What changed in this filing

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Item 1A. Risk Factors

2021-05-17 compared with 2020-11-10 · 95 added, 1365 removed, 6 unchanged (100% of the section changed)

Except as described

below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed

with the Securities and Exchange Commission on March 9, 2020.

Related to Our Business

may experience significant fluctuations in our operating results and growth rate, which could adversely affect our performance

and financial results.

revenue growth may not be sustainable, and our percentage growth rates may decrease.

Our revenue and operating profit growth depend

on the continued growth of demand for our products, and our business is affected by general political, economic and business conditions

Our business, our employees and our partners may also be negatively affected by political or social unrest including

potential reputational damage, disruption of our physical facilities or those of our wholesale partners, and boycotts by employees

or boycotts against us, our suppliers, our wholesale partners and our advertising partners.

A softening of demand, whether caused

by changes in customer confidence or preferences or a weakening of the U.S.

or global economies, may result in decreased revenue

addition, we rely on estimates and forecasts of our expenses and revenues to provide guidance and inform our business strategies,

and some of our past estimates and forecasts have not been accurate.

The rapidly evolving nature of our business makes forecasting

operating results difficult.

If we fail to accurately forecast our expenses and revenues, our business, prospects, financial condition

and results of operations may suffer, and the value of our business may decline.

If our estimates and forecasts prove incorrect,

we may not be able to adjust our operations quickly enough to respond to lower than expected sales or higher than expected expenses.

sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section

and the following:

ability to attract new customers and the cost of acquiring new customers;

ability and the time required to develop new Mattress Max machines, develop new production lines, scale production capacity and

appropriately train staff;

success of our wholesale business and our Company showroom expansion efforts;

ability to have enough production capacity to meet customer demand;

ability to effectively manage increasing sales and marketing expenses;

access to sufficient capital resources and liquidity to fund the growth of our business;

● competition

from the sublicensees of intellectual property licensed back to EdiZONE even if we subsequently acquired from EdiZONE its rights

under such licenses;

ability to offer products on favorable terms, manage inventory, fulfill orders and manage product returns;

introduction of competitive products, services, price decreases, discounts, or improvements;

effectiveness, and costs of expansion and upgrades of our systems and infrastructure;

success of our geographic and product line expansions, including but not limited to power requirements, labor needs, and ease

of product distribution;

success of hiring, expeditiously training, and retaining engaged labor locally and worldwide;

ability to secure and retain superior global partners for specialized delivery services;

extent to which we use debt or equity financing, and the terms of any such financing for, our current operations and future growth;

outcomes of legal proceedings, claims, or governmental investigations or rulings, which may include significant monetary damages

or injunctive relief and could have a material adverse impact on our operating results;

ability to obtain patent and other intellectual property rights of exclusive use, and the enforceability and validity of our intellectual

property rights;

ability to accommodate variations in the mix of products we sell;

in our level of product returns, as well as our methods of collecting product returns or exchanges;

extent to which we offer free shipping;

extent to which we invest in technology and content, manufacturing, fulfillment, and other expense categories;

in the prices of materials used in the manufacturing of our products or the costs to produce our products, including but not limited

to new or unanticipated tariffs;

ability to anticipate and prepare for disruptions to manufacturing;

extent to which operators of the networks between our customers and our websites successfully charge fees to grant our customers

unimpaired and unconstrained access to our online services;

ability to collect amounts owed to us when they become due;

extent to which our internal network or website is affected by denial of service attacks, malicious unauthorized access, outages,

and similar events;

extent to which our internal network is affected by spyware, viruses, phishing and other spam emails, intrusions, data theft,

downtime, and similar events;

ability to manage the expenses associated with multiple facilities;

ability to secure attractive real estate locations for expansion with sustainable cost structures;

ability to protect inventory assets from internal and external theft or damage.

have a short operating history in an evolving industry and, as a result, our past results may not be indicative of future operating

are a rapidly growing business with a short operating history.

Our relatively short operating history makes it difficult to assess

our future performance.

We have encountered and will continue to encounter risks and difficulties frequently experienced by growing

companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate

investments of our limited resources, market acceptance of our products and services and future products and services, competition

from new and established companies, including those with greater financial and technical resources, enhancing our products and

services and developing new products and services.

the years ended December 31, 2019 and 2018, we incurred net losses of ($12.4) million and ($19.6) million, respectively.

In 2019, we generated $22.9 million of operating cash flow and ended the year with working capital of $27.3 million

and an accumulated deficit of $8.3 million.

In 2018, we experienced negative operating cash flow of $21.7 million and

ended the year with negative working capital of $0.9 million, and an accumulated deficit of $4.3 million.

We need positive

cash flow from operations and additional capital to execute our business plan and growth initiatives.

If we are unable to satisfy

our liquidity and capital resource requirements our business could become adversely affected.

should consider our business in light of the risks and difficulties we may encounter, as described above and elsewhere in this

“Risk Factors”

If we fail to address the risks and difficulties that we face, our business and operating

results will be adversely affected.

growth of our business places significant strain on our resources and if we are unable to manage our growth, we may not have profitable

operations or sufficient capital resources.

are rapidly and significantly expanding our operations, including expanding our workforce, increasing our product offerings and

scaling our infrastructure to support expansion of our manufacturing capacity, our wholesale channel expansion and the opening

of our Company showrooms.

Our planned growth includes increasing our manufacturing capacity, developing and introducing new products

and developing new and broader distribution channels, including wholesale and Company showrooms, and extending our global reach

to other countries.

This expansion increases the complexity of our business and places significant strain on our management, personnel,

operations, systems, technical performance, financial resources, and internal financial control and reporting functions.

continued success depends, in part, upon our ability to manage and expand our operations and facilities and production capacity

in the face of continued growth.

The growth in our operations has placed, and may continue to place, significant demands on our

management and operational and financial infrastructure.

If we do not manage our growth effectively, the quality of our products

and fulfillment capabilities may suffer which could adversely affect our operating results.

Our revenue growth may not be sustainable,

and our percentage growth rates may decrease.

If we are unable to satisfy our liquidity and capital resource requirements, we

may have to scale back, postpone or discontinue our growth strategies, which could result in slower growth or no growth, and we

may run the risk of losing key suppliers, we may not be able to timely satisfy customer orders, and we may not be able to retain

all of our employees.

In addition, we may be forced to restructure our obligations to creditors or pursue work-out options.

growth depends in part on our ability to manage the opening and operating of new production facilities and our Company showrooms

which will require our entering into leases and other obligations while the success of expanding operations geographically and

opening additional Company showrooms remains unproven.

To be successful, we will need to obtain or develop retail expertise and

we will need to hire new employees in states that may have employment laws that could increase our expenses.

In general, operating

new production facilities and opening our Company showrooms in new locations exposes us to laws in other states, including California,

that may not be as employer-friendly as those in which we currently operate, and may expose us to new liabilities.

If we are not

able to successfully manage the process of expanding operations geographically, opening our Company showrooms and maintaining

operations in an expanding number of facilities and Company showrooms, we may have to close Company showrooms and incur sunk costs

and continuing obligations that could put a strain upon our resources, damage our brand and reputation and limit our growth.

manage our growth effectively, we will need to continue to implement operational, financial and management controls and reporting

systems and procedures and improve the systems and procedures that are currently in place.

There is no assurance that we will

be able to fulfill our staffing requirements for our business, successfully train and assimilate new employees, or expand our

management base and enhance our operating and financial systems.

Failure to achieve any of these goals will prevent us from managing

our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of

In addition, our revenue and operating profit growth depends on the continued growth of demand for the products offered

by us, and our business is affected by general economic and business conditions worldwide.

A softening of demand, whether caused

by changes in customer preferences or a weakening of the U.S.

or global economies, may result in decreased revenue or growth.

Further, we may not be able to accurately forecast our growth rate.

We base our expense levels and investment plans on sales estimates.

A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if

our sales are less than expected.

identified a need for internal controls to avoid delays in the timely delivery of our new mattress products and to improve the

customer’s experience.

Also, we have experienced rapid growth in our employee base, and the need to implement controls and

procedures for improving employee training and retention.

Competition for employees where our production facilities are located

also has increased the costs for employee retention.

We have implemented improved controls and procedures in an environment of

continuous change but our use of resources may not be as effective as intended or we may need to apply more resources than expected

to continue to make changes to improve our employee retention and effectiveness and the quality of our products and services over

If we are unable to make continuous improvement, achieve greater efficiencies in our operating expenses and improve our

products and services, our business could be adversely affected.

may need additional capital to execute our business plan and fund operations and may not be able to obtain such capital on acceptable

terms or at all.

connection with the development and expansion of our business, we expect to incur significant capital and operational expenses.

We believe that we can increase our sales and net income by implementing a growth strategy that focuses on (i) increasing

our manufacturing capacity, including by establishing additional manufacturing locations;

(ii) increasing our direct-to-consumer sales;

(iii) expanding our wholesale distribution channel;

(iv) opening our Company showrooms;

(v) expanding our global

(vi) engaging global partners to improve distribution efficiencies and cost savings;

and (vii) product assortment

and category expansion.

believe that our cash flow from operations, together with other available sources of liquidity, including the exercises of

warrants for cash and additional cash we received and may have further access to under that certain Credit Agreement dated

September 3, 2020(the “2020 Credit Agreement”) by and between Purple LLC and KeyBank National Association leading

a group of financial institutions(the “Institutional Lenders”), including the available revolving credit facility

under the 2020 Credit Agreement, will be sufficient to fund anticipated operating expenses, growth initiatives and our other

anticipated liquidity needs for the next twelve months, based on our current operating conditions.

However, our ability to

obtain other capital resources and sources of liquidity may not be sufficient to support future growth strategies.

unable to satisfy our liquidity and capital resource requirements, we may have to scale back, postpone or discontinue our

growth strategies, which could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may

not be able to timely satisfy customer orders, and we may not be able to retain all of our employees.

In addition, we may be

forced to restructure our obligations to creditors, pursue work-out options or other protective

we have access to a $55 million revolving credit facility under the 2020 Credit Agreement, our ability to access such funds

is subject to certain conditions, which we may not be able to satisfy at such time that we seek to draw on the revolving

credit facility.

Further, our ability to obtain additional or alternative capital on acceptable terms or at all is subject to

a variety of uncertainties, including approval from the Institutional Lenders under the 2020 Credit Agreement.

financing may not be available or, if available, may only be available on unfavorable terms.

The restrictive covenants in the

2020 Credit Agreement may make it difficult to obtain additional capital on terms that are favorable to us, and the we may

not be able to satisfy the conditions necessary to obtain additional funds pursuant to the revolving credit facility under

the 2020 Credit Agreement.

There is no assurance we will obtain the capital we require.

As a result, there can be no

assurance that we will be able to fund our future operations or growth strategies.

In addition, future equity or debt

financings may require us to also issue warrants or other equity securities that are likely to be dilutive to our existing

stockholders.

Newly issued securities may include preferences or superior voting rights or may be combined with the issuance

of warrants or other derivative securities, which each may have additional dilutive effects.

Furthermore, we may incur

substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees,

printing and distribution expenses and other costs.

We may also be required to recognize non-cash expenses in

connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our

financial condition.

If we cannot raise additional funds on favorable terms or at all, we may not be able to carry out all or

parts of our long-term growth strategy, maintain our growth and competitiveness or continue in business.

in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters

could significantly affect our financial results.

accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard

to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions, estimates and

judgments by our management, including but not limited to estimates that affect our revenue recognition, accounts receivable and

allowance for doubtful accounts, valuation of inventories, cost of revenues, sales returns, warranty liabilities, the recognition

and measurement of loss contingencies, warrant liabilities, estimates of current and deferred income taxes, deferred income tax

valuation allowances and amounts associated with our Tax Receivable Agreement with InnoHold (the “Tax Receivable Agreement”).

Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management

could significantly change our reported or expected financial performance, and could have a material adverse effect on our business.

expansion into new products, market segments and geographic regions subjects us to additional business, legal, financial, and

competitive risks.

majority of our sales are made directly to consumers through our website or certain other e-commerce platforms.

been expanding our business into the wholesale distribution channel through relationships with our wholesale partners but there

can be no assurance that we will continue to experience success with our wholesale partners or that anticipated new locations

will be successful.

may be unsuccessful in generating additional sales through wholesale channels.

We may extend credit terms in connection with such

relationships and such relationships may expose us to the risk of unpaid or late paid invoices.

In addition, we may provide fixtures

to such partners that may be difficult to recover or re-use.

Our wholesale customers may not purchase our products in the volume

Profitability,

if any, from sales to wholesale customers and new product offerings may be lower than from our direct-to-consumer model

and current products, and we may not be successful enough in these newer activities to recoup our investments in them.

of these issues were to arise, they could damage our reputation, limit our growth, and negatively affect our operating results.

may be unsuccessful in opening any of our Company showrooms beyond the store we currently have at our headquarters in Lehi, Utah,

the Company factory outlet in Salt Lake City, Utah and the newly opened Company showrooms in San Diego, California, Santa Clara,

California, Santa Monica, California, Austin, Texas and Tysons Corner, Virginia.

We have limited experience in opening and operating

our Company showrooms.

Operating our Company showrooms includes additional risks.

For example, we will incur expenses and accept

obligations related to additional leases, insurance, distribution and delivery challenges, increased employee management, and

new marketing challenges.

If we are not successful in our efforts to profitably operate these new stores, our reputation and brand

could be damaged, growth could be limited, and our business may be harmed.

addition, offerings of new products through our direct-to-consumer platform, wholesale distribution channel and our

Company showrooms may present new and difficult challenges, and we may be subject to claims if customers of these offerings experience

service disruptions or failures or other quality issues.

Expansion of sales channels may require the development of additional,

differentiated products to avoid price and distribution conflicts between and within sales channels.

Wholesale expansion increases

our risk as our wholesale partners will require delaying payments to us on net terms ranging from a few days to 60 or more days,

or may delay paying us beyond the agreed-upon net terms or fail to pay.

Our Company showroom expansion increases our risk for

inventory shrinkage from destruction, theft, obsolescence and factors that render such inventory unusable or unsellable.

products may come with the same warranty and return risks as mentioned above.

New product offerings or expansion into new market

channels or geographic regions may subject us to new or additional regulation, which would impose potentially significant compliance

and distribution costs.

ongoing COVID-19 pandemic and responses thereto have adversely affected and may continue to adversely affect aspects of our business,

including, among other things, our supply chain, workforce, and operations.

COVID-19 pandemic has resulted in far-reaching economic and financial disruptions that have adversely affected, and are likely

to continue to adversely affect, the Company’s business, financial condition, capital, liquidity and results of operations.

Almost all U.S.

states and many local jurisdictions have issued at various times, and others in the future may issue, “shelter-in-place”

orders, quarantines, executive orders and similar government orders, restrictions, and recommendations for their residents to

control the spread of COVID-19.

Such orders, restrictions and recommendations, and the perception that additional orders, restrictions

or recommendations could occur, have resulted in widespread closures of businesses not deemed “essential,”

work stoppages,

slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, as well as increased volatility

in stock prices, among other effects.

While certain jurisdictions have begun easing restrictions, we cannot be certain that other

jurisdictions will do so.

Furthermore, many jurisdictions have experienced a resurgence in COVID-19 cases, which has prompted

governments to reinstate previously scaled back restrictions.

If other jurisdictions experience a resurgence in COVID-19 cases,

they may also prolong restrictions or adopt additional restrictions that could negatively affect our business, including, but

not limited to, requiring us to close our manufacturing facilities.

In addition, policies in the United States regarding the government

response to the COVID-19 pandemic may further change as a result of recent elections.

continue to monitor our operations and government mandates and may elect or be required to temporarily close our offices, manufacturing

plants or Company showrooms to protect our employees, and limit our access to customers and limit customer use of our products

as they are required to prioritize resources to address the public healthcare needs arising from the COVID-19 pandemic.

The disruptions

to our activities and operations may negatively impact our business, operating results and financial condition.

There is a risk

that government actions, or lack thereof, will not be effective at containing COVID-19, and that government actions or inactions,

including the orders and restrictions described above and premature lessening of those restrictions, that are intended to contain

the spread of COVID-19 while also minimizing harm to the economy, will have a devastating negative impact on the world economy

at large, in which case the risks to our sales, operating results and financial condition described herein would be elevated significantly.

duration of the COVID-19 pandemic’s impact on our business may be difficult to assess or predict.

The widespread pandemic

has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, and may

restrict our ability to access capital, which would negatively affect our liquidity.

While we have been able to reverse some previous

actions undertaken, such as, among others, temporarily deferring capital expenditures, furloughing certain employees, and temporarily

deferring compensation for our senior executives, we may be required to take such actions again, or take additional actions, if

there is a resurgence of COVID-19 cases or reinstatement of government restrictions.

As a result of such actions or restrictions,

we may be unable to complete capital expenditure projects or investments in the future, which would limit our ability to grow

our business, and our results of operations and financial condition will be adversely affected.

quarantines or government reaction or shutdowns for COVID-19 could disrupt our supply chain.

Travel and import restrictions may

also disrupt our ability to manufacture or distribute our products.

Any import or export or other cargo restrictions related to

our products or the raw materials used to manufacture our products would restrict our ability to manufacture and ship products

and harm our business, financial condition and results of operations.

Our key personnel and other employees could also be affected

by COVID-19, potentially reducing their availability.

In addition, the government responses to COVID-19 or the procedures we take

to mitigate its effect on our workforce could reduce the efficiency of our operations or prove insufficient to mitigate the adverse

impact of COVID-19 on our business.

We may delay or reduce certain capital spending and related projects until the travel and

logistical impacts of COVID-19 are lifted, which could delay the completion of such projects.

after initial quarantines and other government restrictions are scaled back, there is risk that we will be unable to continue

normal production and operations, due to, among other things, disruptions and delays in our supply chain, reduced demand in our

wholesale channel and Company showrooms, government relief programs that enable production workers to remain out of the workforce,

and difficulties in ramping up our own operations.

We may also experience disputes with our suppliers and/or customers as a result

of such difficulties.

Further, there may be subsequent outbreaks of COVID-19, particularly as we enter the winter season, that

could disrupt our operations.

In addition, as employees return to work, we may face claims by such employees or regulatory authorities

that we have not provided adequate protection to our employees with respect to the spread of COVID-19 at our facilities.

global outbreak of COVID-19 continues to rapidly evolve.

The ultimate impact of the COVID-19 outbreak is highly uncertain and

subject to change.

We do not yet know the full extent of potential delays or impacts on our business or the global economy as

However, these effects have harmed our business, financial condition and results of operations in the near term and could

have a continuing material impact on our operations, sales and ability to continue as a going concern.

To the extent the COVID-19

pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks

described in this “Risk Factors”

section, such as those relating to our high level of indebtedness,

our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained

in the agreements that govern our indebtedness.

demand for and our ability to sell and market our products, particularly within our wholesale and Company showroom businesses,

has been and may in the future be adversely affected by the COVID-19 pandemic and responses thereto.

COVID-19 pandemic has created significant uncertainty in our business, slowed our anticipated wholesale partner and showroom plans

and resulted in a temporary contraction of our wholesale and Company showroom businesses due to temporary shutdowns of non-essential

businesses, reduced demand for physical retail locations, and shelter-at-home and social distancing directives in most U.S.

The future impact to our wholesale partners and consumer demand from the COVID-19 pandemic or a future health epidemic or other

outbreak occurring in other locations, particularly in North America, is unknown.

If we fail to anticipate changes in demand or

consumer behavior resulting from the COVID-19 pandemic or other outbreaks it could adversely affect our business or operating

sales in our channels decline, including as a result of stay-at-home orders, social distancing mandates, temporary closures of

or decreased shopping in our wholesale partners’

stores or our Company showrooms, or deteriorating general economic conditions,

our business may be adversely affected.

Moreover, we may be impacted by difficulties experienced by our wholesale partners as

a result of the COVID-19 pandemic, including disruptions in their supply chains, their liquidity challenges and their ability

to keep open or reopen retail locations.

In addition, while in the quarter ended September 30, 2020 we experienced an increase

in demand for our products through our DTC channel, there can be no guarantee that sales through our DTC channel will continue

to increase or will not decline.

may not be eligible to participate in some of the relief programs provided under the recently adopted Coronavirus Aid Relief,

and Economic Security (CARES) Act or other government programs and even if we are eligible we may not realize any material benefits

from participating in such programs.

March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Security (CARES) Act into

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer

side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to

the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

We continue to evaluate the applicability of the CARES Act to the Company, and the potential impacts on our business and are actively

taking advantage of applicable programs.

we may determine to apply for programs available under the CARES Act, there is no guarantee that we will meet any eligibility

requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful

benefit to our business.

In addition to the CARES Act in connection with the COVID-19 pandemic, the U.S.

government and state/local

governments may offer additional programs intended to assist employers.

We may fail to qualify for or take advantage of such COVID-19

relief programs, which may have a negative impact on our business.

In the event we obtain financing through a government COVID-19

stimulus program, such financing may impose additional restrictions on our business and how those funds are used, such as bringing

employees back from furlough even if production levels remain reduced, restrictions on the payment of distributions or dividends

and limits on executive pay that could adversely affect our ability to recruit and retain qualified key employees.

previously adopted government programs designed to provide assistance to businesses and consumers may not be sufficient and further

assistance may not be provided.

future growth and profitability depend upon the strength of our Purple brand and the effectiveness and efficiency of our marketing

programs and our ability to attract and retain customers.

are highly dependent on the effectiveness of our marketing messages and the efficiency of our advertising expenditures in generating

consumer awareness and sales of our products.

We continue to evolve our marketing strategies, adjusting our messages, the amount

we spend on advertising and where we spend it.

We may not always be successful in developing effective messages and new marketing

channels, as consumer preferences and competition change, and in achieving efficiency in our advertising expenditures.

depend heavily on internet-based advertising to market our products through internet-based media and e-commerce platforms.

we are unable to continue utilizing such platforms, if those media and platforms diminish in importance or size, or if we are

unable to direct our advertising to our target consumer groups, our advertising efforts may be ineffective, and our business could

be adversely affected.

The costs of advertising through these platforms have increased significantly, which has resulted in decreased

efficiency in the use of our advertising expenditures, and we expect these costs may continue to increase in the future.

have relationships with online services, search engines, affiliate marketing websites, directories and other website and e-commerce businesses

to provide content, advertising and other links that direct customers to our website.

We rely on these relationships as significant

sources of traffic to our website and to generate new customers.

If we are unable to develop or maintain these relationships or

develop and maintain new relationships for newly developed and necessary marketing services on acceptable terms, our ability to

attract new customers and our financial condition would suffer.

In addition, current or future relationships or agreements may

fail to produce the sales that we anticipate.

The cost of advertising for web-based platforms, such as Facebook, are

Increasing advertising costs erode the efficiency of our advertising efforts.

If we are unable to effectively manage

our advertising costs or if our advertising efforts fail to produce the sales that we anticipate, our business could be adversely

October 20, 2020, the United States Department of Justice brought an antitrust lawsuit against Google claiming that Google improperly

uses its monopoly over Internet search to impede competition and harm consumers.

Our cost of advertising on Google may remain

high if Google’s monopoly over Internet searches is not prevented and competitive search engines are not allowed to compete.

Alternatively, if Google is required because of this lawsuit to split up the company or sell assets, there is no assurance this

will decrease advertising costs and it may lead to increased costs due to an increased number of service providers who obtain

oligopoly power to control advertising costs.

Although this lawsuit may lower our advertising costs, there is risk that it may

not and would lead to increased costs which would reduce our profitability and harm our business.

are increasingly using digital tools as a part of their shopping experience.

As a result, our future growth and profitability

will depend in part on (i) the effectiveness and efficiency of our online experience for disparate worldwide audiences, including

advertising and search optimization programs in generating consumer awareness and sales of our products, (ii) our ability

to prevent confusion among consumers that can result from search engines that allow competitors to use or bid on our trademarks

to direct consumers to competitors’

websites, (iii) our ability to prevent Internet publication or television broadcast

of false or misleading information regarding our products or our competitors’

products, (iv) the nature and tone of

consumer sentiment published on various social media sites, and (v) the stability of our website.

In recent years, a number

of direct-to-consumer, Internet-based retailers, like us, have emerged and have driven up the cost of basic search terms,

which has and may continue to increase the cost of our Internet-based marketing programs.

More recently, the large traditional

mattress manufacturers have been increasing their efforts to increase their direct-to-consumer sales which also is increasing

the cost of our Internet-based marketing programs and cost of customer conversion.

the past, we have been the target of publications by purported consumer reviewers who claim to have identified health and safety

concerns with our products.

While we believe such claims to be baseless, refuting such claims requires us to expend significant

resources to educate current and potential customers on the safety of our products.

Even if we are able to broadly disseminate

factual information to refute such claims and reinforce the safety of our products, such claims and attendant adverse publicity

could persist and damage our reputation and brand value and result in lower sales.

number of third-party review websites is increasing, and such reviews are becoming increasingly influential with consumers.

reviews from such sources may receive widespread attention from consumers, which could damage our reputation and brand value and

result in lower sales.

If we are unable to effectively manage relationships with such reviewers to promote accurate reviews of

our products, reviewers may decline to review our products or may post reviews with misleading information, which could damage

our reputation and make it more difficult for us to improve our brand value.

our marketing messages are ineffective or our advertising expenditures, geographic price-points, and other marketing programs,

including digital programs, are inefficient in creating awareness and consideration of our products and brand name and in driving

consumer traffic to our website, our sales, profitability, cash flows and financial condition may be adversely impacted.

if we are not effective in preventing the publication of confusing, false or misleading information regarding our brand or our

products, or if there arises significant negative consumer sentiment on social media regarding our brand or our products, our

sales, profitability, cash flows and financial condition may be adversely impacted.

future growth and profitability depend, in part, upon our ability to achieve and maintain sufficient production capacity to meet

customer demands.

manufacture our mattresses using our proprietary and patented Mattress Max™

machinery to make our Hyper-Elastic Polymer®

Because of the unique features of our Mattress Max machines, new machines are not readily available and must be constructed.

We also have experienced inefficiencies in sourcing of materials and production of finished products.

We have taken steps to improve

our processes and capabilities, but if we are unable to maintain our improvements and continue our improvement initiatives to

increase efficiencies or if we are unable to promptly and efficiently open our new Georgia manufacturing facility, we may not

be able to keep up with demand which would harm our business.

If we are unable to construct new Mattress Max machines and implement

them into our production process in a timely manner, if our existing Mattress Max machines are unable to function at the desired

capacity, or if we are unable to develop replacements for the existing Mattress Max machines if such replacements should become

necessary, our production capacity may be constrained and our ability to respond to customer demand may be adversely impacted.

We manufacture mattresses and other products using components provided by third-party suppliers.

If those third-party suppliers

are unable to provide us with such components or if our assembly capacity is insufficient our ability to respond to customer demand

may be adversely impacted.

This would negatively impact our ability to grow our business and achieve profitability.

have engaged in significant related-party transactions with affiliates and owners that may give rise to conflicts of interest,

result in losses to the Company or otherwise adversely affect our operations and the value of our business.

have engaged in numerous related-party transactions involving significant shareholders, directors, and officers of the Company,

as well as with other entities affiliated with such persons.

Several of these transactions were entered into prior to the Business

For example, since 2010, we have leased our facilities in Alpine, Utah from TNT Holdings, which is owned by Tony

Pearce and Terry Pearce.

As we grow, and our needs change, we may need to negotiate a termination or modification of this lease,

and we have recently amended this lease to shift responsibility from TNT Holdings to the Company for arranging certain types of

We have leased a new facility in Lehi, Utah and moved our headquarters into that building during the first quarter

The Company continues to lease the Alpine facility that was formerly the Company headquarters, for use in production, research

and development and video production.

We also may at some time purchase this Alpine facility from TNT Holdings.

Tony and Terry

Pearce, either personally or through one or more of their other entities, also have tangible property located in this Alpine facility

that has not been clearly identified and separated from our property.

Although we expected this tangible property to be either

removed or identified and separated in 2019, this has not yet occurred.

Tony and Terry Pearce pay no rent or other compensation

to us to store such property in our leased facility.

While there is currently no dispute over the lease, and we do not anticipate

a dispute, there could arise in the future a dispute between the Company and Tony and Terry Pearce over this lease, or ownership

of the property located at this facility.

Tony Pearce and Terry Pearce served on our board of directors until August 17,

2020 and, through InnoHold, owned a majority of the outstanding shares of our common stock until all their interests were sold

in secondary public offerings ending in September 2020.

to the Business Combination, we also entered into an Amended and Restated Confidential Assignment and License Back Agreement

with EdiZONE, an entity beneficially owned and controlled by Tony Pearce and Terry Pearce through their ownership of TNT

Holdings, pursuant to which EdiZONE transferred tangible and intellectual property to us and we licensed back to EdiZONE

certain intellectual property previously licensed by EdiZONE to third parties prior to the Business Combination in order to

enable EdiZONE to continue to meet certain pre-existing license obligations to those third parties.

EdiZONE and the

Pearces have agreed to not modify or extend these third-party licenses and to not enter new third-party licenses.

third-party license obligations end all rights under the license revert to the Company.

These third parties include direct

competitors to us that at the time of the Business Combination were not selling products through retail channels in which we

were selling our products.

One of these third parties is Advanced Comfort Technologies, Inc.

dba Intellibed

(“ACTI”), a domestic competitor of ours, who sells mattresses through some of the same retailers through which we

also sell our products.

On August 14, 2020, Purple LLC entered into a License Transfer and IP Assignment Agreement with

EdiZONE, pursuant to which EdiZONE assigned the ACTI License Agreement, and related royalties payable thereunder, to Purple

LLC, along with the trademarks GEL MATRIX and INTELLIPILLOW.

In connection with such assignment, we agreed to indemnify

EdiZONE against claims by ACTI against EdiZONE relating to EdiZONE’s breach under the License Agreement, claims arising

out of the execution of the EdiZONE Agreement, or Purple LLC’s ownership, enforcement or breach of the License

The intellectual property so assigned remains subject to other licenses granted by EdiZONE to third parties, which

licenses are retained by EdiZONE.

ACTI’s sales revenues have been increasing, resulting in increasing royalties paid by

ACTI to the Company pursuant to a the ACTI License Agreement.

Another third-party licensee may make it difficult for us to

expand into certain geographic regions, such as the European Union.

While the current license back to EdiZONE, as amended

following the Business Combination, is much narrower than the license that existed at the time of the Business Combination,

these third-party licenses, including licenses by EdiZONE to a potential foreign competitor and obligations owed to the

Company related to the ACTI License Agreement, may lead to conflicts of interest between us and EdiZONE.

At the time this

initial assignment from and license back to EdiZONE was first entered into, Purple LLC had only Tony and Terry Pearce as

Subsequent to the Business Combination, the license to EdiZONE was amended to broaden our rights and narrow

EdiZONE’s rights with the approval of our independent directors, and the recent acquisition of the ACTI License

Agreement also was approved by our independent directors.

to the Business Combination, we also entered into a Shared Services Agreement with other entities controlled by Tony Pearce and

Terry Pearce, including EdiZONE, which covered the provision of services to these entities by our employees.

The Shared Services

Agreement was terminated by us effective July 24, 2019.

No legal or accounting services were provided by Purple LLC during

2019 prior to this termination.

to the Business Combination, InnoHold, an entity owned by Terry and Tony Pearce and previously a significant stockholder of the

Company, also granted equity incentive awards in Purple LLC to certain key employees at that time.

As a result of the structure

of those awards being granted through a separate entity, the equity incentives were required, because of the structure of the

Business Combination, to be exchanged for ownership units in InnoHold, to avoid those equity interests becoming of no value to

the participants.

Those participants’

ownership interests had certain restrictions, including vesting requirements.

equity incentives granted to key employees prior to the Business Combination are forfeited to the extent the grant to an employee

is not yet fully vested at the time that such employee’s employment is terminated.

Before and for a period of time since

the Business Combination, all forfeitures occurring from departing employees have inured to the benefit of only the owners of

InnoHold, and not all of our stockholders.

This means that the forfeited equity did not increase our currently approved equity

incentive pool.

Because the forfeited equity resulting from these departures prior to this distribution was held at InnoHold,

that forfeited equity did not replenish our equity incentive pool and could not be used for equity grants to those who have replaced

and will replace these employees or for other purposes essential to the business.

During 2019, to avoid future forfeitures from

inuring only to the benefit of InnoHold’s owners, InnoHold distributed to the incentive participants their pro rata share

of InnoHold’s ownership of Class B Stock in Purple Inc.

and Class B Units in Purple LLC, after which any

forfeitures would inure to the benefit of all of our stockholders.

InnoHold distributed additional paired shares of Class B Stock in Purple Inc.

and Class B Units in Purple LLC which also will be subject to the same vesting requirements and

result in forfeitures inuring to the benefit of all shareholders.

Our current equity incentive pool, as approved by the stockholders

prior to the Business Combination in the 2017 Equity Incentive Plan, did not account for the departure, before this distribution

by InnoHold, of such key employees who had existing equity grants through InnoHold, and there is a risk that we will have to seek

approval from the Board and stockholders to refresh the equity incentive pool earlier than anticipated at the time of the Business

Combination because of the unanticipated need to use shares from the existing pool to hire and retain other key employees needed

to achieve the Company’s growth objectives.

If the equity pool is not refreshed, there is a risk that we may not be able

to hire and retain such key employees.

If the equity pool is refreshed with authorized shares of the Company that are issued in

accordance with our 2017 Equity Incentive Plan, our stockholders will be diluted.

Also, this distribution by InnoHold to the equity

incentive participants has caused us to incur administrative expenses related to the distributions, the management of the differing

vesting schedules and compliance with their rights under the distribution agreements.

In addition, the calculations of the distributive

share and related income tax withholdings with respect to holders of InnoHold’s Class B Units, as well as the processes

by which such distributions and withholdings are made, are highly complex.

As a result, there is a risk that the recipients of

such distributions or other third parties may claim that we have miscalculated the distribution or income tax withholding amounts

or failed to timely pay the taxes.

The cost of responding to such claims, including but not limited to the diversion of management’s

attention from our operations and defense or settlement costs, could negatively impact our operations and financial results.

In connection

with the Business Combination, Purple LLC also entered into that certain Credit Agreement dated February 2, with the Lenders,

which was guaranteed by Purple Inc.

The Lenders also were stockholders and warrant holders of the Company and appointed one

director to serve on our Board, Adam Gray, who continues to serve on our Board and is affiliated with the Lenders.

on February 26, 2019, the Amended and Restated Credit Agreement between Purple LLC and the Lenders thereto, and each of

the related documents, including the issuance of additional warrants to the Incremental Lenders, was closed and an

incremental loan was funded.

In connection with the funding of the incremental loan, we issued to the Incremental Lenders

warrants to purchase shares of our Class A Stock.

On March 27, 2020,

the Amended and Restated Credit Agreement was amended to allow Purple LLC at its election a 5% paid-in-kind interest deferral for

the first two quarters of 2020.

On May 15, 2020, the Amended and Restated Credit Agreement was further amended to remove a

negative covenant so that there would not be an event of default if the Lenders acquired 25% or more ownership of the Company.

On August 20, 2020, the Company and Purple LLC entered into a Waiver and Consent to Amended and Restated Credit Agreement

with the Lenders, that, among other things, waives an event of default as a result of InnoHold ceasing to own 25% or more of the

aggregate equity interests in the Company, subject to certain conditions as more fully provided in such waiver

On September 3, 2020,

we paid off the full amount owed and a prepayment premium to the Lenders in the aggregate amount of $45.0 million and terminated

the Amended and Restated Credit Agreement, subject to those provisions that survive termination.

“Item 13.

Certain Relationships and Related Transactions, and Director Independence”

in our Annual Report on Form

10-K for the year ended December 31, 2019 for a further discussion of all related-party transactions between the Company

and insiders.

of operations in our manufacturing facilities, including as a result of pandemics or natural disasters, could increase our costs

of doing business or lead to delays in shipping our products.

as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K

filed with the Securities and Exchange Commission on March 11, 2021 as amended by Form 10-K/A filed on May 10, 2021.

and Litigation Risks

requirements relating to the manufacture and disposal of mattresses may increase our product costs and increase the risk of disruption

to our business.

Consumer Product Safety Commission (“CPSC”) and other jurisdictions have adopted rules relating to fire retardancy standards

for the mattress industry.

Some states and the U.S.

Congress continue to consider fire retardancy regulations that may be different from

or more stringent than the current standard.

In addition, these regulations require manufacturers to implement quality assurance programs

and encourage manufacturers to conduct random testing of products.

These regulations also require maintenance and retention of compliance

documentation.

These quality assurance and documentation requirements are costly to implement and maintain.

If any product testing, other

evidence, or regulatory inspections yield results indicating that any of our products may not meet the flammability standards, we may

be required to temporarily cease production and distribution or to recall products from the field, and we may be subject to fines or

penalties, any of which outcomes could harm our business, reputation, sales, profitability, cash flows and financial condition.

CPSC adopted new flammability standards and related regulations which became effective nationwide in July 2007 for mattresses and mattress

and foundation sets.

Compliance with these requirements has resulted in higher materials and manufacturing costs for our products and

has required modifications to our information systems and business operations, further increasing our costs and negatively impacting

our capacity.

Some states and the U.S.

Congress continue to consider fire retardancy regulations that may be different from or more stringent

than the CPSC standard.

Adoption of multi-layered regulatory regimes, particularly if they conflict with each other, could increase our

costs, alter our manufacturing processes and impair the performance of our products which may have an adverse effect on our business.

California recently enacted laws effective in 2021 requiring mattress retailers delivering mattresses via common carrier in California

to offer to pick up their customers’ old mattresses at no cost to the customer.

Additionally, California, Rhode Island and Connecticut

have all enacted laws requiring the recycling of mattresses discarded in their states.

State and local bedding industry regulations vary

among the states in which we operate but generally impose requirements as to the proper labeling of bedding merchandise, restrictions

regarding the identification of merchandise as “new” or otherwise, controls as to hygiene and other aspects of product handling,

disposal, sales, resales and penalties for violations.

We or our suppliers may be required to incur significant expense to the extent

that these regulations change and require new and different compliance measures.

legislation aimed at improving the fire retardancy of mattresses, regulating the handling of mattresses in connection with preventing

or controlling the spread of bed bugs could be passed, or requiring the collection or recycling of discarded mattresses, could result

in product recalls or in a significant increase in the cost of operating our business.

In addition, failure to comply with these various

regulations may result in penalties, the inability to conduct business as previously conducted or at all, or adverse publicity, among

other things.

Adoption of multi-layered regulatory regimes, particularly if they conflict with each other, could increase our costs,

alter our manufacturing processes and impair the performance of our products which may have an adverse effect on our business.

also subject to various health and environmental provisions such as 16 CFR Part 1633 (Standard for the Flammability (Open Flame) of Mattress

Our manufacturing processes involve the

use of heavy machinery and equipment, which exposes us to potentially significant financial losses and reputational harm due to workplace

injuries or industrial accidents that may occur at our facilities.

Our manufacturing processes

involve the use of heavy machinery and equipment and are subject to risks involving workplace injuries, mechanical failures, and industrial

accidents, including, among other things, personal injury or death resulting from such incidents at our manufacturing plants.

accident, mechanical failure, industrial accident or any similar problem involving any one or more of our facilities has required, and

may require us in the future, that we suspend production at one or more of our manufacturing plants, which could lead to delays in manufacturing

and shipping our products and adversely affect our business and results of operations.

The occurrence of such incidents, or any perceived

insufficiency in our response to any such deficiency or problem, could also materially adversely affect our reputation.

If we are unable

to meet workplace safety standards or, if our employees or customers perceive us having a poor safety record, it could materially impact

our ability to attract and retain new employees and our reputation with our customers could suffer, which could adversely affect our business

and results of operations.

The occurrence of such incidents

could also result in investigations by or the imposition of fines from regulatory authorities or require us to implement corrective actions

to address the causes of such incidents, which could require the expenditure of significant resources and may adversely affect our financial

condition and operations.

Further, the occurrence of such incidents may result in litigation, including personal injury or workers’

compensation claims, which could also adversely affect our financial condition and reputation.

While we maintain insurance coverage for

certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.

Risks Related to

Our Operations

Disruption of operations

in our manufacturing facilities, including as a result of, among other things, workplace injuries, pandemics or natural disasters, has

and could increase our costs of doing business or lead to delays in shipping our products.

have two manufacturing plants, which are located in Alpine, Utah and Grantsville, Utah.

We have signed a lease for and have begun

work on building out a third manufacturing plant in McDonough, Georgia that is not yet manufacturing products.

We began operations on March 3, 2021 at a third

manufacturing plant in McDonough, Georgia that manufactures and distributes products.

In the future we may also enter into leases for

additional manufacturing plants.

we can produce some of our products at both Utah sites, we have consolidated production of certain products at each site.

the disruption of operations of our manufacturing facilities, particularly where manufacturing has been consolidated, for a significant

period of time, or even permanently, or disruptions to the scheduled build-out of the Georgia facility such as through a closure

related to the COVID-19 pandemic or the loss of the lease, may increase our costs of doing business and lead to delays in shipping

our products to customers.

Therefore, the

disruption of operations of our manufacturing facilities, particularly where manufacturing has been consolidated, for a significant period

of time, or even permanently, or disruptions to the scheduled build-out of the Georgia facility such as through a closure related to the

COVID-19 pandemic or the loss of the lease, may increase our costs of doing business and lead to delays in shipping our products to customers.

In addition, the occurrence of workplace injuries or other industrial accidents at one or more of our manufacturing plants has required,

and may require in the future, that we suspend production or modify our operations, which could lead to delays in manufacturing and

shipping our products to customers.

Such delays could adversely affect our sales, customer satisfaction, profitability, cash flows, liquidity

and financial condition.

Because both of our currently operating manufacturing plants are located within the same geographic region,

regional economic downturns, natural disasters, closures due to COVID-19 or other issues could potentially disrupt all of our

Because two of our currently operating manufacturing plants are located within the same geographic region, regional

economic downturns, natural disasters, closures due to COVID-19 or other issues could potentially disrupt a significant portion of our

manufacturing and other operating activities, which could adversely affect our business.

On March 18, 2020, Magna, Utah was

the epicenter of a 5.7 magnitude earthquake that was felt approximately 20 miles away at our Grantsville, Utah manufacturing plant

but not felt at our Alpine, Utah manufacturing plant.

On March 18, 2020, Magna, Utah was the epicenter

of a 5.7 magnitude earthquake that was felt approximately 20 miles away at our Grantsville, Utah manufacturing plant but not felt at our

Alpine, Utah manufacturing plant.

Since that date, there have been approximately one-thousand aftershocks.

Though no damage occurred at either manufacturing plant from the 5.7 earthquake or its aftershocks, continued or increased earthquake

activity in the area could disrupt manufacturing and other operating activities, which could adversely affect our business.

product returns could harm our business.

allow our customers to return products, subject to our returns policies.

If product returns are higher than we anticipate, our

business, prospects, financial condition and results of operations could be harmed.

Further, we modify our policies and procedures

relating to returns from time to time, and policies and methods of collecting returned products intended to reduce the number

of product returns may result in customer dissatisfaction.

The occurrence of any of the foregoing could have a material adverse

effect on our business.

litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of business

could affect our operations and financial condition.

the normal course of business, we may from time to time become involved in various legal proceedings.

The outcome of these legal

proceedings cannot be predicted.

It is possible that an unfavorable outcome of some or all of such matters could cause us to incur

substantial liabilities that may have a material adverse effect upon our financial condition and results of operations.

Any significant

adverse litigation, judgments or settlements could have a negative effect on our business, financial condition and results of

Even if we are successful in defending against or prosecuting such litigation, the costs of such litigation, which

may or may not be covered by our insurance, could be significant and have a material adverse effect on our business.

and scope of legal proceedings could cause an increase in the amount we pay for insurance coverage which could negatively affect

our financial condition.

business could suffer if we are unsuccessful in making, integrating, and maintaining commercial agreements, strategic alliances,

and other business relationships.

successfully operate our business, we rely on commercial agreements and strategic relationships with suppliers, service providers

and certain wholesale partners and customers.

These arrangements can be complex and require substantial infrastructure capacity,

personnel, and other resource commitments.

Further, our business partners may have disruptions in their businesses or choose to

no longer do business with us and the impact of such disruption or choices could be magnified to the extent such business partners

represent a significant part of our business.

We may not be able to implement, maintain, or develop the components of these commercial

relationships.

Moreover, we may not be able to enter into additional commercial relationships and strategic alliances on favorable

terms or at all.

our agreements terminate or relationships unwind, we may be unable to renew or replace these agreements on comparable terms, or

We may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their

contractual obligations to us, which could adversely affect our operating results.

present and future services agreements, other commercial agreements, and strategic relationships create additional risks such

of our ongoing business, including loss of management focus on existing businesses;

of other relationships;

● variability

in revenue and income from entering into, amending, or terminating such agreements or relationships;

integrating under the commercial agreements.

have entered into arrangements with several wholesale partners through which we sell certain of our products in their retail stores.

We anticipate increasing the number of these partnerships.

Also, we have agreed to exclusivity of certain products with some of

our wholesale partners.

Our relationships with our wholesale partners may not be profitable to us or may impose additional costs

that we would not otherwise incur under our prior DTC-only operations.

Our wholesale partners may experience their own

business disruptions, including for example bankruptcy, that could affect their ability to continue to do business with us.

wholesale partners may engage in conduct that could breach the exclusivity rights of other wholesale partners.

Further, maintaining

these relationships may require the commitment of significant amounts of time, financial resources and management attention, and

may result in prohibitions on certain sales channels through exclusivity requirements, which may adversely affect other aspects

of our business.

have opened a Company factory outlet and six Company showrooms.

Our business is expanding into additional Company showrooms which,

like our online e-commerce retail store, will compete with our wholesale partners for customers.

Our relationships with

our wholesale partners may be adversely affected by this competition.

In our effort to make our products available to consumers

in multiple retail channels, there is the risk that sales may diminish in other channels, costs may be incurred without an increase

in overall sales and our wholesale partners may no longer carry our products.

Managing an omni-channel distribution strategy,

including the relationships with business partners in each channel, may require significant amounts of time, resources and attention

which may adversely affect other aspects of our business.

operate in a highly competitive Comfort Industry, and if we are unable to compete successfully, we may lose customers and our

sales may decline.

Comfort Industry market is highly competitive and fragmented.

We face competition from many manufacturers (including competitors

that primarily manufacture and import from China and other low-cost countries), traditional brick-and-mortar retailers

and online retailers, including direct-to-consumer competitors.

Participants in the Comfort Industry compete primarily

on price, quality, brand name recognition, product availability and product performance and compete across a range of distribution

The highly competitive nature of the Comfort Industry means we are continually subject to the risk of loss of market

share, loss of significant customers, reductions in margins, and the inability to acquire new customers.

number of our significant competitors offer products that compete directly with our products.

Any such competition by established

manufacturers and retailers or new entrants into the market could have a material adverse effect on our business, financial condition

and operating results.

Comfort Industry manufacturers and retailers are seeking to increase their channels of distribution and

are looking for new ways to reach the consumer.

Like us, many newer competitors in the mattress industry have begun to offer “bed-in-a-box”

similar products directly to consumers through the Internet and other distribution channels.

Some of our established competitors

have begun to offer “bed-in-a-box”

products as well.

Many of our competitors source their products from

countries such as China and Vietnam, where the costs may be lower than our costs.

Companies providing for the distribution of

mattresses online or through retail stores, such as Amazon and Walmart, also have begun to offer competing products in their respective

In addition, retailers outside the U.S.

have integrated vertically in the furniture and bedding industries, and it is

possible that retailers may acquire other retailers or may seek to vertically integrate in the U.S.

by acquiring a mattress manufacturer.

of our current and potential competitors may have substantially greater financial support, technical and marketing resources,

larger customer bases, longer operating histories, greater name recognition, mature distribution methods, and more established

relationships in the industry than we do and sell products through broader and more established distribution channels.

These competitors,

or new entrants into the market, may compete aggressively and gain market share with existing or new products, and may pursue

or expand their presence in the Comfort Industry.

We cannot be sure we will have the resources or expertise to compete successfully

in the future.

We have limited ability to anticipate the timing and scale of new product introductions, advertising campaigns

or new pricing strategies by our competitors, which could inhibit our ability to retain or increase market share, or to maintain

our product margins.

Our current and potential competitors may secure better terms from vendors, adopt more aggressive pricing,

and devote more resources to technology, infrastructure, fulfillment, and marketing.

Also, due to the large number of competitors

and their wide range of product offerings, we may not be able to continue to differentiate our products through value, styling

or functionality from those of our competitors.

Our products are also typically heavier than others and some markets we wish to

expand into will not support delivery of our heavy products through parcel services or other affordable home delivery services,

limiting our ability to serve the market.

competitor, ACTI, which has been a licensee of EdiZONE for over fifteen years until the Company’s recent acquisition of

the ACTI License Agreement from EdiZONE, uses similar technology to our Hyper-Elastic Polymer material and Purple Grid in its

own mattress, topper and pillow products sold through branded retail stores domestically and in Canada.

This competitor has been

growing its sales and now distributes its products through wholesale partners with retail locations where our mattresses are sold.

This competitor may continue to increase its sales and expand into additional distribution channels which could erode our sales

in those retail locations and channels.

Even with the Company’s receipt of royalties from ACTI pursuant to the ACTI License

Agreement, the continuing growth of this single competitor could adversely affect our business.

consolidation of the domestic market for foam may increase the prices for foam in the geographical market in which we purchase

foam, which could adversely affect our business.

We source a specialized type of foam from a supplier who has been in bankruptcy,

and the ability of that supplier to remain in business in the short- or long-term may affect our ability to continue to obtain

that specialized foam and require us to modify our product offerings, lose sales or incur increased expenses that could adversely

affect our cash flows, margins and profitability.

addition, the barriers to entry into the retail bedding industry are relatively low.

New or existing bedding retailers could enter

our markets and increase the competition we face.

Competition in existing and new markets may also prevent or delay our ability

to gain relative market share.

Any of the developments described above could have a material adverse effect on our planned growth

and future results of operations.

will face different market dynamics and competition as we develop new products to expand our presence in our target markets.

some markets, our future competitors may have greater brand recognition and broader distribution than we currently enjoy.

not be as successful as our competitors in generating revenues in those markets due to the lack of recognition of our brands,

lack of customer acceptance, lack of product quality history and other factors.

As a result, any new expansion efforts could be

costlier and less profitable than our efforts in our existing markets.

If we are not as successful as our competitors are in our

target markets, our sales could decline, our margins could be impacted negatively and we could lose market share, any of which

could materially harm our business.

we are unable to effectively compete with other manufacturers and retailers of mattresses, pillows, cushions, and our other products

our sales, profitability, cash flows and financial condition may be adversely impacted.

results of the U.S.

Department of Commerce’s antidumping investigation could have a negative impact on our planned growth

and future results of operations.

December 16, 2019, the U.S.

Department of Commerce (“Department”) issued an antidumping duty order directing

Customs and Border Protection (“CBP”) to assess, upon further instruction by the Department, antidumping

duties equal to the amount by which the normal value of the merchandise exceeds the export price, or constructed export price,

of the subject merchandise for all relevant entries of mattresses from China.

However, if the antidumping duties do not

result in the prevention of dumping of underpriced Chinese mattresses into the U.S.

market, or if the import duties enacted by

the Department pursuant to its antidumping order are removed, rescinded, or modified, we could experience or continue to experience

a negative impact on our planned growth and the future results of operations.

addition, in March 2020 several U.S.

mattress manufacturers and two labor unions announced that they filed seven antidumping duty

petitions and one countervailing duty petition with the Department charging that unfairly traded imports of finished mattresses

from eight countries are causing material injury to the U.S.

mattress industry.

In April 2020 the Department opened an investigation

into the petitions.

In May 2020, the Department rolled out preliminary countervailing duties on Chinese-origin mattresses.

These duties are in addition to the antidumping duties on mattresses from China.

If the Department fails to impose antidumping

duties on the seven named exporting countries and/or countervailing duties on China, we could experience continued negative impact

on our planned growth and future results of operations.

LLC has licensed certain intellectual property to EdiZONE, LLC, which is owned by Tony and Terry Pearce via TNT Holdings, LLC,

for the purpose of enabling EdiZONE to meet its contractual obligations to licensees of EdiZONE under contracts entered into years

before the Business Combination, and some of those licensees are competitors of Purple LLC and have exclusivity rights that Purple

LLC is required to observe.

LLC has licensed to EdiZONE, LLC, which is an entity owned by Tony and Terry Pearce through TNT Holdings, LLC, certain intellectual

property rights for use by EdiZONE outside of the consumer comfort market.

Prior to the Business Combination, EdiZONE’s

business model was the creation and licensing of intellectual property, and it had granted many licenses over time, most of which

were terminated prior to the Business Combination.

When EdiZONE assigned its intellectual property to Purple LLC it received in

return a license back of the intellectual property it needed to maintain its contractual obligations under the licenses that still

were in place at that time.

After the Business Combination, this license back to EdiZONE has been amended with the cooperation

of Purple LLC, EdiZONE and the Pearces to further narrow EdiZONE’s rights, in order to minimize the conflicts of interest

that may exist.

Although there are no conflicts of interest foreseen at this time, if conflicts of interest do arise and are not

properly addressed, disputes may occur which may be detrimental to the Company.

August 14, 2020, Purple LLC entered into a License Transfer and IP Assignment Agreement with EdiZONE, pursuant to which EdiZONE

assigned to Purple LLC all its interest in the ACTI License Agreement and the trademarks GEL MATRIX and INTELLIPILLOW.

In connection

with such assignment, we agreed to indemnify EdiZONE against claims by ACTI against EdiZONE relating to EdiZONE’s breach

under the License Agreement, claims arising out of the execution of the EdiZONE Agreement, or Purple LLC’s ownership, enforcement

or breach of the License Agreement.

previously entered into licenses, as described above, for comfort-related intellectual property.

These licenses include exclusivity

rights that may prohibit us from selling our existing mattresses or potentially new products in certain geographic areas, including

domestically and in the European Union.

That risk may be addressed by redesign of the configuration of the Hyper-Elastic Polymer

in that geographic region by either using existing technologies already assigned by EdiZONE to Purple LLC or developing new technologies.

Alternatively, that risk may not exist at all to the extent Purple LLC’s current mattress products are the subject of expired

patent rights licensed by that licensee or because Purple LLC is not the licensor.

However, there can be no assurance that our

future sales in these geographic territories, if any, will not be challenged by the licensee as a violation of the license agreements,

or that any redesigned mattresses created by us will be successful.

If Purple LLC’s activities are challenged by a licensee,

Purple LLC has an indemnification obligation to EdiZONE and the Pearces, which may be an expense to the Company.

addition, if these third parties violate their licenses or infringe on intellectual property owned by Purple LLC and Purple LLC

is unable to take effective action against such violating or infringing parties, we may be unable to protect against this infringement

or the effects of such violations and our business could be harmed.

LLC has obtained, with the cooperation of EdiZONE and the Pearces, the right to enforce its intellectual property rights at Purple

LLC’s option, provided that Purple LLC will indemnify EdiZONE and fund the expense of such enforcement.

In addition, as

the licensor under the ACTI License Agreement, the Company now has the ability as the direct licensor to enforce its intellectual

property rights against ACTI.

In the event such enforcement is deemed necessary by Purple LLC, Purple LLC may not be successful

in any such efforts to enforce its intellectual property and other rights under the ACTI License Agreement and this may harm our

in the price, availability and quality of raw materials could cause and has caused delays that could result in our inability to

provide goods to our customers or could increase our costs, either of which could decrease our earnings.

manufacturing products, we use various commodity components, such as polyurethane foam, oil, our spring units, ingredients for

our Hyper-Elastic Polymer®

material, our water-based adhesive and other raw materials.

Because we are dependent on outside

suppliers for our raw materials, fluctuations in their price, availability, and quality could have a negative effect on our cost

of sales and our ability to meet our customers’

Competitive and marketing pressures may prevent us from passing

along price increases to our customers, and the inability to meet our customers’

demands could cause us to lose sales.

depend on a few key employees, and if we lose the services of certain of our principal executive officers, we may not be able

to run our business effectively.

future success depends in part on our ability to attract and retain key executive, merchandising, marketing, sales, finance, operations

and engineering personnel.

If any of our executive officers cease to be employed by us, we would have to hire additional qualified

Our ability to successfully attract and hire other experienced and qualified executive officers cannot be assured and

may be difficult because we face competition for these professionals from our competitors, our suppliers and other companies operating

in our industry and in our geographic locations.

Since the Business Combination, we have hired a new Chief Executive Officer,

Chief Operating Officer, Chief Financial Officer, and a Chief Retail Officer.

We have also experienced the departure of the prior

Chief Marketing Officer and the prior Chief Branding Officer.

These departures and any delay in replacing these executives could

significantly disrupt our ability to grow and pursue our strategic plans.

We are currently in the process of searching for a qualified

replacement for our Chief Marketing Officer.

While we believe our new executive officers have benefitted and will continue to

benefit us, finding qualified replacements is time-consuming, takes Company resources, and can disrupt our growth and achievement

of strategic plans.

the involvement of Tony and Terry Pearce has been crucial to the success of our company because of their extensive experience

with and technical knowledge of our products.

On August 17, 2020, Terry Pearce and Tony Pearce retired from our Board of

Directors, and from their positions as Co-Directors of Research & Development.

If we are unsuccessful in our efforts

to build out our research and development capabilities around the many technologies conceived by Tony and Terry Pearce, our ability

to develop new technologies and innovative products may be adversely affected.

business exposes us to personal injury, property damage and product liability claims, which could result in adverse publicity

and harm to our brands and our results of operations.

may be subject to personal injury, property damage and product liability claims for the products that we sell or related to the

Company showrooms we will operate.

Any personal injury, property damage or product liability claim made against us, whether or

not it has merit, could be time consuming and costly to defend, resulting in adverse publicity, or damage to our reputation, and

have an adverse effect on our results of operations.

In addition, any negative publicity involving our vendors, employees, labor

contractors, delivery contractors and other parties who are not within our control could negatively impact us.

the products we sell are subject to regulation by the U.S.

Consumer Product Safety Commission (“CPSC”) and similar

state and international regulatory authorities.

Such products could be subject to recalls and other actions by these authorities.

Product safety concerns may require us to voluntarily remove selected products from our stores.

Such recalls and voluntary removal

of products can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased

customer service costs, which could have a material adverse effect on our financial condition.

previously voluntarily reported to the CPSC concerning a potential defect in an accessory product supplied to us by third parties.

After its review, CPSC staff closed the case with no action by the Commission.

We are providing repair parts to customers with

affected products as a warranty matter and are continuing to monitor the issue.

We anticipate at this time approximately 30% of

our customers who purchased this product will desire to receive our improvement which we will ship to them at no cost.

will incur the cost of this improvement, if our estimate is too low, we may incur additional expenses.

Contacting customers with

this improvement also may result in an increase in warranty claims or claims of injury or damage prior to receiving the improvement

that has not yet been communicated to us.

If a customer is harmed by a product failure there also could be litigation and expenses

related to a claim of personal injury, which could harm our brand and reputation and negatively affect our operating results.

maintain insurance against some forms of personal injury, property damage and product liability claims, but such coverage may

not be adequate for liabilities actually incurred.

A successful claim brought against us in excess of available insurance coverage,

or any claim or product recall that results in significant adverse publicity against us, may have a material adverse effect on

our sales, profitability, cash flows and financial condition.

requirements, including, but not limited to, trade, customs, environmental, health and safety requirements, may require costly

expenditures and expose us to liability.

Our products and our

marketing and advertising programs are subject to regulation in the U.S.

by various federal, state and local regulatory authorities,

including the Federal Trade Commission and U.S.

Customs and Border Protection.

In addition, our operations are subject to federal,

state and local consumer protection regulations and other laws relating specifically to the bedding industry.

These rules and regulations

may conflict and may change from time to time, as a result of changes in the political environment or otherwise.

There may be continuing

costs of regulatory compliance including continuous testing, additional quality control processes and appropriate auditing of design

and process compliance.

For example, the CPSC and other jurisdictions have adopted rules relating to fire retardancy standards

for the mattress industry.

Some states and the U.S.

Congress continue to consider fire retardancy regulations that may be different

from or more stringent than the current standard.

California recently enacted laws effective in 2021 requiring mattress retailers

delivering mattresses via common carrier in California to offer to pick up their customers’

old mattresses.

Additionally,

California, Rhode Island and Connecticut have all enacted laws requiring the recycling of mattresses discarded in their states.

State and local bedding industry regulations vary among the states in which we operate but generally impose requirements as to

the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as “new”

or otherwise,

controls as to hygiene and other aspects of product handling, disposal, sales, resales and penalties for violations.

suppliers may be required to incur significant expense to the extent that these regulations change and require new and different

compliance measures.

For example, new legislation aimed at improving the fire retardancy of mattresses, regulating the handling

of mattresses in connection with preventing or controlling the spread of bed bugs could be passed, or requiring the collection

or recycling of discarded mattresses, could result in product recalls or in a significant increase in the cost of operating our

In addition, failure to comply with these various regulations may result in penalties, the inability to conduct business

as previously conducted or at all, or adverse publicity, among other things.

Adoption of multi-layered regulatory regimes, particularly

if they conflict with each other, could increase our costs, alter our manufacturing processes and impair the performance of our

products which may have an adverse effect on our business.

We are also subject to various health and environmental provisions,

such as California Proposition 65 (the Safe Drinking Water and Toxic Enforcement Act of 1986) and 16 CFR Part 1633 (Standard for

the Flammability (Open Flame) of Mattress Sets).

marketing and advertising practices could also become the subject of proceedings before regulatory authorities or the subject

of civil claims by competitors and other parties, which could result in civil litigation or regulatory penalties and require us

to alter or end these practices or adopt new practices that are not as effective or are more expensive.

Despite our efforts to

comply with all marketing laws and regulations, we may not be in complete compliance at all times.

Some competitors engage in

the practice of regularly sending notices alleging non-compliance with certain of these regulations, and demanding proof

of compliance, and while we may believe we comply with applicable regulations, this practice consumes our resources, could lead

to litigation and may have a negative impact on our financial condition.

addition, we are subject to federal, state and local laws and regulations relating to pollution, environmental protection and

occupational health and safety.

We may not be in complete compliance with all such requirements at all times, and we have been

required in the past to make changes to our facilities in order to comply with these requirements.

We have made and will continue

to make capital and other expenditures to comply with environmental and health and safety requirements.

If a release of harmful

or hazardous substances occurs on or from our properties or any associated offsite disposal location, or if contamination from

prior activities is discovered at any of our properties, we may be held liable and the amount of such liability could be material.

As a manufacturer of mattresses, pillows, cushions and related products, we use and dispose of a number of substances, such as

glue, oil, solvents and other petroleum products, as well as certain foam ingredients, that may subject us to regulation under

numerous foreign, federal and state laws and regulations governing the environment.

Among other laws and regulations, we are subject

to the Federal Water Pollution Control Act, the Comprehensive Environmental Response, Compensation and Liability Act,

the Resource Conservation and Recovery Act, the Clean Air Act and related state and local statutes and regulations.

are also subject to federal laws and regulations relating to international shipments, customs, and import controls.

be in complete compliance with all such requirements at all times, and if we are not in compliance with such requirements, we

may be subject to penalties or fines, which could have an adverse impact on our financial condition and results of operations.

operations could also be impacted by a number of pending legislative and regulatory proposals to address greenhouse gas emissions

and other countries.

Certain countries have adopted the Kyoto Protocol.

New greenhouse gas reduction targets have

been established under the Kyoto Protocol, as amended.

This and other initiatives under consideration could affect our operations.

These actions could increase costs associated with our manufacturing operations, including costs for raw materials, pollution

control equipment and transportation.

Because it is uncertain what laws will be enacted, we cannot predict the potential impact

of such laws on our future consolidated financial condition, results of operations, or cash flows.

are also subject to regulations and laws specifically governing the Internet, e-commerce, electronic devices, and other

These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution,

mobile communications, electronic device certification, electronic waste, energy consumption, electronic contracts and other communications,

competition, consumer protection, trade and protectionist measures, web services, the provision of online payment services, information

reporting requirements, unencumbered Internet access to our services or access to our facilities, the design and operation of

websites and the characteristics and quality of products and services.

It is not clear how existing laws governing issues such

as property ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content, and web services.

Unfavorable regulations and laws could diminish the demand for, or availability of, our products and services and increase our

cost of doing business.

have been made against us for alleged violations of the Americans with Disability Act (“ADA”) related to accessibility

to our website by the blind.

The law is unsettled as to whether the ADA covers websites and what standards are applicable,

but courts in certain jurisdictions have recognized these types of ADA claims.

While we comply with industry standards for making

our website accessible to the blind, and regularly test our site for this purpose, we may be subject to such claims and, as a

result, we may be required to expend resources in defense of these claims that could increase our cost of doing business.

have received a claim that one of our products does not have the proper warning label required by California Proposition 65, which

requires businesses to provide warnings to Californians about significant exposures to chemicals that are known to the State of

California to cause cancer, birth defects or other reproductive harm.

While we are investigating this claim and generally make

efforts to comply with Proposition 65, we may be subject to such claims and, as a result, we may be required to expend resources

in defense of these claims that could increase our cost of doing business.

In addition, to the extent we may have violated Proposition

65 we may incur expense associated with complying including but not limited to providing warnings or product recalls.

could be subject to additional sales tax or other indirect tax liabilities.

application of indirect taxes (such as sales and use tax, value-added tax (VAT), goods and services tax, business tax and gross

receipt tax) to e-commerce businesses and to our users is a complex and evolving issue and we may be unable to timely

or accurately determine our obligations with respect to such indirect taxes, if any, in various jurisdictions.

Many of the fundamental

statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and e-commerce.

many cases, it is not clear how existing statutes apply to the Internet or e-commerce.

increasing number of states and foreign jurisdictions have considered or adopted laws or administrative practices, with or without

notice, that impose additional obligations on remote sellers and online marketplaces to collect transaction taxes such as sales,

consumption, value added, or similar taxes.

In 2016 and early 2017, we did not have systems and processes to collect these taxes

in all jurisdictions where we were conducting business.

Failure to comply with such laws or administrative practices, or a successful

assertion by such states or foreign jurisdictions requiring us to collect taxes where we did not, could result in substantial

tax liabilities for past sales, as well as penalties and interest.

For the amounts incurred in 2016 and early 2017 that remain

unpaid, we have estimated the sales tax liability, including penalties and interest to be approximately $4.2 million.

are in the process of working with each state to make the necessary filings and take advantage of any amnesty programs or negotiated

InnoHold has agreed to indemnify us for any such tax liability incurred in 2016 and early 2017, and InnoHold has

placed in escrow $5 million to cover such liability.

However, disputes may arise between InnoHold and us, related to such indemnification,

that may increase our costs or delay our reimbursement for such tax liabilities.

are subject to sales tax or other indirect tax obligations as imposed by the various states in the United States.

If the tax authorities

in these jurisdictions were to challenge our filings or request an audit, our tax liability may increase.

may be subject to laws, regulations, and administrative practices that require us to collect information from our customers, vendors,

merchants, and other third parties for tax reporting purposes and report such information to various government agencies.

scope of such requirements continues to expand, requiring us to develop and implement new compliance systems.

Failure to comply

with such laws and regulations could result in significant penalties.

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.

We 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 our business, in particular, sales taxes, VAT 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 our 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 we conduct or will conduct business.

ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation

undergoes an “ownership change”

(generally defined as a greater than 50 percentage point change (by value) in its

equity ownership by certain stockholders over a three year period), the corporation’s ability to use its pre-change net

operating loss carryforwards (“NOLs”) and other pre-change tax attributes to offset its post-change income may be

If finalized, Treasury Regulations currently proposed under Section 382 of the Code may further limit our ability to

utilize our pre-change NOLs or other tax attributes if we undergo a future ownership change.

We may have experienced ownership

changes in the past, and we may experience ownership changes in the future and/or subsequent shifts in our stock ownership (some

of which may be outside our control).

Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes

to reduce future tax liabilities may be substantially restricted.

At this time, we have not completed a study to assess the impact,

if any, of ownership changes on our NOLs under Section 382 of the Code.

have identified a material weakness in our internal control over our tax provision process which could, if not remediated, result

in material misstatements in our financial statements.

management has identified a material weakness in our internal controls over financial reporting.

A material weakness is defined

as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable

possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a

timely basis.

In connection with the preparation of our quarterly report for the quarter ended June 30, 2020, we identified

a material weakness in internal controls over the tax provision process, specifically related to the release of the valuation

allowance and the unique recording of the Tax Receivable Agreement liability during the quarter.

continue to evaluate, design and work through the process of implementing controls and procedures under a remediation plan designed

to address this material weakness.

If our remedial measures are insufficient to address the material weakness, or if additional

material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements

may contain material misstatements and we could be required to restate our financial results, which could lead to substantial

additional costs for accounting and legal fees and stockholder litigation.

Relating to Our Organizational Structure

only significant asset is our ownership of Purple LLC and such ownership may not be sufficient to pay dividends or make distributions

or loans to enable us to pay any dividends on our Class A Common Stock or satisfy our other financial obligations, including

our obligations under the Tax Receivable Agreement.

are a holding company and do not directly own any operating assets other than our ownership of interests in Purple LLC.

on Purple LLC for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including

our expenses as a publicly traded company, to pay any dividends, and to satisfy our obligations under the Tax Receivable Agreement.

The earnings from, or other available assets of, Purple LLC may not be sufficient to make distributions or pay dividends, pay

expenses or satisfy our other financial obligations, including our obligations under the Tax Receivable Agreement.

Moreover, our

debt covenants may not allow us to pay dividends.

are an emerging growth company, and the reduced reporting requirements applicable to emerging growth companies may make our Class A

Common Stock less attractive to investors.

are an “emerging growth company”

as defined under the Jumpstart Our Business Startups Act (the “JOBS Act”).

For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements

that are applicable to other public companies that are not emerging growth companies, including not being required to comply with

the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),

reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements and exemptions from the

requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute

payments not previously approved.

We have been an emerging growth company since our initial public offering in August 2015 and

will continue to be an emerging growth company until the end of 2020.

If some investors find our common stock less attractive

because we may rely on these exemptions, there may be a less active trading market for our common stock, and our stock price may

be more volatile.

the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards

apply to private companies.

We have irrevocably elected not to opt out of this extended transition period for implementing new

or revised accounting standards, which means that when an accounting standard is issued or revised and it has different application

dates for public or private companies, we can adopt the new or revised accounting standard at the time private companies adopt

the new or revised standard.

sales of our Class A Common Stock by our existing stockholders may cause our stock price to fall.

market price of our Class A Stock could decline as a result of sales by our existing stockholders in the market, or

the perception that these sales could occur.

These sales might also make it more difficult for us to sell equity securities at

a time and price that we deem appropriate.

In addition, subsequent public issuances of our stock would cause the interest of each

current Purple Inc.

stockholder to be diluted.

At this time, CCP and Blackwell own a substantial percentage of the shares of Class A Stock of the Company and warrants for additional Class A Stock, and may choose to sell shares of common stock.

in operating results, quarter to quarter earnings and other factors, including incidents involving Purple LLC’s clients

and negative media coverage, may result in significant decreases in the price of our Class A Common Stock.

The stock markets experience

volatility that is often unrelated to operating performance.

These broad market fluctuations may adversely affect the trading price

of our Class A Stock and, as a result, there may be significant volatility in the market price of our Class A Stock.

If we are unable to operate our business as profitably as in the past or as our investors expect us to in the future, the market

price of our Class A Stock will likely decline when it becomes apparent that the market expectations may not be realized.

In addition to our operating results, many economic and seasonal factors outside of our control could have an adverse effect on

the price of our Class A Stock and increase fluctuations in our quarterly earnings.

These factors include certain of the risks

discussed herein, operating results of other companies in the sleep and comfort products industry, changes in our financial estimates

or recommendations of securities analysts, speculation in the press or investment community, negative media coverage or risk of

proceedings or government investigation, the possible effects of war, disease, terrorist and other hostilities, adverse weather

conditions, changes in general conditions in the economy or the financial markets or other developments affecting the sleep products

do not anticipate paying any cash dividends in the foreseeable future.

intend to retain future earnings, if any, for use in the business or for other corporate purposes and do not anticipate that cash

dividends with respect to our Class A Stock will be paid in the foreseeable future.

Any decision as to the future

payment of dividends will depend on our results of operations, financial position and such other factors as our board of directors,

in its discretion, deems relevant.

As a result, capital appreciation, if any, of our Class A Stock will be a stockholder’s

sole source of gain for the foreseeable future.

Moreover, our debt covenants may not allow us to pay dividends.

market for our securities may not be maintained, which would adversely affect the liquidity and price of our securities.

price of our securities may vary significantly due to our operating performance and general market or economic conditions.

an active trading market for our securities may never become sustainable for many reasons, including that CCP and Blackwell, who

hold a significant portion of our outstanding common stock, may not sell shares, or sell enough shares, to increase the float

to a point where a sustainable market develops.

You may be unable to sell your securities unless an established market can be

LLC’s level of indebtedness could adversely affect Purple LLC’s and our ability to meet its obligations under its

indebtedness, react to changes in the economy or its industry and to raise additional capital to fund operations.

of September 30, 2020, Purple LLC had total debt of $45.6 million outstanding, comprised of $45.0 million outstanding

under the 2020 Credit Agreement and $0.6 million in capital lease obligations.

any amounts are outstanding under the 2020 Credit Agreement, Purple LLC is 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, subject

to certain exceptions.

In particular, Purple LLC is (i) subject to annual capital expenditure limits that can be adjusted based

on the Company achieving certain Net Leverage Ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from

incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the Credit Agreement, and (iii)

maintain minimum Consolidated Net Leverage Ratio and Fixed Charge Coverage Ratio (as those terms are defined in the Credit Agreement)

thresholds at certain measurement dates.

Purple LLC is also restricted from paying dividends or making other distributions or

payments on its capital stock, subject to limited exceptions.

level of indebtedness could have important consequences to stockholders.

For example, it could:

it more difficult to satisfy our obligations with respect to our indebtedness, resulting in possible defaults on, and acceleration

of, such indebtedness;

our vulnerability to general adverse economic and industry conditions;

us to dedicate a substantial portion of our cash flows from operations to payments on indebtedness, thereby reducing the availability

of such cash flows to fund working capital, capital expenditures and other general corporate requirements or to carry out other

aspects of our business;

our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements

or to carry out other aspects of our business;

our ability to make material acquisitions or take advantage of business opportunities that may arise;

us at a potential competitive disadvantage compared to our competitors that have less debt.

may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial

and operational flexibility.

operating flexibility is limited in significant respects by the restrictive covenants in the 2020 Credit Agreement, and we may

be unable to comply with all covenants in the future.

2020 Credit Agreement imposes restrictions that could impede Purple LLC’s and the Company’s ability to enter into

certain corporate transactions, as well as increases our vulnerability to adverse economic and industry conditions, by limiting

our flexibility in planning for, and reacting to, changes in our business and industry.

These restrictions i nclude

covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions,

incurrence of additional indebtedness, and transactions with affiliates.

The restrictions may prevent Purple LLC and the

Company from taking actions that we believe would be in the best interests of the business and may make it difficult for us to

successfully execute our business strategy or effectively compete with companies that are not similarly restricted.

we determine that we need to take any action that is restricted under the 2020 Credit Agreement, we will need to first obtain

a waiver from the Institutional Lenders.

Obtaining such waivers, if needed, may impose additional costs on the Company or we

may be unable to obtain such waivers.

Purple LLC’s ability to comply with these restrictive covenants in future periods

will largely depend on its ability to successfully implement its overall business strategy.

The breach of any of these

covenants or restrictions could result in a default, which could result in the acceleration of Purple LLC’s debt.

the event of an acceleration of Purple LLC’s debt, Purple LLC could be forced to apply all available cash flows to

repay such debt, which would reduce or eliminate distributions to us, which could also force us into bankruptcy or

outstanding warrants could be exercised and result in dilution of all shareholders without any concurrent payment or other benefit

to the Company.

outstanding warrants held by former members of Global Partner Sponsor, LLC (the sponsor for Global Partner Acquisition Corp.,

our predecessor) and CCP and its affiliates may be exercised on a cashless basis, without any further consideration paid to us.

In addition, on October 22, 2020, the last sales price of our common stock reported was at least $24.00 per share on each of twenty

trading days within a thirty (30) trading-day period, and we elected to redeem our outstanding warrants (other than those

held by former members of Global Partner Sponsor, LLC and certain warrants held by CCP and its affiliates) by paying redemption

consideration of $0.01 per warrant.

We sent a Notice of redemption on October 27, 2020 to affected warrant holders.

We anticipate

that the redemption will take place on November 30, 2020.

In connection with our election to redeem, any warrant exercises that

take place prior to the redemption must be done on a cashless basis.

As a result, we will be required to issue shares of our Class A

Stock without any further consideration being paid to us, with respect to any warrants that are exercised prior to redemption

on November 30, 2020, which will also result in dilution to existing shareholders.

For the period October 1 through October

26, 2020, approximately 8.0 million public warrants were exchanged for 4.0 million Class A shares resulting in cash proceeds to

the Company of approximately $45.6 million.

On October 27, 2020, the Company announced the redemption of previously issued public

and incremental loan warrants, to take place on November 30, 2020.

For the period October 27 through November 9, 2020, approximately

1.7 million public and all 2.6 million incremental loan warrants have been exercised and, as a result, there were 60.9 million

Class A shares outstanding on November 9, 2020.

The approximately 9.3 million public warrants that remain may be cashless exercised

at any time prior to November 30, 2020.

Any public warrants remaining outstanding at that date will be redeemed.

As of November

9, 2020, approximately 8.5 million sponsor warrants remain outstanding.

Sponsor warrants are not redeemable, and do not need to

be exercised on a cashless basis prior to November 30, 2020, if they are held by the sponsor or a permitted transferee.

may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Class A

Common Stock as to distributions and in liquidation, which could negatively affect the value of our Class A Common Stock.

In the future, we may

attempt to increase our capital resources by entering into additional debt or debt-like financing that is unsecured or secured

by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured

notes, preferred stock, hybrid securities or securities convertible into or exchangeable for equity securities.

In the event of

our liquidation, our lenders and holders of our debt would receive distributions of our available assets before distributions to

holders of our Class A Stock, and holders of preferred securities would receive distributions of our available assets before

distributions to the holders of our Class A Stock.

Because our decision to incur debt and issue securities in future offerings

may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or

nature of our future offerings or debt financings.

Further, market conditions could require us to accept less favorable terms for

the issuance of our securities in the future.

Nasdaq may delist our warrants from

trading on its exchange, which could limit investors’

ability to make transactions in our warrants and subject us to additional

trading restrictions.

After the redemption,

there will be less than 20 holders of warrants remaining.

While there is no Nasdaq rule requiring us to maintain a specified number

of holders of warrants, Nasdaq may use its discretionary authority to delist the warrants due to concerns such as, among other

things, a lack of liquidity for the warrants.

If Nasdaq delists our warrants from trading on its exchange and we are not able to

list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market.

If this were to occur, we could face significant material adverse consequences, including a limited availability of market quotations

for our warrants and reduced liquidity for our warrants.

The National Securities

Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain

securities, which are referred to as “covered securities.”

Because our warrants are currently listed on Nasdaq, our

warrants are covered securities.

Although the states are preempted from regulating the sale of our securities, the federal statute

does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity,

then the states can regulate or bar the sale of covered securities in a particular case.

Further, if our warrants are no longer

listed on Nasdaq, the warrants would not be covered securities and we would be subject to regulation in each state in which we

offer the warrants.

Risks Relating to Our Structure

we may be entitled to tax benefits relating to additional tax depreciation or amortization deductions as a result of the tax basis step-up we

receive in connection with the exchanges of Class B Units and shares of Class B Common Stock into our Class A Common

Stock and related transactions, we will be required to pay InnoHold 80% of these tax benefits under the Tax Receivable Agreement.

Owners of Class B

Units and shares of Class B Stock may, subject to certain conditions and transfer restrictions, exchange their Class B

Units and shares of Class B Stock for shares of Class A Stock pursuant to the Exchange Agreement.

The deemed exchanges

in the Business Combination and any exchanges pursuant to the Exchange Agreement are expected to result in increases in our allocable

share of the tax basis of the tangible and intangible assets of Purple LLC.

These increases in tax basis may increase (for tax

purposes) depreciation and amortization deductions and therefore reduce the amount of income or franchise tax that we would otherwise

be required to pay in the future, although the Internal Revenue Service (“IRS”) or any applicable foreign, state or

local tax authority may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

As of September

30, 2020, there have been 43.5 million exchanges of Class B Units and shares of Class B Stock for shares of Class A

Stock, in addition to the deemed exchanges that occurred in connection with the Business Combination.

In connection with

the Business Combination, we entered into the Tax Receivable Agreement, which generally provides for the payment by us to InnoHold

of 80% of certain tax benefits, if any, that we realize as a result of these increases in tax basis and of certain other tax benefits

related to entering into the Tax Receivable Agreement, including income or franchise tax benefits attributable to payments under

the Tax Receivable Agreement.

These payment obligations pursuant to the Tax Receivable Agreement are the obligation of the Company

and not of Purple LLC.

The actual increase in our allocable share of the Company’s tax basis in its assets, as well as the

amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the

timing of exchanges, the market price of shares of our common stock at the time of the exchange, the extent to which such exchanges

are taxable and the amount and timing of our income.

As of September 30, 2020, the Company’s preliminary estimate of

the liability under the Tax Receivable Agreement resulting from the deemed exchanges that occurred in connection with the Business

Combination and subsequent exchanges of 43.5 million Paired Securities as of September 30, 2020 was approximately $169.6 million.

Due to the release of the Company’s valuation allowance on the deferred tax assets to which the Tax Receivable Agreement

liability relates, $169.0 million of the $169.6 million estimated liability has been recorded as of September 30,

2020 ($0.5 million in 2019 and an incremental $168.5 million through September 30, 2020).

The additional $0.6 million

is expected to be recorded in the fourth quarter of the year ending December 31, 2020.

To the extent the Company realizes

tax benefits in future years, or in the event of a change in future tax rates, or if payments under the Tax Receivable Agreement

are required to be accelerated, this liability may exceed the estimated liability.

Because not all of

the relevant factors described above are known at this time with respect to the exchanges that have occurred, and none of the relevant

factors are known with respect to 0.6 million future exchanges (whether this year or in subsequent years), except as estimated

above, we cannot yet with certainty determine the final amounts that will be payable under the Tax Receivable Agreement.

as a result of the size and frequency of the exchanges and the resulting increases in the tax basis of the tangible and intangible

assets of Purple LLC, the payments under the Tax Receivable Agreement will be substantial and could have a material adverse effect

on our financial condition.

The payments under the Tax Receivable Agreement are not conditioned upon continued ownership of the

Company by the holders of units.

will not be required to reimburse us for any excess payments that may previously have been made under the Tax Receivable Agreement,

for example, due to adjustments resulting from examinations by taxing authorities.

Rather, excess payments made to such holders

will be netted against payments otherwise to be made, if any, after the determination of such excess.

As a result, in certain

circumstances we could make payments under the Tax Receivable Agreement in excess of our actual income or franchise tax savings,

if any, and we may not be able to recoup such excess, which could materially impair our financial condition and adversely affect

our liquidity.

If all of the 0.6 million

Paired Securities outstanding as of September 30, 2020 were exchanged for shares of Class A Stock pursuant to the Exchange

Agreement, and the fair market value of the Class A Stock at the time of such exchange were equal to $31.00 per share (the

closing price of a share of our Class A Stock on November 5, 2020), our aggregate liability under the Tax Receivable Agreement

would be, including the estimated $169.6 million liability described above, approximately $174.3 million in total, payable

in estimated annual amounts ranging from $1.0 million to $12.0 million over a 15-year period.

The foregoing estimate

of our aggregate liability is based on certain assumptions, including that there are no changes in relevant tax law, that we are

able to fully depreciate or amortize our assets, and that we recognize taxable income sufficient to realize the full benefit of

the increased depreciation and amortization of our assets in each of the next 15 tax years.

These assumptions may not be accurate

with respect to all or any exchanges of Paired Securities for Class A Stock.

As a result, the amount and timing of our actual

aggregate liability under the Tax Receivable Agreement may differ materially from our estimates depending on a number of factors,

including those described above and elsewhere in this prospectus.

may not be able to realize all or a portion of the tax benefits that are expected to result from the acquisition of Units from

Purple LLC Class B Unitholders.

Pursuant to the Tax

Receivable Agreement, the Company will share tax savings resulting from (A) the amortization of the anticipated step-up in

tax basis in Purple LLC’s assets as a result of (i) the Business Combination and (ii) the exchange of (a) the

Class B Units and (b) the Class B Stock, in each case that were received in connection with the Business Combination,

for shares of Class A Stock pursuant to the Exchange Agreement and (B) certain other related transactions with InnoHold

in connection with the Business Combination.

The amount of any such tax savings attributable to the payment of cash to InnoHold

in connection with the Business Combination and the exchanges contemplated by the Exchange Agreement will be paid 80% to InnoHold

and other owners of such securities and retained 20% by the Company.

Our ability to realize, and benefit from, these tax savings

depends on a number of assumptions, including that we will earn sufficient taxable income each year during the period over which

the deductions arising from any such basis increases and payments are available and that there are no adverse changes in applicable

law or regulations.

If our actual taxable income were insufficient to fully utilize such tax benefits or there were adverse changes

in applicable law or regulations, we may be unable to realize all or a portion of these expected benefits and our cash flows and

stockholders’

equity could be negatively affected.

Though no damage occurred at

either manufacturing plant from the 5.7 earthquake or its aftershocks, continued or increased earthquake activity in the area could disrupt

manufacturing and other operating activities, which could adversely affect our business.

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 1A. Risk Factors