What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-30 compared with 2025-05-06 · 461 added, 345 removed, 246 unchanged (77% of the section changed)

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CONDITION AND RESULTS OF OPERATIONS

The following discussion is

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

The discussion should be read

in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in “Part I.

Financial Statements.” Capitalized terms used in this “Part I.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations and not otherwise defined shall have the meanings set forth in “Part I.

The following discussion is intended to provide a review of the operating

results and financial condition of Purple Innovation, Inc.

The discussion should be read in conjunction with the unaudited condensed consolidated

financial statements and the notes thereto included in “Part I.

Financial Statements.” Capitalized terms used in this

Management’s Discussion and Analysis of Financial Condition and Results of Operations” and not otherwise

defined shall have the meanings set forth in “Part I.

1 Financial Statements.”

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of future events or circumstances are forward-looking statements.

We caution and advise readers

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

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

SEC on March 14, 2025.

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

and investors are cautioned not to place undue reliance on any such statements.

We undertake no obligation to publicly update or revise

any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

We caution and advise readers that these statements are only predictions

and are subject to risks, uncertainties and assumptions that are difficult to predict, including those included in the “Risk Factors”

section of this Quarterly Report and in our Annual Report on Form 10-K filed with the SEC on March 14, 2025 and our Quarterly Report on

Form 10-Q filed with the SEC on May 6, 2025.

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

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

We undertake no obligation

to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except

as required by law.

Overview of Our Business

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wholesale partners.

business consists of Purple Inc.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

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

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

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

At March 31, 2025, Purple Inc.

had a 99.85% economic ownership

interest in Purple LLC while Class B unit holders had the remaining 0.15%.

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

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

the approval of any other member.

At June 30, 2025, Purple Inc.

had a 99.85% economic ownership interest in Purple LLC while Class B unit

holders had the remaining 0.15%.

Recent Developments in Our Business

Operational Developments

Our first quarter 2025 revenue

was down from last year as softness in our e-commerce and wholesale channels continue.

Revenue from our showrooms channel increased for

the second consecutive quarter of year-over-year growth.

Gross margins continue to improve as we realize the benefits from ongoing sourcing

initiatives, production efficiencies and the full integration of our consolidated manufacturing operations.

Operating expenses continue

to decline as we have implemented numerous cost reduction efforts and closely manage our costs with disciplined cost controls.

Earlier this year, we announced the re-launching of our Rejuvenate line in

the second quarter 2025 through our DTC channels, followed by a full wholesale channel roll-out expected to be complete by the third quarter

The new Rejuvenate 2.0 will have a newly innovated grid technology that when stacked with our original GelFlex grid, creates

a unique combination that we believe will continue to differentiate us in the market while driving superior comfort and support for an

even more premium sleep experience.

On May 2, 2025, we

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

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

(“SGI”), which provides that SGI,

through its Mattress Firm stores, will expand its inventory of our products across its national store network from approximately

5,000 mattress slots to a minimum of 12,000 mattress slots.

We expect that this increased retail presence in Mattress Firm stores

will generate approximately $70 million in incremental net revenue beginning in 2026.

Also on May 2, 2025, we 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.

Our second quarter 2025 revenue

decreased compared to last year due to the impact of longer delivery times of Rejuvenate 2.0, softness in e-commerce and 2024 reductions

in Wholesale door count.

Gross profits were down due mainly to increased tariffs, costs related to our manufacturing facility consolidation

and ramp-up costs relating to the Rejuvenate 2.0 launch, partially offset by continued improvement in lowering material costs as we realize

the benefits from ongoing sourcing initiatives.

Operating expenses continue to decline as we have improved advertising efficiency, implemented

numerous cost reduction efforts and closely managed our expenses with disciplined cost controls.

On May 2, 2025, we entered

into the Second Amendment to Master Retailer Agreement with Mattress Firm, a business unit of SGI, which provides that SGI, through its

Mattress Firm stores, will expand its inventory of our products across its national store network from approximately 5,000 mattress slots

to a minimum of 12,000 mattress slots.

We expect that this increased retail presence in Mattress Firm stores will generate approximately

$70 million in annualized incremental net revenue beginning in 2026.

This rollout is well underway and we expect to be in their full store

network during the third quarter 2025.

In partnership with Mattress Firm, we are developing an exclusive Luxe product for Mattress Firm,

scheduled to launch early next year, which will increase our total slot count to the contractual minimum.

Also on May 2, 2025, we entered

into the Sherwood Agreement 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 we sell to Mattress Firm.

The new Rejuvenate 2.0 collection launched in

the second quarter 2025 and is now available across all of our showroom locations.

Since the launch, we’ve sold over 1,300 Rejuvenate

2.0 units through our direct channels with approximately 80% of those sales coming through our showrooms.

This is more than twice the

number of units sold as our Rejuvenate 1.0 in the prior year through our direct channels.

Slot commitments across wholesale have also

been strong, with an increase in non-Mattress Firm slots of over 60%.

Demand from consumers and partners has temporarily outpaced our

ability to fulfill orders on a timely basis.

While Showroom revenue in the second quarter 2025 reflects the Rejuvenate 2.0 demand being

primarily shipped in the third quarter 2025, underlying sales orders in the second quarter 2025 for Showrooms open for more than a year

showed 5.5% growth as compared to the second quarter last year.

Wholesale revenue would have been reported slightly higher in the second

quarter 2025 if the Rejuvenate 2.0 orders had been timely fulfilled during the second quarter 2025.

Restructuring Activities

In August 2024, we initiated

the Restructuring Plan to strategically realign our operational focus to achieve efficiencies in our operations that are expected to improve

profitability and provide for reinvesting in technology and marketing initiatives.

The Restructuring Plan includes the permanent closure

of both Utah manufacturing facilities to consolidate mattress production in our Georgia plant, and a headcount reduction at our Utah headquarters

to drive additional operating efficiencies.

Closure of the two Utah manufacturing facilities is projected to be completed in the second

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

The reduction in workforce at our Utah headquarters

was completed in August 2024.

During the three months ended March 31, 2025, we recognized $2.9 million in costs relating to the Restructuring

Plan, which included $1.9 million of moving and transition related costs, $0.6 million related to disposal of long-lived assets or equipment

in progress that will not be put in service, $0.2 million in employee related costs, and $0.2 million in accelerated depreciation.

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

In August 2024, we initiated the Restructuring Plan to strategically

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

in technology and marketing initiatives.

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

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

efficiencies.

Closure of the two Utah manufacturing facilities was completed in the second quarter of 2025 while consolidation into the

Georgia facility was finalized in December 2024.

The reduction in workforce at our Utah headquarters was completed in August 2024.

the three months ended June 30, 2025, we recognized $4.2 million in costs relating to the Restructuring Plan, which included $2.9 million

of impairment on leases and leasehold improvements, $0.6 million of moving and transition related costs, $0.2 million related to disposal

of equipment in progress that will not be put in service, $0.2 million in employee related costs, and $0.2 million in accelerated depreciation.

We expect to record additional restructuring and other related charges in the amount of $0.9 million in the third quarter of 2025.

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

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additional restructuring, impairment or other related charges not reflected.

addition, we continue to implement additional cost savings measures in 2025 beyond those implemented pursuant to our 2024 Restructuring

In addition, we continue to

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

Debt Financings

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

In addition, we also paid (i) an amendment fee equal to 2% of the outstanding

principal and accrued and unpaid interest under the Related Party Loan held by the 2025 Lenders, paid in kind and (ii) a 2% work fee of

the initial aggregate principal amount of the First Incremental Loan paid to the 2025 Lenders, deducted from the proceeds at closing.

In addition, we also paid

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

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

2025 Lenders, deducted from the proceeds at closing.

Total fees and expenses of $2.1 million were recorded as debt issuance costs in March

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March 12, 2035.

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 (as defined in the Second 2025

Amendment), 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 our option.

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

(as defined in the Second 2025 Amendment), 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 our option.

The Second 2025 Amendment

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

In connection with the 2025

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

Each 2025 Warrant

entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per share, subject to adjustment

with a floor of $0.6979 and expire on March 12, 2025.

The 2025 Warrants contain certain provisions that do not meet the criteria for equity

classification and therefore were recorded as liabilities.

The liability for the 2025 Warrants was recorded at a fair value of $5.4 million

on the date of issuance with the offset included in debt issuance costs.

This liability is subsequently re-measured to fair value at each

reporting date or exercise date with changes in the fair value included in earnings.

During the three months ended March 31, 2025, we

incurred a loss of $0.2 million due to the increase in the fair value of the 2025 Warrants outstanding at March 31, 2025.

In connection with the 2025 Amendment, we issued to the 2025 Lenders

the 2025 Warrants to purchase 6.2 million shares of our Class A common stock.

Each 2025 Warrant entitles the registered holder to purchase

one share of our Class A common stock at a price of $1.50 per share, subject to adjustment with a floor of $0.6979 and expire on March

The 2025 Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded

as liabilities.

The liability for the 2025 Warrants was recorded at a fair value of $5.4 million on the date of issuance with the offset

included in debt issuance costs.

In connection with the Second

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share, subject to adjustment with a floor of $0.6979 and expire on March 12, 2035.

The liability for the 2025 Additional Warrants was

recorded at a fair value of $5.4 million on the date of issuance with the offset included in debt issuance costs.

In connection with the SGI

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respect to adjustments to the exercise price and expire on March 12, 2035.

The liability for the 2025 Additional Warrants was recorded

at a fair value of $6.5 million on the date of issuance with the offset recorded as an asset to be amortized as a reduction of revenue

over the life of the SGI Agreement.

A holder of the warrants will

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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 warrant liability is subsequently

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

During the three and six months

ended June 30, 2025, we incurred a gain of $4.4 million due to the decrease in the fair value of the warrants outstanding at June 30,

Registration Rights Agreements

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In connection with the issuance

of the 2025 Additional Warrants, on May 2, 2025, we entered into a Third Amended and Restated Registration Rights Agreement (the “2025

of the 2025 Additional Warrants, on May 2, 2025, we entered into a Third Amended and Restated Registration Rights Agreement (the “Third

Amended Registration Rights Agreement”) with the 2025 Holders, providing for the registration under the Securities Act of the 2025

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of the SGI Warrants, on May 2, 2025, we entered into a Registration Rights Agreement (the “SGI Registration Rights Agreement”

and collectively with the 2025 Registration Rights Agreement and 2025 Amended Registration Rights Agreement, the “Registration Rights

Agreements”) with SGI, providing for the registration under the Securities Act of the SGI Warrants, the shares issuable upon the

exercise of the SGI Warrants, and the Class A common stock held by SGI as of such date (the “SGI Registrable Securities” and

collectively with the 2025 Registrable Securities and 2025 Additional Registrable Securities, the “Registrable Securities”),

and collectively with the 2025 Registration Rights Agreement and the Third Amended Registration Rights Agreement, the “Registration

Rights Agreements”) with SGI, providing for the registration under the Securities Act of the SGI Warrants, the shares issuable upon

the exercise of the SGI Warrants, and the Class A common stock held by SGI as of such date (the “SGI Registrable Securities”

and collectively with the 2025 Registrable Securities and 2025 Additional Registrable Securities, the “Registrable Securities”),

subject to customary terms and conditions.

The Registration Rights Agreements entitle the investors party thereto

to demand registration of the Registrable Securities and also to piggyback on the registration of Company securities by us and other Company

securityholders.

We will be responsible for the payment of the investors’ expenses in connection with any offering or sale of Registrable

Securities, 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 Agreements

provide that on or prior to May 30, 2025, or July 16, 2025, if Form S-3 is not then available, we 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.

entitle the investors party thereto to demand registration of the Registrable Securities and also to piggyback on the registration of

Company securities by us and other Company securityholders.

We will be responsible for the payment of the investors’ expenses in

connection with any offering or sale of Registrable Securities, 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 statement filed on May 23, 2025, which registered

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

NOL Rights Plan

On June 27, 2024, our Board

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

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

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

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

potential future federal income tax obligations from becoming substantially limited by future ownership of our common stock.

Upon adopting

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

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

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

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

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

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

who violates the ownership limitations of the NOL Rights Plan.

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

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

On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan

and the NOL Protective Charter Amendment, to May 7, 2025.

On June 27, 2024, our Board of Directors (“Board”) adopted,

and we entered into, a limited-duration stockholder rights agreement (the “NOL Rights Plan”) with a stated expiration date

of June 30, 2025.

Our Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use our

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

tax obligations from becoming substantially limited by future ownership of our common stock.

Upon adopting the NOL Rights Plan, 0.3 million

shares of our authorized shares of preferred stock were designated as Series C Preferred Shares.

Pursuant to the NOL Rights Plan, our

Board authorized and declared a dividend of one right for each outstanding share of common stock to stockholders of record at the close

of business on July 26, 2024.

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

beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current

beneficial ownership percentage), the rights will become exercisable to significantly dilute any stockholder who violates the ownership

limitations of the NOL Rights Plan.

The NOL Rights Plan was ratified at a special meeting of our stockholders on October 15, 2024 (the

“Special Meeting”).

On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan and the NOL Protective Charter

Amendment, to May 7, 2025.

NOL Protective Charter Amendment

In connection with the NOL Rights Plan, our Board adopted a NOL Protective

Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of common

stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial

ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial

ownership percentage).

The NOL Protective Charter Amendment was approved by our stockholders at the Special Meeting.

On May 6, 2025,

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

In connection with the NOL

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

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

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

point greater than their current beneficial ownership percentage).

The NOL Protective Charter Amendment was approved by our stockholders

at the Special Meeting.

On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan and the NOL Protective Charter

Amendment to May 7, 2025.

Review of Strategic Alternatives

We regularly engage in dialogue

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

Based on certain recent

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

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

We have engaged with multiple

parties about a broad range of opportunities to maximize shareholder value, including, but not limited to, a merger, sale or other strategic

or financial transaction.

The Board has formed a special committee of independent directors and we have engaged a financial advisor to

support them in evaluating a range of options and exploring other potential strategic alternatives.

If we are unsuccessful in engaging

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Impact of United States Tariff Policy

We continue to closely monitor the potential impact of recent United

States tariff policies.

Importantly, all of our mattresses are manufactured in the United States, and about 15% of our cost of goods is

tied to products sourced from overseas.

This limited exposure is primarily concentrated in the textile side of the business, which includes

sheets and mattress covers, but also includes the import of bases and foundations.

Based on current tariff rates, we estimate the potential

annual cost impact to be approximately $10 million.

The tariff landscape remains fluid, and we are actively evaluating sourcing alternatives

and pricing strategies on a case-by-case basis, which we believe will mitigate at least a portion of expected costs increases.

that our vertically integrated model and strong vendor relationships give us the flexibility to remain agile and responsive to changes

in tariff policies, and we believe that we will be able to mitigate these impacts through a combination of supply chain repositioning,

vendor collaborations, and selective pricing actions.

We continue to actively manage

the impact of recent United States tariff policies.

Importantly, all of our mattresses are manufactured in the United States, and about

15% of our cost of goods is tied to products sourced from overseas.

This limited exposure is primarily concentrated in the textile side

of the business, which includes sheets and mattress covers, but also includes the import of bases and foundations.

While future changes

in tariffs are difficult to predict, we currently estimate the total cost exposure in 2025 to be less than our previous $10 million estimate,

due to a combination of our mitigation efforts and changes to the underlying tariff rates.

We have begun shifting sourcing outside of

China, and in July, we implemented price increases on select product, including two mattress models.

The tariff landscape remains fluid,

and we are actively evaluating sourcing alternatives and pricing strategies on a case-by-case basis.

We believe that our vertically integrated

model and strong vendor relationships give us the flexibility to remain agile and responsive to changes in tariff policies, and we believe

that we will be able to mitigate these impacts through a combination of supply chain repositioning, vendor collaborations, and selective

pricing actions.

Executive Summary – Results of Operations

Net revenues decreased $15.2

million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March

The drop in revenue was primarily driven by industry-wide demand softness for home-related products.

From a sales channel perspective,

e-commerce net revenues decreased $4.1 million, or 8.2%, and wholesale net revenues decreased $13.0 million, or 24.2%, respectively.

decrease was partially offset by our showrooms channel net revenue increase of $1.2 million or 7.4%.

The increase in our showrooms channel

represents an 11.0% year-over-year increase for all stores that have been open for 13 or more months.

This is the second consecutive quarter

of year-over-year growth in the showrooms channel, driven by increased order values through effective upselling and product bundling.

Gross profit decreased $0.7 million, or 1.6%, to $41.0 million for the three

months ended March 31, 2025 compared to $41.7 million for the three months ended March 31, 2024.

Our gross profit percentage increased

to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, from improved production effectiveness

due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry

a higher average selling price than sales from our wholesale channels.

During the three months ended March 31, 2025, we incurred $0.9

million in costs associated with the Restructuring Plan.

We expect to record additional cost of revenue restructuring related charges

in the amount of $1.4 million through the second quarter of 2025.

These charges include certain estimates that are provisional and include

management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results may differ

from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.

million, or 12.6%, to $105.1 million for the three months ended June 30, 2025, compared to $120.3 million for the three months ended June

The drop in revenue was primarily driven by the impact of longer delivery times of Rejuvenate 2.0, reductions in Wholesale door

count in 2024 and softness in e-commerce.

