Company’s internal

control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of the Company’s financial statements for external reporting purposes in accordance with GAAP.

The Company’s internal

control over financial reporting includes those policies and procedures that:

● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the Company;

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and

the directors of the Company;

● Provide reasonable assurance regarding prevention or timely detection of unauthorized 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 all 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.

A material weakness is a deficiency,

or 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.

Under the supervision and with the participation of our management, including our Certifying Officers, we conducted

an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, 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 control over financial reporting was not effective as of December

31, 2023 due to the previously reported material weakness that continued to exist at December 31, 2023.

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 .

As previously reported, we identified a material weakness related to

the review and evaluation of wholesale customer contracts, specifically as it relates to variable consideration, including wholesale warranty

Specifically, we did not design and maintain effective controls over the review and evaluation of the accounting relating

to contract terms agreed upon with our wholesale customers and the identification and calculation of the related wholesale accrued warranty

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has

been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their report included herein.

Plans for Remediation

of Material Weakness

In response to the

material weakness, we have designed and implemented a control over the review of all wholesale customer contracts to ensure the

terms contained therein are appropriately evaluated and recorded.

This control includes increased rigor and participation among our

legal and accounting personnel regarding the appropriate consideration and application of contractual terms.

implementing a new control over credit memo review and approval.

Further, we are implementing a new control over the evaluation and

review of accrued wholesale warranty liabilities.

The Company will not be able to fully remediate this material weakness until these

steps have been completed and have been operating effectively for a sufficient period of time.

The Company may also identify

additional measures that may be required to remediate the material weakness in the Company’s internal control over financial

reporting, necessitating further action.

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

Other than the remediation efforts described above, there were no changes

in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably

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

Report of Independent Registered Public Accounting

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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.

We have audited Purple

Innovation, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, 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, 2023, based on the COSO criteria.

We do not express

an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after

the date of management’s assessment.

We also have audited,

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

balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’

equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively

referred to as “the financial statements”) and our report dated March 12, 2024 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.

The Company’s management is responsible for maintaining effective

internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included

in the accompanying Item 9A, Management’s Annual Report on Internal Controls over Financial Reporting.

Our responsibility is to

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

We are a public accounting firm

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

federal securities laws

and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our

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

Those standards require that we plan

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

in all material respects.

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

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

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

We believe that our audit

provides a reasonable basis for our opinion.

A material weakness

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

that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely

A material weakness regarding management’s failure to design and maintain controls over review and evaluation of wholesale

customer contracts, specifically as it relates to variable consideration, including wholesale warranty obligations, 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 2023 financial statements, and this report does not affect our report dated March 12, 2024 on

those financial statements.

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.

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;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with

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

of management and directors of the company;

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

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

Because of its inherent limitations, internal

3 unchanged sentences

with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

Salt Lake City, Utah

1 unchanged sentence

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent

During the quarter ended December 31, 2023, none of our directors or

executive officers adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”

as such terms are defined under Item 408 of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections

Not applicable.

Directors, Executive Officers and

Corporate Governance

Executive Officers and Corporate Governance

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

to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities

and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2022.

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

to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later

than 120 days after the close of the Company’s year ended December 31, 2023.

Information concerning our executive officers

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

We have adopted a Code of Ethics that applies to all officers, directors,

employees and contractors.

The Code of Ethics is posted on our website at https://investors.purple.com/governance.

We intend to disclose

on our website any amendments, or waiver from, a provision to the Code of Ethics by posting the information on our website at the address

specified above.

Executive Compensation

The information required

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

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

fiscal year ended December 31, 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

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

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 SEC

not later than 120 days after the close of the Company’s year ended December 31, 2023.

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 SEC

not later than 120 days after the close of the Company’s year ended December 31, 2023.

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 SEC not later than 120 days after the close of the Company’s year ended December 31, 2023.

Principal Accountant Fees

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 SEC not later than 120 days after the close of the Company’s year ended December 31, 2023.

and Financial Statement Schedules

The following documents are filed as part of this Report:

Financial Statements

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;

Salt Lake City, Utah;

of Independent Registered Public Accounting Firm (BDO USA, P.C., Salt Lake City, Utah;

PCAOB ID#243)

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

(2) Financial

Statements Schedule

All other financial statement

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

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

Consolidated Balance

Consolidated Statements

of Operations

Consolidated Statements

of Stockholders’ Equity (Deficit)

Consolidated Statements

of Cash Flows

Notes to the Consolidated

Financial Statements

Financial Statements Schedule

All other financial statement schedules are omitted because they are

not applicable or the amounts are immaterial and not required, or the required information is presented in our consolidated financial

statements and notes thereto in Item 15 of Part IV below.

We hereby file as part of

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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)

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)

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)

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)

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.

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.

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

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

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.

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 Commission on April 21, 2023).

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).

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

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).

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

of Elimination of the Series A Junior Participating Preferred Stock, dated April 27, 2023 (incorporated by reference to Exhibit 3.1

to the Company’s Current Report on Form 8-K filed April 27, 2023).

of Elimination of the Proportional Representation Preferred Linked Stock, dated April 27, 2023 (incorporated by reference to Exhibit

3.2 to the Company’s Current Report on Form 8-K filed April 27, 2023).

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

filed with the SEC on February 8, 2018)

2 unchanged sentences

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)

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

First Amendment to Stockholder Rights Agreement, dated April 27, 2023, by and between Purple Innovation, Inc.

and Pacific Stock Transfer Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 27, 2023).

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.

filed with the SEC on May 15, 2018)

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

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)

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

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

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

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

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

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)

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)

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)

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)

Purple Innovation, Inc.

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

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

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

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

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.

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)

7 unchanged sentences

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

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)

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.

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)

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.

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)

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)

Amendment to Purple Innovation, Inc.

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

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

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).

Purple Innovation, Inc.

Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the S-8 (File No.

333-272712) filed with the SEC on June 16, 2023).

Form of Restricted Share Unit Agreement pursuant to the Purple Innovation, Inc.

2017 Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on April 19, 2023).

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

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

1 unchanged sentence

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

(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)

Purple Innovation, Inc.

1 unchanged sentence

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

Restated and Amended Purple Innovation, Inc.

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

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

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.

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

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)

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)

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)

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.

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

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

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

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

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

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.

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

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)

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)

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

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

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

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

Amendment to Purple Innovation, Inc.

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

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

Restated and Amended Purple Innovation, Inc.

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

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

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

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

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

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

Amended and Restated Restricted Share Unit Agreement dated March 15, 2023, between the Company and Robert T.

DeMartini (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 21, 2023).

Amended and Restated Restricted Share Unit Agreement (Reissued) dated March 15, 2023, between the Company and Robert T.

DeMartini (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 21, 2023).

Amended and Restated Restricted Share Unit Agreement (Reissued Excess Subject to Approval) dated March 15, 2023, between the Company and Robert T.

DeMartini (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on March 21, 2023).

Purple Innovation, Inc.

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

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).

Sixth Amendment to the 2020 Credit Agreement dated May 10, 2023 by and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC and KeyBank National Association (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37523) filed on May 10, 2023).

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

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

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).

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

Code of Ethics of Purple Innovation, Inc.

(incorporated by reference into Exhibit 14.1 to the Annual Report on Form 10-K (File No.

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

Amended and Restated Option Grant Agreement dated March 15, 2023, between the Company and Robert T.

DeMartini (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 21, 2023).

Amended and Restated Option Grant Agreement (Reissued Excess Subject to Approval) dated March 15, 2023, between the Company and Robert T.

DeMartini (incorporated by reference to exhibit 10.6 to the Company’s Current Report on Form 8-K filed on March 21, 2023).

Purple Innovation, Inc.

2023 Short-Term Cash Incentive Plan, dated as of April 13, 2023 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on April 19, 2023).

Form of Performance-Based Share Unit Agreement (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on April 19, 2023).

Cooperation Agreement between Purple Innovation, Inc.

and Coliseum Capital Management, LLC, dated April 19, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 21, 2023).

Term Loan Credit Agreement dated as of August 7, 2023 between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the Term Loan Agent and the Term Loan Lenders (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37523) filed on August 9, 2023).

Term Loan Pledge and Security Agreement dated as of August 7, 2023 (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37523) filed on August 9, 2023).

First Amendment to Term Loan Credit Agreement and Limited Waiver, dated November 6, 2023, between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the Term Loan Agent, and the Term Loan Lenders (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on November 9, 2023).

ABL Credit Agreement dated as of August 7, 2023 between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the ABL Agent, the Swing Line Lender, the Letter of Credit Issuer and the ABL Lenders (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37523) filed on August 9, 2023).

ABL Pledge and Security Agreement dated as of August 7, 2023 (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37523) filed on August 9, 2023).

First Amendment to Credit Agreement and Limited Waiver, dated November 6, 2023, between and among Purple Innovation, LLC, Purple Innovation, Inc., Intellibed, LLC, the ABL Lenders, the ABL Agent, the Swing Line Lender, and the Letter of Credit Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on November 9, 2023).

Amended and Restated Credit Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Purple Innovation, LLC, Intellibed, LLC, Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A, Harvest Small Cap Partners Master, Ltd., Harvest Small Cap Partners, L.P., HSCP Strategic IV, L.P., and Delaware Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on January 23, 2024).

Offer Letter Entered into between Purple Innovation, LLC and Todd E.

Vogensen dated September 19, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on September 21, 2023).

Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on January 23, 2024).

Amended and Restated Registration Rights Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Coliseum Capital Partners, L.P., Blackwell Partners LLC – Series A, Coliseum Capital Co-Invest III, L.P., Harvest Small Cap Partners Master, Ltd., Harvest Small Cap Partners, L.P., and HSCP Strategic IV, L.P.

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

001-37523) filed on January 23, 2024).

Amended and Restated Pledge and Security Agreement, dated January 23, 2024, by and among Purple Innovation, Inc., Purple Innovation, LLC, Intellibed, LLC, and Delaware Trust Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on January 23, 2024).

Amendment to the Amended and Restated Employment Agreement dated January 26, 2024, between the Company and Robert T.

DeMartini (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37523) filed on January 26, 2024).

Separation Agreement, dated February 2, 2024, between the Company and Casey McGarvey (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.001-37523) filed with the SEC on February 5, 2024)

List of Subsidiaries of the Registrant.

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

Compensation Clawback Policy

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase

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

Not applicable.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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

Filed herewith

Schedules and exhibits to the Merger Agreement have been omitted pursuant

to Item 601(b)(2) of Regulation S-K.

The Company hereby undertakes to furnish supplementally a copy of any omitted schedules and

exhibits to the Securities and Exchange Commission upon request.

Indicates management contract or compensatory plan.

Confidential treatment of certain provisions has been granted by the

Securities and Exchange Commission.

PURPLE INNOVATION, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Salt Lake City, Utah;

PCAOB ID# 243 ) F-2

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3

Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 F-4

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022, 2021 and 2020 F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 F-6

Notes to Consolidated Financial Statements F-7

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Salt Lake City, Utah;

PCAOB ID#243)

Consolidated Balance

Sheets as of December 31, 2023 and 2022

Consolidated Statements

of Operations for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements

of Stockholders’ Equity (Deficit) for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements

of Cash Flows for the years ended December 31, 2023, 2022 and 2021

Notes to Consolidated

Financial Statements

Report of Independent

Registered Public Accounting Firm

Shareholders and Board of Directors

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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, 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.

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, 2023, 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 12, 2024 expressed

an adverse opinion thereon.

Basis for Opinion

These consolidated financial

statements are the responsibility of the Company’s management.

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

consolidated financial statements based on our audits.

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

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

federal securities laws and the applicable rules and regulations of

the Securities and Exchange Commission and the PCAOB.

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

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

to the Company in accordance with the U.S.

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

Commission and the PCAOB.

We conducted our audits in accordance with the

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financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

Our audits included performing procedures

to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

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a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is

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

Warranty Accrual

At December 31, 2022,

the Company’s accrued warranty liability was $20.7 million.

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

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

Warranty costs are estimated based on the results of product testing,

industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends.

These costs are

recognized at the time of sale in cost of revenues.

We identified the 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:

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

Accrued Warranty Liabilities

As of December 31, 2023, the Company’s accrued

warranty liabilities were $35.6 million.

As discussed in Note 2 to the consolidated financial statements, the Company provides a limited

warranty on the majority of its products sold.

Accrued warranty liabilities are estimated based on the results of historical trends and

warranty claim rates incurred, and are adjusted for any current or expected trends.

Estimated warranty costs for the Company’s direct

to consumer customers are recognized at the time of sale in cost of revenues and warranty costs for the Company’s wholesale customers

are recognized at the time of sale as an offset to net revenues.

We identified the estimate of accrued warranty

liabilities as a critical audit matter because of certain 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.

The principal consideration for our determination

was the subjective judgment required to determine the future warranty claim rate used to estimate warranty claims through the end of the

warranty period and an increased extent of audit effort to address this matter.

The primary procedures we performed to address

this critical audit matter included:

management’s ability to estimate future warranty claims by comparing management’s

prior-year assumption of expected claims to actuals claims incurred during the year.

management’s process used to estimate accrued warranty liabilities, including the appropriateness

of the methodology, the mathematical accuracy of the calculation, and the sources of data

from which the assumptions were derived.

the reasonableness of estimated future warranty claims and the estimated costs to remedy

warranty claims by:

the key inputs that served as the basis for the estimate, including the historical claims made and actual warranty costs incurred.

of operational management regarding their knowledge of any existing product warranty claims or product issues and evaluating whether

management appropriately considered these issues in the estimation of accrued warranty liabilities.

/s/ BDO USA, P.C.

We have served as the Company's auditor since

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PURPLE INNOVATION, INC.

Consolidated Balance Sheets

Consolidated Balance

(In thousands, except for par value)

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Accounts receivable, net

Inventories, net

Prepaid expenses

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Intangible assets, net

Deferred income taxes

Other long-term assets

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Accounts payable

Accrued sales returns

Accrued compensation

Customer prepayments

Accrued sales and use tax

Accrued rebates and allowances

Accrued warranty liabilities – current portion

Operating lease obligations – current portion

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Debt, net of current portion

Accrued warranty liabilities, 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

Asset retirement obligations

Total liabilities

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Accumulated deficit

Total stockholders’ equity attributable to Purple Innovation, Inc.

Total stockholders’ equity attributable to Purple Innovation,

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total liabilities and stockholders’

The accompanying notes are an integral part of

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PURPLE INNOVATION, INC.

Consolidated Statements of Operations

Consolidated Statements

of Operations

(In thousands, except per share amounts)

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Research and development

Loss on impairment of goodwill

Total operating expenses

Operating income (loss)

Other income (expense):

Operating loss

Other (expense) income:

Interest expense

Other income (expense), net

Other (expense) income, net

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)

Net income (loss) attributable to noncontrolling interest

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

Tax receivable agreement income

Total other (expense) income, net

Net (loss) income) before income taxes

Income tax (expense) benefit

Net (loss) income

Net loss attributable to noncontrolling interest

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

$ ( 120,757 )

Net income (loss) per share:

Net (loss) income per share:

Weighted average common shares outstanding:

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PURPLE INNOVATION, INC.

Consolidated Statements of Stockholders’

Equity (Deficit)

Consolidated Statements

of Stockholders’ Equity (Deficit)

(In thousands)

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Balance — December 31, 2020

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 )

Net income (loss)

Net (loss) income

Stock-based compensation

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Exercise of stock options

Issuance of stock upon underwritten public offering, net of costs

Issuance of stock upon underwritten offering, net of costs

Issuance of stock for acquisition

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$ ( 355,212 )

Stock-based compensation

Exchange of stock

Proportional Representation Preferred Linked Stock redemption

Issuance of stock upon underwritten offering, net of costs

Escrow shares cancelled in connection with Intellibed acquisition

Issuance of stock under equity compensation plans

Impact of transactions affecting NCI

Balance – December 31, 2023

$ ( 475,969 )

The accompanying notes are an integral part of

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PURPLE INNOVATION, INC.

Consolidated Statements of Cash Flows

Consolidated Statements

of Cash Flows

(In thousands)

Ended December 31,

flows from operating activities:

income (loss)

Years Ended December 31,

Cash flows from operating activities:

Net (loss) income

$ ( 121,215 )

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

and amortization

on extinguishment of debt

on disposal of property and equipment

in fair value – warrant liabilities

receivable agreement (income) expense

from effective settlement of preexisting relationship

in operating assets and liabilities:

expenses and other assets

sales returns

rebates and allowances

accrued liabilities

cash provided by (used in) operating activities

flows from investing activities:

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

of property and equipment

in intangible assets

cash used in investing activities

flows from financing activities:

from term loan

on related-party loan

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

for debt issuance costs

receivable agreement payments

from InnoHold indemnification payment

Distributions

cash provided by financing activities

increase (decrease) in cash

and cash equivalents, beginning of the year

and cash equivalents, end of the year

disclosures of cash flow information:

paid during the year for interest, net of amounts capitalized

paid during the year for income taxes

schedule of non-cash investing and financing activities:

and equipment included in accounts payable

of stock for acquisition

leasehold improvements

distributions

receivable agreement liability

of liability warrants

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

Depreciation and amortization

Non-cash interest

Loss on impairment of goodwill

Loss on extinguishment of debt

Loss on disposal of property and equipment

Change in fair value – warrant liabilities

Tax receivable agreement income

Stock-based compensation

Gain from effective settlement of preexisting relationship

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Operating leases, net

Accounts payable

Customer prepayments

Accrued rebates and allowances

Accrued warranty liabilities

Other accrued liabilities

Net cash used in operating activities

Cash flows from investing activities:

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

Excess restricted cash returned to acquiree

Purchase of property and equipment

Investment in intangible assets

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from term loan

Proceeds from revolving line of credit

Payments on term loan

Payments on revolving line of credit

Proceeds from stock offering

Payments for stock offering costs

Proceeds from exercise of warrants

Proceeds from exercise of stock options

Payments for debt issuance costs

Proportional Representation Preferred Linked Stock redemption fee

Tax receivable agreement payments

Proceeds from InnoHold indemnification payment

Distributions to members

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

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

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

Supplemental disclosures of cash flow information:

Cash paid during the year for interest, net of amounts capitalized

Cash paid during the year for income taxes

Supplemental schedule of non-cash investing and financing activities:

Property and equipment included in accounts payable

Issuance of stock for acquisition

Escrow shares cancelled in connection with Intellibed acquisition

Non-cash leasehold improvements

Accrued distributions

Tax receivable agreement liability

Deferred income taxes

Exercise of liability warrants

The accompanying notes are an integral part of

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PURPLE INNOVATION, INC.

Notes to the Consolidated Financial Statements

Notes to the Consolidated

Financial Statements

The Company’s mission

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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.

or “Purple Inc.”), is an omni-channel Company that began as 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

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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.

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

The Company was incorporated

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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.

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,

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

2022, Purple Inc.

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

of Purple LLC.

For further discussion see Note 4 — Acquisition.

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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.

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

financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”)

and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the financial position,

results of operations and cash flows of the Company.

On December 31, 2020, the Company ceased to be an emerging growth company (“EGC”)

and was no longer exempt from certain reporting requirements that apply to public companies.

As an EGC prior to this date, Purple Inc.

had elected to use extended transition periods available to private companies for complying with new or revised accounting standards.

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

As of December 31, 2023, Purple Inc.

held 99.8 % of the

common units of Purple LLC and other Purple LLC Class B Unit holders held 0.2 % of the common units in Purple LLC.

The Company’s

consolidated financial statements did not include consolidated statements of comprehensive income since it had no items of other comprehensive

income in any of the periods presented.

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.

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, 2023, Purple Inc.

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 .

had a 99.8% 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 0.2% of the economic interest in Purple LLC as of December 31, 2023.

further discussion see Note 15— Stockholders’ Equity .

Reclassification

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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.

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

Accrued warranty liabilities, previously included in

the consolidated balance sheet within other current liabilities and other long-term liabilities, net of current portion, are now presented

Also, the change in accrued warranty liabilities, previously reflected in the consolidated statement of cash flows within

the change in other accrued liabilities, is now presented separately.

In addition, accrued sales returns, accrued compensation and accrued

sales and use tax, previously presented separately in the consolidated balance sheet, are now included within other current liabilities.

Correspondingly, the changes in accrued sales returns and accrued compensation, previously reflected separately in the consolidated statement

of cash flows, are now presented within the change in other current liabilities.

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.

The accompanying consolidated

financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”)

and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the financial position,

results of operations and cash flows of the Company.

The preparation of consolidated financial statements in conformity with GAAP 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 estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts

receivable and allowance for credit losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and

liabilities assumed in a business combination, impairment reviews of long-lived assets and definite-lived intangible assets whenever events

or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, 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

Cash, Cash Equivalents and Restricted Cash

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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.

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.

There was no restricted cash included in cash, cash equivalents and restricted cash

at December 31, 2023.

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

Accounts Receivable and Allowance for Doubtful

Accounts Receivable and Allowance for Credit

Accounts receivable are recorded

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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.

over the expected life of the receivables .

Management estimates the allowance for credit

losses based on historical experience, customer payment practices and current economic trends.

Actual credit losses could differ from those estimates .

Account balances are charged off against the allowance when management

believes it is probable the receivable will not be recovered.

The allowance for credit losses at both December 31, 2023 and 2022 was

not material.

Inventories are comprised

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adjustments when necessary.

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

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

cost basis of such products.

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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:

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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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.

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

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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.

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

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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.

The Company accounts for

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

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

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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.

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

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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.

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.

During the year ended December 31, 2023, the Company determined goodwill was impaired and

recorded an impairment charge to write off the entire $ 6.9 million balance of goodwill.

For further discussion see Note 4— Acquisition.

Intangible Assets

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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.

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

Definite-lived

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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 .

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.

Long-Lived Assets and Definite-lived

Intangible Assets – The Company reviews its long-lived assets and definite-lived intangible assets for impairment whenever events

or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

When evaluating long-lived assets and

definite-lived intangible assets for potential impairment, the Company first determines if there are any indicators of impairment and

if the carrying amount of the long-lived assets and definite-lived intangible assets might not be recoverable.

If there are indicators

of impairment, then the Company performs a recoverability test by comparing the carrying value of the assets to the estimated future cash

flows (undiscounted and without interest charges - plus proceeds expected from disposition, if any).

If the estimated undiscounted cash

flows are less than the carrying value of the assets, the Company calculates an impairment loss.

The impairment loss calculation compares

the carrying value of its assets to the assets’ estimated fair value.

When the Company recognizes an impairment loss, the carrying

amount of the impaired assets are reduced to estimated fair value based on discounted cash flows, quoted market prices or other valuation

Assets to be disposed of are reported at the lower of the carrying amount of the asset or fair value less costs to sell.

the Company recognizes an impairment loss for a depreciable long-lived asset, the adjusted carrying amount of the asset becomes its new

cost basis and will be depreciated (amortized) over the remaining useful life of that asset.

The Company concluded that as of December

31, 2023, there were indicators of impairment and a recoverability test was required.

Based on the results of the recoverability test,

the Company concluded that the long-lived assets and definite-lived assets were not impaired as of December 31, 2023 and no impairment

charges were recorded.

There were no impairment charges realized on long-lived assets and definite-lived intangible assets during the

years ended December 31, 2023, 2022 or 2021.

Indefinite-lived Intangible

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qualitative assessment before calculating the fair value of an asset.

For its indefinite lived intangibles assets, the Company assessed

qualitative factors to determine whether any events or circumstances existed which indicated that it was more likely than not that the

fair value of its indefinite lived assets did not exceed their carrying values.

The Company concluded no such events or circumstances

existed which would require an impairment test be performed beyond the qualitative assessment.

In the future, if events or market conditions

affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in

the period in which the impairment occurs.

Long-Lived Assets –

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

may not be recoverable.

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

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

If estimated future undiscounted net cash

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

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

Fair value generally is determined from estimated

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

The Company did not record

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

For its indefinite lived intangibles assets, the Company elected

the unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative assessment to determine

if their carrying values exceed their fair value.

Based on the quantitative assessment, the Company concluded that the indefinite-lived

intangible assets were not impaired as of December 31, 2023.

In the future, if events or market conditions affect the estimated fair value

to the extent that an indefinite-lived intangible asset is impaired, the Company will adjust the carrying value of these assets in the

period in which the impairment occurs.

Other than goodwill as discussed above, there were no impairment charges realized on indefinite-lived

intangible assets during the years ended December 31, 2023, 2022 or 2021.

Cooperative Advertising, Rebate and Other

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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.

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 2023, 2022 and 2021 included $ 2.0 million,

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

Advertising Costs

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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.

expense was $ 63.8 million, $ 61.0 million and $ 149.8 million for the years ended December 31, 2023, 2022 and 2021, 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:

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

channels, retail brick-and-mortar wholesale partners, Purple 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:

Identify the contract with the customer.

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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.

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

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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 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.

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.

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

Purple showrooms and third-party online retailers is collected at point of sale in advance of shipping the products.

Amounts received

for unshipped products are recorded as customer prepayments.

Payment by traditional wholesale customers is due under customary fixed payment

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, wholesale warranty returns, and other adjustments.

The estimates of variable consideration are based on historical return experience, historical and projected sales data, and current contract

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

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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.

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.

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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.

in other current liabilities on the consolidated 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, 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 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.

The Company had the following

activity for sales returns:

activity for accrued sales returns:

Years Ended December 31,

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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 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.

Accrued Warranty Liabilities

The Company provides a limited warranty on most of the products it

The estimated warranty costs associated with products sold through DTC channels are expensed at the time of sale and included in

cost of revenues.

The estimated warranty return costs associated with products sold through the wholesale channel are recorded at the

time of sale and included as an offset to net revenues.

Estimates for warranty costs are based on the results of historical trends and

warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate.

Actual warranty claim costs could differ

from these estimates.

The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for

actual trends and projected claim costs.

The Company 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.

The Company had the following

activity for warranty liabilities:

activity for accrued warranty liabilities:

Years Ended December 31,

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Balance at beginning of period

Additions charged to expense for current year sales

Additions charged to cost of sales

Additions that reduced net revenue

Deduction from reserves for current year claims

Balance at end of period

In its Form 10-Q for the quarterly

period ended September 30, 2023, the Company disclosed that it had not properly accounted for the warranty terms specified in contracts

with its wholesale customers when estimating the liability for warranty related returns.

Based on this determination, the Company concluded

that its consolidated financial statements should be revised to properly reflect the estimated liability associated with the warranty

provisions in its wholesale contracts.

The Company evaluated the error and determined that the related impact was not material to its

results of operations or financial position for any prior annual or interim period.

However, the Company corrected such errors in its

consolidated financial statements as of and for the years ended December 31, 2022 and 2021.

Debt Issuance Costs and Discounts

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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.

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 for more information.

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 issued 12.8 million

sponsor warrants pursuant to a private placement conducted simultaneously with its initial public offering.

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.

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.

its sponsor warrants in accordance with ASC 815, under which these warrants did not meet the criteria for equity classification and were

recorded as liabilities.

Since the sponsor 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 with changes in fair value recognized in earnings

in the period of change.

The Company used the Black-Scholes model to determine the fair value of the liability associated with the sponsor

The model used key assumptions and inputs such as exercise price, fair market value of common stock, risk free interest rate,

warrant life and expected volatility.

Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant

to the terms of the warrant agreement.

These sponsor warrants had no fair value on the date of expiration.

Fair Value Measurements

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The levels of the fair value hierarchy are:

Level 1—Quoted market prices in

active markets for identical assets or liabilities;

Level 1—Quoted market prices

in active markets for identical assets or liabilities;

Level 2—Significant other observable

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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 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 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, accounts

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

The Company’s debt arrangements

are considered Level 2 instruments and fair value is estimated to be face value based on the contractual terms of the debt and market-based

expectations.

The sponsor warrant liabilities

(see Note 12 — Warrant Liabilities for more information) were Level 3 instruments and used internal models to estimate fair

value using certain significant unobservable inputs which required determination of relevant inputs and assumptions.

Accordingly, changes

in these unobservable inputs may have had a significant impact on fair value.

Such inputs included risk free interest rate, expected

average life, expected dividend yield, and expected volatility.

These Level 3 liabilities generally decreased (increased) 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 increased (decreased) in value if the expected average life or expected volatility were to increase (decrease).

Unexercised sponsor warrants

totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement.

These sponsor warrants

had no fair value on the date of expiration.

The 1.9 million sponsor warrants outstanding at December 31, 2022 had a negligible fair

As a result, activity for the year ended December 31, 2023 was de minimis.

The following table summarizes

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(In thousands)

Fair value as of December 31, 2019

Initial measurement

Fair value transfer to Level 1 measurement

Change in valuation inputs (1)

Sponsor Warrants

Fair value as of December 31, 2020

Fair value transfer to Level 1 measurement

Fair value of warrants exercised

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Fair value as of December 31, 2021

Fair value transfer to Level 1 measurement

Fair value of warrants exercised

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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.

(1) Changes 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 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.

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 2023, 2022 and 2021,

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 fair value for these awards was determined using the Black-Scholes

option valuation model at the date of grant.

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

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

Changes in these assumptions can materially affect the fair value estimate.

The Company recognizes forfeitures of stock option

awards as they occur.

During 2023, 2022 and 2021,

the Company granted stock awards under the 2017 Equity Incentive Plan to independent directors on the Company’s Board for services

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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.

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.

During 2023, 2022 and 2021,

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

A portion 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.

Deferred tax assets and liabilities

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enacted rate change.

The Company’s effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling

interest and changes in our valuation allowance.

The Company accounts for uncertainty

in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are

subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain tax position is recognized when it is

more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position.

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’s effective tax rate is primarily impacted by changes in our valuation allowance.

The Company accounts for

uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return,

which are subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain tax position is recognized

when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits

of the position.

The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50 % likelihood

of being realized upon ultimate settlement.

The effective tax rate and the tax basis of assets and liabilities reflect management’s

estimates of the ultimate outcome of various tax uncertainties.

The Company recognizes penalties and interest related to uncertain tax

positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.

The Company files U.S.

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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

Combination, the Company entered into a 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

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.

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 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.

receivable agreement 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.

The estimation of liability under the

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”).

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

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

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.

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

Net (Loss) Income Per Share

Basic net (loss) income per

common share is calculated by dividing net (loss) income 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

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

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

are dilutive.

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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.

and share-based payment awards.

Recent Accounting Pronouncements

March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on

Financial Reporting (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing

certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other

transactions impacted by reference rate reform.

The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or

another reference rate expected to be discontinued due to reference rate reform.

This standard is currently effective and upon adoption

may be applied prospectively to contract modifications made on or before December 31, 2022, when the reference rate replacement activity

is expected to be completed.

The 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

In June 2016, the FASB issued

In June 2016, the Financial

Accounting Standards Board issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

(ASU 2016-13), which was further updated and clarified by the FASB through issuance of additional related ASUs.

This guidance replaces

the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized

cost based on expected credit losses.

The estimate of expected credit losses requires the incorporation of historical information, current

conditions, and reasonable and supportable forecasts.

These updates are effective for public companies, excluding Smaller Reporting Companies

(“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein.

The standard is effective

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

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

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 replaced the incurred loss impairment guidance and established 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 were effective for public companies,

excluding Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods

The standard became 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 standard was adopted by the Company

on January 1, 2023 utilizing a modified retrospective approach.

The adoption of this standard did not have a material impact on the Company’s

consolidated financial statements and related disclosures.

Enhanced Segment Disclosures

In November 2023, the FASB

issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires public entities,

including those that have a single reportable segment, to provide enhanced disclosures about significant expenses.

The ASU requires disclosure

to include significant segment expenses that are regularly provided to the CODM, a description of other segment items by reportable segment,

and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources.

requires all annual disclosures currently required by Topic 280 to be included in interim periods.

The update is effective for fiscal

years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption

permitted and requires retrospective application to all prior periods presented in the financial statements.

The Company is currently

analyzing the impact this ASU will have on its disclosures.

to Income Tax Disclosures

December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

amends existing income tax disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective

tax rate reconciliation.

This ASU is effective for fiscal years beginning after December 15, 2024,

may be applied prospectively or retrospectively, and allows for early adoption.

The Company is currently evaluating the impact

this update will have on its income tax disclosures in the consolidated financial statements.

Underwritten Offerings of Class A Common

In February 2023, the Company

completed an underwritten offering of 13.4 million shares of Class A common stock at a price of $ 4.50 per share.

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.

In March 2022, the Company

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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.

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.

The addition of Intellibed increased product

offerings to customers, expanded market opportunities, capitalized on synergies of the combined companies, and increased 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

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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.

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 of $2.86.

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 were originally held in escrow pending resolution of net working capital adjustments

and certain indemnification matters.

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

stock does not equal or exceed $ 5.00 for at least 10 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.

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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

The fair value of effective settlement of preexisting relationships

included $ 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 (expense) income, net in the consolidated statement of operations for the year ended December

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.

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, any intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates were inherently

uncertain and subject to refinement.

Consequently, during the measurement period, which could have extended up to one year from the acquisition

date, the Company was able record adjustments to the fair values of the assets acquired and the liabilities assumed, with a corresponding

offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or the liabilities

assumed, whichever comes first, any subsequent adjustments will be reflected in the Company’s 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):

assumed, whichever came first, any subsequent adjustments were reflected in the Company’s consolidated statement of operations.

During the measurement period

that ended August 31, 2023, the Company 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.

The table below

reflects final measurement period adjustments made to various assets acquired and liabilities assumed based on updated information, and

revisions to reflect the final fair value analysis associated with the two intangible assets.

The corresponding offsets for these final

measurement period adjustments was goodwill.

The $ 0.1 million decrease in the acquisition date fair value of net assets acquired and

liabilities assumed reflected the impact of certain Class A common shares initially held in escrow being returned to the Company upon

final determination of the working capital adjustments.

The following table summarizes the preliminary fair value of the assets acquired

and liabilities assumed as of the date of acquisition, the final measurement period adjustments and the final adjusted balances (in thousands):

Net tangible assets (liabilities):

Adjusted Balances

Cash, cash equivalents and restricted cash

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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

The amount of goodwill that

resulted from the purchase price allocation was attributed 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.

Goodwill was not being amortized but instead tested for impairment at least annually or more frequently if certain indicators of impairment

were present.

The goodwill recorded was not deductible for income tax purposes.

The ongoing decline in the

Company’s market capitalization, along with other qualitative considerations was determined to be a triggering event for potential

goodwill impairment.

Accordingly, the Company performed a goodwill impairment analysis as of September 30, 2023.

The Company, considered

as a single reporting unit, estimated the implied fair value of its goodwill using a variety of valuation methods, including both the

income and market approaches.

As a result of the impairment assessment performed, the Company determined goodwill was impaired and recorded

an impairment charge to write off the entire $ 6.9 million balance of goodwill.

The impairment charge was recorded in the consolidated

statement of operations as a loss on impairment of goodwill.

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.

lived intangible assets, comprised of customer relationships and developed technology, are being amortized over their estimated useful

lives of 10 and two years , respectively.

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

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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):

The acquired cash, cash equivalents

and restricted cash balance included $ 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 was 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 were less than estimated,

any excess cash was to be returned to the previous shareholders of Intellibed.

If payments for these items exceeded the escrow balance,

the Company would have been required to pay the excess.

The Company recorded the escrow account balance of $1.7 million as an acquired

restricted cash balance on the date of acquisition and used $0.9 million of the escrow account balance for actual expenses incurred.

excess escrow balance of $0.8 million was returned by the Company to the previous shareholders of Intellibed during the third quarter

The Company 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 31, 2022.

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

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 results of operations 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.

Net (loss) income

The unaudited pro forma amounts above include the following

● 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 results of operations.

● 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 results of operations.

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

combined pro forma results were tax effected using the Company’s effective tax rate for the respective periods.

Revenue from Contracts with Customers

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 .

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

channels, retail brick-and-mortar wholesale partners, Purple 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, subject

to shipping terms, 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.

Other products include cushions and various other products.

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 showrooms channel that sells directly to consumers who purchase at a Company showroom

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

Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets.

Other products include

cushions and various other products.

The following tables present

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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.

Payments for the sale of products through the e-commerce online channel,

third-party online retailers, Purple showrooms and contact center are 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

Customer prepayments totaled $ 5.7 million and $ 4.5 million

at December 31, 2023 and 2022, respectively.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized all of the

revenue that was deferred in customer prepayments at December 31, 2022, 2021 and 2020, respectively.

Inventories consisted of

the following:

As of December 31,

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Finished goods

Inventory obsolescence reserve

Inventories, net

Property and Equipment

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equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at December 31, 2023 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.

Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 1.5 million, $ 0.7 million

and $ 1.0 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Depreciation expense was $ 19.7 million, $ 16.2

million and $ 9.2 million for the years ended December 31, 2023, 2022 and 2021, 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.

and distribution facilities, corporate offices, Purple 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 showrooms have initial lease terms of up to 10 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.

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 $ 1.0 million as of December

31, 2023 and 2022, respectively.

The following table presents

19 unchanged sentences

Years Ended December 31,

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

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.

(b) – Operating cash flows paid for operating leases are included within the change in operating leases, net within the Consolidated Statements of Cash Flows offset by non-cash ROU asset amortization and lease liability accretion.

The Company initially recorded

2 unchanged sentences

During the years ended December 31, 2023, 2022 and 2021, the Company recorded accretion of the ARO liabilities totaling

million and $ 0.1 million, respectively.

The Company recorded a minimal amount of accretion in 2020.

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.

$ 0.1 million, $ 0.4 million and $ 0.1 million, respectively.

The outstanding ARO liabilities totaled $ 2.2 million and $ 2.1 million at December

31, 2023 and 2022, respectively and are presented as asset retirement obligations in the consolidated balance sheets.

The following table provides the components of

3 unchanged sentences

Indefinite-lived non-amortizing:

License agreement

Intellectual property

Definite-lived amortizing:

Internet domain

License agreement

Customer relationships

2 unchanged sentences

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.

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.

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.

Amortization expense for

intangible assets was $ 5.3 million, $ 1.2 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Estimated amortization expense for definite-lived

1 unchanged sentence

Year ended December 31,

Total future amortization for definite-lived intangible assets

Total future amortization for definite-lived intangible

Other Current Liabilities

2 unchanged sentences

As of December 31,

Warranty accrual - current portion

Accrued sales returns

Accrued compensation

Long-term debt and unamortized issuance costs - current portion

Accrued sales and use tax

Insurance financing

Accrued interest

Accrued sales tax liability assumed in acquisition

Accrued affiliate marketing

Tax Receivable Agreement Liability – current portion

4 unchanged sentences

unamortized debt issuance costs

Current portion of debt and unamortized issuance costs

Current portion of debt and unamortized issuance costs (c)

Debt, net of current portion

Term Loan and Revolving Line of Credit

Amount is included.in other current liabilities in the consolidated balance sheet.

2023 Credit Agreements

On August 7, 2023, Purple

LLC, Purple Inc.

and Intellibed, (collectively the “Loan Parties”) entered into a term loan credit agreement (the “Term

Loan Agreement”) with Callodine Commercial Finance, LLC and a group of financial institutions (the “Term Loan Lenders”).

Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with the Bank of Montreal and a group of financial

institutions (collectively the “ABL Lenders”) that provided for a revolving asset-based credit facility (the “ABL Agreement”).

Pursuant to entering into these agreements (the “2023 Credit Agreements”), the Company incurred fees and expenses of $ 3.1

million that were recorded as debt issuance costs in the third quarter of 2023.

Interest expense under the 2023 Credit Agreements was

$ 2.1 million for the year ended December 31, 2023.

See Note 21— Subsequent Events — Amended and Restated Credit Agreement

for discussion of new credit agreement entered into subsequent to year-end that resulted in the payoff of debt under the 2023 Credit

Term Loan Agreement and Term Loan Pledge

and Security Agreement

The Term Loan Agreement provided

for up to $ 25.0 million of term loans, with up to $ 5.0 million of incremental term loans available, subject to certain conditions (collectively,

the “Term Loans”).

Proceeds from the Term Loans, which were fully drawn at closing, were used for general corporate purposes.

The borrowing rates under the Term Loan Agreement were based on SOFR, plus a credit spread adjustment of 0.15% per annum, plus 8.5% per

annum, with a SOFR floor of 2.0% per annum.

The Term Loans were to be repaid at the earlier of (a) a three-year amortization schedule

ending on August 7, 2026 or (b) the payment in full of the ABL Agreement.

The Term Loans could be prepaid in whole or in part at any

time, but subject to a prepayment premium.

There were also potential mandatory prepayment obligations based on certain asset dispositions,

casualty events and extraordinary receipts.

Once repaid, no portion of the Term Loans could be reborrowed.

Pursuant to a pledge and

security agreement, the Loan Parties’ obligations under the Term Loan Agreement were secured by a perfected second-priority security

interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected first-priority security interest in substantially

all other assets of the Loan Parties, including, without limitation, the intellectual property and equipment of the Loan Parties, subject

to certain exceptions.

The Term Loan Agreement provided

for customary events of default which included non-payment and failure to perform or observe covenants.

The Term Loan Agreement contained

customary indemnifications that benefited the Term Loan Lenders.

The Term Loan Agreement also

contained representations, warranties and certain covenants of the Loan Parties.

While any amounts were outstanding under the Term Loan

Agreement, the Loan Parties were subject to a number of 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, each of which were subject to certain exceptions.

In particular, the

Loan Parties were (i) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in

the Term Loan Agreement, and (ii) required to maintain a minimum revolving loan availability under the ABL Agreement.

Each Loan Party

was also restricted from paying dividends or making other distributions or payments on its respective capital stock, subject to limited

If the Loan Parties failed to perform their obligations under these and other covenants, or any event of default occurred,

the Term Loans, together with accrued interest, could have been declared immediately due and payable.

ABL Agreement and ABL Pledge and Security

The ABL Agreement provided

for up to $ 50.0 million of revolving loans subject to a borrowing base calculation and minimum availability requirements (with sub-facilities

for swing line loans and the issuance of letters of credit), with incremental increases available up to $ 20.0 million (the “ABL

Loans”), subject to certain conditions, availability reserves, minimum availability requirements, borrowing base calculations,

and restrictive covenants.

In October 2023, the ABL Lenders implemented an availability reserve of $ 5.0 million, which reduced the amount

available under the borrowing base.

No funds were drawn under the ABL Agreement at closing and there was $ 5.0 million outstanding at

December 31, 2023.

The Company was able to use the funds drawn under the ABL Agreement to finance permitted acquisitions defined in the

agreement and for working capital, capital expenditures and other general corporate purposes.

Outstanding principal and accrued interest

on the ABL Loans were to be repaid on August 7, 2026.

The borrowing rates under

the ABL Agreement accrued on a three-tiered grid based on revolving availability, ranging from (i) SOFR, plus a credit spread adjustment

of 0.10% per annum, plus 2.75% per annum to (ii) SOFR, plus a credit spread adjustment of 0.10% per annum, plus 3.25% per annum, with

a SOFR floor of 0% per annum.

The ABL Loans could be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement

of certain costs.

There were also potential mandatory prepayment obligations based on certain asset dispositions, casualty events, equity

issuances and extraordinary receipts.

Pursuant to a pledge and

security agreement, the Loan Parties’ obligations under the ABL Agreement were secured by a perfected first-priority security interest

in the cash, inventory and accounts receivable of the Loan Parties, and a perfected second-priority security interest in substantially

all of the other assets of the Loan Parties, subject to certain exceptions.

The ABL Agreement provided

for customary events of default such as non-payment and failure to perform or observe covenants.

The ABL Agreement contained customary

indemnifications that benefited the ABL Lenders.

The ABL Agreement also contained

representations, warranties and certain covenants of the Loan Parties.

The Loan Parties were subject to 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, in each case, subject to certain

In particular, the Loan Parties were (i) restricted from incurring additional debt up to certain amounts, subject to limited

exceptions, as set forth in the ABL Agreement, and (ii) if revolving availability under the ABL Agreement was less than a specified amount,

required to maintain a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Agreement), and (iii) required to maintain

a specified minimum revolving availability.

Each Loan Party was also restricted from paying dividends or making other distributions or

payments on its respective capital stock, subject to limited exceptions.

If the Loan Parties failed to perform their obligations under

these and other covenants, or if any event of default occurred, the revolving loan commitments under the ABL Agreement could have been

terminated and any outstanding ABL Loans, together with accrued interest, could have been declared immediately due and payable and any

outstanding letters of credit could have been made to be cash collateralized.

2023 Credit Agreement Defaults

The Company, as of September

30, 2023, was not in compliance with its debt covenants under each of the 2023 Credit Agreements due to (i) the Company’s failure

to (a) provide certain financial reporting and related materials on a timely basis and (b) complete certain post-closing deliverables

as required under the ABL Agreement and (ii) the Company drawing on the loan under the ABL Agreement while the above events of default

were in existence (collectively, the “Subject Events of Default”).

On November 6, 2023, the Company

entered into (i) a First Amendment and Waiver to the ABL Agreement (the “ABL Amendment”) and (ii) a First Amendment and Waiver

to the Term Loan Agreement (the “Term Loan Amendment”), with the Term Loan Lenders and ABL Lenders, respectively (collectively,

the “Lenders”), which included waivers of the Subject Events of Default.

These amendments, among other things, included additional

reporting obligations under the 2023 Credit Agreements, the appointment of a third-party consultant, and daily cash sweeps from the Loan

Parties’ accounts to an account maintained at the ABL Lender.

If the Company had not been able to comply with such additional requirements

it may have experienced future events of default, which could have limited its ability to access the ABL Loans and adversely affected

the Company’s financial position and results of operations.

As of December 31, 2023, the Company was in compliance with all of the

financial covenants related to the 2023 Credit Agreement, as amended.

2020 Credit Agreement

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

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 .

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.

The 2020 Credit Agreement provided for a $ 45.0 million term loan and a $ 55.0 million revolving line of credit.

term loan was to be repaid in accordance with a five-year amortization schedule or prepaid in whole or in part at any time without premium

or penalty, subject to reimbursement of certain costs.

The revolving credit facility had a term of five years and carried the same interest

provisions as the term debt.

A commitment fee was due quarterly based on the applicable margin applied to the unused total revolving

In connection with the Company’s execution of the 2023 Credit Agreements, the Company terminated its 2020 Credit Agreement.

The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination.

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.

The amendment, among other things, revised various covenants associated

with the 2020 Credit Agreement.

As a condition of entering into the amendment, the Company repaid the $ 24.7 million outstanding balance

on the term loan plus accrued interest.

Pursuant to this amendment, the Company incurred fees and expenses of $ 2.9 million that were

recorded as debt issuance costs in the condensed consolidated balance sheet.

The amendment was accounted for as an extinguishment of

debt and $ 1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in

the 2023 condensed consolidated statement of operations.

On April 26, 2023, the Company

received consent under the 2020 Credit Agreement that allowed the Company’s redemption of Proportional Representation Preferred

Linked Stock (“PRPLS”) issued by the Company on February 24, 2023, in an aggregate amount not to exceed $ 0.2 million as agreed

by the Company in an April 19, 2023 Cooperation Agreement (the “Cooperation Agreement”) entered into with Coliseum.

Note 16— Related Party Transactions — Coliseum Capital Management, LLC for information regarding events leading

up to the Company’s issuance of the PRPLS, and for information regarding terms of the Cooperation Agreement and redemption of the

In connection with the Company’s

execution of both the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement in August 2023.

had no outstanding borrowings under the 2020 Credit Agreement at the time of termination.

The termination was accounted for as an extinguishment

of debt and $ 3.1 million of unamortized debt issuance costs related to the 2020 Credit Agreement were recorded as a loss on extinguishment

of debt in the 2023 condensed consolidated statement of operations.

Interest expense under the 2020 Credit Agreement totaled $ 1.3 million,

$ 4.1 million and $ 2.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31,

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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 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

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.

The liability

for the warrants was recorded at fair value on the date of the Business Combination and subsequently re-measured to fair value at each

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

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 Company issued 12.8 million

sponsor warrants pursuant to a private placement conducted simultaneously with its 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 to the terms of the warrant agreement.

These sponsor warrants contained certain

provisions that did not meet the criteria for equity classification and therefore were recorded as liabilities.

The liability for these

warrants was recorded at fair value on the date of the Business Combination and subsequently re-measured to fair value at each reporting

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

Unexercised sponsor warrants

totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement.

These sponsor warrants

had no fair value on the date of expiration.

The 1.9 million sponsor warrants outstanding at December 31, 2022 had a negligible fair

value and no sponsor warrants were exercised in 2022.

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 million.

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:

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

Trading price of common stock on measurement date

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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

Other long-term liabilities

consisted of the following (in thousands):

As of December 31,

Warranty accrual

Asset retirement obligations

current portion of warranty accrual

Other long-term liabilities, net of current portion

and Contingencies

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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.

The Second Purple LLC Agreement and the Third Purple LLC Agreement do not include

any mandatory distributions, other than tax distributions.

During the year ended December 31, 2021, the Company paid $ 1.2 million in

tax distributions under these agreements.

There were no tax distributions paid during the years ended December 31, 2023 and 2022.

Company’s consolidated balance sheets at both December 31, 2023 and 2022 had $ 0.1 million of accrued tax distributions included

in other current liabilities.

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.

connection with the Business Combination, the Company entered into a subscription agreement with Coliseum Capital Partners (“CCP”)

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

The subscription

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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.

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.

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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.

these 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 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.

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.

2021, the Coliseum Investors exercised the first of their three written demands for registration in an underwritten offering.

On May 21, 2021, 7.3 million

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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 .

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.

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

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 10 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 agreed to become parties to the Exchange Agreement.

In June 2019, InnoHold distributed Paired Securities to certain current and former

employees who also agreed to become parties to the exchange agreement.

Holders of Class B Units may elect to exchange all or any portion

of their Paired Securities as described above by delivering a notice to Purple LLC.

In certain cases, adjustments

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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

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

3 unchanged sentences

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.

During the years ended December

31, 2023 and 2021, 0.2 million and 0.1 million of Paired Securities were exchanged for shares of Class A common stock, respectively.

There were no Paired Securities exchanged for Class A common stock during the year ended December 31, 2022.

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.

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 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 common

stock) and (ii) the number of corresponding outstanding equity securities of Purple LLC.

These provisions are intended to result in non-controlling

interest holders having a voting interest in the Company that is identical to their economic interest in Purple LLC.

Non-Income Related Taxes

Supreme Court ruling

in South Dakota v.

Wayfair, Inc.

, No.17-494, reversed a longstanding precedent that remote sellers are not required to collect

state and local sales taxes.

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

on e-commerce.

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

However, the application

of existing, new or revised taxes on the Company’s business, in particular, sales taxes, VAT and similar taxes would likely increase

the cost of doing business online and decrease the attractiveness of selling products over the internet.

The application of these taxes

on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit

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.

The Company complies with

current law and collects and reports on sales tax and other taxes and required fees in all states in which it does business.

The application

of existing, new or revised taxes and fees 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 and fees on the Company’s business could also create significant increases in internal costs necessary to capture data

and collect and remit taxes and pay the fees.

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

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District Court for the District of Utah.

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

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

Purple seeks monetary damages,

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

On October 21, 2020, shortly after

the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC, Gary DiCamillo, Adam Gray, Joseph Megibow, Terry

Pearce, and Tony Pearce, also in the United States District Court for the District of Utah (“Case II”).

Subsequently, the

two cases were consolidated into one.

Case 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

Purple LLC seeks damages from ReST’s multiple breaches of its obligations to

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

On October 21, 2020,

ReST filed a retaliatory lawsuit against Purple LLC, and some of the Company’s board members and former border members, also in

the United States District Court for the District of Utah.

Subsequently, the two cases were consolidated into one because the cases involve

many of the same facts and transactions.

ReST filed a motion to compel arbitration of most of the claims.

The Court granted

ReST’s motion and stayed the proceedings in the United States District Court for the District of Utah.

The Court also ruled that

ReST’s claims against the Company’s board members were not subject to arbitration, and the Court stayed the claims against

those individuals.

The parties’ claims and counterclaims subject to arbitration were then litigated before a single arbitrator

with the American Arbitration Association.

During the litigation, ReST was sanctioned for improper litigation conduct, and certain of

its defenses and claims were stricken, and costs were ordered to be paid by ReST to Purple LLC.

A two-week evidentiary arbitration

hearing was held in the summer of 2023.

On March 8, 2024, the Arbitrator issued his final award in Purple’s favor, awarding $ 3.3

million in damages and attorney’s fees on Purple’s affirmative claims, and only a de minimis amount to ReST on their counterclaims.

Purple LLC will immediately move to convert the award into a judgment against ReST in the United States District Court for the District

Purple LLC will then seek judicial enforcement of the judgment if ReST does not voluntarily pay.

On May 3, 2022, Purple LLC

filed a complaint against Photon Interactive UK Limited (“Photon”) in the U.S.

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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.

Photon counter-sued, seeking payment

for the $ 0.1 million withheld by Purple LLC, and also advancing a vague claim for tortious interference.

On August 31, 2022, Purple LLC

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.

Purple LLC is seeking judgment against Photon in the amount of $ 4.0 million.

stayed in September 2023 to allow the parties to mediate the dispute.

Mediation did not result in a settlement.

The parties are presently

negotiating an amended scheduling order to set this matter for trial in late 2024 or early 2025.

In December 2022, Terry and

Tony Pearce, Purple’s founders, filed a complaint against Purple Inc.

in the Fourth Judicial District Court in the State of Utah.

In that suit, the Pearces alleged that they each entered into employment agreements with Purple LLC in February 2018.

The Pearces contended

that certain corporate transactions reduced their “ownership interest and voting power in Purple” and that, as a result, they

should have continued to be paid a salary when they retired from Purple LLC.

The Pearces calculated that they were each owed “no

less than $ 500,000 ” in unpaid salary.

moved to dismiss the Pearces’ claims in full, arguing that the Pearces’

legal theories are flawed and that the amended pleading reflected the Pearces’ inability to rehabilitate their claims.

2023, the Fourth Judicial District Court granted Purple Inc.’s motion and ordered that the claims brought by the Pearces be dismissed

in full, with prejudice.

The Court entered a final judgment dismissing the case in January 2024.

The Pearces have filed a notice reflecting

their intent to appeal to either the Utah Court of Appeals or the Utah Supreme Court.

The Company maintains insurance to cover the costs

of defending against claims of this nature and intends to continue to vigorously defend against these claims in the course of the Pearces’

On April 3, 2023, InnoHold,

LLC, Terry Pearce, and Tony Pearce (collectively, the “InnoHold Parties”) filed a complaint against Purple LLC in the Delaware

Court of Chancery, captioned InnoHold, LLC et al.

Purple Innovation, LLC , Case No.

2023-0393-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.

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.

The complaint alleges that Purple LLC breached the Second Amended and Restated Limited Liability Company Agreement of Purple Innovation,

LLC, dated as of February 2, 2018 (the “LLC Agreement”), by failing to pay the full amount of tax distributions owed under

the LLC Agreement.

The InnoHold Parties seek damages of approximately $ 3.0 million in allegedly unpaid tax distributions as well as its

legal fees and expenses incurred in connection with the litigation.

On June 13, 2023, Purple LLC filed an answer to the complaint denying

the InnoHold Parties’ allegations, setting forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment

in Purple LLC’s favor.

The outcome of the litigation cannot be predicted at this early stage in the proceedings.

intends to vigorously defend against these claims.

On March 24, 2023, Purple

LLC filed a complaint against Tempur Sealy International, Inc., Sealy Technology LLC and Sealy Mattress Manufacturing Co., LLC (collectively,

“Sealy”) in the U.S.

District Court for the Middle District of North Carolina for infringement of Purple LLC’s U.S.

11,317,733 entitled “Mattress Including an Elastomeric Cushioning Element and a Pocketed Coil Layer and Related Methods.”

On July 17, 2023, Purple LLC filed a First Amended Complaint further detailing Sealy’s infringement of the patent through Sealy’s

direct and indirect infringement by making, using, offering for sale, and/or importing into the United States Sealy FlexGrid Hybrid Construction

Purple seeks judgment of willful infringement, trebled damages, a permanent injunction, prejudgment and post-judgment interest,

costs, expenses, and attorneys’ fees.

Sealy filed its response to Purple’s First Amended Complaint on July 31, 2023.

is ongoing but was temporarily stayed for 30 days on March 6, 2024 to allow the parties to discuss settlement;

a claim construction hearing

has been scheduled for May 23, 2024.

On March 12, 2024, the parties entered into a confidential settlement agreement.

The parties will

take all necessary actions to ensure that the action and counterclaims are dismissed with prejudice.

On March 27, 2023, Sealy Technology,

LLC (“Sealy Technology”) filed a Petition for Cancellation with the U.S.

Patent and Trademark Office, Trademark Trial and

Appeal Board (“TTAB”), seeking cancellation of Purple LLC’s Trademark Registration No.

5,416,146 for HYPER-ELASTIC POLYMER

in Class 20 for “elastomeric polymer in pre-shaped form sold as an integral component of pillows” (the “Registration”).

On June 18, 2023, Sealy Technology filed an Amended Petition, which seeks cancellation of the Registration on the basis that the term

On September 25, 2023, the TTAB denied Purple LLC’s previously filed motion to dismiss and issued a new schedule.

October 16, 2023, Purple LLC filed its Answer to the Amended Petition.

Discovery opened on November 14, 2023, and is scheduled to conclude

on May 12, 2024.

On March 12, 2024, the parties entered into a confidential settlement agreement.

The parties will take all necessary

actions to ensure that the action and counterclaims are dismissed with prejudice.

On August 16, 2023, Sealy Technology filed a Notice of Opposition with

the TTAB, requesting that the U.S.

Patent and Trademark Office deny Purple LLC’s pending Trademark Application No.

97,650,658 for

HYPER-ELASTIC POLYMER in Class 20 for “mattresses;

seat cushions” (the “Application”), on the grounds that the

mark is merely descriptive or deceptively misdescriptive.

On September 25, 2023, Purple LLC filed a motion to dismiss all claims.

5, 2023, the TTAB suspended all deadlines in the proceeding, pending the outcome of the motion to dismiss.

On October 17, 2023, Sealy

Technology filed its opposition to the motion to dismiss.

Purple LLC filed its reply in support of its motion to dismiss on November 6,

2023, and also requested that the TTAB strike Sealy Technology’s opposition as untimely.

On January 1, 2024 the TTAB denied

Purple LLC’s motion to dismiss and consolidated the opposition and cancellation proceedings and issued a new schedule.

12, 2024, the parties entered into a confidential settlement agreement.

The parties will take all necessary actions to ensure that the

action and counterclaims are dismissed with prejudice.

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

5 unchanged sentences

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.

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 and also manages investment funds and accounts.

Gray has voting and dispositive control over securities

held by CCP, CDF and Blackwell.

See Note 13— Commitments and Contingencies — Subscription Agreement and Preemptive

Rights for further discussion .

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.

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.

At the time of the offer, Coliseum

beneficially owned approximately 44.7 % of the outstanding equity of the Company.

In response, the Board authorized the formation of a

special committee of independent and disinterested directors of the Company (the “Special Committee”) to evaluate the Coliseum

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

The Special Committee

approved the adoption of a limited-duration stockholder rights agreement (the “Rights Agreement”).

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.

The initial issuance of the

Rights as a dividend had no financial accounting or reporting impact.

The fair value of the Rights was nominal since the Rights were

not exercisable when issued and no value was attributable to them.

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

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

Accordingly, the Rights Agreement had no impact on the

Company’s consolidated financial statements .

On February 14, 2023, the

Company declared a dividend of one new PRPLS for each 100 shares of its common stock owned by the Company’s shareholders.

holders could have allocated 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 traded along with the common stock.

PRPLS were outstanding, any new issuances of common stock would have automatically included a proportionate number of PRPLS.

On February 21, 2023, Coliseum

filed a lawsuit against the Company and several members of its Board alleging 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.

On April 19, 2023, the Company

entered into a Cooperation Agreement with Coliseum to resolve the litigation.

The Cooperation Agreement, which became effective on April

27, 2023, included, among other things, the following:

● The Board was increased

from seven directors to eight.

● Board member and

Coliseum managing partner Adam Gray was appointed Chairman of the Board.

● The Company terminated

the Rights Agreement and agreed not to adopt a new stockholder rights agreement prior to

the termination of the Cooperation Agreement without Coliseum’s prior consent.

result, all shares of preferred stock previously designated as Series A Junior Participating

Preferred Stock were eliminated and returned to the status of authorized but unissued shares

of preferred stock, without designation.

● The Company redeemed all outstanding shares of PRPLS and agreed not to issue any similar security or take any other action prior to the termination of the Cooperation Agreement that would change the stockholder voting standards from those in effect prior to the issuance of the PRPLS.

As a result, all shares of preferred stock previously designated as PRPLS were eliminated and returned to the status of authorized but unissued shares of preferred stock, without designation.

The Company made a $ 0.1 million payment to redeem the PRPLS based on a record date as of April 28, 2023.

The PRPLS redemption payment was reflected in the Company’s consolidated balance sheet as a reduction to additional paid-in capital.

● The Company agreed to reimburse Coliseum for up to $ 4.0 million of out-of-pocket fees, costs, and expenses incurred in connection with the lawsuit.

● The Company terminated

the Special Committee and Coliseum dismissed its litigation against the Company.

● At both the 2023

and 2024 annual meetings of stockholders, Coliseum agreed to cause all of the common stock

that it or any of its affiliates had the direct or indirect right to vote as of the applicable

record date, to be present in person or by proxy for quorum purposes and to be voted (i)

in favor of each of the candidates for election on the Company’s slate of nominees

for election to the Board, (ii) against any stockholder nominations for any other directors,

and (iii) against any proposals or resolutions to remove any member of the Board other than

● Coliseum agreed to be bound by customary standstill restrictions, including,

among others, agreements not to acquire additional shares of the Company’s securities that would cause Coliseum’s ownership

to exceed 44.7% of the total outstanding common stock (other than acquisitions directly from the Company), engage in proxy solicitations

and related matters, form or join any “group” with respect to shares of the Company, encourage others to pursue a “contested

solicitation,” or make any public proposals, subject to certain exceptions.

● Coliseum agreed

to condition any proposal from it or any of its affiliates to acquire the Company or all

or substantially all of the outstanding stock of the Company held by stockholders unaffiliated

with Coliseum on (i) such transaction being negotiated by, and subject to the approval of,

a special committee of directors of the Board who are independent with respect to Coliseum

and disinterested under Delaware law and on (ii) a nonwaivable condition that such transaction

be approved by the affirmative vote of the holders of a majority of the Company’s outstanding

common stock not beneficially owned by Coliseum or its affiliates or other parties with a

material conflict of interest in such transaction.

● The Cooperation

Agreement will terminate on the day following the date on which the 2024 annual meeting of

stockholders is held.

Purple Founder Entities

1 unchanged sentence

“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.

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.

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

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

Purple LLC began leasing

the Alpine facility from entities controlled by the Purple Founders in 2010.

On September 3, 2021, in accordance with the terms of that

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

On July 20, 2022, the Company entered into an amendment to its Alpine facility lease agreement that rescinded the Company’s

previous notice of termination and extended the term such that the lease remained in effect until September 30, 2023.

The Company vacated

the Alpine facility and returned the property back to its owner on September 30, 2023, in accordance with the terms of the lease agreement

and notice of termination.

In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $ 0.8 million, $ 1.0 million

and $ 0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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.

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

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.

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

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 years ended December

31, 2023 and 2022.

Stockholders’

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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

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.

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, 2023, 105.5 million shares of Class A common stock were outstanding.

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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.

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 of Class B common 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 Third 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

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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 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

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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, 2023, there were no shares of preferred stock outstanding.

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— Related Party Transactions — Coliseum Capital Management LLC for

discussion regarding the Rights Agreement and the PRPLS.

Sponsor Warrants

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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

Unexercised sponsor

warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement.

These sponsor

warrants had no fair value on the date of expiration.

There were no sponsor warrants exercised during 2023 or 2022.

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 million.

Noncontrolling Interest

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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):

Income 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.

Net (loss) income attributable to Purple Innovation,

$ ( 120,757 )

Dilutive effect of change in fair value – warrant liabilities

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Dilutive effect of change in fair value – warrant

Net loss attributable to noncontrolling

Net loss attributable to Purple Innovation,

$ ( 121,215 )

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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,

Net (loss) income per common share:

For the year ended December

31, 2023, the Company excluded 3.9 million shares of Class A common stock issuable upon conversion of certain warrants, stock options

and restricted stock as the effect was anti-dilutive.

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,

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

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

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.

2017 Equity Incentive Plan

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 7.9 million shares.

As of December 31, 2023, 2.8

million shares remain available for issuance under the 2017 Incentive Plan.

During the years ended December 31, 2023, 2022 and 2021, stock-based

compensation associated with equity awards issued under the 2017 Incentive Plan totaled $ 4.9 million, $ 3.4 million and $ 3.4 million, respectively,

while the related tax benefits recognized on these awards were $ 1.5 million, $ 0.9 million and $ 3.9 million, respectively.

Class A Common Stock Awards

In June 2023, the Company

granted stock awards under the 2017 Incentive Plan to non-executive directors on the Board.

The stock awards vested immediately and the

Company issued 0.2 million shares of Class A common stock and recognized $ 0.6 million in expense during the year ended December 31, 2023,

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

In May 2022, the Company

granted 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.

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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.

Amended and Restated Grant Agreements

On March 15, 2023, in accordance

with the 2017 Incentive Plan, the Company entered into amended and restated grant agreements relating to stock options and restricted

stock unit awards previously granted to the Company’s chief executive officer in March 2022 and June 2022.

The amended agreements

revised the vesting schedule of the awards included in each grant.

Pursuant to these agreements, 0.3 million of restricted stock units

and stock options fully vested on March 25, 2023, another 0.3 million of restricted stock units and stock options, which included conditionally

granted awards that were approved by shareholders at the 2023 Annual Meeting, will vest on March 25, 2024, and the remaining 0.3 million

of conditionally granted awards approved by shareholders at the 2023 Annual Meeting will vest in full on March 25, 2025.

These amendments

resulted in the acceleration of $ 0.8 million of stock-based compensation expense into fiscal 2023 compared to the expense that would

have been recorded based on vesting under the original agreements.

Employee Stock Options

In June 2023, the 0.3 million

of conditionally granted stock options to the Company’s chief executive officer were approved by shareholders.

These stock options

have an exercise price of $ 6.82 per option, expire in four years and vest over a two-year period.

The fair value of this award, which

was determined to be $ 0.1 million on the effective date, is being expensed over the vesting period on a straight-line basis.

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

31, 2021, the Company granted 0.2 million stock options under the Company’s 2017 Equity Incentive Plan to certain management of

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.

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 were to vest over a three-year period.

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 was expensed on a straight-line basis over the vesting period.

During the year ended December

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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 0.5 million options granted during the year ended December 31, 2020 to be $ 3.4 million which

will be expensed over the vesting period.

The 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

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.

The following are the weighted

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Year Ended December 31,

Fair market value

Weighted average grant date value

Risk free rate

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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:

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 year ended December 31, 2023:

(in thousands)

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Options outstanding as of December 31, 2022

Forfeited/expired

Options outstanding as of December 31, 2023

Forfeited/expired

Options outstanding as of December 31, 2021

Forfeited/expired

Options outstanding as of December 31, 2022

Outstanding and exercisable stock options as of

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The following table summarizes

the Company’s unvested stock option activity for the years ended December 31, 2022, 2021 and 2020:

the Company’s unvested stock option activity for the year ended December 31, 2023:

(in thousands)

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Nonvested options as of December 31, 2023

Nonvested options as of December 31, 2021

Nonvested options as of December 31, 2022

The Company recognized $ 0.5

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as of December 31, 2023, there was $ 0.1 million of total unrecognized stock compensation cost with a remaining recognition period of 0.8

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

Cash received from the exercise of stock options was $ 0.2 million and

$ 1.4 million in 2022 and 2021, respectively.

The tax benefit associated with the exercise of these stock options was $ 0.4 million

and $ 1.6 million in 2022 and 2021, respectively.

The total intrinsic value of stock options exercised in 2022 and 2021 was $ 0.1 million

and $ 2.7 million, respectively.

There were no stock options exercised in 2023.

The fair value of stock options vested in 2023, 2022 and

2021 totaled $ 0.6 million, $ 0.7 million and $ 1.9 million, respectively.

Employee Restricted Stock Units

In 2023, the Company granted

2.4 million restricted stock units under the 2017 Incentive Plan to certain members of the Company’s management team.

Approximately

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

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 2023, 2022 and 2021 that did not have a market vesting condition had

weighted average grant date fair values of $ 2.75 , $ 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.

In March and June 2022, the

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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 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

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:

granted in 2023, 2022 and 2021 that did have a market vesting condition had weighted average grant date fair values of $ 1.92 , $ 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 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 these awards using a Monte Carlo Simulation of a Geometric Brownian Motion stock path model with the following weighted

average assumptions:

Year Ended December 31,

Trading price of common stock on measurement date

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The following table summarizes

the Company’s restricted stock unit activity for the years ended December 31, 2022 and 2021:

the Company’s restricted stock unit activity for the year ended December 31, 2023:

(in thousands)

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Nonvested restricted stock units as of December 31, 2023

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.

stock unit expense of $ 3.7 million, $ 2.1 million and $ 0.5 million during the years ended December 31, 2023, 2022 and 2021, respectively.

For restricted stock units outstanding as of December 31, 2023, there

was $ 5.5 million of total unrecognized stock compensation cost with a remaining recognition period of 1.8 years.

The weighted average

grant date fair value of restricted stock units granted in 2022 and 2021 was $ 4.72 and $ 18.18 , respectively.

Aggregate Non-Cash Stock Compensation

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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).

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,

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Employee Retirement Plan

In 2018 the Company established

a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code.

All eligible employees over

the age of 18 and with 4 months’ service are eligible to participate in the plan.

The plan provides for Company matching of employee

contributions up to 5% of eligible earnings.

In 2018, the Company established a 401(k) plan that qualifies as a

deferred compensation arrangement under Section 401 of the IRS Code.

All eligible employees over the age of 18 and with 4 months’

service are eligible to participate in the plan.

The plan provides for Company matching of employee contributions up to 5 % of

eligible earnings.

Company contributions immediately vest.

The Company matching contribution expense

was $ 3.6 million, $ 3.2 million and $ 2.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company matching contribution expense was $ 3.8 million, $ 3.6 million and

$ 3.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Concentrations

The Company had the following

revenues by product (in thousands):

Years Ended December 31,

Sleep products

Total revenue, net

The following disaggregates

net revenues by geographic region (in thousands):

The Company had the following disaggregated net

revenues by geographic region (in thousands):

Years Ended December 31,

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Total revenue, net

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 had one individual

customer that accounted for approximately 23 % and 52 % of accounts receivable at December 31, 2023 and 2022, respectively, and approximately

10 %, 15 % and 15 % of net revenue during the years ended December 31, 2023, 2022 and 2021, respectively.

The Company currently obtains

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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,

The Company’s (loss)

income before income taxes of $( 121.2 ) million, $ 120.4 million and $ 1.4 million during the years ended December 31, 2023, 2022 and 2021,

respectively, consisted entirely of income earned in the United States.

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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):

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

Tax (provision) benefit at Federal statutory rate

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

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Income tax (benefit) expense

Deferred income taxes at December 31,

2022 and 2021 consisted of the following (in thousands):

Deferred income taxes at

December 31, 2023 and 2022 consisted of the following (in thousands):

Basis difference in Purple LLC investment

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Net deferred income tax asset

The Company’s sole material

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

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

income taxes.

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

members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed.

While the Company

consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed

to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC.

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated

financial statements under GAAP.

As a result, the Company’s effective tax rate differs materially from the statutory rate.

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.

The Company’s sole

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

federal income tax purposes and for purposes of certain state

and local income taxes.

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

in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed.

Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not

attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its

consolidated financial statements under GAAP.

As a result, the Company’s effective tax rate differs materially from the statutory

The primary 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, 2021, the

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and state deferred tax assets was recorded along with an income tax expense in 2022.

Income tax expense in 2023 was de minimis and the

Company continues to maintain a full valuation allowance on its deferred tax assets based on its three-year cumulative loss position.