What changed in this filing

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Item 1. Financial Statements

2025-05-06 compared with 2024-11-04 · 765 added, 682 removed, 625 unchanged (70% of the section changed)

FINANCIAL STATEMENTS

INNOVATION, INC.

Consolidated Balance Sheets

– in thousands, except for par value)

September 30,

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for

Current assets:

19 unchanged sentences

Related party debt

Long-term debt, net of current portion

Accrued warranty liabilities, net of current portion

7 unchanged sentences

$ 0.0001 par value, 210,000 shares authorized;

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

107,955 issued and outstanding at March 31, 2025 and 107,545 issued and outstanding at December 31, 2024

Class B common stock;

$ 0.0001 par value, 90,000 shares authorized;

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

165 issued and outstanding at March 31, 2025 and at December 31, 2024

Additional paid-in capital

4 unchanged sentences

Total liabilities and stockholders’ equity

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

INNOVATION, INC.

Consolidated Statements of Operations

– in thousands, except per share amounts)

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per

share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Revenues, net

8 unchanged sentences

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

3 unchanged sentences

Other income, net

Gain (loss) on extinguishment of debt

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Total other income (expense), net

3 unchanged sentences

Net loss attributable to Purple Innovation, Inc.

$ ( 102,424 )

Net loss per share:

Weighted average common shares outstanding:

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

INNOVATION, INC.

Consolidated Statements of Stockholders’ Equity

– in thousands)

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’

(unaudited – in thousands)

Stockholders’

2 unchanged sentences

$ ( 573,866 )

of stock for Intellibed acquisition

of stock under equity compensation plans

of transactions affecting NCI

– March 31, 2024

$ ( 526,186 )

income (loss)

Stock-based compensation

of common stock under equity compensation plans

of transactions affecting NCI

– June 30, 2024

$ ( 526,159 )

Stock-based compensation

of transactions affecting NCI

– September 30, 2024

$ ( 565,387 )

Stockholders’

Noncontrolling

– December 31, 2022

$ ( 355,212 )

Stock-based compensation

Issuance of stock under equity

compensation plans

Issuance of stock upon underwritten

offering, net of costs

of transactions affecting NCI

1 unchanged sentence

$ ( 593,003 )

Stock-based compensation

Exchange of stock

Proportional Representation Preferred

Linked Stock redemption fee

Additional costs associated

with underwritten public stock offering

Issuance of stock under equity

compensation plans

of transactions affecting NCI

Balance – June 30,

Stockholders’

Noncontrolling

Balance – December 31, 2023

$ ( 475,969 )

Stock-based compensation

Exchange of stock

of transactions affecting NCI

– September 30, 2023

Issuance of stock for Intellibed

Issuance of stock under equity compensation

transactions affecting NCI

Balance – March 31, 2024

$ ( 526,186 )

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

INNOVATION, INC.

Consolidated Statements of Cash Flows

– in thousands)

Nine Months Ended

September 30,

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

Three Months Ended

Cash flows from operating activities:

$ ( 102,841 )

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

3 unchanged sentences

Non-cash restructuring, impairment and other related charges

Loss on impairment of goodwill

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Stock-based compensation

Loss on disposal of property and equipment

Change in fair value – warrant liabilities

Stock-based compensation

Changes in operating assets and liabilities:

10 unchanged sentences

Cash flows from investing activities:

Excess restricted cash returned to acquiree

Sale of property and equipment

Purchase of property and equipment

2 unchanged sentences

Cash flows from financing activities:

Proceeds from related party loan

Payments on term loan

Payments on revolving line of credit

Proceeds from related party loan

Proceeds from term loan

Payments for debt issuance costs

Proceeds from stock offering

Payments for public offering costs

Proportional Representation Preferred Linked Stock redemption fee

Tax receivable agreement payments

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

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

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

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the period

Supplemental disclosures of cash flow information:

3 unchanged sentences

Property and equipment included in accounts payable

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

INNOVATION, INC.

to Condensed Consolidated Financial Statements

The mission of Purple

Innovation, Inc.

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

The Company, collectively

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

brand founded on comfort product innovation with premium offerings.

The Company designs and manufactures a variety of innovative, branded

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

The Company markets and sells

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

Warrants issued

Amendment fee added to principal of loan

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The mission of Purple Innovation,

(the “Company” or “Purple Inc.”) is to deliver the greatest sleep ever invented.

The Company, collectively with its subsidiary Purple Innovation, LLC

(“Purple LLC”) is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation

with premium offerings, and have since expanded into brick & mortar stores as a true omni-channel brand.

The Company offers a variety

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

markets and sells its products through its direct-to-consumer e-commerce channels, retail brick-and-mortar wholesale partners, Purple

showrooms, and third-party online retailers.

The Company was incorporated

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

the sole managing member of Purple LLC, Purple Inc.

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

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

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.

Summary of Significant Accounting Policies

of Presentation and Principles of Consolidation

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

Basis of Presentation

and Principles of Consolidation

The unaudited condensed

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

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

All intercompany balances and

transactions have been eliminated in consolidation.

As of September 30, 2024, Purple Inc.

held 99.8 % of the common units of Purple LLC

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

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

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

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

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

pursuant to such rules and regulations.

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

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

for the fiscal year ended December 31, 2023.

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

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

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

The results of the three and

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

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

Interest Entities

LLC is a variable interest entity.

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

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

to absorb losses and receive benefits that are potentially significant.

At September 30, 2024, Purple Inc.

had a 99.8 % economic interest

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

condensed consolidated financial statements contained herein.

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

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

For further discussion see Note 16 — Stockholders’

All intercompany balances

and transactions have been eliminated in consolidation.

As of March 31, 2025, Purple Inc.

held 99.85 % of the common units of Purple

LLC and Purple LLC Class B Unit holders held 0.15 % of the common units in Purple LLC.

The accompanying unaudited

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

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

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

Certain information

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

to such rules and regulations.

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

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

fiscal year ended December 31, 2024.

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

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

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

The results of the three months

ended March 31, 2025 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2025 or for

any other interim period or other future year.

The accompanying 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 unaudited condensed consolidated financial statements for the three

months ended March 31, 2025, the company conducted an evaluation as to whether there were conditions and events, considered in the aggregate,

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

financial statements.

The Company had cash and cash equivalents of approximately $ 21.6 million and

an accumulated deficit of $ 593.0 million at March 31, 2025, a net loss of $ 19.1 million and net cash used in operating

and investing activities of $ 25.2 million for the three months ended March 31, 2025.

The Company entered into the 2025 Amendment

and the Second 2025 Amendment, pursuant to which it received an aggregate of $ 39.0 million in additional term loan proceeds.

The Company has also

taken a number of other actions to increase cash flow.

In August 2024, the Company implemented the Restructuring Plan to consolidate

manufacturing operations to create efficiencies and cost savings.

The Company has realized and plans to continue to realize direct

material cost savings through supply chain initiatives and supplier diversification efforts.

The Company has taken additional

cost-saving initiatives in the first quarter of 2025 to maintain liquidity to support its operations and strategies.

Additionally,

the Company entered into an agreement with Mattress Firm, Inc.

(“Mattress Firm”), a business unit of Somnigroup

International, Inc.

(“SGI”) to expand its inventory of the Company’s products across SGI’s national store

network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots (see Note 21 — Subsequent

Accordingly, the Company concluded

that it will have sufficient liquidity to fund its operations for at least one year from the date of this Quarterly Report on Form 10-Q.

Although the Company currently

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

be sufficient to satisfy its liquidity requirements in the future.

If the Company cannot generate or obtain needed funds, it might be

forced to make substantial reductions in its operating and capital expenses or pursue restructuring plans, which could adversely affect

its business operations and ability to execute its current business strategy.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Variable Interest Entities

Purple LLC is a variable interest entity.

The Company determined that it is

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

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

At March 31, 2025, Purple Inc.

had a 99.85 % economic interest in Purple LLC and consolidated 100 % of Purple LLC’s assets, liabilities

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

The holders of

Class B Units of Purple LLC (“Class B Units”) held 0.15 % of the economic interest in Purple LLC as of March 31, 2025.

further discussion see Note 15 — Stockholders’ Equity .

Use of Estimates

The preparation of the unaudited

6 unchanged sentences

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

losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and liabilities assumed in business combinations,

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

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

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

with InnoHold, LLC (“InnoHold”).

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

losses, valuation of inventories, sales returns, warranty returns, impairment reviews of long-lived assets and definite-lived intangible

assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, the recognition and measurement

of restructuring and related charges, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts

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

Predicting future events is

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

Actual results could differ materially from those estimates.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company reviews

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

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

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

these assets will remain in service.

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

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

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

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

by $ 0.08 , respectively.

Reclassification

Certain prior year amounts

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

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

Accrued compensation, previously included within other

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

Also, the change

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

accrued liabilities, is now presented separately.

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

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

Accounting Pronouncements

Segment Disclosures

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

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

to provide enhanced disclosures about significant expenses.

This ASU requires disclosure to include significant segment expenses that

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

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

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

The update is effective for

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

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

The Company is

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

to Income Tax Disclosures

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

Segment Information

Company operates in one operating segment.

This is consistent with the organizational structure and internal reporting evaluated regularly

by the Company’s Chief Executive Officer who is our chief operating decision maker (“CODM”) when making operational

decisions and allocating resources.

For additional information regarding the Company’s segment reporting, refer to Note 20 –

Segment Information and Concentrations .

Recent Accounting Pronouncements

Improvements to Income

Tax Disclosures

In December 2023, the FASB

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

Improvements to Income Tax Disclosures.

This ASU amends

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

reconciliation.

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

and allows for early adoption.

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

the consolidated financial statements.

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

The acquisition date fair value of the consideration

transferred for Intellibed was $ 28.2 million.

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

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

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

on the 18-month anniversary of the closing date.

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

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

equity and did not require remeasurement in subsequent periods.

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

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

This ASU amends existing income tax

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

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

The guidance was effective for the Company as of January 1, 2025 and

the new disclosure requirements will be effective in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31,

Other than the new disclosure requirements, this guidance is not expected to have an impact on the Company’s consolidated

financial statements.

Disaggregation Disclosures

In November 2024, the FASB issued ASU No.

2024-03, Income Statement —

Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses,

which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements.

prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation

and intangible asset amortization, along with certain other expense disclosures already required by GAAP that would need to be integrated

within the new tabular disaggregated expense disclosures.

Additionally, the amendments also require the disclosure of total selling expenses

and an entity’s definition of those expenses.

The guidance is effective for annual reporting periods beginning after December 15,

2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

guidance is to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2)

retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the potential

impact this update will have on its expense disclosures in the notes to the consolidated financial statements.

Restructuring, Impairment and Other Related

In August 2024, the Company

initiated a restructuring plan to strategically realign the Company’s focus on the achievement of operational efficiencies

that are expected to improve profitability and provide for reinvesting in technology and marketing initiatives (the “Restructuring

The Company’s Restructuring Plan includes the permanent closure of its Grantsville and Salt Lake City, Utah manufacturing

facilities to consolidate mattress production in its Georgia plant, and a headcount reduction at the Company’s Utah headquarters

to drive additional operating efficiencies.

Closure of the two Utah manufacturing facilities will be completed by the end of the second

quarter of 2025 while consolidation into the Georgia facility was finalized in December 2024.

The reduction in workforce at the Utah headquarters

was completed in August 2024.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Restructuring, Impairment and Other Related

In August 2024, the Company initiated a restructuring plan to

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

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

The Company’s Restructuring

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

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

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

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

The reduction in workforce at the Utah headquarters was completed

in August 2024.

The following table summarizes

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

statement of operations (in thousands):

the restructuring, impairment and other related charges the Company recognized through the first quarter of 2025 in the unaudited condensed

consolidated statement of operations (in thousands):

Restructuring,

9 unchanged sentences

Total restructuring, impairment and other related charges

The following table summarizes

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

Restructuring,

and Other Related

Non-cash charges

Total estimated charges to be recognized in future (1)

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

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

Restructuring actions result

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

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

Employee-related costs represent

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

plan to the identified employees.

Accelerated depreciation expense represents additional expense resulting from shortening the useful

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

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

Other associated restructuring costs

are expensed as incurred.

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

the period the plan is approved.

Impairment of assets included

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

impairment charges associated with certain leasehold improvements of the property.

The fair values of the impaired assets were determined

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

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

discounted cash flows.

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

If estimated fair values subsequently

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

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Of the $ 39.2 million in costs described above, the Company recognized

$ 2.9 million of restructuring, impairment and other related charges during the three months ended March 31, 2025.

Accelerated depreciation primarily

represents $ 11.5 million of increased depreciation expense associated with shortening the useful lives of the production equipment at

the two Utah manufacturing facilities that are being closed to reflect the remaining period these assets will remain in service.

The $ 5.9 million write-down

of long-lived assets represents the write-down to salvage value of other property and equipment located at the two Utah manufacturing

facilities that are being closed.

Impairment of assets

included impairment charges of $ 2.5 million associated with entering into a sublease for the Salt Lake City, Utah manufacturing

facility that is being closed and related impairment charges associated with certain leasehold improvements of the property.

fair values of the impaired assets were determined by the Company to be Level 3 under the fair value hierarchy (refer to

Note 4— Fair Value Measurements for the definition of Level 3 inputs) and were estimated based on internal

expertise related to current marketplace conditions and estimated future discounted cash flows.

These assets were adjusted to their

estimated fair values at the time of impairment.

If estimated fair values subsequently decline, the carrying values of the assets

will be adjusted accordingly.

Impairment of assets also

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

The Restructuring Plan was determined to be a triggering

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

As a result of the impairment assessment performed, the Company

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

Initiating the Restructuring Plan was determined to be a

triggering event for potential impairment of this asset.

As a result of the impairment assessment performed, the Company determined this

indefinite-lived intangible asset was impaired and recorded an impairment charge to write off the entire $ 8.5 million balance.

The lease for the Company’s

1 unchanged sentence

in the lease term when the Right of Use (“ROU”) asset and lease liability were originally measured.

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

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

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

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

Because of the expected

closure of this facility as part of the Restructuring Plan, the renewal option was no longer deemed reasonably certain of being exercised

and a reassessment of the lease terms was completed.

As a result, the original lease term was shortened and the Company recorded a $ 10.5

million reduction to the ROU asset and corresponding lease liability in the 2024 consolidated balance sheet, using the applicable discount

rate at the effective date of the reassessment.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The following table summarizes

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

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

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

Balance at December 31, 2023

Employee-related costs – cost of revenues

Employee-related costs – operating expenses

activity for the three months ended March 31, 2025 associated with employee-related and other costs recorded pursuant to the Restructuring

Plan, as presented in the indicated line item of the consolidated statement of operations, that will be settled in cash and are included

in accounts payable or accrued compensation on the unaudited condensed consolidated balance sheets (in thousands):

Liability balance at December 31, 2024

Employee-related costs – restructuring charges

Other costs – restructuring charges

Balance at September 30, 2024

Liability balance at March 31, 2025

The following table summarizes

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

Restructuring,

and Other Related

Non-cash charges

Total estimated charges to be recognized in future (a)

(a) These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as the Company completes the execution of the Restructuring Plan.

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Fair Value Measurements

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

Fair value is the

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

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

The Company uses the

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

Fair value is the price that

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

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

The levels of the fair

value hierarchy are:

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

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

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

and market-corroborated inputs);

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

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

significant to the measurements.

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

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

The carrying amounts of cash and cash equivalents,

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

The estimated

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

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

As of September

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

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

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

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

Such inputs include risk free interest

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

These Level 3 liabilities generally decrease (increase)

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

Conversely, the fair value of these

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

INNOVATION, INC.

Level 1—Quoted market prices in

active markets for identical assets or liabilities;

Level 2—Significant other observable

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

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

Level 3—Unobservable inputs in

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

The classification of fair

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

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

payable and the Company’s debt obligations.

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

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

The estimated fair value of the Company’s debt arrangements is

based on Level 2 and Level 3 inputs.

Level 2 inputs include observable inputs such as market-based expectations for interest rates, credit

risk, volatility, and the contractual terms of debt instruments.

The unobservable Level 3 inputs are associated with the required rate

of return for the security implied by the March 2025 issuance of debt bundled with warrants, which were valued using a Monte Carlo model.

As of March 31, 2025, the estimated fair value of the Company’s debt arrangements was $ 72.6 million.

The unobservable significant

inputs to the valuation model were as follows:

Debt term in years 1.75

Risk free interest rate 3.93 %

SOFR interest rate 4.37 %

Discount rate 32.50 %

The warrant liabilities (see

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

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

Accordingly, changes in

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

Such inputs include risk free interest rate, expected average life,

expected dividend yield, and expected volatility.

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

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

Conversely, the fair value of these Level 3 liabilities

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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

The following table summarizes

the Company’s total Level 3 liability activity for the three months ended March 31, 2025 (in thousands):

Fair value as of December 31, 2024

1 unchanged sentence

Change in valuation inputs (2)

Fair value as of September 30, 2024

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

Fair value as of March 31, 2025

(1) The Company issued 6.2 million warrants on March 12, 2025.

See Note 11 – Warrant Liabilities.

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

Revenue from Contracts with Customers

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

and third-party online retailers.

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

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

Disaggregated

Company classifies revenue into two sales categories:

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

The DTC category is comprised

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

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

The wholesale channel includes all product

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

their online channels.

The Company classifies products into two major types:

sleep products and other.

Sleep products include mattresses,

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

Other products include cushions and various other products.

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

The Company markets and sells

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

online retailers.

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

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

Disaggregated Revenue

Company classifies revenue as either direct-to-consumer (“DTC”) or wholesale revenue.

DTC revenues include the e-commerce

channel which sells directly to consumers who purchase online, through the contact center, and through online marketplaces and the showrooms

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

The wholesale channel includes all product sales

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

or through their online channels.

The following tables present

the Company’s revenue disaggregated by sales channel (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Sales Category

Revenues, net

Three Months Ended

September 30,

Nine Months Ended

September 30,

Sleep products

Revenues, net

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

at point of sale in advance of shipping the products.

Amounts received for unshipped products are recorded as customer prepayments.

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

During the three months

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

2023, respectively.

consisted of the following (in thousands):

September 30,

Contract Balances

Payments for the sale of products

through the direct-to-consumer e-commerce channel, Purple showrooms and our contact center are collected at point of sale in advance of

shipping the products.

The amounts received for unshipped products are recorded as customer prepayments.

Customer prepayments totaled

$ 3.7 million and $ 6.4 million at March 31, 2025 and December 31, 2024, respectively.

During the three months ended March 31, 2025, the

Company recognized all of the revenue that was deferred in customer prepayments at December 31, 2024.

Inventories consisted of the

following (in thousands):

Raw materials

1 unchanged sentence

Finished goods

INNOVATION, INC.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Property and Equipment, Net

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

September 30,

Property and equipment, net

consisted of the following (in thousands):

Equipment in progress

6 unchanged sentences

Equipment in progress reflects

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

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at March 31, 2025 or December

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

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

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

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

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

ended September 30, 2023, respectively.

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

million related to accelerated depreciation associated with the Restructuring Plan.

See Note 4— Restructuring and Impairment

Charges for further discussion .

$ 0.4 million during the three months ended March 31, 2025 and 2024, respectively.

Depreciation expense was $ 4.2 million and $ 5.2 million

during the three months ended March 31, 2025 and 2024, respectively.

Included in depreciation expense for the three months ended March

31, 2025 was $ 0.2 million related to accelerated depreciation associated with the Restructuring Plan.

See Note 3— Restructuring

and Impairment Charges for further discussion .

The Company leases its manufacturing

9 unchanged sentences

leases with initial lease terms of three to five years .

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

The ROU asset for finance leases totaled $ 0.9 million and $ 1.0 million at March

31, 2025 and December 31, 2024, respectively.

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

The following table presents

the Company’s lease costs (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating lease costs

Variable lease costs

Short-term lease costs

Total lease costs

INNOVATION, INC.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

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

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

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

the unaudited condensed consolidated balance sheet at March 31, 2025 (in thousands):

2025 (excluding the three months ended March 31, 2025) (a)

Total operating lease payments

2 unchanged sentences

(a) Amount consists of $ 16.4 million of undiscounted cash flows offset by $ 0.9 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2025.

As of September 30, 2024 and

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

As of March 31, 2025 and December

31, 2024, the weighted-average remaining term of operating leases was 6.6 years and 6.8 years, respectively, and the weighted-average

discount rate of operating leases was 6.24 % and 6.09 %, respectively.

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

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

Nine Months Ended

September 30,

The following table provides

supplemental information related to the Company’s unaudited condensed consolidated statement of cash flows for the three months

ended March 31, 2025 and 2024 (in thousands):

Three Months Ended

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

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

(b) Operating cash flows paid for operating leases are included within the change in operating leases, net within the condensed consolidated statement of cash flows offset by non-cash ROU asset amortization and lease liability accretion.

(b) Operating cash flows paid for operating leases are included within the change in operating leases, net within the unaudited condensed consolidated statement of cash flows offset by non-cash ROU asset amortization and lease liability accretion.

Other Current Liabilities

current liabilities consisted of the following (in thousands):

September 30,

Other current liabilities

consisted of the following (in thousands):

Accrued sales returns

1 unchanged sentence

Insurance financing

Long-term debt and unamortized issuance costs – current portion

Accrued interest

Asset retirement obligation

Total other current liabilities

INNOVATION, INC.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

consisted of the following (in thousands):

September 30,

Debt consisted of the following

(in thousands):

Related party loan

Revolving line of credit

unamortized debt issuance costs

Current portion of debt and unamortized issuance costs (c)

Current portion of debt and unamortized issuance costs

Debt, net of current portion

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

2024 Credit Agreement

24 unchanged sentences

associated with an asset-based loan.

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

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

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

30, 2024, respectively.

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

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

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

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

under the Amended and Restated Credit Agreement.

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

and certain covenants of the Loan Parties.

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

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

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

affiliates, among other customary covenants.

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

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

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

under the Amended and Restated Credit Agreement.

In connection with the Amended

and Restated Credit Agreement, the Company issued 20.0 million warrants (the “2024 Warrants”) to the Lenders (see Note 11

– Warrant Liabilities ) and incurred additional fees and expenses of $ 3.5 million that were recorded as debt issuance costs

in the first quarter of 2024 and are being amortized over the life of the loan.

The Amended and Restated Credit

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

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

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

The Loan Parties (other than

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

Credit Agreement.

The Amended and Restated Credit

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

the Loan Parties.

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

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

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

customary covenants.

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

stock, subject to limited exceptions.

As of March 31, 2025, the Company was in compliance with all covenants under the Amended and Restated

Credit Agreement.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

2023 Credit Agreements

On August 7, 2023, the Loan

Parties entered into the Term Loan Agreement.

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

with a group of financial institutions (collectively the “ABL Lenders”) that provided for a revolving asset-based credit facility

(the “ABL Agreement”).

Pursuant to entering into these agreements (collectively, the “2023 Credit Agreements”),

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

The Term Loan Agreement provided

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

the “Term Loans”).

Proceeds from the Term Loans were used for general corporate purposes.

The borrowing rates under the Term

Loan Agreement were based on SOFR, plus a credit spread adjustment of 0.15 % per annum, plus 8.5 % per annum, with a SOFR floor of 2.0 %

The Term Loans were to be repaid at the earlier of (i) a three-year amortization schedule ending on August 7, 2026 or (ii)

the payment in full of the ABL Agreement.

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

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

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

The ABL Agreement provided

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

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

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

restrictive covenants.

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

available under the borrowing base.

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

Term loans totaling $ 25.0

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

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

The outstanding balance of ABL Loans totaled $ 5.0 million

at December 31, 2023.

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

paid in full and the agreements were terminated.

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

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

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

For the three months

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

2020 Credit Agreement

On September 3, 2020, Purple

LLC entered into a financing arrangement with a group of financial institutions (the “2020 Credit Agreement”).

The 2020 Credit

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

The term loan was to be repaid in accordance

with a five-year amortization schedule or prepaid in whole or in part at any time without premium or penalty, subject to reimbursement

of certain costs.

The revolving credit facility had a term of five years and carried the same interest provisions as the term debt.

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

In connection with the

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

The Company had no outstanding

borrowings under the 2020 Credit Agreement at the time of termination.

On February 17, 2023, the

Company entered into a fifth amendment to the 2020 Credit Agreement.

The amendment, among other things, revised various covenants associated

with the 2020 Credit Agreement.

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

on the term loan plus accrued interest.

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

as debt issuance costs in the condensed consolidated balance sheet.

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

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

Interest expense under the

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

2025 Amendment

On March 12, 2025, the Loan

Parties, entered into the First Amendment to the Amended and Restated Credit Agreement (the “2025 Amendment” and the Amended

and Restated Credit Agreement as so amended, the “Amended A&R Credit Agreement”) with CCP and Blackwell Partners LLC –

Series A (“Blackwell”) (collectively the “2025 Lenders”), which amends the Amended and Restated Credit Agreement.

The 2025 Amendment, among other things, provides for an increase in the initial principal amount of the Related Party Loan by $ 19.0 million

(the “First Incremental Loan”) from an initial Related Party Loan principal amount of $ 61.0 million to an initial aggregate

principal amount of $ 80.0 million, pursuant to Section 2.18 of the Amended and Restated Credit Agreement, and allows the Loan Parties

to request one or more additional term loans from the 2025 Lenders in an initial aggregate principal amount not to exceed $ 20.0 million

on terms to be agreed to by the parties and subject to the approval of the Required Lenders (as defined in the Amended and Restated Credit

The First Incremental Loan will bear interest at the same rate as the Initial Loan (as defined in the Amended and Restated

Credit Agreement), which may be paid in cash or in kind at the Company’s option.

The 2025 Amendment also provides

that (i) the First Incremental Loan shall be senior in right of repayment to the Related Party Loan and (ii) in any voluntary or mandatory

prepayment in part or in full of the First Incremental Loan for any reason, the Company will be required to pay an amount equal to the

greater of (i) the Make-Whole Premium (as defined below) and (ii) 2.50 % of the aggregate principal amount of the First Incremental Loan

so prepaid, replaced or assigned.

The “Make-Whole Premium” is determined as follows:

on the date of prepayment, the excess

of (A) (x) 100 % of the principal amount of such First Incremental Loan, plus (y) the present value at such date of all remaining scheduled

interest payments due on such First Incremental Loan from the prepayment date through the maturity date, assuming that all such interest

accrues at the Make-Whole Premium Rate (as defined in the 2025 Amendment), computed using a discount rate equal to the Treasury Rate as

of such prepayment date plus 50 basis points, over (B) the principal amount of such First Incremental Loan on such prepayment date.

The 2025 Amendment requires

prepayment from certain amounts of proceeds received by the Company related to asset dispositions, equity issuances, incurrence of indebtedness,

and extraordinary receipts.

Additionally, upon an event of default, the 2025 Lenders may declare all or any portion of the term loan then

outstanding to be accelerated and due and payable, immediately, including the prepayment premium.

The Company determined that these features

qualify as a derivative and must be bifurcated from the debt, but such value is de minimis.

The Company will reassess whether the derivative

has more than a de minimis value at each reporting period.

The 2025 Amendment also

includes contingent interest upon an event of default at a rate of 2 %.

Certain non-credit related factors qualify as a derivative and

must be bifurcated from the debt, but such value is de minimis.

In addition, the Company also

paid (i) an amendment fee equal to 2 % of the outstanding principal and accrued and unpaid interest under the Related Party Loan held by

the 2025 Lenders, paid in kind and (ii) a 2 % work fee of the initial aggregate principal amount of the First Incremental Loan paid to

the 2025 Lenders, deducted from the proceeds at closing.

Total fees and expenses of $ 2.1 million were recorded as a debt discount upon

issuance of the Incremental Loan and are being amortized over the life of the loan.

In connection with the 2025 Amendment, the Company issued to the 2025

Lenders, warrants (the “2025 Warrants”) to purchase 6.2 million shares of the Company’s Class A common stock at a price

of $ 1.50 per share, subject to certain adjustments (see Note 11 – Warrant Liabilities ).

These 2025 Warrants include full-ratchet

anti-dilution protections, subject to a floor of $ 0.6979 with respect to adjustments to the exercise price and expire on March 12, 2035.

The 2025 Warrants had a fair value of $ 5.4 million upon issuance and were recorded as a debt discount upon issuance of the Incremental

Loan and is being amortized over the life of the loan.

The 2025 Amendment was evaluated and determined to be a modification

of debt as the effective borrowing rate was not reduced, therefore the 2025 Lenders did not grant a concession, and the 2025 Amendment

terms were not substantially different from the Amended and Restated Credit Agreement.

The Company has elected to have interest paid-in-kind and added to

the principal amount of the loans.

Interest expense under the Related Party Loan and First Incremental Loan for the three months ended

March 31, 2025 and 2024 consisted of paid-in-kind interest of $ 2.8 million and $ 1.9 million, respectively and debt issuance cost amortization

of $ 2.1 million and $ 1.5 million, respectively.

The effective interest rate was 14.68 % and 15.68 % for the three months ended March 31, 2025 and 2024, respectively.

PURPLE INNOVATION, INC.

2 unchanged sentences

On January 23, 2024, in connection

with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (the “Warrants”).

with the Amended and Restated Credit Agreement, the Company issued 20.0 million 2024 Warrants to the Lenders and on March 12, 2025, in

connection with the 2025 Amendment, the Company issued 6.2 million 2025 Warrants to the 2025 Lenders (collectively, the “Warrants”).

Each Warrant entitles the registered holder to purchase one share of the Company’s Class A 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.

do not have the rights or privileges of holders of Class A common stock or any voting rights until they exercise their Warrants.

the issuance of shares of Class A common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share

of Class A common stock held on all matters to be voted on by stockholders generally.

A holder of the Warrants will not have the right

to exercise its Warrants, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially

own in excess of 49.9 % of the shares of Class A common stock outstanding immediately after giving effect to such exercise.

contain a repurchase provision which, upon an occurrence of a fundamental transaction as defined in the warrant agreement, could give

rise to an obligation of the Company to pay cash to the warrant holders.

In addition, other provisions may lead to a reduction in the

exercise price of the Warrants.

The Company determined the fundamental transaction provisions require the Warrants to be accounted for

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

As a result, the liability for these Warrants was recorded at fair value on the date of issuance with the offset included in debt issuance

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.

The Company used a Monte Carlo

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

The model used key assumptions and inputs,

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

of a warrant re-price event.

The following are the assumptions used in calculating fair value of the Warrants on the date of issuance:

Trading price of common stock on measurement date

Exercise price

Risk free interest rate

Warrant life in years

Expected volatility

Expected dividend yield

Probability of an event causing a warrant re-price

The following are the assumptions

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

While the Warrants are exercisable, the Company may call the Warrants for redemption in whole and not in

part at any time at a price of $ 0.01 per share of Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’

prior written notice of redemption to each holder, provided that this redemption right is only available if the reported last sale price

of the Class A common stock equals or exceeds $ 24.00 per share on each of 20 trading days within a 30-trading day period ending three

business days before the Company sends the notice of redemption to the holders.

The Warrants will expire on the 10 -year anniversary of

issuance, or earlier upon redemption.

The holders do not have the rights or privileges of holders of Class A common stock or any voting

rights until they exercise their Warrants.

After the issuance of shares of Class A common stock upon exercise of the Warrants, each holder

will be entitled to one vote for each share of Class A common stock held on all matters to be voted on by stockholders generally.

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

(together with its affiliates) would beneficially own in excess of 49.9 % of the shares of Class A common stock outstanding immediately

after giving effect to such exercise.

The Warrants contain a repurchase provision which, upon an occurrence of a fundamental transaction

as defined in the warrant agreement, could give rise to an obligation of the Company to pay cash to the warrant holders.

other provisions may lead to a reduction in the exercise price of the Warrants.

The Company determined the fundamental transaction provisions

require the Warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized

in earnings in the period of change.

As a result, the liability for these Warrants was recorded at fair value 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.

The Company used a Monte

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

The model used key assumptions and

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

probability of a warrant re-price event.

The following are the assumptions used in calculating fair value of the Warrants:

Trading price of common stock on measurement date

1 unchanged sentence

Risk free interest rate

4.09 – 4.14 %

Warrant life in years

3 unchanged sentences

The Warrants had a fair value

of $ 19.7 million as of September 30, 2024.

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

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

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

For the nine months ended September 30,

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

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

of $ 21.4 million as of March 31, 2025.

The Company recognized a de minimis gain in its unaudited condensed consolidated statement of operations

for the three months ended March 31, 2025 related to a net decrease in the fair value of the Warrants outstanding at the end of the period

compared to the fair value of the Warrants at issuance date and warrants outstanding at the end of 2024.

The Company recorded a loss of

$ 23.6 million for the three months ended March 31, 2024 related to the increase in fair value of the 2024 Warrants outstanding at the

end of the period compared to the fair value of the warrants at issuance date.

Other Long-Term Liabilities

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consist of the following (in thousands):

September 30,

Asset retirement obligations

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of accrued warranty claims by updating claims rates for actual trends and projected claim costs.

The Company classifies estimated

warranty costs expected to be paid beyond a year as a long-term liability.

The Company classifies estimated warranty

costs expected to be paid beyond a year as a long-term liability.

The Company has accrued $ 31.7 million and $ 32.2 million in estimated

future warranty costs as of March 31, 2025 and December 31, 2024, respectively.

Chief Executive Officer

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

The Company recorded compensation

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

this future bonus payment.

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

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

The Company recorded a de minimis

compensation expense reduction in its unaudited condensed consolidated statement of operations for the three months ended March 31, 2025

and $ 0.4 million in compensation expense for three months ended March 31, 2024, related to this future bonus payment.

Senior Leadership Team

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

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

The Company recorded

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

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

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

Related to this bonus

payment, the Company recorded a de minimis compensation expense for the three months ended March 31, 2025 and $ 0.6 million compensation

expense for the three months ended March 31, 2024 in its unaudited condensed consolidated statement of operations.

Cash Long-Term Incentive Award

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The Company recorded a de minimis amount of compensation expense

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

in the unaudited consolidated statement of operations for the three months ended March 31, 2025 related to this future award payment.

Settlement of Insurance

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

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

In July 2024, pursuant to the same previously

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

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

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

PURPLE INNOVATION, INC.

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with the issuance of the 2024 Warrants, the Company entered into an amended and restated registration rights agreement (the “Registration

Rights Agreement”) with holders of the Warrants (the “Holders”), providing for the registration under the Securities

Act of 1933, as amended, of the Warrants, the shares issuable upon the exercise of the Warrants and Class A common stock held by the Holders

Rights Agreement”) with holders of the 2024 Warrants (the “2024 Holders”), providing for the registration under the

Securities Act of 1933, as amended (the “Securities Act”), of the 2024 Warrants, the shares issuable upon the exercise of

the 2024 Warrants and Class A common stock held by the 2024 Holders as of such date (the “Registrable Securities”), subject

to customary terms and conditions.

The Registration Rights Agreement entitles the 2024 Holders to demand registration of the Registrable

Securities and to piggyback on the registration of securities by the Company and other Company security holders.

The Company will be responsible

for the payment of the 2024 Holders’ expenses in connection with any offering or sale of Registrable Securities by the 2024 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.

The Registration Rights Agreement provided further that the Company was required to prepare

and file with the SEC a registration statement to register the resale of the Registrable Securities.

The registration statement filed

by the Company on March 21, 2024 registering the Registrable Securities became effective on June 4, 2024.

In connection with the issuance

of the 2025 Warrants, on March 12, 2025, the Company entered into a Second Amended and Restated Registration Rights Agreement (the “2025

Registration Rights Agreement”) with CCP, Blackwell, and Coliseum Capital Co-Invest III, L.P., (the “2025 Holders”),

providing for the registration under the Securities Act of the 2025 Warrants, the shares issuable upon the exercise of the 2025 Warrants,

other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders

as of such date (the “2025 Registrable Securities”), subject to customary terms and conditions.

The Registration Rights agreement

entitles the Holders to demand registration of the Registrable Securities and to piggyback on the registration of securities by the Company

and other Company securityholders.

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.

The 2025 Registration Rights

Agreement provided further that the Company was required to prepare and file with the SEC a registration statement to register the resale

of the Registrable Securities.

The registration statement filed by the Company on March 21, 2024 registering the Registrable Securities

became effective on June 4, 2024.

Agreement entitles the 2025 Holders to demand registration of the 2025 Registrable Securities and also to piggyback on the registration

of Company securities by the Company and other Company securityholders.

The Company will be responsible for the payment of the 2025 Holders’

expenses in connection with any offering or sale of the 2025 Registrable Securities by the 2025 Holders, including underwriting discounts

or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain 2025

Registrable Securities.

The 2025 Registration Rights Agreement provides that on or prior to

May 30, 2025 if Form S-3 is not then available to the Company, the Company will be 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.

NOL Rights Plan

On June 27, 2024, the Board

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

date of June 30, 2025.

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

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

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

Code Section 382.

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

ratified the NOL Rights Plan.

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

the NOL Rights Plan.

On June 27, 2024,

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

expiration date of June 30, 2025.

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

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

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

common stock under Code Section 382.

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

Company’s stockholders ratified the NOL Rights Plan.

See Note 15 – Stockholders’ Equity – NOL Rights Plan

for further discussion of the NOL Rights Plan.

On May 6, 2025, the Board approved the early terminated the NOL Rights Plan, effective

NOL Protective Charter

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

The plaintiffs have filed

an appeal to the Utah Court of Appeals.

The Company maintains insurance to cover the costs of defending against claims of this nature

and intends to continue to vigorously defend against these claims in the course of the plaintiffs’ appeal.

The plaintiffs have an appeal

to the Utah Court of Appeals.

After oral arguments, on April 3, 2025 Court of Appeals ordered that the case return to District Court for

further fact finding.

has petitioned the Utah Supreme Court to hear the case and affirm dismissal in full.

If a hearing is

granted by the Utah Supreme Court, the parties would argue before the Utah Supreme Court in the second half of 2025.

The Company maintains

insurance to cover the costs of defending against claims of this nature and intends to continue to vigorously defend against these claims

in the course of the plaintiffs’ appeal.

On April 3, 2023, Purple’s

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defend against these claims.

On January 17, 2024, two customers

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

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

The suit sought damages and other

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

On July 15, 2024,

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

Action Lawsuit.

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

Lawsuit and approved the Settlement Agreement.

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

a cash payment pursuant to the Settlement Agreement.

On April 16, 2024, Purple’s

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

The Company is from time to

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

The Company does not

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

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

On February 10, 2025, a

shareholder of the Company filed a class action lawsuit in the Court of Chancery of the State of Delaware against

and the individual members of the Board alleging that Section 29 of the NOL Rights Plan violates Delaware General Corporate

Law Sections 102(b)(7) and 141(a).

The suit seeks declaratory relief, attorneys’ fees, costs, and other relief on behalf of the

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

On February 26, 2025, a consumer

filed a class action lawsuit in the U.S.

District Court, Eastern District of New York, against Purple LLC alleging website accessibility

violations under the ADA and state law.

The lawsuit seeks declaratory relief, class certification, attorneys’ fees, costs, and other

relief on behalf of the class.

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

On April 15, 2025, a consumer

filed a class action lawsuit in the U.S.

District Court, District of Minnesota, against Purple LLC alleging website accessibility violations

under the ADA and state law.

The lawsuit seeks declaratory relief, class certification, attorneys’ fees, costs, and other relief

on behalf of the class.

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

The Company and Purple LLC

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

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

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

Related Party Transactions

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

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

Gray has voting

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

Lenders under the Amended and Restated Credit Agreement included

CCP and Blackwell.

of Blackwell and also manages investment funds and accounts.

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

CDF and Blackwell.

Lenders under the Amended and Restated Credit Agreement and 2025 Lenders under the 2025 Amendment included CCP and

See Note 10— Debt — 2024 Credit Agreement for further discussion .

In April 2023, Adam

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

against the Company.

Purple Founder Entities

Purple LLC began leasing its

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

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

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

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

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

The Company vacated the Alpine

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

of termination.

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

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

See Note 14— Commitments and Contingencies—Legal Proceedings

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

In April 2023, Adam Gray was

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

Stockholders’ Equity

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of the stockholders.

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

At March 31, 2025, 108.0 million shares of Class A common stock were outstanding.

Class B Common Stock

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

At September 30, 2024, 0.2 million shares

of Class B common stock were outstanding.

At March 31, 2025, 0.2 million shares of

Class B common stock were outstanding.

PURPLE INNOVATION, INC.

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

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

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

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

C Preferred Shares”).

27, 2024, 0.3 million shares of the Company’s authorized shares of preferred stock were designated as Series C Junior Participating

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

At March 31, 2025, there were no shares of preferred

stock outstanding

NOL Rights Plan

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receive the redemption price.

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

accounting or reporting impact.

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

is attributable to them.

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

for as a long-term obligation.

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

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

The initial issuance of the

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

The fair value of the Rights is nominal, since the Rights were

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

Additionally, the Rights do not meet the definition of a liability under

GAAP and therefore are not being accounted for as a long-term obligation.

Accordingly, unless the Rights become exercisable upon the occurrence

of the Distribution Time as discussed above, the NOL Rights Plan and the Rights issued thereunder have no impact on the Company’s

unaudited consolidated financial statements.

PURPLE INNOVATION, INC.

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NOL Protective Charter

Concurrently with the adoption

of NOL Rights Plan, on June 27, 2024, the Board adopted, and recommended that the Company’s stockholders approve at the Special

Meeting, the NOL Protective Charter Amendment that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding

any transfer of common stock that results in any Person holding 4.9 % or more of the outstanding common stock of the Company (or, in the

case of a Person already holding more than 4.9 % of the outstanding common stock of the Company as of the date of the NOL Protective Charter

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

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

Concurrently with the

adoption of NOL Rights Plan, on June 27, 2024, the Board adopted, and recommended that the Company’s stockholders approve at

the Special Meeting, the NOL Protective Charter Amendment that adds an additional layer of protection of the Current NOLs until June

30, 2025 by voiding any transfer of common stock that results in any Person holding 4.9 % or more of the outstanding common stock of

the Company (or, in the case of a Person already holding more than 4.9 % of the outstanding common stock of the Company as of the

date of the NOL Protective Charter Amendment, one-half of one percentage point of the outstanding common stock of the Company above

their current ownership percentage).

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

Any acquisition of common

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In connection with the Amended

and Restated Credit Agreement, the Company issued 20.0 million Warrants to the Lenders.

Each Warrant entitles the registered holder to

purchase one share of the Company’s Class A common stock at a price of $ 1.50 per share, subject to adjustment.

While the Warrants

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

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

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

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

of redemption to the holders.

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

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

common stock outstanding immediately after giving effect to such exercise.

Sponsor Warrants

There were 12.8 million sponsor

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

Unexercised sponsor warrants

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

These sponsor warrants

had no fair value on the date of expiration.

and Restated Credit Agreement, the Company issued 20.0 million Warrants to the Lenders and on March 12, 2025 in connection with the 2025

Amendment, the Company issued 6.2 million 2025 Warrants to the 2025 Lenders.

Each Warrant entitles the registered holder to purchase one

share of the Company’s Class A common stock at a price of $ 1.50 per share, subject to adjustment.

While the Warrants are exercisable,

the Company may call the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share of Class A common

stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to each holder, provided

that this redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds $ 24.00 per

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

to the holders.

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

exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9 % of the shares of Class A common stock outstanding

immediately after giving effect to such exercise.

Noncontrolling Interest

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

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

At March 31, 2025 and December 31, 2024, the combined

NCI percentage in Purple LLC was 0.15 % and 0.15 %, respectively.

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financial statements under GAAP.

The Company reported de minimis income tax expense on a pretax loss of

$ 19.1 million for the three months ended March 31, 2025 as compared to various state taxes of $ 0.1 million on a pretax loss of $ 50.2 million

for the three months ended March 31, 2024.

This resulted in an effective tax rate of ( 0.21 %) for the three months ended March 31, 2025

as compared to ( 0.12 %) for the three months ended March 31, 2024.

The Company’s effective tax rate for the three months ended March

31, 2025 differs from the statutory federal rate of 21 % primarily due to the impact of the full valuation allowance recorded against the

Company’s deferred tax assets at March 31, 2025.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company reported income

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

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

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

September 30, 2023.

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

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

In connection with the Business

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Class A common stock at the time of the relevant redemption or exchange.

The effects of uncertain tax

positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold.

The effects of uncertain

tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold.

For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect

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balance sheet.

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

As of March 31, 2025, the Company had unrecognized tax benefits of $ 1.1 million.

Net Loss Per Common Share

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Net loss attributable to Purple Innovation, Inc.

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Net loss per common share:

The Company excludes certain

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

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

are otherwise anti-dilutive.

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

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

For the nine months ended September 30, 2024,

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

stock and exchange of Class B common stock.

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

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

The Company excludes from

the diluted net loss per common share computation potentially dilutive securities related to warrants, equity awards and convertible shares

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

common stock or they are otherwise anti-dilutive.

Potentially dilutive securities that have been excluded from the calculation of diluted

net loss per common share are as follows (in thousands):

Three Months Ended

Restricted stock units

Stock Options

Class B Shares

PURPLE INNOVATION, INC.

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

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

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

As of March 31, 2025, an aggregate of 1.6 million shares

remain available for issuance or use under the 2017 Plan.

Employee Stock Options

The following table summarizes the Company’s

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

total stock option activity for the three months ended March 31, 2025:

(in thousands) Weighted

3 unchanged sentences

Options outstanding as of January 1, 2025 529 $ 7.17 2.2 $ —

Forfeited ( 309 ) 9.69 —

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

Options outstanding as of March 31, 2025 529 $ 7.17 1.9 $ —

Outstanding and exercisable stock options as of

September 30, 2024 are as follows:

March 31, 2025 are as follows:

Options Outstanding Options Exercisable

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13.12 29 0.1 29 0.1 —

13.12 35 0.6 35 0.6 —

The following table summarizes

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

the Company’s unvested stock option activity for the three months ended March 31, 2025:

(in thousands)

Nonvested options as of January 1, 2025

Nonvested options as of September 30, 2024

The estimated fair value of

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

For the three and nine months ended September

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

Stock option expense was de minimis

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

As of September 30, 2024,

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

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

Nonvested options as of March 31, 2025

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The estimated fair value of

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

Stock option expense was de minimis for the

three months ended March 31, 2025 and 2024.

As of March 31, 2025, outstanding

stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of 0.1 years.

were no stock options that vested during the three months ended March 31, 2025.

Employee Restricted

During the nine months ended

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

the Company’s management team.

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

The restricted

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

The estimated

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

For those awards that include a market vesting

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

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

occurring regardless of whether the market condition is met.

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

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

Trading price of common stock on measurement date $ 1.50

Risk free interest rate 4.46 %

Expected life in years 3.0

Expected volatility 97.1 %

Expected dividend yield —

During the three months ended

March 31, 2025, the Company granted 1.2 million restricted stock units under the 2017 Plan to certain members of the Company’s management

The restricted stock awards had a weighted average grant date fair value of $ 0.66 per share.

The estimated fair value of these awards

is recognized on a straight-line basis over the vesting period.

The following table summarizes

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

the Company’s restricted stock unit activity for the three months ended March 31, 2025:

(in thousands)

Nonvested restricted stock units as of January 1, 2025

Nonvested restricted stock units as of September 30, 2024

Nonvested restricted stock units as of March 31, 2025

The Company recorded restricted

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

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

As of September 30, 2024,

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

stock unit expense of $ 0.4 million and $ 0.5 million during the three months ended March 31, 2025 and 2024, respectively.

For restricted stock units

outstanding as of March 31, 2025, there were $ 2.8 million of total unrecognized stock compensation costs with a remaining recognition

period of 1.8 years.

PURPLE INNOVATION, INC.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

12 unchanged sentences

The Company’s matching contribution

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

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

expense was $ 1.1 million and $ 1.1 million for the three months ended March 31, 2025 and 2024, respectively.

Segment Information and Concentrations

The Company designs and manufactures

a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products.

The Company has one reportable segment that operates an omni-channel distribution strategy which

allows the Company to offer a seamless shopping experience to its customers across multiple sales channels.

The Company’s

one segment markets and sells products through its direct-to-consumer e-commerce channels, retail brick-and-mortar wholesale partners,

Purple showrooms, and third-party online retailers.

The accounting policies for

the Company’s one segment are the same as those described in Note 2 – Summary of Significant Accounting Policies .

CODM assesses performance for the segment and decides how to allocate resources based on consolidated net income or loss as reported in

the consolidated statement of operations.

The measure of segment assets is reported on the consolidated balance sheets as total consolidated

The Company does not have intra-entity sales or transfers.

The CODM uses consolidated

net income (loss) to evaluate earnings generated from segment assets (return on assets) in deciding whether to reinvest profits into its

single reportable segment or into other parts of the entity, such as for acquisitions.

Consolidated net income (loss) is also used to

monitor budget versus actual results.

The monitoring of budgeted versus actual results are used in assessing the segment’s performance

and in establishing management’s compensation.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The following table summarizes segment revenue,

significant segment expenses, other segment items and segment profit or loss (in thousands):

Three Months Ended

Revenues, net

Reductions (additions):

Cost of revenues

Cost of revenues – restructuring related charges

Advertising expense

Marketing sales expense

Wholesale marketing and sales expense

Showrooms marketing and sales expense

General and administrative expense

Research and development expense

Restructuring, impairment and other related charges

Other segment items, net (d)

Income tax expense

Net loss attributable to noncontrolling interest

Net reductions

Segment net loss

(d) Other segment items, net include interest expense, other (income) expense, net, loss on extinguishment of debt, and change in fair value of warrant liabilities.

The Company classifies products

into two major categories:

sleep products and other.

Sleep products include mattresses, platforms, adjustable bases, mattress protectors,

pillows and sheets.

Other products include cushions and various other products.

In the three months ended March 31, 2025 and 2024 sales

of other products accounted for less than 3.0 % of net revenues.

The Company defines international

revenues as sales to customers located outside of the United States.

In the three months ended March 31, 2025 and 2024 international customers

accounted for less than 1.0 % of net revenues.

The Company had one individual

customer that accounted for approximately 36.0 % and 21.1 % of accounts receivable at March 31, 2025 and 2024, respectively, and approximately

11.9 % and 13.6 % of net revenue during the three months ended March 31, 2025 and 2024, respectively.

The Company currently obtains

materials and components used in production from outside sources.

As a result, the Company is dependent upon suppliers that in some instances,

are the sole source of supply.

The Company is continuing efforts to dual-source key components.

The failure of one or more of the Company’s

suppliers to provide materials or components on a timely basis could significantly impact the results of operations.

The Company believes

that it can obtain these raw materials and components from other sources of supply in the ordinary course of business, although an unexpected

loss of supply over a short period of time may not allow for the replacement of these sources in the ordinary course of business.

The Company maintains its

cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance Corporation (FDIC)

up to $ 250,000 for each financial institution per entity.

At times, the Company’s cash balance deposited at financial institutions

exceed the federally insured deposit limits.

The Company has not experienced any losses in such accounts and believes it is not exposed

to any significant credit risk related to these deposits.

Subsequent Events

Results of Special

At the Special Meeting on

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

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

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

Second 2025 Amendment

On May 2, 2025, the Loan Parties entered into a Second Amendment to

the Amended and Restated Credit Agreement (the “Second 2025 Amendment”) with the 2025 Lenders, which amends the Amended A&R

Credit Agreement.

The Second 2025 Amendment, among other things, provides for a commitment increase pursuant to Section 2.18 of the Amended

A&R Credit Agreement in the initial principal amount of the senior secured term loan facility by $ 20.0 million (the “Second

Incremental Loan”) from an aggregate principal amount of up to $ 80.0 million (the “Existing Loan”) to an initial aggregate

principal amount of up to $ 100.0 million (the “Loan”) and allows the Loan Parties to request one or more additional term loans

from the Lenders in an initial aggregate principal amount not to exceed $ 20.0 million on terms to be agreed to by the parties and subject

to the approval of the Required Lenders (as defined in the Amended A&R Credit Agreement).

The Second Incremental Loan will bear interest

at the same rate as the Existing Loan, which may be paid in cash or in kind at the Company’s option.

The Second 2025 Amendment

also provides that (i) the Second Incremental Loan shall be senior in right of repayment to the initial $ 61.0 million loan under the Amended

and Restated Credit Agreement and pari passu with the First Incremental Loan and (ii) in any voluntary or mandatory prepayment in part

or in full of the Second Incremental Loan for any reason, the Company will be required to pay an amount equal to the greater of (a) the

Make-Whole Premium (as defined below) and (b) 2.5 % of the aggregate principal amount of the Second Incremental Loan so prepaid, replaced

The “Make-Whole Premium” is determined as follows:

on the date of prepayment, the excess of (A) (x) 100 % of the

principal amount of such Second Incremental Loan, plus (y) the present value at such date of all remaining scheduled interest payments

due on such Second Incremental Loan from the prepayment date through the maturity date, assuming that all such interest accrues at the

Make-Whole Premium Rate (as defined in the Second 2025 Amendment), computed using a discount rate equal to the Treasury Rate as of such

prepayment date plus 50 basis points, over (B) the principal amount of such Second Incremental Loan on such prepayment date.

In addition, the Company also

paid (i) an amendment fee equal to 0.25 % of the outstanding principal and accrued and unpaid interest under the Existing Loan held by

the Lenders, paid in kind to the 2025 Lenders, (ii) a work fee equal to 0.1 % of the outstanding principal and accrued and unpaid interest

under the Existing Loan, paid in cash to the Required Lenders, (iii) a waiver fee, to induce the Required Lenders to waive certain preemptive

and right of first refusal rights, equal to 0.15 % of the outstanding principal and accrued and unpaid interest under the Existing Loan,

paid in cash to the Required Lenders, and (iv) a commitment fee equal to $ 150,000 , paid in cash to the Required Lenders.

In connection with the Second

2025 Amendment, the Company issued to the 2025 Lenders, warrants (the “2025 Additional Warrants”) to purchase 6.6 million

shares of the Company’s Class A common stock at a price of $ 1.50 per share, subject to certain adjustments.

These 2025 Additional

Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.6979 with respect to adjustments to the exercise price

and expire on March 12, 2035.

SGI Commercial Arrangements

On May 2, 2025, the

Company entered into a Second Amendment to Master Retailer Agreement (the “MRA Amendment”) with Mattress Firm, a

business unit of SGI, which provides that SGI, through its Mattress Firm stores, will expand its inventory of the Company’s

products across its national store network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots.

May 2, 2025, the Company entered into an Amended and Restated Master Vendor Supply and Services Agreement (the “Sherwood

Agreement” and together with the MRA Amendment the “SGI Agreements”) with Tempur Sherwood, LLC, a subsidiary of Tempur Sealy.

The Sherwood Agreement provides that Tempur Sherwood, LLC will have the exclusive right to assemble certain product lines that

the Company sells to Mattress Firm.

In connection with the SGI Agreements, the Company issued to SGI warrants

to purchase 8.0 million shares of the Company’s Class A Stock at a strike price of $ 1.50 per share (the “SGI Warrants”).

The SGI Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.6979 with respect to adjustments to the exercise

price and expire on March 12, 2035.

Early Termination of

the NOL Rights Plan and NOL Protective Charter Amendment

On May 6, 2025, the Board

accelerated the expiration date of the NOL Rights Plan and the NOL Protective Charter Amendment to May 7, 2025.

In conjunction with the

termination of the NOL Rights Plan, the Company filed a Certificate of Elimination eliminating the Series C Junior Participating Preferred

Stock, effective May 7, 2025.

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

What changed 10-Q

Item 1. Financial Statements