What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-12 · 554 added, 754 removed, 79 unchanged (94% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Annual Report on Form 10-K, including the Management’s Discussion

and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future

results that are subject to the safe harbors created under the Securities Act and the Exchange Act.

All statements other than statements

of historical facts are statements that could be deemed forward-looking statements.

These statements are based on current expectations,

estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management.

such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,”

“plans,” “believes,” “momentum,” “seeks,” “estimates,” “continues,”

“endeavors,” “strives,” “may,” variations of such words, and similar expressions are intended to identify

such forward-looking statements.

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

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

of future events or circumstances are forward-looking statements.

Readers are cautioned that these forward-looking statements are only

predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those under “Part

Risk Factors,” and elsewhere herein.

Therefore, actual results may differ materially and adversely from those expressed

in any forward-looking statements.

We undertake no obligation to revise or update any forward-looking statements for any reason.

The following discussion is intended to provide a more comprehensive

review of our results of operations and financial condition than can be obtained from reading our consolidated financial statements alone.

This discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in “Part

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking

Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains

forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities

Act and the Exchange Act.

All statements other than statements of historical facts are statements that could be deemed forward-looking

These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we

operate and the beliefs and assumptions of our management.

Words such as “expects,” “anticipates,” “targets,”

“goals,” “projects,” “intends,” “plans,” “believes,” “momentum,”

“seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,”

variations of such words, and similar expressions are intended to identify such forward-looking statements.

In addition, any statements

that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion

under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking

Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties,

and assumptions that are difficult to predict, including those under “Part I, Item 1A.

Risk Factors,” and elsewhere

Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.

no obligation to revise or update any forward-looking statements for any reason.

following discussion is intended to provide a more comprehensive review of our results of operations and financial condition than can

be obtained from reading our consolidated financial statements alone.

This discussion should be read in conjunction with our consolidated

financial statements and the notes thereto included in “Part II Item 8.

Financial Statements.”

Overview of Our Business

Our mission is to

help people feel and live better through innovative comfort solutions.

We are an omni-channel company

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

We design and manufacture

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

covers and other products.

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

technologies and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology underpins many

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

and sell our products via our DTC channels, online marketplaces and retail wholesale partners.

Our business consists of

of Our Business

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

We are an omni-channel company that began as a digitally-native vertical

brand founded on comfort product innovation with premium offerings.

We design and manufacture a variety of innovative, branded and premium

comfort products, including mattresses, pillows, cushions, frames, sheets, duvets, duvet covers and other products.

Our products are the

result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing

Our proprietary Hyper-Elastic Polymer gel technology underpins many of our comfort products and provides a range of benefits

that differentiate our offerings from other competitors’ products.

We market and sell our products via our DTC channel, which includes

Purple.com (our direct-to-consumer e-commerce), Purple showrooms, our customer contact center and online marketplaces, and our wholesale

channel through retail brick-and-mortar and online wholesale partners.

business consists of Purple Inc.

and its consolidated subsidiary, Purple LLC.

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

acquisition company under the name of GPAC.

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

(the “Business Combination”) pursuant to which Purple Inc.

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

A units and became its sole managing member.

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

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

the approval of any other member.

was incorporated in Delaware on May 19, 2015

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

On February 2, 2018, we consummated a transaction structured similar

to a reverse recapitalization (the “Business Combination”) pursuant to which Purple Inc.

acquired an equity interest in Purple

LLC as holder of all Class A units and became its sole managing member.

As the sole managing member of Purple LLC, Purple Inc., through

its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business

affairs of Purple LLC without the approval of any other member.

At December 31, 2024, Purple Inc.

had a 99.8% economic interest in Purple LLC while other Class B unit

holders had the remaining 0.2%.

On August 31, 2022, we acquired

all the issued and outstanding stock of Intellibed to consolidate ownership of our licensed intellectual property while enhancing our

innovation and manufacturing capabilities and financial profile.

For further discussion see Note 4 — Acquisition.

Recent Developments in Our Business

Operational Developments – Launch of

New Premium and Luxe Product Lineups

Beginning in 2022 and continuing into 2023, we expanded our focus on

product development and increased our innovation capabilities.

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

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

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

softening demand for home-related products that can be attributed to the overall market conditions.

Also, as consumer spending habits

have moved away from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 60 as

of December 31, 2023.

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

Over the course of the third and fourth quarters, we transitioned all of our wholesale partners to our new line of mattress products.

Improving the sales productivity of both our wholesale partners and existing showrooms remains a primary focus and critical component

of our strategy to respond to shifting demand patterns.

We are also diligently working to improve e-commerce conversion by testing how

to best optimize increased traffic on our website.

We experienced several years of hyper growth during the pandemic and increased investments

to support current and future expansion.

After right-sizing our operations, improving our execution, and refining our strategies to drive

share gains in the premium mattress category, we are now building the framework for improved operational maturity and accountability to

position us for accelerated growth.

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

brand positioning and increased media investment at the top of the acquisition funnel.

As a result, during the fourth quarter of 2023,

our new product lineup became fully accessible across all sales channels which led to our highest level of quarterly net revenues since

the fourth quarter of 2021.

As we move into 2024, we believe we can achieve efficiencies with regard to our media investment, by targeting

specific segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product.

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

Coliseum Cooperation Agreement

On February 21, 2023, Coliseum on behalf of its funds and managed accounts,

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

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

slate of director candidates ahead of our 2023 Annual Meeting.

On April 19, 2023, we entered into a Cooperation Agreement with Coliseum

to resolve the litigation.

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

Note 14 — Related Party Transactions — Coliseum Capital Management, LLC.

Shelf Registration Statement and Equity Financing

On January 30, 2023, the Form S-3 shelf registration statement we filed

with the SEC in December 2022 became effective.

As a result, we may offer and sell from time to time, in one or more series or issuances

and on terms that we will determine at the time of the offering, any combination of the securities described in the registration statement,

up to an aggregate amount of $90.0 million.

Any future proposed offerings under the shelf registration statement are subject to the pre-emptive

right held by Coliseum or the waiver of such right by Coliseum.

In February 2023, we completed an underwritten follow-up offering of 13.4

million shares of Common Stock at a public offering price of $4.50 per share.

The aggregate net proceeds received by us from the

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

The amount available under the shelf registration

was reduced by the $60.3 million of gross proceeds from this underwritten offering.

Debt Financing

On August 7, 2023, we entered into the Term Loan Agreement with Callodine

Commercial Finance, LLC and a group of financial institutions.

Also, on August 7, 2023, we entered into a separate financing arrangement

(the “ABL Agreement”) with the Bank of Montreal and a group of financial institutions (collectively the “ABL Lenders”)

that provided for a $50.0 million revolving asset-based credit facility (the “ABL Loans” and together with the ABL Agreement

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

Term loans totaling $25.0 million were fully drawn at closing in

accordance with the Term Loan Agreement and this amount was outstanding at December 31, 2023.

Also, since the closing in August 2023,

we have executed $17.0 million in ABL loan draws and then subsequently 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.

had a 99.8% economic interest in Purple

LLC while other Class B unit holders had the remaining 0.2%.

August 31, 2022, we acquired all the issued and outstanding stock of Intellibed to consolidate ownership of our licensed intellectual

property while enhancing our innovation and manufacturing capabilities and financial profile.

For further discussion see Note 4 —

Developments in Our Business

During 2024, we have been realizing efficiencies with our media investments

by targeting specific segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for

a sleep product.

We are concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions,

continued mix shift towards our Restore and Rejuvenate collections, and by driving cost savings through supply chain initiatives and manufacturing

We have also delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results

from continuous improvements, and our outbound freight costs reflect cost improvements along with improved delivery reliability.

we believe consolidation of our manufacturing footprint pursuant to our Restructuring Plan is an important step to advance our grid innovation

and build momentum to achieve positive operating cash flow and market share growth over the long- term.

The fourth quarter 2024 was significant

for us as we achieved profitability and positive cash flow.

This was the direct result of our disciplined execution, operational improvements

and cost saving initiatives throughout the year.

Other key highlights during the fourth quarter of 2024 included significant improvements

in Purple showroom profitability and the successful launch of our product in Costco retail locations.

In 2025, we announced the

re-launching of our Rejuvenate line in the second quarter 2025 through our DTC channels, followed by a full wholesale channel roll-out

expected to be complete by the third quarter 2025.

The new Rejuvenate 2.0 will have a newly innovated grid technology that when stacked

with our original Gelflex grid, creates a unique combination that continues to differentiate us in the market while driving superior comfort

and support for an even more premium sleep experience.

Restructuring Activities

In August 2024, we initiated the Restructuring Plan to strategically

realign our operational focus to achieve efficiencies in our operations that are expected to improve profitability and provide for reinvesting

in technology and marketing initiatives.

The Restructuring Plan includes the permanent closure of both Utah manufacturing facilities to

consolidate mattress production in our Georgia plant, and a headcount reduction at our Utah headquarters to drive additional operating

efficiencies.

Closure of the two Utah manufacturing facilities is projected to be completed in the second quarter of 2025 while consolidation

into the Georgia facility was finalized in December 2024.

