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Item 1A. Risk Factors

2023-03-22 compared with 2022-03-01 · 1844 added, 1685 removed, 218 unchanged (94% of the section changed)

risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our

future prospects and/or cause the price of our common stock to decline.

Any defined terms used in the Risk Factor Summary are defined

in the full Risk Factors.

These are not all of the risks we face and other factors not presently known to us or that we currently believe

are immaterial may also affect our business if they occur.

Material risks that may affect our business, operating results and financial

condition include, but are not necessarily limited to, those relating to:

The risk factors summarized

and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or

cause the price of our common stock to decline.

Any defined terms used in the Risk Factor Summary are defined in the full Risk Factors.

These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also

affect our business if they occur.

Material risks that may affect our business, operating results and financial condition include, but

are not necessarily limited to, those relating to:

Risk Factor Summary

Risks Related to Our Operations

Risks Relating to Our Operations

Significant fluctuations in our operating results and growth rate, and our short operating history in an evolving industry;

Lack of availability and quality of raw materials;

Significant strain of managing the growth of our business;

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

Disruption of operations in manufacturing facilities, including pandemics or natural disasters, and risks associated with use of heavy machinery and equipment;

Coliseum Capital Management, LLC’s unsolicited proposal to acquire the remaining outstanding shares of our Class A common stock and Class B common stock not owned by them and its attempt to take control of, or effect changes to, the Company through a proxy contest for control of the Board;

Ability to obtain additional capital on acceptable terms or at all;

Unsuccessful anticipation of consumer trends and demand, and competition in a highly competitive industry, and substantial and increasingly intense competition worldwide in e-commerce;

Lack of availability or increase cost of raw materials, labor, components, and shipping services;

Changes in economic conditions such as inflationary trends and significant strain of managing the growth of our business;

Our relationship with Silicon Valley Bank, with which we have cash accounts, credit card processing, and amounts available under the 2020 Credit Agreement;

Disruption of operations in manufacturing facilities, including pandemics or natural disasters, and risks associated with use of heavy machinery and equipment;

Inability to identify, complete or successfully integrate acquisitions, and any acquisitions that we do make may not achieve the anticipated financial benefits;

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

Our ability to continue to improve and expand our product line and our expansion into new products, market segments and geographic regions;

The ongoing COVID-19 pandemic including its effect on our supply chain, workforce, and operations, and the COVID-19 pandemic effect on customer demand;

The strength of our Purple brand, the effectiveness of our marketing, and our ability to attract and retain customers and our ability to achieve and maintain production capacity to meet customer demands;

Our significant related-party transactions that may give rise to conflicts of interest;

Unsuccessful anticipation of consumer trends and demand, and excess inventory susceptible to shrinkage;

Ability to make, integrate, and maintain commercial agreements, strategic alliances, and other business relationships;

Competition in a highly competitive comfort industry, and substantial and increasingly intense competition worldwide in e-commerce;

Any reduction in the availability of credit to consumers;

Maintaining only the necessary amounts of raw material and product inventory;

Ability to provide timely delivery to our customers;

Any reduction in the availability of credit to consumers, maintaining desirable amounts of material and product inventory, and ability to provide timely delivery to our customers;

Dependence on a few key employees;

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Need to implement additional finance and accounting systems, and failure of or disruptions to our information technology systems;

The ongoing COVID-19 pandemic including its effect on our supply chain, workforce, and operations, and the COVID-19 pandemic effect on customer demand.

Regulatory and Litigation Risks

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Income tax, sales tax or other tax liabilities;

The risk of litigation resulting from the impact of the material weakness in our internal controls over financial reporting.

Proposed legislation including changes to tax law and the Inflation Reduction Act of 2022;

Litigation related to PRPLS (defined below).

Risks Relating to our Intellectual Property

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Purple LLC’s license of intellectual property to EdiZONE, LLC;

Ability to keep pace with rapid technological developments and failure

to protect sensitive employee, customer and consumer data.

Ability to keep pace with rapid technological developments and failure to protect sensitive employee, customer and consumer data.

Risks Relating to Our Organizational Structure

Volatility of Class A common stock;

Anti-takeover provisions in Delaware law and our Second Amended and Restated Certificate of Incorporation, provisions in our Second Amended and Restated Certificate of Incorporation making it difficult for investors to bring legal action against us or our directors or officers, and provisions in our Second Amendment and Restated Certificate of Incorporation limiting a stockholders’ ability to obtain a favorable judicial forum;

Future sales of our Class A Common Stock (“Class A Stock”) by our existing shareholders that may cause stock prices to fall, and dilution or other impairment of rights as a result of the issuance of additional shares;

Anti-takeover provisions in Delaware law and our Second Amended and Restated Certificate of Incorporation, provisions in our Second Amended and Restated Certificate of Incorporation making it difficult for investors to bring legal action against us or our directors or officers, provisions in our Second Amendment and Restated Certificate of Incorporation limiting a stockholders’ ability to obtain a favorable judicial forum, and the restrictions under our Rights Agreement (defined below), which may have the effect of discouraging unsolicited takeover proposals;

Future sales of our Class A common Stock by our existing shareholders that may cause stock prices to fall, and dilution or other impairment of rights as a result of the issuance of additional shares;

Ownership of Purple LLC as our only significant asset and its effect on our ability to pay dividends or make distributions or loans or satisfy other financial obligations;

1 unchanged sentence

Level of indebtedness could limit our operational and financial flexibility, and issuance of additional debt or securities without stockholder approval;

Warrants accounted for as liabilities and warrant exercises that could result in dilution.

Tax Risks Relating to Our Structure

Requirement to pay InnoHold, LLC (“InnoHold”) 80% of the tax benefits under the Tax Receivable Agreement, and possible acceleration or changes in payments under the Tax Receivable Agreement;

Ability to realize all or a portion of the tax benefits that are expected to result from the acquisition of Units from holders of Purple LLC Class B Units;

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns;

Ability to utilize our net operating loss carryforwards and certain other tax attributes.

Related to Our Operations

We have in the past experienced and may in the future

experience significant fluctuations in our operating results and growth rate, which could make our future results of operations difficult

to predict or cause our results of operations to fall below analysts’ and investors’ expectations.

Our quarterly and annual results of operations

have fluctuated in the past and we expect our future results of operations to fluctuate due to a variety of factors, many of which are

beyond our control.

Fluctuations in our results of operations could cause our performance to fall below the expectations of analysts and

investors, and adversely affect the price of our common stock.

Because our business is changing and evolving rapidly, our historical results

of operations may not be necessarily indicative of our future results of operations.

Factors that may cause our results of operations

to fluctuate include, but are not limited to, the following:

● disruptions

or delays in our production and shipping of our products;

in our manufacturing equipment;

chain constraints, including the availability of raw materials in a timely manner;

of employee recruiting and retention;

in the pricing or availability of advertising;

in our capital expenditures;

related to acquisitions or businesses or technologies and development of new products;

introduction of new technologies or products by our competitors;

in demand for our products, whether caused by changes in customer confidence or preferences or a weakening of the U.S.

Ability to realize all or a portion of the tax benefits that are expected to result from the acquisition of Units from holders of Purple LLC Class B Units, unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns, and ability to utilize our net operating loss carryforwards and certain other tax attributes.

Risks Relating to Our Operations

We have in the past experienced and may

in the future experience significant fluctuations in our operating results and growth rate, which could make our future results of operations

difficult to predict or cause our results of operations to fall below analysts’ and investors’ expectations.

Our quarterly and annual results

of operations have fluctuated in the past and we expect our future results of operations to fluctuate due to a variety of factors, many

of which are beyond our control.

Fluctuations in our results of operations could cause our performance to fall below the expectations

of analysts and investors, and adversely affect the price of our common stock.

Because our business is changing and evolving rapidly,

our historical results of operations may not be necessarily indicative of our future results of operations.

Factors that may cause our

results of operations to fluctuate include, but are not limited to, the following:

changes in demand for our products, whether caused by changes in customer confidence or preferences, infringing products, disruption to our sales channels, inflation, or a weakening of the U.S.

or global economies;

political, economic and business conditions worldwide, including political or social unrest;

of our physical facilities or those of our wholesale partners due to social unrest or other issues;

impact of natural disasters on our manufacturing facilities and supply chain.

In 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.

disruptions or delays in or increased costs for our production and shipping of our products;

failures in our manufacturing equipment;

supply chain constraints, including the availability of raw materials in a timely manner;

costs of employee recruiting and retention;

changes in the pricing or availability of advertising;

changes in our capital expenditures;

costs related to acquisitions of businesses or technologies and development of new products;

the introduction of new technologies or products by our competitors;

general political, economic and business conditions worldwide, including political or social unrest;

disruption of our physical facilities or those of our wholesale partners due to social unrest or other issues;

the impact of natural disasters on our manufacturing facilities and supply chain;

changes to our executive leadership or our Board;

actions of activist investors that divert our attention and resources;

the loss of key strategic relationships with partners;

the cost of recapitalization.

In 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 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

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 which, for example, could result in higher than anticipated inventory levels, or higher-than-expected expenses

which, for example, could be the result of building excess capacity.

Based upon the factors above and others

beyond our control, we have a limited ability to forecast our future revenue, costs and expenses.

If we fail to meet or exceed the operating

results expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future performance that

are unrealistic or that we do not meet, the market price of our common stock could decline.

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 which, for example, could result in higher than anticipated inventory levels, or higher-than-expected

expenses which, for example, could be the result of building excess capacity.

Based upon the factors above

and others beyond our control, we have a limited ability to forecast our future revenue, costs and expenses.

If we fail to meet or exceed

the operating results expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future performance

that are unrealistic or that we do not meet, the market price of our common stock could decline.

In addition, if one or more of the analysts

who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline.

companies that have experienced volatility in the market price of their stock have been subject to securities litigation.

We may be the

target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention from

other business concerns.

You should consider our business in light of the risks and difficulties we may

encounter, as described above and elsewhere in this “Risk Factors” section.

If we fail to address the risks and difficulties

that we face, our business and operating results will be adversely affected.

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

are a growing business with a limited operating history.

Our relatively limited operating history makes it difficult to assess our future

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

rapidly developing and changing industries, including inconsistent financial results, 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.

ended December 31, 2021, we had net income of $3.9 million and in 2020 we incurred a net loss of ($229.8) million.

we consumed $30.9 million of operating cash flow and ended the year with working capital of $87.5 million and an accumulated deficit

of $261.8 million.

In 2020, we generated $81.3 million of operating cash flow and ended the year with working capital of $96.9 million

and an accumulated deficit of $265.9 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

of availability and quality of raw materials, labor, components, and shipping services, or increases in the cost of such inputs,

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

Any disruption of our operations,

and related impacts on our operating results, could also adversely affect the market price of our Class A common stock, which could result

in securities litigation.

Such litigation could result in substantial costs, divert resources and the attention of management from our

core business, and adversely affect our business.

You should consider our business

in light of the risks and difficulties we may encounter, as described above and elsewhere in this “Risk Factors” section.

If we fail to address the risks and difficulties that we face, our business and operating results will be adversely affected.

Coliseum Capital

Management, LLC has indicated their intention to nominate a majority of director nominees at the 2023 annual meeting of our shareholders

and responding to such nomination proposal could require us to devote significant resources to this proposal.

On September 17, 2022,

Coliseum Capital Management, LLC, on behalf of its funds and managed accounts (individually “CCM” and collectively “Coliseum”),

our largest shareholder, delivered to us an unsolicited bid to acquire the remaining outstanding shares of our Class A common stock and

Class B common stock not already beneficially owned by Coliseum for $4.35 per share in cash (the “Proposal”).

the Company formed a special committee of independent directors (the “Special Committee”) to evaluate the Proposal.

12, 2023, the Company issued a press release stating that the Special Committee had rejected Coliseum’s Proposal.

January 13, 2023, Coliseum submitted a letter to the chairman of the Board setting forth a cooperation proposal (the “Cooperation

On January 16, 2023, the Special Committee responded to the Cooperation Proposal.

January 17, 2023, Coliseum filed a Schedule 13D/A with the SEC indicating that, in the absence of an agreement, Coliseum intended to nominate

a slate of directors for election at the 2023 annual meeting of the stockholders of the Company (“2023 Annual Meeting”), which

slate would constitute a majority of the Board.

On January 19, 2023, the Company issued a press release stating the position of the Special

Committee with respect to the Coliseum proposal.

February 13, 2023, Coliseum submitted a notice of its intention to nominate four persons to the Board, replacing four of the seven member

Board and retaining only Mr.

DeMartini, the Company’s Chief Executive Officer, Mr.

Gray, CCM’s manager, and one of the existing

non-executive directors..

In response, on February 13, 2023, the Company issued a press release expressing the Special Committee’s

response and position with respect to Coliseum’s proposal.

February 14, 2023, the Special Committee announced a dividend of one new Proportional Representation Preferred Linked Stock (“PRPLS”)

for each 100 shares of Class A common stock or Class B common stock, with each PRPLS having 10,000 votes.

Holders of PRPLS are entitled

to allocate votes in director elections on a cumulative basis and accordingly will have the opportunity to vote for proportional representation

on the Board at the 2023 Annual Meeting.

February 21, 2023, Coliseum filed a lawsuit in the Delaware Court of Chancery captioned Coliseum Capital Management, LLC et al.

Pano Anthos et al.

2023-0220-PAF (Del.

21, 2023), purporting to challenge the issuance of PRPLS and alleging that,

among other things, the issuance of PRPLS deprived stockholders of a fair and democratic election of directors at the 2023 Annual Meeting,

and other related allegations.

On March 9, 2023, the Special Committee offered Coliseum a settlement

proposal that included the following provisions, (i) Coliseum would have the right to identify three of the six non-management members

of a seven-member board, (ii) the other three non-management seats would be filled by two existing independent directors and a new director

who is a significant shareholder.

In addition to Dawn Zier, who already announced her intention not to stand for election at the 2023

Annual Meeting due to other commitments, two other current directors would retire at or before the 2023 Annual Meeting, (iii) Coliseum

managing partner Adam Gray would become Chairman of the Board, (iv) the Special Committee would name one of the existing incumbent independent

directors as Lead Independent Director, and (v) Coliseum would commit to customary standstill provisions to provide stability for the

Company for approximately 18 months.

On March 16, 2023, the Special Committee announced that Coliseum has rejected the settlement proposal.

can be no assurance that Coliseum and the Company will come to an agreement to avoid a proxy contest in connection with the 2023 Annual

In addition, Coliseum’s nomination of a slate of competing directors for election at the 2023 Annual Meeting may require

us to devote significant additional resources and time that would otherwise be directed to our business and operations or may demotivate

current executives and discourage other executives from joining the Company.

In addition, Coliseum’s actions could cause the price

of our Class A common stock to change based on investors’ perceptions of Coliseum’s actions and Coliseum’s influence

over the Company and our Board.

Any subsequent proposals by Coliseum could adversely affect the price of our Class A common stock and

may cause it to decrease in the future.

We 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.

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

(ii) increasing our marketing;

(iii) expanding our distribution channels;

(iv) elevating the premium customer

experience of our products;

(v) opening additional Purple owned retail showrooms;

(vi) expanding our global sales;

(vii) engaging

global partners to improve distribution efficiencies and cost savings;

and (viii) product assortment and category expansion.

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 our employees.

In addition, we may be forced to restructure our obligations to creditors,

pursue work-out options or other protective measures.

While we have access to a

$50 million revolving credit facility (as amended, the “2020 Credit Agreement”) under our financing arrangement with

KeyBank National Association and a group of financial institutions (the “Institutional Lenders”), our ability to access such

funds is subject to certain conditions and restrictive covenants.

Further, our ability to obtain additional capital on acceptable terms

or at all is subject to a variety of uncertainties, including approval from the Institutional Investors under the 2020 Credit Agreement.

Adequate alternative financing may not be available or, if available, may only be available on unfavorable terms or subject to covenants

that we may not be able to satisfy.

Our operating and financial

results for the year ended December 31, 2021, did not satisfy our financial and performance covenants required pursuant to the 2020 Credit

In order to avoid a breach of such covenants and related default, on February 28, 2022, prior to the covenant compliance certification

date under the 2020 Credit Agreement, we entered into the first amendment of the 2020 Credit Agreement.

Subsequently, we entered into

additional amendments and may have to entered into further amendments to avoid non-compliance with financial covenants.

For example, on

February 17, 2023, we entered into a fifth amendment to the 2020 Credit Agreement that eliminated our term loan and reduced the amount

we can access from the revolving credit facility from $55 million to $50 million and subjects us to certain restrictive covenants, including

compliance with certain EBITDA and financial ratio covenants, with which we may not be able to comply.

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.

To the extent that future

or additional waivers and amendments are necessary, there can be no guarantee that we will be able to obtain waivers or further amendments

from the lenders under the 2020 Credit Agreement if, in the future, we are unable to comply with the covenants and other terms of the

2020 Credit Agreement.

Our failure to satisfy the required conditions under the amendment or maintain compliance with the financial and

performance covenants under the 2020 Credit Agreement could result in a default, which would adversely affect our financial condition

and results of operations, including as a result of acceleration of our outstanding debt.

In addition, any default under the 2020 Credit

Agreement would adversely affect our ability to obtain alternative financing.

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.

For example, on February 13, 2023, we completed an offering of our Class A Shares that increased the number of outstanding

Class A Shares from 91,380,323 to 104,780,323.

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.

We may not be able

to successfully anticipate consumer trends and demand and our failure to do so may lead to loss of consumer acceptance of the products

we sell, resulting in reduced net sales.

success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner.

consumers’ tastes and trends and the resulting change in our product mix, as well as failure to offer our consumers multiple avenues

for purchasing our products, could adversely affect our business and operating results.

For example, as retail stores reopened following

the elimination or easing of restrictions in connection with the COVID-19 pandemic, consumers shifted away from online retail purchases

towards brick-and-mortar shopping.

Our gross profit margins for sales through wholesale customers are lower than those in our DTC channel

and, as a result, this shift in customer preference has and may continue to adversely impact our gross profit margins.

general macroeconomic conditions, including persistent inflation, has and may continue to adversely affect consumer demand for our products,

which are generally priced at a premium.

Any reductions in consumer demand for our products has and may continue to adversely affect our

sales and financial position.

For example, consumers have recently begun shifting spending to services and experiences.

Such shifts in

spending could adversely affect our results of operations and financial position, particularly as we introduce our luxury products, which

are priced at higher price points.

we fail to identify and respond to emerging trends, consumer acceptance of the products we manufacture and sell and our image with current

or potential customers may be harmed, which could reduce our net sales.

If we misjudge market trends, we may significantly overstock inventory

and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow.

shortages of inventory or time to fulfillment of our products that prove popular could also reduce our sales.

We operate in a highly competitive sleep

products industry, and if we are unable to compete successfully, we may lose customers and our sales may decline.

The sleep products industry

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 sleep products industry compete primarily on price, quality, brand name recognition, product availability and product

performance and compete across a range of distribution channels.

The highly competitive nature of the sleep products 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.

We are in the process of introducing

new product models in the luxury mattress market.

We have limited experience in such market and may not be able to compete effectively

with other manufacturers who have more experience and established reputations in such market.

If we are unable to compete effectively

in the luxury market, our business and results of operations could be adversely affected.

A number of our significant

competitors offer products that compete directly with our products, and such direct competition is increasing.

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.

Sleep product industry manufacturers and retailers are seeking to increase their channels of distribution

and are looking for new ways to reach the consumer.

Many newer competitors in the mattress industry have begun to offer products directly

to consumers through the Internet and other distribution channels.

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 Mattress Firm, Amazon and Walmart, also have begun to offer competing products in their respective channels.

addition, retailers outside the U.S.

have integrated vertically in the furniture and sleep product 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.

Many 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 sleep products industry.

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.

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.

In addition, the barriers

to entry into the retail sleep product industry are relatively low.

New or existing sleep product 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

Any of the developments described above could have a material adverse effect on our planned growth and future results of operations.

We will face different market

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

In some markets, our future competitors

may have greater brand recognition and broader distribution than we currently enjoy.

We may 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

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.

If 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.

Substantial and increasingly intense competition

worldwide in e-commerce may harm our business.

Consumers who might purchase

our products from us online have a wide variety of alternatives for purchasing competing mattresses, pillows and cushions, including traditional

brick and mortar retailers (as well as the online and mobile operations of these traditional retailers), other online direct to consumer retailers

and their related mobile offerings, online and offline classified services, online retailer platforms, such as Amazon.com, and other shopping

channels, such as offline and online home shopping networks.

The Internet and mobile networks

provide new, rapidly evolving and intensely competitive channels for the sale of all types of goods and services, including products that

compete directly with our products.

Consumers who purchase mattresses, pillows and cushions through us have more and more alternatives,

and merchants have more online channels to reach consumers.

We expect competition to continue to intensify.

Online and offline businesses

increasingly are competing with each other and our competitors include a number of online and offline retailers with significant resources,

large user communities and well-established brands.

Moreover, the barriers to entry into these channels can be low, and businesses easily

can launch online sites or mobile platforms and applications at nominal cost by using commercially available software or partnering with

successful e-commerce companies.

As we respond to changes in the competitive environment, we may, from time to time, make pricing,

service or marketing decisions or acquisitions that may be controversial with and lead to dissatisfaction among our customers, which could

reduce activity on our platform and harm our profitability.

In addition, sellers in our

industry are increasingly utilizing multiple sales channels, including the acquisition of new customers by paying for search-related advertisements

on horizontal search engine sites, such as Google, Yahoo!, Naver and Baidu.

We use product search engines and paid search advertising

to help users find our sites, but these services also have the potential to divert users to other online shopping destinations.

may choose to search for products with a horizontal search engine or shopping comparison website, and such sites may also send users to

other shopping destinations.

E-commerce customers have

come to expect improved user experience, greater ease of buying goods, lower (or no) shipping costs, faster delivery times and more favorable

return policies from e-commerce sellers.

Also, certain platform businesses, many of whom are larger than us or have greater capitalization,

have a dominant and secure position in other industries or certain significant markets, and offer a broader variety of sleep product industry

products to consumers and retailers that we do not offer.

If we are unable to change our product offerings in ways that reflect the changing

demands of e-commerce and mobile commerce marketplaces, particularly the higher growth of sales of fixed-price items and higher

expected service levels or compete effectively with and adapt to changes in larger platform businesses, our business will suffer.

Some of our e-commerce competitors

offer a significantly broader range of products and services than we do.

Competitors with other revenue sources may be able to devote

more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote more resources to website, mobile

platforms and applications and systems development than we can.

Other direct to consumer retailers and e-commerce competitors

may offer or continue to offer faster shipping, free shipping, delivery on Sunday, same-day delivery, favorable return policies

or other transaction-related services which improve the user experience on their sites and which could be impractical or inefficient for

Competitors may be able to innovate faster and more efficiently, and new technologies may increase competitive pressure by

enabling competitors to offer more efficient or lower-cost services.

We have a limited operating history in an evolving industry

and, as a result, our past results may not be indicative of future operating performance.

have a limited operating history which makes it difficult to assess our future performance.

We have encountered and will continue to encounter

risks and difficulties frequently experienced by young companies in rapidly developing and changing industries, including, but not limited

to, inconsistent financial results, 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.

Lack of availability and quality of raw

materials, labor, components, and shipping services, or increases in the cost of such inputs, 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, spring units, ingredients for our Hyper-Elastic

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

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We have experienced

and expect to continue to experience increases in the cost of core materials and labor needed to manufacture our products.

increases could adversely impact our production capacity and efficiency and reduce our gross margins and earnings.

ongoing COVID-19 pandemic, including measures taken in response by governments and businesses worldwide to contain its spread, and general

economic conditions have adversely impacted and are expected to continue to adversely impact global supply chain, manufacturing, and

logistics operations.

Shipping and freight costs and delays have also been increasing as port closures, port congestion, and shipping

container and ship shortages have increased.

To the extent the COVID-19 pandemic and other events result in continuation or worsening

of manufacturing and shipping delays and constraints, our suppliers of raw materials and other components may have difficulty obtaining

and providing the materials we require to manufacture our products or may increase the costs of such materials, which could adversely

affect our earnings and our ability to acquire and maintain adequate inventory and meet demand for our products.

Any significant delay

or interruption in our supply chain, or our inability to obtain substitute components or materials from alternate sources at acceptable

prices in a timely manner, could impair our ability to meet the demand of our customers and could harm our business.

The COVID-19 pandemic

also disrupted our relationship with employees as a result of furloughs, government programs that resulted in employees not returning

to work, higher wages paid by competing employers incentivizing our employees to leave, and an increased general demand for labor.

previous growth of our business placed significant strain on our resources and if we are unable to manage future growth, we may not have

profitable operations or sufficient capital resources.

we have expanded 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 Purple retail showrooms.

growth includes increasing our manufacturing efficiencies, developing and introducing new products and developing new and broader distribution

channels, including wholesale and Purple retail 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.

growth in our operations has placed, and may continue to place, significant demands on our management and operational and financial infrastructure.

and may continue to experience increases in the cost of core materials and labor needed to manufacture our products.

Such cost increases

could adversely impact our production capacity and efficiency and reduce our gross margins and earnings.

COVID-19 pandemic, including measures taken in response by governments and businesses worldwide to contain its spread, and general economic

conditions have adversely impacted and may continue to adversely impact global supply chain, manufacturing, and logistics operations.

Shipping and freight costs and delays have also been increasing as port closures, port congestion, and shipping container and ship shortages

have increased.

To the extent the COVID-19 pandemic and other events result in continuation or worsening of manufacturing and shipping

delays and constraints, our suppliers of raw materials and other components may have difficulty obtaining and providing the materials

we require to manufacture our products or may increase the costs of such materials, which could adversely affect our earnings and our

ability to acquire and maintain adequate inventory and meet demand for our products.

Any significant delay or interruption in our supply

chain, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could

impair our ability to meet the demand of our customers and could harm our business.

The COVID-19 pandemic also disrupted our relationship

with employees as a result of furloughs, government programs that resulted in employees not returning to work, higher wages paid by competing

employers incentivizing our employees to leave, and an increased general demand for labor.

These increased costs or inability to obtain

sufficient labor also could harm out business.

Changes in economic conditions, including inflationary

trends in the price of our input costs, such as raw materials and labor, and impacts on our consumers, could adversely affect our business

and financial results.

bedding industry is subject to volatility in the price of petroleum-based and steel products, which affects the cost of certain raw materials.

For example, the war in the Ukraine has negatively impacted petroleum supplies and prices worldwide.

The price and availability of these

raw materials are subject to market conditions affecting supply and demand.

Given the significance of the cost of these materials to our

products, volatility in the prices of the underlying commodities can significantly affect profitability.

have experienced and may continue to experience, volatility and increases in the price of certain of these raw materials as a result of

a global market and supply chain disruptions, continuing impacts of the COVID-19 pandemic, and the broader inflationary environment.

addition, persistent inflation has and may continue to erode consumer discretionary spending.

Reductions in consumer discretionary spending

have and we anticipate will continue to adversely affect demand for our products.

We have cash accounts, credit card processing

and a borrowing relationship with Silicon Valley Bank, which was recently closed by the Federal Deposit Insurance Corporation.

we may not be able to access the full amount of our cash on a timely basis or at all, may experience interruptions to our credit card

processing, and may lose access to amounts available to us under the 2020 Credit Agreement.

On March 10, 2023, the Federal Deposit Insurance Corporation announced

that Silicon Valley Bank (“SVB”) had been closed by the California Department of Financial Protection and Innovation, at which

time we held cash, cash equivalents and restricted cash of approximately $4.2 million at SVB.

While we have regained access to our accounts

at SVB, there can be no guarantee that we will be able to transfer such funds in a timely manner, or at all.

The closure of SVB or any

other financial institution with which we maintain cash could adversely affect our ability to access cash balances.

If we are unable to

access our cash as needed, our financial position and ability to operate our business could be adversely affected.

In addition, we engage

SVB to process credit card payments received in connection with purchases through our website.

While we have regained our ability to process

credit card payments through SVB, if in the future we are unable to process such payments or if payments received through our website

are not available due to the closure of SVB or any other financial institution through which we process credit card payments, our financial

position and results of operations could be adversely affected.

Further, SVB is one of the Institutional Lenders under the 2020 Credit

Agreement, with $7.25 million of the $50.0 million revolving line of credit being made available through SVB.

The potential loss of SVB

as an Institutional Lender or any other Institutional Lender may reduce the amount available to us under the 2020 Credit Agreement, which

could adversely affect our financial position and ability to operate our business.

The previous growth

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

or sufficient capital resources.

have expanded our operations during significant periods of our limited operating history, including expanding our workforce, increasing

our product offerings, scaling our infrastructure to support expansion of our manufacturing capacity, expanding wholesale channels and

opening of Purple owned retail showrooms.

Our planned growth includes increasing our manufacturing efficiencies, developing and introducing

new products, developing new and broader distribution channels including wholesale and Purple owned retail 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, facilities and production capacity.

in our operations has placed, and may continue to place, significant demands on our management, operations and financial infrastructure.

If we do not manage 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.

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, no growth, or shrinking, 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 our employees.

In addition, we may be forced to restructure our obligations to creditors

or pursue work-out options.

Our growth depends in part on our ability to manage the opening and operating of

new production facilities and Purple retail showrooms, which will require our entering into leases and other obligations.

To be successful,

we will need to continue developing 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 facilities and opening Purple retail 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 Purple retail

showrooms and maintaining operations in an expanding number of facilities and Purple retail showrooms, we may have to close Purple retail

showrooms or operations facilities 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 growth effectively, we would 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 operations.

In addition, 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

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

We base our expense levels and investment plans on sales

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.

result in slower growth, no growth or shrinking.

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 our employees.

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

growth may depend on our ability to manage the opening and operating of new production facilities and Purple owned retail showrooms, which

will require our entering into leases and other obligations.

To be successful, we will need to continue developing retail expertise.

general, operating new facilities and opening Purple owned retail showrooms in new locations exposes us to laws in other states that may

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

If we are not able

to successfully manage the process of expanding operations geographically, opening new Purple owned retail showrooms and maintaining operations

in an expanding number of facilities and Purple owned retail showrooms, we may have to close facilities 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 growth effectively, we 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, maintain 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 operations.

In addition, a softening of demand, whether

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

or global economies, may result and has resulted in decreased revenue

For example, we are experiencing weaker demand than in the past in part as a result of current inflationary trends.

uncertainty in the weaking U.S.

and global economies caused by inflation and other factors, 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.

have identified the need for improved processes and procedures to avoid delays in the timely delivery of our mattress products and to

improve the customer’s experience.

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

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 processes 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 time.

unable to make continuous improvement, achieve greater efficiencies in our operating expenses and improve our products and services,

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

processes 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 processes 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 time.

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.

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ability to grow our business.

have three manufacturing plants, which are located in Alpine, Utah, Grantsville, Utah, and McDonough, Georgia.

In the future we may also

enter into leases for additional manufacturing plants.

have three manufacturing plants, which are located in Salt Lake City, Utah, Grantsville, Utah, and McDonough, Georgia.

In the future we

may also enter into leases for additional manufacturing plants.

The disruption of operations

of our manufacturing facilities for a significant period of time, or even permanently, or disruptions to the planned further build-out

of the Georgia facility such as due to a closure related to the COVID-19 pandemic, the loss or expiration of a lease or mechanical failures

in our manufacturing equipment, may increase our costs of doing business and lead to delays in manufacturing and shipping our products

to customers and could materially and adversely affect our operating results and our ability to grow our business.

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.

Likewise, acts of workplace violence may require us to temporarily suspend production or modify our operations.

Such delays could adversely

affect our sales, customer satisfaction, profitability, cash flows, liquidity and financial condition.

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,

the unavailability of utilities as a result of climate events or otherwise, or other issues could potentially disrupt a significant portion

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

Our Utah facilities are near earthquake

fault lines and our Georgia facility is located in an area that may be subject to hurricanes;

such natural disasters in these areas could

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

Any disruption of our operations,

and related impacts on our operating results, could also adversely affect the market price of our Class A Stock, which could result in

securities litigation.

Such litigation could result in substantial costs, divert resources and the attention of management from our core

business, and adversely affect our business.

of our manufacturing facilities for a significant period of time, or even permanently, such as due to a closure related to a pandemic,

natural disasters, the loss or expiration of a lease or mechanical failures in our manufacturing equipment, may increase our costs of

doing business and lead to delays in manufacturing and shipping our products to customers and could materially and adversely affect our

operating results and our ability to grow our business.

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.

Likewise, acts of workplace violence may require us

to temporarily suspend production or modify our operations.

Such delays could adversely affect our sales, customer satisfaction, profitability,

cash flows, liquidity and financial condition.

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, the unavailability of utilities as a result

of climate events or otherwise, or other issues could potentially disrupt a significant portion of our manufacturing and other operating

activities, which could adversely affect our business.

Our Utah facilities are near earthquake fault lines and our Georgia facility is

located in an area that may be subject to hurricanes;

such natural disasters in these areas could disrupt manufacturing and other operating

activities, which could adversely affect our business.

Our manufacturing processes involve the

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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 adversely and materially affect

our reputation, and negatively impact the market price of our Class A Stock.

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.

2021, we experienced an incident involving our manufacturing equipment that resulted in the death of one of our employees.

we shut down our manufacturing equipment while we evaluated the safety of our manufacturing equipment and identified and implemented safety

improvements.

In addition, once safety improvements were implemented and manufacturing resumed, we experienced unanticipated

mechanical and maintenance issues while ramping up to normal production.

These delays in production limited our ability to fill

customer orders, which has adversely affected our financial results and relationships with customers, including wholesale partners delaying

when they started ordering products again and not yet ordering to levels we have anticipated.

Other incidents could result in further

production delays, which could adversely affect our operating performance and reputation with our customers.

While we have lowered our

risk of future safety incidents by committing significant financial resources and time to implementing safety improvements, these safety

improvements may cause our production output to decrease and could materially adversely affect our operating results and our ability to

grow our business.

occurrence of such incidents has resulted in and could in the future 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, as well as securities litigation resulting from

any related impact on the market price of our Class A Stock, 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 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.

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

(ii) increasing our e-commerce sales;

(iii) expanding our wholesale distribution channel;

additional Purple retail showrooms;

(v) expanding our global sales;

(vi) engaging global partners to improve distribution efficiencies

and cost savings;

and (vii) product assortment and category expansion.

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 our employees.

In addition, we may be forced to restructure our obligations to creditors,

pursue work-out options or other protective measures.

While we have had access to

a $55 million revolving credit facility under our financing arrangement with KeyBank National Association and a group of financial

institutions (as amended, the “2020 Credit Agreement”), our ability to access such funds is subject to certain conditions

and we have already drawn the entire amount of 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 KeyBank National Association and

a group of financial institutions (the “Institutional Lenders”) under the 2020 Credit Agreement.

Adequate 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 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.

Our operating and financial

results for the year ended December 31, 2021 did not satisfy our financial and performance covenants required pursuant to the 2020 Credit

In order to avoid a breach of such covenants and related default, on February 28, 2022, prior to the covenant compliance certification

date under the 2020 Credit Agreement, we entered into the first amendment of the 2020 Credit Agreement.

The amendment contains a covenant

waiver period such that the net leverage ratio and fixed charge coverage ratio will not be tested for the fiscal quarter ended December

31, 2021 through the fiscal quarter ended June 30, 2022.

Other changes in the amendment include modification of leverage ratio and fixed

charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving

loan if cash exceeds $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, including

expenditures for acquisition of other businesses or technologies, the addition of a lease incurrence test for opening additional showrooms,

and additional negative covenants during a covenant amendment period that will extend into 2023 until certain conditions are met.

the interest rate on outstanding borrowings under the 2020 Credit Agreement changed from LIBOR to secured overnight financing rate (“SOFR”).

To the extent that future or additional

waivers and amendments are necessary, there can be no guarantee that we will be able to obtain waivers or further amendments from the

lenders under the 2020 Credit Agreement if, in the future, we are unable to comply with the covenants and other terms of the 2020 Credit

Our failure to satisfy the required conditions under the amendment or maintain compliance with the financial and performance

covenants under the 2020 Credit Agreement could result in a default, which would adversely affect our financial condition and results

of operations, including as a result of acceleration of our outstanding debt.

In addition, any default under the 2020 Credit Agreement

would adversely affect our ability to obtain alternative financing.

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

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

For example, in 2021, we

experienced an incident involving our manufacturing equipment that resulted in the death of one of our employees.

As a result, we evaluated

the safety of our manufacturing equipment and identified and implemented safety improvements.

In addition, once safety improvements were

implemented and manufacturing resumed, we experienced unanticipated mechanical and maintenance issues

while ramping up to normal production, which resulted in shipment delays and adversely affected our financial results and relationships

with customers.

The occurrence of such incidents, or any perceived insufficiency in our response to any such deficiency or problem, could

also adversely and materially affect our reputation with customers, adversely affect our operating and financial performance, and negatively

impact the market price of our Class A common stock.

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.

improvements adopted in response to accidents or other similar incidents may cause our production output to decrease and could materially

adversely affect our operating results and our ability to grow our business.

The occurrence of such incidents has resulted in and could

in the future 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, as well as securities litigation resulting from any related impact on the market price of our Class

A common stock, 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.

We may not be able to identify, complete

or successfully integrate acquisitions and any acquisitions that we do make, if any, may not achieve the anticipated financial benefits,

all of which could have a negative impact on our growth, financial condition, and results of operations.

or successfully integrate acquisitions, and any such acquisitions may not achieve the anticipated financial benefits, all of which could

have a negative impact on our growth, financial condition, and results of operations.

We may seek to acquire businesses

in the future as we encounter acquisition prospects that would complement our current product offerings, increase the size and geographic

scope of our operations, or otherwise offer growth and operating efficiency opportunities.

We cannot assure investors that we will be

able to identify and acquire acceptable acquisition candidates on terms favorable to us in the future, or that any acquisitions will achieve

the anticipated financial benefits.

Even if we do identify opportunities to acquire businesses, we may not be able to consummate such

acquisitions due to a number of factors, including lacking access to sufficient capital to fund such acquisitions and restrictions contained

in our Credit Agreement on our ability to make acquisitions.

acquisitions involve numerous risks and uncertainties and may be of businesses in which we lack operational or market experience.

financing for any of these acquisitions could dilute the interests of our stockholders, result in an increase in our indebtedness or both.

scope of our operations, or otherwise offer strategic, growth and operating efficiency opportunities.

We cannot assure investors that

we will be able to identify and acquire acceptable acquisition candidates on terms favorable to us in the future, or that any acquisitions

will achieve the anticipated strategic or financial benefits.

Even if we do identify opportunities to acquire businesses, we may not be

able to consummate such acquisitions due to a number of factors, including lacking access to sufficient capital to fund such acquisitions

and restrictions contained in our Credit Agreement on our ability to make acquisitions.

addition, acquisitions involve numerous risks and uncertainties and may be of businesses in which we lack operational or market experience.

The financing for any of these acquisitions could dilute the interests of our stockholders, result in an increase in our indebtedness

Future acquisitions could entail numerous risks, including:

● difficulties in integrating

acquired operations or products;

● the difficulties of imposing

financial and operating controls on the acquired companies and their management and the potential costs of doing so;

● the potential loss of key employees,

customers, suppliers or distributors from acquired businesses and disruption to our direct selling channel;

● diversion of management’s

attention from our core business;

● the failure to achieve the strategic

objectives of these acquisitions;

difficulties in integrating acquired technologies, operations or products;

the difficulties of imposing financial and operating controls on the acquired companies and their management and the potential costs of doing so;

the potential loss of key employees, customers, suppliers or distributors from acquired businesses and disruption to our direct selling channel;

diversion of management’s attention from our core business;

the failure to achieve the strategic objectives of these acquisitions;

increased fixed costs;

● the failure of the acquired

businesses to achieve the results we have projected in either the near or long term;

● the assumption of unexpected

liabilities, including litigation risks;

● adverse effects on existing

business relationships with our suppliers, sales force or consumers;

● risks associated with entering

markets or industries in which we have limited or no prior experience, including limited expertise in running the business, developing

the technology, and selling and servicing the products.

the failure of the acquired businesses to achieve the results we have projected in either the near or long term;

the assumption of unexpected liabilities, including compliance and litigation risks;

adverse effects on existing business relationships with our suppliers, sales force or consumers;

Failure to gain consumer or wholesale market acceptance of acquired brands and products;

risks associated with entering markets or industries in which we have limited or no prior experience, including limited expertise in running the business, developing the technology, and selling and servicing the products.

Our failure to successfully

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adverse effect on our business, financial condition and operating results.

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

matters relating to our Tax Receivable Agreement, 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 dated February 22, 2018 (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.

future growth and profitability may depend in part on our ability to continue to improve and expand our product line and to successfully

execute new product introductions.

described in greater detail below, the mattress, pillow, bedding, bed base, cushion and related industries (“Comfort Industry”)

are highly competitive, and our ability to compete effectively and to profitably grow our market share depends in part on our ability

to continue to improve and expand our product line and related accessory products.

Changes in accounting standards and subjective

assumptions, estimates and judgments by management related to complex accounting matters, including matters relating to our Tax Receivable

Agreement, 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 our founders dated February 22, 2018 (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.

Our future growth and profitability may

depend in part on our ability to continue to improve and expand our product line and to successfully execute new product introductions.

described in greater detail below, the mattress, pillow, bedding, bed base, cushion and related industries are highly competitive, and

our ability to compete effectively and to profitably grow our market share depends in part on our ability to continue to improve and expand

our product line and related accessory products.

incur significant research and development and other expenditures in the pursuit of improvements and additions to our product line.

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may be adversely affected.

In addition, if any significant product improvements or new product introductions are not successful, our

reputation and brand image may be adversely affected, and our business may be harmed.

In addition, if any significant product improvements or new product introductions are not successful, our reputation

and brand image may be adversely affected, and our business may be harmed.

significant portion of our gross profit comes from our mattress products.

If we are unable to develop new models of our mattress products

or successfully market and sell new mattress models, our profitability may be adversely affected, and our business may be harmed.

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

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

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.

or successfully market and sell new mattress models, such as the new mattress models announced in 2023, our profitability may be adversely

affected, and our business may be harmed.

For example, we are in the process of introducing several new mattress product models, including

in the luxury mattress market and expanding our brand to include higher-priced mattresses.

If we are not able to successfully market these

new models or compete in the luxury market, our business and results of operations could be adversely affected.

Our 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 DTC channels.

We have 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.

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they could damage our reputation, limit our growth, and negatively affect our operating results.

may be unsuccessful in opening any Purple retail showrooms beyond those already opened in cities across the U.S.

Operating Purple retail

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 e-commerce, wholesale distribution channel and Purple retail 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 they 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 other factors that render such inventory unusable or unsellable.

may be unsuccessful in opening any Purple owned retail showrooms beyond those already opened in cities across the U.S.

Operating Purple

owned retail 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 e-commerce, wholesale distribution channel and Purple owned retail 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 they may delay paying us beyond the agreed-upon

net terms or fail to pay.

Our Purple owned retail showroom expansion increases our risk for inventory shrinkage from destruction, theft,

obsolescence and other factors that render such inventory unusable or unsellable.

products may come with unknown warranty and return risks.

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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.

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

plants or Purple retail 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, supply chain constraints (including,

for example, shipping delays, capacity constraints, and supply shortages), 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

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.

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

difficulties.

Our key personnel and other employees could also be affected by COVID-19, potentially reducing their availability.

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.

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.

global outbreak of COVID-19 continues to 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 a whole.

We do not yet know

the full impact that vaccines may have in mitigating or ending the outbreak of COVID-19, or how the future availability of such vaccines

may affect our work force.

We also do not know the impact that government mandated vaccine policies for employers will have on our workforce.

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

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 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.

Customer demand for and our ability to sell

and market our products 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,

and shelter-at-home and social distancing directives where our products are displayed in physical stores.

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 results.

sales in our channels decline or become more difficult to predict, including as a result of stay-at-home orders, social distancing mandates,

temporary closures of or decreased shopping in our wholesale partners’ stores or Purple retail showrooms, vaccine mandates, impacts

of stimulus payments, 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 we experienced an increase in

demand for our products through our e-commerce channel at the beginning of the COVID-19 pandemic, such e-commerce sales have subsequently

declined following the end of stimulus payments, the return of consumers to brick and mortar stores, and the general softening of the

If we cannot increase demand in all our channels, and plan based on more predictable sales patterns, our business may be adversely

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.

Our 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.

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

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

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 affected.

If we are unable

to continue utilizing such platforms, if those media and platforms diminish in efficacy, importance or size, if consumer usage of the

platform decreases, 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

have relationships with traditional and digital media partners, 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.

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 affected.

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

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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.

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

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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.

customers on the safety of our products.

Even if we 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

number of third-party review websites is increasing and customers have many platforms on which they can review our products, and such

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may be adversely impacted.

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

manufacture our mattresses using our proprietary and patented Mattress Max machinery to make our Hyper-Elastic Polymer cushioning

Because these machines are proprietary and we do not yet have a long history of their maintenance needs, we may not be able

to sufficiently maintain them for operation at full capacity or at all when needed.

We have experienced unexpected maintenance issues

following a shutdown of these machines that took longer to bring them up to full operating capacity then what we expected.

Also, because

of the unique features of our Mattress Max machines, and due to continuing improvements to these machines, new machines are not readily

available and must be constructed which takes time.

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, 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.

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 and directors of the Company, as well as with

other entities affiliated with such persons.

example, prior to the Business Combination, InnoHold, previously a significant stockholder of the Company and an entity owned by the founders,

Terry and Tony Pearce, 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.

These equity incentives granted

to key employees prior to the Business Combination are forfeited to the extent the grant to an employee is not 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.

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 shares of Class B common stock, par value $0.0001 (“Class B Stock”)

in Purple Inc.

and Class B Common Units (“Class B Units”) in Purple LLC, after which any forfeitures would inure to the

benefit of all shareholders.

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 Purple Innovation, Inc.

Equity Incentive Plan (“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.

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

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

Our future growth and profitability depend,

in part, upon our ability to maintain sufficient production capacity to meet customer demands.

We manufacture our mattresses

using our proprietary and patented machinery to make our Hyper-Elastic Polymer cushioning material.

Because these machines are proprietary

and we do not yet have a long history of their maintenance needs, we may not be able to sufficiently maintain them for operation at full

capacity or at all when needed.

We have experienced unexpected maintenance issues following a shutdown of these machines that took longer

to bring them up to full operating capacity then what we expected.

Also, because of the unique features of our machines, and due to continuing

improvements to these machines, new machines are not readily available and must be constructed which takes time.

If we are unable to construct

new machines and implement them into our production process in a timely manner, if our existing machines are unable to function at the

desired capacity, or if we are unable to develop replacements for the existing 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.

This would negatively

impact our ability to grow our business and achieve profitability.

We 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 and directors of the Company, as well as with other

entities affiliated with such persons.

example, prior to the Business Combination, InnoHold, LLC (“InnoHold”), previously a significant stockholder of the Company

and an entity owned by the founders, Terry and Tony Pearce, granted equity incentive awards in Purple LLC to certain key employees at

that time through a separately created entity.

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.

These equity incentives granted to key employees prior to the Business Combination were forfeited to the

extent the grant to an employee was not fully vested at the time that such employee’s employment was 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 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 shares

of Class B common stock, par value $0.0001 (“Class B Stock”) in Purple Inc.

and Class B Common Units (“Class

B Units”) in Purple LLC, after which any forfeitures would inure to the benefit of all shareholders.

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 Purple Innovation, Inc.

2017 Equity Incentive Plan (“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.

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.

connection with the Business Combination, Purple LLC also entered into that certain Credit Agreement dated February 2, 2018, with

the Coliseum Capital Partners, L.P.

(“CCP”), Blackwell Partners LLC – Series A (“Blackwell”) and Coliseum

Co-invest Debt Fund, L.P.

(“CDF” and together with CCP and Blackwell, the “Former Lenders”), which was guaranteed

by Purple Inc.

The Former 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.

Further, on February 26, 2019, the Amended

and Restated Credit Agreement between Purple LLC and certain of the Former Lenders (the “Incremental Lenders”), and each

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

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 Former 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 Former 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.

September 3, 2020, we paid off the full amount owed and a prepayment premium to the Former Lenders in the aggregate amount of $45.0 million

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

The Former Lenders further

have continuing rights of first refusal related to indebtedness of the Company as set forth in the Subscription Agreement entered into

by them and the Company at the time of the Business Combination.

Adam Gray continues to serve on our Board and the Former Lenders, together,

hold a significant portion of our outstanding shares of Class A Stock and voting power.

The Former Lenders currently own, in the aggregate,

approximately 26% of the Company’s outstanding shares of Class A Stock and voting power.

Future transactions with the Lenders,

if any, may give rise to conflicts of interest or otherwise adversely affect our business.

Note 13, Related-Party Transactions of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report,

“Financial Statements and Supplementary Data,” and is incorporated herein by reference.

may not be able to successfully anticipate consumer trends and demand and our failure to do so may lead to loss of consumer acceptance

of the products we sell, resulting in reduced net sales.

success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner.

in consumers’ tastes and trends and the resulting change in our product mix, as well as failure to offer our consumers multiple

avenues for purchasing our products, could adversely affect our business and operating results.

If we fail to identify and respond to

emerging trends, consumer acceptance of the products we manufacture and sell and our image with current or potential customers may be

harmed, which could reduce our net sales.

If we misjudge market trends, we may significantly overstock inventory and be forced to take

significant inventory markdowns, which would have a negative impact on our gross profit and cash flow.

Conversely, shortages of inventory

or time to fulfillment of our products that prove popular could also reduce our sales.

We have in some instances accumulated excess

amounts of raw material inventory and some finished goods inventory, which could be susceptible to shrinkage that may harm our ability

to use or sell such inventory and may adversely impact our profitability.

we attempt to maintain only the necessary amounts of raw material inventory on hand, in some instances we have accumulated excess amounts

of raw materials and finished goods inventory.

All such excess inventory is subject to shrinkage from destruction, theft, obsolescence

and factors that render such inventory unusable or unsellable, and we have lost inventory for such reasons.

Excessive inventory also

takes warehouse space that prevents efficient use for other activities.

While we take efforts to right-size all raw materials

and finished goods inventory, if our efforts are not successful, we could continue to experience excess amounts of some items of raw

materials and finished goods and related shrinkage and inefficiencies that could adversely impact our cash flow, margins and profitability.

a result of production delays in 2021 that limited our ability to fill customer orders, many of our wholesale partners had to adjust their

business plans due to the disruption this caused them and they stopped ordering the volume of products we had anticipated, and has taken

longer to ramp to volumes that predated the production delays.

Despite our ability to again produce enough products to meet the needs

of our wholesale customers, expected orders were not received at the levels we anticipated, and it is unknown when they will be received,

which could contribute to a larger than desired inventory of finished mattress products that we are ready to deliver.

Until we receive

orders and are able to deliver these products, they are subject to the risks associated with holding excess inventory.

If this occurs,

this also could unfavorably impact our cash flow and available working capital and could increase our accounts receivables when orders

are received and filled in accordance with payment terms with our wholesale customers.

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

other business relationships.

Coliseum Capital Partners, L.P.

(“CCP”), Blackwell Partners LLC – Series A (“Blackwell”) and Coliseum Co-invest

Debt Fund, L.P.

(“CDF” and together with CCP and Blackwell, the “Former Lenders”), which was guaranteed by Purple

The Former 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.

Further, on February 26, 2019, the Amended and Restated

Credit Agreement between Purple LLC and certain of the Former Lenders (the “Incremental Lenders”), and each of the related

documents, including the issuance of additional warrants to the Incremental Lenders, was closed and an incremental loan was funded.

connection with the funding of the incremental loan, we issued to the Incremental Lenders warrants to purchase shares of our Class A

common 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 Former Lenders acquired 25% or more ownership of the

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

with the Former 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 Former Lenders in the aggregate amount of $45.0 million and terminated

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

The Former Lenders further have continuing

rights of first refusal related to indebtedness of the Company as set forth in the Subscription Agreement entered into by them and the

Company at the time of the Business Combination.

Adam Gray continues to serve on our Board and the Former Lenders, together, hold a significant

portion of our outstanding shares of Class A common stock and voting power.

The Former Lenders currently own, in the aggregate, approximately

44.7% of the Company’s outstanding shares and voting power.

Future transactions with the Lenders, if any, may give rise to conflicts

of interest or otherwise adversely affect our business.

detailed previously in these risk factors, on September 17, 2022, our largest shareholder Coliseum delivered to us an unsolicited bid

to acquire the remaining outstanding shares of our Class A common stock and Class B common stock, which the Special Committee rejected.

Note 15, Related-Party Transactions of the Notes to the Condensed Consolidated Financial Statements, included in PART II, ITEM 8 of this

Report, “Financial Statements,” and is incorporated herein by reference.

Our 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

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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.

wholesale relationships may from time to time be terminated by us or our partners, or the terms of such relationships may be amended

As a result of such terminations, we would lose sales previously generated through such relationships, which could have

a material adverse impact on our net sales, profitability and financial position.

Disputes with wholesale partners also may arise related

to such relationships, or any terminations of related agreements, which could cause us to incur expenses, delay our receipt of amounts

owed to us, interfere with our relationship with other retailers, subject us to liabilities and distract us from our strategic objectives.

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

all, and the loss of sales from such relationships could harm our business.

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

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

to effectively integrate acquisitions;

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

of other relationships;

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

integrating under the commercial agreements.

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

We anticipate

increasing the number of these partnerships.

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 DTC operations.

Our wholesale partners may choose not to continue doing

business with us or may choose to reduce the amount of our products they order, which would result in a corresponding loss of revenue.

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.

Our wholesale partners may engage in conduct that could breach the contractual rights we owe other

wholesale partners or interfere with their other legal rights.

Our wholesale partners may compete against us in DTC or other channels

that are important to us and may erode our business in such channels.

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 and plan to continue to open a growing number of Purple retail showrooms in cities across the U.S.

Moreover, our business partners and their

owners may make strategic decisions that result in negative consequences for our business.

For example, we understand that it is possible

that Mattress Firm, Inc.

may be sold to Tempur Sealy International, Inc.

which could disrupt our relationship with Mattress Firm or prevent

us from continuing to sell our products in favorable placements alongside Tempur Sealy products within Mattress Firm stores.

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.

wholesale relationships may from time to time be terminated by us or our partners, or the terms of such relationships may be amended or

As a result of such terminations, we would lose sales previously generated through such relationships, which could have a material

adverse impact on our net sales, profitability and financial position.

Disputes with wholesale partners also may arise related to such

relationships, or any terminations of related agreements, which could cause us to incur expenses, delay our receipt of amounts owed to

us, interfere with our relationship with other retailers, subject us to liabilities and distract us from our strategic objectives.

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

and the loss of sales from such relationships could harm our business.

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.

have entered into arrangements with wholesale partners through which we sell certain of our products in their retail stores and may seek

opportunities to increase the number of these partnerships in the future.

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 DTC operations.

Our wholesale partners may choose

not to continue doing business with us or may choose to reduce the amount of our products they order, which would result in a corresponding

loss of revenue.

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.

Our wholesale partners may engage in conduct that could breach the contractual rights

we owe other wholesale partners or interfere with their other legal rights.

Our wholesale partners may compete against us in DTC or other

channels that are important to us and may erode our business in such channels.

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 and plan to continue to open a growing number of Purple owned retail showrooms in cities across the U.S.

Our business is expanding

into additional Purple retail showrooms which, like our online e-commerce retail store, may compete more directly with our wholesale

partners for customers.

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

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.

One domestic competitor has a license to use some of the intellectual

property we own but do not use at this time.

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 channels.

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.

A 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.

Industry manufacturers and retailers are seeking to increase their channels of distribution and are looking for new ways to reach the

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

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

Some of our established competitors and partners

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 Mattress Firm, Amazon and Walmart, also have begun to offer competing products in their respective channels.

In addition, retailers outside the U.S.

have integrated vertically in the furniture and sleep product 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.

In addition, the barriers

to entry into the retail sleep product industry are relatively low.

New or existing sleep product 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

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.

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

We may 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.

and increasingly intense competition worldwide in e-commerce may harm our business.

Consumers who might purchase

our products from us online have a wide variety of alternatives for purchasing competing mattresses, pillows and cushions, including traditional

brick and mortar retailers (as well as the online and mobile operations of these traditional retailers), other online direct to consumer retailers

and their related mobile offerings, online and offline classified services, online retailer platforms, such as Amazon.com, and other shopping

channels, such as offline and online home shopping networks.

Internet and mobile networks provide new, rapidly evolving and intensely competitive channels for the sale of all types of goods and

services, including products that compete directly with our products.

Consumers who purchase mattresses, pillows and cushions through

us have more and more alternatives, and merchants have more online channels to reach consumers.

We expect competition to continue to

Online and offline businesses increasingly are competing with each other and our competitors include a number of online and

offline retailers with significant resources, large user communities and well-established brands.

Moreover, the barriers to entry into

these channels can be low, and businesses easily can launch online sites or mobile platforms and applications at nominal cost by using

commercially available software or partnering with any of a number of successful e-commerce companies.

As we respond to changes

in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that may be controversial

with and lead to dissatisfaction among our customers, which could reduce activity on our platform and harm our profitability.

addition, sellers in our industry are increasingly utilizing multiple sales channels, including the acquisition of new customers by paying

for search-related advertisements on horizontal search engine sites, such as Google, Yahoo!, Naver and Baidu.

We use product search engines

and paid search advertising to help users find our sites, but these services also have the potential to divert users to other online

shopping destinations.

Consumers may choose to search for products with a horizontal search engine or shopping comparison website, and

such sites may also send users to other shopping destinations.

customers have come to expect improved user experience, greater ease of buying goods, lower (or no) shipping costs, faster delivery times

and more favorable return policies from e-commerce sellers.

Also, certain platform businesses, many of whom are larger than us or have

greater capitalization, have a dominant and secure position in other industries or certain significant markets, and offer a broader variety

of Comfort Industry products to consumers and retailers that we do not offer.

If we are unable to change our product offerings in ways

that reflect the changing demands of e-commerce and mobile commerce marketplaces, particularly the higher growth of sales of

fixed-price items and higher expected service levels or compete effectively with and adapt to changes in larger platform businesses,

our business will suffer.