What changed in this filing

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Item 1. Financial Statements

2025-07-30 compared with 2025-05-06 · 711 added, 619 removed, 771 unchanged (63% of the section changed)

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Commitments and contingencies (Note 13)

Stockholders’ equity:

Stockholders’ equity (deficit):

Class A common stock;

$ 0.0001 par value, 210,000 shares authorized;

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

108,244 issued and outstanding at June 30, 2025, and 107,545 issued and outstanding at December 31, 2024

Class B common stock;

$ 0.0001 par value, 90,000 shares authorized;

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

165 issued and outstanding at June 30, 2025, and at December 31, 2024

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity attributable to Purple Innovation, Inc.

Total stockholders’ equity (deficit) attributable to Purple Innovation, Inc.

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

The accompanying notes are an integral part of

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Three Months Ended

Six Months Ended

Revenues, net

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Other income, net

Gain (loss) on extinguishment of debt

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Total other income (expense), net

Net loss before income taxes

Net income (loss) before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Net loss per share:

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

Net income (loss) per share:

Weighted average common shares outstanding:

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Condensed Consolidated Statements of Stockholders’

Equity (Deficit)

(unaudited – in thousands)

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Stock-based compensation

Issuance of stock under equity

compensation plans

Issuance of stock under

equity compensation plans

of transactions affecting NCI

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$ ( 593,003 )

Stock-based compensation

Issuance of stock under

equity compensation plans

Accrued Distribution True-up

Impact of transactions affecting

Balance – June 30,

$ ( 610,348 )

Stockholders’

Noncontrolling

Balance – December 31, 2023

December 31, 2023

$ ( 475,969 )

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Issuance of stock for Intellibed

Issuance of stock under equity compensation

transactions affecting NCI

Issuance of stock under equity

compensation plans

of transactions affecting NCI

Balance – March 31,

$ ( 526,186 )

Net income (loss)

Stock-based compensation

Issuance of common stock under

equity compensation plans

of transactions affecting NCI

– June 30, 2024

$ ( 526,159 )

The accompanying notes are an integral part of

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(unaudited – in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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(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, 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

The Company offers 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 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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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 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

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 June 30, 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.

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 and six months ended June 30, 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 its preparation of the unaudited condensed consolidated

financial statements for the three and six months ended June 30, 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 $ 34.2 million and an accumulated deficit of $ 610.3

million at June 30, 2025, a net loss of $ 36.5 million and net cash used in operating and investing activities of $ 32.2 million for

the six months ended June 30, 2025.

During the first six months of 2025, the Company entered into the 2025 Amendment (as defined

below) and the Second 2025 Amendment (as defined below) of the Amended and Restated Credit Agreement, 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 (as defined below) 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 half 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.

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 13 — Commitments and Contingencies, SGI Commercial Arrangements).

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.

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, including the related party loan due December 31, 2026 (see Note 10 — Debt ).

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.

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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 .

Purple LLC is a variable interest

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

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

benefits that are potentially significant.

At June 30, 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 June 30, 2025.

For further discussion see Note 15 — Stockholders’ Equity .

Use of Estimates

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Tax Disclosures

In December 2023, the FASB

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes

Improvements to Income Tax Disclosures.

This ASU amends existing income tax

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

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

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.

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 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, 2025.

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.

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.

The 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.

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.

The 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.

Company is currently evaluating the potential impact this update will have on its expense disclosures in the notes to the consolidated

financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Restructuring, Impairment and Other Related

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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

The consolidation into the Georgia facility was finalized in December 2024 and the closure

of the two Utah manufacturing facilities was completed in May 2025.

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 through the first quarter of 2025 in the unaudited condensed

consolidated statement of operations (in thousands):

the restructuring, impairment and other related charges the Company has recognized since the restructuring announcement in 2024 through

the second quarter of 2025 in its consolidated statement of operations (in thousands):

Restructuring,

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Total restructuring, impairment and other related charges

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.

Of the $ 7.6 million of employee-related

and other cash charges incurred since inception of the restructuring activities, the Company recognized $ 0.8 million and $ 2.8 million

during the three and six months ended June 30, 2025.

Similarly, of the combined charges incurred related to accelerated depreciation,

write-down of long-lived assets and impairment of assets of $ 31.6 million since the inception of the restructuring activities, the Company

recognized $ 3.4 million and $ 4.3 million during the three and six months ended June 30, 2025.

Finally, of the inventory write-downs recognized

since inception of the restructuring activities of $ 4.0 million, no charges were recorded during the three and six months ended June 30,

Accelerated depreciation primarily represents $ 11.6 million of increased

depreciation expense associated with shortening the useful lives of the production equipment and leasehold improvements at the two Utah

manufacturing facilities that were closed to reflect the remaining period these assets will remain in service.

The $ 6.1 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.

facilities that were closed.

Impairment of assets included impairment charges of $ 5.4 million associated

with the closing and subleasing of the Salt Lake City, Utah and Grantsville, Utah manufacturing facilities and related impairment charges

associated with certain leasehold improvements of the properties.

The 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

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.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Impairment of assets also

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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

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

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

Because of the expected

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

and a reassessment of the lease terms was completed.

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

million reduction to the ROU asset and corresponding lease liability in the 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 lease for the Company’s Grantsville, Utah manufacturing facility

included a five-year renewal option that was reasonably certain of being exercised and was included in the lease term when the Right of

Use (“ROU”) asset and lease liability were originally measured.

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

Plan, the renewal option will not be 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.

The following table summarizes

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

activity for the six months ended June 30, 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

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Other costs – restructuring charges

Liability balance at March 31, 2025

Liability balance at June 30,2025

The following table summarizes

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Restructuring,

and Other Related

Non-cash charges

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Fair Value Measurements

The Company uses the

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

Fair value is the price that

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

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

The levels of the fair

value hierarchy are:

The Company uses the fair

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

Fair value is the price that would be

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

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

The levels of the fair value hierarchy are:

Level 1—Quoted market prices in

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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

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 and volatility.

The unobservable Level 3 inputs are associated with the required rate of

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

the timing and probability of a warrant reprice event, like a strategic alternative transaction.

As of June 30, 2025, the estimated fair value of the Company’s debt arrangements was

$ 90.3 million.

The significant inputs to

the valuation model were as follows:

Interest rate volatility

Risk free interest rate

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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).

expected dividend yield, expected volatility and the timing and probability of a warrant reprice event.

These Level 3 liabilities

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

the fair value of these Level 3 liabilities generally increases (decreases) in value if the expected average life or expected volatility

were to increase (decrease).

PURPLE INNOVATION, INC.

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The following table summarizes

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

the Company’s total Level 3 liability activity for the six months ended June 30, 2025 (in thousands):

Fair value as of December 31, 2024

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Change in valuation inputs (2)

Fair value as of March 31, 2025

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

Fair value as of June 30, 2025

(1) The Company issued 6.2 million warrants on March 12, 2025, and 14.6

million warrants on May 2, 2025.

See Note 11 – Warrant Liabilities.

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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 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

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Three Months Ended

Six Months Ended

Sales Category

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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.

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 $ 8.5 million and $ 6.4 million at June 30, 2025,

and December 31, 2024, respectively.

During the six months ended June 30, 2025, the Company recognized all of the revenue that was deferred

in customer prepayments at December 31, 2024.

Inventories consisted of the

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Equipment in progress reflects

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

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2025, or December

Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 0.1 million and

$ 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

and distribution facilities, corporate offices, Purple showrooms and certain equipment under non-cancelable operating leases with various

expiration dates through 2036.

The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while

Purple showrooms have initial lease terms of up to 10 years.

$ 0.3 million during the three and six months ended June 30, 2025, respectively, and totaled $ 0.3 million and $ 0.7 million during the

three and six months ended June 30, 2024, respectively.

Depreciation expense was $ 4.1 million and $ 8.3 million during the three and six

months ended June 30, 2025, respectively, and was $ 5.1 million and $ 10.3 million during the three and six months ended June 30, 2024,

respectively.

Included in depreciation expense for the three and six months ended June 30, 2025, was $ 0.1 million and $ 0.4 million, respectively,

related to accelerated depreciation associated with the Restructuring Plan.

See Note 3— Restructuring and Impairment Charges

for further discussion.

The Company leases its manufacturing and distribution facilities, corporate

offices, Purple showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036.

Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while Purple showrooms have initial lease

terms of up to 10 years.

Certain leases may contain options to extend the term of the original lease.

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

Any lease renewal options are included in the lease term if

exercise is reasonably certain at lease commencement.

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

leases with initial lease terms of three to five years .

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

31, 2025 and December 31, 2024, respectively.

The exercise of lease renewal options

is at the Company’s discretion.

Any lease renewal options are included in the lease term if exercise is reasonably certain at lease

commencement.

The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of

three to five years .

The ROU asset for finance leases totaled $ 0.9 million and $ 1.0 million at June 30, 2025, and December 31, 2024, respectively.

The following table presents

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Three Months Ended

Six Months Ended

Operating lease costs

Variable lease costs

Short-term lease costs

Short term lease cost

Sublease income

Total lease costs

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

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

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

the unaudited condensed consolidated balance sheet at June 30, 2025 (in thousands):

2025 (excluding the six months ended June 30,2025) (a)

Total operating lease payments

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(a) Amount consists of $ 11.2 million of undiscounted cash flows offset by $ 0.3 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2025.

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.

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

As of June 30, 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 6.18 %

and 6.09 %, respectively.

The following table provides supplemental information related to the

Company’s unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2025, and 2024 (in thousands):

Six Months Ended

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

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Accrued sales returns

Accrued sales tax and use tax

Accrued sales and use tax and property tax

Insurance financing

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Total other current liabilities

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Debt consisted of the following

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Debt, net of current portion

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

2024 Credit Agreement

On January 23, 2024, Purple

LLC, Purple Inc.

and Intellibed (collectively, the “Loan Parties”) entered into an amended and restated credit agreement (the

“Amended and Restated Credit Agreement”), which amended and restated the then existing term loan agreement (“Term Loan

Agreement”), with Coliseum Capital Partners (“CCP”) and other lenders (collectively, the “Lenders”) and

Delaware Trust Company, as administrative agent.

The Lenders agreed to assume the Loan Parties’ obligations under the Term Loan

Agreement and refinance their existing obligations.

A term loan in the amount of $ 61.0 million (the “Related Party Loan”)

was funded by the Lenders that repaid in full the $ 25.0 million of term loans outstanding, repaid in full the $ 5.0 million of asset based

lending loans outstanding, paid fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to

the Company (after payments of outstanding debt, unpaid accrued interest and expenses) equal to approximately $ 27.0 million.

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

The Company has

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

The Related Party Loan bears interest at a rate

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

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

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

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

The Loan Parties may request

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

to by the Lenders at their discretion.

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

associated with an asset-based loan.

On January 23, 2024, Purple LLC, Purple Inc.

and Intellibed (collectively,

the “Loan Parties”) entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”),

which amended and restated the then existing term loan agreement (“Term Loan Agreement”), with Coliseum Capital Partners (“CCP”)

and other lenders (collectively, the “Lenders”) and Delaware Trust Company, as administrative agent.

The Lenders agreed to

assume the Loan Parties’ obligations under the Term Loan Agreement and refinance their existing obligations.

A term loan in the

amount of $ 61.0 million (the “Related Party Loan”) was funded by the Lenders that repaid in full the $ 25.0 million of term

loans outstanding, repaid in full the $ 5.0 million of asset based lending loans outstanding, paid fees, premiums and expenses incurred

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

and expenses) equal to approximately $ 27.0 million.

Interest on the Related Party Loan is payable each month and the principal outstanding

matures and is due on December 31, 2026.

The Company has elected for interest to be capitalized and added to the principal amount of the

The Related Party Loan bears interest at a rate equal to (i) the secured overnight financing rate as administered by the Federal

Reserve Bank of New York plus 0.10 %, with a floor of 3.5 % per annum, plus (ii) 8.25 % per annum (or, if Purple LLC elects to pay interest

in kind to reduce it cash obligations, 10.25 % per annum).

Any prepayments of principal on or after August 7, 2024, but before August 7,

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

penalty of 2.50 %.

The Loan Parties may request an additional term loan from the Lenders in an aggregate amount not to exceed $ 19.0 million

on terms requested by them to the extent agreed to by the Lenders at their discretion.

The Amended and Restated Credit Agreement also

removed restrictions and requirements typically associated with an asset-based loan.

Total fees and expenses of $ 3.5 million were recorded

as debt issuance costs in the first quarter of 2024 and are being amortized over the life of the loan.

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.

– Warrant Liabilities ).

These 2024 Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.8502

with respect to adjustments to the exercise price and expire on January 23, 2034 .

The 2024 Warrants had a fair value of $ 19.6 million

upon issuance and were recorded as a debt discount and are being amortized over the life of the loan.

The Amended and Restated Credit

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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.

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(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.

principal amount of $ 80.0 million, 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 Agreement).

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

The 2025 Amendment also provides

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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.

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

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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.

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 ).

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 since the 2025 Lenders did not grant a concession as the effective borrowing rate was not

reduced, and the 2025 Amendment terms were not substantially different from the Amended and Restated Credit Agreement.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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 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 (see Note 11 –

Warrant Liabilities ).

On January 23, 2024, in connection

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.

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.

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.

The 2025 Additional 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

The Second 2025 Amendment was evaluated and determined to be a modification

of debt since the 2025 Lenders did not grant a concession, as the effective borrowing rate was not reduced, 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, the First Incremental

Loan and the Second Incremental Loan for the three and six months ended June 30, 2025, consisted of paid-in-kind interest of $ 4.0 million

and $ 6.8 million, respectively, and debt issuance cost amortization of $ 3.5 million and $ 5.7 million, respectively.

Interest expense under

the Related Party Loan for the three and six months ended June 30, 2024, consisted of paid-in-kind interest of $ 2.5 million and $ 4.4 million,

respectively, and debt issuance cost amortization of $ 1.9 million and $ 3.3 million, respectively.

The effective interest rate was 14.67 %

and 14.68 % for the three and six months ended June 30, 2025, respectively, and 15.68 % and 15.78 % for the three and six months ended June

30, 2024, respectively.

As of June 30, 2025, the Company was in compliance with all covenants

under the Amended and Restated Credit Agreement as amended by the 2025 Amendment and the Second 2025 Amendment.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Warrant Liabilities

On January 23, 2024, in connection with the Amended and Restated Credit

Agreement, the Company issued 20.0 million 2024 Warrants to the Lenders, on March 12, 2025, in connection with the 2025 Amendment, the

Company issued 6.2 million 2025 Warrants to the 2025 Lenders, on May 2, 2025, in connection with the Second 2025 Amendment, the Company

issued 6.6 million 2025 Additional Warrants to the 2025 Lenders, and on May 2, 2025, in connection with the SGI Agreements (as defined

below), the Company issued to SGI warrants to purchase 8.0 million shares of the Company’s Class A common stock (the “SGI

Warrants,” 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.

The Warrants include full-ratchet anti-dilution protections, subject to a floor price

ranging from $ 0.6979 to $ 0.8502 with respect to adjustments to the exercise price and expire between January 23, 2034 and March 12, 2035.

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

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.

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.

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.

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:

7 unchanged sentences

Probability of an event causing a warrant re-price

The Warrants had a fair value

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.

Estimated date of event causing a warrant re-price

The Warrants had a fair value of $ 28.9 million as of June 30, 2025.

The Company recognized a $ 4.4 million gain in its unaudited condensed consolidated statement of operations for the three and six months

ended June 30, 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 previous measurement dates.

The Company recorded a gain of $ 18.7 million for the three months ended June 30,

2024 and a loss of $ 4.9 million for the six months ended June 30, 2024 related to the change in fair value of the 2024 Warrants outstanding

at the end of the period compared to the fair value of the warrants at previous measurement dates.

Other Long-Term Liabilities

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Warranty Liabilities

The Company provides a limited

warranty on most of the products it sells.

The estimated warranty costs associated with products sold through DTC channels are expensed

at the time of sale and included in cost of revenues.

The estimated warranty return costs associated with products sold through the wholesale

channel are recorded at the time of sale and included as an offset to net revenues.

Estimates for warranty costs are based on the results

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

as appropriate.

Actual warranty claim costs could differ from these estimates.

The Company regularly assesses and adjusts the estimate

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

The Company 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.

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

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

cost of revenues.

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

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

Estimates for warranty costs are based on the results of product testing, industry

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

Actual warranty

claim costs could differ from these estimates.

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

claims rates for actual trends and projected claim costs.

The Company classifies estimated warranty costs expected to be paid beyond a

year as a long-term liability.

The Company has accrued $ 32.7 million and $ 32.2 million in estimated future warranty costs as of June 30,

2025, and December 31, 2024, respectively.

Chief Executive Officer

Cash Bonus Award

On January 26, 2024, the Company’s

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

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

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

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

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

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

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

The Company recorded 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.

On January 26, 2024, the Company’s board of directors (the “Board”)

approved an amendment to the Chief Executive Officer’s employment agreement.

Under the amendment, the Company agreed that, among

other things, the Chief Executive Officer will be eligible to earn a cash payment of up to $ 5.0 million, less tax and other required withholdings,

based on the volume weighted average price per share of the Company’s Class A common stock on NASDAQ during the period from March

16, 2026 through June 30, 2026 subject to his continued employment with the Company.

The amount earned will be payable in quarterly installments

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

The Company determined the provisions surrounding the future bonus payment

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

in the period of change.

The Company recorded a de minimis compensation expense reduction in its unaudited condensed consolidated statement

of operations for the three and six months ended June 30, 2025.

The Company recorded a compensation expense reduction of $ 0.2 million

for the three months ended June 30, 2024, and a $ 0.2 million compensation expense for the six months ended June 30, 2024, in its unaudited

condensed consolidated statement of operations related to the future bonus payment.

Senior Leadership Team

Special Recognition Bonus

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

leadership team.

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

in the bedding industry.

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

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

10 % was paid in August 2024, 20 % 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.

On January 26, 2024, the Board unanimously approved a special recognition

bonus payment to certain members of the Company’s senior leadership team.

The bonus was awarded to incentivize retention and continued

engagement with the Company during these challenging times in the bedding industry.

Each participant is eligible to earn a special recognition

bonus payment equal to 15 months of their regular salary.

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 % 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 $ 0.8 million compensation expense for the three and six months ended

June 30, 2025, and $ 0.9 million and $ 1.5 million compensation expense for the three and six months ended June 30, 2024, in its unaudited

condensed consolidated statement of operations.

Cash Long-Term Incentive Award

June 20, 2024, the Board unanimously approved a performance cash long-term incentive award to those employees eligible to participate

in the Company’s Long-Term Incentive Plan.

The incentive award payment is based on a performance goal of the volume weighted average

price per share of the Company’s Class A common stock on NASDAQ on March 31, 2027.

The Company determined the provisions surrounding

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

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

The Company recorded a de minimis amount of compensation expense

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

On June 20, 2024, the Board unanimously approved a performance cash

long-term incentive award to those employees eligible to participate in the Company’s Long-Term Incentive Plan.

The incentive award

payment is based on a performance goal of the volume weighted average price per share of the Company’s Class A common stock on NASDAQ

on March 31, 2027.

The Company determined the provisions surrounding the performance cash long-term incentive award require it to be accounted

for as a liability at fair value at each reporting period, with changes in fair value recognized in earnings in the period of change.

The Company recorded a de minimis amount of compensation expense in the unaudited consolidated statement of operations for the three and

six months ended June 30, 2025, and 2024 related to this future award payment.

Settlement of Insurance

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

Rights of Securities

On January 23, 2024, in connection 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 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 “2024 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.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Rights of Securities

On January 23, 2024, in connection

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 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 2025 Registration Rights

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

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 Initial

Registrable Securities”), subject to customary terms and conditions.

The 2025 Registration Rights 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.

In connection with the issuance of the 2025 Additional Warrants and

the SGI Warrants, on May 2, 2025, the Company entered into a Third Amended and Restated Registration Rights Agreement (the “Third

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

(the “SGI Registration Rights Agreement”) with SGI (together with the Second Amendment Term Loan Lenders), providing for the

registration under the Securities Act of 1933, as amended (the “Securities Act”) of the 2025 Additional Warrants and the SGI

Warrants, and the shares issuable upon the exercise of such warrants, as well as 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 (together with the 2025 Initial Registrable

Securities, the “2025 Registrable Securities”), subject to customary terms and conditions.

The Third Registration Rights Agreement

and SGI Registration Rights Agreement entitle the 2025 Holders and SGI to demand registration of the 2025 Registrable Securities.

Registration Rights Agreement and SGI Registration Rights Agreement also entitle the 2025 Holders and SGI 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.

and SGI’s expenses in connection with any offering or sale of 2025 Registrable Securities by them, including underwriting discounts

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

The registration statement filed by the Company on May 23, 2025, which

registered the 2025 Registrable Securities, was declared effective by the SEC on May 30, 2025.

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

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.

2025, the Board approved the early termination of the NOL Rights Plan, effective May 7, 2025.

In conjunction with the termination of the

NOL Rights Plan, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware eliminating the Series

C Junior Participating Preferred Stock, effective May 7, 2025.

NOL Protective Charter

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

See Note 15 – Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective

Charter Amendment.

On May 6, 2025, the Board approved the early termination of the NOL Protective Charter Amendment, effective May 7, 2025.

See Note 15 –

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

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.

The agreement includes a $ 3.5 million fee to be paid by the Company to reimburse

Mattress Firm for certain costs in transitioning to the product placement required by the agreement.

The fee is accounted for under the

provisions of ASC 606 —Revenue from Contracts with Customers as consideration payable to a customer as a reduction of revenue

over the life of the contract and is included in accrued rebates and allowances on the unaudited condensed consolidated balance sheets.

The Company recorded $ 0.2 million as a reduction of revenue for the six months ended June 30, 2025.

Also on 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.

Agreements expire on December 31, 2027.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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

SGI Warrants to purchase 8.0 million shares of the Company’s Class A common stock at a strike price of $ 1.50 per share.

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 Company determined the warrants are required to be accounted for as a liability at the fair value of

$ 6.5 million on the date of the transaction (see Note 11 – Warrant Liabilities ).

The fair value of the warrants on the date

of the transaction is accounted for under the provisions of ASC 606 —Revenue from Contracts with Customers and deemed to be

consideration payable to a customer as a reduction of revenue over the life of the contract.

The Company recorded $ 0.4 million as a reduction

of revenue for the six months ended June 30, 2025.

Non-Income Related

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Legal Proceedings

On December 16, 2022, Purple’s

founders filed a complaint against Purple Inc.

On December 16, 2022, Purple’s founders filed a complaint against

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

In that suit, the plaintiffs

alleged that they each entered into employment agreements with Purple LLC in February 2018.

The plaintiffs contended that certain corporate

transactions reduced their “ownership interest and voting power in Purple” and that, as a result, they should have continued

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

The plaintiffs calculated that they were each owed “no less than $ 500,000 ”

in unpaid salary.

In October 2023, the Court granted Purple Inc.’s motion and ordered that the claims brought by the plaintiffs

be dismissed in full, with prejudice.

In that suit, the plaintiffs alleged that they each entered into

employment agreements with Purple LLC in February 2018.

The plaintiffs contended that certain corporate transactions reduced their “ownership

interest and voting power in Purple” and that, as a result, they should have continued to be paid a salary when they retired from

The plaintiffs calculated that they were each owed “no less than $ 500,000 ” in unpaid salary.

In October 2023,

the Court granted Purple Inc.’s motion and ordered that the claims brought by the plaintiffs be dismissed in full, with prejudice.

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

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.

The plaintiffs have filed an appeal to the Utah Court of Appeals.

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

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.

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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forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment in Purple LLC’s favor.

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

Purple LLC denies all allegations and intends to vigorously

defend against these claims.

has been set for June 2026.

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

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

On April 16, 2024, Purple’s

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

On July 24, 2024, a former

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

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

causes of action.

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

employees of Purple LLC during the applicable statutory periods.

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

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

Subsequent to this, Purple LLC and the plaintiffs agreed

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

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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

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

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

The suit seeks damages,

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

statutory periods.

On September 30, 2024, the plaintiffs filed an amended complaint adding a claim for penalties under California’s

Private Attorneys General Act.

Purple LLC and the plaintiffs mediated the claims on May 8, 2025, which resulted in the parties agreeing

to a settlement.

The settlement agreement is being finalized by the parties, thereafter, the California Superior Court is expected to

approve the settlement.

On February 10, 2025, a

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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

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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 lawsuit sought declaratory relief, class certification, attorneys’ fees, costs, and

other relief on behalf of the class.

On May 7, 2025, the company entered into a settlement agreement for the release of all claims by

the plaintiff.

On April 15, 2025, a consumer

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under the ADA and state law.

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

The lawsuit sought 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 May 7, 2025, the company entered into a settlement agreement for the release of all claims by the plaintiff.

The Company and Purple LLC

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Coliseum Capital Management,

Immediately following the

Business Combination, Adam Gray was appointed to the Board.

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

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

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

of Blackwell 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

Immediately following the Business Combination, Adam Gray was appointed

to the Board.

Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and Coliseum Co-Invest Debt Fund, L.P.

(“CDF”), and he is also a managing partner of CCM, which is the investment manager of Blackwell 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 and Second 2025 Amendment included CCP and Blackwell.

10— Debt 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.

Stockholders’ Equity

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of the stockholders.

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

At June 30, 2025, 108.2 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 March 31, 2025, 0.2 million shares of

At June 30, 2025, 0.2 million shares of

Class B common stock were outstanding.

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Preferred Stock

The Company has 5.0 million

shares of preferred stock authorized.

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

The Board is expressly

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

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

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

The Company has 5.0 million shares of preferred stock authorized.

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

The Board is expressly authorized to provide for the issuance of

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

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

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”).

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.

At June 30, 2025, there were no shares

of preferred stock outstanding.

NOL Rights Plan

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unaudited consolidated financial statements.

On May 6, 2025, the Board

approved the early termination of the NOL Rights Plan, effective May 7, 2025.

PURPLE INNOVATION, INC.

1 unchanged sentence

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

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.

Any acquisition of common

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Charter Amendment.

In connection with the Amended

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.

On May 6, 2025, the Board

approved the early termination of the NOL Protective Charter Amendment, effective May 7, 2025.

The Company issued warrants in connection with various financing transactions

and agreements.

The Company had the following warrants outstanding at June 30, 2025, and December 31, 2024 (in thousands):

2024 Warrants

2025 Warrants

2025 Additional Warrants

Total Warrants

The following table provides

the exercise price and expiration date for each warrant tranche as of June 30, 2025:

Warrant Share Equivalents (000’s) Exercise

Price (a) Expiration Date

2024 Warrants 20,000 $ 1.50 January 23, 2034

2025 Warrants 6,230 $ 1.50 March 12, 2035

2025 Additional Warrants 6,557 $ 1.50 March 12, 2035

SGI Warrants 8,000 $ 1.50 March 12, 2035

(a) Subject to adjustment.

While the Warrants are exercisable,

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Noncontrolling Interest

Noncontrolling interest (“NCI”)

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

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

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

The Company has consolidated the financial position and results of operations

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

Noncontrolling interest (“NCI”) is the membership interest

in Purple LLC held by holders other than the Company.

At June 30, 2025, and December 31, 2024, the combined NCI percentage in Purple LLC

The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate

interest held by all such Purple LLC Class B Unit holders as NCI.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company’s sole material

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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 $ 0.1 million in various state tax expenses on

a pretax loss of $ 36.4 million for the six months ended June 30, 2025, as compared to various state taxes of $ 0.1 million on a pretax

loss of $ 50.2 million for the six months ended June 30, 2024.

This resulted in an effective tax rate of ( 0.26 %) for the six months ended

June 30, 2025, as compared to ( 0.22 %) for the six months ended June 30, 2024.

The Company’s effective tax rate for the six months

ended June 30, 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 June 30, 2025.

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

5 unchanged sentences

balance sheet.

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

As of June 30, 2025, the Company had unrecognized tax benefits of $ 1.1 million.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”)

was enacted in the U.S.

The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the

Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business

The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027.

We are currently assessing its impact on our consolidated financial statements.

Net Loss Per Common Share

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Three Months Ended

Net loss attributable to Purple Innovation, Inc.

Six Months Ended

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

Less – net loss attributed to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

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

Weighted average shares—basic

Add – dilutive effect of Class B shares

Add – dilutive effect of Class B common stock

Add – dilutive effect of equity securities

Weighted average shares—diluted

Net loss per common share:

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company excludes from

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Three Months Ended

Six Months Ended

Restricted stock units

Stock options

Class B Shares

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Class B common stock

Equity Compensation Plans

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

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

As of June 30, 2025, an aggregate of 1.8 million shares

remain available for issuance or use under the 2017 Plan.

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The following table summarizes the Company’s

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

total stock option activity for the six months ended June 30, 2025:

(in thousands) Weighted

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

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

Outstanding and exercisable stock options as of

March 31, 2025 are as follows:

Forfeited ( 29 ) 13.12 —

Options outstanding as of June 30, 2025 500 $ 6.82 1.8 $ —

Outstanding and exercisable stock options as of June 30, 2025, are

Options Outstanding Options Exercisable

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$ 6.82 500 1.8 500 1.8 $ —

13.12 29 0.1 29 0.1 —

The following table summarizes

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 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.

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 and six months ended June 30, 2025,

As of June 30, 2025, all outstanding

stock options have been expensed and there is no remaining amount of unrecognized stock compensation cost.

There were no stock options

that vested during the six months ended June 30, 2025.

Employee Restricted

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.

During the six months ended

June 30, 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 grant date fair value of $ 0.8 million or $ 0.66 per share.

The estimated fair value of these awards

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The following table summarizes

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

the Company’s restricted stock unit activity for the six months ended June 30, 2025:

(in thousands)

Nonvested restricted stock units as of January 1, 2025

Nonvested restricted stock units as of March 31, 2025

Nonvested restricted stock units as of June 30, 2025

The Company recorded restricted

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

stock unit expense of $ 0.4 million and $ 0.8 million during the three and six months ended June 30, 2025, respectively, and $ 0.8 million

and $ 1.3 million during the three and six months ended June 30, 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.

outstanding as of June 30, 2025, there were $ 2.3 million of total unrecognized stock compensation costs with a remaining recognition period

of 1.6 years.

PURPLE INNOVATION, INC.

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Three Months Ended

Six Months Ended

Cost of revenues

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Employee Retirement Plan

In July 2018, the Company

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

All eligible employees

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

The plan provides for the Company to match

employee contributions up to 5 % of eligible earnings.

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

as a deferred compensation arrangement under Section 401 of the IRS Code.

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

service are eligible to participate in the plan.

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

eligible earnings.

Company contributions immediately vest.

The Company’s matching contribution

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

The Company’s matching contribution expense was $ 0.7 million and

$ 1.9 million for the three and six months ended June 30, 2025, respectively, and $ 1.0 million and $ 2.1 million for the three and

six months ended June 30, 2024, respectively.

Segment Information and Concentrations

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Three Months Ended

Six Months Ended

Revenues, net

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(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 classifies products into two major categories:

sleep products

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

Other products include

cushions and various other products.

In the three and six months ended June 30, 2025, and 2024 sales of other products accounted for approximately

3.0 % of net revenues.

The Company defines international revenues as sales to customers located

outside of the United States.

In the three and six months ended June 30, 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.

customer that accounted for approximately 19.3 % and 29.4 % of accounts receivable at June 30, 2025 and December 31, 2024, respectively,

and approximately 14.8 % and 13.4 % of net revenue during the three and six months ended June 30, 2025, respectively, and approximately

14.9 % and 14.3 % of net revenue during the three and six months ended June 30, 2024, respectively.

The Company currently obtains

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to any significant credit risk related to these deposits.

Subsequent Events

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