What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-15 compared with 2023-08-09 · 632 added, 618 removed, 69 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is

intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation, Inc.

obtained from reading the Unaudited Condensed Consolidated Financial Statements alone.

The discussion should be read in conjunction with

the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion is intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation,

than can be obtained from reading the Unaudited Condensed Consolidated Financial Statements alone.

The discussion should be read

in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I.

Financial Statements.”

FORWARD-LOOKING STATEMENTS

This quarterly report on Form

10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act

of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs.

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state

securities laws.

In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,”

“project,” “anticipate,” “estimate,” “intend,” “plan,” “targets,”

“likely,” “will,” “would,” “could,” “may,” “might,” the negative

of these words and other similar words.

All forward-looking statements

included in this Quarterly Report are made only as of the date thereof.

It is routine for our internal projections and expectations to

change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end

of the next quarter or year.

In addition, any statements that refer to projections of our future financial performance, our anticipated

growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations

of future events or circumstances are forward-looking statements.

We caution and advise readers

that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including

those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the

Securities and Exchange Commission on March 22, 2023, as amended on May 1, 2023.

Therefore, actual results may differ materially and adversely

from those expressed in any forward-looking statements and investors are cautioned not to place undue reliance on any such statements.

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future

events or otherwise, except as required by law.

Overview of Our Business

Our mission is to help people

feel and live better through innovative comfort solutions.

We are an omni-channel Company

that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings.

We design and manufacture

a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, duvets, duvet

covers, and other products.

Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort

technologies and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology underpins many

of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products.

and sell our products directly to consumers through our e-commerce and Purple owned retail showroom channels, online marketplaces and

retail wholesale partners.

Our business consists of Purple

FORWARD-LOOKING

quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section

27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our

current expectations and beliefs.

All statements other than statements of historical fact are “forward-looking statements”

for purposes of federal and state securities laws.

In some cases, you can identify these statements by forward-looking words such as

“believe,” “expect,” “project,” “anticipate,” “estimate,” “intend,”

“plan,” “targets,” “likely,” “will,” “would,” “could,” “may,”

“might,” the negative of these words and other similar words.

forward-looking statements included in this Quarterly Report are made only as of the date thereof.

It is routine for our internal projections

and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change

prior to the end of the next quarter or year.

In addition, any statements that refer to projections of our future financial performance,

our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and

other characterizations of future events or circumstances are forward-looking statements.

caution and advise readers that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are

difficult to predict, including those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report

on Form 10-K filed with the Securities and Exchange Commission on March 22, 2023, as amended on May 1, 2023.

Therefore, actual results

may differ materially and adversely from those expressed in any forward-looking statements and investors are cautioned not to place undue

reliance on any such statements.

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a

result of new information, future events or otherwise, except as required by law.

Revision of Consolidated Financial Statements

for Correction of Immaterial Misstatements

This Management’s Discussion

and Analysis of Financial Condition and Results of Operations gives effect to the revision of the Company’s unaudited condensed

consolidated financial statements as of and for the three and nine months ended September 30, 2022.

For further detail regarding the revision,

see Note 3 – Revision of Consolidated Financial Statements for Correction of Immaterial Misstatements of the Notes to the

consolidated financial statements and Part I, Item 4 - Controls and Procedures herein.

of Our Business

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

are an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings.

We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames,

sheets, duvets, duvet covers, and other products.

Our products are the result of over 30 years of innovation and investment in proprietary

and patented comfort technologies and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology

underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’

We market and sell our products directly to consumers through our e-commerce and Purple owned retail showroom channels, online

marketplaces and retail wholesale partners.

business consists of Purple Inc.

and its consolidated subsidiary, Purple LLC.

was incorporated in Delaware on May 19, 2015 as a special purpose acquisition

company under the name of GPAC.

was incorporated in Delaware on May 19, 2015

as a special purpose acquisition company under the name of GPAC.

On February 2, 2018, Purple Inc.

consummated a transaction structured similar to a reverse recapitalization

pursuant to which Purple Inc.

acquired an equity interest in Purple LLC as holder of all Class A units and became its sole managing member.

As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative

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

At June 30, 2023,

had a 99.6% economic interest in Purple LLC while other Class B Unit holders had the remaining 0.4%.

consummated a transaction structured

similar to a reverse recapitalization pursuant to which Purple Inc.

acquired an equity interest in Purple LLC as holder of all Class

A units and became its sole managing member.

As the sole managing member of Purple LLC, Purple Inc., through its officers and directors,

is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without

the approval of any other member.

At September 30, 2023, Purple Inc.

had a 99.6% economic interest in Purple LLC while other Class B

Unit holders had the remaining 0.4%.

On August 31, 2022, we acquired

3 unchanged sentences

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

We believe the addition

of Intellibed has increased product offerings to customers, expanded market opportunities, capitalized on synergies of the combined companies,

and increased opportunities for innovation.

In addition, the acquisition consolidated ownership of our intellectual property licensed

to Intellibed and we believe will enable us to more fully capitalize on growing demand for products with our proprietary gel technologies.

For further discussion see Note 4 — Acquisition.

Executive Summary – Results of Operations

Net revenues decreased 16.1% to $120.9 million and 19.9% to $230.2 million for the three and six months ended June 30, 2023, respectively,

when compared to the corresponding periods in the prior year.

These decreases were primarily due to continued softening demand in the

industry for home-related products, inflationary pressure on consumer discretionary spending, forward buying of consumers in recent years,

industry-standard price reductions on the sell-in of new mattress and adjustable base floor models to wholesale partners and increased

discounting of discontinued models sold through our DTC channels.

Additionally, although we began ramping up marketing efforts in mid-May

to support our new product lineups, the planned pullback in advertising spend prior to that impacted demand during the quarter.

Gross profit decreased 21.2% to $38.5 million and 18.7% to $81.7 million

for the three and six months ended June 30, 2023, respectively, when compared to the corresponding periods in the prior year.

These decreases

were primarily due to corresponding decreases in sales volume.

Our gross profit percentage on a year-to-date basis, which increased to

35.5% of net revenues in 2023 from 35.0% in 2022, benefited from the ongoing realization of efficiency and cost saving initiatives put

in place during the first half of 2022.

These benefits were offset in part by new mattress and base floor models being sold to our wholesale

partners at reduced pricing coupled with increased discounting of discontinued models sold through our DTC channels as we transitioned

to our new Premium and Luxe product lineups.

expenses increased 24.4% to $75.7 million and 7.7% to $141.0 million for the three and six months ended June 30, 2023, respectively,

when compared to the corresponding periods in the prior year.

These increases were primarily due to legal and professional fees of $8.2

million and $14.1 million incurred by the Special Committee during the three and six months ended June 30, 2023, respectively.

in those amounts are a $4.0 million accrual made in the second quarter of 2023 for the settlement amount owed to Coliseum.

and sales expenses were $6.0 million higher in the second quarter due mainly to the increased number of showrooms and the associated

costs, increased wholesale marketing costs and increased advertising spend to align with the launch of our new Premium and Luxe product

lineups in May 2023.

Other expense totaled $1.7 million for the six months ended June 30, 2023 compared to other income of $2.4 million

for the six months ended June 30, 2022.

Other expense in 2023 included a $1.2 million loss on extinguishment of the Company’s term

loan during the first quarter.

Other income in 2022 primarily reflected a $4.3 million gain related to a decrease in the fair value of

the sponsor warrants outstanding at the end of June 30, 2022.

Net loss was $37.5 million

and $60.8 million for the three and six months ended June 30, 2023, respectively, compared to net losses of $29.2 million and $21.8 million

for the three and six months ended June 30, 2022, respectively.

Recent Developments in Our Business

Operational Developments

2022 and continuing into 2023, we expanded our focus on product development and increased our innovation capabilities.

As a result, in

May 2023, we launched our new Premium and Luxe product lineups.

This launch was supported by enhancements to our in-store presence and

refinements to our marketing programs and brand messaging.

Although the response to our new products and new brand positioning has been

positive, we continue to experience softening demand for home-related products in 2023 due to forward buying in recent years and inflationary

pressures on consumer discretionary spending.

Also, as consumer spending habits have moved away from the COVID era e-commerce spike in

purchases to brick and mortar buying, we have invested in showroom expansion and grown the number of Purple owned retail showrooms to

56 at June 30, 2023 from 40 at the end of June 30, 2022.

Although we added only one new showroom during the first six months of 2023,

we expect to add additional new showrooms across the remainder of the year.

In addition, we have focused on growing our placements with

wholesale partners and improving wholesale door productivity.

In the second quarter, less than half of our approximately 3,300 wholesale

doors were transitioned to our new line of mattress products.

We expect to convert the remaining wholesale doors to our new product lineup

by the end of the year.

Showroom expansion and improving the sales productivity of both our wholesale doors and existing showrooms remain

primary focuses and are critical components of our strategy to respond to shifting demand patterns.

After several years of hyper growth

and increased investments to support current and future expansion, we are building the framework for improved operational maturity and

accountability after focusing on right-sizing our operations, improving our execution, and refining our strategies that will drive share

gains in the premium mattress category and position us for accelerated growth.

Beginning in 2022 and continuing into 2023, we purposely

reduced our advertising spending to improve marketing efficiency, conserve profitability in a challenging macroeconomic environment and

align spending with current demand levels.

With the introduction of our new product lineups, we initiated a new marketing campaign and

increased advertising spend in May and June 2023.

We believe we have set the right course for the next stage of growth for the Company.

June, the first full month with our new product in-market, was the strongest month of 2023 with a revenue run rate up double digits to

the first 5 months of the year.

Coliseum Cooperation Agreement

For further discussion

see Note 5 — Acquisition.

Summary – Third Quarter Results of Operations

Net revenues decreased $2.9 million, or 2.0%, to $140.0 million for

the three months ended September 30, 2023 as compared to the corresponding period in the prior year.

This decrease reflected the continued

impact of softening demand for home-related products due to the normalization of demand distribution.

The negative effects of this were

mostly offset by additional existing wholesale partners transitioning to our new Premium and Luxe product lineup coupled with the positive

response to the new products in our DTC channels.

Gross profit decreased $11.7

million, or 19.8%, to $47.3 million for the three months ended September 30, 2023 as compared to the corresponding period in the prior

This decrease reflected the impact of our gross profit percentage declining to 33.8% of net revenues in the third quarter of 2023

as compared to 41.3% in the third quarter of 2022.

The lower gross profit percentage was primarily due to the impact of new mattress and

base floor models being sold to our wholesale partners at reduced pricing, increased labor and freight costs related to the transition

to our new products, the wrap-around on manufacturing efficiencies from last year when we

had a higher amount of inventory production, and a shift in revenue to our wholesale channel

which carries a lower average selling price than sales from our DTC channels.

Operating expenses increased

$21.8 million, or 37.6%, to $79.9 million for the three months ended September 30, 2023 when compared to the corresponding period in the

This increase was primarily due to higher advertising spend which began increasing in mid-May to align with the launch of

our new Premium and Luxe product lineups and enhanced brand positioning.

Operating expenses in 2023 also included a $6.9 million loss

on impairment of goodwill.

Other expense totaled $3.5

million for the three months ended September 30, 2023 compared to other income of $0.3 million for the three months ended September 30,

Other expense in 2023 was primarily comprised of a $3.1 million loss on extinguishment of debt associated with the termination of

the Company’s 2020 Credit Agreement in August 2023.

Net loss was $36.0 million for the three months ended September 30,

2023 compared to net income of $2.0 million for the three months ended September 30, 2022.

Developments in Our Business

Developments – Launch of New Premium and Luxe Product Lineups

In 2022 and continuing into 2023, we expanded our focus on product

development and increased our innovation capabilities.

As a result, in May 2023, we launched our new Premium and Luxe product lineups.

This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging.

the response to our new products and enhanced brand positioning has been extremely positive, we have continued to experience in 2023 softening

demand for home-related products due to a normalization of demand distribution.

Also, as consumer spending habits have moved away from

the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple owned retail showrooms to 57 at September

In addition, we have focused on growing our placements with wholesale partners and improving wholesale door productivity.

the end of the third quarter, more than half of our approximately 3,300 wholesale doors had transitioned to our new line of mattress products.

We expect to convert the remaining wholesale doors to our new product lineup by the end of the year.

Improving the sales productivity

of both our wholesale doors and existing showrooms remains a primary focus and critical component of our strategy to respond to shifting

demand patterns.

After several years of hyper growth and increased investments to support current and future expansion, we are building

the framework for improved operational maturity and accountability after focusing on right-sizing our operations, improving our execution,

and refining our strategies that will drive share gains in the premium mattress category and position us for accelerated growth.

in 2022 and continuing into early 2023, we purposely reduced our advertising spending to improve marketing efficiency, conserve profitability

in a challenging macroeconomic environment and align spending with current demand levels.

With the introduction of our new product lineups

in May 2023, we initiated a new marketing campaign and enhanced brand positioning.

As a result, in the third quarter of 2023, the first

full quarter with our new product lineup in-market, we grew net revenues 31.2% and 18.8% over the first and second quarters of 2023, respectively.

Also, sales from our e-commerce channel reached a more normalized level in the third quarter of 2023 as e-commerce net revenues increased

15.8% and 15.4% over the first and second quarters of 2023, respectively.

We believe we have set the right course for the next stage of

growth for the Company.

Cooperation Agreement

On February 21, 2023, Coliseum

filed a lawsuit against us and several members of our Board alleging that we and the named directors authorized an improper dividend of

preferred stock in bad faith to impede stockholder voting rights and interfered with Coliseum’s nomination of a competing slate

filed a lawsuit against us and several members of our Board alleging that we and the named directors authorized an improper dividend

of preferred stock in bad faith to impede stockholder voting rights and interfered with Coliseum’s nomination of a competing slate

of director candidates ahead of our 2023 annual meeting of stockholders.

1 unchanged sentence

with Coliseum to resolve the litigation.

The Cooperation Agreement, which became effective on April 27, 2023, resulted in the following:

size of the Board was increased from seven directors to eight directors.

amended and restated our Second Amended and Restated Bylaws to include references to our Lead Independent Director Charter.

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

member Gary DiCamillo continued to serve as Lead Independent Director and was appointed chair of the Nomination and Governance Committee.

Zepf and Pano Anthos resigned as directors of the Company.

Board appointed S.

Hoby Darling, R.

Carter Pate, and Erika Serow to fill the vacancies created by the increased the size of the board

and the resignations of Mr.

Peterson, a stockholder and Board Observer since our acquisition of Intellibed, was included as a nominee on the Board’s slate

of directors at the 2023 Annual Meeting in place of Dawn Zier, who had previously announced her decision not to stand for re-election.

than as described above with respect to Dawn Zier, the Board nominated all incumbent directors for election at our annual meetings of

stockholders to be held in 2023 and 2024.

amended our Corporate Governance Guidelines for Operation of the Board of Directors and adopted a Lead Independent Director Charter to

provide for the responsibilities of the Lead Independent Director.

terminated the stockholder rights agreement adopted on September 25, 2022 and agreed not to adopt a new stockholder rights agreement

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

As a 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.

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.

We 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 our consolidated balance sheet as a reduction to additional paid-in

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

terminated the Special Committee.

dismissed its litigation against us.

the 2023 and 2024 annual meetings of stockholders, Coliseum caused or will cause all of the common stock that Coliseum 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 for cause.

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 of Voting Securities to exceed 44.4% 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.

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 (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.

Cooperation Agreement shall terminate on the day following the date on which the 2024 annual meeting of stockholders is held.

Shelf Registration Statement and Equity Financing

On January 30, 2023, the Form

S-3 shelf registration statement we filed with the SEC in December 2022 became effective.

As a result, we may offer and sell from time

to time, in one or more series or issuances and on terms that we 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.

In February 2023, we completed

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

The underwriters

did not exercise their over-allotment option.

The aggregate net proceeds received by us from the offering, after deducting offering fees

and expenses of $3.3 million, totaled $57.0 million.

Debt Financing

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.

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 provides for a revolving asset-based credit facility (the “ABL Agreement”).

Pursuant to entering

into these agreements, the Company incurred fees and expenses of $3.1 million that will be reflected as debt issuance costs in the third

quarter of 2023.

The Term Loan Agreement provides

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, will be used for general corporate purposes.

The borrowing rates under the Term Loan Agreement are 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 will 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 may be prepaid in whole or in part at any time, but

subject to a prepayment premium.

There may also be mandatory prepayment obligations based on certain asset dispositions, casualty events

and extraordinary receipts.

The details of the Cooperation Agreement, which became effective on April 27, 2023, are discussed

further in Note 16 — Related Party Transactions — Coliseum Capital Management, LLC.

Registration Statement and Equity Financing

January 30, 2023, the Form S-3 shelf registration statement we filed with the SEC in December 2022 became effective.

As a result, we

may offer and sell from time to time, in one or more series or issuances and on terms that we 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.

February 2023, we completed an underwritten offering of 13.4 million shares of Class A common stock at a public offering price

of $4.50 per share.

The underwriters did not exercise their over-allotment option.

The aggregate net proceeds received by us from the

offering, after deducting offering fees and expenses of $3.3 million, totaled $57.0 million.

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.

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” and together with the Term Loan Agreement the “2023 Credit Agreements”).

Pursuant to entering into these agreements, the Company incurred fees and expenses of $3.1 million that were recorded as debt issuance

costs in the third quarter of 2023.

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,

are being used for general corporate purposes.

The borrowing rates under the Term Loan Agreement are 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 will 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 may

be prepaid in whole or in part at any time, but subject to a prepayment premium.

There may also be mandatory prepayment obligations based

on certain asset dispositions, casualty events and extraordinary receipts.

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

Pursuant to a pledge and security

agreement, the Loan Parties’ obligations under the Term Loan Agreement are 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 outstanding balance of the Term Loans was $25.0 million at September 30, 2023.

to a pledge and security agreement, the Loan Parties’ obligations under the Term Loan Agreement are 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 ABL Agreement provides for up to $50.0 million of revolving loans

subject to a borrowing base calculation (with sub-facilities for swing line loans and the issuance of letters of credit), with incremental

increases available up to $20.0 million, subject to certain conditions (the “ABL Loans”).

No funds were drawn under the ABL

Agreement at closing.

The Company anticipates that any funds drawn from under the ABL Agreement will be used to finance permitted acquisitions,

as defined in the ABL Agreement and for working capital, capital expenditures and other general corporate purposes.

Outstanding principal

and accrued interest on the ABL Loans shall be repaid on August 7, 2026.

The borrowing rates under

the ABL Agreement will accrue 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 may be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement

of certain costs.

There may be mandatory prepayment obligations based on 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 are 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.

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 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

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 reduces the amount available under our borrowing base.

were drawn under the ABL Agreement at closing and there was no outstanding balance at September 30, 2023.

We executed $17.0 million in

draws on our ABL Loans in October and November 2023 and have given notice to repay $2.0 million.

We may use the funds drawn from the ABL

Agreement to finance permitted acquisitions, as defined in the ABL Agreement, and for working capital, capital expenditures and other

general corporate purposes.

Outstanding principal and accrued interest on the ABL Loans shall be repaid on August 7, 2026.

borrowing rates under the ABL Agreement will accrue 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 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 had a term of five years and carried the same interest

provisions as the term debt.

On February 17, 2023, we entered

into a fifth amendment to the 2020 Credit Agreement.

As a condition of entering into the amendment, we made a payment of $24.7 million

to satisfy the outstanding balance on the term loan plus accrued interest.

The amendment revised various financial covenants and certain

definitions of key terms, reduced the amount available under the revolving line of credit to $50.0 million, provided that the maturity

date of the 2020 Credit Agreement would spring forward to June 30, 2024 if consolidated EBITDA was not greater than $15.0 million

for 2023, reduced limits on maximum growth capital expenditures, and revised the current minimum liquidity covenant.

Pursuant to this

amendment, we incurred fees and expenses of $2.9 million that were recorded as debt issuance costs in the condensed consolidated balance

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 condensed consolidated statement of operations.

In connection with our execution of the Term Loan Agreement and ABL

Agreement, the Company terminated its 2020 Credit Agreement.

The Company had no outstanding borrowings under the term loan or the revolving

line of credit 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 will be recorded as a loss on extinguishment of debt in the third quarter of

Outlook for Growth

We believe that our four strategic initiatives

– accelerating innovation, brand elevation, developing our three distribution channels and operational excellence – will be

fundamental to our future success.

To support our plans for future growth and sustained

profitability, we are focusing on the following opportunities:

● Strengthen our wholesale relationships, prioritize existing door productivity,

and develop and execute our other strategies to meaningfully expand our wholesale business.

Expand and mature our fleet of Purple owned retail showrooms in 2023,

increase door productivity, provide a brand halo benefit to other channels in the surrounding areas, strengthen the relationship with

the consumer, and increase the share of more profitable DTC revenue mix.

Build brand position to grow our market share of the premium and luxury mattress categories.

We launched our new Premium and Luxe product lineups in the second quarter of 2023.

This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging.

There may be mandatory prepayment obligations based on certain asset dispositions,

casualty events, equity issuances and extraordinary receipts.

to a pledge and security agreement, the Loan Parties’ obligations under the ABL Agreement are 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.

connection with our execution of the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement in August

The Company 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 condensed consolidated statement of operations.

Amendments to 2023 Credit Agreements

On November 6, 2023, we 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”), including waivers of the Subject Events of Default.

In addition, the ABL Amendment and Term Loan Amendment

also amended certain provisions of the 2023 Credit Agreements, including, among other changes, to require (i) weekly borrowing base certificates,

(ii) 13-week cash flow reports and budgets, (iii) budget variance reports, (iv) the appointment of a third-party consultant, and (v) daily

cash sweeps from the Loan Parties’ accounts to an account at the ABL Lender (collectively, the “2023 Credit Agreement Amendments”).

The foregoing descriptions of the ABL Amendment and Term Loan Amendment do not purport to be complete and are qualified in their entirety

by reference to the ABL Amendment and Term Loan Amendment, which are attached as Exhibit 10.2 and Exhibit 10.3, respectively, to this

report and are incorporated by reference herein.

believe that our four strategic initiatives – accelerating innovation, brand elevation, developing our three distribution channels

and operational excellence – will be fundamental to our future success.

support our plans for future growth and sustained profitability, we are focusing on the following opportunities:

our wholesale relationships, prioritize existing door productivity, and develop and execute our other strategies to meaningfully

expand our wholesale business.

our fleet of Purple owned retail showrooms, increase door productivity, provide a brand halo benefit to other channels in the surrounding

areas, strengthen the relationship with the consumer, and develop a more profitable DTC revenue mix.

brand position to grow our market share of the premium and luxury mattress categories.

We launched our new Premium and Luxe product

lineups in the second quarter of 2023.

This launch was supported by enhancements to our in-store presence and refinements to our

marketing programs and brand messaging.

and enhance marketing strategies to reach a broader audience, increase customer engagement and reduce dependency on price promotions

as a means of driving sales.

research and development disciplines and go-to-market processes to further develop our current product categories and position our business

to eventually expand to additional categories.

production labor and capacity utilization to promote efficient use of our manufacturing facilities as we grow into our production footprint.

research and development disciplines and go-to-market processes to further develop our current product categories and position our

business to eventually expand to additional categories.

production labor and capacity utilization to promote efficient use of our manufacturing facilities as we grow into our production

input costs, operating efficiencies, and pricing to further enhance our gross margin.

There is no guarantee that

we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions that are difficult

to predict, including the risks described under “Risk Factors” and elsewhere herein.

Therefore, actual results may differ

materially and adversely from those described above.

In addition, we may, in the future, adapt these focuses in response to changes in

the market or our business.

Operating Results for the Three Months Ended June 30, 2023 and 2022

The following table sets forth

for the periods indicated, our results of operations and the percentage of total revenue represented in our condensed consolidated statements

of operations:

Three Months Ended June 30,

is no guarantee that we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions

that are difficult to predict, including the risks described under “Risk Factors” and elsewhere herein.

Therefore, actual

results may differ materially and adversely from those described above.

In addition, we may, in the future, adapt these focuses in response

to changes in the market or our business.

Results for the Three Months Ended September 30, 2023 and 2022

following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our

condensed consolidated statements of operations:

Three Months Ended September 30,

Revenues, net

4 unchanged sentences

Research and development

Loss on impairment of goodwill

Total operating expenses

Operating loss

Operating income (loss)

Other income (expense):

Interest expense

Other income (expense), net

Other income, net

Change in fair value – warrant liabilities

Total other expense, net

Net loss before income taxes

Loss on extinguishment of debt

Total other income (expense), net

Net income (loss) before income taxes

Income tax (expense) benefit

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

Net revenues decreased $23.2 million, or 16.1%, to $120.9 million for the three months ended June 30, 2023 compared to $144.1 million

for the three months ended June 30, 2022.

The decrease in net revenues was primarily due to continued softening demand in the industry

for home related products, inflationary pressure on consumer discretionary demand,forward buying of consumers in recent years, price reductions

of floor models and increased discounting on discontinued models sold through our DTC channels as we launched our new Premium and Luxe

product lineups.

The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $13.6 million,

or 16.6% and wholesale net revenues declining $9.7 million, or 15.5%.

Within DTC, e-commerce net revenues decreased $15.5 million, or

23.1%, while Purple owned retail showroom net revenues increased $2.0 million, or 13.5%.

The decrease in e-commerce net revenues reflected

the impact of the reasons previously stated.

The increase in Purple owned retail showroom net revenue was driven by showrooms increasing

from 40 at the end of June 2022 to 56 at the end of June 2023.

The decrease in wholesale net revenues, which reflected the impact of the

reasons previously stated, was also affected by reduced purchases from existing wholesale partners ahead of the launch of our new Premium

and Luxe product lineups coupled with floor models of our new mattress and base products being sold to our wholesale partners at reduced

Net income (loss)

Net income (loss) attributable to noncontrolling interest

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

Net revenues decreased $2.9

million, or 2.0%, to $140.0 million for the three months ended September 30, 2023 compared to $142.9 million for the three months ended

September 30, 2022.

This decrease reflected the continued impact of softening demand for home-related products due to the normalization

of demand distribution.

The negative effects of this were mostly offset by additional existing wholesale partners transitioning to our

new Premium and Luxe product lineup coupled with the positive response to the new products in our DTC channels.

From a sales channel perspective,

wholesale net revenues increased $1.5 million, or 2.6%, offset in part by DTC net revenues decreasing $4.4 million, or 5.2%.

in wholesale net revenues was primarily due to additional existing wholesale partners transitioning to our new product lineup during the

third quarter partially offset by an increase in the warranty reserve for products sold to our wholesale customers.

Within DTC, e-commerce

net revenues decreased $6.2 million, or 9.5%, while Purple owned retail showroom net revenues increased $1.8 million, or 9.7%.

e-commerce net revenues decreased as compared to the prior year corresponding quarter, the positive response to our new product lineups

resulted in e-commerce revenue increasing 15.8% and 15.4% over the first and second quarters of 2023, respectively.

The increase in Purple

owned retail showroom net revenue was driven by the positive response to our new product lineups coupled with the impact of showroom expansion.

Cost of revenues

Cost of revenues decreased $12.9 million, or 13.5%, to $82.4 million

for the three months ended June 30, 2023 compared to $95.3 million for the three months ended June 30, 2022.

This decrease was primarily

due to a corresponding decrease in sales volume.

Our gross profit percentage, which decreased to 31.8% of net revenues in the second quarter

of 2023 from 33.9% in the second quarter of 2022, was negatively impacted by the transition to our new Premium and Luxe product lineups

whereby floor models of our new mattress and base products were sold to our wholesale partners at reduced pricing coupled with increased

discounting of discontinued models sold through our DTC channels.

Marketing and Sales

Marketing and sales expense increased $6.0 million, or 14.9%, to $46.4 million for the three months ended June 30, 2023 compared to $40.4

million for the three months ended June 30, 2022.

Marketing and sales expense as a percentage of net revenues was 38.4% in the second

quarter of 2023 compared to 28.0% in the second quarter of 2022.

This increase reflected a $3.7 million increase in costs associated with

showroom expansion, and a $2.6 million increase in wholesale marketing.

In addition, advertising spending increased $1.2 million, or 6.0%,

to $20.1 million for the three months ended June 30, 2023 compared to $18.9 million for the three months ended June 20, 2022.

spend began increasing in mid-May to align with the launch of our new Premium and Luxe product lineups.

These increases were offset in

part by a $1.5 million decrease in other marketing and sales costs.

General and Administrative

General and administrative

expense increased $7.7 million, or 40.8%, to $26.4 million for the three months ended June 30, 2023 compared to $18.8 million for the

three months ended June 30, 2022.

This increase was primarily due to legal and professional fees incurred by the Special Committee, which

included a $4.0 million accrual for the settlement amount owed to Coliseum.

Research and Development

Research and development costs

increased $1.2 million, or 67.3%, to $2.9 million for the three months ended June 30, 2023 compared to $1.7 million for the three months

ended June 30, 2022.

This increase primarily reflected our focus on new product innovation initiatives to remain competitive and advance

our current product line.

Operating Loss

Operating loss increased $25.2

million to $37.3 million for the three months ended June 30, 2023 compared to $12.1 million for the three months ended June 30, 2022.

The larger operating loss primarily resulted from a decrease in gross profit that was driven by lower sales and a reduced gross profit

percentage, an increase in higher marketing and sales costs primarily associated with our new product launch, and an increase in general

and administrative expense resulting from legal and professional fees incurred by the Special Committee and attributable to the Cooperation

Agreement with Coliseum.

Interest Expense

Interest expense totaled $0.4

million for the three months ended June 30, 2023 compared to $0.7 million for the three months ended June 30, 2022.

This decrease was

primarily due to interest expense incurred during the three months ended June 30, 2022 on the term loan that was paid off in February

Change in Fair Value – Warrant Liabilities

Unexercised sponsor warrants

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

These sponsor warrants had no

fair value on the date of expiration.

During the three months ended June 30, 2022, we recognized a gain of $0.3 million in our condensed

consolidated statement of operations related to a decrease in the fair value of the warrants outstanding at the end of the quarter.

1.9 million sponsor warrants outstanding at June 30, 2022 had a fair value of $0.1 million.

increased $8.8 million, or 10.5%, to $92.7 million for the three months ended September 30, 2023 compared to $83.9 million for the

three months ended September 30, 2022.

This increase was due in part to increased labor and freight costs associated with the

transition to our new products.

Our gross profit percentage, which decreased to 33.8% of net revenues in the third quarter of 2023

from 41.3% in the prior year third quarter, was adversely impacted by new mattress and base floor models being sold to our wholesale

partners at reduced pricing, increased labor and freight costs related to the transition to our new products, the wrap-around on

manufacturing efficiencies from last year when we had a higher amount of inventory production, and increased discounting of

mattresses sold through our online channels as we transitioned to our new Premium and Luxe product lineups.

In addition, the gross

profit percentage in the third quarter of 2023 was negatively impacted by a shift in revenue to our wholesale channel, which carries

a lower average selling price than sales from our DTC channels.

Marketing and sales expense

increased $15.8 million, or 42.7%, to $52.8 million for the three months ended September 30, 2023 compared to $37.0 million for the three

months ended September 30, 2022.

Marketing and sales expense as a percentage of net revenues was 37.7% in the third quarter of 2023 compared

to 25.9% in the third quarter of 2022.

Advertising spending increased $12.6 million to $25.4 million for the three months ended September

30, 2023 compared to $12.7 million for the three months ended September 30, 2022.

Advertising spend began increasing in mid-May to align

with the launch of our new Premium and Luxe product lineups, whereas ad spend in the third quarter of 2022 had been reduced to align spending

with then current demand levels.

The increase in marketing and sales expense also reflected a $2.0 million increase in costs associated

with showroom expansion and a $1.3 million increase in wholesale marketing and sales costs as the majority of our existing wholesale partners

transitioned to our new Premium and Luxe product lineup during the third quarter of 2023.

and Administrative

and administrative expense decreased $1.6 million, or 8.6%, to $17.5 million for the three months ended September 30, 2023 compared to

$19.2 million for the three months ended September 30, 2022.

This decrease was primarily due to a $1.5 million decline in legal and professional

fees as the prior year comparative quarter included transaction costs associated with the Intellibed acquisition.

and Development

and development costs increased $0.8 million, or 40.3%, to $2.7 million for the three months ended September 30, 2023 compared to $1.9

million for the three months ended September 30, 2022.

This increase primarily reflected our continued focus on new product innovation

initiatives to remain competitive and advance our current product line.

Loss on Impairment of Goodwill

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.

Operating loss was $32.6 million

for the three months ended September 30, 2023 compared to operating income of $0.9 million for the three months ended September 30, 2022.

The operating loss in 2023 primarily reflected a decrease in gross profit that was driven by a reduced gross profit percentage, an increase

in marketing and sales costs associated with our new product launch, and a loss on impairment of goodwill.

expense totaled $0.6 million for the three months ended September 30, 2023 compared to $0.7 million for the three months ended September

In August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided

for up to $50.0 million of revolving loans.

Interest expense in the third quarter of 2023 totaled $0.9 million related to these new financing

arrangements.

Interest expense was reduced by capitalized interest that totaled $0.4 million and $0.2 million during the three months

ended September 30, 2023 and 2022, respectively.

Income (Expense)

income was $0.2 million for the three months ended September 30, 2023 compared to $1.1 million for the three months ended September 30,

This decrease primarily resulted from the prior year third quarter including an estimated fair value gain of $1.4 million related

to the effective settlement of a preexisting legal matter between the Company and Intellibed upon the Company’s acquisition of

Intellibed on August 31, 2022.

on Extinguishment of Debt

August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided for up to $50.0

million of revolving loans.

In connection with the execution of these new financing arrangements, the Company terminated its 2020 Credit

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

Income Tax (Expense) Benefit

We had income tax expense

of $0.1 million for the three months ended June 30, 2023 compared to an income tax benefit of $4.2 million for the three months ended

June 30, 2022.

The income tax expense amount in 2023 resulted from various state income taxes.

Noncontrolling Interest

We calculate net income or

loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

Net loss attributed

to noncontrolling interests was $0.2 million for the three months ended June 30, 2023 compared to a net loss of $0.1 million for the three

months ended June 30, 2022.

Operating Results for the Six Months Ended

June 30, 2022 and 2021

The following table sets forth

for the periods indicated, our results of operations and the percentage of total revenue represented in our statements of operations:

Six Months Ended June 30,

We had a negligible income tax expense for the three months ended September

30, 2023 compared to an income tax benefit of $0.7 million for the three months ended September 30, 2022.

The income tax expense amount

in 2023 resulted from various state income taxes.

Noncontrolling

calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling interests was $0.1 million for the three months ended September 30, 2023 compared to a negligible

net income amount for the three months ended September 30, 2022.

Results for the Nine Months Ended September 30, 2023 and 2022

following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our

statements of operations:

Nine Months Ended September 30,

Revenues, net

4 unchanged sentences

Research and development

Loss on impairment of goodwill

Total operating expenses

2 unchanged sentences

Interest expense

Other income (expense), net

Other income, net

Change in fair value – warrant liabilities

5 unchanged sentences

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

Net revenues decreased $57.0 million, or 19.9%, to $230.2 million for the six months ended June 30, 2023 compared to $287.3 million for

the six months ended June 30, 2022.

The decrease in net revenues was primarily due to continued softening demand in the industry for home-related

products, inflationary pressure on consumer discretionary demand, forward buying of consumers in recent years, price reductions of floor

models and increased discounting on discontinued models sold through our DTC channels as we launched our new Premium and Luxe product

The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $32.6 million, or 19.5%

and wholesale net revenues declining $24.4 million, or 20.4%.

Within DTC, e-commerce net revenues decreased $37.6 million, or 26.7%, while

Purple owned retail showroom net revenues increased $5.0 million, or 18.9%.

The decrease in e-commerce net revenues reflected the impact

of the reasons previously stated.

The increase in Purple owned retail showroom net revenue was driven by showrooms increasing from 40

at the end of June 2022 to 56 at the end of June 2023.

The decrease in wholesale net revenues, which reflected the impact of the reasons

previously stated, was also affected by reduced purchases from existing wholesale partners ahead of the launch of our new Premium and

Luxe product lineups coupled with floor models of our new mattress and base products being sold to our wholesale partners at reduced pricing.

Cost of Revenues

Net revenues decreased $64.3 million, or 15.0%, to $364.6 million for

the nine months ended September 30, 2023 compared to $428.9 million for the nine months ended September 30, 2022.

The decrease in net

revenues was primarily due to softening demand for home-related products due to the normalization of demand distribution.

was partially offset by the positive response to the launch of our new Premium and Luxe product lineups in May 2023.

The decline in net

revenues from a sales channel perspective consisted of DTC net revenues decreasing $37.0 million, or 14.7%, and wholesale net revenues

declining $27.3 million, or 15.4%.

Within DTC, e-commerce net revenues decreased $43.8 million, or 21.2%, while Purple owned retail showroom

net revenues increased $6.8 million, or 15.1%.

The decrease in e-commerce net revenues reflected the impact of the reasons previously

The increase in Purple owned retail showroom net revenue was driven in part by the positive response to our new products coupled

with the impact of showroom expansion.

The decrease in wholesale net revenues, which reflected the impact of the reasons previously stated,

was also affected by an increase in the warranty reserve for products sold to our wholesale customers, reduced purchases from existing

wholesale partners prior to them transitioning to our new Premium and Luxe product lineups coupled with floor models of our new mattress

and base products being sold to our wholesale partners at reduced pricing.

Cost of revenues decreased $29.5 million, or 10.9%, to $241.2 million

for the six months ended June 30, 2023 compared to $186.9 million for the six months ended June 30, 2022.

This decrease was primarily

due to a corresponding decrease in sales volume.

Our gross profit percentage, which increased to 35.5% of net revenues in 2023 from 35.0%

in 2022, benefited from the ongoing realization of efficiency and cost saving initiatives put in place during the first half of 2022,

offset in part floor models of our new mattress and base products being sold to our wholesale partners at reduced pricing coupled with

increased discounting of discontinued models sold through our DTC channels as we transitioned to our new Premium and Luxe product lineups.

The gross profit percentage in 2022 was adversely impacted by unfavorable cost absorption from lower than planned production volumes in

prior months, and elevated levels of materials, labor and overhead costs.

Marketing and Sales

Marketing and sales expense decreased $5.8 million, or 6.4%, to $84.6

million for the six months ended June 30, 2023 compared to $90.3 million for the six months ended June 30, 2022.

This decrease reflected

a $10.9 million decline in advertising spending and a $4.9 million decrease in other marketing costs.

The reduction in advertising spending

was primarily due to management focusing its efforts on improving marketing efficiency with its legacy products and then increasing advertising

spend to align with the launch of our new Premium and Luxe product lineups in May 2023.

The decrease in other marketing costs reflected

the impact of management restructuring the marketing organization in the first half of 2022.

These decreases were offset in part by a

$9.5 million increase in marketing and sales costs associated with showroom expansion.

Marketing and sales expense as a percentage of

net revenues was 36.7% during the first six months of 2023 compared to 31.4% for the first six months of 2022.

The higher percentage of

revenues reflected the impact of lower sales coupled with management’s expanded marketing efforts in the second quarter of 2023

to support the launch of our new Premium and Luxe product lineups in May 2023.

General and Administrative

for the nine months ended September 30, 2023 compared to $270.7 million for the nine months ended September 30, 2022.

This decrease was

due in part to lower sales volume.

Our gross profit percentage, which decreased to 33.8% of net revenues in 2023 from 36.9% in 2022, was

adversely impacted by new mattress and base floor models being sold to our wholesale partners at reduced pricing, increased labor and

freight costs related to the transition to our new products, the wrap-around on manufacturing efficiencies from last year when

we had a higher amount of inventory production, and increased discounting of mattresses sold through our online channels as

we transitioned to our new Premium and Luxe product lineups.

Marketing and sales expense

increased $10.0 million, or 7.9%, to $137.4 million for the nine months ended September 30, 2023 compared to $127.3 million for the nine

months ended September 30, 2022.

This increase was comprised of a $1.8 million increase in advertising spending, a $9.7 million increase

in marketing and sales costs associated with showroom expansion, and a $1.8 million increase in wholesale marketing and sales costs.

increases were offset in part by a $3.2 million decrease in other marketing costs.

The increase in advertising spend began in mid-May

to align with the launch of our new Premium and Luxe product lineups.

The increase in wholesale marketing and sales costs was primarily

due to additional existing wholesale partners transitioning to our new Premium and Luxe product lineup during the third quarter of 2023.

The decrease in other marketing costs reflected the impact of management restructuring the marketing organization in the first half of

Marketing and sales expense as a percentage of net revenues was 36.5% during the first nine months of 2023 compared to 29.6% for

the first nine months of 2022.

The higher percentage of revenues reflected the impact of lower sales coupled with management’s expanded

marketing efforts beginning in the second quarter of 2023 to support the launch of our new Premium and Luxe product lineups.

and Administrative

General and administrative

expense increased $13.4 million, or 36.6%, to $50.1 million for the six months ended June 30, 2023 compared to $36.7 million for the

six months ended June 30, 2022.

This increase was primarily due to legal and professional fees incurred by the Special Committee, which

included a $4.0 million accrual made in the second quarter of 2023 for the settlement amount owed to Coliseum.

Research and Development

Research and development costs increased $2.4 million, or 61.8%, to

$6.3 million for the six months ended June 30, 2023 compared to $3.9 million for the six months ended June 30, 2022.

This increase primarily

reflected our focus on new product innovation initiatives to remain competitive and advance our current product line

Operating Income (Loss)

expense increased $11.8 million, or 21.1%, to $67.6 million for the nine months ended September 30, 2023 compared to $55.8 million for

the nine months ended September 30, 2022.

This increase was primarily due to legal and professional fees incurred by the Special Committee.

We are pursuing insurance claims with our D&O and business interruption policy carriers relating to costs incurred (i) in connection

with the litigation and settlement relating to Coliseum and (ii) due to the interruption of our business following the death of an employee

However, there can be no guarantee that we will be able to recover on such claims in amount to cover such costs, or at all.

and Development

and development costs increased $3.2 million, or 54.7%, to $9.0 million for the nine months ended September 30, 2023 compared to $5.8

million for the nine months ended September 30, 2022.

This increase primarily reflected our continued focus on new product innovation

initiatives to remain competitive and advance our current product line.

Loss on Impairment of Goodwill

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.

Operating Loss

Operating loss increased $66.7

million to $59.3 million for the six months ended June 30, 2023 compared to $30.5 million for the six months ended June 30, 2022.

larger operating loss primarily resulted from a decrease in gross profit that was driven by lower sales coupled with an increase in general

and administrative expense resulting from legal and professional fees incurred by the Special Committee and attributable to the Cooperation

Agreement with Coliseum.

Interest Expense

Interest expense totaled $0.6

million for the six months ended June 30, 2023 compared to $1.7 million for the six months ended June 30, 2022.

The lower amount in 2023

was primarily due to the six months ended June 30, 2022 including a greater amount of interest expense related to the term loan that was

paid off in February 2023 and interest expense for the $55.0 million revolving line of credit that was drawn down by the Company in November

2021 and repaid in full on March 31, 2022.

Change in Fair Value – Warrant Liabilities

Unexercised sponsor warrants

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

These sponsor warrants had no

fair value on the date of expiration and a de minimis fair value at the previous reporting date.

During the six months ended June 30,

2022, we recognized a gain of $4.3 million in our condensed consolidated statement of operations related to a decrease in the fair value

of the warrants outstanding at the end of the quarter.

Loss on Extinguishment of Debt

On February 17, 2023, the

Company entered into a fifth amendment to the 2020 Credit Agreement and repaid in full the $24.7 million outstanding balance of the term

loan plus accrued interest.

The amendment was accounted for as an extinguishment of debt during the first quarter of 2023 and $1.2 million

of unamortized debt issuance costs were recorded as loss on extinguishment of debt in the condensed consolidated statement of operations.

Income Tax (Expense) Benefit

We had income tax expense

of $0.1 million for the six months ended June 30, 2023 compared to an income tax benefit of $6.0 million for the six months ended June

million to $97.5 million for the nine months ended September 30, 2023 compared to $30.8 million for the nine months ended September 30,

The larger operating loss primarily resulted from a decrease in gross profit that was driven by reduced sales and a lower gross

profit percentage, an increase in marketing and sales costs related to the launch of our new products and showroom expansion, an increase

in general and administrative expense resulting from legal and professional fees incurred by the Special Committee, and a loss on impairment

expense totaled $1.1 million for the nine months ended September 30, 2023 compared to $2.4 million for the nine months ended September

Interest expense for the nine months ended September 30, 2023 was primarily comprised of $0.9 million related to the new asset

based financing arrangements entered into in August 2023 and $1.1 million related to the 2020 Credit Agreement that was terminated upon

entering into the new financing arrangements, Interest expense was reduced by capitalized interest that totaled $0.9 million and $0.6

million during the nine months ended September 30, 2023 and 2022, respectively.

Income (Expense)

income was $0.3 million for the nine months ended September 30, 2023 compared to $1.0 million for the nine months ended September 30,

This decrease primarily resulted from the prior year third quarter including an estimated fair value gain of $1.4 million related

to the effective settlement of a preexisting legal matter between the Company and Intellibed upon the Company’s acquisition of

Intellibed on August 31, 2022.

in Fair Value – Warrant Liabilities

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

These sponsor

warrants had no fair value on the date of expiration and a de minimis fair value at the previous reporting date.

During the nine months

ended September 30, 2022, we recognized a gain of $4.2 million in our condensed consolidated statement of operations related to a decrease

in the fair value of the warrants outstanding at the end of the quarter.

on Extinguishment of Debt

August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided for up to $50.0

million of revolving loans.

In connection with the execution of these new financing arrangements, the Company terminated its 2020 Credit

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

In February 2023, the Company entered into a fifth

amendment to the since terminated 2020 Credit Agreement and repaid in full the $24.7 million outstanding balance of the term loan plus

accrued interest.

This amendment was accounted for as an extinguishment of debt during the first quarter of 2023 and $1.2 million of

unamortized debt issuance costs were recorded as loss on extinguishment of debt in the condensed consolidated statement of operations.

Tax (Expense) Benefit

had income tax expense of $0.2 million for the nine months ended September 30, 2023 compared to an income tax benefit of $7.0 million for the

nine months ended September 30, 2022.

The income tax expense amount in 2023 resulted from various state income taxes.

Noncontrolling Interest

We calculate net income or loss attributable to

noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling

interests was $0.3 million for the six months ended June 30, 2023 compared to a net loss of $0.2 million for the six months ended June

Liquidity and Capital Resources

Noncontrolling

calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling interests was $0.4 million for the nine months ended September 30, 2023 compared to a net loss

of $0.2 million for the nine months ended September 30, 2022.

and Capital Resources

principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant

2 unchanged sentences

of principal and interest on our debt facilities, capital expenditures, working capital needs, and operating lease payment obligations .

Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes

in inventories, and operating lease payment obligations.

Our unrestricted cash and working capital positions were $25.2 million and $43.9

million, respectively, as of June 30, 2023 compared to $40.0 million and $62.4 million, respectively, as of December 31, 2022.

for capital expenditures decreased from $26.1 million in the first six months of 2022 to $5.8 million during the first six months of 2023.

Our capital expenditures in the first six months of 2023 primarily consisted of primarily consisted of additional investments made in

our manufacturing facilities in Utah and Georgia.

In the event our cash flow

from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on

our ability to scale back operations, reduce marketing spend, use the liquidity we have available under our new credit facility and postpone

or discontinue our growth strategies.

In such event, this could result in slower growth or no growth, and we may run the risk of losing

key suppliers, we may not be able to timely satisfy customer orders, and we may not be able to retain all of our employees.

consider seeking additional funding sources including new debt or equity capital.

Based on our current projections,

we believe our cash on hand, amounts available under our asset-based lending arrangement, and expected cash to be generated from our operations will

be sufficient to meet our working capital requirements and cover anticipated capital expenditures for at least the next 12 months.

Shelf Registration Statement and Offering of

Class A Common Stock

On January 30, 2023, the Form

S-3 shelf registration statement we filed with the SEC in December 2022 became effective.

As a result, we may offer and sell from time

to time, in one or more series or issuances and on terms that we 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.

In February 2023, we completed

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

The underwriters

did not exercise their over-allotment option.

The aggregate net proceeds received by us from the offering, after deducting offering fees

and expenses of $3.1 million, totaled $57.0 million.

On August 7, 2023, the Loan Parties entered into the Term Loan Agreement

with Callodine Commercial Finance, LLC and a group of financial institutions.

Also, on August 7, 2023, the Loan parties entered into a

separate financing arrangement with the ABL Lenders.

that provides for the ABL Agreement.

Pursuant to entering into these agreements,

the Company incurred fees and expenses of $3.1 million that will be reflected as debt issuance costs in the third quarter of 2023.

The Term Loan Agreement provides

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

the “Term Loans”).

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

The borrowing rates under the Term Loan Agreement are 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 will be repaid at the earlier of (a) a three-year amortization schedule or

(b) the payment in full of the ABL Agreement.

The Term Loans may be prepaid in whole or in part at any time, but subject to a prepayment

There may also be mandatory prepayment obligations based on certain asset dispositions, casualty events and extraordinary receipts.

Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others,

changes in inventories, and operating lease payment obligations.

Our unrestricted cash and working capital positions were $26.6 million

and $40.2 million, respectively, as of September 30, 2023 compared to $40.0 million and $62.4 million, respectively, as of December 31,

Cash used for capital expenditures decreased from $34.1 million in the first nine months of 2022 to $9.4 million during the first

nine months of 2023.

Our capital expenditures in 2023 have primarily consisted of additional investments made in our manufacturing and

showroom facilities.

In the event our cash flow from operations or other sources of financing

are less than anticipated, we believe we will be able to fund operating expenses based on our ability to use the liquidity we have available

under our ABL Loans.

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

under our borrowing base.

Since September 30, 2023, we have drawn approximately $17.0 million in ABL Loans and have given notice to repay

$2.0 million.

Based on our borrowing base calculation, including application of the $5.0 million availability reserve and a minimum availability

requirement of $11.0 million, as of November 13, 2023, we have approximately $4.6 million available for borrowings under our ABL Agreement.

However, the amount available under the ABL Agreement depends on our borrowing base calculations and minimum availability requirements

at the time of any draw.

Therefore, the amount available to us under the ABL Agreement will change from time to time.

Our cash balance

as of November 13, 2023, was $31.0 million.

In addition, the ABL Amendment

and Term Loan Amendment increased our reporting obligations under the 2023 Credit Agreements and if we are not able to maintain compliance

with such additional requirements we may experience future events of default, which could limit our ability to access the ABL Loans and

adversely affect our financial position and operations.

If we experience further events of default in the future, we may not,

without the approval of the ABL Lenders, be able to access the ABL Loans unless such defaults are resolved, including by obtaining required

waivers from the ABL Lenders.

Even if we are able to obtain such waivers, the ABL Lenders may adopt additional availability reserves,

which would limit the amount we can draw under the ABL Loans.

We may also need to seek additional

funding sources including new debt from subordinated lenders or equity capital.

However, such additional debt or equity capital may not

be available on terms favorable to us or at all.

In addition, our ability to raise additional debt financing is restricted by our covenants

under the 2023 Credit Agreements and would require the consent of the Lenders.

If we are unable to access

sufficient liquidity, we will need to take other actions to fund operational expenses, such as scaling back operations, reducing marketing

spend, and postponing or discontinuing our growth strategies.

Such actions could result in slower growth or no growth, and we may lose

key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees.

In addition, we may be forced

to restructure our obligations to creditors, pursue work-out options or other protective measures.

on our current projections, we believe our cash on hand, amounts available under our asset-based lending arrangement, and expected cash

to be generated from our operations will be sufficient to meet our working capital requirements and cover anticipated capital expenditures

for at least the next 12 months.

Registration Statement and Offering of Class A Common Stock

January 30, 2023, the Form S-3 shelf registration statement we filed with the SEC in December 2022 became effective.

As a result, we

may offer and sell from time to time, in one or more series or issuances and on terms that we 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.

February 2023, we completed an underwritten offering of 13.4 million shares of Class A common stock at a public offering price

of $4.50 per share.

The underwriters did not exercise their over-allotment option.

The aggregate net proceeds received by us from the

offering, after deducting offering fees and expenses of $3.1 million, totaled $57.0 million.

August 7, 2023, the Loan Parties entered into the Term Loan Agreement with Callodine Commercial Finance, LLC and a group of financial

institutions.

Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with the ABL Lenders that provides

for the ABL Agreement.

Pursuant to entering into these agreements, the Company incurred fees and expenses of $3.1 million that were recorded

as debt issuance costs in the third quarter of 2023.

Term Loan Agreement provides for up to $25.0 million of term loans, with up to $5.0 million of incremental Term Loans, subject to certain

conditions (collectively, the “Term Loans”).

Proceeds from the Term Loans, which were fully drawn at closing, are being used

for general corporate purposes.

The borrowing rates under the Term Loan Agreement are 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 will be repaid at the earlier of (a) a three-year

amortization schedule or (b) the payment in full of the ABL Agreement.

The Term Loans may be prepaid in whole or in part at any time,

but subject to a prepayment premium.

There may also be mandatory prepayment obligations based on certain asset dispositions, casualty

events and extraordinary receipts.

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

Pursuant to a pledge and security

agreement, the Loan Parties’ obligations under the Term Loan Agreement are 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 ABL Agreement provides

for up to $50.0 million of revolving loans subject to a borrowing base calculation (with sub-facilities for swing line loans and the issuance

of letters of credit), with incremental increases available up to $20.0 million, subject to certain conditions.

No funds were drawn under

the ABL Agreement at closing.

The Company anticipates that any funds drawn from under the ABL Agreement will be used to finance permitted

The outstanding balance of the Term Loans

was $25.0 million at September 30, 2023.

to a pledge and security agreement, the Loan Parties’ obligations under the Term Loan Agreement are 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 ABL Agreement provides 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, 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 reduces the amount available under our borrowing base.

No funds were drawn under the ABL

Agreement at closing and there was no outstanding balance at September 30, 2023.

We executed $17.0 million in draws on our ABL Loans in

October and November 2023 and have given notice to repay $2.0 million.

We may use the funds drawn from the ABL Agreement to finance permitted

acquisitions, as defined in the ABL Agreement, and for working capital, capital expenditures and other general corporate purposes.

principal and accrued interest on the ABL Loans shall be repaid on August 7, 2026.

The borrowing rates under

the ABL Agreement will accrue 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 may be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement

of certain costs.

There may be mandatory prepayment obligations based on 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 are 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.

In connection with the Company’s

execution of the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement.

The Company had no outstanding

borrowings under the term loan or the revolving line of credit at the time of termination.

Tax Receivable Agreement

We are required to make certain

payments to InnoHold under the tax receivable agreement, which may have a material adverse effect on our liquidity and capital resources.

As of both June 30, 2023 and December 31, 2022, there was no tax receivable agreement liability reflected in either of these consolidated

balance sheets.

For reasons similar to those that led to the recording of a full valuation allowance on our deferred tax assets in the

fourth quarter of 2022, we evaluated the probability of amounts being owed pursuant to the tax receivable agreement and determined the

likelihood of a future liability was not probable.

As result, we continued to record no tax receivable agreement liability in the

second quarter of 2023.

We are currently unable to determine the total future amount of these payments due to the unpredictable nature

of several factors, including the timing of future exchanges, the market price of shares of Class A common stock at the time of the exchanges,

the extent to which such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes

that give rise to the payments under the agreement.

Other Contractual Obligations

Other material contractual

obligations primarily include operating lease payment obligations.

Also, as discussed above regarding the Cooperation Agreement, we will

reimburse Coliseum for all out-of-pocket fees, costs, and expenses incurred in connection with their complaint, provided that such an

amount shall not exceed $4.0 million in the aggregate.

See Notes 9 and 15 of the condensed consolidated financial statements for additional

information on leases and the Cooperation Agreement, respectively.

Cash Flows for the Six Months Ended June 30,

2023 Compared to the Six Months Ended June 30, 2022

The following summarizes our

cash flows for the six months ended June 30, 2023 and 2022 as reported in our condensed consolidated statements of cash flows (in

Six Months Ended

Certain events of default

occurred 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.

On November 6, 2023, we entered

into (i) the ABL Amendment and (ii) the Term Loan Amendment, with the Term Loan Lenders and ABL Lenders, respectively, including waivers

of the Subject Events of Default.

In addition, the ABL Amendment and Term Loan Amendment also amended certain provisions of the 2023 Credit

Agreements, including, among other changes, to require (i) weekly borrowing base certificates, (ii) 13-week cash flow reports and budgets,

(iii) budget variance reports, (iv) the appointment of a third-party consultant, and (v) daily cash sweeps from the Loan Parties’

accounts to an account at the ABL Lender.

The foregoing descriptions of the ABL Amendment and Term Loan Amendment do not purport to be

complete and are qualified in their entirety by reference to the ABL Amendment and Term Loan Amendment, which are attached as Exhibit

10.2 and Exhibit 10.3, respectively, to this report and are incorporated by reference herein.

If we experience further events

of default in the future, we will not be able to access the ABL Loans unless such defaults are resolved, including by obtaining required

waivers from the ABL Lenders.

Even if we are able to obtain such waivers, the ABL Lenders may adopt additional availability reserves,

which would limit the amount we can draw under the ABL Loans.

We may also need to seek additional

funding sources including new debt from subordinated lenders or equity capital.

However, such additional debt or equity capital may not

be available on terms favorable to us or at all.

In addition, our ability to raise additional debt financing is restricted by our covenants

under the 2023 Credit Agreements and would require the consent of the Lenders.

If we are unable to access

sufficient liquidity, we will need to take other actions to fund operational expenses, such as scaling back operations, reducing marketing

spend, and postponing or discontinuing our growth strategies.

Such actions could result in slower growth or no growth, and we may lose

key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees.

In addition, we may be forced

to restructure our obligations to creditors, pursue work-out options or other protective measures.

borrowing rates under the ABL Agreement will accrue 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 may be prepaid in whole or in part at any time without premium

or penalty, subject to reimbursement of certain costs.

There may be mandatory prepayment obligations based on certain asset dispositions,

casualty events, equity issuances and extraordinary receipts.

to a pledge and security agreement, the Loan Parties’ obligations under the ABL Agreement are 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.

connection with the Company’s execution of the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement

in August 2023.

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

Tax Receivable

are required to make certain payments to InnoHold under the tax receivable agreement, which may have a material adverse effect on our

liquidity and capital resources.

As of both September 30, 2023 and December 31, 2022, there was no tax receivable agreement liability

reflected in either of these consolidated balance sheets.

For reasons similar to those that led to the recording of a full valuation

allowance on our deferred tax assets in the fourth quarter of 2022, we evaluated the probability of amounts being owed pursuant to the

tax receivable agreement and determined the likelihood of a future liability was not probable.

As result, we continued to record

no tax receivable agreement liability in the third quarter of 2023.

We are currently unable to determine the total future amount of these

payments due to the unpredictable nature of several factors, including the timing of future exchanges, the market price of shares of

Class A common stock at the time of the exchanges, the extent to which such exchanges are taxable and the amount and timing of future

taxable income sufficient to utilize tax attributes that give rise to the payments under the agreement.

Contractual Obligations

material contractual obligations primarily include operating lease payment obligations.

See Note 10 of the condensed consolidated

financial statements for additional information on leases.

Flows for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

following summarizes our cash flows for the nine months ended September 30, 2023 and 2022 as reported in our condensed consolidated statements

of cash flows (in thousands):

September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by

financing activities

Net decrease in cash

2 unchanged sentences

Cash used in operating activities

was $37.9 million and $52.8 million for the six months ended June 30, 2023 and 2022, respectively.

Cash used in operating activities in

2023 was primarily comprised of a net loss of $61.1 million, offset in part by non-cash adjustments totaling $17.6 million.

These non-cash adjustments primarily related to $12.9 million of depreciation and amortization, a $1.2 million loss on the extinguishment

of debt and $2.9 million of stock-based compensation.

Changes in operating assets and liabilities increased cash used in operating activities

by $5.4 million in 2023.

This increase primarily reflected a $11.5 million decrease in accounts receivable and a $3.3 million increase

in accounts payable, offset by a $5.1 million increase in inventories combined with a $4.0 million decrease in accrued rebates and allowances.

The decline in accounts receivable was due in part to a $13.6 million decrease in wholesale net revenues in the second quarter of 2023

compared to the fourth quarter of 2022.

The increase in inventories was primarily due to an increase in finished goods inventory.

decrease in accrued rebates and allowances primarily resulted from a large credit memo issued in the first quarter to a wholesale partner

for volume rebates related to 2022 purchases.

increased $25.3 million in the nine months ended September 30, 2023 as compared to the same period in the prior year.

The increase in

cash used in operating activities was negatively impacted by an increase in our net loss, offset in part by an increase in cash related

to the net change in accounts payable in 2023 compared to 2022.

Cash used in investing activities

reflected capital expenditures of $5.8 million for the six months ended June 30, 2023 compared to $26.1 million for the six months ended

June 30, 2022.

Capital expenditures during the first six months of 2023 primarily consisted of additional investments made in our

manufacturing facilities in Utah and Georgia.

Cash provided by financing

activities was $28.9 million during the six months ended June 30, 2023 compared to $28.4 million during the six months ended June 30,

Financing activities during the first six months of 2023 included $57.0 million of net proceeds received from the stock offering,

offset in part by a $24.7 million term loan payment, $2.9 million in other debt related payments, and $0.4 million of other payments.

Critical Accounting Policies

primarily reflected capital expenditures of $9.4 million for the nine months ended September 30, 2023 compared to $34.1 million for the

nine months ended September 30, 2022.

Capital expenditures during the first nine months of 2023 primarily consisted of additional

investments made in our manufacturing and showroom facilities.

Cash flows from investing activities in the prior year also included the

impact of cash acquired in the acquisition of Intellibed that consisted of $1.9 million of cash and cash equivalents and $1.7 million

of restricted cash.

provided by financing activities was $50.8 million during the nine months ended September 30, 2023 compared to $28.4 million during the

nine months ended September 30, 2022.

Financing activities during the first nine months of 2023 included $57.0 million of net proceeds

received from the stock offering and $25.0 million from the term loans entered into in August 2023, offset in part by a $24.7 million

payment to pay off the term loan from the 2020 Credit Agreement, $6.1 million in payments on debt issuance costs, and $0.4 million of

other payments.

Accounting Policies

discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and

Results of Operations in our 2022 Annual Report on Form 10-K filed March 22, 2023.

There were no significant changes in our critical

accounting policies since the end of fiscal 2022.

Available Information

Our website address is www.purple.com.

We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K

and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant

to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material

with, or furnish it to, the SEC.

The inclusion of our website address in this report does not include or incorporate by reference into

this report any information on our website.

We also use the Investor Relations

portion of our website, investors.purple.com, as a channel of distribution of additional Company information that may be deemed material.

Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls

and webcasts.

There were no significant changes in our

critical accounting policies since the end of fiscal 2022.

website address is www.purple.com.

We make available free of charge on the Investor Relations portion of our website, investors.purple.com,

our annual report on Form 10-K and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those

reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable

after we electronically file such material with, or furnish it to, the SEC.

The inclusion of our website address in this report does

not include or incorporate by reference into this report any information on our website.

also use the Investor Relations portion of our website, investors.purple.com, as a channel of distribution of additional Company information

that may be deemed material.

Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings

and public conference calls and webcasts.

The contents of our website shall not be deemed to be incorporated herein by reference.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis