What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-14 · 627 added, 494 removed, 139 unchanged (89% of the section changed)

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

Forward-Looking

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

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

Act and the Exchange Act.

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

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

operate and the beliefs and assumptions of our management.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Annual Report on Form

10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking

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

Exchange Act.

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

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

the beliefs and assumptions of our management.

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

7 unchanged sentences

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

Risk Factors,” and elsewhere

Risk Factors,” and elsewhere herein.

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

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

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

be obtained from reading our consolidated financial statements alone.

This discussion should be read in conjunction with our consolidated

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

We undertake no

obligation to revise or update any forward-looking statements for any reason.

The following discussion is

intended to provide a more comprehensive review of our results of operations and financial condition than can be obtained from reading

our consolidated financial statements alone.

This discussion should be read in conjunction with our consolidated financial statements

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

Financial Statements.”

of Our Business

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

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

brand founded on comfort product innovation with premium offerings.

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

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

Our products are the

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

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

that differentiate our offerings from other competitors’ products.

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

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

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

business consists of Purple Inc.

Overview of Our Business

Our mission is to deliver

the greatest sleep ever invented.

We 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.

We offer a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions,

bases, sheets and more.

Our products are the result of decades of innovation and investment in proprietary and patented comfort technologies

and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology underpins many of our comfort

products and provides a range of benefits that differentiate our products from our competitors.

Specially engineered to relieve pressure,

maintain an ideal body temperature, and provide instantly adaptive support, Purple’s patented technology has been tested rigorously

within medical and consumer applications for over 30 years.

Originally designed for use in hospital beds and wheelchairs, we adapted this

unique pressure-relieving material for our mattresses, pillows and other cushion products.

We market and sell our products

via our direct-to-consumer channel, which includes Purple.com (our direct-to-consumer e-commerce), Purple showrooms, our customer contact

center and online marketplaces (collectively “DTC”), and our wholesale channel through retail brick-and-mortar and online

wholesale partners.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

was incorporated in Delaware on May 19, 2015

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

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

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

acquired an equity interest in Purple

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

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

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

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

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

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

the approval of any other member.

At December 31, 2025, Purple Inc.

had a 99.8% economic interest in Purple

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

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

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

For further discussion see Note 4 —

Developments in Our Business

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

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

a sleep product.

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

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

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

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

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

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

The fourth quarter 2024 was significant

for us as we achieved profitability and positive cash flow.

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

and cost saving initiatives throughout the year.

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

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

In 2025, we announced the

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

expected to be complete by the third quarter 2025.

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

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

and support for an even more premium sleep experience.

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

During 2025, we continued

to build on our Path to Premium Sleep strategy.

As a result, we exited 2025 with a lower cost structure and improved margins, which we

believe position us to scale as demand improves.

We have been realizing efficiencies with our media investments by targeting specific

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

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

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

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

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

While our revenues were

down overall from 2024, we are encouraged by our performance in the second half of 2025 as our fourth quarter 2025 revenue increased 9.1%

compared to last year, reflecting the continued execution of our strategic priorities.

Wholesale revenue grew 39.8% in the fourth quarter

compared to last year with our expanded Mattress Firm placements and an expansion with our Costco program, showroom revenue increased

4.5% reflecting the strength of our updated selling model and premium positioning and e-commerce was down 15.3%, reflecting a continuation

of trends from earlier in the year.

Gross margin for the fourth quarter was 41.9% as we have realized the benefits of the continued improvement

in lowering material costs from ongoing sourcing initiatives, plant efficiencies, restructuring benefits and actions to reduce our cost

of warranty returns.

Operating expenses continue to decline with 2.9% reduction in the fourth quarter 2025 compared to last year as we

have improved 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 (the “MRA Amendment”), 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.

This rollout is progressing well, with Purple products now being represented in Mattress Firm’s

full store network.

With the recent launch of Purple Royale, our exclusive Luxe product for Mattress Firm, we have expanded to all 12,000

committed slots.

Also on May 2, 2025, we entered into an Amended and Restated Master Vendor Supply and Services Agreement with Tempur

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

Agreements”).

The Sherwood Agreement provides that Tempur Sherwood, LLC has 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 available across all of our showroom locations.

Momentum remains strong in our showrooms as

Rejuvenate 2.0 mattress sales represented over half of showroom mattress revenue in the fourth quarter 2025.

In conjunction with the launch

of Rejuvenate 2.0, our slot placement expanded with our other wholesale partners.

We are also seeing strong

performance with Costco, where our programs provide an important opportunity to introduce Purple to new customers at scale.

partnership expanded meaningfully at the beginning of the fourth quarter 2025 to 450 clubs.

Early in the period, it performed exceptionally

well, driven by the introduction of unrolled beds on the floor, which allowed Costco members to see and feel our differentiated product.

This in-store presentation drove strong sales outperformance and ultimately led Costco to expand the program.

We are also making progress

in alternative channels, including Walmart and Sam’s Club, which are helping us to reach new customers, diversify demand, and drive

incremental volume.

Restructuring Activities

In August 2024, we initiated the Restructuring Plan to strategically

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

in technology and marketing initiatives.

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

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

efficiencies.

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

into the Georgia facility was finalized in December 2024.

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

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

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

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

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

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

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

as we complete the execution of our plans.

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

in additional restructuring, impairment or other related charges not reflected.

In addition, we plan to implement

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

In August 2024, we initiated

the Restructuring Plan to strategically realign our operational focus to achieve efficiencies in our operations to improve profitability

and provide for reinvesting in technology and marketing initiatives.

The Restructuring Plan included 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 Restructuring Plan is now complete.

During 2025, we recognized $12.4 million in costs relating to the Restructuring

Plan, of which $9.5 million related to the write-off of equipment that was determined to have no future use and $2.9 million in employee-related

and other cash charges.

In addition, we implemented additional cost savings measures in 2025 and

2026 beyond those implemented pursuant to our Restructuring Plan.

Debt Financings

On January 23, 2024, Purple

LLC, Purple Inc.

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

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

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

The Lenders agreed to assume our obligations under the

Term Loan Agreement and agreed to refinance our existing obligations.

Pursuant to the Amended and Restated Credit Agreement, we borrowed

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

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

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

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

To reduce cash obligations,

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

The loan bears interest at a rate equal

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

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

Any prepayments of principal on or after August

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

2025 are subject to a prepayment penalty of 2.50%.

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

to exceed $19.0 million on terms requested by us to the extent agreed to by the Lenders at their discretion.

The Amended and Restated

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

In connection with our execution

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

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

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

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

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

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

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

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

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

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

Each 2024 Warrant entitles the registered holder

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

The 2024 Warrants will expire on the

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

A holder of the 2024 Warrants will not have the right to exercise them, to

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

of the shares of Class A Stock outstanding immediately after giving effect to such exercise.

The 2024 Warrants contain certain provisions

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

The liability for the 2024 Warrants

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

This liability

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

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

2024 Warrants outstanding at December 31, 2024.

and Intellibed entered into the Amended and Restated Credit Agreement, which amended and restated the then existing term

loan agreement (“Term Loan Agreement”), with the Lenders and Delaware Trust Company, as administrative agent.

agreed to assume our obligations under the Term Loan Agreement and agreed to refinance our existing obligations.

Pursuant to the Amended

and Restated Credit Agreement, we borrowed $61.0 million from the Lenders (the “Related Party Loan”) that was used to repay

the $25.0 million of term loans outstanding, the $5.0 million of revolving debt outstanding, loan fees, premiums and expenses incurred

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

expenses) of approximately $27.0 million.

Interest on the new loan is payable each month and, under the Third Amendment executed in March

2026 (see below), the principal outstanding matures and is due on April 30, 2027.

To reduce cash obligations, we have elected for interest

to be capitalized and added to the principal amount of the loan.

The loan bears interest at a rate equal to (i) the secured overnight

financing rate plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, because Purple LLC has elected to pay interest

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

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

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

penalty of 2.50%.

We may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms

requested by us to the extent agreed to by the Lenders at their discretion.

The Amended and Restated Credit Agreement also removed restrictions

and requirements typically associated with an asset-based loan.

In connection with our execution of the Amended and Restated Credit Agreement,

all obligations under the previously outstanding term loans and revolving credit facility were paid in full and the respective related

agreements (collectively, the “2023 Credit Agreement”) were terminated.

On March 12, 2025, the Loan Parties, entered into the 2025 Amendment with

CCP and Blackwell, which amends the Amended and Restated Credit Agreement.

The 2025 Amendment, among other things, provides for an increase

in the initial principal amount of the Related Party Loan by $19.0 million (the “First Incremental Loan”) from an initial

Related Party Loan principal amount of $61.0 million to an initial aggregate principal amount of $80.0 million, and allows the Loan Parties

to request one or more additional term loans from CCP, Blackwell and other 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, which may be paid in cash

or in kind at our option.

The 2025 Amendment also provides

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

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

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

so prepaid, replaced or assigned.

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

on the date of prepayment, the excess

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

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

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

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

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

In connection with the 2025

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

The 2025 Warrants have the

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

a floor of $0.6979.

Rights Agreements

In connection with the issuance

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

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

Amendment, we issued to the 2025 Lenders, the 2025 Warrants to purchase 6.2 million shares of our Common Stock at a price of $1.50 per

share, subject to certain adjustments (see Note 11 – Warrant Liabilities ).

The 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.

On May 2, 2025, the Loan Parties entered into 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

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

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, we also paid

(i) an amendment fee equal to 0.25% of the outstanding principal and accrued and unpaid interest under the Existing Loan, 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 $0.2 million, paid in cash to the Required Lenders.

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

warrants (the “2025 Additional Warrants”) to purchase 6.6 million shares of our 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.

On March 24, 2026, the Loan

Parties entered into the Third Amendment with the Lenders, which revised the maturity date under the Amended A&R Credit Agreement

from December 31, 2026, to April 30, 2027 and waived certain requirements and events of default relating to the going concern qualification

in our December 31, 2025 financial statements.

In connection with the Third Amendment, the Loan Parties agreed to pay to the Lenders an

amendment fee in the aggregate amount of $1.6 million, equal to 1.25% pro rata based on each Lender’s outstanding principal amount

(the “Amendment Fee”).

Of the Amendment Fee, approximately $1.3 million is payable-in-kind by adding such amount to such Coliseum

Lenders’ outstanding principal amount.

The remaining $0.3 million of the Amendment Fee was paid in cash.

In connection with the

Third Amendment, the Loan Parties also agreed to reimburse the Coliseum Lenders for certain expenses in the amount of $0.3 million.

The Company has elected to

have interest paid-in-kind and added to the principal amount of the Term Loan Agreement, the First Incremental Loan and the Second Incremental

In connection with the Amended

and Restated Credit Agreement, we issued to the Lenders the 2024 Warrants to purchase 20.0 million shares of our Class A Stock.

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

The 2024 Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption.

A holder of the 2024 Warrants will not

have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would

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

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

The liability for the 2024 Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in

debt issuance costs.

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

the fair value included in earnings.

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

a decrease in the fair value of the 2024 Warrants outstanding at December 31, 2024.

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

2025 Warrants to purchase 6.2 million shares of our Common Stock.

Each 2025 Warrant entitles the registered holder to purchase one share

of our Common Stock at a price of $1.50 per share, subject to adjustment with a floor of $0.6979 and expire on March 12, 2035.

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 2025 Amendment, we issued to the 2025 Lenders

the 2025 Additional Warrants to purchase 6.6 million shares of our Common Stock.

Each 2025 Additional Warrant entitles the registered

holder to purchase one share of our Common Stock at a price of $1.50 per 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

Agreement, we issued to SGI, the SGI Warrants to purchase 8.0 million shares of our Common Stock at a strike price of $1.50 per share.

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.

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 not have the right to exercise them, to the

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

of the shares of 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 2025, we recognized a gain

of $17.2 million in our consolidated statement of operations for a decrease in the fair value of the warrants outstanding at December

Registration Rights Agreements

In connection with the issuance of the Warrants, we entered into the Registration

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

defined in the Registration Rights Agreement), subject to customary terms and conditions.

We are responsible for the payment of the Holders’

1 unchanged sentence

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

On June 27, 2024, our Board

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

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

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

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

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

Upon adopting

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

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

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

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

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

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

who violates the ownership limitations of the NOL Rights Plan.

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

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

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

Protective Charter Amendment

In connection with the NOL

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

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

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

point greater than their current beneficial ownership percentage).

The NOL Protective Charter Amendment was approved by our stockholders

at the Special Meeting.

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

In connection with the issuance of the 2025 Warrants, on March 12, 2025,

we 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 Common Stock held by the 2025 Holders as of such date (the “2025 Registrable Securities”),

subject to customary terms and conditions.

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 “Third Amended Registration Rights Agreement”)

with the 2025 Holders, providing for the registration under the Securities Act of the 2025 Additional Warrants, the shares issuable upon

the exercise of the 2025 Additional Warrants, other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and

the Common Stock held by the 2025 Holders as of such date (the “2025 Additional Registrable Securities”), subject to customary

terms and conditions.

In connection with the issuance 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 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

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 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 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.

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.

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

1 unchanged sentence

be adversely affected.

Summary – Results of Operations

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

2024 compared to $510.5 million in 2023.

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

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

From a sales channel perspective in 2024, e-commerce

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

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

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

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

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

In addition to demand

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

Gross profit increased $9.3

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

from 33.7% in 2023.

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

costs associated with the transition to our new product lineup.

The improved production effectiveness in 2024 was largely attributable

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

Gross profit and the related

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

Although $1.6 million

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

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

Impact of United States Tariff Policy

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.

Tariffs impacted us

by approximately $9.1 million in 2025 due to our mitigation efforts which have reduced the overall impact to our initial expectations.

While future changes in tariffs are difficult to predict, we currently estimate the total cost exposure in 2026 to be $7.7 million.

have shifted sourcing outside of China, and in July 2025, we implemented price increases on select products, 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 $19.2

million, or 3.9%, to $468.7 million in 2025 compared to $487.9 million in 2024.

This decrease was primarily driven by the industry-wide

demand softness for home-related products and softness in the e-commerce channel, partially offset by growth in our Mattress Firm and

Costco programs.

From a sales channel perspective in 2025, DTC net revenues decreased $22.3 million, or 7.9%, and wholesale net revenues

increased $3.2 million, or 1.6%, as compared to 2024.

Within DTC in 2025, e-commerce net revenues decreased $23.4 million, or 11.4%, while

Purple showroom net revenues increased $1.1 million, or 1.5%, as compared to 2024.

The growth in our wholesale revenues was due primarily

to our agreement with Mattress Firm as we expanded the number of stores and slots and the expansion of our Costco program.

Purple showroom

increase in revenues was primarily due to an increase in average selling prices related to both strategic price adjustments and a sizeable

shift in product mix to our higher priced Rejuvenate products.

Gross profit increased $7.4 million, or 4.1%, to $188.6 million in 2025

compared to $181.1 million in 2024 and our gross profit percentage improved to 40.2% in 2025 from 37.1% in 2024.

The increase in gross

profit is due mainly to the completion of our Restructuring Plan, as we had fewer costs this year, continued improvement in lowering material

costs, improved operating efficiency and the recent actions to reduce our cost of warranty returns.

Operating expenses decreased

$41.7 million, or 15.3% to $231.6 million in 2025 compared to $273.3 million in 2024.

This decrease was driven by an $11.1 million decrease

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

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

of goodwill recorded in 2023.

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

Other expense, net was $5.9

million in 2024 compared to $7.5 million in 2023.

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

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

previously filed business interruption claim.

This decrease was driven by a $24.5 million decrease

in restructuring, professional fees and other costs related to our restructuring and other cost reduction efforts, a $15.2 million decrease

in employee related expenses and a $9.1 million decrease in advertising spend, partially offset by $7.1 million increase in strategic

alternative costs.

Other expense, net increased

by $2.4 million, or 41.4% to $8.3 million in 2025 compared to $5.9 million in 2024.

This increase was due primarily to an $11.3 million

increase in interest expense associated primarily with the Related Party Loan, a reduction of $11.6 million in other income related to

two insurance payments received in 2024 for full settlement of a previously filed business interruption claim, partially offset by an

increase of $13.7 million in the gain on the change in fair value of the warrant liabilities and a $6.8 million reduction in all other

Net loss attributable to Purple

was $51.4 million in 2025 compared to a net loss of $97.9 million in 2024.

The $22.9 million decrease in net loss was primarily

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

Excluding the impact of the $35.4 million

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

expenses would have decreased $32.2 million.

We believe, given the Restructuring

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

We are focused on the following

three key initiatives to drive sustainable and profitable market share:

Focus on pioneering new technologies to maintain our competitive advantage.

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

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

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

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

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

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

Drive sales by promoting our product differentiation.

We started as a brand built on differentiation.

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

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

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

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

Prioritize gross margin improvements.

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

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

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

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

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

The $46.5 million improvement in net loss was primarily

due to a $41.7 million decrease in operating expenses and a $7.4 million increase in gross profit, partially offset by a $2.6 million

increase in all other expenses and offsets.

Our accompanying audited

consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and

liabilities in the normal course of business.

Our audited consolidated financial statements do not include any adjustments

relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary

should we be unable to continue as a going concern.

The recurring losses, working capital deficiency, the need for capital

to fund our operations and the amount of cash reserves are factors that raise substantial doubt about our ability to continue as a going

concern for the twelve-month period from the date the audited consolidated financial statements are made available.

2 – Liquidity and Going Concern to our audited consolidated financial statements for the year ended December 31,

2025, included elsewhere in this Annual Report for additional information on our assessment.

We have taken decisive

actions over the last year to build a more durable business that we believe is positioned for consistent, profitable growth.

fruits of these efforts are demonstrated by the strength of our recent results.

We have also extended our debt maturities to April

2027, demonstrating the support of our lenders and providing additional runway and financial flexibility.

Successful execution of

our Path to Premium Sleep strategy and cost savings initiatives in 2025 resulted in strong revenue growth, margin expansion, and

profitability levels we haven’t seen since 2021, and we believe we have a clear plan in place to build on this momentum in the

We anticipate that these factors will continue to support further improvements in our business, including

strengthening long-term liquidity.

From this strong foundation, we expect to continue to deliver results.

Outlook for Growth

way we think about the business today is fundamentally different than a year ago.

Last year was about reshaping the business for a tougher

market – right sizing our cost structure, strengthening the foundation and restoring profitability.

Now, we are focused on growth

with our strategic focus areas that build on what is already working and how we are running our business.

We believe we are well positioned

to grow our business given our new grid innovation, evolved messaging strategy, our new cost structure and other cost saving initiatives.

Our Path to Premium Sleep strategy remains focused on the following three priorities to drive growth:

Knowing Our Customer.

Over the past year, we’ve sharpened our focus on understanding who our customers are, what matters most to them, and how they make their purchase decisions across the channels.

Our Less Pain, Better Sleep positioning continues to resonate, providing a consistent, consumer-led message that translates across ecommerce, retail, and wholesale channels.

Importantly, we are focused on reaching our customers with the right message, in the right place, at the right point in their decision journey.

We also saw strong results from the “Sleep Easy” co-marketing campaign with Mattress Firm which drove sales conversion and improved awareness scores.

● Delivering Better Sleep.

remains at the core of Purple’s differentiation, and we believe our Rejuvenate 2.0 collection continues to validate that approach.

Performance exceeded our expectations in 2025, with strong traction across both showrooms and wholesale as retail partners expanded Rejuvenate

2.0 placement on their floors.

We also continued development work on Purple Royale, a new premium offering developed in close partnership

with Mattress Firm.

We continue to focus on delivering a differentiated end-to-end customer experience, anchored by compelling

in-store presentations across our corporate stores and wholesale partners.

We are also continuing to strengthen

white glove delivery services and service execution to ensure that Purple shows up consistently and credibly wherever the customer chooses

This focus is strengthening the brand and improving conversion by reinforcing the value of our technology across

with Financial Discipline.

Last year, our focus was on right sizing the business so we could operate profitably at

the current scale.

We are increasingly focused on driving growth from a stronger foundation of lower cost structure

and improved margins.

In owned retail, we plan to open seven new stores this year following the closure of four underperforming

stores last year, reflecting a disciplined approach to fleet optimization.

Gross margin improvement remains a key focus, and

we continue to see the benefits of the actions we’ve taken to simplify the business and improve efficiency across sourcing, operations,

fulfillment, and quality improvements.

Mix has become an increasingly important tailwind, led by the growth of Rejuvenate 2.0.

toward higher-ticket products combined with strong attachment rates for adjustable smart bases and pillows, is driving higher average

transaction values and incremental profit dollars.

As a result, the operating discipline we put in place over the past year is now showing

up in our margins and profitability.

There is no guarantee that

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

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

Risk Factors” and elsewhere herein.

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

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

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

Therefore, actual results

may differ materially and adversely from those described above.

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

changes in the market or our business.

Critical Accounting Policies and Estimates

16 unchanged sentences

Revenue Recognition

Our revenue recognition accounting methodology contains uncertainties

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

accounts and variable consideration.

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

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

Accrued sales returns increased from $5.4 million

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

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

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

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

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

our allowance for credit losses or variable consideration.

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

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

We review our long-lived assets

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

the carrying amount may not be recoverable.

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

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

from disposition, if any).

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

an impairment loss.

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

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

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

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

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

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

results and long-term growth factors.

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

a recoverability test was required.

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

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

In conjunction with the Restructuring

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

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

The Restructuring Plan initiated

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

for as an indefinite-lived intangible asset.

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

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

Our revenue recognition accounting

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

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

Our estimates of the amount and timing of sales returns,

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

Accrued sales returns decreased from $6.5 million at December 31, 2024 to $4.5 million as of December 31, 2025.

Our allowance for

credit losses decreased from $1.1 million at December 31, 2024 to $0.4 million as of December 31, 2025.

We do not believe there is a reasonable

likelihood that there will be any material changes in our accounting methodology, future estimates or assumptions used to measure our

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

However, if actual results

are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Accrued Warranty Liabilities

5 unchanged sentences

and included as an offset to net revenues.

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

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

trends and changes in projected claim costs.

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

the full 10 years of history on our 10-year mattress warranty.

We classify as non-current those estimated warranty costs expected to be

paid out in greater than one year.

As of December 31, 2024, the current and non-current portions of our warranty liabilities

were $6.1 million and $26.1 million, respectively, compared to $9.8 million and $25.8 million, respectively, at December 31, 2023.

We do not believe there is a reasonable likelihood that a material change in the estimates or assumptions we use to calculate our warranty

liability will occur.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or

gains that could be material.

Estimates for DTC warranty costs are based primarily on historical warranty claims, estimated

warranty costs and the estimated warranty claim rate.

Estimates for wholesale warranty costs are based primarily on the historical warranty

claim amounts and the estimated warranty claim rate.

We regularly assess and may adjust the estimate of accrued warranty claims for any

current or expected trends and changes in projected claim costs.

We expect the estimated warranty liability to continue to increase as

we have not yet reached the full 10 years of history on our 10-year mattress warranty.

We classify as non-current those estimated warranty

costs expected to be paid out in greater than one year.

As of December 31, 2025, the current and non-current portions of

our warranty liabilities were $7.1 million and $19.6 million, respectively, compared to $6.1 million and $26.1 million, respectively,

at December 31, 2024.

We do not believe there is a reasonable likelihood that a material change in the estimates or assumptions we use

to calculate our warranty liability will occur.

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

be exposed to losses or gains that could be material.

Results of Operations

20 unchanged sentences

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

5 unchanged sentences

Change in fair value – warrant liabilities

Total other expense, net

Total other income (expense), net

Net loss before income taxes

5 unchanged sentences

million, or 3.9%, to $468.7 million in 2025 compared to $487.9 million in 2024.

This decrease was primarily driven by macroeconomic pressures

impacting U.S.

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

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

launch of our new premium mattress products in 2023.

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

exiting our relationship with certain customers.

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

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

Within DTC in 2024, e-commerce net revenues decreased

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

The growth in Purple

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

in product mix to our higher priced Rejuvenate Products.

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

Purple showrooms that opened in 2023.

This decrease was primarily driven by the industry-wide

demand softness for home-related products and softness in the e-commerce channel, partially offset by growth in our Mattress Firm and

Costco programs.

From a sales channel perspective in 2025, DTC net revenues decreased $22.3 million, or 7.9%, and wholesale net revenues

increased $3.2 million, or 1.6%, as compared to 2024.

The growth in our wholesale revenues was due primarily to our agreement with Mattress

Firm as we expanded the number of stores and slots and expansion of our Costco program, partially offset by the decrease in wholesale

door count in 2024.

Within DTC in 2025, e-commerce net revenues decreased $23.4 million, or 11.4%, while Purple showroom net revenues

increased $1.1 million, or 1.5%, as compared to 2024.

Cost of Revenues

1 unchanged sentence

$26.6 million, or 8.7%, to $280.2 million in 2025 compared to $306.7 million in 2024.

This decrease was due to lower sales volume coupled

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

over the last 12 months.

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

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

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

These savings

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

Although $1.6 million of additional restructuring related charges

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

our manufacturing operations and provide increased gross profits going forward.

These future charges incorporate certain estimates that

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

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

other related charges not currently anticipated.

Approximately $12.2 million of the decrease was

due to lower sales volume and $14.4 million was due to lower costs associated with the Restructuring Plan.

Our gross profit percentage,

which increased to 40.2% of net revenues in 2025 from 37.1% in 2024, was due primarily to the completion of our Restructuring Plan and

improvement in lowering material costs and increased operating efficiency, partially offset by our wholesale revenue mix.

Marketing and Sales

2 unchanged sentences

This decrease was primarily due to a

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

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

As a percentage of net revenues,

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

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

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

$9.1 million decrease in advertising spend, $7.5 million decrease in employee related expenses due to headcount reductions, and a $7.6

million reduction in all other marketing and sales costs.

As a percentage of net revenues, advertising spend was 12.0% in 2025 compared

to 13.4% in 2024.

General and Administrative

1 unchanged sentence

expense decreased $5.6 million, or 8.0%, to $63.6 million in 2025 compared to $69.1 million in 2024.

This decrease was primarily due

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

$4.9 million reduction in other professional fees in 2024.

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

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

There will be

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

This decrease was primarily due to

$7.1 million decrease in employee related expenses due to headcount reductions and a $5.6 million reduction of legal, professional and

other costs, partially offset by a $7.1 million increase in strategic alternative costs.

Research and Development

Research and development costs

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

This increase was primarily due to a loss

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

decreased $3.4 million, or 25.9%, to $9.6 million in 2025 compared to $13.0 million in 2024.

This decrease is due to a $0.7 million decrease

in employee expenses due to headcount reductions, a $1.4 million decrease from a loss incurred in 2024 on the write off of a certain project

in 2024 and a $1.3 million decrease in 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.

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

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

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

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

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

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

These charges

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

complete the execution of our plan.

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

restructuring, impairment or other related charges not currently anticipated.

Loss on Impairment of Goodwill

We recorded a $6.9 million

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

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

event for potential goodwill impairment.

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

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

Restructuring, impairment

and other related charges decreased $8.6 million or 43.0%, to $11.4 million in 2025 compared to $20.0 million in 2024.

In August 2024,

we initiated a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress production

in our Georgia plant.

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

efficiencies.

The reduction from 2024 is due to the completion of the Restructuring Plan in 2025 and the timing of when the various expenses

were recorded.

The $11.4 million of restructuring and impairment charges recorded in operating expense during 2025 included $9.2 million

incurred related to accelerated depreciation, write-down of long-lived assets and impairment of assets and $2.2 million of employee-related

and other cash charges.

Operating Loss

1 unchanged sentence

million, or 53.3%, to $43.0 million in 2025 compared to $92.2 million in 2024.

The smaller operating loss primarily resulted from an

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

goodwill in 2023.

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

to the Restructuring Plan.

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

quarter of 2025.

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

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

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

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

This decrease in our operating loss is the result of the

benefits realized through reduced advertising spending, 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 2.0 launch.

Interest Expense

1 unchanged sentence

million in 2025 compared to $17.5 million in 2024.

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

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

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

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

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

Interest expense

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

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

Interest expense in 2023 was reduced by

capitalized interest of $1.5 million.

This $11.3 million increase was primarily due to additional interest incurred on a

higher principal balance on the Related Party Loan as a result of the increase in loan funding by $39.0 million and the Company electing

the paid-in-kind option on monthly interest over the past 12 months as well as the increased amortization from additional debt issuance

Other Income (Expense), Net

Other income was $11.5 million

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

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

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

Other expense in 2023 consisted of a $1.7 million

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

Other income was $3.3 million in 2025 compared to $11.5 million in

Other income in 2024 was primarily comprised of two payments totaling $11.6 million received in full settlement of a previously

filed business interruption claim.

Other income in 2025 consisted of $2.5 million in sub-lease rental income and other income of $0.8

Loss on Extinguishment of Debt

Loss on extinguishment of

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

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

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

This termination was accounted for as an extinguishment

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

In February 2023, we accounted

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

as loss on extinguishment of debt in 2023.

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

terminated its 2020 Credit Agreement.

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

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

extinguishment of debt in 2023.

debt totaled $3.4 million in 2024.

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

off the outstanding borrowings under our 2023 Credit Agreement.

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

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

Change in Fair Value – Warrant Liabilities

In January 2024, in connection

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

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

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

in debt issuance costs.

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

fair value included in earnings.

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

We recognized a gain of $3.5 million

related to a decrease in the fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants

on the date of issuance.

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 2025, we recognized a $17.2 million gain related to the decrease in fair

value of the warrant liabilities.

The decrease is due mainly to the change in the stock price and the probability and timing of a fundamental

For 2024, we recognized a $3.5 million gain due to the decrease in the fair value of the warrants from the January 2024 issuance.

Income Tax Expense

We had income tax expense

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

Income tax expense in 2024 was related to various

We had a $0.2 million income

tax expense for 2025, compared to $0.1 million income tax expense for 2024.

The income tax expense amounts in 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 $0.2 million and $0.5 million for 2024 and 2023, respectively.

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

Net loss attributed to noncontrolling interests was $0.1 million and $0.2 million for 2025 and 2024, respectively.

Liquidity and Capital Resources

Our principal sources of funds

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

agreements and proceeds received from offerings of our equity capital.

Principal uses of funds consist of capital expenditures,

working capital needs, and operating lease payment obligations.

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

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

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

and operating lease payment obligations.

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

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

Cash used for

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

Our capital expenditures in 2024 have primarily consisted

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

Additional details regarding our current debt

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

Our financial statements have

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

and commitments in the normal course of business.

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

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

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

financial statements.

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

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

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

We entered into the 2025

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

We have also taken a number of

other actions to increase cash flow.

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

create efficiencies and cost savings.

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

initiatives and supplier diversification efforts.

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

our operations and strategies.

Accordingly, we

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

Although we currently expect

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

to satisfy our liquidity requirements in the future.

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

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

ability to execute our current business strategy.

are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to various loan agreements.

Principal uses of funds consist of capital expenditures, working capital needs, operating lease payment obligations and investing in innovation.

In accordance with the terms of our various loan agreements, we have elected to pay interest in kind on our loans to reduce cash obligations.

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

in inventories, and operating lease payment obligations.

Our cash and cash equivalents and working capital positions were $24.3 million

and $35.2 million, respectively, as of December 31, 2025 compared to $29.0 million and $25.4 million, respectively, as of December 31,

Cash used for capital expenditures increased from $7.2 million in 2024 to $8.1 million in 2025.

Our capital expenditures in 2025

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

Additional details regarding

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

Our financial statements

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

liabilities and commitments in the normal course of business.

In connection with the preparation of the consolidated financial

statements for the year ended December 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 $24.3 million and an accumulated deficit of $625.3 million at December 31, 2025.

We incurred a net loss of $51.4 million and net cash used in operating and investing activities was $33.8 million and $8.3

million, respectively, for the year ended December 31, 2025.

We have a history of recurring net losses and cash used in operations,

an accumulated deficit, and requiring additional capital to fund our operations.

The funds we have on hand

and any follow-on capital, if needed, will be used to fund our operations and invest in the business to expand sales and marketing efforts,

as well as to invest in innovation.

As described below, we have implemented plans to both increase our revenues from the sales of our

products and to achieve cost savings within the next year, sufficient to generate positive operating cash flow levels.

However, we may

be adversely impacted by uncertain market conditions and there can be no assurance that we will be successful in this regard.

plans are not successful, we may need to raise additional capital in order to support operations and business initiatives.

Access to additional

capital is uncertain and not within our control.

Accordingly, there is substantial doubt about our ability to continue as a going concern.

We have taken a number of

actions to increase cash flow and support our operations and strategies.

In August 2024, we implemented the Restructuring Plan (as defined

below) to consolidate manufacturing operations resulting in cost savings.

We have realized and plan to continue to realize direct material

cost savings by concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions,

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

manufacturing efficiency.

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

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

We have been successful in subleasing the two manufacturing facilities that were vacated as part of the Restructuring Plan.

taken additional cost-saving initiatives in 2025 and the beginning of 2026 to reduce headcount and streamline responsibilities and reporting

Further, our plans include additional actions intended to improve liquidity and reduce costs, including planned optimization

of advertising spend, limiting the number of new store openings, efforts to mitigate tariff impacts by managing the country of origin,

and other cost-saving initiatives.

As disclosed above under “ Recent Developments in our Business – Debt Financing, ”

we have elected to have interest paid-in-kind and added to the principal amount of the loans under the Amended and Restated Credit Agreement.

On March 24, 2026, we executed the Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”) with

the Lenders to extend the maturity date of the Amended and Restated Credit Agreement from December 31, 2026 to April 30, 2027.

currently evaluating potential strategic alternatives and opportunities to achieve additional liquidity through one or more future debt

refinancings.

Additionally, in May 2025,

we 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 13 — Commitments and Contingencies, SGI Commercial Arrangements).

We are now represented in Mattress Firm’s full store network and with the recent launch of Purple Royale, the exclusive Luxe

product for Mattress Firm, we have expanded to all 12,000 committed slots.

We have also expanded into more Costco clubs in the fourth

quarter of 2025.

The accompanying audited

consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Other Contractual Obligations

Other material contractual

obligations primarily include operating lease payment obligations.

Refer to Note 9 of our consolidated financial statements for additional

information on leases.

Other material contractual obligations primarily include operating

lease payment obligations.

Refer to Note 7 of our consolidated financial statements for additional information on leases.

Cash Flows for the year ended December 31, 2025 compared to the

2 unchanged sentences

cash flows for the years ended December 31, 2025 and 2024 as reported in our consolidated statements of cash flows (in thousands):

Years Ended December 31,

Net cash used in operating activities

1 unchanged sentence

Net cash provided by financing activities

Net decrease in cash

Net increase (decrease) in cash

Cash, beginning of the period

Cash, end of the period

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

to $54.7 million in 2023.

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

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

The non-cash adjustments primarily consisted of depreciation and amortization

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

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

of debt of $3.4 million.

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

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

Operating activities in 2023 reflected

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

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

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

The working capital

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

and a $5.9 million decrease in inventories.

Net cash used in operating

activities was $33.8 million in 2025 compared to $17.9 million in 2024.

Operating activities in 2025 reflected a net loss of $51.5 million

and a working capital decrease of $24.2 million, offset in part by non-cash adjustments of $41.9 million.

The non-cash adjustments primarily

consisted of paid-in-kind and non-cash interest of $29.2 million, depreciation and amortization totaling $24.1 million and other non-cash

items totaling $5.8 million, partially offset by $17.2 million on the gain on the change in fair value of the warrant liabilities.

working capital decrease was primarily comprised of a $8.2 million increase in accounts receivable and a $10.5 million increase in accrued

warranty and other liabilities and $5.5 million net decrease from changes in all other operating assets and liabilities.

Operating activities

in 2024 reflected a net loss of $98.1 million offset in part by non-cash adjustments of $75.9 million and working capital changes of $4.3

The non-cash adjustments primarily consisted of depreciation and amortization totaling $35.4 million, restructuring, impairment

and other related charges of $20.2 million, paid in kind and non-cash interest of $16.9 million, and losses on the extinguishment of debt

of $3.4 million.

The working capital changes were primarily comprised of a $4.7 million decrease in accounts receivable and a $6.0 million

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

Net cash used in investing activities was $8.3 million in 2025 compared

5 unchanged sentences

Financing activities in 2025 included $39.0 million of proceeds

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

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

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

Financing activities during 2023 included $57.0

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

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

These cash proceeds were partially offset by a $24.7 million

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

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

received from two amendments to the Related Party Loan, offset in part by $1.6 million in payments on debt issuance costs associated with

entering into the two amendments.

Financing activities in 2024 included $61.0 million of proceeds received from the Related Party Loan,

offset in part by a $25.0 million payment to pay off the term loan from the 2023 Credit Agreement, $5.0 million in repayments against

the revolving debt outstanding from the 2023 Credit Agreement, and $3.5 million in payments on debt issuance costs associated with entering

into the Amended and Restated Credit Agreement.

Recent Accounting Pronouncements

3 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis