What changed in this filing

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Item 1. Financial Statements

2026-04-28 compared with 2025-11-04 · 1134 added, 1157 removed, 204 unchanged (92% of the section changed)

FINANCIAL STATEMENTS

INNOVATION, INC.

Consolidated Balance Sheets

– in thousands, except for par value)

September 30,

Current assets:

and cash equivalents

receivable, net

current assets

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for

Current assets:

and equipment, net

lease right-of-use assets

long-term assets

and Stockholders’ Equity

rebates and allowances

warranty liabilities – current portion

lease obligations – current portion

current liabilities

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses

Other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Other long-term assets

Liabilities and Stockholders’ Equity

Current liabilities:

warranty liabilities, net of current portion

lease obligations, net of current portion

long-term liabilities

and contingencies (Note 13)

Stockholders’

equity (deficit):

Accounts payable

Accrued compensation

Customer prepayments

Accrued rebates and allowances

Accrued warranty liabilities – current portion

Operating lease obligations – current portion

Other current liabilities

Total current liabilities

Related party debt

Accrued warranty liabilities, net of current portion

Operating lease obligations, net of current portion

Warrant liabilities

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 13)

Stockholders’ equity (deficit):

Class A common stock;

$ 0.0001 par value, 210,000 shares authorized;

108,246 issued and outstanding at September 30, 2025, and 107,545 issued and outstanding at December 31, 2024

108,634 issued and outstanding at March 31, 2026 and 108,246 issued and outstanding at December 31, 2025

Class B common stock;

$ 0.0001 par value, 90,000 shares authorized;

163 issued and outstanding at September 30, 2025, and at December 31, 2024

paid-in capital

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

Noncontrolling

stockholders’ equity (deficit)

liabilities and stockholders’ equity (deficit)

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

163 issued and outstanding at March 31, 2026 and at December 31, 2025

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity (deficit) attributable to Purple

Innovation, Inc.

Consolidated Statements of Operations

– in thousands, except per share amounts)

September 30,

Noncontrolling interest

Total stockholders’ equity (deficit)

Total liabilities and stockholders’

equity (deficit)

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per

share amounts)

Three Months Ended

Revenues, net

1 unchanged sentence

Cost of revenues

of revenues - restructuring related charges

Cost of revenues - restructuring related charges

Total cost of revenues

3 unchanged sentences

Research and development

Restructuring,

impairment and other related charges

Restructuring, impairment and other related charges

Total operating expenses

3 unchanged sentences

Other income, net

Loss on extinguishment of

in fair value – warrant liabilities

Total other income (expense),

Change in fair value – warrant liabilities

Total other expense, net

Net loss before income taxes

loss attributable to noncontrolling interest

Net loss attributable

to Purple Innovation, Inc.

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Net loss per share:

Weighted average common shares outstanding:

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

INNOVATION, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

– in thousands)

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’

Equity (Deficit)

(unaudited – in thousands)

Stockholders’

Equity (Deficit) attributable to Purple

Noncontrolling

1 unchanged sentence

$ ( 625,280 )

of stock under equity compensation plans

of transactions affecting NCI

– March 31, 2025

$ ( 593,003 )

of stock under equity compensation plans

Distribution True-up

of transactions affecting NCI

– June 30, 2025

$ ( 610,348 )

– September 30, 2025

Stock-based compensation

Issuance of stock under equity compensation plans

Balance – March 31, 2026

$ ( 655,821 )

3 unchanged sentences

$ ( 573,866 )

of stock for Intellibed acquisition

of stock under equity compensation plans

of transactions affecting NCI

– March 31, 2024

$ ( 526,186 )

income (loss)

Stock-based compensation

of common stock under equity compensation plans

of transactions affecting NCI

– June 30, 2024

$ ( 526,159 )

Stock-based compensation

of transactions affecting NCI

– September 30, 2024

Issuance of stock under equity compensation plans

Impact of transactions affecting NCI

Balance – March 31, 2025

$ ( 593,003 )

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

INNOVATION, INC.

Consolidated Statements of Cash Flows

– in thousands)

September 30,

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net

cash used in operating activities:

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

Depreciation and amortization

1 unchanged sentence

Paid-in-kind interest

Non-cash restructuring,

impairment and other related charges

Loss on extinguishment of

Loss on disposal of property

and equipment

Change in fair value –

warrant liabilities

Non-cash restructuring, impairment and other related charges

Loss on disposal of property and equipment

Change in fair value – warrant liabilities

Stock-based compensation

1 unchanged sentence

Accounts receivable

Prepaid expenses and other

Prepaid expenses and other assets

Operating leases, net

4 unchanged sentences

Accrued warranty liabilities

accrued liabilities

Net cash used in operating

Other accrued liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Sale of property and equipment

Purchase of property and

in intangible assets

Net cash used in investing

Purchase of property and equipment

Investment in intangible assets

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from related party

Payments on term loan

Payments on revolving line

for debt issuance costs

Net cash provided by

financing activities

Proceeds from related party loan

Payments for debt issuance costs

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

and cash equivalents, beginning of the year

and cash equivalents, end of the period

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

Supplemental disclosures of cash flow information:

paid during the period for interest, net of amounts capitalized

paid during the period for income taxes

Supplemental schedule of non-cash investing

and financing activities:

and equipment included in accounts payable

fee added to principal of loan

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

INNOVATION, INC.

to Condensed Consolidated Financial Statements

mission of Purple Innovation, Inc.

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

Company, collectively with its subsidiary Purple Innovation, LLC (“Purple LLC”) is an omni-channel company that began as

a digitally-native vertical brand founded on comfort product innovation with premium offerings, and have since expanded into brick &

mortar stores as a true omni-channel brand.

The Company offers a variety of innovative, branded and premium comfort products, including

mattresses, pillows, cushions, bases, sheets and other products.

The Company markets and sells its products through its direct-to-consumer

e-commerce channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers.

Company was incorporated in Delaware on May 19, 2015, as a special purpose acquisition company under the name of Global Partnership Acquisition

Corp (“GPAC”).

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

(the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple LLC.

At the closing

of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed

Cash paid during the period for interest, net of amounts capitalized

Cash paid during the period for income taxes

Supplemental schedule of non-cash investing and financing activities:

Property and equipment included in accounts payable

Warrants issued

Amendment fee added to principal of loan

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

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.

Notes to Condensed Consolidated Financial Statements

The mission of Purple Innovation,

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

The Company, collectively with its subsidiary Purple Innovation, LLC

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

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

The Company offers a variety

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

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

showrooms, and third-party online retailers.

The Company was incorporated

in Delaware on May 19, 2015 , as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”).

On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”)

pursuant to which the Company acquired a portion of the equity of Purple LLC.

At the closing of the Business Combination (the “Closing”),

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

As the sole managing member

of Purple LLC, Purple Inc.

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

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

Summary of Significant Accounting Policies

of Presentation and Principles of Consolidation

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

Purple LLC’s wholly owned subsidiary Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”).

All intercompany

balances and transactions have been eliminated in consolidation.

As of September 30, 2025, Purple Inc.

held 99.85 % of the common units

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

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

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

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

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

pursuant to such rules and regulations.

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

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

for the fiscal year ended December 31, 2024.

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

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

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

The results of the three and

nine months ended September 30, 2025, are not necessarily indicative of the results to be expected for the fiscal year ending December

31, 2025, or for any other interim period or other future year.

accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations,

realization of assets and liabilities and commitments in the normal course of business.

In connection with its preparation of the unaudited

condensed consolidated financial statements for the three and nine months ended September 30, 2025, the Company conducted an evaluation

as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to its ability to continue

as a going concern within one year after the date of the issuance of such financial statements.

The Company had cash

and cash equivalents of approximately $ 32.4 million and an accumulated deficit of $ 622.1

million at September 30, 2025, a net loss of $48.2 million and net cash used in operating and investing activities of $ 34.1 million

for the nine months ended September 30, 2025.

During the first nine months of 2025, the Company entered into the 2025 Amendment

(as defined below) and the Second 2025 Amendment (as defined below) of the Amended and Restated Credit Agreement, pursuant to which it

received an aggregate of $ 39.0 million in additional term loan proceeds.

INNOVATION, INC.

Basis of Presentation

and Principles of Consolidation

The unaudited condensed consolidated

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

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

All intercompany balances and transactions have been eliminated

in consolidation.

As of March 31, 2026, Purple Inc.

held 99.85 % of the common units of Purple LLC and Purple LLC Class B Unit holders

held 0.15 % of the common units in Purple LLC.

The accompanying unaudited

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

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

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

Certain information

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

to such rules and regulations.

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

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

fiscal year ended December 31, 2025.

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

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

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

The results of the three months

ended March 31, 2026 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2026 or for

any other interim period or other future year.

Liquidity and Going Concern

The accompanying financial

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

and liabilities and commitments in the normal course of business.

In connection with the preparation of the unaudited condensed consolidated

financial statements for the three months ended March 31, 2026, the Company conducted an evaluation as to whether there were conditions

and events, considered in the aggregate, which raised substantial doubt as to its ability to continue as a going concern within one year

after the date of the issuance of such financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Company has also taken a number of other actions to increase cash flow.

In August 2024, the Company implemented the Restructuring Plan

(as defined below) to consolidate manufacturing operations to create efficiencies and cost savings.

The Company has realized and plans

to continue to realize direct material cost savings through supply chain initiatives and supplier diversification efforts.

has taken additional cost-saving initiatives in the first nine-months of 2025 to maintain liquidity to support its operations and strategies.

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

The Company had cash and

cash equivalents of approximately $ 25.0 million and an accumulated deficit of $ 655.8 million at March 31, 2026.

had a net loss of $ 30.5 million and net cash provided by operating activities and used in investing activities was $ 3.0 million

and $ 2.0 million, respectively, for the three months ended March 31, 2026.

The Company has a history of recurring net losses and cash

used in operations, an accumulated deficit, and requiring additional capital to fund its operations.

The funds the Company has on

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

efforts, as well as to invest in innovation.

As described below, management has implemented plans to both increase its revenues from the

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

the Company may be adversely impacted by uncertain market conditions and there can be no assurance that the Company will be successful

in this regard.

If such plans are not successful, the Company may need to raise additional capital in order to support operations and

business initiatives.

Access to additional capital is uncertain and not within the control of the Company.

Accordingly, there is substantial

doubt about the Company’s ability to continue as a going concern.

The Company has taken a number

of actions to increase cash flow and support its operations and strategies.

In August 2024, the Company implemented the Restructuring

Plan (as defined below) to consolidate manufacturing operations resulting in cost savings.

The Company has realized and plans 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.

The Company has delivered direct material cost savings from its supplier diversification efforts,

improved scrap and yield results from continuous improvements, and outbound freight costs reflect cost improvements along with improved

delivery reliability.

The Company has been successful in subleasing the two manufacturing facilities that were vacated as part of the

Restructuring Plan.

The Company has also taken additional cost-saving initiatives in 2025 and the beginning of 2026 to reduce headcount

and streamline responsibilities and reporting structure.

Further, management’s plans include additional actions intended to improve

liquidity and reduce costs, including a 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 in Note 10 - Debt,

the Company has elected to have interest paid-in-kind and added to the principal amount of the loans under the Amended and Restated Credit

Agreement and on March 24, 2026, the Company 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.

The Company is currently evaluating potential strategic alternatives and opportunities to achieve additional liquidity

through one or more future debt refinancings.

Additionally,

in May 2025, the Company entered into an agreement with Mattress Firm, Inc.

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

3 unchanged sentences

SGI Commercial Arrangements).

the Company concluded that it will have sufficient liquidity to fund its operations for at least one year from the date this Quarterly

Report on Form 10-Q is issued.

the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance

that such sources will be sufficient to satisfy its liquidity requirements in the future, including the related party loan due December

31, 2026 (see Note 10 — Debt ).

If the Company cannot generate or obtain needed funds, it might be forced to make substantial

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

and ability to execute its current business strategy.

Interest Entities

LLC is a variable interest entity.

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

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

to absorb losses and receive benefits that are potentially significant.

At September 30, 2025, Purple Inc.

had a 99.85 % economic interest

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

condensed consolidated financial statements contained herein.

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

held 0.15 % of the economic interest in Purple LLC as of September 30, 2025.

For further discussion see Note 15 — Stockholders’

preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting

policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclose contingent assets

and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and

expenses during the reporting period.

The Company bases its estimates on historical experience and on various other assumptions believed

to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

regularly makes estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable

and the allowance for credit losses, valuation of inventories, sales returns, warranty returns, impairment reviews of long-lived assets

and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies,

the recognition and measurement of restructuring and related charges, estimates of current and deferred income taxes, deferred income

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

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

Actual results could differ

materially from those estimates.

The Company is now represented in Mattress Firm’s full store network and with the recent launch

of Purple Royale, the exclusive Luxe product for Mattress Firm, the Company has expanded to all 12,000 committed slots.

The Company has

also expanded into more Costco clubs in the fourth quarter of 2025.

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

Revenue Recognition

– Consideration Payable to Customers

There have been no material

changes to the Company’s revenue recognition policies as described in the Company’s Annual Report on Form 10-K, except for

the following application of accounting guidance to certain arrangements with third-party manufacturers.

The Company enters into arrangements

with third-party manufacturers, including manufacturers under common control with certain customers, to produce mattress products sold

to those customers.

The Company evaluates these arrangements to determine whether payments to such manufacturers represent consideration

payable to a customer or payments for goods or services received, in accordance with ASC 606— Revenue from Contracts with Customers.

For certain customer-specific or exclusive product arrangements, the Company has concluded that payments to a manufacturer under common

control with a customer are economically linked to the underlying customer arrangement and represent consideration payable to that customer.

Accordingly, revenue for these arrangements is presented net of payments made to the third-party manufacturers.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Variable Interest

Purple LLC is a variable interest

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

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

benefits that are potentially significant.

At March 31, 2026, Purple Inc.

had a 99.85 % economic interest in Purple LLC and consolidated

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

statements contained herein.

The holders of Class B Units of Purple LLC (“Class B Units”) held 0.15 % of the economic interest

in Purple LLC as of March 31, 2026.

For further discussion see Note 15 — Stockholders’ Equity .

Use of Estimates

The preparation of the unaudited

condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make

estimates and judgments that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of

the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting

The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results

of which form the basis for making judgments about the carrying values of assets and liabilities.

The Company regularly makes estimates

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

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

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

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

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

Predicting future events is

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

Actual results could differ materially from those estimates.

Segment Information

Company operates in one operating segment.

4 unchanged sentences

Segment Information and Concentrations .

Accounting Pronouncements

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

Improvements to Income Tax Disclosures.

This ASU amends

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

reconciliation.

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

and allows for early adoption.

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

will be effective in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2025.

Other than the new

disclosure requirements, this guidance is not expected to have an impact on the Company’s consolidated financial statements.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

November 2024, the FASB issued ASU No.

2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation

Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on

an interim and annual basis in the notes to the consolidated financial statements.

The prescribed cost and expense categories requiring

disaggregated disclosures include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along

with certain other expense disclosures already required by GAAP that would need to be integrated within the new tabular disaggregated

expense disclosures.

Additionally, the amendments also require the disclosure of total selling expenses and an entity’s definition

of those expenses.

The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within

annual reporting periods beginning after December 15, 2027.

Recent Accounting Pronouncements

Disaggregation Disclosures

In November 2024, the FASB

issued ASU No.

2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in

the notes to the consolidated financial statements.

The prescribed cost and expense categories requiring disaggregated disclosures

include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along with certain other expense

disclosures already required by GAAP that would need to be integrated within the new tabular disaggregated expense disclosures.

Additionally,

the amendments also require the disclosure of total selling expenses and an entity’s definition of those expenses.

is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning

after December 15, 2027.

Early adoption is permitted.

The guidance is to be applied either

(1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all

prior periods presented in the financial statements.

The Company is currently evaluating the potential impact this update will have

on its expense disclosures in the notes to the consolidated financial statements.

September 2025, the FASB issued ASU No.

The guidance is to be applied either (1) prospectively to financial statements

issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements.

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

financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Accounting for Internal-Use

In September 2025, the FASB

issued ASU No.

2025-06, “Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Improvements to the Accounting for Internal-Use Software.” The ASU removes all references to prescriptive and sequential software

development stages.

The ASU requires entities to begin capitalizing software costs when management authorizes and commits to funding

the software project, and it is probable that the project will be completed and the software will be used for its intended purpose.

amendments in this ASU are effective for fiscal years beginning after December 15, 2027.

Targeted Improvements to the

Accounting for Internal-Use Software.” The ASU removes all references to prescriptive and sequential software development

The ASU requires entities to begin capitalizing software costs when management authorizes and commits to funding the software

project, and it is probable that the project will be completed and the software will be used for its intended purpose.

The amendments

in this ASU are effective for fiscal years beginning after December 15, 2027.

Early adoption is permitted.

The Company is

currently evaluating the impact this update will have on its consolidated financial statements and related disclosures.

Restructuring, Impairment and Other Related Charges

August 2024, the Company initiated a restructuring plan to strategically realign the Company’s focus on the achievement of

operational efficiencies that are expected to improve profitability and provide for reinvesting in technology and marketing initiatives

(the “Restructuring Plan”).

The Company’s Restructuring Plan includes the permanent closure of its Grantsville

and Salt Lake City, Utah manufacturing facilities to consolidate mattress production in its Georgia plant, and a headcount reduction

at the Company’s Utah headquarters to drive additional operating efficiencies.

The consolidation into the Georgia facility was

finalized in December 2024 and the closure of the two Utah manufacturing facilities was completed in May 2025.

The reduction in workforce

at the Utah headquarters was completed in August 2024.

following table summarizes the restructuring, impairment and other related charges the Company has recognized since the restructuring

announcement in 2024 through the third quarter of 2025 in its consolidated statement of operations (in thousands):

The Company is currently evaluating

the impact this update will have on its consolidated financial statements and related disclosures.

Accounting for Government

Grants Received by Business Entities

In December 2025, the FASB

issued ASU 2025-10, “Accounting for Government Grants Received by Business Entities,” to establish guidance on the recognition,

measurement, and presentation of government grants received by business entities.

This guidance is effective for annual periods beginning

after December 15, 2028.

Early adoption is permitted.

The Company does not expect the adoption of this to have a significant impact on

its consolidated financial statements.

Restructuring, Impairment and Other Related

In August 2024, the Company

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

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

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

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

headquarters to drive additional operating efficiencies.

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

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

The reduction in workforce at the Utah headquarters was

completed in August 2024.

All restructuring activities were completed in the third quarter of 2025.

The following table summarizes

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

consolidated statement of operations (in thousands):

Restructuring,

Cash charges:

Employee-related

Employee-related costs

Total cash charges

Non-cash charges:

Accelerated depreciation

Inventory write-downs

Write-down of long-lived

Impairment of assets

non-cash charges

Total restructuring,

impairment and other related charges

the $ 7.7 million of employee-related and other cash charges incurred since inception of the restructuring activities, the Company recognized

$ 0.1 million and $ 2.9 million during the three and nine months ended September 30, 2025.

Similarly, of the combined charges incurred

related to accelerated depreciation, write-down of long-lived assets and impairment of assets of $ 37.0 million since the inception of

the restructuring activities, the Company recognized $ 5.2 million and $ 9.5 million during the three and nine months ended September 30,

2025, respectively.

Finally, of the inventory write-downs recognized since inception of the restructuring activities of $ 4.0 million,

no charges were recorded during the three and nine months ended September 30, 2025.

depreciation primarily represents $ 17.0 million of increased depreciation expense associated with shortening the useful lives of the

production equipment and leasehold improvements at the two Utah manufacturing facilities that were closed to reflect the remaining period

these assets will remain in service.

$ 6.1 million write-down of long-lived assets represents the write-down to salvage value of other property and equipment located at the

two Utah manufacturing facilities that were closed.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

of assets included impairment charges of $ 5.4 million associated with the closing and subleasing of the Salt Lake City, Utah and Grantsville,

Utah manufacturing facilities and related impairment charges associated with certain leasehold improvements of the properties.

values of the impaired assets were determined by the Company to be Level 3 under the fair value hierarchy (refer to Note 4—

Fair Value Measurements for the definition of Level 3 inputs) and were estimated based on internal expertise related to current

marketplace conditions and estimated future discounted cash flows.

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

of impairment.

If estimated fair values subsequently decline, the carrying values of the assets will be adjusted accordingly.

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

Initiating the Restructuring Plan was determined

to be a triggering event for potential impairment of this asset.

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

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

lease for the Company’s Grantsville, Utah manufacturing facility included a five-year renewal option that was reasonably certain

of being exercised and was included in the lease term when the Right of Use (“ROU”) asset and lease liability were originally

Because of the closure of this facility as part of the Restructuring Plan, the renewal option will not be exercised and a reassessment

of the lease terms was completed.

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

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

effective date of the reassessment.

following table summarizes activity for the nine months ended September 30, 2025 associated with employee-related and other costs recorded

pursuant to the Restructuring Plan, as presented in the indicated line item of the consolidated statement of operations, that will be

settled in cash and are included in accounts payable or accrued compensation on the unaudited condensed consolidated balance sheets (in

Liability balance at December 31, 2024

Employee-related costs –

restructuring charges

Other costs – restructuring

Liability balance at

September 30,2025

are no additional restructuring charges expected to be incurred in the future.

INNOVATION, INC.

Write-down of long-lived assets

Total non-cash charges

Total restructuring, impairment and other related charges

Accelerated depreciation primarily

represents $ 0.2 million of increased depreciation expense associated with shortening the useful lives of the production equipment at the

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

The $ 0.6 million write-down

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

facilities that were closed.

The $ 2.0 million of cash charges relates to costs incurred in shutting

down and transitioning operations from the two Utah manufacturing facilities that were closed.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Fair Value Measurements

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

Fair value is the

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

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

The levels of the fair

value hierarchy are:

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

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

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

and market-corroborated inputs);

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

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

significant to the measurements.

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

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

The carrying amounts of cash and cash equivalents,

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

estimated fair value of the Company’s debt arrangements is based on Level 2 and Level 3 inputs.

Level 2 inputs include observable

inputs such as market-based expectations for interest rates, credit risk and volatility.

The unobservable Level 3 inputs are associated

with the required rate of return for the security implied by the May 2025 issuance of debt bundled with warrants, which were valued using

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

As of September

30, 2025, the estimated fair value of the Company’s debt arrangements was $ 113.0 million.

significant inputs to the valuation model were as follows:

September 30,

Interest rate volatility

Risk free interest rate

SOFR interest rate

Discount rate

warrant liabilities (see Note 11 — Warrant Liabilities for more information) are Level 3 instruments and use internal models

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

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

Such inputs include risk free interest

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

These Level 3 liabilities generally decrease (increase) in value based upon an increase (decrease) in risk free interest rate and

expected dividend yield.

Conversely, the fair value of these Level 3 liabilities generally increases (decreases) in value if the

expected average life or expected volatility were to increase (decrease).

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

following table summarizes the Company’s total Level 3 liability activity for the nine months ended September 30, 2025 (in thousands):

as of December 31, 2024

measurement at time of issuance (1)

in valuation inputs (2)

value as of September 30, 2025

(1) The Company issued 6.2 million warrants on March 12, 2025, and 14.6 million warrants on May 2, 2025.

See Note 11 – Warrant Liabilities.

The Company uses the fair

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

Fair value is the price that would be

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

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

The levels of the fair value hierarchy are:

Level 1—Quoted market prices in

active markets for identical assets or liabilities;

Level 2—Significant other observable

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

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

Level 3—Unobservable inputs in

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

The classification of fair

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

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

accounts payable, and the Company’s debt obligations.

The carrying amounts of cash, cash equivalents, accounts receivable and accounts

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

The estimated fair value

of the Company’s related party debt is based on Level 2 and Level 3 inputs.

Level 2 inputs include observable inputs such as market-based

expectations for interest rates, credit risk and volatility.

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

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

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

The estimated fair value of the Company’s

related party debt was $ 112.7 million and $ 72.6 million as of March 31, 2026 and 2025.

The warrant liabilities (see

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

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

Accordingly, changes in

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

Significant inputs, certain of which are unobservable, include

risk free interest rate, expected average life, expected dividend yield, expected volatility and the timing and probability of a warrant

reprice event.

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

rate and expected dividend yield.

Conversely, the fair value of these Level 3 liabilities generally increases (decreases) in value

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

The following table summarizes

the Company’s total Level 3 liability activity for the three months ended March 31, 2026 (in thousands):

Fair value as of December 31, 2025

Change in valuation inputs (1)

Fair value as of March 31, 2026

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Revenue from Contracts with Customers

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

partners, and third-party online retailers.

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

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

Disaggregated

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

DTC revenues include the e-commerce

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

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

The wholesale channel includes all product sales

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

or through their online channels.

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

September 30,

The Company markets and sells

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

online retailers.

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

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

Disaggregated Revenue

The Company classifies revenue

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

DTC revenues include the e-commerce channel which sells directly

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

to consumers who purchase at a Purple showroom location.

The wholesale channel includes all product sales to the Company’s retail

brick and mortar and online wholesale partners where consumers make purchases at their retail locations or through their online channels.

The following tables present

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

Three Months Ended

Sales Category

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

point of sale in advance of shipping the products.

Revenues, net

Contract Balances

Payments for the sale of products

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

shipping the products.

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

Customer prepayments totaled $ 5.2 million and $ 6.4 million at September 30, 2025, and December 31, 2024, respectively.

During the nine

months ended September 30, 2025, the Company recognized all of the revenue that was deferred in customer prepayments at December 31,

consisted of the following (in thousands):

September 30,

Customer prepayments totaled

$ 4.7 million and $ 5.3 million at March 31, 2026 and December 31, 2025, respectively.

During the three months ended March 31, 2026, the

Company recognized all of the revenue that was deferred in customer prepayments at December 31, 2025.

Inventories consisted of the

following (in thousands):

Raw materials

1 unchanged sentence

Finished goods

INNOVATION, INC.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Property and Equipment, Net

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

September 30,

Property and equipment, net

consisted of the following (in thousands):

Equipment in progress

4 unchanged sentences

Accumulated depreciation

and equipment, net

in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at September

30, 2025, or December 31, 2024.

Interest capitalized on borrowings during the active construction period of major capital projects totaled

$ 0.1 million and $ 0.5 million during the three and nine months ended September 30, 2025, respectively, and totaled $ 0.2 million and $ 0.9

million during the three and nine months ended September 30, 2024, respectively.

Property and equipment, net

Equipment in progress reflects

equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at March 31, 2026 or December

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

$ 0.2 million during the three months ended March 31, 2026 and 2025, respectively.

Depreciation expense was $ 3.8 million and $ 4.2 million

during the three and nine months ended September 30, 2025, respectively, and was $ 13.5 million and $ 23.7 million during the three and

nine months ended September 30, 2024, respectively.

Included in depreciation expense for the three and nine months ended September 30,

2025, was $ 5.2 million and $ 5.6 million, respectively, related to accelerated depreciation associated with the Restructuring Plan.

Note 3— Restructuring and Impairment Charges for further discussion.

Company leases its manufacturing and distribution facilities, corporate offices, Purple showrooms and certain equipment under non-cancelable

operating leases with various expiration dates through 2036.

The Company’s office and manufacturing leases provide for initial

lease terms up to 16 years, while Purple showrooms have initial lease terms of up to 10 years.

Certain leases may contain options to

extend the term of the original lease.

during the three months ended March 31, 2026 and 2025, respectively.

Included in depreciation expense for the three months ended March

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

See Note 3— Restructuring

and Impairment Charges for further discussion .

The Company leases its manufacturing

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

expiration dates through 2036.

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

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

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

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

Any lease renewal

options are included in the lease term if exercise is reasonably certain at lease commencement.

The Company also leases vehicles and

other equipment under both operating and finance leases with initial lease terms of three to five years .

The ROU asset for finance leases

totaled $ 0.7 million and $ 1.0 million at September 30, 2025, and December 31, 2024, respectively.

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

September 30,

Any lease renewal options are included in the lease term if

exercise is reasonably certain at lease commencement.

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

leases with initial lease terms of three to five years .

The ROU asset for finance leases totaled $ 0.7 million and $ 0.6 million at March

31, 2026 and December 31, 2025, respectively.

The following table presents

the Company’s lease costs (in thousands):

Three Months Ended

Operating lease costs

Variable lease costs

Short term lease cost

Sublease income

INNOVATION, INC.

Short-term lease costs

Total lease costs

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease

liabilities recorded on the unaudited condensed consolidated balance sheet at September 30, 2025 (in thousands):

2025 (excluding

the nine months ended September 30, 2025) (a)

Total operating lease

payments representing interest

value of operating lease payments

(a) Amount consists of $ 5.6 million of undiscounted cash flows offset by $ 0.1 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2025.

of September 30, 2025, and December 31, 2024, the weighted-average remaining term of operating leases was 6.1 years and 6.8 years, respectively,

and the weighted-average discount rate of operating leases was 6.04 % and 6.09 %, respectively.

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

for the nine months ended September 30, 2025, and 2024 (in thousands):

September 30,

Cash paid for

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

Right-of-use assets obtained in exchange for

operating lease liabilities

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

The table below reconciles

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

the unaudited condensed consolidated balance sheet at March 31, 2026 (in thousands):

2026 (excluding the three months ended March 31, 2026) (1)

Total operating lease payments

Less – lease payments representing interest

Present value of operating lease payments

(1) Amount consists of $ 14.8 million of undiscounted cash flows offset by $ 0.3 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2026.

As of March 31, 2026 and December

31, 2025, the weighted-average remaining term of operating leases was 6.1 years and 6.3 years, respectively, and the weighted-average

discount rate of operating leases was 6.90 % and 6.79 %, respectively.

The following table provides

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

ended March 31, 2026 and 2025 (in thousands):

Three Months Ended

Cash paid for amounts included in present value of operating lease liabilities (1)

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

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

Other Current Liabilities

current liabilities consisted of the following (in thousands):

September 30,

Other current liabilities

consisted of the following (in thousands):

Accrued sales returns

Accrued sales and use tax and property tax

Insurance financing

Accrued sales tax and use tax

Asset retirement obligation

Total other current

consisted of the following (in thousands):

September 30,

Related party loan

unamortized debt

issuance costs

Current portion of debt

and unamortized issuance costs

net of current portion

INNOVATION, INC.

Insurance financing

Total other current liabilities

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Debt consisted of the following

(in thousands):

Related party loan

unamortized debt issuance costs

Total related party debt

2024 Credit Agreement

January 23, 2024, Purple LLC, Purple Inc.

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

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

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

and Delaware Trust Company, as administrative agent.

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

Loan Agreement and refinance their existing obligations.

On January 23, 2024, Purple

LLC, Purple Inc.

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

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

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

Delaware Trust Company, as administrative agent.

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

Agreement and refinance their existing obligations.

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

11 unchanged sentences

The Loan Parties may request

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

agreed to by the Lenders at their discretion.

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

to by the Lenders at their discretion.

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

associated with an asset-based loan.

Total fees and expenses of $ 3.5 million were recorded as debt issuance costs in the first quarter

of 2024 and are being amortized over the life of the loan.

connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants (the “2024 Warrants”)

to the Lenders (see Note 11 – Warrant Liabilities ).

These 2024 Warrants include full-ratchet anti-dilution protections,

subject to a floor of $ 0.8502 with respect to adjustments to the exercise price and expire on January 23, 2034 .

The 2024 Warrants had

a fair value of $ 19.6 million upon issuance and were recorded as a debt discount and are being amortized over the life of the loan.

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

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

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

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

under the Amended and Restated Credit Agreement.

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

and certain covenants of the Loan Parties.

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

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

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

affiliates, among other customary covenants.

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

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

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

March 12, 2025, the Loan Parties, entered into the First Amendment to the Amended and Restated Credit Agreement (the “2025 Amendment”

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

Partners LLC – Series A (“Blackwell”) (collectively the “2025 Lenders”), which amends the Amended and Restated

In connection with the Amended

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

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

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

The Amended and Restated Credit

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

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

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

The Loan Parties (other than

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

Credit Agreement.

The 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

the 2025 Lenders in an initial aggregate principal amount not to exceed $ 20.0 million on terms to be agreed to by the parties and subject

to the approval of the Required Lenders (as defined in the Amended and Restated Credit Agreement).

The First Incremental Loan will bear

interest at the same rate as the Initial Loan (as defined in the Amended and Restated Credit Agreement), which may be paid in cash or

in kind at the Company’s option.

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:

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.

2025 Amendment requires prepayment from certain amounts of proceeds received by the Company related to asset dispositions, equity issuances,

incurrence of indebtedness, and extraordinary receipts.

Additionally, upon an event of default, the 2025 Lenders may declare all or any

portion of the term loan then outstanding to be accelerated and due and payable, immediately, including the prepayment premium.

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

will reassess whether the derivative has more than a de minimis value at each reporting period.

2025 Amendment also includes contingent interest upon an event of default at a rate of 2 %.

Certain non-credit related factors qualify

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

addition, the Company also paid (i) an amendment fee equal to 2 % of the outstanding principal and accrued and unpaid interest under the

Related Party Loan held by the 2025 Lenders, paid in kind and (ii) a 2 % work fee of the initial aggregate principal amount of the First

Incremental Loan paid to the 2025 Lenders, deducted from the proceeds at closing.

Total fees and expenses of $ 2.1 million were recorded

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

connection with the 2025 Amendment, the Company issued to the 2025 Lenders, warrants (the “2025 Warrants”) to purchase 6.2

million shares of the Company’s Class A common stock at a price of $ 1.50 per share, subject to certain adjustments (see Note 11

– Warrant Liabilities ).

These 2025 Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.6979

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

The 2025 Warrants had a fair value of $ 5.4 million upon

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

2025 Amendment was evaluated and determined to be a modification of debt since the 2025 Lenders did not grant a concession as the effective

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

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Amended and Restated Credit

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

the Loan Parties.

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

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

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

customary covenants.

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

stock, subject to limited exceptions.

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

Credit Agreement.

2025 Amendment

May 2, 2025, the Loan Parties entered into a Second Amendment to the Amended and Restated Credit Agreement (the “Second 2025 Amendment”)

with the 2025 Lenders, which amends the Amended A&R Credit Agreement.

The Second 2025 Amendment, among other things, provides for

a commitment increase in the initial principal amount of the senior secured term loan facility by $ 20.0 million (the “Second Incremental

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

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

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

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

The Second Incremental Loan will bear interest

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

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

On March 12, 2025, the Loan

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

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

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

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

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

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

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

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

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

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

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.

1 unchanged sentence

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

addition, the Company also paid (i) an amendment fee equal to 0.25 % of the outstanding principal and accrued and unpaid interest under

the Existing Loan held by the Lenders, paid in kind to the 2025 Lenders, (ii) a work fee equal to 0.1 % of the outstanding principal and

accrued and unpaid interest under the Existing Loan, paid in cash to the Required Lenders, (iii) a waiver fee, to induce the Required

Lenders to waive certain preemptive and right of first refusal rights, equal to 0.15 % of the outstanding principal and accrued and unpaid

interest under the Existing Loan, paid in cash to the Required Lenders, and (iv) a commitment fee equal to $ 150,000 , paid in cash to

the Required Lenders.

connection with the Second 2025 Amendment, the Company issued to the 2025 Lenders, warrants (the “2025 Additional Warrants”)

to purchase 6.6 million shares of the Company’s Class A common stock at a price of $ 1.50 per share, subject to certain adjustments

(see Note 11 – Warrant Liabilities ).

These 2025 Additional Warrants include full-ratchet anti-dilution protections, subject

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

The 2025 Additional Warrants had

a fair value of $ 5.4 million upon issuance and were recorded as a debt discount upon issuance of the Incremental Loan and is being amortized

over the life of the loan.

Second 2025 Amendment was evaluated and determined to be a modification of debt since the 2025 Lenders did not grant a concession, as

the effective borrowing rate was not reduced, and the 2025 Amendment terms were not substantially different from the Amended and Restated

Credit Agreement.

Company has elected to have interest paid-in-kind and added to the principal amount of the loans.

Interest expense under the Related

Party Loan, the First Incremental Loan and the Second Incremental Loan for the three and nine months ended September 30, 2025, consisted

of paid-in-kind interest of $ 4.5 million and $ 11.3 million, respectively, and debt issuance cost amortization of $ 3.9 million and $ 9.5

million, respectively.

Interest expense under the Related Party Loan for the three and nine months ended September 30, 2024, consisted

of paid-in-kind interest of $ 2.7 million and $ 7.0 million, respectively, and debt issuance cost amortization of $ 1.9 million and $ 5.3

million, respectively.

The effective interest rate was 14.68 % and 14.68 % for the three and nine months ended September 30, 2025, respectively,

and 15.66 % and 15.73 % for the three and nine months ended September 30, 2024, respectively.

of September 30, 2025, the Company was in compliance with all covenants under the Amended and Restated Credit Agreement as amended by

the 2025 Amendment and the Second 2025 Amendment.

INNOVATION, INC.

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

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

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

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

The 2025 Amendment requires

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

and extraordinary receipts.

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

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

The Company determined that these features

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

The Company will reassess whether the derivative

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

The 2025 Amendment also includes

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

Certain non-credit related factors qualify as a derivative and must be bifurcated

from the debt, but such value is de minimis.

In addition, the Company also

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

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

the 2025 Lenders, deducted from the proceeds at closing.

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

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

In connection with the 2025

Amendment, the Company issued to the 2025 Lenders, warrants (the “2025 Warrants”) to purchase 6.2 million shares of the Company’s

Class A common stock at a price of $ 1.50 per share, subject to certain adjustments (see Note 11 – Warrant Liabilities ).

2025 Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.6979 with respect to adjustments to the exercise

price and expire on March 12, 2035 .

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

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

The 2025 Amendment was evaluated

and determined to be a modification of debt as the effective borrowing rate was not reduced, therefore the 2025 Lenders did not grant

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

Second 2025 Amendment

On May 2, 2025, the Loan Parties

entered into a Second Amendment to the Amended and Restated Credit Agreement (the “Second 2025 Amendment”) with the 2025 Lenders,

which amends the Amended A&R Credit Agreement.

The Second 2025 Amendment, among other things, provides for a commitment increase in

the initial principal amount of the senior secured term loan facility by $ 20.0 million (the “Second Incremental Loan”) from

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

to $ 100.0 million (the “Loan”) and allows the Loan Parties to request one or more additional term loans from the Lenders in

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

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

The Second Incremental Loan will bear interest at the same

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

The Second 2025 Amendment

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

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

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

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

replaced 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 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.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

In addition, the Company also

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

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

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

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

paid in cash to the Required Lenders, and (iv) a commitment fee equal to $ 0.2 million, paid in cash to the Required Lenders.

In connection with the Second

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

shares of the Company’s Common Stock at a price of $ 1.50 per share, subject to certain adjustments (see Note 11 – Warrant

Liabilities ).

These 2025 Additional Warrants include full-ratchet anti-dilution protections, subject to a floor of $ 0.6979 with respect

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

The 2025 Additional Warrants had a fair value of $ 5.4 million upon

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

The Second 2025 Amendment

was evaluated and determined to be a modification of debt since the 2025 Lenders did not grant a concession, as the effective borrowing

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

Third Amendment to the Amended

A&R Credit Agreement

On March 24, 2026, the Loan Parties entered into a Third Amendment to the Amended A&R Credit Agreement 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 was payable-in-kind by adding such amount to the 2025 Lenders’ outstanding principal amount.

The remaining $ 0.3 million

of the Amendment Fee was paid in cash to the other lenders.

In connection with the Third Amendment, the Loan Parties also agreed to reimburse

the 2025 Lenders for certain expenses in the amount of $ 0.3 million.

Pursuant to the Third Amendment to the Amended A&R Credit Agreement,

the Loan Parties waived certain requirements and events of default relating to the going concern qualification in our December 31, 2025

financial statements.

Accordingly, the Company is in compliance as of March 31, 2026, with all covenants under the Amended A&R Credit

The Company determined that it was experiencing financial difficulty and that the extension represented a concession granted by the Lenders

as the effective borrowing rate was reduced.

Accordingly, the Company accounted for the Third Amendment as a troubled debt restructuring.

Since the undiscounted future cash payments were more than the carrying amount of the existing instrument, no gain was recognized.

impact of the revised terms, including the extension and associated amendment fee, has been reflected in the carrying amount of the debt

and is being recognized through interest expense prospectively using a revised effective interest rate.

The Company has elected to

have interest paid-in-kind and added to the principal amount of the loans.

Interest expense under the Related Party Loan, the First Incremental

Loan and the Second Incremental Loan for the three months ended March 31, 2026 and 2025 consisted of paid-in-kind interest of $ 4.5 million

and $ 2.8 million, respectively and debt issuance cost amortization of $ 3.7 million and $ 2.1 million, respectively.

The effective interest

rate was 14.03 % and 14.68 % for the three months ended March 31, 2026 and 2025, respectively.

Warrant Liabilities

January 23, 2024, in connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million 2024 Warrants to the

Lenders, on March 12, 2025, in connection with the 2025 Amendment, the Company issued 6.2 million 2025 Warrants to the 2025 Lenders,

on May 2, 2025, in connection with the Second 2025 Amendment, the Company issued 6.6 million 2025 Additional Warrants to the 2025 Lenders,

and on May 2, 2025, in connection with the SGI Agreements (as defined below), the Company issued to SGI warrants to purchase 8.0 million

shares of the Company’s Class A common stock (the “SGI Warrants,” collectively, the “Warrants”).

entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $ 1.50 per share.

include full-ratchet anti-dilution protections, subject to a floor price ranging from $ 0.6979 to $ 0.8502 with respect to adjustments

to the exercise price and expire between January 23, 2034 and March 12, 2035.

While the Warrants are exercisable, the Company may call

the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share of Class A common stock issuable upon

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

right is only available if the reported last sale price of the Class A common stock equals or exceeds $ 24.00 per share on each of 20

trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the holders.

On January 23, 2024, in connection

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

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

2025 Amendment, the Company issued 6.6 million 2025 Additional Warrants to the 2025 Lenders, and on May 2, 2025, in connection with the

SGI Agreements (as defined below), the Company issued to SGI warrants to purchase 8.0 million shares of the Company’s Common Stock

(the “SGI Warrants,” collectively, the “Warrants”).

Each Warrant entitles the registered holder to purchase one

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

While the Warrants are exercisable,

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

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

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

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

to the holders.

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

The holders do not have the rights or privileges

of holders of Class A common stock or any voting rights until they exercise their Warrants.

After the issuance of shares of Class A common

stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Class A common stock held on all matters

to be voted on by stockholders generally.

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

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

of Class A common stock outstanding immediately after giving effect to such exercise.

The Warrants contain a repurchase provision which,

upon an occurrence of a fundamental transaction as defined in the warrant agreement, could give rise to an obligation of the Company

to pay cash to the warrant holders.

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

Company determined the fundamental transaction provisions require the Warrants to be accounted for as a liability at fair value on the

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

As a result, the liability for these

Warrants was recorded at fair value on the date of issuance with the offset included in debt issuance costs.

This liability is subsequently

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

Company used a Monte Carlo Simulation model to determine the fair value of the liability associated with the Warrants.

The model used

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

volatility and the probability of a warrant re-price event.

The holders do not have the

rights or privileges of holders of Class A common stock or any voting rights until they exercise their Warrants.

After the issuance of

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

stock held on all matters to be voted on by stockholders generally.

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

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

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

The Warrants contain a repurchase

provision which, upon an occurrence of a fundamental transaction as defined in the warrant agreement, could give rise to an obligation

of the Company to pay cash to the warrant holders.

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

The Company determined the fundamental transaction provisions require the Warrants to be accounted for as a liability at fair

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

As a result, the liability

for these Warrants was recorded at fair value on the date of issuance with the offset included in debt issuance costs.

This liability

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

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company used a Monte Carlo

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

The model used key assumptions and inputs,

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

of a warrant re-price event.

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

September 30,

Trading price of common stock on

measurement date

Trading price of common stock on measurement date

Exercise price

Risk free interest rate

4.08 – 4.15 %

3.95 – 4.03 %

Warrant life in years

2 unchanged sentences

Probability of an event causing a warrant re-price

Estimated date of event

causing a warrant re-price

Warrants had a fair value of $ 22.0 million as of September 30, 2025.

The Company recognized a $ 6.9 million and a $11.3 million gain in

its unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2025, respectively related

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

previous measurement dates.

The Company recorded a gain of $ 4.8 million for the three months ended September 30, 2024 and a loss of $ 0.1

million for the nine months ended September, 2024 related to the change in fair value of the 2024 Warrants outstanding at the end of

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

Estimated date of event causing a warrant re-price

The Warrants had a fair value of $ 23.1 million as of March 31, 2026.

The Company recognized a $ 7.0 million expense in the unaudited condensed consolidated statement of operations for the three months ended

March 31, 2026 related to an increase in the fair value of the Warrants outstanding at the end of the period compared to the fair value

of the Warrants at the end of 2025.

The Company recorded a de minimis gain for the three months ended March 31, 2025 related to the increase

in fair value of the Warrants outstanding at the end of the period.

Other Long-Term Liabilities

long-term liabilities consist of the following (in thousands):

Asset retirement obligations

Other long-term liabilities

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

consist of the following (in thousands):

Asset retirement obligations

Total other long-term liabilities

Commitments and Contingencies

Company provides a limited warranty on most of the products it sells.

The estimated warranty costs associated with products sold through

DTC channels are expensed at the time of sale and included in cost of revenues.

The estimated warranty return costs associated with products

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

Estimates for warranty

costs are based on the results of product testing, industry and historical trends and warranty claim rates incurred, and are adjusted

for any current or expected trends as appropriate.

Warranty Liabilities

The Company provides a limited

warranty on most of the products it sells.

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

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

The estimated warranty return costs associated with products sold through

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

Estimates for DTC warranty costs are

based primarily on historical warranty claims, estimated warranty costs and the estimate warranty claim rate.

Estimates for wholesale

warranty costs are based primarily on the historical warranty claim amounts and the estimated claim rate and may be adjusted for any current

or expected trends as appropriate.

Actual warranty claim costs could differ from these estimates.

The Company regularly

assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs.

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

The Company has accrued $ 31.8

million and $ 32.2 million in estimated future warranty costs as of September 30, 2025, and December 31, 2024, respectively.

Executive Officer Cash Bonus Award

January 26, 2024, the Company’s board of directors (the “Board”) approved an amendment to the Chief Executive Officer’s

employment agreement.

Under the amendment, the Company agreed that, among other things, the Chief Executive Officer will be eligible

to earn a cash payment of up to $ 5.0 million, less tax and other required withholdings, based on the volume weighted average price per

share of the Company’s Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his

continued employment with the Company.

The amount earned will be payable in quarterly installments commencing with the first payroll

period following June 30, 2026.

The Company determined the provisions surrounding the future bonus payment require it to be accounted

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

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

and nine months ended September 30, 2025.

The Company recorded a compensation expense reduction of $ 0.2 million for the three months

ended September 30, 2024, and a $ 0.1 million compensation expense for the nine months ended September 30, 2024, in its unaudited condensed

consolidated statement of operations related to the future bonus payment.

Leadership Team Special Recognition Bonus

The Company regularly assesses and adjusts

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

The Company classifies

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

The Company has accrued $ 27.5 million and $ 26.7 million

in estimated future warranty costs as of March 31, 2026 and December 31, 2025, respectively.

Chief Executive Officer

Cash Bonus Award

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

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

Under the amendment, the Company agreed that, among

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

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

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

The amount earned will be payable in quarterly installments

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

The Company determined the provisions surrounding the future bonus payment

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

in the period of change.

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

of operations for the three months ended March 31, 2026 and 2025 related to this future bonus payment.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Senior Leadership Team

Special Recognition Bonus

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

8 unchanged sentences

that was due to be paid in August 2025.

Related to this bonus payment, the Company recorded a $ 0.4 million and $ 1.3 million compensation

expense for the three and nine months ended September 30, 2025, respectively and $ 0.9 million and $ 2.3 million compensation expense for

the three and nine months ended September 30, 2024, respectively, in its unaudited condensed consolidated statement of operations.

Incentive Cash Bonus Award

July 17, 2025, the Board unanimously approved a cash long-term incentive award to those employees eligible to participate in the Company’s

2017 Plan (as defined below).

The incentive award payment is based on a combination of time-based payments over a three-year period and

performance-based payments paid in three years if certain financial performance targets are met.

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

Related to this bonus payment, the Company recorded no compensation expense for the three months

ended March 31, 2026 and a de minimis compensation expense for the three months ended March 31, 2025 in the unaudited condensed consolidated

statement of operations.

Incentive Cash Bonus Awards

July 17, 2025, the Board unanimously approved a long-term incentive cash award to those employees eligible to participate in the Company’s

The incentive award payment is based on a combination of time-based payments over a three-year period and performance-based

payments paid in three years if certain financial performance targets are met.

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

in the Company’s 2017 Plan.

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

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

The Company determined the provisions surrounding the

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

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

Company recorded $ 0.2 million of compensation expense in the unaudited consolidated statement of operations for the three and nine months

ended September 30, 2025, and a de minimis amount for the three and nine months ended September 30, 2024 related to these future cash

award payments.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

of Insurance Claim

January 2024, the Company received a $ 4.3 million payment for partial settlement of a previously filed business interruption claim which

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

July 2024, pursuant to the same previously filed business interruption claim, the Company received the remaining settlement payment amount

of $ 7.3 million which was recorded during the third quarter of 2024 as other income, net in the unaudited condensed consolidated statement

of operations.

of Securities Holders

January 23, 2024, in connection with the issuance of the 2024 Warrants, the Company entered into an amended and restated registration

rights agreement (the “Registration Rights Agreement”) with holders of the 2024 Warrants (the “2024 Holders”),

providing for the registration under the Securities Act of 1933, as amended (the “Securities Act”), of the 2024 Warrants,

the shares issuable upon the exercise of the 2024 Warrants and Class A common stock held by the 2024 Holders as of such date (the “2024

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

The Registration Rights Agreement entitles the 2024 Holders

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

security holders.

The Company will be responsible for the payment of the 2024 Holders’ expenses in connection with any offering

or sale of Registrable Securities by the 2024 Holders, including underwriting discounts or selling commissions, placement agent or broker

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

The Registration Rights Agreement

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

Registrable Securities.

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

effective on June 4, 2024.

connection with the issuance of the 2025 Warrants, on March 12, 2025, the Company entered into a Second Amended and Restated Registration

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

(the “2025 Holders”), providing for the registration under the Securities Act of the 2025 Warrants, the shares issuable upon

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

A common stock held by the 2025 Holders as of such date (the “2025 Initial Registrable Securities”), subject to customary

share of the Company’s Common Stock on NASDAQ on March 31, 2027.

The Company determined the provisions surrounding the performance

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

value recognized in earnings in the period of change.

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

three months ended March 31, 2026 and 2025 related to these future award payments.

Rights of Securities Holders

On January 23, 2024, in connection

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

the Warrants (the “Holders”), providing for the registration under the Securities Act of 1933, as amended, of the 2024 Warrants,

the shares issuable upon the exercise of the 2024 Warrants and Common Stock held by the Holders as of such date, subject to customary

terms and conditions.

The 2025 Registration Rights Agreement entitles the 2025 Holders to demand registration of the 2025 Registrable

Securities and also to piggyback on the registration of Company securities by the Company and other Company securityholders.

will be responsible for the payment of the 2025 Holders’ expenses in connection with any offering or sale of the 2025 Registrable

Securities by the 2025 Holders, including underwriting discounts or selling commissions, placement agent or broker fees or similar discounts,

commissions or fees relating to the sale of certain 2025 Registrable Securities.

connection with the issuance of the 2025 Additional Warrants and the SGI Warrants, on May 2, 2025, the Company entered into a Third Amended

and Restated Registration Rights Agreement (the “Third Registration Rights Agreement”) with the 2025 Holders and Coliseum

Capital Co-Invest III, L.P., and a Registration Rights Agreement (the “SGI Registration Rights Agreement”) with SGI (together

with the Second Amendment Term Loan Lenders), providing for the registration under the Securities Act of 1933, as amended (the “Securities

Act”) of the 2025 Additional Warrants and the SGI Warrants, and the shares issuable upon the exercise of such warrants, as well

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

Holders as of such date (together with the 2025 Initial Registrable Securities, the “2025 Registrable Securities”), subject

to customary terms and conditions.

The Third Registration Rights Agreement and SGI Registration Rights Agreement entitle the 2025 Holders

and SGI to demand registration of the 2025 Registrable Securities.

The Registration Rights Agreement and SGI Registration Rights Agreement

also entitle the 2025 Holders and SGI to piggyback on the registration of Company securities by the Company and other Company securityholders.

The Company will be responsible for the payment of the 2025 Holders’ and SGI’s expenses in connection with any offering or

sale of 2025 Registrable Securities by them, including underwriting discounts or selling commissions, placement agent or broker fees

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

registration statement filed by the Company on May 23, 2025, which registered the 2025 Registrable Securities, was declared effective

by the SEC on May 30, 2025.

June 27, 2024, the Board approved the adoption of a limited-duration stockholder rights agreement (the “NOL Rights Plan”)

with a stated expiration date of June 30, 2025.

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

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

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

common stock under Code Section 382.

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

Company’s stockholders ratified the NOL Rights Plan.

See Note 15 – Stockholders’ Equity – NOL Rights Plan

for further discussion of the NOL Rights Plan.

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

In conjunction with the termination of the NOL Rights Plan, the Company filed a Certificate of Elimination with the Secretary

of State of the State of Delaware eliminating the Series C Junior Participating Preferred Stock, effective May 7, 2025.

INNOVATION, INC.

On March 12, 2025 in connection

with the issuance of the 2025 Warrants, the Company entered into a Second Amended and Restated Registration Rights Agreement (the “Registration

Rights Agreement”) with the Holders, providing for the registration of the 2025 Warrants, the shares of Common Stock issuable upon

the exercise of the Warrants, and the Common Stock held by the Holders as of such date (the “Registrable Securities”).

On May 2, 2025 in connection

with the issuance of the 2025 Additional Warrants, the Company entered into a Third Amended and Restated Registration Rights Agreement

(the “Third Amended Registration Rights Agreement”) with the 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

Holders (and shares issuable upon exercise thereof) and the Common Stock held by the Holders as of such date (the “2025 Additional

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

On May 2, 2025 in connection

with the issuance of the SGI Warrants, the Company 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.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Protective Charter Amendment

further safeguard the Company’s ability to use its Current NOLs, on July 27, 2024, the Board adopted, and recommended that the

Company’s stockholders approve, an amendment to the Company’s Certificate of Incorporation (the “NOL Protective Charter

Amendment”) that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding certain transfers of

common stock that could result in an ownership change under Code Section 382.

At the Special Meeting, the Company’s stockholders

approved the NOL Protective Charter Amendment.

On May 6, 2025, the Board approved the early termination of the NOL Protective Charter

Amendment, effective May 7, 2025.

See Note 15 – Stockholders’ Equity – NOL Protective Charter Amendment for

further discussion of the NOL Protective Charter Amendment.

Commercial Arrangements

May 2, 2025, the Company entered into a Second Amendment to Master Retailer Agreement (the “MRA Amendment”) with Mattress

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

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

The agreement

includes a $ 3.5 million fee to be paid by the Company to reimburse Mattress Firm for certain costs in transitioning to the product placement

required by the agreement.

The fee is accounted for under the provisions of ASC 606 —Revenue from Contracts with Customers as

consideration payable to a customer as a reduction of revenue over the life of the contract and is included in accrued rebates and allowances

on the unaudited condensed consolidated balance sheets.

The Company recorded $ 0.3 million and $ 0.5 million as a reduction of revenue

for the three and nine months ended September 30, 2025, respectively.

Also on May 2, 2025, the Company entered into an Amended and Restated

Master Vendor Supply and Services Agreement (the “Sherwood Agreement” and together with the MRA Amendment the “SGI

Agreements”) with Tempur Sherwood, LLC, a subsidiary of Tempur Sealy.

The Sherwood Agreement provides that Tempur Sherwood, LLC

will have the exclusive right to assemble certain product lines that the Company sells to Mattress Firm.

The SGI Agreements expire on

December 31, 2027.

connection with the SGI Agreements, the Company issued to SGI the SGI Warrants to purchase 8.0 million shares of the Company’s

Class A common stock at a strike price of $ 1.50 per share.

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 Company determined the warrants

are required to be accounted for as a liability at the fair value of $ 6.5 million on the date of the transaction (see Note 11 –

Warrant Liabilities ).

The fair value of the warrants on the date of the transaction is accounted for under the provisions of ASC

606 —Revenue from Contracts with Customers and deemed to be consideration payable to a customer as a reduction of revenue

over the life of the contract.

The Company recorded $ 0.6 million and $ 1.0 million as a reduction of revenue for the three and nine months

ended September 30, 2025.

Related Taxes

Supreme Court ruling in South Dakota v.

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 the Company and other Company securityholders.

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

expenses in connection with any offering or sale of Registrable Securities, 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.

SGI Commercial Arrangements

On May 2, 2025, the Company

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

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

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

The agreement includes a $ 3.5 million

fee to be paid by the Company to reimburse Mattress Firm for certain costs in transitioning to the product placement required by the

The fee is accounted for under the provisions of ASC 606— Revenue from Contracts with Customers as consideration

payable to a customer as a reduction of revenue over the life of the contract and is included in accrued rebates and allowances on the

audited consolidated balance sheets.

The Company recorded $ 0.3 million as a reduction of revenue in the unaudited condensed consolidated

statement of operations for the three months ended March 31, 2026.

Also on May 2, 2025, the

Company entered into an Amended and Restated Master Vendor Supply and Services Agreement (the “Sherwood Agreement” and together

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

The Sherwood Agreement

provides that Tempur Sherwood, LLC will have the exclusive right to assemble certain product lines, such as Purple Royale, that the Company

sells to Mattress Firm.

The SGI Agreements expire on December 31, 2027.

Revenue for certain product arrangements is presented differently

depending on the nature of the underlying manufacturing relationships and the application of ASC 606— Revenue from Contracts

with Customers .

Under the guidance, payments to Tempur Sherwood, LLC are evaluated to determine whether they are economically linked

to the underlying customer arrangement.

The Company has concluded that payments to Tempur Sherwood, LLC are economically linked to the

Mattress Firm MRA Amendment and therefore represent consideration payable to a customer.

As a result of the Purple Royale launch, these

payments are recorded as a reduction of revenue, and revenue is presented on a net basis.

The Company recorded $ 4.9 million in consideration

paid to Tempur Sherwood, LLC as a reduction of revenue in the unaudited condensed consolidated statement of operations for the three

months ended March 31, 2026.

In connection with the SGI

Agreements, the Company issued to SGI the SGI Warrants to purchase 8.0 million shares of the Company’s Class A common stock at a

strike price of $ 1.50 per share.

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 Company determined the warrants are required to be accounted for

as a liability at the fair value of $ 6.5 million on the date of the transaction (see Note 11 – Warrant Liabilities ).

fair value of the warrants on the date of the transaction is accounted for under the provisions of ASC 606— Revenue from Contracts

with Customers and deemed to be consideration payable to a customer as a reduction of revenue over the life of the contract.

recorded $ 0.6 million as a reduction of revenue in the unaudited condensed consolidated statement of operations for the three months ended

March 31, 2026.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Non-Income Related

Supreme Court ruling

in South Dakota v.

Wayfair, Inc.

, No.17-494, reversed a longstanding precedent that remote sellers are

not required to collect state and local sales taxes.

The Company cannot predict the effect of these and other attempts to impose sales,

income or other taxes on e-commerce.

, No.17-494, reversed a longstanding precedent that remote sellers are not required to collect

state and local sales taxes.

The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes

on e-commerce.

The Company currently collects and reports on sales tax in all states in which it does business.

However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, value-added tax

and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the

The application of these taxes on the Company’s business could also create significant increases in internal costs necessary

to capture data and collect and remit taxes.

There have been, and will continue to be, substantial ongoing costs associated with complying

with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business.

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

in the Fourth Judicial District Court in the State of

In that suit, the plaintiffs alleged that they each entered into employment agreements with Purple LLC in February 2018.

The plaintiffs

contended that certain corporate transactions reduced their “ownership interest and voting power in Purple” and that, as

a result, they should have continued to be paid a salary when they retired from Purple LLC.

The plaintiffs calculated that they were

each owed “no less than $ 500,000 ” in unpaid salary.

In October 2023, the Court granted Purple Inc.’s motion and ordered

that the claims brought by the plaintiffs be dismissed in full, with prejudice.

The Court entered a final judgment dismissing the case

in January 2024.

However, the application

of existing, new or revised taxes on the Company’s business, in particular, sales taxes, value-added tax and similar taxes would

likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet.

The application

of these taxes on the Company’s business could also create significant increases in internal costs necessary to capture data and

collect and remit taxes.

There have been, and will continue to be, substantial ongoing costs associated with complying with the various

indirect tax requirements in the numerous markets in which the Company conducts or will conduct business.

Legal Proceedings

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

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

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

employment agreements with Purple LLC in February 2018.

The plaintiffs contended that certain corporate transactions reduced their “ownership

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

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

In October 2023,

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

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

The plaintiffs appealed.

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

to the District Court for further fact finding.

The Utah Supreme Court declined to hear the case, sending back for further action at

the trial court that will continue into 2026.

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

nature and intends to continue to vigorously defend against these claims.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

April 3, 2023, Purple’s founders filed a complaint against Purple LLC in the Delaware Court of Chancery.

The complaint alleges

that Purple LLC breached the limited liability company agreement of Purple LLC by failing to pay the full amount of tax distributions

owed under the agreement.

The plaintiffs seek damages of approximately $ 3.0 million in allegedly unpaid tax distributions as well as

legal fees and expenses incurred in connection with the litigation.

On June 13, 2023, Purple LLC filed an answer to the complaint denying

the plaintiffs’ allegations, setting forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment

in Purple LLC’s favor.

A trial date has been set for June 2026.

The outcome of the litigation cannot be predicted at this early

stage in the proceedings.

After oral arguments, on April 3, 2025,

the Utah Court of Appeals ordered the case return to the District Court for further fact finding.

The Utah Supreme Court declined to hear

the case, sending back for further action at the trial court that we expect will continue throughout 2026.

The Company maintains insurance

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

course of the plaintiffs’ appeal.

On April 3, 2023, Purple’s founders filed a complaint against

Purple LLC in the Delaware Court of Chancery.

The complaint alleges that Purple LLC breached the limited liability company agreement of

Purple LLC by failing to pay the full amount of tax distributions owed under the agreement.

The plaintiffs seek damages of approximately

$ 3.0 million in allegedly unpaid tax distributions as well as legal fees and expenses incurred in connection with the litigation.

13, 2023, Purple LLC filed an answer to the complaint denying the plaintiffs’ allegations, setting forth its affirmative defenses,

and requesting dismissal of all claims and entry of judgment in Purple LLC’s favor.

A trial date has been set for October 2026.

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

Purple LLC denies all allegations and intends

to vigorously defend against these claims.

On April 16, 2024, Purple’s

founders, in their capacity as a former landlord of Purple LLC, brought a lawsuit against Purple LLC, as lessee, for amounts allegedly

owed under a real estate lease which the parties terminated effective September 30, 2023.

In the suit, the plaintiffs allege approximately

$ 2.5 million in damages, based primarily on a dispute regarding whether Purple LLC left the premises in the condition required by the

The plaintiffs further claim approximately $ 0.8 million in holdover rent, as well as unspecified amounts in interest, late fees,

liquidated damages, attorney fees and costs.

Fact discovery is scheduled to conclude in 2026.

The court has not yet set a date for trial.

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

April 16, 2024, Purple’s founders, in their capacity as a former landlord of Purple LLC, brought a lawsuit against Purple LLC,

as lessee, for amounts allegedly owed under a real estate lease which the parties terminated effective September 30, 2023.

the plaintiffs allege approximately $ 2.5 million in damages, based primarily on a dispute regarding whether Purple LLC left the premises

in the condition required by the lease.

The plaintiffs further claim approximately $ 0.8 million in holdover rent, as well as unspecified

amounts in interest, late fees, liquidated damages, attorney fees and costs.

Purple LLC denies all allegations and intends to vigorously

defend against these claims.

July 24, 2024, a former part-time employee filed a class action lawsuit against Purple LLC in California Superior

Court in the County of Alameda alleging failure to pay all wages, failure to pay overtime pay rate, failure to provide all meal

periods, and other employment-related causes of action.

The suit seeks damages, interest, attorneys’ fees, costs and other relief

on behalf of all non-exempt California employees of Purple LLC during the applicable statutory periods.

On September 30, 2024, the plaintiffs

filed an amended complaint adding a claim for penalties under California’s Private Attorneys General Act.

Purple LLC and the plaintiffs

mediated the claims on May 8, 2025, which resulted in the parties agreeing to a settlement.

The settlement agreement has been signed

by the parties.

The California Superior Court is expected to approve the settlement.

February 10, 2025, a shareholder of the Company filed a class action lawsuit in the Court of Chancery of the

State of Delaware against Purple Inc.

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

Delaware General Corporate Law Sections 102(b)(7) and 141(a).

The suit seeks declaratory relief, attorneys’ fees, costs, and other

relief on behalf of the class.

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

Company and Purple LLC are from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary

course of business.

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

that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future

results of the Company.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

On July 24, 2024, a former

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

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

causes of action.

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

employees of Purple LLC during the applicable statutory periods.

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

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

Purple LLC and the plaintiffs mediated the claims on May

8, 2025, which resulted in the parties agreeing to a settlement.

The settlement agreement has been signed by the parties and are currently

waiting for the California Superior Court to approve the settlement.

On February 20, 2026, the U.S.

Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic

Powers Act (“IEEPA”).

The Company estimates that approximately $ 5.3 million of its previous tariff payments are subject to

On March 6, 2026, the Company filed a lawsuit in the U.S.

Court of International Trade against the U.S.

Customs and Border

Protection (“CBP”), the CBP commissioner, and the United States of America seeking a full refund of all IEEPA tariffs that

the Company has paid to the United States.

The financial impact of these events is uncertain, as it is unclear to what extent duties will

be refunded by CBP, what processes will govern such refunds, or if the Company can fully collect the related amounts claimed.

No adjustments

have been recorded in the accompanying unaudited condensed consolidated financial statements as the Company will apply the involuntary

conversion model which results in recognition of recoveries when reimbursement is probable.

The Company is from time to

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

The Company does not

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

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

Related Party Transactions

Company has engaged in various transactions with entities or individuals which are considered related parties.

Capital Management, LLC

following the Business Combination, Adam Gray was appointed to the Board.

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

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

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

the investment manager of Blackwell and also manages investment funds and accounts.

Gray has voting and dispositive control over

securities held by CCP, CDF and Blackwell.

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

and Second 2025 Amendment included CCP and Blackwell.

See Note 10— Debt for further discussion .

In April 2023, Adam

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

against the Company.

The Company has engaged in

various transactions with entities or individuals which are considered related parties.

Coliseum Capital Management,

Immediately following the

Business Combination, Adam Gray was appointed to the Board.

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

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

(“CDF”), and he is also a managing partner of Coliseum Capital Management, LLC

(“CCM”), which is the investment manager of Blackwell and also manages investment funds and accounts.

Gray has voting

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

In April 2023, Adam Gray was appointed Chairman of the Board of

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

Refer to Note 10—

Debt for more information on the Related Party Loan and amendments .

Stockholders’ Equity

A Common Stock

Company has 210.0 million shares of Class A common stock authorized.

Holders of the Company’s Class A common stock are entitled

to one vote for each share held on all matters to be voted on by the stockholders.

Holders of Class A common stock and holders of Class

B common stock voting together as a single class have the exclusive right to vote for the election of directors and on all other matters

properly submitted to a vote of the stockholders.

At September 30, 2025, 108.2 million shares of Class A common stock were outstanding.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

B Common Stock

Company has 90.0 million shares of Class B common stock authorized.

Holders of the Company’s Class B common stock will vote together

as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders.

Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees

A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder

also simultaneously transfers an equal number of such holder’s Class B Units to such transferee.

The Class B common stock is not

entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon

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

30, 2025, 0.2 million shares of Class B common stock were outstanding.

Company has 5.0 million shares of preferred stock authorized.

Class A Common Stock

The Company has 210.0 million

shares of Class A common stock authorized.

Holders of the Company’s Class A common stock are entitled to one vote for each share

held on all matters to be voted on by the stockholders.

Holders of Class A common stock and holders of Class B common stock voting together

as a single class have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote

of the stockholders.

At March 31, 2026, 108.6 million shares of Class A common stock were outstanding.

Class B Common Stock

The Company has 90.0 million

shares of Class B common stock authorized.

Holders of the Company’s Class B common stock will vote together as a single class with

holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders.

Shares of Class B

common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold.

A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder also simultaneously

transfers an equal number of such holder’s Class B Units to such transferee.

The Class B common stock is not entitled to receive

dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution,

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

At March 31, 2026, 0.2 million shares of

Class B common stock were outstanding.

Preferred Stock

The Company has 5.0 million

shares of preferred stock authorized.

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

The Board is expressly authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish

from time to time the number of shares to be included in each such series and to fix the voting rights, designations and other special

rights or restrictions.

On June 27, 2024, 0.3 million shares of the Company’s authorized shares of preferred stock were designated

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

In conjunction

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

Preferred Stock, effective May 7, 2025.

At September 30, 2025, there were no shares of preferred stock outstanding.

June 27, 2024, the Board adopted, and the Company entered into the NOL Rights Plan, which is designed to preserve approximately $ 238

million of the Company’s Current NOLs under Section 382 of the of the Internal Revenue Code of 1986, as amended (“Code Section

At the Special Meeting, the Company’s stockholders ratified the NOL Rights Plan.

The Company’s ability to use

the Current NOLs to offset future taxable income may be significantly limited if the Company experiences an “ownership change”

under Code Section 382, which occurs if one or more stockholders or groups of stockholders that is deemed to own at least 5 % of the Company’s

common stock increases their aggregate ownership by more than 50 percentage points over its lowest ownership percentage within a rolling

three-year period.

The NOL Rights Plan is intended to prevent an ownership change by acting as a deterrent to any Person (as such term

is defined in the NOL Rights Plan) acquiring 4.9 % or more of the outstanding common stock of the Company (or, in the case of a Grandfathered

Person (as such term is defined in the NOL Rights Plan), an additional one-half of one percentage point of the outstanding common stock

of the Company above their current ownership percentage).

Any Person that acquires shares of the Company’s common Stock in violation

of the limitations of the NOL Rights Plan is known as an “Acquiring Person.” For purposes of the NOL Rights Plan, “common

stock” includes (i) the Class A common stock;

(ii) the Class B common stock;

and (iii) any interest that would be treated as “stock”

of the Company pursuant to Treasury Regulation § 1.382-2T(f)(18).

Notwithstanding the foregoing, the NOL Rights Plan allows for

the exercise of currently outstanding conversion rights, exchange rights, warrants or options, or otherwise, without triggering the NOL

See Note 11 – Warrant Liabilities for further discussion of the Company’s outstanding warrants.

NOL Rights Plan provided for the issuance of a dividend of one preferred share purchase right (a “Right”) for each share

of common stock outstanding on July 26, 2024.

Each Right entitles the holder to purchase from the Company one one-thousandth of a share

of Series C Preferred Share for a purchase price of $ 2.75 , subject to adjustment as provided in the NOL Rights Plan.

Each Series C Preferred

Share is designed to be the economic equivalent of one share of common stock.

Rights provided that they expire on the earliest to occur of (i) the close of business on June 30, 2025;

(ii) the time at which the Rights

are redeemed (as discussed below) or exchanged by the Company;

(iii) the repeal of Code Section 382, if the Board determines that the

NOL Rights Plan is no longer necessary for the preservation of the Current NOLs;

or (v) the beginning of a taxable year of the Company

to which the Board determines that no Current NOLs may be carried forward.

initial issuance of the Rights as a dividend had no tax, financial accounting or reporting impact.

The fair value of the Rights is nominal,

since the Rights were not exercisable when issued and no value is attributable to them.

Additionally, the Rights do not meet the definition

of a liability under GAAP and therefore were not accounted for as a long-term obligation.

Accordingly, the NOL Rights Plan and the Rights

issued thereunder have no impact on the Company’s unaudited consolidated financial statements.

May 6, 2025, the Board approved the early termination of the NOL Rights Plan, effective May 7, 2025.

INNOVATION, INC.

The Board is expressly

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

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

31, 2025, there were no shares of preferred stock outstanding.

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

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

C Preferred Shares”).

In conjunction with the termination of the NOL Rights Plan, the Company filed a Certificate of Elimination

eliminating the Series C Junior Participating Preferred Stock, effective May 7, 2025.

At March 31, 2026, there were no shares of preferred

stock outstanding

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Protective Charter Amendment

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

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

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

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

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

ownership percentage).

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

Any acquisition

of common stock in violation of the NOL Protective Charter Amendment would be void as of the date it is attempted.

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

Company issued warrants in connection with various financing transactions and agreements.

The Company had the following warrants outstanding

at September 30, 2025, and December 31, 2024 (in thousands):

The Company issued warrants

in connection with various financing transactions and agreements.

The Company had the following warrants outstanding at March 31, 2026

and December 31, 2025 (in thousands):

2024 Warrants

1 unchanged sentence

2025 Additional Warrants

following table provides the exercise price and expiration date for each warrant tranche as of September 30, 2025:

Warrant Share Equivalents (000’s) Exercise

Price (a) Expiration Date

Total Warrants

The following table provides

the exercise price and expiration date for each warrant tranche as of March 31, 2026:

Warrant Share Equivalent

(000’s) Exercise

Price (1) Expiration Date

2024 Warrants 20,000 $ 1.50 January 23, 2034

2 unchanged sentences

SGI Warrants 8,000 $ 1.50 March 12, 2035

(a) Subject to adjustment.

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

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

to each holder.

This redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds

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

of redemption to the holders.

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

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

common stock outstanding immediately after giving effect to such exercise.

Noncontrolling

interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company.

At September 30, 2025,

and December 31, 2024, the combined NCI percentage in Purple LLC was 0.15 %.

The Company has consolidated the financial position and results

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

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S.

federal income tax purposes and for purposes

of certain state and local income taxes.

Purple LLC’s net taxable income and any related tax credits are passed through to its

members and are included in the members’ tax returns, even though such net taxable income or tax credits may not have actually

been distributed.

While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share

of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax

on its allocable earnings of Purple LLC.

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported

by the Company in its consolidated financial statements under GAAP.

Company reported $ 0.1 million in various state tax expenses on a pretax loss of $ 48.1 million for the nine months ended September 30,

2025, as compared to various state taxes of $ 0.2 million on a pretax loss of $ 89.4 million for the nine months ended September 30, 2024.

This resulted in an effective tax rate of ( 0.31 %) for the nine months ended September 30, 2025, as compared to ( 0.20 %) for the nine months

ended September 30, 2024.

The Company’s effective tax rate for the nine months ended September 30, 2025, differs from the statutory

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

at September 30, 2025.

connection with the Business Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment

by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company actually

realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in

the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets

of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities

or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising

from, payments it makes under the agreement.

noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units,

a tax receivable agreement liability may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize

as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption.

The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend

on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange.

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

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

to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line

in the accompanying consolidated statement of operations.

Accrued interest and penalties would be included on the related tax liability

line in the consolidated balance sheet.

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

July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S.

The OBBBA includes significant provisions,

such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework

and the restoration of favorable tax treatment for certain business provisions.

The legislation has multiple effective dates, with certain

provisions effective in 2025 and others implemented through 2027.

The Company has evaluated the impacts of OBBBA enacted during the quarter.

There was not a material impact to the income tax expense or effective tax rate for the quarter ended September 30, 2025.

INNOVATION, INC.

(1) Subject to adjustment.

While the Warrants are exercisable,

the Company may call the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share of Common Stock issuable

upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to each holder.

This redemption right

is only available if the reported last sale price of the Common Stock equals or exceeds $ 24.00 per share on each of 20 trading days within

a 30 -trading day period ending three business days before the Company sends the notice of redemption to the holders.

A holder of the Warrants

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

affiliates) would beneficially own in excess of 49.9 % of the shares of Common Stock outstanding immediately after giving effect to such

Noncontrolling Interest

Noncontrolling interest (“NCI”)

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

At March 31, 2026 and December 31, 2025, the combined

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

The Company has consolidated the financial position and results of operations

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

The Company’s sole material

asset is Purple LLC, which is treated as a partnership for U.S.

federal income tax purposes and for purposes of certain state and local

income taxes.

Purple LLC’s net taxable income and any related tax credits are passed through to its members and are included in

the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed.

While the Company

consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed

to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC.

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated

financial statements under GAAP.

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

of $ 30.5 million for the three months ended March 31, 2026 as compared to de minimis income tax expense on pretax loss of $ 19.1 million

for the three months ended March 31, 2025.

This resulted in an effective tax rate of ( 0.15 %) for the three months ended March 31, 2026

as compared to ( 0.21 %) for the three months ended March 31, 2025.

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

31, 2026 differs from the statutory federal rate of 21 % primarily due to the impact of the full valuation allowance recorded against the

Company’s deferred tax assets at March 31, 2026.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

In connection with the Business

Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment by the Company to InnoHold

of 80 % of the net cash savings, if any, in U.S.

federal, state and local income tax that the Company actually realizes (or is deemed to

realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC

resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting

from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable,

and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under

the agreement.

As noncontrolling interest

holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a tax receivable agreement

liability may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases

in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption.

The amount of the increase

in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s

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

The effects of uncertain tax positions are recognized in the consolidated

financial statements if these positions meet a “more-likely-than-not” threshold.

For those uncertain tax positions that are

recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude

“more-likely-than-not” to be realized upon ultimate settlement.

The Company’s policy is to recognize interest and penalties

related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

interest and penalties would be included on the related tax liability line in the consolidated balance sheet.

As of March 31, 2026, the

Company had unrecognized tax benefits of $ 1.1 million.

Net Loss Per Common Share

net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average

number of shares of Class A common stock outstanding during each period.

Diluted net income (loss) per share reflects the weighted-average

number of common shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock

equivalents that are dilutive.

following table sets forth the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods

presented (in thousands, except per share amounts):

September 30,

loss attributable to Purple Innovation, Inc.

– net loss attributed to noncontrolling interest

income (loss) attributable to Purple Innovation, Inc.

Basic net income (loss) per

common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares

of Class A common stock outstanding during each period.

Diluted net income (loss) per share reflects the weighted-average number of common

shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock equivalents that

are dilutive.

The following table sets forth

the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands,

except per share amounts):

Three Months Ended

Net loss attributable to Purple Innovation, Inc.

Less – net loss attributed to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Weighted average shares—basic

– dilutive effect of Class B common stock

– dilutive effect of equity securities

average shares—diluted

Add – dilutive effect of Class B shares

Weighted average shares—diluted

Net loss per common share:

Company excludes from the diluted net loss per common share computation potentially dilutive securities related to warrants, equity awards

and convertible shares of Class B common stock when their exercise or performance vesting price is greater than the average market price

of the Company’s common stock or they are otherwise anti-dilutive.

Potentially dilutive securities that have been excluded from

the calculation of diluted net loss per common share are as follows (in thousands):

September 30,

Restricted stock units

Stock options

Class B common stock

Equity Compensation Plans

Equity Incentive Plan

PURPLE INNOVATION, INC.

2017 Equity Incentive Plan (the “2017 Plan”) provides for grants of stock options, stock appreciation

rights, restricted stock units and other stock-based awards.

Directors, officers and other employees, as well as others performing consulting

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

As of September 30, 2025, an

aggregate of 1.8 million shares remain available for issuance or use under the 2017 Plan.

INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The Company excludes from

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

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

common stock or they are otherwise anti-dilutive.

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

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

Three Months Ended

Restricted stock units

Stock Options

following table summarizes the Company’s total stock option activity for the nine months ended September 30, 2025:

Class B Shares

Equity Compensation Plans

2017 Equity Incentive

The Purple Innovation, Inc.

2017 Equity Incentive Plan (the “2017 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock

units and other stock-based awards.

Directors, officers and other employees, as well as others performing consulting or advisory services

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

As of March 31, 2026, an aggregate of 2.7 million shares

remain available for issuance or use under the 2017 Plan.

Employee Stock Options

The following table summarizes the Company’s

total stock option activity for the three months ended March 31, 2026:

(in thousands) Weighted

3 unchanged sentences

Options outstanding as of January 1, 2025 500 $ 6.82 1.3 $ —

Granted — — — —

Exercised — — — —

Forfeited ( 29 ) 13.12 — —

Options outstanding as of September 30, 2025 500 $ 6.82 1.5 $ —

and exercisable stock options as of September 30, 2025, are as follows:

Options outstanding as of March 31, 2026 500 $ 6.82 1.0 $ —

Outstanding and exercisable stock options as of

March 31, 2026 are as follows:

Options Outstanding Options Exercisable

8 unchanged sentences

$ 6.82 500 1.0 500 1.0 $ —

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

Stock option expense

was de minimis for the three and nine months ended September 30, 2025, and 2024.

of September 30, 2025, all outstanding stock options have been expensed and there is no remaining amount of unrecognized stock compensation

There were no stock options that vested during the nine months ended September 30, 2025.

Restricted Stock Units

the nine months ended September 30, 2025, the Company granted 1.2 million restricted stock units under the 2017 Plan to certain members

of the Company’s management team.

The restricted stock awards had a grant date fair value of $ 0.8 million or $ 0.66 per share.

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

following table summarizes the Company’s restricted stock unit activity for the nine months ended September 30, 2025:

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

The estimated fair value of

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

All outstanding stock options were vested

as of January 1, 2026 and there was no remaining unrecognized stock compensation cost.

There was no stock option expense for the three

months ended March 31, 2026 and was de minimis for the three months ended March 31, 2025.

Employee Restricted

The following table summarizes

the Company’s restricted stock unit activity for the three months ended March 31, 2026:

(in thousands)

Nonvested restricted stock units as of January 1, 2026

Nonvested restricted stock units as of

September 30, 2025

Company recorded restricted stock unit expense of $ 0.4 million and $ 1.3 million during the three and nine months ended September 30,

2025, respectively, and $ 0.8 million and $ 2.1 million during the three and nine months ended September 30, 2024, respectively.

restricted stock units outstanding as of September 30, 2025, there were $ 1.8 million of total unrecognized stock compensation costs with

a remaining recognition period of 1.5 years.

INNOVATION, INC.

Nonvested restricted stock units as of March 31, 2026

The Company recorded restricted

stock unit expense of $ 0.2 million and $ 0.4 million during the three months ended March 31, 2026 and 2025, respectively.

For restricted stock units

outstanding as of March 31, 2026, there were $ 0.8 million of total unrecognized stock compensation costs with a remaining recognition

period of 1.5 years.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

Non-Cash Stock-Based Compensation

Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation .

This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite

service period.

following table summarizes the aggregate non-cash stock-based compensation recognized in the statement of operations for stock awards,

employee stock options and employee restricted stock units (in thousands):

September 30,

Aggregate Non-Cash

Stock-Based Compensation

The Company has accounted

for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation .

This standard requires

the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period.

The following table summarizes

the aggregate non-cash stock-based compensation recognized in the statement of operations for stock awards, employee stock options and

employee restricted stock units (in thousands):

Three Months Ended

Cost of revenues

1 unchanged sentence

General and administrative

and development

Total non-cash stock-based

Research and development

Total non-cash stock-based compensation

Employee Retirement Plan

July 2018, the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the

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

provides for the Company to match employee contributions up to 5 % of eligible earnings.

In July 2018, the Company

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

All eligible employees

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

The plan provides for the Company to match

employee contributions up to 5 % of eligible earnings.

Company contributions immediately vest.

The Company’s matching contribution expense was $ 0.7 million and $ 2.6 million for the three and nine months ended September

30, 2025, respectively, and $ 1.1 million and $ 3.2 million for the three and nine months ended September 30, 2024, respectively.

The Company’s matching contribution

expense was $ 0.8 million and $ 1.1 million for the three months ended March 31, 2026 and 2025, respectively.

Segment Information and Concentrations

Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions,

bases, sheets, and other products.

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

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

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

partners, Purple showrooms, and third-party online retailers.

accounting policies for the Company’s one segment are the same as those described in Note 2 – Summary of Significant Accounting

The CODM assesses performance for the segment and decides how to allocate resources based on consolidated net income or

loss as reported in the consolidated statement of operations.

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

as total consolidated assets.

The Company designs and manufactures

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

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

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

The Company’s

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

Purple showrooms, and third-party online retailers.

The accounting policies for

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

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

the consolidated statement of operations.

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

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

CODM uses consolidated net income (loss) to evaluate earnings generated from segment assets (return on assets) in deciding whether to

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

Consolidated net income

(loss) is also used to monitor budget versus actual results.

The monitoring of budgeted versus actual results are used in assessing the

segment’s performance and in establishing management’s compensation.

INNOVATION, INC.

The CODM uses consolidated

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

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

Consolidated net loss is also used to monitor budget versus

actual results.

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

management’s compensation.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

following table summarizes segment revenue, significant segment expenses, other segment items and segment profit or loss (in thousands):

September 30,

Cost of revenues

The following table summarizes segment revenue,

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

Three Months Ended

Revenues, net

Reductions (additions):

Cost of revenues

restructuring related charges

Cost of revenues – restructuring related charges

Advertising expense

Marketing sales expense

Wholesale marketing and

sales expense

Showrooms marketing and

sales expense

General and administrative

Research and development

Restructuring, impairment

and other related charges

Other segment

items, net (d)

Wholesale marketing and sales expense

Showrooms marketing and sales expense

General and administrative expense

Research and development expense

Restructuring, impairment and other related charges

Other segment items, net (1)

Income tax expense

loss attributable to noncontrolling interest

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

Company classifies products into two major categories:

Net loss attributable to noncontrolling interest

Net reductions

Segment net loss

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

The Company classifies products

into two major categories:

sleep products and other.

Sleep products include mattresses, platforms, adjustable

bases, mattress protectors, pillows and sheets.

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

pillows and sheets.

Other products include cushions and various other products.

In the three and nine months

ended September 30, 2025, and 2024 sales of other products accounted for approximately 3.0 % of net revenues.

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

In the three and nine months ended

September 30, 2025, and 2024 international customers accounted for less than 1.0% of net revenues.

Company had one individual customer that accounted for approximately 17.1 % and 29.4 % of accounts receivable at September 30, 2025 and

December 31, 2024, respectively, and approximately 17.3 % and 14.8 % of net revenue during the three and nine months ended September 30,

2025, respectively, and approximately 13.0 % and 13.9 % of net revenue during the three and nine months ended September 30, 2024, respectively.

Company currently obtains materials and components used in production from outside sources.

As a result, the Company is dependent upon

suppliers that in some instances, are the sole source of supply.

In the three months ended March 31, 2026 and 2025 sales

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

The Company defines international

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

In the three months ended March 31, 2026 and 2025 international customers

accounted for less than 1.0 % of net revenues.

The Company had one individual

customer that accounted for approximately 40.8 % and 36.0 % of accounts receivable at March 31, 2026 and 2025, respectively, and approximately

8.3 % and 11.9 % of net revenue during the three months ended March 31, 2026 and 2025, respectively.

The Company currently obtains

materials and components used in production from outside sources.

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

are the sole source of supply.

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

failure of one or more of the Company’s suppliers to provide materials or components on a timely basis could significantly impact

the results of operations.

The Company believes that it can obtain these raw materials and components from other sources of supply in

the ordinary course of business, although an unexpected loss of supply over a short period of time may not allow for the replacement

of these sources in the ordinary course of business.

Company maintains its cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance

Corporation (FDIC) up to $ 250,000 for each financial institution per entity.

At times, the Company’s cash balance deposited at

financial institutions exceed the federally insured deposit limits.

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

it is not exposed to any significant credit risk related to these deposits.

The failure of one or more of the Company’s

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

The Company believes

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

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

The Company maintains its

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

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

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

exceed the federally insured deposit limits.

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

to any significant credit risk related to these deposits.

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

What changed 10-Q

Item 1. Financial Statements