The reduction in workforce at our Utah headquarters was completed in August

During 2024, we recognized $36.4 million in costs relating to the Restructuring Plan., which included $4.3 million of employee-related

costs, $11.3 million of accelerated depreciation, $9.3 million related to write-downs of inventory and long-lived assets to be disposed

of or equipment in progress that will not be put in service, $11.0 million of impairment charges associated with entering into a sublease

for one of the Utah manufacturing facilities to be closed and impairment of an intangible asset, and $0.5 million of other related costs.

We expect to record additional restructuring and other related charges in the amount of $4.6 million through the second quarter of 2025.

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.

In addition, we plan to implement

additional cost savings measures in 2025 beyond those implemented pursuant to our 2024 Restructuring Plan.

On January 23, 2024, Purple

LLC, Purple Inc.

and Intellibed (collectively, the “Loan Parties”) entered into the Amended and Restated Credit Agreement,

which amended and restated the then existing term loan agreement (“Term Loan Agreement”), with CCP and other lenders (collectively,

the “Lenders”) and Delaware Trust Company, as administrative agent.

The Lenders agreed to assume our obligations under the

Term Loan Agreement and agreed to refinance our existing obligations.

Pursuant to the Amended and Restated Credit Agreement, we borrowed

$61.0 million from the Lenders (the “Related Party Loan”) that was used to repay the $25.0 million of term loans outstanding,

the $5.0 million of revolving debt outstanding, loan fees, premiums and expenses incurred in connection with this transaction and provided

net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) of approximately $27.0 million.

on the new loan is payable each month and the principal outstanding matures and is due on December 31, 2026.

To reduce cash obligations,

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

The loan bears interest at a rate equal

to (i) the secured overnight financing rate plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, because Purple

LLC has elected to pay interest in kind to reduce its cash obligations, 10.25% per annum).

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%.

We may request an additional term loan from the Lenders in an aggregate amount not

to exceed $19.0 million on terms requested by us 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.

In connection with our execution

of the 2023 Credit Agreements, we terminated our 2020 Credit Agreement.

We had no outstanding borrowings under the 2020 Credit Agreement

at the time of termination.

The termination was accounted for as an extinguishment of debt and $3.1 million of unamortized debt issuance

costs related to the 2020 Credit Agreement were recorded as a loss on extinguishment of debt in 2023.

On January 23, 2024, we entered into the Second Amendment and concurrently

therewith the Amended and Restated Credit Agreement, which amended and restated the Term Loan Agreement, with the Lenders and Delaware

Trust Company, as administrative agent.

The Lenders agreed to assume our obligations under the Term Loan Agreement and agreed to refinance

our existing obligations.

A term loan in the amount of $61.0 million (the “Loan”) was funded by the Lenders that repaid in

full the $25.0 million of Term Loans outstanding, repaid in full the $5.0 million of ABL Loans outstanding, paid fees, premiums and expenses

incurred in connection with this transaction, and provided net proceeds to us (after payments of outstanding debt, unpaid accrued interest,

and expenses) equal to approximately $27.0 million.

Interest on the Loan is payable each month and the principal outstanding is due on

December 31, 2026, the maturity date of the Loan.

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

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%.

We may request an additional term loan from

the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by us to the extent agreed to by the Lenders at their

The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based

In connection with our execution of the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements

were paid in full and the 2023 Agreements were terminated.

In connection with the Amended and Restated Credit Agreement, we also

issued the Warrants to the Lenders on January 23, 2024 to purchase 20.0 million shares of our Common Stock equal to 19% of the shares

of Common Stock issued and outstanding.

Each Warrant entitles the registered holder to purchase one share of our Common Stock at a price

of $1.50 per share, subject to adjustment.

The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption.

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

(together with its affiliates) would beneficially own in excess of the Beneficial Ownership Cap.

Coliseum beneficially owns 58.5 million

shares of Common Stock (which includes 11.6 million shares of Common Stock upon exercise of its Warrants), which constitutes 49.9% of

the Company’s diluted shares outstanding and voting power.

Coliseum also beneficially owns 1.8 million additional warrants that

cannot be exercised if doing so would cause Coliseum to exceed the Beneficial Ownership Cap.

Registration Rights Agreement

In connection with the issuance of the Warrants, the Registration Rights

Agreement provided that on or prior to February 22, 2024, the Company was required to prepare and file with the SEC pursuant to Rule 415

of the Securities Act a registration statement to register the resale of the Registrable Securities.

The Company received an extension

from the Holders to file the resale registration statement on or prior to March 22, 2024.

The Company will be responsible for the payment

of the Holders’ expenses in connection with any offering or sale of Registrable Securities by the Holders, including underwriting

discounts or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain

Registrable Securities.

Amended Employment Agreement and Special Recognition

On January 26, 2024, our Board of Directors approved an amendment to

our Chief Executive Officer’s employment agreement.

Under the amendment, we agreed that, among other things:

(i) the Chief Executive

Officer’s base salary will be increased, effective March 19, 2024, to $0.7 million;

(ii) the Chief Executive Officer will be eligible

to earn an incremental aggregate cash bonus equal to $0.9 million that will vest 10% on August 1, 2024, 20% on February 1, 2025, and 70%

on August 1, 2025, provided he continues to be employed by us and subject to the Chief Executive Officer’s obligation to repay any

such bonus actually received in the event his employment is terminated other than by us without cause prior to June 30, 2026, subject

to certain conditions;

and (iii) 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 our Common Stock on NASDAQ during the period from

March 16, 2026 through June 30, 2026 subject to his continued employment with us.

The amount earned will be payable in quarterly installments

commencing with the first payroll period following June 30, 2026.

Also, on January 26, 2024, our Board of Directors unanimously approved

a special recognition bonus payment to certain members of our 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 us, 10% on August 1, 2024, 20% on February 1, 2025, and 70% on August 1, 2025.

Executive Summary – Results of Operations

Net revenues decreased $62.7

million, or 10.9%, to $510.5 million for the year ended December 31, 2023 as compared to the prior year.

The decrease in net revenues

was primarily due to continued soft demand for home-related products.

This decline was partially offset by the positive response to the

launch, in May 2023, of our new Premium and Luxe product lineups.

During the fourth quarter of 2023, our new product lineup became fully

accessible across all sales channels which led to our highest level of quarterly net revenues since the fourth quarter of 2021.

Gross profit decreased $36.3 million, or 17.4%, to $171.8 million for

the year ended December 31, 2023 as compared to the prior year.

This decrease reflected the impact of our gross profit percentage declining

to 33.7% of net revenues in 2023 as compared to 36.3% in 2022.

Our reduced gross profit percentage was primarily impacted by the transition

to our new product lineup in 2023.

These transitional effects included reduced pricing on sales of new floor models to our wholesale partners,

increased labor and freight costs, decreased manufacturing efficiency, inventory reserves for legacy products and increased discounting

of legacy product line mattresses sold through our DTC channels.

Operating expenses increased

$34.7 million, or 13.8% to $285.5 million in 2023 compared to $250.8 million in the prior year.

This increase was primarily due to (i)

an increase of $9.1 million of legal and professional fees incurred in connection with actions conducted by the Special Committee of independent

directors to address an unsolicited offer to buy the Company and resolve subsequent litigation brought against us for actions taken by

the Special Committee in response to the offer;

(ii) a $16.9 million increase in marketing and selling expenses driven by showroom expansion

and higher advertising spend which began increasing in mid-May in alignment with the launch of our new product lineup;

(iii) a $3.1 million

increase in research and development costs;

and (iv) a $6.9 million loss on impairment of goodwill.

Other expense was $7.5 million in 2023 compared to other income of

$163.2 million in 2022.

Other expense in 2023 was primarily comprised of interest expense, losses on debt extinguishments, and losses

on disposals of property and equipment.

Other income in 2022 primarily related to reducing our Tax Receivable Agreement liability to zero

by the end of that year and recognizing Tax Receivable Agreement income of $162.0 million in 2022.

For reasons similar to those that led

to the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant

to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.

Income tax expense was de

minimis in 2023 compared to $213.2 million in 2022.

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

tax expense in 2022 reflected the impact of establishing a full valuation allowance on our deferred tax assets by the end of that year

and recognizing deferred tax expense of $213.9 million in 2022.

Based on available evidence, we concluded it was more likely than not

that our deferred tax assets would not be realized and that a full valuation allowance for deferred tax assets was appropriate.

of the Amended and Restated Credit Agreement, all obligations under the previously outstanding term loans and revolving credit facility

were paid in full and the respective related agreements (collectively, the “2023 Credit Agreement”) were terminated.

On March 12, 2025, we entered into the 2025 Amendment, pursuant to

which the 2025 Term Loan Lenders (as defined in the 2025 Amendment) agreed to provide us with an incremental term loan of $19.0 million.

The 2025 Amendment also amended the Amended and Restated Credit Agreement to (i) provide for an additional term loan from the 2025 Term

Loan Lenders in an aggregate amount not to exceed $20.0 million, subject to the approval of the Required Lenders in their discretion,

(ii) provide for the payment of substantial make-whole payments in the event we prepay the loans prior to their maturity, and (iii) provide

that the incremental term loan will be senior in right of repayment to the initial term loan.

In connection with the Amended and Restated Credit Agreement, we issued

to the Lenders the 2024 Warrants to purchase 20.0 million shares of our Class A Stock.

Each 2024 Warrant entitles the registered holder

to purchase one share of our Class A Stock at a price of $1.50 per share, subject to adjustment.

The 2024 Warrants will expire on the

10-year anniversary of issuance, or earlier upon redemption.

A holder of the 2024 Warrants will not have the right to exercise them, 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 Stock outstanding immediately after giving effect to such exercise.

The 2024 Warrants contain certain provisions

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

The liability for the 2024 Warrants

was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs.

This liability

is subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings.

During 2024, we recognized a gain of $3.5 million in our consolidated statement of operations for a decrease in the fair value of the

2024 Warrants outstanding at December 31, 2024.

In connection with the 2025

Amendment, we issued to the Lenders the 2025 Warrants to purchase 6.2 million shares of our Class A Stock .

The 2025 Warrants have the

same terms as the 2024 Warrants, except that they expire on March 12, 2035 and certain adjustments to the exercise price are subject to

a floor of $0.6979.

Rights Agreements

In connection with the issuance

of the Warrants, we entered into the Registration Rights Agreement with holders of the Warrants (the “Holders”), providing

for the registration of Registrable Securities, subject to customary terms and conditions.

We are responsible for the payment of the Holders’

expenses in connection with any offering or sale of Registrable Securities by the Holders, including underwriting discounts or selling

commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain Registrable Securities.

On June 27, 2024, our Board

of Directors (“Board”) adopted and we entered into a limited-duration stockholder rights agreement (the “NOL Rights

Plan”) with a stated expiration date of June 30, 2025.

Our Board approved the NOL Rights Plan to protect stockholder value by attempting

to safeguard our ability to use our 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 of our common stock.

Upon adopting

the NOL Rights Plan, 0.3 million shares of our authorized shares of preferred stock were designated as Series C Preferred Shares.

to the NOL Rights Plan, our Board authorized and declared a dividend of one right for each outstanding share of common stock to stockholders

of record at the close of business on July 26, 2024.

Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or,

if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point

greater than their current beneficial ownership percentage), the rights will become exercisable to significantly dilute any stockholder

who violates the ownership limitations of the NOL Rights Plan.

The NOL Rights Plan was ratified at a special meeting of our stockholders

on October 15, 2024 (the “Special Meeting”).

The NOL Rights Plan will automatically expire by its terms on June 30, 2025.

Protective Charter Amendment

In connection with the NOL

Rights Plan, our Board adopted a NOL Protective Charter Amendment that adds an additional layer of protection to our Current NOLs until

June 30, 2025 by voiding any transfer of common stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold

(or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage

point greater than their current beneficial ownership percentage).

The NOL Protective Charter Amendment was approved by our stockholders

at the Special Meeting.

The NOL Protective Charter Amendment will automatically expire by its terms on June 30, 2025.

Review of Strategic Alternatives

We regularly engage in dialogue

with market participants regarding potential business combinations, partnerships and other strategic alternatives.

Based on certain recent

preliminary inquiries, the Board has formed a special committee of independent directors and we have engaged a financial advisor to support

them in evaluating any indications of interest and exploring other potential strategic alternatives.

If we are unsuccessful in engaging

in a favorable strategic alternative, then our ability to grow our business and compete with larger, including combined, competitors may

be adversely affected.

Summary – Results of Operations

Net revenues decreased $22.7 million, or 4.4%, to $487.9 million in

2024 compared to $510.5 million in 2023.

This decrease was primarily driven by industry-wide demand softness for home-related products

coupled with a reduction in advertising spend to focus on more profitable marketing.

From a sales channel perspective in 2024, e-commerce

net revenues decreased $17.3 million, or 7.7%, Purple showroom net revenues increased $4.3 million, or 5.8% and wholesale net revenues

decreased $9.6 million, or 4.5%, as compared to 2023.

The growth in Purple showroom net revenues was primarily due to an increase in average

selling prices related to both strategic price adjustments and a sizeable shift in product mix to our higher priced Rejuvenate Products.

Net revenues also benefited in 2024 from a full year’s impact of five new Purple showrooms that opened in 2023.

In addition to demand

softness, our wholesale channel net revenues were negatively impacted in 2024 by intentionally exiting our relationship with certain customers.

Gross profit increased $9.3

million, or 5.4%, to $181.1 million in 2024 compared to $171.8 million in 2023 and our gross profit percentage improved to 37.1% in 2024

from 33.7% in 2023.

These increases reflected improved production effectiveness in 2024 coupled with the negative impact in 2023 of non-recurring

costs associated with the transition to our new product lineup.

The improved production effectiveness in 2024 was largely attributable

to supply chain initiatives and operational efficiency improvements implemented over the last 12 months.

Gross profit and the related

percentage were both negatively impacted by $15.4 million of charges recorded pursuant to the Restructuring Plan.

Although $1.6 million

of additional restructuring related charges are projected to be recorded in cost of revenues through the second quarter of 2025, we expect

the Restructuring Plan will further streamline our manufacturing operations and provide increased gross profits going forward.

Operating expenses decreased

$12.2 million, or 4.3% to $273.3 million in 2024 compared to $285.5 million in 2023.

This decrease was driven by an $11.1 million decrease

in marketing and sales costs due primarily to a decline in advertising spend, a $15.3 million decrease in general and administrative expense

due largely to non-recurring legal and professional costs incurred by the Board’s special committee in 2023 and a $6.9 loss on impairment

of goodwill recorded in 2023.

This decrease was offset in part by $20.0 million in charges related to the Restructuring Plan.

Other expense, net was $5.9

million in 2024 compared to $7.5 million in 2023.

Other expense, net in 2024 included interest expense of $17.5 million associated primarily

with the Related Party Loan, offset in part by other income of $11.5 million related to two payments received in full settlement of a

previously filed business interruption claim.

Net loss attributable to Purple

Innovation, Inc.

was $120.8 million for the year ended December 31, 2023 compared to $92.5 million for the year ended December 31, 2022.

The net loss in 2023 reflected an operating loss of $113.7 million and other expense of $7.5 million.

Outlook for Growth

We believe that our four

strategic initiatives;

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

will be fundamental to our future success.

To support our plans for future growth and sustained

profitability, we are focusing on the following opportunities:

Expansion of the Brand in the Premium and Luxe Categories— To complement and support our expansion into the higher-priced, higher margin categories, Purple is evolving its differentiated brand to broaden appeal.

We are investing in brand demand-driving marketing and advertising to create awareness, engagement, and preference for the Purple brand and for our products across all our sales channels.

We developed a reimagined brand associated with life enhancing sleep.

We believe that this strategic focus and investment will support our growth plans in the wholesale channel, in Purple showrooms, on Purple.com and online marketplaces.

Our Luxe (“Rejuvenate”) offerings are expected to increase average sales prices significantly.

We’ll also continue to harness the evangelism of the ever-growing base of Purple owners whose advocacy of our products is one of our brand’s greatest strengths.

Further direct-to-consumer growth and penetration— We believe that we are well positioned to leverage our brand, leading product portfolio, vertical integration and strong marketing capabilities to continue to attract new customers via our e-commerce channel.

We have invested in substantial improvements to our website and analytics, enhancing the education, shopping and buying experiences, and we have expanded our contact center, enabling live voice, chat and messaging with our sales associates.

These actions are intended to drive higher customer satisfaction, higher average order value and higher conversion.

Continued successful execution on Purple.com supports our planned e-commerce growth, and also supports further growth in all channels given the importance of the site during the customer decision journey.

In addition, as of December 31, 2023, we operated 60 Purple showrooms in cities across the United States.

At our showrooms, consumers can experience our brand, learn about and engage with our technology and purchase our products, assisted by our highly-trained retail sales associates who are able to both increase door productivity and trade customers up to higher price points.

Our showrooms enable us to strengthen the relationship with the consumer and develop a more profitable DTC revenue mix.

We anticipate continued expansion of our showrooms as we optimize the format.

Expanded wholesale retail relationships — We continue to work closely with existing retail partners to improve productivity to increase market share and sales, and we are forming new partnerships to expand our wholesale footprint.

With our new Premium and Luxe collections, we believe we have an increased opportunity to tap into the large brick-and-mortar category of the sleep products market.

As a result of our new product launch in 2023, we increased the number of wholesale partner slots (a term commonly used to describe a section in a wholesale partner’s store to display a particular product).

We believe this trend is a result of the developing interest in our Premium and Luxe product categories.

This allows retailers to market these products as alternatives to other premium products to increase sales on high-end mattresses with materially higher margins for the retailer and Purple.

Existing product innovation— We have a rich

history of product innovation and have developed core competencies in design, prototyping and manufacturing.

integration, which enables us to continuously refine our existing products and manufacturing processes, combined with our

strengthened research and development disciplines and go-to-market processes allows us to further develop our current product

categories with new offerings, enhance gross margins through improved pricing, and position our business to eventually expand to

additional categories with the potential to attract new customers and drive repeat sales.

New product launches — We focus intensively on innovation, to

support our long-range growth plan.

We have a pipeline of future products we are developing.

We are constantly exploring new technologies

and ways to expand the benefits of our technologies through new product offerings.

These efforts include innovations beyond our Hyper-Elastic

Polymer technology, including products in sleep, comfort and similar categories.

International expansion— We believe there is a substantial opportunity for international expansion.

We entered the Canada market in 2020 and we plan to expand in other foreign markets in the future.

We believe that our differentiated products, multi-channel distribution strategy, manufacturing capabilities, vertical integration and marketing expertise will help enable us to successfully enter new markets.

Improve Gross Margin —

We continue to attempt to manage input costs, operating efficiencies, and pricing to help further enhance our gross margin, including

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

There is no guarantee that

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

to predict, including the risks described under “Part I, Item 1A.

was $97.9 million in 2024 compared to a net loss of $120.8 million in 2023.

The $22.9 million decrease in net loss was primarily

due to a $9.3 million increase in gross profit and a $12.2 million decrease in operating expenses.

Excluding the impact of the $35.4 million

in restructuring, impairment and other related charges recorded in 2024, gross profit would have increased $24.7 million and operating

expenses would have decreased $32.2 million.

We believe, given the Restructuring

Plan and our new grid innovation, that we are well positioned to grow our business in this challenging market.

We are focused on the following

three key initiatives to drive sustainable and profitable market share:

Focus on pioneering new technologies to maintain our competitive advantage.

Our strategy focuses on offering a differentiated product that provides unique benefits and higher customer satisfaction, all fueled by our proprietary flexible gel technology.

Advancements and innovation in our grid technology has led to a new grid technology marking a significant advancement in our product lineup.

Our new DreamLayer grid, stacked with our original grid, creates a unique combination that continues to differentiate us in the market while driving superior comfort and support for an even more premium sleep experience.

This upgrade will result in a refresh of our current Rejuvenate line.

The new Rejuvenate 2.0 collection launches in the second quarter 2025 through our direct-to-consumer channels, followed by a full wholesale roll-out expected to be complete by the third quarter 2025.

In addition, we significantly expanded our distribution of pillows by launching our renowned DreamLayer and Freeform pillows into our wholesale channel.

Drive sales by promoting our product differentiation.

We started as a brand built on differentiation.

In recent years, the category has relied extensively on discount messaging to attract customers, with less focus on product benefits.

Our goal is to refocus our messaging to lead with our product differentiation.

We intend to effectively articulate the unique qualities of sleeping on our gel grid layer to be more effective and reach more consumers.

In our selling channels, we expect refocusing our messaging on promoting our differentiation will drive more and better quality traffic while improving conversion both online and in stores, and increase our share of retailer sales in our wholesale channel.

Prioritize gross margin improvements.

We expect continued gross margin gains to come from driving cost savings through plant consolidation efficiency gains, supplier diversification efforts and , improved scrap and yield results from continuous improvements efforts.

We are also ramping up in-house pillow production, changing vendors for key mattress components like coils and mattress covers and improving our delivery program to drive cost improvements and better deliveries.

These savings will enable us to reinvest in innovation and marketing to drive growth.

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

that are difficult to predict, including the risks described under “Part I, Item 1A.

Risk Factors” and elsewhere herein.

Therefore, actual results

may differ materially and adversely from those described above.

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

changes in the market or our business.

Therefore, actual results may differ materially and adversely from those described above.

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

focuses in response to changes in the market or our business.

Critical Accounting Policies and Estimates

In connection with the preparation of our consolidated financial statements

in conformity with United States generally accepted accounting principles (“GAAP”), we are required to make estimates and

assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, sales, expenses and the related

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

We base our assumptions,

estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time

our consolidated financial statements are prepared.

On a regular basis, management reviews the accounting policies, assumptions, estimates

and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

However, because

future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and

such differences could be material.

In connection with the preparation

of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”),

we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets,

liabilities, sales, expenses and the related disclosures.

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

the use of judgment.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that

management believes to be relevant at the time our consolidated financial statements are prepared.

On a regular basis, management reviews

the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly

and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could

differ from our assumptions and estimates, and such differences could be material.

Management believes the accounting

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Revenue Recognition

Our revenue recognition accounting

methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount and

timing of future sales returns, uncollectible accounts and variable consideration.

Our estimates of the amount and timing of sales returns,

uncollectible accounts and variable consideration are based primarily on historical trends, product return rates and current contract

Accrued sales returns increased from $5.1 million at December 31, 2022 to $5.4 million as of December 31, 2023.

Our allowance for

credit losses was not material at both December 31, 2023 and 2022.

We do not believe there is a reasonable likelihood that there will

be any material changes in our accounting methodology, future estimates or assumptions used to measure our estimated liability for sales

returns and exchanges, our allowance for credit losses or variable consideration.

However, if actual results are not consistent with our

estimates or assumptions, we may be exposed to losses or gains that could be material.

We review our long-lived assets and definite-lived intangible assets

for impairment as of December 31 and whenever events or changes in indicate the carrying amount

may not be recoverable.

If there are any indications of impairment, we perform a recoverability test by comparing the carrying

value of the assets to the estimated future cash flows.

Our revenue recognition accounting methodology contains uncertainties

because it requires management to make assumptions and to apply judgment to estimate the amount and timing of future sales returns, uncollectible

accounts and variable consideration.

Our estimates of the amount and timing of sales returns, uncollectible accounts and variable consideration

are based primarily on historical trends, product return rates and current contract terms.

Accrued sales returns increased from $5.4 million

at December 31, 2023 to $6.5 million as of December 31, 2024.

Our allowance for credit losses increased from a de minimis amount at December

31, 2023 to $1.1 million as of December 31, 2024.

We do not believe there is a reasonable likelihood that there will be any material changes

in our accounting methodology, future estimates or assumptions used to measure our estimated liability for sales returns and exchanges,

our allowance for credit losses or variable consideration.

However, if actual results are not consistent with our estimates or assumptions,

we may be exposed to losses or gains that could be material.

We review our long-lived assets

and definite-lived intangible assets for impairment as of December 31 and whenever events or changes in circumstances indicate

the carrying amount may not be recoverable.

If there are any indications of impairment, we perform a recoverability test by comparing

the carrying value of the assets to the estimated future cash flows (undiscounted and without interest charges - plus proceeds expected

from disposition, if any).

If the estimated undiscounted cash flows are less than the carrying value of the assets, the Company calculates

an impairment loss.

The impairment loss calculation compares the carrying value of its assets to the assets’ estimated fair value.

When the Company recognizes an impairment loss, the carrying amount of the impaired assets are reduced to estimated fair value based on

discounted cash flows, quoted market prices or other valuation techniques.

Assets to be disposed of are reported at the lower of the carrying

amount of the asset or fair value less costs to sell.

Cash flow models are reliant on various assumptions, including projected business

results and long-term growth factors.

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

the results of the recoverability test, we concluded that the long-lived assets and definite-lived assets were not impaired as of December

31, 2023 and no impairment charges were recorded.

do not amortize goodwill but test it for impairment each December 31 or whenever events or changes in circumstances indicate the carrying

amount may not be recoverable.

The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s

carrying amount, including goodwill, to the fair value of the reporting unit.

The ongoing decline in our market capitalization,

along with other qualitative considerations was determined to be a triggering event for potential goodwill impairment.

Accordingly, in

2023 we performed a goodwill impairment assessment analysis.

As a single reporting unit, we estimated the implied fair value of our goodwill

using a variety of valuation methods, including both the income and market approaches.

As a result of the impairment assessment performed,

we concluded goodwill was impaired and recorded an impairment charge to write off the entire $6.9 million balance of goodwill.

The Company determined there were indicators of impairment that existed at December 31, 2024 and

a recoverability test was required.

Based on the results of this recoverability test, the Company concluded its long-lived and definite-lived

assets were not impaired as of December 31, 2024 and no resultant impairment charges were recorded.

In conjunction with the Restructuring

Plan initiated by us in August 2024, we recorded impairment charges of $2.5 million on various long-lived assets associated with entering

into a sublease on one of the Utah manufacturing facilities that is expected to close during the first quarter of 2025.

The Restructuring Plan initiated

by us in August 2024 was determined to be a triggering event for potential impairment of intellectual property that was being accounted

for as an indefinite-lived intangible asset.

The resultant impairment assessment performed by us determined this asset no longer had any

supportable value and an $8.5 million impairment charge to write off the entire balance of the asset was recorded in 2024.

Accrued Warranty Liabilities

We provide a limited warranty on most of the products we sell.

warranty liability assessment methodology includes estimates in both our DTC and wholesale channels.

The estimated warranty costs associated

with products sold through DTC channels are expensed at the time of sale and included in cost of revenues.

The estimated warranty costs

associated with products sold through the wholesale channel are recorded at the time of sale and included as an offset to net revenues.

Estimates for warranty costs are based primarily on historical trends and warranty claim rates incurred, and are adjusted for any current

or expected trends as appropriate.

We regularly assess and adjust the estimate of accrued warranty claims by updating claims rates for

actual trends and projected claim costs.

We provide a limited warranty

on most of the products we sell.

Our warranty liability assessment methodology includes estimates in both our DTC and wholesale channels.

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

The estimated warranty costs associated with products sold through the wholesale channel are recorded at the time of sale

and included as an offset to net revenues.

Estimates for warranty costs are based primarily on historical trends and warranty claim rates

We regularly assess and adjust the estimate of accrued warranty claims by updating claims rates for any current or expected

trends and changes in projected claim costs.

We expect the estimated warranty liability to continue to increase as we have not yet reached

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gains that could be material.

Accounting for income taxes

requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included

in our financial statements or tax returns.

Under this method, deferred tax assets and liabilities are recognized for the estimated future

tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their

respective tax bases.

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

the deferred tax assets will be realized.

Deferred tax assets and liabilities

are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which temporary differences

are expected to be recovered or settled.

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

the year of the enacted rate change.

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

interest and changes in our valuation allowance.

Also, changes in existing federal and state tax laws and corporate income tax rates

could affect future tax results and the realization of deferred tax assets over time.

For purposes of evaluating our 2022 deferred tax assets and liabilities,

we entered a cumulative three-year loss position in the fourth quarter of 2022 due primarily to the impact of 2020’s positive results

of operations rolling out of the cumulative three-year period analysis.

Based on this and other available evidence, we concluded it was

more likely than not that our deferred tax assets would not be realized and a full valuation allowance for our net deferred tax assets

was appropriate at December 31, 2022.

Due to the increase in the valuation allowance, we recognized deferred tax expense of $213.9 million

We had previously recognized a deferred tax benefit of $3.9 million for 2021, based on our previous conclusion that it was more

likely than not that some of our deferred tax assets would be realized and that a full valuation allowance for our deferred tax assets

was not appropriate.

Income tax expense in 2023 was de minimis and we have continued to maintain a full valuation allowance on our deferred

tax assets based on our cumulative three-year results of operations.

We account for uncertainty

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

subject to examination by federal and state taxing authorities.

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

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

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

upon ultimate settlement.

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

ultimate outcome of various tax uncertainties.

Judgment is required in evaluating uncertain tax positions.

We evaluate our uncertain tax

positions quarterly based on various factors, including changes in facts or circumstances, tax laws or the status of audits by tax authorities.

Changes in the recognition or measurement of uncertain tax positions could have a material impact on our consolidated financial statements

in the period in which we make the change.

As of December 31, 2023 and 2022, the cumulative balance of unrecognized tax benefits were

$0.9 million and 0.6 million, respectively.

Tax Receivable Agreement

In connection with the Business

Combination, we entered into an agreement with InnoHold LLC (“InnoHold”), which provides for the payments to InnoHold of 80%

of the net cash savings, if any, in United States federal, state and local income tax that we realize (or are deemed to realize in certain

circumstances) in periods after the closing of the Business Combination 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, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed

interest deemed to be paid by us as a result of, and additional tax basis arising from, payments it makes under the agreement.

As noncontrolling interest holders exercise their right to exchange

or cause Purple LLC to redeem all or a portion of its Class B Units, a liability under the Tax Receivable Agreement may be recorded based

on 80% of the estimated future cash tax savings that we may realize as a result of increases in the basis of the assets of Purple LLC

attributed to us as a result of such exchange or redemption.

The amount of the increase in asset basis, the related estimated cash tax

savings and the attendant Tax Receivable Agreement liability to be recorded will depend on the price of our Common Stock at the time of

the relevant redemption or exchange.

There was no Tax Receivable Agreement liability outstanding at both

December 31, 2023 and 2022.

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

in the fourth quarter of 2022, we evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined

the likelihood of a future liability was not probable.

We continued to conclude during 2023 that the likelihood of a future liability

was not probable.

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

factors, including the timing of future exchanges, the market price of shares of Common Stock at the time of the exchanges, the extent

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

rise to the payments under the agreement.

As of December 31, 2023 though, we estimated that if all the remaining 0.2 million Class B units

were redeemed for shares of its Common Stock, the Tax Receivable Agreement liability would be approximately $168.6 million.

If the Company

experiences a change of control (as defined under the Tax Receivable Agreement, which includes certain mergers, asset sales and other

forms of business combinations and change of control events), it could be required to make an immediate lump-sum payment under the terms

of the Tax Receivable Agreement.

Management currently estimates the liability associated with this lump-sum payment (or “early termination

payment”) at December 31, 2023 would be approximately $119.8 million on a discounted basis.

Results of Operations

Results of Operations for the Year Ended December 31, 2023 compared

to the year ended December 31, 2022

The following table sets forth for the periods indicated, our results

of operations and the percentage of total net revenues represented by each line item in our consolidated statements of operations:

A discussion regarding our

financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 is presented

A separate discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared

to the year ended December 31, 2022 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December

31, 2023, filed with the SEC on March 12, 2024.

Results of Operations for the Year Ended December

31, 2024 compared to the year ended December 31, 2023

The following table sets forth

for the periods indicated, our results of operations and the percentage of total net revenues represented by each line item in our consolidated

statements of operations:

Years Ended December 31,

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Cost of revenues:

Cost of revenues

Cost of revenues - restructuring related charges

Total cost of revenues

Operating expenses:

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Research and development

Restructuring, impairment and other related charges

Loss on impairment of goodwill

1 unchanged sentence

Operating loss

Other (expense) income:

Other income (expense):

Interest expense

Other (expense) income, net

Other income (expense), net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Tax Receivable Agreement income

Total other (expense) income, net

Net (loss) income before income taxes

Total other expense, net

Net loss before income taxes

Income tax expense

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Revenues, Net

Net revenues decreased $62.7 million, or 10.9%, to $510.5 million for

2023 compared to $573.2 million for 2022.

The decrease in net revenues was primarily due to continued soft demand for home-related products.

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

the fourth quarter of 2023, our new product lineup became fully accessible across all sales channels which led to our highest level of

net revenues since the fourth quarter of 2021.

The decline in net revenues from a sales channel perspective in 2023 consisted of DTC net

revenues decreasing $33.8 million, or 10.2%, and wholesale net revenues declining $28.9 million, or 11.9%.

Within DTC, e-commerce net

revenues decreased $43.8 million, or 16.4%, while Purple showroom net revenues increased $10.0 million, or 15.8%.

The decrease in e-commerce

net revenues reflected the ongoing impact of softening demand and increased discounting on our legacy products.

The growth in Purple showroom

net revenues was driven by the number of our retail locations more than doubling over the past two years and the positive response to

our new products, especially those at higher price points in our Luxe product line.

The decrease in wholesale net revenues, which was

due in part to continued soft demand, was also affected by an increase in the warranty reserve for products sold to our wholesale customers

(for further information, see Item 9A – Previously Reported Material Weakness ) and discounted sales of floor models of our

new mattress and base products to our wholesale partners.

These decreases were offset in part by the impact of increasing new wholesale

partner “slots” (a term commonly used to describe a section in a wholesale partner’s store to display a particular product)

by approximately 10% in 2023 due to our wholesale partners positive response to the new product collection.

Net revenues decreased $22.7

million, or 4.4%, to $487.9 million in 2024 compared to $510.5 million in 2023.

This decrease was primarily driven by macroeconomic pressures

impacting U.S.

consumer behavior that fueled the ongoing impact of industry-wide demand softness for home-related products, a reduction

in advertising spend to focus on more profitable marketing, and the lapping effect on 2024 net revenues associated with the successful

launch of our new premium mattress products in 2023.

Also, our wholesale channel net revenues were negatively impacted by intentionally

exiting our relationship with certain customers.

From a sales channel perspective in 2024, DTC net revenues decreased $13.0 million, or

4.4%, and wholesale net revenues decreased $9.6 million, or 4.5%, as compared to 2023.

Within DTC in 2024, e-commerce net revenues decreased

$17.3 million, or 7.7%, while Purple showroom net revenues increased $4.3 million, or 5.8%, as compared to 2023.

The growth in Purple

showroom net revenues was driven by an increase in average selling prices related to both strategic price adjustments and a sizeable shift

in product mix to our higher priced Rejuvenate Products.

Net revenues also benefited in 2024 from a full year’s impact of five new

Purple showrooms that opened in 2023.

Cost of Revenues

Cost of revenues decreased $26.4 million, or 7.2%, to $338.7 million

for 2023 compared to $365.1 million for 2022.

This decrease was due in part to lower sales volume.

Our gross profit percentage, which

decreased to 33.7% of net revenues in 2023 from 36.3% in 2022, was adversely impacted by the transition to our new product lineup in 2023.

These transitional effects included reduced pricing on sales of new floor models to our wholesale partners, increased labor and freight

costs, decreased manufacturing efficiency, inventory reserves for legacy products and increased discounting of our legacy product line

mattresses sold through our DTC channels.

Total cost of revenues decreased

$32.0 million, or 9.4%, to $306.7 million in 2024 compared to $338.7 million in 2023.

This decrease was due to lower sales volume coupled

with lower production costs that were largely attributable to supply chain initiatives and operational efficiency improvements implemented

over the last 12 months.

This decrease was offset in part by $15.4 million of charges associated with the Restructuring Plan.

profit percentage, which increased to 37.1% of net revenues in 2024 from 33.7% in 2023, reflected improved production effectiveness in

2024 coupled with the negative impact in 2023 of non-recurring costs associated with the transition to our new product lineup.

These savings

were offset in part by the restructuring-related charges mentioned above.

Although $1.6 million of additional restructuring related charges

are projected to be recorded in cost of revenues through the second quarter of 2025, we expect the Restructuring Plan will further streamline

our manufacturing operations and provide increased gross profits going forward.

These future charges incorporate certain estimates that

are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plan.

Actual results may differ from these estimates and the completion of our plan could result in additional restructuring, impairment or

other related charges not currently anticipated.

Marketing and Sales

Marketing and sales expense increased $16.9 million, or 10.2%, to $182.3

million for 2023 compared to $165.4 million for 2022.

This increase was comprised of a $12.2 million, or 32.1%, increase in showroom marketing

and sales costs attributable to showroom expansion, a $5.7 million increase in advertising spending, and a $1.7 million increase in wholesale

marketing and sales costs.

These increases were offset in part by a $2.6 million decrease in other marketing costs.

The increase in advertising

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

The increase in wholesale marketing and sales

costs was primarily due to our wholesale partners transitioning to the new Premium and Luxe product lineup during the third and fourth

quarters of 2023.

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

the first half of 2022.

Marketing and sales expense as a percentage of net revenues was 35.7% in 2023 compared to 28.9% in 2022.

percentage of revenues reflected the impact of lower sales coupled with management’s expanded marketing efforts beginning in the

second quarter of 2023 to support the launch of our new product lineup.

Marketing and sales expense

decreased $11.1 million, or 6.1%, to $171.3 million in 2024 compared to $182.3 million in 2023.

This decrease was primarily due to a $7.2

million decrease in advertising spend and a $2.9 million decrease in wholesale marketing and sales costs compared to the corresponding

amounts in the prior year when we invested heavily to support the launch of our new product lineups.

As a percentage of net revenues,

advertising spend was 13.4% in 2024 compared to 14.2% in 2023.

The lower percentage of revenues reflected the impact of using more efficient

advertising techniques in 2024 as compared to the use of expanded marketing efforts in 2023.

General and Administrative

General and administrative

expense increased $7.7 million, or 10.1%, to $84.4 million for 2023 compared to $76.7 million for 2022.

This was primarily due to an $11.9

million increase in legal and professional fees associated with actions conducted by the Special Committee to address an unsolicited offer

to buy the Company and resolve subsequent litigation brought against us for actions taken by the Special Committee in response to the

These costs were offset in part by $2.8 million of proceeds received from claims filed under our directors and officers insurance

to reimburse us for a portion of the legal and professional fees incurred by the Special Committee.

expense decreased $15.3 million, or 18.2%, to $69.1 million in 2024 compared to $84.4 million in 2023.

This decrease was primarily due

to $11.3 million of non-recurring legal and professional costs incurred by the Board’s special committee in 2023 coupled with a

$4.9 million reduction in other professional fees in 2024.

These reductions were partially offset by a $2.0 million increase in compensation

and benefits expense related to the special recognition bonus and severance costs associated with the Restructuring Plan.

There will be

no additional severance cost associated with the Restructuring Plan recorded in general and administrative expense.

Research and Development

Research and development costs

increased $3.1 million, or 35.9%, to $11.9 million for 2023 compared to $8.8 million for 2022.

This increase primarily reflected our continued

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

increased $1.1 million, or 8.9%, to $13.0 million in 2024 compared to $11.9 million in 2023.

This increase was primarily due to a loss

incurred on the write off of a software development project coupled with increased investment in new research and development initiatives.

Restructuring, Impairment and Other Related

In August 2024, we initiated

a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress production in our Georgia

The Restructuring Plan also provided for a headcount reduction at our Utah headquarters to drive additional operating efficiencies.

Of the $36.4 million total costs in 2024 relating to the Restructuring Plan, $20.0 million were recorded as restructuring, impairment

and other related charges which included $3.1 million of employee-related costs, $0.1 million of accelerated depreciation, $5.2 million

related to write-downs of long-lived assets to be disposed of or equipment in progress that will not be put in service, $11.0 million

of impairment charges which included $2.5 million associated with entering into a sublease for one of the Utah manufacturing facilities

to be closed and $8.5 million for the write-off of an indefinite-lived intangible asset, and $0.6 million for other related charges.

expect to record additional restructuring and other related charges of $3.0 million through the second quarter of 2025.

These charges

incorporate certain estimates that are provisional and include management judgments and assumptions that could change materially as we

complete the execution of our plan.

Actual results may differ from these estimates and the completion of our plan could result in additional

restructuring, impairment or other related charges not currently anticipated.

Loss on Impairment of Goodwill

The ongoing decline in our

market capitalization, along with other qualitative considerations was determined to be a triggering event for potential goodwill impairment.

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

The Company is considered as a single reporting unit.

We estimated the implied fair value of our goodwill using a variety of valuation methods, including both the income and market approaches.

As a result of the impairment assessment performed, we determined goodwill was impaired and recorded an impairment charge to write off

our entire $6.9 million balance of goodwill.

We recorded a $6.9 million

loss on impairment of goodwill in the third quarter of 2023 because of an impairment assessment performed that determined goodwill was

An ongoing decline in our market capitalization, along with other qualitative considerations, was determined to be a triggering

event for potential goodwill impairment.

The Company, considered as a single reporting unit, estimated the implied fair value of its goodwill

using a variety of valuation methods, including both the income and market approaches.

Operating Loss

Operating loss increased $71.0

million, or 166.0% to $113.7 million for 2023 compared to $42.8 million for 2022.

The larger operating loss primarily resulted from a

decrease in gross profit that was driven by reduced sales and a lower gross profit percentage, an increase in marketing and sales costs

related to the launch of our new products and showroom expansion, an increase in general and administrative expense resulting from legal

and professional fees incurred by the Special Committee, and a loss on impairment of goodwill.

Operating loss decreased $21.5

million, or 18.9%, to $92.2 million in 2024 compared to $113.7 million in 2023.

The smaller operating loss primarily resulted from an

increase in gross profit, a decrease in advertising spend, a decrease in general and administrative expense and a loss on impairment of

goodwill in 2023.

These decreases in operating loss were partially offset by restructuring and impairment charges recorded in 2024 related

to the Restructuring Plan.

We expect to record additional $4.6 million of costs relating to the Restructuring Plan through the second

quarter of 2025.

These charges include certain estimates that are provisional and incorporate management judgments and assumptions that

could change materially as we complete the execution of our plan.

Actual results may differ from these estimates, and the completion of

our plan could result in additional restructuring, impairment or other related charges not currently expected.

Interest Expense

Interest expense totaled $17.5

million for 2023 compared to $3.5 million for 2022.

Interest expense in 2023 was primarily comprised of $2.1 million related to the 2023

Credit Agreements entered into in August 2023 and $1.3 million related to the 2020 Credit Agreement that was terminated upon entering

into the 2023 Credit Agreements.

Interest expense was reduced by capitalized interest of $1.5 million and $0.7 million during 2023 and

2022, respectively.

Other (Expense) Income, Net

Other expense was $1.2 million for 2023 compared to other income of

$0.4 million for 2022.

Other expense in 2023 was primarily comprised of a $1.7 million loss on the disposal of property and equipment,

partially offset by other income of $0.5 million.

Other income in 2022 included an estimated fair value gain of $1.4 million related to

a preexisting legal matter between us and Intellibed that was effectively settled upon our acquisition of Intellibed in August 2022.

million in 2024 compared to $2.0 million in 2023.

This increase was primarily due to $16.8 million of interest incurred on the Related

Party Loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit

We elected for interest to be capitalized to the outstanding loan balance in accordance with the terms of the Amended and

Restated Credit Agreement which resulted in $9.7 million of interest expense being added to the Related Party Loan during 2024.

interest expense in 2024 included $7.2 million of debt issuance cost amortization associated with the Related Party Loan.

Interest expense

in 2023 was primarily comprised of $2.1 million related to the 2023 Credit Agreements entered into in August 2023 and $1.3 million related

to the 2020 Credit Agreement that was terminated upon entering into the 2023 Credit Agreements.

Interest expense in 2023 was reduced by

capitalized interest of $1.5 million.

Other Income (Expense), Net

Other income was $11.5 million

in 2024 compared to other expense of $1.2 million in 2023.

Other income in 2024 was primarily comprised of two payments totaling $11.6

million received in full settlement of a previously filed business interruption claim.

Other expense in 2023 consisted of a $1.7 million

loss on the disposal of property and equipment, partially offset by other income of $0.5 million.

Loss on Extinguishment of Debt

In August 2023, we entered

into the 2023 Credit Agreements that terminated our 2020 Credit Agreement.

While we had no outstanding borrowings under the 2020 Credit

Agreement at that time, the termination was accounted for as an extinguishment of debt and $3.1 million of unamortized debt issuance costs

were recorded as loss on extinguishment of debt in 2023.

In February 2023, we entered into a fifth amendment to the since terminated 2020

Credit Agreement and repaid in full the $24.7 million outstanding balance of the related term loan plus accrued interest.

This amendment

was accounted for as an extinguishment of debt and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment

of debt in 2023.

Loss on extinguishment of

debt totaled $3.4 million in 2024 compared to $4.3 million in 2023.

In January 2024, we entered into the Amended and Restated Credit Agreement

that terminated and paid off the outstanding borrowings under our 2023 Credit Agreement.

This termination was accounted for as an extinguishment

of debt and $3.4 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt.

In February 2023, we accounted

for an amendment to the 2020 Credit Agreement as an extinguishment of debt and $1.2 million of unamortized debt issuance costs were recorded

as loss on extinguishment of debt in 2023.

In connection with the execution of the 2023 Credit Agreements in August 2023, the Company

terminated its 2020 Credit Agreement.

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

termination was accounted for as an extinguishment of debt and $3.1 million of unamortized debt issuance costs were recorded as loss on

extinguishment of debt in 2023.

Change in Fair Value – Warrant Liabilities

Unexercised 1.9 million sponsor warrants expired in February 2023 and

were cancelled.

These sponsor warrants had no fair value on the date of expiration and a de minimis fair value at the end of 2022.

2022, we recognized a gain of $4.3 million related to a decrease in the fair value of the warrants outstanding at the end of 2022.

Tax Receivable Agreement Income

In connection with the Business Combination, we entered into an agreement

which generally provides for the payment by us to InnoHold of 80% of certain tax benefits, if any, that we realize as a result of increases

in our allocable share of the tax basis of the tangible and intangible assets of Purple LLC.

For reasons similar to those that led to

the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant to

the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.

As result, we reduced this liability

to zero at December 31, 2022 and recognized Tax Receivable Agreement income of $162.0 million in 2022.

There was no Tax Receivable Agreement

liability recorded during 2023.

In January 2024, in connection

with the Amended and Restated Credit Agreement, we issued to the Lenders Warrants to purchase 20.0 million shares of our Class A Stock.

These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities.

The initial liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included

in debt issuance costs.

This liability is being re-measured to fair value at each reporting date or exercise date with changes in the

fair value included in earnings.

At December 31, 2024, the Warrants had a fair value of $16.1 million.

We recognized a gain of $3.5 million

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

on the date of issuance.

Income Tax Expense

Income tax expense was de minimis for 2023 compared to $213.2 million

Income tax expense in 2022 primarily reflected the impact of establishing a full valuation allowance on our deferred tax assets

by the end of that year and recognizing deferred tax expense of $213.9 million in 2022.

Based on available evidence, we concluded it was

more likely than not that our deferred tax assets would not be realized and that a full valuation allowance for deferred tax assets was

Noncontrolling Interest

We calculate net income or loss attributable to noncontrolling interests

on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling interests was $0.5 million

for 2023 compared to a net loss of $0.3 million for 2022.

Results of Operations for the Year Ended December 31, 2022 compared

to the year ended December 31, 2021

The following table sets forth for the periods indicated, our results

of operations and the percentage of total net revenues represented by each line item in our consolidated statements of operations:

Year Ended December 31,

Revenues, net

Cost of revenues

Operating expenses:

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating loss

Other (expense) income:

Interest expense

Other (expense) income, net

Change in fair value – warrant liabilities

Tax Receivable Agreement income

Total other income, net

Net income before income taxes

Income tax (expense) benefit

Net (loss) income

Net loss attributable to noncontrolling interest

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

Revenues, Net

Net revenues decreased $151.8 million, or 20.9%, to $573.2 million

for 2022 compared to $725.0 million for 2021.

The decline in net revenues reflected a $126.1 million decrease in mattress sales, a $16.9

million decrease in other sleep product sales and a $8.7 million decrease in other product sales.

The decrease in net revenues was primarily

due to softening demand for home related products and the negative effect of inflationary pressures on consumer discretionary spending,

with consumer spending shifting towards services and experiences.

In addition, net revenues in 2021 were positively impacted by demand

in the first half of 2021 that was driven by the effects of COVID and economic stimulus.

The decline in net revenues from a sales channel

perspective consisted of DTC net revenues decreasing $143.7 million, or 30.3% and wholesale net revenues decreasing $8.1 million, or 3.2%.

Within the DTC channel, e-commerce net revenue declined $174.4 million, or 39.5%, and Purple showroom net revenue increased $30.7 million,

The decrease in e-commerce net revenues reflected the impact of the reasons stated above coupled with customers shifting away

from e-commerce buying.

The increase in Purple showroom net revenue was mainly driven by the number of our showrooms increasing from 28

at the end of 2021 to 55 at the end of 2022.

The decrease in wholesale net revenues primarily reflected reduced purchases by our existing

wholesale partners during 2022 due primarily to declining wholesale door productivity.

This decrease was offset in part by the effects

of adding approximately 900 net new wholesale partner doors in fiscal 2022 coupled with the $9.7 million in net revenues from the Intellibed

acquisition, which contributed primarily wholesale net revenues.

Cost of Revenues

Cost of revenues decreased

$66.1 million, or 15.3%, to $365.1 million for 2022 compared to $431.3 million for 2021 due primarily to the decrease in sales volume.

Our gross profit percentage, which decreased to 36.3% of net revenues in 2022 from 40.5% in 2021, was adversely impacted by elevated levels

of materials, labor and freight costs and lower demand levels and the shift to a higher proportion of wholesale channel revenue, which

carries a lower average selling price than sales from our e-commerce and retail showroom channels, partially offset by savings realized

from cost reduction initiatives.

Our efficiency and cost saving initiatives, including greater balancing of production and fulfillment

operations between the facilities, were initiated during the first half of fiscal 2022 and did not become fully impactful until the second

half of the year.

Marketing and Sales

Marketing and sales expense

decreased $73.9 million, or 30.9%, to $165.4 million for 2022 compared to $239.3 million for 2021.

This decrease was driven by a $95.5

million, or 58.9%, decline in advertising spending and a $15.0 million decrease in other marketing costs.

The reduction in advertising

spending was primarily due to management’s ongoing efforts to improve marketing efficiency, conserve profitability in a challenging

macroeconomic environment and align spending with current demand levels.

The decrease in other marketing costs reflected the impact of

cost management efforts, including marketing headcount reductions, executed earlier in 2022.

These decreases were offset in part by a

$13.8 million increase in wholesale-related marketing and sales costs due in part to growing the sales organization of our wholesale business

and a $22.8 million increase in marketing and sales costs associated with showroom expansion.

Marketing and sales expense as a percentage

of net revenues was 28.7% in 2022 compared to 33.0% in 2021.

General and Administrative

General and administrative expense increased $4.6 million, or 6.4%,

to $76.7 million for 2022 compared to $72.1 million for 2021.

This increase was primarily due to a $3.7 million increase in payroll

and benefits expense and $1.2 million in costs associated with the Intellibed acquisition, offset in part by a $0.7 million decrease

in legal and professional fees.

The increase in payroll and benefit costs mainly reflected the impact of job reclassifications for certain

employees in the first half of 2022.

The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions

and other costs we paid in the prior year for shares sold by Coliseum.

This decrease was partially offset by a one-time separation fee

for not continuing with the services of a professional services provider, expenses incurred by the Special Committee and Intellibed transaction

Research and Development

Research and development costs increased $1.8 million, or 26.2%, to

$8.8 million for 2022 from $6.9 million for 2021.

This increase primarily reflected higher payroll and benefit costs as our renewed focus

on product innovation resulted in the growth of our research and development team, which included the addition of our chief innovation

Operating (Loss) Income

Operating loss increased $18.2 million, or 174.0% to $42.8 million

for 2022 compared to $24.6 million for 2021.

This increase primarily resulted from a decrease in gross profit that was driven by lower

sales and a reduced gross profit margin, offset in part by a decrease in operating expenses related primarily to lower advertising spend.

Interest Expense

Interest expense totaled $3.5

million for 2022 compared to $1.9 million for 2021.

Interest paid on our borrowings increased $1.0 million as the average interest rate

paid increased from 3.50% in 2021 to 6.31% in 2022, due mainly to the change in terms from our credit agreement amendment in February

Interest expense was also impacted by a $0.3 million increase in interest paid on the $55.0 million revolving line of credit

that we drew down in November 2021 and repaid in full on March 31, 2022.

In addition, interest expense reflected a $0.4 million increase

in debt issuance cost amortization.

We incurred $2.5 million in debt issuance costs upon entering into the 2020 Credit Agreement

and incurred an additional $1.2 million in debt issuance costs for two of the amendments entered into in 2022.

Other (Expense) Income, Net

Other income totaled $0.4 million

for 2022 compared to other expense of $0.2 million for 2021.

The increase in other income primarily resulted from the effective settlement

of a preexisting legal matter upon our acquisition of Intellibed on August 31, 2022 at an estimated fair value gain of $1.4 million.

impact of this gain was offset in part by a $0.6 million loss recorded on the disposal of production machinery and equipment.

Change in Fair Value – Warrant Liabilities

The 1.9 million sponsor warrants outstanding had a negligible fair

value at December 31, 2022 compared to a fair value of $4.3 million at December 31, 2021.

This decrease in fair value was primarily due

to the five-year term of the sponsor warrants ending on February 2, 2023 coupled with our Common Stock price declining 63.9% to $4.79

at the end of 2022.

During 2022 and 2021, we recognized gains of $4.3 million and $24.1 million, respectively, related to decreases in

the fair value of the sponsor warrants exercised during the respective periods or that were outstanding at the end of the respective periods.

Tax Receivable Agreement Income

In connection with the Business

Combination, we entered into a Tax Receivable Agreement which generally provides for the payment by us to InnoHold of 80% of certain tax

benefits, if any, that we realize as a result of increases in our allocable share of the tax basis of the tangible and intangible assets

of Purple LLC.

As a result of the initial merger transaction and subsequent exchanges of Class B Units for Common Stock, the long-term

portion of the potential future Tax Receivable Agreement liability totaled $162.2 million at December 31, 2021.

This balance was reduced

by $0.2 million for a future payment that was classified as a short-term liability during 2022.

For similar reasons that led to the recording

of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant to the tax receivable

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

As result, we reduced the Tax Receivable Agreement liability

to zero at December 31, 2022 and we recognized Tax Receivable Agreement income of $162.0 million for 2022.

Income Tax (Expense) Benefit

Income tax expense was $213.2 million for 2022 compared to an income

tax benefit of $1.5 million for 2021.

For purposes of evaluating our deferred tax assets, we entered a cumulative three-year loss position

during the fourth quarter of 2022 due primarily to the impact of positive 2020 results of operations rolling out of the cumulative three-year

period analysis.

Based on this and other available evidence, we concluded it was more likely than not that our deferred tax assets would

not be realized and a full valuation allowance for our net deferred tax assets was appropriate.

Due to the increase in our valuation allowance,

we recognized deferred tax expense of $213.9 million for 2022.

This was offset in part by a current tax benefit of $0.7 million recorded

We had income tax expense

of $0.1 million in 2024 compared to a de minimis amount of income tax expense in 2023.

Income tax expense in 2024 was related to various

Noncontrolling Interest

2 unchanged sentences

Net loss attributed

to noncontrolling interests was $0.3 million and $0.2 million in 2022 and 2021, respectively.

to noncontrolling interests was $0.2 million and $0.5 million for 2024 and 2023, respectively.

Liquidity and Capital Resources

Our principal sources of funds

are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated

Credit Agreement and proceeds received from offerings of our equity capital.

Principal uses of funds consist of interest

payments on our Loan , capital expenditures, working capital needs, and operating lease payment obligations.

Our working capital

needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and

operating lease payment obligations.

Our unrestricted cash and working capital positions were $26.9 million and $30.8 million, respectively,

as of December 31, 2023 compared to $40.0 million and $61.6 million, respectively, as of December 31, 2022.

Cash used for capital expenditures

decreased from $38.2 million in 2022 to $15.2 million in 2023.

Our capital expenditures in 2023 primarily consisted of additional investments

made in our manufacturing operations and showroom facilities.

After entering into the Amended and Restated Credit Agreement in January

2024, our unrestricted cash balance increased to approximately $48.0 million.

Additional details about our Amended and Restated Credit

Agreement is described above under “ Recent Developments in our Business – Debt Financing ”

Based on our current projections, we believe our cash on hand, amounts

available under our Amended and Restated Credit Agreement, and expected cash to be generated from our operations will be sufficient

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

In the event our

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

based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue our growth strategies.

could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy customer orders, and be unable

to retain all of our employees.

In addition, we may be forced to restructure our obligations to creditors, pursue work-out options

or other protective measures.

We may also need to seek additional funding sources including new debt from subordinated lenders or equity

However, such additional debt or equity capital may not be available on terms favorable to us or at all.

Our ability to raise

additional debt financing would require the consent of the Lenders.

are cash inflows generated from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our credit

agreements and proceeds received from offerings of our equity capital.

Principal uses of funds consist of capital expenditures,

working capital needs, and operating lease payment obligations.

In accordance with the terms of the Amended and Restated Credit Agreement

and to manage our cash obligations, we have elected to pay interest in kind and have it added to the principal amount of the loan.

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

and operating lease payment obligations.

Our cash and cash equivalents and working capital positions were $29.0 million and $25.4 million,

respectively, as of December 31, 2024 compared to $26.9 million and $30.8 million, respectively, as of December 31, 2023.

Cash used for

capital expenditures decreased from $15.2 million in 2023 to $7.4 million in 2024.

Our capital expenditures in 2024 have primarily consisted

of additional investments made in our manufacturing operations and showroom facilities.

Additional details regarding our current debt

are described above under “ Recent Developments in our Business – Debt Financing ”

Our financial statements have

been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities

and commitments in the normal course of business.

In connection with our preparation of our consolidated financial statements for the

year ended December 31, 2024, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate,

which raised substantial doubt as to our ability to continue as a going concern within one year after the date of the issuance of such

financial statements.

We had cash and cash equivalents of approximately $29.0 million and

an accumulated deficit of $573.9 million at December 31, 2024, and a net loss of $97.9 million and net cash used

in operating and investing activities of $25.4 million for the year ended December 31, 2024.

We entered into the 2025

Amendment, pursuant to which we received $19.0 million on March 12, 2025, in additional term loan proceeds from the 2025 Term Loan Lenders.

We have also taken a number of

other actions to increase cash flow.

In August 2024, we implemented the Restructuring Plan to consolidate manufacturing operations to

create efficiencies and cost savings.

We have realized and plan to continue to realize direct material cost savings through supply chain

initiatives and supplier diversification efforts.

We have taken additional cost-saving initiatives in 2025 to maintain liquidity to support

our operations and strategies.

Accordingly, we

concluded that we will have sufficient liquidity to fund our operations for at least one year from the date of this Annual Report on

Although we currently expect

our sources of capital to be sufficient to meet our near-term liquidity needs, there can be no assurance that such sources will be sufficient

to satisfy our liquidity requirements in the future.

If we cannot generate or obtain needed funds, we might be forced to make substantial

reductions in our operating and capital expenses or pursue restructuring plans, which could adversely affect our business operations and

ability to execute our current business strategy.

Other Contractual Obligations

1 unchanged sentence

obligations primarily include operating lease payment obligations.

See Note 8 of our consolidated financial statements for additional

Refer to Note 9 of our consolidated financial statements for additional

information on leases.

1 unchanged sentence

year ended December 31, 2023

The following summarizes

our cash flows for the years ended December 31, 2023 and 2022 as reported in our consolidated statements of cash flows (in thousands):

The following summarizes our

cash flows for the years ended December 31, 2024 and 2023 as reported in our consolidated statements of cash flows (in thousands):

Years Ended December 31,

5 unchanged sentences

Cash, end of the period

Cash used in operating activities increased $25.9 million to $54.7

million in 2023 as compared to 2022.

The increase in cash used in operating activities was offset in part by proceeds received from an

underwritten stock offering.

The increase in cash used in operating activities primarily reflected the impact of a $28.5 million increase

in our net loss.

Cash used in investing activities was $16.1 million for 2023 compared

to $34.5 million for 2022.

Capital expenditures of $15.2 million in 2023 primarily consisted of additional investments made to our

manufacturing operations and the addition of new showroom facilities.

Our capital expenditures of $38.2 million in 2022 primarily consisted

of additional investments made for 27 new showroom facilities opened during the year.

In 2022, cash flows used in investing activities

were offset in part by the net impact of cash received in the acquisition of Intellibed that consisted of $1.9 million of cash and cash

equivalents and $1.7 million of restricted cash.

Cash provided by financing activities was $55.8 million in 2023 compared

Net cash used in operating activities was $17.9 million in 2024 compared

to $54.7 million in 2023.

Financing activities during 2023 included $57.0 million of net proceeds received from a stock offering, $25.0

million from the Term Loan Agreement entered into in August 2023, and $17.0 million in draws on the ABL Loans.

These cash proceeds were

partially offset by a $24.7 million payment to pay off the term loan from the 2020 Credit Agreement, $12.0 million in repayments against

the ABL Loans, $6.1 million in payments on debt issuance costs, and $0.4 million of other payments.

Financing activities in 2022 included

$92.9 million of net proceeds received from an underwritten stock offering, offset in part by a $55.0 million revolving line of credit

payment, a $15.0 million prepayment made on the term loan, a $5.8 million payment on the Tax Receivable Agreement, and $3.8 million in

other debt-related payments.

Operating activities in 2024 reflected a net loss of $98.1 million offset in part by non-cash adjustments of

$75.9 million and working capital changes of $4.3 million.

The non-cash adjustments primarily consisted of depreciation and amortization

totaling $35.3 million, non-cash restructuring, impairment and other related charges of $20.2 million, paid-in-kind interest on the Related

Party Loan of $9.7 million, non-cash interest from amortization of debt issuance costs of $7.2 million, and losses on the extinguishment

of debt of $3.4 million.

The working capital changes were primarily comprised of a $4.7 million decrease in accounts receivable and a

$6.0 million decrease in inventories, offset in part by a $6.4 million decrease in accounts payable.

Operating activities in 2023 reflected

a net loss of $121.2 million offset in part by non-cash adjustments of $44.1 million and working capital changes of $22.4 million.

non-cash adjustments primarily consisted of depreciation and amortization totaling $25.1 million, an impairment charge to write off $6.9

million of goodwill, stock-based compensation of $4.9 million, and losses on the extinguishment of debt of $4.3 million.

The working capital

changes were primarily comprised of an $11.1 million increase in accrued warranties, a $4.4 million increase in accounts payable accounts

and a $5.9 million decrease in inventories.

Net cash used in investing activities was $7.5 million in 2024 compared

to $16.1 million in 2023.

Capital expenditures of $7.5 million and $15.2 million in 2024 and 2023, respectively, consisted primarily of

additional investments made to our manufacturing operations and showroom facilities.

Net cash provided by financing

activities totaled $27.5 million in 2024 compared to $55.8 million in 2023.

Financing activities in 2024 included $61.0 million of proceeds

received from the Related Party Loan, offset in part by a $25.0 million payment to pay off the term loan from the 2023 Credit Agreement,

$5.0 million in repayments against the revolving debt outstanding from the 2023 Credit Agreement, and $3.5 million in payments on debt

issuance costs associated with entering into the Amended and Restated Credit Agreement.

Financing activities during 2023 included $57.0

million of net proceeds received from a stock offering, $25.0 million from the Term Loan Agreement entered into in August 2023, and $17.0

million in draws on the revolving debt pursuant to the 2023 Credit Agreement.

These cash proceeds were partially offset by a $24.7 million

payment to pay off the term loan from the 2020 Credit Agreement, $12.0 million in repayments against the revolving debt outstanding from

the 2023 Credit Agreement, $6.1 million in payments on debt issuance costs, and $0.4 million of other payments.

Recent Accounting Pronouncements

3 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis