What changed in this filing

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Item 1. Financial Statements

2024-11-04 compared with 2024-08-05 · 716 added, 589 removed, 591 unchanged (69% of the section changed)

FINANCIAL STATEMENTS

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for

INNOVATION, INC.

Consolidated Balance Sheets

– in thousands, except for par value)

September 30,

Current assets:

29 unchanged sentences

$ 0.0001 par value, 210,000 shares authorized;

107,503 issued and outstanding at June 30, 2024 and 105,507 issued and outstanding at December 31, 2023

107,516 issued and outstanding at September 30, 2024 and 105,507 issued and outstanding at December 31, 2023

Class B common stock;

$ 0.0001 par value, 90,000 shares authorized;

205 issued and outstanding at June 30, 2024 and at December 31, 2023

192 issued and outstanding at September 30, 2024 and at December 31, 2023

Additional paid-in capital

4 unchanged sentences

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per

share amounts)

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

INNOVATION, INC.

Consolidated Statements of Operations

– in thousands, except per share amounts)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Revenues, net

Cost of revenues:

Cost of revenues

Cost of revenues - restructuring related charges

Total cost of revenues

Operating expenses:

2 unchanged sentences

Research and development

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

3 unchanged sentences

Other income, net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Total other income (expense), net

Net income (loss) before income taxes

Net loss before income taxes

Income tax expense

Net income (loss)

Net loss attributable to noncontrolling interest

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

Net income (loss) per share:

Net loss attributable to Purple Innovation, Inc.

$ ( 102,424 )

Net loss per share:

Weighted average common shares outstanding:

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’

(unaudited – in thousands)

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

INNOVATION, INC.

Consolidated Statements of Stockholders’ Equity

– in thousands)

Stockholders’

2 unchanged sentences

$ ( 475,969 )

of stock for Intellibed acquisition

of stock under equity compensation plans

of transactions affecting NCI

– March 31, 2024

$ ( 526,186 )

income (loss)

Stock-based compensation

Issuance of stock for Intellibed acquisition

Issuance of stock under equity compensation plans

Impact of transactions affecting NCI

Balance – March 31, 2024

of common stock under equity compensation plans

of transactions affecting NCI

– June 30, 2024

$ ( 526,159 )

Net income (loss)

Stock-based compensation

Issuance of common stock under equity compensation plans

Impact of transactions affecting NCI

Balance – June 30, 2024

of transactions affecting NCI

– September 30, 2024

$ ( 565,387 )

1 unchanged sentence

Noncontrolling

Balance – December 31, 2022

– December 31, 2022

$ ( 355,212 )

Stock-based compensation

Issuance of stock under equity compensation plans

Issuance of stock upon underwritten offering, net of costs

Impact of transactions affecting NCI

Issuance of stock under equity

compensation plans

Issuance of stock upon underwritten

offering, net of costs

of transactions affecting NCI

Balance – March 31,

2 unchanged sentences

Exchange of stock

Proportional Representation Preferred Linked Stock redemption

Additional costs associated with underwritten public stock offering

Issuance of stock under equity compensation plans

Impact of transactions affecting NCI

Proportional Representation Preferred

Linked Stock redemption fee

Additional costs associated

with underwritten public stock offering

Issuance of stock under equity

compensation plans

of transactions affecting NCI

Balance – June 30,

$ ( 421,632 )

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

Six Months Ended

Stock-based compensation

Exchange of stock

of transactions affecting NCI

– September 30, 2023

$ ( 457,636 )

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

INNOVATION, INC.

Consolidated Statements of Cash Flows

– in thousands)

Nine Months Ended

September 30,

Cash flows from operating activities:

$ ( 102,841 )

Adjustments to reconcile net loss to net cash used in operating activities:

2 unchanged sentences

Paid-in-kind interest

Loss on extinguishment of debt

Non-cash restructuring, impairment and other related charges

Loss on impairment of goodwill

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Stock-based compensation

12 unchanged sentences

Cash flows from investing activities:

Excess restricted cash returned to acquiree

Purchase of property and equipment

5 unchanged sentences

Proceeds from related party loan

Proceeds from term loan

Payments for debt issuance costs

12 unchanged sentences

Property and equipment included in accounts payable

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Purple Innovation, Inc.’s

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

Purple Innovation, Inc.

with its subsidiary (the “Company” or “Purple Inc.”) is an omni-channel Company that began as a digitally-native

vertical brand founded on comfort product innovation with premium offerings.

The Company designs and manufactures a variety of innovative,

branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products.

The Company markets

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

online retailers.

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

INNOVATION, INC.

to Condensed Consolidated Financial Statements

The mission of Purple

Innovation, Inc.

(the “Company” or “Purple Inc.”) is to help people feel and live better through innovative comfort

The Company, collectively

with its subsidiary Purple Innovation, LLC (“Purple LLC”) is an omni-channel company that began as a digitally-native vertical

brand founded on comfort product innovation with premium offerings.

The Company designs and manufactures a variety of innovative, branded

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

The Company markets and sells

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

The Company was incorporated

1 unchanged sentence

On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”)

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

At the closing of

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

Purple Innovation, Inc.

As the sole managing member

of Purple LLC, Purple Inc.

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

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

pursuant to which the Company acquired a portion of the equity of Purple LLC.

At the closing of the Business Combination (the “Closing”),

the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc.

the sole managing member of Purple LLC, Purple Inc.

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

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

Summary of Significant Accounting Policies

Basis of Presentation

and Principles of Consolidation

The condensed consolidated

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

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

All intercompany balances and transactions have been

eliminated in consolidation.

As of June 30, 2024, Purple Inc.

held 99.8 % of the common units of Purple LLC and Purple LLC Class B Unit

holders held 0.2 % of the common units in Purple LLC.

The accompanying unaudited

condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United

States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding

interim financial reporting and reflect the financial position, results of operations and cash flows of the Company.

Certain information

and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant

to such rules and regulations.

As such, these unaudited condensed consolidated financial statements should be read in conjunction with

the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the

fiscal year ended December 31, 2023.

The unaudited condensed consolidated financial statements were prepared on the same basis as the

audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of

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

The results of the three and six

months ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024

of Presentation and Principles of Consolidation

condensed consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Purple LLC’s

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

All intercompany balances and

transactions have been eliminated in consolidation.

As of September 30, 2024, Purple Inc.

held 99.8 % of the common units of Purple LLC

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

accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting

principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”)

regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company.

information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted

pursuant to such rules and regulations.

As such, these unaudited condensed consolidated financial statements should be read in conjunction

with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K

for the fiscal year ended December 31, 2023.

The unaudited condensed consolidated financial statements were prepared on the same basis

as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered

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

The results of the three and

nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December

31, 2024 or for any other interim period or other future year.

Variable Interest

Purple LLC is a variable interest

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

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

benefits that are potentially significant.

At June 30, 2024, Purple Inc.

had a 99.8 % economic interest in Purple LLC and consolidated

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

statements contained herein.

The holders of Class B Units of Purple LLC (“Class B Units”) held 0.2 % of the economic interest

in Purple LLC as of June 30, 2024.

For further discussion see Note 15 — Stockholders’ Equity.

Use of Estimates

Interest Entities

LLC is a variable interest entity.

The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing

member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation

to absorb losses and receive benefits that are potentially significant.

At September 30, 2024, Purple Inc.

had a 99.8 % economic interest

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

condensed consolidated financial statements contained herein.

The holders of Class B Units of Purple LLC (“Class B Units”)

held 0.2 % of the economic interest in Purple LLC as of September 30, 2024.

For further discussion see Note 16 — Stockholders’

The preparation of the unaudited

8 unchanged sentences

impairment reviews of long-lived assets and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition

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

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

Predicting future events is

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

and measurement of loss contingencies, the recognition and measurement of restructuring and related charges, estimates of current and

deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s tax receivable agreement

with InnoHold, LLC (“InnoHold”).

Predicting future events is inherently an imprecise activity and, as such, requires the use

Actual results could differ materially from those estimates.

PURPLE INNOVATION, INC.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company reviews

the estimated useful lives of its property and equipment on an ongoing basis or when necessitated by an event or transaction.

of a restructuring plan (See Note 4— Restructuring, Impairment and Other Related Charges) , the Company changed the estimated

useful lives of its production equipment at its two Utah manufacturing facilities expected to be closed to reflect the remaining period

these assets will remain in service.

Closure of these two facilities is projected to be completed during the first quarter of 2025.

estimated useful lives of the Company’s production equipment at these two facilities originally ranged from five to ten years.

The effect of shortening the estimated useful lives of these assets was to increase depreciation expense and reduce net income for both

the three and nine-month periods by $ 9.0 million and reduce basic and diluted earnings per share for both the three and nine months ended

by $ 0.08 , respectively.

Reclassification

Certain amounts in the prior

year condensed consolidated balance sheet have been reclassified to conform to the current year’s presentation with no effect

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

Accrued compensation, previously included in the

condensed consolidated balance sheet within other current liabilities, is now presented separately.

Recent Accounting

Pronouncements

Enhanced Segment Disclosures

In November 2023, the Financial

Accounting Standards Board (the “FASB”) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable

Segment Disclosures, which requires public entities, including those that have a single reportable segment, to provide enhanced disclosures

about significant expenses.

This ASU requires disclosure to include significant segment expenses that are regularly provided to the chief

operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures

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

This ASU also requires all annual disclosures

currently required by Topic 280 to be included in interim periods.

The update is effective for fiscal years beginning after December

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

application to all prior periods presented in the financial statements.

The Company is currently analyzing the impact this ASU will have

on its disclosures.

Improvements to Income

Tax Disclosures

In December 2023, the FASB

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

Certain prior year amounts

in the condensed consolidated financial statements have been reclassified to conform to the current year’s presentation with no

effect on previously reported net loss, cash flows or stockholders’ equity.

Accrued compensation, previously included within other

current liabilities in the condensed consolidated balance sheet as of December 31, 2023, is now presented separately.

Also, the change

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

accrued liabilities, is now presented separately.

In addition, the change in accrued sales returns, previously reflected separately in

the condensed consolidated statement of cash flows, is now presented within the change in other current liabilities.

Accounting Pronouncements

Segment Disclosures

November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires public entities, including those that have a single reportable segment,

to provide enhanced disclosures about significant expenses.

This ASU requires disclosure to include significant segment expenses that

are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable

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

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

The update is effective for

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

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

The Company is

currently analyzing the impact this ASU will have on its disclosures.

to Income Tax Disclosures

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

Improvements to Income Tax Disclosures.

This ASU amends existing income tax

disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective tax rate reconciliation.

ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for

early adoption.

The Company is currently evaluating the impact this update will have on its income tax disclosures in the consolidated

financial statements.

The Company acquired Intellibed,

a premium sleep and health wellness company, in August 2022.

The acquisition date fair value of the consideration transferred for Intellibed

was $ 28.2 million.

Included in this amount was $ 1.5 million for the fair value of contingent consideration related to 1.5 million shares

of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock did not equal or exceed

certain thresholds during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary

of the closing date.

This ASU amends

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

reconciliation.

This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively,

and allows for early adoption.

The Company is currently evaluating the impact this update will have on its income tax disclosures in

the consolidated financial statements.

Company acquired Intellibed, a premium sleep and health wellness company, in August 2022.

The acquisition date fair value of the consideration

transferred for Intellibed was $ 28.2 million.

Included in this amount was $ 1.5 million for the fair value of contingent consideration

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

stock did not equal or exceed certain thresholds during the period beginning on the six-month anniversary of the closing date and ending

on the 18-month anniversary of the closing date.

The contingent shares were valued using a Monte-Carlo simulation model.

Because the contingent consideration was

payable with a fixed number of shares of the Company’s Class A common stock, it was classified as equity and did not require remeasurement

in subsequent periods.

During March 2024, the Company issued 1.5 million shares of Class A common stock to Intellibed security holders

since the Company’s stock price did not meet any of the indicated thresholds during the contingency period.

contingent consideration was payable with a fixed number of shares of the Company’s Class A common stock, it was classified as

equity and did not require remeasurement in subsequent periods.

During March 2024, the Company issued 1.5 million shares of Class A common

stock to Intellibed security holders since the Company’s stock price did not meet any of the indicated thresholds during the contingency

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Fair Value Measurements

The Company uses the fair

value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the price that would be

received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,

essentially an exit price, based on the highest and best use of the asset or liability.

The levels of the fair value hierarchy are:

Level 1—Quoted market prices

in active markets for identical assets or liabilities;

Level 2—Significant other observable

inputs (i.e., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not

active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs);

Level 3—Unobservable inputs in

which there is little or no market data, which require the reporting unit to develop its own assumptions.

The classification of fair

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

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

payable and the Company’s debt obligations.

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

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

The estimated fair value of the Company’s

debt arrangement is based on Level 2 inputs, which include observable inputs approximated using discounted cash flows and market-based

expectations for interest rates, credit risk and the contractual terms of debt instruments.

As of June 30, 2024, the estimated fair value

of the Company’s debt arrangement was $41.7 million.

The warrant liabilities (see

Note 11 — Warrant Liabilities for more information) are Level 3 instruments and use internal models to estimate fair value

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

Accordingly, changes in

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

Such inputs include risk free interest rate, expected average

life, expected dividend yield, and expected volatility.

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

an increase (decrease) in risk free interest rate and expected dividend yield.

Conversely, the fair value of these Level 3 liabilities

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

Restructuring, Impairment and Other Related

In August 2024, the Company initiated a restructuring plan to

strategically realign the Company’s operational focus to achieve operational efficiencies that are expected to improve profitability

and provide for reinvesting in technology and marketing initiatives (the “Restructuring Plan”).

The Company’s Restructuring

Plan is comprised of the permanent closure of its Grantsville and Salt Lake City, Utah manufacturing facilities to consolidate mattress

production in its Georgia plant, and a headcount reduction at the Company’s Utah headquarters to drive additional operating efficiencies.

Closure of the two Utah manufacturing facilities is projected to be completed during the first quarter of 2025 while consolidation into

the Georgia facility is expected to be finalized by December 31, 2024.

The reduction in workforce at the Utah headquarters was completed

in August 2024.

The following table summarizes

the Company’s total Level 3 liability activity for the six months ended June 30, 2024.

(In thousands)

the restructuring, impairment and other related charges the Company recognized during the third quarter of 2024 in the condensed consolidated

statement of operations (in thousands):

Restructuring,

Cash charges:

Employee-related costs

Total cash charges

Non-cash charges:

Accelerated depreciation

Inventory write-downs

Write-down of long-lived assets

Impairment of assets

Total non-cash charges

Total restructuring, impairment and other related charges

The following table summarizes

the estimated restructuring and other related charges related to the Restructuring Plan to be recognized in the future (in thousands):

Restructuring,

and Other Related

Non-cash charges

Total estimated charges to be recognized in future (1)

These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring, impairment or other related charges not reflected above.

Restructuring actions result

in various costs, including employee-related costs, accelerated depreciation expense, write-downs of long-lived assets and inventory,

impairment of long-lived and indefinite-lived assets, contract termination costs and other associated costs.

Employee-related costs represent

one-time termination benefits for severance and other post-employment costs that are recognized as incurred upon communication of the

plan to the identified employees.

Accelerated depreciation expense represents additional expense resulting from shortening the useful

lives of production and other assets to coincide with the end of production and other activities under an approved restructuring plan.

Costs to terminate contracts are recognized upon entering a termination agreement with the provider.

Other associated restructuring costs

are expensed as incurred.

Any impairment or write-down of assets resulting from restructuring activities are recognized immediately in

the period the plan is approved.

Impairment of assets included

impairment charges associated with entering into a sublease for the Salt Lake City, Utah manufacturing facility to be closed and related

impairment charges associated with certain leasehold improvements of the property.

The fair values of the impaired assets were determined

by the Company to be Level 3 under the fair value hierarchy (see Note 5— Fair Value Measurements for the definition

of Level 3 inputs) and were estimated based on internal expertise related to current marketplace conditions and estimated future

discounted cash flows.

These assets were adjusted to their estimated fair values at the time of impairment.

If estimated fair values subsequently

decline, the carrying values of the assets will be adjusted accordingly.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Impairment of assets also

included the write-off of an $ 8.5 million indefinite-lived intangible asset.

The Restructuring Plan was determined to be a triggering

event for potential impairment of this indefinite-lived intangible asset.

As a result of the impairment assessment performed, the Company

determined the asset was impaired and recorded an impairment charge to write off the entire $ 8.5 million balance.

The lease for the Company’s

Grantsville, Utah manufacturing facility included a five-year renewal option that was reasonably certain of being exercised and included

in the lease term when the right-of-use (“ROU”) asset and lease liability were originally measured.

Because of the expected closure of this facility as part of the Restructuring

Plan, the renewal option was no longer deemed reasonably certain of being exercised and a reassessment of the lease terms was completed.

As a result, the original lease term was shortened and the Company recorded a $ 10.5 million reduction to the ROU asset and corresponding

lease liability in the condensed consolidated balance sheets, using the applicable discount rate at the effective date of the reassessment.

The following table summarizes

2024 activity associated with employee-related and other costs recorded pursuant to the Restructuring Plan, as presented in the indicated

line item of the condensed consolidated statement of operations, that will be settled in cash and are included in accounts payable or

accrued compensation on the condensed consolidated balance sheet (in thousands):

Balance at December 31, 2023

Employee-related costs – cost of revenues

Employee-related costs – operating expenses

Employee-related costs – restructuring charges

Other costs – restructuring charges

Balance at September 30, 2024

Fair Value Measurements

Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date, essentially an exit price, based on the highest and best use of the asset or liability.

The levels of the fair

value hierarchy are:

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

2—Significant other observable inputs (i.e., quoted prices for similar items in active markets, quoted prices for identical or

similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves,

and market-corroborated inputs);

3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is

significant to the measurements.

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

equivalents, receivables, accounts payable and the Company’s debt obligations.

The carrying amounts of cash and cash equivalents,

receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts.

The estimated

fair value of the Company’s debt arrangement is based on Level 2 inputs, which include observable inputs approximated using discounted

cash flows and market-based expectations for interest rates, credit risk and the contractual terms of debt instruments.

As of September

30, 2024, the estimated fair value of the Company’s debt arrangement was $ 50.0 million.

warrant liabilities (see Note 12 — Warrant Liabilities for more information) are Level 3 instruments and use internal models

to estimate fair value using certain significant unobservable inputs which require determination of relevant inputs and assumptions.

Accordingly, changes in these unobservable inputs may have a significant impact on fair value.

Such inputs include risk free interest

rate, expected average life, expected dividend yield, and expected volatility.

These Level 3 liabilities generally decrease (increase)

in value based upon an increase (decrease) in risk free interest rate and expected dividend yield.

Conversely, the fair value of these

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

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

following table summarizes the Company’s total Level 3 liability activity for the nine months ended September 30, 2024 (in thousands):

Fair value as of December 31, 2023

Initial measurement at time of issuance

in valuation inputs (1)

Fair value as of June 30, 2024

Change in valuation inputs (1)

Fair value as of September 30, 2024

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Revenue from Contracts with Customers

The Company markets and sells

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

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

the promised products to the customer, subject to shipping terms.

Disaggregated Revenue

The Company classifies revenue

into two sales categories:

Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms,

and third-party online retailers.

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

involves transferring the promised products to the customer, subject to shipping terms.

Disaggregated

Company classifies revenue into two sales categories:

direct-to-consumer (“DTC”) and wholesale.

The DTC category is comprised of the Company’s

e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple showrooms channel

that sells directly to consumers who purchase at a showroom location.

The wholesale channel includes all product sales to our retail

brick and mortar wholesale partners where consumers make purchases at their retail locations or through their online channels.

classifies products into two major types:

The DTC category is comprised

of the Company’s e-commerce channel that sells directly to consumers who purchase online and through the contact center, and its

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

The wholesale channel includes all product

sales to the Company’s retail brick and mortar wholesale partners where consumers make purchases at their retail locations or through

their online channels.

The Company classifies products into two major types:

sleep products and other.

Sleep products include mattresses, platforms, adjustable bases, mattress

protectors, pillows and sheets.

Sleep products include mattresses,

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

Other products include cushions and various other products.

The following tables present

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

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Sales Category

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Sleep products

Revenues, net

Contract Balances

Payments for sale of products

through the e-commerce online channel, third-party online retailers, Purple showrooms and contact center are collected at point of sale

in advance of shipping the products.

for sale of products through the e-commerce online channel, third-party online retailers, Purple showrooms and contact center are collected

at point of sale in advance of shipping the products.

Amounts received for unshipped products are recorded as customer prepayments.

Customer prepayments

totaled $ 4.7 million and $ 5.7 million at June 30, 2024 and December 31, 2023, respectively.

During the three months ended June 30, 2024

and 2023, the Company recognized all revenue that was deferred in customer prepayments at March 31, 2024 and 2023, respectively.

Inventories consisted of

the following (in thousands):

prepayments totaled $ 3.8 million and $ 5.7 million at September 30, 2024 and December 31, 2023, respectively.

During the three months

ended September 30, 2024 and 2023, the Company recognized all revenue that was deferred in customer prepayments at June 30, 2024 and

2023, respectively.

consisted of the following (in thousands):

September 30,

Raw materials

1 unchanged sentence

Finished goods

PURPLE INNOVATION, INC.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Property and Equipment, Net

Property and equipment, net

consisted of the following (in thousands):

and equipment, net consisted of the following (in thousands):

September 30,

Equipment in progress

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Equipment in progress reflects

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2024 or December

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at September 30, 2024 or December

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

$ 0.7 million during the three and six months ended June 30, 2024, respectively and totaled $ 0.1 million and $ 0.5 million during the three

and six months ended June 30, 2023, respectively.

Depreciation expense was $ 5.1 million and $ 10.3 million during the three and six months

ended June 30, 2024, respectively, and totaled $ 4.9 million and $ 9.7 million during the three and six months ended June 30, 2023, respectively.

$ 0.9 million during the three and nine months ended September 30, 2024, respectively and totaled $ 0.4 million and $ 0.9 million during

the three and nine months ended September 30, 2023, respectively.

Depreciation expense was $ 13.5 million and $ 23.7 million during the

three and nine months ended September 30, 2024, respectively, and totaled $ 5.0 million and $ 14.7 million during the three and nine months

ended September 30, 2023, respectively.

Included in depreciation expense for the three and nine months ended September 30, 2024 was $ 9.0

million related to accelerated depreciation associated with the Restructuring Plan.

See Note 4— Restructuring and Impairment

Charges for further discussion .

The Company leases its manufacturing

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The exercise of lease renewal options is at the Company’s discretion.

Any lease renewal options are included in the lease term

if exercise is reasonably certain at lease commencement.

The Company also leases vehicles and other equipment under both operating and

finance leases with initial lease terms of three to five years .

The right-of-use asset (“ROU”) for finance leases totaled

$ 0.6 million and $ 0.7 million at June 30, 2024 and December 31, 2023, respectively.

The following table presents

the Company’s lease costs (in thousands):

Any lease renewal options are included in the lease term if

exercise is reasonably certain at lease commencement.

The Company also leases vehicles and other equipment under both operating and finance

leases with initial lease terms of three to five years .

The ROU asset for finance leases totaled $ 1.1 million and $ 0.7 million at September

30, 2024 and December 31, 2023, respectively.

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating lease costs

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Total lease costs

PURPLE INNOVATION, INC.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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

the condensed consolidated balance sheet at June 30, 2024 (in thousands):

2024 (excluding the six months ended June 30, 2023) (a)

the condensed consolidated balance sheet at September 30, 2024 (in thousands):

2024 (excluding the nine months ended September 30, 2024) (a)

Total operating lease payments

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(a) Amount consists of $ 5.5 million of undiscounted cash flows offset by $ 0.4 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2024.

As of June 30, 2024 and December 31, 2023, the weighted-average remaining

term of operating leases was 7.7 years and 8.0 years, respectively, and the weighted-average discount rate of operating leases was 5.81 %

and 5.77 %, respectively.

The following table provides

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

30, 2024 and 2023 (in thousands):

Six Months Ended

Cash paid for

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

As of September 30, 2024 and

December 31, 2023, the weighted-average remaining term of operating leases was 7.2 years and 8.0 years, respectively, and the weighted-average

discount rate of operating leases was 6.04 % and 5.77 %, respectively.

following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the

nine months ended September 30, 2024 and 2023 (in thousands):

Nine Months Ended

September 30,

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

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

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Other Current Liabilities

Other current liabilities

consisted of the following (in thousands):

current liabilities consisted of the following (in thousands):

September 30,

Accrued sales returns

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Total other current liabilities

PURPLE INNOVATION, INC.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Debt consisted of the following

(in thousands):

consisted of the following (in thousands):

September 30,

Related party loan

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unamortized debt issuance costs

portion of debt and unamortized issuance costs (c)

Current portion of debt and unamortized issuance costs (c)

Debt, net of current portion

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

Credit Agreement

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on the Related Party Loan is payable each month and the principal outstanding matures and is due on December 31, 2026.

The Company may

elect for interest to be capitalized and added to the principal amount.

The Related Party Loan bears interest at a rate equal to (i) the

secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 0.10 %, with a floor of 3.5 % per annum, plus

(ii) 8.25 % per annum (or, if Purple LLC elects to pay interest in kind to reduce it cash obligations, 10.25 % per annum).

Any prepayments

on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25 %, and any prepayments on or after August

7, 2025 are subject to a prepayment penalty of 2.50 %.

The Loan Parties may request an additional term loan from the Lenders in an aggregate

amount not to exceed $ 19.0 million on terms requested by them to the extent agreed to by the Lenders at their discretion.

and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based loan.

In connection with the Amended

and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (see Note 11 – Warrant Liabilities )

and incurred fees and expenses of $ 3.5 million that were recorded as debt issuance costs in the first quarter of 2024.

Interest expense

under the Related Party Loan was $ 4.3 million and $ 7.7 million for the three and six months ended June 30, 2024, respectively.

The Amended and Restated

Credit Agreement granted a security interest to the Lenders in substantially all of the assets (subject to certain limited exceptions)

of the Loan Parties to secure the Loan Parties’ loans and other obligations under the Amended and Restated Credit Agreement, including

a security interest in the intellectual property owned by the Loan Parties.

The Loan Parties (other than

Purple LLC) provided an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the Amended and

Restated Credit Agreement.

The Amended and Restated

Credit Agreement also provides for standard indemnification of the Lenders and contains representations, warranties and certain covenants

of the Loan Parties.

While any amounts are outstanding under the Amended and Restated Credit Agreement, the Loan Parties are subject

to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring

subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other

customary covenants.

The Loan Parties are also restricted from paying dividends or making other distributions or payments on their capital

stock, subject to limited exceptions.

As of June 30, 2024, the Company was in compliance with all covenants under the Amended and Restated

Credit Agreement.

The Company has

elected for interest to be capitalized and added to the principal amount of the loan.

The Related Party Loan bears interest at a rate

equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 0.10 %, with a floor of

3.5 % per annum, plus (ii) 8.25 % per annum (or, if Purple LLC elects to pay interest in kind to reduce it cash obligations, 10.25 % per

Any prepayments of principal on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25 %,

and any prepayments of principal on or after August 7, 2025 are subject to a prepayment penalty of 2.50 %.

The Loan Parties may request

an additional term loan from the Lenders in an aggregate amount not to exceed $ 19.0 million on terms requested by them to the extent agreed

to by the Lenders at their discretion.

The Amended and Restated Credit Agreement also removed restrictions and requirements typically

associated with an asset-based loan.

connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (see Note 12 –

Warrant Liabilities ) and incurred fees and expenses of $ 3.5 million that were recorded as debt issuance costs in the first quarter

Interest expense under the Related Party Loan was $ 4.6 million and $ 12.3 million for the three and nine months ended September

30, 2024, respectively.

Amended and Restated Credit Agreement granted a security interest to the Lenders in substantially all of the assets (subject to certain

limited exceptions) of the Loan Parties to secure the Loan Parties’ loans and other obligations under the Amended and Restated

Credit Agreement, including a security interest in the intellectual property owned by the Loan Parties.

Loan Parties (other than Purple LLC) provided an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC

under the Amended and Restated Credit Agreement.

Amended and Restated Credit Agreement also provides for standard indemnification of the Lenders and contains representations, warranties

and certain covenants of the Loan Parties.

While any amounts are outstanding under the Amended and Restated Credit Agreement, the Loan

Parties are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments,

forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness and transactions with

affiliates, among other customary covenants.

The Loan Parties are also restricted from paying dividends or making other distributions

or payments on their capital stock, subject to limited exceptions.

As of September 30, 2024, the Company was in compliance with all covenants

under the Amended and Restated Credit Agreement.

PURPLE INNOVATION, INC.

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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.

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

restrictive covenants.

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

1 unchanged sentence

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

Term loans totaling $ 25.0 million

were fully drawn at closing and, subsequent to the closing in August 2023, the Company executed $ 17.0 million in ABL loan draws and then

repaid $ 12.0 million of those borrowings prior to the end of 2023.

The outstanding balance of ABL Loans totaled $ 5.0 million at December

In connection with the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in

full and the agreements were terminated.

Term loans totaling $ 25.0

million were fully drawn at closing and, subsequent to the closing in August 2023, the Company executed $ 17.0 million in ABL loan draws

and then repaid $ 12.0 million of those borrowings prior to the end of 2023.

The outstanding balance of ABL Loans totaled $ 5.0 million

at December 31, 2023.

In connection with the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were

paid in full and the agreements were terminated.

The termination was accounted for as an extinguishment of debt and $ 3.4 million of unamortized

debt issuance costs related to the 2023 Credit Agreements were recorded as a loss on extinguishment of debt in the first quarter of 2024.

Interest expense under the 2023 Credit Agreements was $ 0.4 million for the six months ended June 30, 2024.

For the three months ended

June 30, 2024, there was no interest expense associated with the 2023 Credit Agreements.

Interest expense under the 2023 Credit Agreements was $ 0.4 million for the nine months ended September 30, 2024.

For the three months

ended September 30, 2024, there was no interest expense associated with the 2023 Credit Agreements.

2020 Credit Agreement

8 unchanged sentences

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

In connection with

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

In connection with the

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

The Company had no outstanding

6 unchanged sentences

on the term loan plus accrued interest.

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

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

The amendment was accounted for as an extinguishment of

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

the first quarter of 2023.

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

as debt issuance costs in the condensed consolidated balance sheet.

The amendment was accounted for as an extinguishment of debt and $ 1.2

million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in the first quarter

Interest expense under the

2020 Credit Agreement totaled $ 0.5 million and $ 1.1 million for the three and six months ended June 30, 2023, respectively.

2020 Credit Agreement totaled $ 0.2 million and $ 1.3 million for the three and nine months ended September 30, 2023, respectively.

PURPLE INNOVATION, INC.

21 unchanged sentences

included in earnings.

The Company used a the Monte

Carlo Simulation model to determine the fair value of the liability associated with the Warrants.

The model uses key assumptions and inputs

The Company used a Monte Carlo

Simulation model to determine the fair value of the liability associated with the Warrants.

The model used key assumptions and inputs,

such as exercise price, fair market value of common stock, risk free interest rate, warrant life, expected volatility and the probability

9 unchanged sentences

The following are the assumptions

used in calculating fair value of the Warrants on June 30, 2024:

used in calculating fair value of the Warrants on September 30, 2024:

Trading price of common stock on measurement date

6 unchanged sentences

The Warrants had a fair value

of $ 24.5 million as of June 30, 2024.

of $ 19.7 million as of September 30, 2024.

The Company recognized a gain of $ 4.8 million in its condensed consolidated statement of operations

for the three months ended June 30, 2024 related to a decrease in the fair value of the Warrants outstanding at the end of the period

compared to the fair value of the Warrants outstanding at the end of the first quarter of 2024.

For the six months ended June 30, 2024,

the Company recognized a loss of $ 4.9 million in its condensed consolidated statement of operations related to an increase in the fair

value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants on the date of issuance.

for the three months ended September 30, 2024 related to a decrease in the fair value of the Warrants outstanding at the end of the period

compared to the fair value of the Warrants outstanding at the end of the second quarter of 2024.

For the nine months ended September 30,

2024, the Company recognized a loss of $ 0.1 million in its condensed consolidated statement of operations related to an increase in the

fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants on the date of issuance.

Other Long-Term Liabilities

1 unchanged sentence

consist of the following (in thousands):

September 30,

Asset retirement obligations

20 unchanged sentences

Cash Bonus Award

On January 26, 2024, the

Company’s board of directors (the “Board”) approved an amendment to the Chief Executive Officer’s employment

Under the amendment, the Company agreed that, among other things, the Chief Executive Officer will be eligible to earn a cash

payment of up to $ 5.0 million, less tax and other required withholdings, based on the volume weighted average price per share of the

Company’s Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment

with the Company.

On January 26, 2024, the Company’s

board of directors (the “Board”) approved an amendment to the Chief Executive Officer’s employment agreement.

the amendment, the Company agreed that, among other things, the Chief Executive Officer will be eligible to earn a cash payment of up

to $ 5.0 million, less tax and other required withholdings, based on the volume weighted average price per share of the Company’s

Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment with the

The amount earned will be payable in quarterly installments commencing with the first payroll period following June 30, 2026.

The Company determined the provisions surrounding the future bonus payment require it to be accounted for as a liability at

fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change.

The Company recorded

compensation expense of $ 0.2 million in its condensed consolidated statement of operations for the six months ended June 30, 2024 related

to this future bonus payment.

For the three months ended June 30, 2024, the Company recognized a compensation expense reduction of $ 0.2

The Company determined the provisions surrounding the future bonus payment require it to be accounted for as a liability at fair value

on the date of the transaction, with changes in fair value recognized in earnings in the period of change.

The Company recorded compensation

expense of $ 0.1 million in its condensed consolidated statement of operations for the nine months ended September 30, 2024 related to

this future bonus payment.

For the three months ended September 30, 2024, the Company recognized a compensation expense reduction of $ 0.2

million in its condensed consolidated statement of operations related to a decrease in the fair value of the future bonus payment.

Senior Leadership

Team Special Recognition Bonus

Senior Leadership Team

Special Recognition Bonus

January 26, 2024, the Board unanimously approved a special recognition bonus payment to certain members of the Company’s senior

leadership team.

Each participant is eligible to earn a special recognition bonus payment equal to 15 months of their regular salary.

The special recognition bonus payment is payable, subject to the employee’s continued employment with the Company, 10 % on August

1, 2024, 20 % on February 1, 2025, and 70 % on August 1, 2025.

The Company recorded compensation expense of $ 1.5 million in its condensed

consolidated statement of operations for the six months ended June 30, 2024 related to this future bonus payment.

The bonus was awarded to incentivize retention and continued engagement with the Company during these challenging times

in the bedding industry.

Each participant is eligible to earn a special recognition bonus payment equal to 15 months of their regular

The special recognition bonus payment is paid as follows, subject to the employee’s continued employment with the Company:

10 % was paid in August 2024, 20 % is to be paid in February 2025, and the remaining 70 % is to be paid in August 2025.

The Company recorded

compensation expense of $ 0.9 million and $ 2.3 million in its condensed consolidated statement of operations for the three and nine months

ended September 30, 2024, respectively, related to this bonus payment.

Cash Long-Term Incentive Award

4 unchanged sentences

The Company determined the provisions surrounding

the performance cash long-term incentive award require it to be accounted for as a liability at fair value at each reporting period,

with changes in fair value recognized in earnings in the period of change.

The Company recorded a de minimis compensation expense in

the consolidated statement of operations for the six months ended June 30, 2024 related to this future award payment.

of Insurance Claim

In January 2024, the Company received $ 4.3 million for partial settlement

of a previously filed business interruption claim.

The Company recorded the cash upon receipt as other income, net in the condensed consolidated

statement of operations for the six months ended June 30, 2024.

The remaining settlement amount of $ 7.3 million was received subsequent

to June 30, 2024, refer to Note 20 – Subsequent Events .

the performance cash long-term incentive award require it to be accounted for as a liability at fair value at each reporting period, with

changes in fair value recognized in earnings in the period of change.

The Company recorded a de minimis amount of compensation expense

in the consolidated statement of operations for the nine months ended September 30, 2024 related to this future award payment.

Settlement of Insurance

In January 2024, the Company

received a $ 4.3 million payment for partial settlement of a previously filed business interruption claim which was recorded during the

first quarter of 2024 as other income, net in the condensed consolidated statement of operations.

In July 2024, pursuant to the same previously

filed business interruption claim, the Company received the remaining settlement payment amount of $ 7.3 million which was recorded during

the third quarter of 2024 as other income, net in the condensed consolidated statement of operations.

PURPLE INNOVATION, INC.

18 unchanged sentences

NOL Rights Plan

On June 27, 2024, the Board approved the adoption of a limited-duration

stockholder rights agreement (the “NOL Rights Plan”) with a stated expiration date of June 30, 2025.

The Board approved the

NOL Rights Plan to protect stockholder value by attempting to safeguard the Company’s ability to use its estimated $ 238 million

of net operating losses (the “Current NOLs”) to reduce potential future federal income tax obligations from becoming substantially

limited by future ownership changes in the Company’s common stock under Code Section 382.

See Note 15 – Stockholders’

Equity – NOL Rights Plan for further discussion of the NOL Rights Plan.

NOL Protective Charter Amendment

In connection with the NOL Rights Plan, the Board adopted, and recommended

that the Company’s stockholders approve, an amendment to the Company’s Certificate of Incorporation (the “NOL Protective

Charter Amendment”) that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding certain transfers

of common stock that could result in an ownership change under Code Section 382.

The NOL Protective Charter Amendment is not yet effective

and will be submitted for stockholder approval at the Company’s special meeting of the stockholders (the “Special Meeting”).

On June 27, 2024, the Board

approved the adoption of a limited-duration stockholder rights agreement (the “NOL Rights Plan”) with a stated expiration

date of June 30, 2025.

The Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard the Company’s

ability to use its June 30, 2024 estimated $ 238 million of net operating losses (the “Current NOLs”) to reduce potential future

federal income tax obligations from becoming substantially limited by future ownership changes in the Company’s common stock under

Code Section 382.

On October 15, 2024, at a special meeting of stockholders (the “Special Meeting”), the Company’s stockholders

ratified the NOL Rights Plan.

See Note 16 – Stockholders’ Equity – NOL Rights Plan for further discussion of

the NOL Rights Plan.

NOL Protective Charter

To further safeguard the Company’s

ability to use its Current NOLs, on July 27, 2024, the Board adopted, and recommended that the Company’s stockholders approve, an

amendment to the Company’s Certificate of Incorporation (the “NOL Protective Charter Amendment”) that adds an additional

layer of protection of the Current NOLs until June 30, 2025 by voiding certain transfers of common stock that could result in an ownership

change under Code Section 382.

At the Special Meeting, the Company’s stockholders approved the NOL Protective Charter Amendment.

See Note 16 – Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective

50 unchanged sentences

On January 17, 2024, two customers

filed a punitive class action lawsuit (the “Class Action Lawsuit”) against Purple LLC in California Superior Court

in the County of San Francisco alleging unlawful marketing and pricing practices, fraud and unjust enrichment.

The suit seeks damages

and other relief on behalf of all persons who purchased Purple LLC products during the applicable statutory periods in California.

February 22, 2024, Purple LLC removed the case to the United States District Court for the Northern District of California.

LLC denies all allegations and intends to vigorously defend against these claims.

filed a punitive class action lawsuit (the “Class Action Lawsuit”) against Purple LLC in California Superior Court in the

County of San Francisco alleging unlawful marketing and pricing practices, fraud and unjust enrichment.

The suit sought damages and other

relief on behalf of all persons who purchased Purple LLC products during the applicable statutory periods in California.

On July 15, 2024,

the Company entered into a settlement agreement (the “Settlement Agreement”) with the plaintiffs in connection with the Class

Action Lawsuit.

On August 16, 2024 the United States District Court for the Northern District of California dismissed the Class Action

Lawsuit and approved the Settlement Agreement.

Upon receipt of the executed release of all claims by the plaintiffs, the Company made

a cash payment pursuant to the Settlement Agreement.

On April 16, 2024, Purple’s

6 unchanged sentences

Purple LLC denies all allegations and intends to vigorously defend against these claims.

The Company is from time

to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business.

The Company does

not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to

pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

On July 24, 2024, a former

part-time employee filed a class action lawsuit against Purple LLC in California Superior Court in the County of Alameda

alleging failure to pay all wages, failure to pay overtime pay rate, failure to provide all meal periods, and other employment-related

causes of action.

The suit seeks damages, interest, attorneys’ fees, costs and other relief on behalf of all non-exempt California

employees of Purple LLC during the applicable statutory periods.

On September 30, 2024, the plaintiffs filed an amended complaint adding

a claim for penalties under California’s Private Attorneys General Act.

Subsequent to this, Purple LLC and the plaintiffs agreed

to mediate the claims and to stay formal discovery pending mediation, which is currently scheduled to take place on May 8, 2025.

LLC denies all allegations and intends to vigorously defend against these claims.

The Company is from time to

time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business.

The Company does not

believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay

by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

PURPLE INNOVATION, INC.

1 unchanged sentence

Related Party Transactions

Company has engaged in various transactions with entities or individuals which are considered related parties.

The Company has engaged in

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

Coliseum Capital Management,

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

Gray is a manager of Coliseum Capital, LLC, which is the

general partner of CCP and Coliseum Co-Invest Debt Fund, L.P.

(“CDF”), and he is also a managing partner of CCM, which is

the investment manager of Blackwell Partners LLC – Series A (“Blackwell”) and also manages investment funds and accounts.

Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell.

Lenders under the Amended and Restated Credit

Agreement included CCP and Blackwell.

Immediately following the

Business Combination, Adam Gray was appointed to the Board.

Gray is a manager of Coliseum Capital, LLC, which is the general partner

of CCP and Coliseum Co-Invest Debt Fund, L.P.

(“CDF”), and he is also a managing partner of CCM, which is the investment manager

of Blackwell Partners LLC – Series A (“Blackwell”) and also manages investment funds and accounts.

Gray has voting

and dispositive control over securities held by CCP, CDF and Blackwell.

Lenders under the Amended and Restated Credit Agreement included

CCP and Blackwell.

See Note 11— Debt — 2024 Credit Agreement for further discussion .

April 2023, Adam Gray was appointed Chairman of the Board of the Company as part of an agreement to resolve litigation that had been

brought by Coliseum against the Company.

In April 2023, Adam

Gray was appointed Chairman of the Board of the Company as part of an agreement to resolve litigation that had been brought by Coliseum

against the Company.

Purple Founder Entities

LLC began leasing its Alpine facility from entities controlled by Purple’s founders in 2010.

On September 3, 2021, in accordance

with the terms of that original lease, Purple LLC gave notice that it intended to exercise its right to an early termination of the lease

to occur on September 30, 2022.

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

the Company’s previous notice of termination and extended the lease term to remain in effect until September 30, 2023.

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

agreement and notice of termination.

In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $ 0.3 million

and $ 0.6 million for the three and six months ended June 30, 2023, respectively (see Note 13— Commitments and Contingencies—Legal

Proceedings for information regarding a complaint filed by Purple’s founders regarding this matter).

Purple LLC began leasing its

Alpine facility from entities controlled by Purple’s founders in 2010.

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

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

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

previous notice of termination and extended the lease term to remain in effect until September 30, 2023.

The Company vacated the Alpine

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

of termination.

In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $ 0.3 million and $ 0.8 million for

the three and nine months ended September 30, 2023, respectively.

See Note 14— Commitments and Contingencies—Legal Proceedings

for information regarding a complaint filed by Purple’s founders regarding this matter.

Stockholders’ Equity

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of the stockholders.

At June 30, 2024, 107.5 million shares of Class A common stock were outstanding.

At September 30, 2024, 107.5 million shares of Class A common stock were outstanding.

Class B Common Stock

Company has 90.0 million shares of Class B common stock authorized.

Holders of the Company’s Class B common stock will vote together

as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders.

Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees

A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder

also simultaneously transfers an equal number of such holder’s Class B Units to such transferee.

The Class B common stock is not

entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon

liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock.

At June 30, 2024,

0.2 million shares of Class B common stock were outstanding.

The Company has 90.0 million

shares of Class B common stock authorized.

Holders of the Company’s Class B common stock will vote together as a single class with

holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders.

Shares of Class B

common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold.

A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder also simultaneously

transfers an equal number of such holder’s Class B Units to such transferee.

The Class B common stock is not entitled to receive

dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution,

distribution of assets or winding-up of the Company in excess of the par value of such stock.

At September 30, 2024, 0.2 million shares

of Class B common stock were outstanding.

PURPLE INNOVATION, INC.

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Preferred Stock

The Company has 5.0 million shares of preferred stock authorized.

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

The Board is expressly authorized to provide for the issuance of

shares of the preferred stock in one or more series and to establish from time to time the number of shares to be included in each such

series and to fix the voting rights, designations and other special rights or restrictions.

At June 30, 2024, there were no shares of

preferred stock outstanding.

On June 27, 2024, 0.3 million shares of the Company’s authorized shares of preferred stock were designated

as Series C Junior Participating Preferred Stock, par value $ 0.0001 per share (“Series C Preferred Shares”).

The Company has 5.0 million

shares of preferred stock authorized.

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

The Board is expressly

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

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

30, 2024, there were no shares of preferred stock outstanding.

On June 27, 2024, 0.3 million shares of the Company’s authorized

shares of preferred stock were designated as Series C Junior Participating Preferred Stock, par value $ 0.0001 per share (“Series

C Preferred Shares”).

NOL Rights Plan

On June 27, 2024, the Board

adopted, and the Company entered into the NOL Rights Plan, which is designed to preserve approximately $ 238 million of the “Current

NOLs under Section 382 of the of the Internal Revenue Code of 1986, as amended (“Code Section 382”).

The Company’s ability

to use the Current NOLs to offset future taxable income may be significantly limited if the Company experiences an “ownership change”

under Code Section 382, which occurs if one or more stockholders or groups of stockholders that is deemed to own at least 5% of the Company’s

common stock increases their aggregate ownership by more than 50 percentage points over its lowest ownership percentage within a rolling

three-year period.

The NOL Rights Plan is intended to prevent an ownership change by acting as a deterrent to any Person (as such term

is defined in the NOL Rights Plan) acquiring 4.9% or more of the outstanding common stock of the Company (or, in the case of a Grandfathered

Person (as such term is defined in the NOL Rights Plan), an additional one-half of one percentage point of the outstanding common Stock

of the Company above their current ownership percentage).

Any Person that acquires shares of the Company’s common Stock in violation

of the limitations of the NOL Rights Plan is known as an “Acquiring Person.” For purposes of the NOL Rights Plan, “common

stock” includes (i) the Class A common stock, (ii) the Class B common stock, and (iii) any interest that would be treated as “stock”

adopted, and the Company entered into the NOL Rights Plan, which is designed to preserve approximately $ 238 million of the Company’s

Current NOLs under Section 382 of the of the Internal Revenue Code of 1986, as amended (“Code Section 382”).

At the Special

Meeting, the Company’s stockholders ratified the NOL Rights Plan.

The Company’s ability to use the Current NOLs to offset

future taxable income may be significantly limited if the Company experiences an “ownership change” under Code Section 382,

which occurs if one or more stockholders or groups of stockholders that is deemed to own at least 5 % of the Company’s common stock

increases their aggregate ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year

The NOL Rights Plan is intended to prevent an ownership change by acting as a deterrent to any Person (as such term is defined

in the NOL Rights Plan) acquiring 4.9 % or more of the outstanding common stock of the Company (or, in the case of a Grandfathered Person

(as such term is defined in the NOL Rights Plan), an additional one-half of one percentage point of the outstanding common Stock of the

Company above their current ownership percentage).

Any Person that acquires shares of the Company’s common Stock in violation of

the limitations of the NOL Rights Plan is known as an “Acquiring Person.” For purposes of the NOL Rights Plan, “common

stock” includes (i) the Class A common stock;

(ii) the Class B common stock;

and (iii) any interest that would be treated as “stock”

of the Company pursuant to Treasury Regulation § 1.382-2T(f)(18).

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See Note 12 – Warrant Liabilities for further discussion of the Company’s outstanding warrants.

The NOL Rights Plan provides

for a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding on July 26, 2024.

Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series C Preferred Share for a purchase price

of $ 2.75 , subject to adjustment as provided in the NOL Rights Plan.

Each Series C Preferred Share is designed to be the economic equivalent

of one share of common stock.

The NOL Rights Plan provided

for the issuance of a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding

on July 26, 2024.

Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series C Preferred Share

for a purchase price of $ 2.75 , subject to adjustment as provided in the NOL Rights Plan.

Each Series C Preferred Share is designed to

be the economic equivalent of one share of common stock.

Unless the Board determines

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The Rights will expire on

the earliest to occur of (i) the close of business on the date of the Special Meeting if a majority of the Company’s stockholders

voting do not ratify the NOL Rights Plan, (ii) the close of business on June 30, 2025;

(iii) the time at which the Rights are redeemed

(as discussed below) or exchanged by the Company;

(iv) the repeal of Code Section 382, if the Board determines that this Agreement is

no longer necessary for the preservation of the Current NOLs;

or (v) the beginning of a taxable year of the Company to which the Board

determines that no Current NOLs may be carried forward.

At any time prior to the expiration of the NOL Rights Plan, the Company may redeem

the Rights in whole, but not in part, at a price of $0.0001 per Right (subject to adjustment and payable in cash, Class A common stock

or other consideration deemed appropriate by the Board).

Immediately upon the action of the Board authorizing any redemption or at a later

time as the Board may establish for the effectiveness of the redemption, the Rights will terminate and the only right of the holders of

Rights will be to receive the redemption price.

The initial issuance of the

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

The fair value of the Rights will be nominal since the

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

Additionally, the Rights do not meet the definition of a

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

Accordingly, unless the Rights become exercisable

upon the occurred of the Distribution Time as discussed above, the NOL Rights Plan and the Rights issued thereunder have no impact on

the Company’s consolidated financial statements.

The NOL Rights Plan is subject to stockholder ratification at the Special Meeting.

If the NOL Rights Plan is not ratified by the stockholders at the Special Meeting, the NOL Rights Plan will be terminated and the Rights

the earliest to occur of (i) the close of business on June 30, 2025;

(ii) the time at which the Rights are redeemed (as discussed below)

or exchanged by the Company;

(iii) the repeal of Code Section 382, if the Board determines that the NOL Rights Plan is no longer necessary

for the preservation of the Current NOLs;

or (v) the beginning of a taxable year of the Company to which the Board determines that no

Current NOLs may be carried forward.

At any time prior to the expiration of the NOL Rights Plan, the Company may redeem the Rights in

whole, but not in part, at a price of $ 0.0001 per Right (subject to adjustment and payable in cash, Class A common stock or other consideration

deemed appropriate by the Board).

Immediately upon the action of the Board authorizing any redemption or at a later time as the Board

may establish for the effectiveness of the redemption, the Rights will terminate and the only right of the holders of Rights will be to

receive the redemption price.

The initial issuance of the Rights as a dividend had no tax, financial

accounting or reporting impact.

The fair value of the Rights is nominal, since the Rights were not exercisable when issued and no value

is attributable to them.

Additionally, the Rights do not meet the definition of a liability under GAAP and therefore are not being accounted

for as a long-term obligation.

Accordingly, unless the Rights become exercisable upon the occurrence of the Distribution Time as discussed

above, the NOL Rights Plan and the Rights issued thereunder have no impact on the Company’s consolidated financial statements.

PURPLE INNOVATION, INC.

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Amendment, one-half of one percentage point of the outstanding common stock of the Company above their current ownership percentage).

At the Special Meeting, the Company’s stockholders approved the NOL Protective Charter Amendment.

Any acquisition of common

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Charter Amendment.

The NOL Charter Amendment will be submitted for stockholder approval

at the Special Meeting.

The NOL Protective Charter Amendment will not become effective unless and until it is approved by stockholders

at the Special Meeting.

In connection with the Amended

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While the Warrants

are exercisable, the Company may call the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share

of Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to

each holder, provided that this redemption right is only available if the reported last sale price of the Class A common stock equals

or exceeds $ 24.00 per share on each of 20 trading days within a 30 -trading day period ending three business days before the Company sends

the notice of redemption to the holders.

A holder of the Warrants will not have the right to exercise its Warrants, to the extent that

after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9 % of the shares

of Class A common stock outstanding immediately after giving effect to such exercise.

are exercisable, the Company may call the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share of

Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to each

holder, provided that this redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds

$ 24.00 per share on each of 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice

of redemption to the holders.

A holder of the Warrants will not have the right to exercise its Warrants, to the extent that after giving

effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9 % of the shares of Class A

common stock outstanding immediately after giving effect to such exercise.

Sponsor Warrants

were 12.8 million sponsor warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering.

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

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

There were 12.8 million sponsor

warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering.

Unexercised sponsor warrants

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

These sponsor warrants

had no fair value on the date of expiration.

Noncontrolling Interest

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is the membership interest in Purple LLC held by holders other than the Company.

At June 30, 2024 and December 31, 2023, the combined

At September 30, 2024 and December 31, 2023, the combined

NCI percentage in Purple LLC was 0.2 % and 0.2 %, respectively.

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

The Company’s sole

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

federal income tax purposes and for purposes of certain state

and local income taxes.

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

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

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

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

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

consolidated financial statements under GAAP.

The Company’s sole material

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

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

income taxes.

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

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

While the Company

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

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

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

financial statements under GAAP.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Company reported income tax expense related to various state taxes of $ 0.1 million on a pretax loss of $ 50.2 million for the six months

ended June 30, 2024 as compared to various state taxes of $ 0.1 million on a pretax loss of $ 66.6 million for the six months ended June

This resulted in an effective tax rate of ( 0.22 )% for the six months ended June 30, 2024 as compared to ( 0.22 )% for the six

months ended June 30, 2023.

The Company’s effective tax rate for the six months ended June 30, 2024 differs from the statutory

federal rate of 21 % primarily due to the impact of the full valuation allowance recorded against the Company’s deferred tax assets

at June 30, 2024.

The Company reported income

tax expense related to various state taxes of $ 0.2 million on a pretax loss of $ 89.4 million for the nine months ended September 30, 2024

as compared to various state taxes of $ 0.2 million on a pretax loss of $ 102.7 million for the nine months ended September 30, 2023.

resulted in an effective tax rate of ( 0.20 )% for the nine months ended September 30, 2024 as compared to ( 0.16 )% for the nine months ended

September 30, 2023.

The Company’s effective tax rate for the nine months ended September 30, 2024 differs from the statutory federal

rate of 21 % primarily due to the impact of the full valuation allowance recorded against the Company’s deferred tax assets at September

In connection with the Business

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of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company actually realizes (or is deemed

to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple

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

federal, state and local income tax that the Company actually realizes (or is deemed to

realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC

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

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

and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes

under the agreement.

and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under

the agreement.

As noncontrolling interest

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balance sheet.

As of June 30, 2024, the Company had unrecognized tax benefits of $ 0.9 million.

As of September 30, 2024, the Company had unrecognized tax benefits of $ 0.9 million.

Net Loss Per Common Share

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

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

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

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

equivalents that are dilutive.

The following table sets

forth the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands,

Basic net income (loss) per

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

of Class A common stock outstanding during each period.

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

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

are dilutive.

The following table sets forth

the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands,

except per share amounts):

Three Months Ended

Six Months Ended

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

September 30,

Nine Months Ended

September 30,

Net loss attributable to Purple Innovation, Inc.

Less – net loss attributed to noncontrolling interest

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

Net loss attributable to Purple Innovation, Inc.

Weighted average shares—basic

Add – dilutive effect of Class B shares

Add – dilutive effect of equity securities

Weighted average shares—diluted

Net loss per common share:

The Company excludes certain shares issuable from equity awards, warrants

and exchange of Class B common stock from the diluted net loss per common share computation when their exercise or performance vesting

price is greater than the average market price of the Company’s common stock or they are otherwise anti-dilutive.

the three months ended June 30, 2024, the Company excluded 22.7 million shares of Class A common stock issuable upon conversion of certain

warrants, stock options and restricted stock.

For the six months ended June 30, 2024, the Company excluded 25.0 million shares of Class

A common stock issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock.

the three and six months ended June 30, 2023, the Company excluded 3.0 million and 3.4 million, respectively, of Class A common stock

issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock.

The Company excludes certain

shares issuable from equity awards, warrants and exchange of Class B common stock from the diluted net loss per common share computation

when their exercise or performance vesting price is greater than the average market price of the Company’s common stock or they

are otherwise anti-dilutive.

For the three months ended September 30, 2024, the Company excluded 23.0 million shares of Class A common

stock issuable upon conversion of certain warrants, stock options and restricted stock.

For the nine months ended September 30, 2024,

the Company excluded 23.2 million shares of Class A common stock issuable upon conversion of certain warrants, stock options, restricted

stock and exchange of Class B common stock.

For the three and nine months ended September 30, 2023, the Company excluded 2.8 million and

4.4 million, respectively, of Class A common stock issuable for stock options, restricted stock and exchange of Class B common stock.

PURPLE INNOVATION, INC.

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Directors, officers and other employees, as well as others performing consulting or advisory services

for the Company and its subsidiaries, will be eligible for grants under the 2017 Plan.

As of June 30, 2024, an aggregate of 2.2 million

for the Company and its subsidiaries, are eligible for grants under the 2017 Plan.

As of September 30, 2024, an aggregate of 2.3 million

shares remain available for issuance or use under the 2017 Plan.

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The following table summarizes the Company’s

total stock option activity for the six months ended June 30, 2024:

total stock option activity for the nine months ended September 30, 2024:

(in thousands) Weighted

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Forfeited ( 309 ) 9.69 —

Options outstanding as of June 30, 2024 554 $ 7.27 2.6 $ —

Options outstanding as of September 30, 2024 554 $ 7.27 2.3 $ —

Outstanding and exercisable stock options as of

June 30, 2024 are as follows:

September 30, 2024 are as follows:

Options Outstanding Options Exercisable

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The following table summarizes

the Company’s unvested stock option activity for the six months ended June 30, 2024:

the Company’s unvested stock option activity for the nine months ended September 30, 2024:

(in thousands)

Nonvested options as of January 1, 2024

Nonvested options as of June 30, 2024

The estimated fair value

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

For the three and six months ended June

Nonvested options as of September 30, 2024

The estimated fair value of

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

For the three and nine months ended September

30, 2023, the Company recognized stock option expense of $ 0.1 million and $ 0.5 million, respectively.

Stock option expense was de minimis

for the three and six months ended June 30, 2024.

As of June 30, 2024, outstanding

stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of 0.8 years.

value of stock options vested during the six months ended June 30, 2024 totaled $ 0.1 million.

for the three and nine months ended September 30, 2024.

As of September 30, 2024,

outstanding stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of 0.6 years.

The fair value of stock options vested during the nine months ended September 30, 2024 totaled $ 0.1 million.

PURPLE INNOVATION, INC.

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Employee Restricted

the first six months of 2024, the Company granted 1.8 million restricted stock units under the 2017 Equity Incentive Plan to certain

members of the Company’s management team.

During the nine months ended

September 30, 2024, the Company granted 1.8 million restricted stock units under the 2017 Equity Incentive Plan to certain members of

the Company’s management team.

Of the restricted stock units granted, 0.4 million included a market vesting condition.

The restricted stock awards that did not have a market vesting condition had a weighted average grant date fair value of $ 1.00 per share.

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

For those awards that include

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

of vesting occurring.

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

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

The Company determined the weighted average grant

date fair value of the awards with the market vesting condition to be $ 1.13 per share using a Monte Carlo Simulation model with the following

weighted average assumptions:

The restricted

stock awards that did not have a market vesting condition had a weighted average grant date fair value of $ 1.00 per share.

The estimated

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

For those awards that include a market vesting

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

The estimated fair value is recognized over the derived service period (as determined by the valuation model), with such recognition

occurring regardless of whether the market condition is met.

The Company determined the weighted average grant date fair value of the

awards with the market vesting condition to be $ 1.13 per share using a Monte Carlo Simulation model with the following weighted average

Trading price of common stock on measurement date $ 1.50

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The following table summarizes

the Company’s restricted stock unit activity for the six months ended June 30, 2024:

the Company’s restricted stock unit activity for the nine months ended September 30, 2024:

(in thousands)

Nonvested restricted stock units as of January 1, 2024

Nonvested restricted stock units as of June 30, 2024

Nonvested restricted stock units as of September 30, 2024

The Company recorded restricted

stock unit expense of $ 0.8 million and $ 1.3 million during the three and six months ended June 30, 2024, respectively, and $ 0.9 million

and $ 1.8 million during the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, outstanding

restricted stock units had $ 5.2 million of unrecognized stock compensation cost with a remaining recognition period of 1.6 years.

stock unit expense of $ 0.8 million and $ 2.1 million during the three and nine months ended September 30, 2024, respectively, and $ 0.9

million and $ 2.7 million during the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024,

outstanding restricted stock units had $ 4.5 million of unrecognized stock compensation cost with a remaining recognition period of 1.4

PURPLE INNOVATION, INC.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

4 unchanged sentences

Employee Retirement Plan

July 2018, the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the

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

provides for the Company to match employee contributions up to 5 % of eligible earnings.

In July 2018, the Company

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

All eligible employees

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

The plan provides for the Company to match

employee contributions up to 5 % of eligible earnings.

Company contributions immediately vest.

The Company’s matching contribution expense was $ 1.0 million and $ 2.1 million for the three and six months ended June

30, 2024, respectively, and $ 0.9 million and $ 1.8 million for the three and six months ended June 30, 2023, respectively.

The Company’s matching contribution

expense was $ 1.1 million and $ 3.2 million for the three and nine months ended September 30, 2024, respectively, and $ 1.0 million

and $ 2.8 million for the three and nine months ended September 30, 2023, respectively.

Subsequent Events

Settlement of Insurance

In July 2024, pursuant to

a previously filed business interruption claim, the Company received the remaining settlement amount of $ 7.3 million.

The Company recorded

the payment received as other income, net in the third quarter of 2024.

Class Action Lawsuits

On July 15, 2024, the Company

entered into a settlement agreement (the “Settlement Agreement”) with the plaintiffs in connection with the Class Action Lawsuit.

Pursuant to the Settlement Agreement, the Company will make a cash payment upon the receipt of an executed release of all claims by the

The payment will have no material impact on results of operations, financial condition or cash flow of the Company.

The Settlement

Agreement is subject to approval by the United States District Court for the Northern District of California.

If the court does not grant

final approval of the Settlement Agreement, or the settlement does not otherwise become final or effective, proceedings in the Class Action

Lawsuit will continue.

See Note 13 - Commitments and Contingencies - Legal Proceedings for further discussion of the Class Action

On July 24, 2024, a former part-time employee filed a class

action lawsuit against Purple LLC in California Superior Court in the County of Alameda alleging failure to pall all wages,

failure to pay overtime pay rate, failure to provide all meal periods, and other employment-related causes of action.

The suit seeks damages,

interest, attorneys’ fees, costs and other relief on behalf of all non-exempt California employees of Purple LLC during the applicable

statutory periods.

Results of Special

At the Special Meeting on

October 15, 2024, the Company’s stockholders ratified the NOL Rights Plan and approved the NOL Protective Charter Amendment.

Note 16 – Stockholders’ Equity – NOL Rights Plan for further discussion of the NOL Rights Plan and Note 16 –

Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective Charter Amendment.

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

What changed 10-Q

Item 1. Financial Statements