From a sales channel perspective, e-commerce net revenues decreased $5.6 million, or 11.5%,

showrooms net revenue decreased $2.4 million or 13.3% and wholesale net revenues decreased $7.2 million, or 13.4%.

Gross profit decreased $11.2

million, or 23.0%, to $37.7 million for the three months ended June 30, 2025, compared to $48.9 million for the three months ended June

Our gross profit percentage decreased to 35.9% of net revenues in the second quarter of 2025 from 40.7% in the second quarter

The decrease in gross profit is due mainly to increased tariffs, costs related to the ramp-up of both the Mattress Firm roll-out

and Rejuvenate 2.0 launch, partially offset by continued improvement in lowering material costs as we realize the benefits from ongoing

sourcing initiatives.

We believe that the lower gross profit percentage in the second quarter 2025 is not indicative of future trends.

With mitigation plans underway to reduce the impact of tariffs, improvements in manufacturing efficiencies and continued direct material

cost savings, we believe that we will exit 2025 with a gross profit over 40.0%.

However, the evolving tariff landscape and continued

softness in demand may adversely affect our gross profit.

Operating expenses decreased

$9.3 million, or 14.4% to $55.5 million for the three months ended March 31, 2025 compared to $64.9 million for the three months ended

March 31, 2024.

This decrease was driven by $4.8 million decrease in employee related expenses, $3.8 million decrease in legal and consulting

fees and $0.8 million decrease in all other operating expenses.

These decreases are the result of our restructuring efforts, the in-sourcing

$11.6 million, or 18.2% to $51.9 million for the three months ended June 30, 2025, compared to $63.5 million for the three months ended

June 30, 2024.

This decrease was driven by a $8.2 million reduction in advertising spend, $4.7 million decrease in employee related expenses,

$2.2 million decrease in research and development project write-offs and $0.7 million decrease in all other operating expenses, partially

offset by an increase of $4.2 million in restructuring related costs.

These decreases are the result of restructuring efforts, the in-sourcing

of certain functions in marketing and finance and other cost reduction efforts.

Other expense, net decreased $22.4 million, or 82.8% to $4.6 million for

the three months ended March 31, 2025 compared to $27.1 million for the three months ended March 31, 2024.

The other expense, net in the

first quarter of 2025 consists of interest expense of $4.8 million, partially offset by $0.1 in other income and gain on change in fair

value of warrants.

The other expense, net in the first quarter of 2024 consists of $23.6 million loss on change in fair value of warrants,

$4.5 million in interest expense, $3.4 million loss on extinguishment of debt, partially offset by $4.4 million in other income.

attributable to Purple Inc.

was $19.1 million for the three months ended March 31, 2025 compared to a net loss of $50.2 million for the

three months ended March 31, 2024.

The $31.1 million decrease in net loss was primarily due to increased gross margin and reduced operating

expenses as we are realizing the benefits from our Restructuring Plan, supply chain initiatives, operational efficiency improvements and

other cost reduction efforts throughout the Company and the decrease in loss from change in fair value of the warrants.

Other income (expense), net

decreased $17.7 million, or 121.1% to other income (expense), net of $(3.1) million for the three months ended June 30, 2025, compared

to other income (expense), net of $14.6 million for the three months ended June 30, 2024.

The other income (expense), net in the second

quarter of 2025 consists of interest expense of $7.5 million, partially offset by a $4.4 million gain on the change in fair value of warrants.

The other income (expense), net in the second quarter of 2024 consists of $18.7 million gain on the change in fair value of warrants and

all other income, net of $0.1 million, partially offset by $4.2 million in interest expense.

Net loss attributable to Purple Inc.

million for the three months ended June 30, 2025 compared to a break even position attributable to Purple Inc.

for the three months ended

June 30, 2024.

The $17.3 million increase in net loss was primarily due to lower sales, decreased gross profit and the change in fair

value of warrant liabilities, partially offset by reduced operating expenses as we are realizing the benefits from our Restructuring Plan,

supply chain initiatives, operational efficiency improvements and other cost reduction efforts.

Outlook for Growth

We believe, given the Restructuring

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

We are focused on the following

three key initiatives to drive sustainable and profitable market share:

new technologies to maintain our competitive advantage.

Our strategy focuses on offering a differentiated product that

provides unique benefits and higher customer satisfaction, all fueled by our proprietary flexible gel technology.

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

Our new DreamLayer grid, stacked with our original grid, creates a unique combination that continues to differentiate

us in the market while driving superior comfort and support for an even more premium sleep experience.

This upgrade will result

in a refresh of our current Rejuvenate line.

The new Rejuvenate 2.0 collection launches in the second quarter 2025 through our

direct-to-consumer channels, followed by a full wholesale roll-out expected to be complete by the third quarter 2025.

addition, we are significantly expanding our distribution of pillows by launching our renowned DreamLayer and Freeform pillows into

our wholesale channel.

our product differentiation to drive sales.

We believe we are well positioned

to grow our business in this challenging market given our new grid innovation, evolved messaging strategy, the Restructuring Plan and

other cost saving initiatives.

We believe we are entering the second half with significant momentum that we believe will continue building

through the end of the year, with third quarter to date revenues up in the mid-single digits percentage range versus the same period last

We are seeing validation of our brand and innovation strategy through the success of Rejuvenate 2.0, which has sold more than twice

as many units as our Rejuvenate 1.0 in the prior year through our direct channels, the growing momentum behind our Mattress Firm expansion,

which is rolling out across the country, the deepening partnership with Costco as we prepare to launch in 450 clubs for their year-end

furniture show and the strong interest from other traditional and non-traditional partners.

Our Path to Premium Sleep strategy remains

focused on the following three key initiatives to drive sustainable and profitable market share:

Pioneer new technologies to maintain our competitive advantage.

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

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

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

This advancement resulted in a refresh of our current Rejuvenate line.

The new Rejuvenate 2.0 collection launched in the second quarter 2025 and we believe that we are seeing validation of our brand and innovation strategy through the initial success of Rejuvenate 2.0 as it is outperforming expectations across both our direct and wholesale channels.

We believe this favorable mix shift will be a key margin driver moving forward.

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

In the second quarter 2025, we also introduced our new Grid Cloud pillow, designed to bring the benefits of our grid technology to a broader audience.

Promote our product differentiation to drive sales.

We started as a brand built on differentiation.

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

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

We intend to effectively articulate the unique qualities

of sleeping on our gel grid layer to be more effective and reach more consumers.

In our selling channels, we expect refocusing our

messaging on promoting our differentiation will drive more and better quality traffic while improving conversion both online and in

stores, and increase our share of retailer sales in our wholesale channel.

gross margin improvements.

We expect continued gross margin gains to come from driving cost savings through plant

consolidation efficiency gains, supplier diversification efforts, and improved scrap and yield results from continuous improvements

We are also ramping up in-house pillow production, changing vendors for key mattress components like coils and mattress

covers and improving our delivery program to drive cost improvements and better deliveries.

These savings will enable us

to reinvest in innovation and marketing to drive growth.

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

As part of our evolved messaging strategy, our efforts are focused on reinforcing the strength of our brand, clearly communicating the “Less Pain, Better Sleep” benefits of our technology and supporting premium positioning across all channels.

We intend to effectively articulate the unique qualities of sleeping on our gel grid layer and optimize our messaging to drive engagement, education and conversion.

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

Prioritize gross profit improvements.

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

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

We believe our sourcing, manufacturing and consolidation efforts are delivering meaningful structural improvements and positioning us for sustained gross profit expansion.

There is no guarantee that we will be able to

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In addition, we may, in the future, adapt these focuses in response to changes in the market or our business.

Operating Results for the Three Months Ended March 31, 2025 and

Operating Results for the Three Months Ended June 30, 2025, and 2024

The following table sets forth

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statements of operations (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Revenues, net

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Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

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

Revenues, Net

Net revenues decreased $15.2

million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March

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

From a sales channel

perspective, e-commerce net revenues decreased $4.1 million, or 8.2%, showrooms net revenues increased $1.2 million, or 7.4%, and wholesale

net revenues decreased $13.0 million, or 24.2%.

million, or 12.6%, to $105.1 million for the three months ended June 30, 2025, compared to $120.3 million for the three months ended June

This decrease was primarily driven by the impact of longer delivery times of Rejuvenate 2.0, reductions in Wholesale door count

in 2024 and softness in e-commerce.

From a sales channel perspective, e-commerce net revenues decreased $5.6 million, or 11.5%, showrooms

net revenues decreased by $2.4 million, or 13.3%, and wholesale net revenues decreased $7.2 million, or 13.4%.

Total Cost of Revenues

Total cost of revenues decreased

$15.2 million, or 19.4%, to $63.1 million for the three months ended March 31, 2025, compared to $78.3 million for the three months ended

March 31, 2024.

This decrease was due primarily to reduced sales volumes coupled with lower production costs that were largely attributable

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

Our gross profit percentage,

increased to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, due to improved production effectiveness

due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry

a higher average selling price than sales from our wholesale channels.

During the three months ended March 31, 2025, we incurred $0.9

million in costs associated with the Restructuring Plan.

We expect to record additional cost of revenue restructuring related charges

in the amount of $1.4 million through the second quarter of 2025.

These charges include certain estimates that are provisional and include

management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results may differ

from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.

$3.9 million, or 5.5%, to $67.4 million for the three months ended June 30, 2025, compared to $71.3 million for the three months ended

June 30, 2024.

This decrease was due primarily to reduced sales volumes and lower material costs attributable to supply chain initiatives,

partially offset by increased costs due to tariffs, costs related to our manufacturing facility consolidation and ramp-up costs relating

to the Rejuvenate 2.0 launch.

Our gross profit percentage decreased to 35.9% of net revenues in the second quarter of 2025 from 40.7%

in the second quarter of 2024, due mainly to increased tariffs, costs related to the ramp-up of both the Mattress Firm roll-out and Rejuvenate

2.0 launch, partially offset by continued improvement in lowering material costs as we realize the benefits from ongoing sourcing initiatives.

During the three months ended June 30, 2025, we incurred $0.1 million in cost of revenues associated with the Restructuring Plan.

Marketing and Sales

Marketing and sales expense

decreased $4.8 million, or 11.7%, to $36.6 million for the three months ended March 31, 2025 compared to $41.5 million for the three months

ended March 31, 2024.

This decrease primarily consisted of a $2.2 million decrease in employee related costs due to headcount reductions,

$1.3 million decrease in wholesale marketing and sales expenses, a $0.9 million decrease in showrooms marketing and sales expenses and

$0.4 million decrease in all other marketing and sales expenses.

Advertising expense remained consistent between the two period at $14.6

million and $14.5 million for the three months ended March 31, 2025 and 2024, respectively.

decreased $10.8 million, or 26.0%, to $30.6 million for the three months ended June 30, 2025, compared to $41.4 million for the three

months ended June 30, 2024.

This decrease primarily consisted of $8.2 million in reduced advertising spend, and a $2.7 million decrease

in employee related costs due to headcount reductions, partially offset by a $0.1 million increase in all other marketing and sales expense.

General and Administrative

General and administrative

expense decreased $5.2 million, or 26.6%, to $14.5 million for the three months ended March 31, 2025 compared to $19.7 million for the

three months ended March 31, 2024.

This decrease was due to a $2.3 million decrease in employee related costs due to headcount reductions,

$1.7 million decrease in consulting fees, $0.8 million reduction in legal fees and $0.4 million decrease in all other general and administrative

expense decreased $3.1 million, or 17.3%, to $15.0 million for the three months ended June 30, 2025, compared to $18.1 million for the

three months ended June 30, 2024.

This decrease was due to a $1.7 million decrease in employee related costs from headcount reductions,

a $0.7 million reduction in professional services mainly from certain consulting services that have been discontinued, and $0.8 million

reductions in all other general and administrative expenses.

Research and Development

Research and development expense

decreased $1.2 million, or 33.1%, to $2.5 million for the three months ended March 31, 2025 compared to $3.7 million for the three months

ended March 31, 2024.

This decrease is the result of a $0.3 million decrease in employee related costs due to headcount reductions and

a $0.9 million decrease in other product development expenses as we focused on specific product development projects.

decreased $1.8 million, or 45.4%, to $2.2 million for the three months ended June 30, 2025, compared to $4.0 million for the three months

ended June 30, 2024.

The decrease is due to the loss incurred in 2024 on the write-off of a certain project in 2024, lower employee related

costs, and other product development costs.

Restructuring, Impairment and Other Related

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

The $2.0 million of restructuring and impairment charges recorded during the first quarter of 2025 included $1.2 million of moving and

transition related costs, $0.6 million related to disposal of long-lived assets or equipment in progress that will not be put in service,

and $0.2 million in employee related costs.

We expect to record additional restructuring and other related charges in the amount of $1.6

million in the second quarter of 2025 related to continued moving and transition costs.

These charges include certain estimates that are

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

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

related charges not reflected.

The $4.1 million of restructuring and impairment charges recorded in operating expense during the second quarter of 2025 included $2.9

million of impairment related to leases and leasehold improvements, $0.6 million of moving and transition related costs, $0.2 million

related to disposal of equipment in progress that will not be put in service, $0.2 million in employee related costs, and $0.2 million

in accelerated depreciation.

We expect to record additional restructuring and other related charges in the amount of $0.9 million in the

third quarter of 2025.

These charges include certain

estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution

of our plans.

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

impairment or other related charges not reflected.

Operating Loss

Operating loss decreased $0.3

million, or 37.4%, to $14.5 million, for the three months ended March 31, 2025 compared to $23.1 million for the three months ended March

This decrease in our operating loss is the result of the benefits realized through our Restructuring Plan, supply chain initiatives,

operational efficiency improvements and other cost reduction efforts throughout the Company.

million, or 2.1%, to $14.2 million, for the three months ended June 30, 2025, compared to $14.5 million for the three months ended June

This decrease in our operating loss is the result of improved advertising efficiency, the benefits realized through our Restructuring

Plan, supply chain initiatives, and other cost reduction efforts throughout the Company, partially offset by increased costs due to tariffs

and ramp up costs tied to our manufacturing facility consolidation and the Rejuvenate 2.0 launch.

Interest Expense

Interest expense totaled $7.5

million for the three months ended March 31, 2025 compared to $4.5 million for the three months ended March 31, 2024.

million for the three months ended June 30, 2025, compared to $4.2 million for the three months ended June 30, 2024.

This increase was

primarily due to additional interest incurred on a higher principal balance on the Related Party Loan as the Company elected the paid-in-kind

option on monthly interest over the past 12 months.

option on monthly interest over the past 12 months and increased the loan funding by $39.0 million.

Change in Fair Value – Warrant Liabilities

We have 40.8 million warrants

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

with a re-measurement of fair value at each reporting date.

For the three months ended June 30, 2025, we recognized a $4.4 million gain

related to the decrease in fair value of the warrant liabilities as of June 30, 2025, as compared with the previous measurement date.

The decrease is due mainly to the change in the probability and timing of a fundamental transaction.

For the three months ended June 30,

2024, we recognized a $ 18.7 million gain related to the decrease in the fair value of the warrants from the January 2024 issuance date.

Income Tax (Expense) Benefit

We had a $0.1 million income

tax expense for the three months ended June 30, 2025, compared to $0.1 million income tax expense for the three months ended June 30,

The income tax expense amounts in both the second quarter of 2025 and 2024 were related to various state taxes.

Noncontrolling Interest

We calculate net income or

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

Net loss attributed

to noncontrolling interests was negligible for the three months ended June 30, 2025, and 2024.

Operating Results for the Six Months Ended June 30, 2025, and 2024

The following table sets forth

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

statements of operations (dollars in thousands):

Six Months Ended June 30,

Revenues, net

Cost of revenues:

Cost of revenues

Cost of revenues - restructuring related charges

Total cost of revenues

Operating expenses:

Marketing and sales

General and administrative

Research and development

Restructuring, impairment and other related charges

Total operating expenses

Operating loss

Other income (expense):

Interest expense

Other income, net

Other income decreased to

$0.1 million for the three months ended March 31, 2025 compared to $4.4 million for the three months ended March 31, 2024.

This decrease

was mainly due to $4.2 million of proceeds received in January 2024 for a partial settlement amount pursuant to a previously filed

business interruption insurance claim.

Loss on extinguishment of debt

In January 2024, we entered

into the Amended and Restated Credit Agreement that terminated and paid off our 2023 credit agreements.

This termination was accounted

for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs relating to the 2023 credit agreements were recorded

as loss on extinguishment of debt in the first quarter of 2024.

Change in fair value – warrant liabilities

In March 2025 and January

2024, in connection with the loans, we issued 6.2 million and 20.0 million warrants, respectively, to the various lenders.

These Warrants

contained certain provisions that did not meet the criteria for equity classification and therefore are recorded as liabilities with a

re-measurement of fair value at each reporting date.

For the three months ended March 31, 2025, we recognized a negligible gain related

to the net decrease in fair value of the warrant liability comprised of a decrease in fair value of $0.3 million for the warrants issued

in 2024 partially offset by an increase in fair value of $0.2 million from the March 2025 issuance date for the warrants issued in March

For the three months ended March 31, 2024, we recognized a $23.6 million loss related to the increase in the fair value of the warrants

from the January 2024 issuance date.

Total other income (expense), net

Net loss before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

Net revenues decreased $31.0

million, or 12.9%, to $209.3 million for the six months ended June 30, 2025, compared to $240.3 million for the six months ended June

This decrease was primarily driven by the industry-wide demand softness for home-related products in the first quarter 2025,

the impact of longer delivery times of Rejuvenate 2.0, reductions in Wholesale door count in 2024 and softness in e-commerce.

channel perspective, e-commerce net revenues decreased $9.6 million, or 9.8%, showrooms net revenues decreased $1.2 million, or 3.4%,

and wholesale net revenues decreased $20.2 million, or 18.8%.

Total Cost of Revenues

Total cost of revenues decreased

$19.1 million, or 12.8%, to $130.5 million for the six months ended June 30, 2025, compared to $149.6 million for the six months ended

June 30, 2024.

This decrease was due primarily to reduced sales volumes coupled with lower material costs that were largely attributable

to supply chain initiatives implemented over the last 12 months, partially offset by increased costs due to tariffs and costs related

to the ramp-up of both the Mattress Firm roll-out and Rejuvenate 2.0 launch.

Our gross profit percentage decreased slightly to 37.6% of

net revenues for the first six months of 2025 from 37.7% in the first six months of 2024 due primarily to lower material costs partially

offset by increased costs due to tariffs, costs related to the ramp-up of both the Mattress Firm roll-out and Rejuvenate 2.0 launch.

Marketing and Sales

Marketing and sales expense

decreased $15.6 million, or 18.8%, to $67.2 million for the six months ended June 30, 2025, compared to $82.8 million for the six months

ended June 30, 2024.

This decrease was due mainly to reduced advertising spend of $6.5 million, a $4.9 million decrease in employee related

costs due to headcount reductions, a $2.5 million reduction in professional services and a $1.7 million reduction in all other marketing

General and Administrative

General and administrative

expense decreased $8.4 million, or 22.1%, to $29.5 million for the six months ended June 30, 2025, compared to $37.8 million for the six

months ended June 30, 2024.

This decrease was primarily due to a $4.0 million decrease in employee related expenses due to headcount reductions,

a $3.2 million reduction in professional services mainly from certain consulting services that have been discontinued and a $1.1 million

reduction in all other expenses.

Research and Development

Research and development expense

decreased $3.0 million, or 39.5%, to $4.6 million for the six months ended June 30, 2025, compared to $7.7 million for the six months

ended June 30, 2024.

This decrease is due to the loss incurred in 2024 on the write off of a certain project in 2024 and lower employee

related costs and other product development costs.

Restructuring, Impairment and Other Related

In August 2024, we initiated

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

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

The $6.1 million of restructuring and impairment charges recorded in operating expense during the first six months of 2025 included $2.9

million of impairment related to leases and leasehold improvements, $1.8 million of moving and transition related costs, $0.9 million

related to disposal of equipment in progress that will not be put in service, $0.4 million in employee related costs and $0.1 million

in accelerated depreciation.

We expect to record additional restructuring and other related charges in the amount of $0.9 million in the

third quarter of 2025.

These charges include certain

estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution

of our plans.

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

impairment or other related charges not reflected.

Operating Loss

Operating loss decreased $9.1

million, or 23.8%, to $28.7 million, for the six months ended June 30, 2025, compared to $37.8 million for the six months ended June 30,

This decrease in our operating loss is the result of the benefits realized through improved advertising efficiency, the benefits

realized through our Restructuring Plan, supply chain initiatives and other cost reduction efforts throughout the Company, partially offset

by increased costs due to tariffs, costs related to our manufacturing facility consolidation and the ramp-up costs relating to the Rejuvenate

Interest Expense

Interest expense totaled $12.2 million for the six months ended June

30, 2025, compared to $8.6 million for the six months ended June 30, 2024.

This increase was primarily due to additional interest incurred

on a higher principal balance on the Related Party Loan as the Company elected the paid-in-kind option on monthly interest over the past

12 months and increased the loan funding by $39.0 million.

Loss on Extinguishment of Debt

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

that terminated and paid off our 2023 credit agreements.

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

of unamortized debt issuance costs relating to the 2023 credit agreements were recorded as loss on extinguishment of debt in the first

quarter of 2024.

Change in Fair Value – Warrant Liabilities

We have 40.8 million warrants outstanding that contain certain provisions

that do not meet the criteria for equity classification and therefore are recorded as liabilities with a re-measurement of fair value

at each reporting date.

For the six months ended June 30, 2025, we recognized a $4.4 million gain related to the decrease in fair value

of the warrant liabilities.

The decrease is due mainly to the change in the probability and timing of a fundamental transaction.

six months ended June 30, 2024, we recognized a $4.9 million loss related to the increase in the fair value of the warrants from the January

2024 issuance.

Income Tax (Expense) Benefit

We had a de minimis income

tax expense for the three months ended March 31, 2025 compared to $0.1 million income tax expense for the three months ended March 31,

The income tax expense amounts in both the first quarter of 2025 and 2024 were related to various state taxes.

We had a $0.1 million income

tax expense for the six months ended June 30, 2025, compared to $0.1 million income tax expense for the six months ended June 30, 2024.

The income tax expense amounts in the six months ended June 30, 2025 and 2024 were related to various state taxes.

Noncontrolling Interest

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Net loss attributed

to noncontrolling interests was negligible for the three months ended March 31, 2025 and $0.1 million for the three months ended March

to noncontrolling interests was $0.1 million for the six months ended June 30, 2025, and $0.1 million for the six months ended June 30,

Liquidity and Capital Resources

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Our cash and cash equivalents and working capital positions were $34.2 million and $41.5 million,

respectively, as of March 31, 2025 compared to $29.0 million and $25.4 million, respectively, as of December 31, 2024.

respectively, as of June 30, 2025, compared to $29.0 million and $25.4 million, respectively, as of December 31, 2024.

Cash used for capital

expenditures totaled $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively.

expenditures totaled $5.1 million and $5.3 million for the six months ended June 30, 2025, and 2024, respectively.

Our capital expenditures

in the first quarter of 2025 have primarily consisted of additional investments made in our manufacturing operations and showrooms facilities.

Additional details about our loan agreements are described above under “ Recent Developments in our Business – Debt Financing.

Our financial statements have been prepared on a going concern basis

of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course

In connection with our preparation of our unaudited condensed consolidated financial statements for the three months ended

March 31, 2025, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial

doubt as to our ability to continue as a going concern within one year after the date of the issuance of such financial statements.

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.

We entered into the 2025 Amendment and the Second 2025 Amendment, pursuant

to which we received an aggregate of $39.0 million in additional term loan proceeds from the 2025 Lenders.

We have also taken a

number of other actions to increase cash flow.

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

operations to create efficiencies and cost savings.

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

through supply chain initiatives and supplier diversification efforts.

We have taken additional cost-saving initiatives in the first

quarter of 2025 to maintain liquidity to support our operations and strategies.

Additionally, we entered into an agreement with

Mattress Firm, a business unit of SGI to expand its inventory of our products across SGI’s national store network from

approximately 5,000 mattress slots to a minimum of 12,000 mattress slots.

in the first half of 2025 have primarily consisted of additional investments made in our manufacturing operations.

Additional details

about our loan agreements are described above under “ Recent Developments in our Business – Debt Financing.

Our financial statements have

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

and commitments in the normal course of business.

In connection with our preparation of our unaudited condensed consolidated financial

statements for the three and six months ended June 30, 2025, we conducted an evaluation as to whether there were conditions and events,

considered in the aggregate, which raised substantial doubt as to our ability to continue as a going concern within one year after the

date of the issuance of such financial statements.

We had cash and cash equivalents

of approximately $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.

We entered into the 2025 Amendment and the Second 2025 Amendment, pursuant to which we received an aggregate

of $39.0 million in additional term loan proceeds from the 2025 Lenders.

We have also taken a number

of other actions to increase cash flow.

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

to create efficiencies and cost savings.

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

chain initiatives and supplier diversification efforts.

We have taken additional cost-saving initiatives in the first half of 2025 to

maintain liquidity to support our operations and strategies.

Additionally, we entered into an agreement with Mattress Firm, a business

unit of SGI to expand its inventory of our products across SGI’s national store network from approximately 5,000 mattress slots

to a minimum of 12,000 mattress slots.

Accordingly, we concluded

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

to satisfy our liquidity requirements in the future.

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

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

ability to execute our current business strategy.

to satisfy our liquidity requirements in the future, including the related party loan due December 31, 2026 (see Note 10 — Debt ).

If we cannot generate or obtain needed funds, we might be forced to make substantial reductions in our operating and capital expenses

or pursue restructuring plans, which could adversely affect our business operations and ability to execute our current business strategy.

Other Contractual Obligations

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financial statements for additional information on leases.

Cash Flows for the Three Months Ended March

31, 2025 Compared to the Three Months Ended March 31, 2024

The following summarizes our

cash flows for the three months ended March 31, 2025 and 2024 as reported in our unaudited condensed consolidated statements of cash flows (in

Three Months Ended

Cash Flows for the Six Months Ended June 30, 2025, Compared to the

Six Months Ended June 30, 2024

The following summarizes our cash flows for the six months ended June

30, 2025, and 2024 as reported in our unaudited condensed consolidated statements of cash flows (in thousands):

Six Months Ended

Net cash used in operating activities

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Cash, end of the period

Cash used in operating activities

was $23.1 million and $16.8 million for the three months ended March 31, 2025 and 2024, respectively.

Significant components of the year-over-year

change in cash used in operating activities included a $11.0 million increase in cash used in the changes in operating assets, and liabilities

partially offset by a $31.1 million decrease in net loss and a $26.4 million decrease of net noncash adjustments.

Cash used in investing activities

reflected net capital expenditures of $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively.

Capital expenditures in the first three months of 2025 primarily consisted of additional investments made in our manufacturing operations.

Cash provided by financing

activities was $17.8 million during the three months ended March 31, 2025 compared to $27.5 million during the three months ended March

Financing activities during the first three months of 2025 included $19.0 million of proceeds from the additional financing

offset in part by $1.2 million in payments for debt issuance costs.

Financing activities during the first three months of 2024 included

$61.0 million of proceeds received from the Related Party Loan under the Amended and Restated Credit Agreement, offset in part by a $25.0

million payment to pay off the term loans from the 2023 credit agreement, a $5.0 million payment to pay off the ABL Loans from the 2023

credit agreement, and payments of $3.5 million for debt issuance costs associated with entering into the Amended and Restated Credit Agreement.

Cash used in operating activities was $27.1 million and $25.7 million

for the six months ended June 30, 2025, and 2024, respectively.

Significant components of the $1.4 million year-over-year increase in

in cash used in operating activities included a $7.6 million increase in cash used from the changes in operating assets and liabilities

and $7.5 million increase in cash used due to a decrease in the net noncash adjustments, partially offset by a $13.7 million decrease

Cash used in investing activities reflected net capital expenditures

of $5.1 million and $5.3 million for the six months ended June 30, 2025, and 2024, respectively.

Capital expenditures in the first six

months of 2025 primarily consisted of additional investments made in our manufacturing operations.

Cash provided by financing activities was $37.4 million during the

six months ended June 30, 2025, compared to $27.5 million during the six months ended June 30, 2024.

Financing activities during the first

six months of 2025 included $39.0 million of proceeds from the additional financing offset in part by $1.6 million in payments for debt

issuance costs.

Financing activities during the first six months of 2024 included $61.0 million of proceeds received from the Related

Party Loan under the Amended and Restated Credit Agreement, offset in part by a $25.0 million payment to pay off the term loans from the

2023 credit agreement, a $5.0 million payment to pay off the ABL Loans from the 2023 credit agreement, and payments of $3.5 million for

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

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis