PRPL filing — read by section

Item 1A. Risk Factors

Item 1A. Risk Factors 
 
 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 Relating to Our Operations 
 
 ● 
 Significant fluctuations in our operating results and growth rate, and our short operating history in an evolving industry; 

 ● 
 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 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; 

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

 13 

 ● 
 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; 

 ● 
 Failure to maintain internal controls and the potential impact of making material misstatements on financial results and reporting; and 

 ● 
 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 
 
 ● 
 Regulatory requirements requiring costly expenditures and exposure to liability, some of which are specific to the manufacture and disposal of mattresses; 

 ● 
 Income tax, sales tax or other tax liabilities; 

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

 ● 
 Litigation related to PRPLS (defined below). 

 Risks Relating to our Intellectual Property
and Use of Technology 
 
 ● 
 Ability to protect our brand, product designs and other proprietary rights both domestically and internationally, and claims that we or our licensors have infringed the proprietary rights of others; 

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

 ● 
 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, 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; 

 ● 
 Not anticipating paying any cash dividends in the foreseeable future; 

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

 14 

 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; and 

 ● 
 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; 

 ● 
 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; and 

 ● 
 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 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.
 
 15 

 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.
 
 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”). In response,
the Company formed a special committee of independent directors (the “Special Committee”) to evaluate the Proposal. On January
12, 2023, the Company issued a press release stating that the Special Committee had rejected Coliseum’s Proposal.
 
 On
January 13, 2023, Coliseum submitted a letter to the chairman of the Board setting forth a cooperation proposal (the “Cooperation
Proposal”). On January 16, 2023, the Special Committee responded to the Cooperation Proposal.
 
 On
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.
 
 On
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.
 
 On
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.
 
 On
February 21, 2023, Coliseum filed a lawsuit in the Delaware Court of Chancery captioned Coliseum Capital Management, LLC et al. v.
Pano Anthos et al. , Case No. 2023-0220-PAF (Del. Ch. Feb. 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.
 
 16 

 There
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
Meeting. 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. 
 
 In
connection with the development and expansion of our business, we expect to incur significant capital and operational expenses. We believe
that we can increase our sales and net income by implementing a growth strategy that focuses on (i) increasing our manufacturing
efficiency; (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.
 
 Our
ability to obtain other capital resources and sources of liquidity may not be sufficient to support future growth strategies. If we are
unable to satisfy our liquidity and capital resource requirements, we may have to scale back, postpone or discontinue our growth strategies,
which could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may not be able to timely satisfy
customer orders, and we may not be able to retain 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
Agreement. 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.
 
 17 

 Future
equity or debt financings may require us to also issue warrants or other equity securities that are likely to be dilutive to our existing
stockholders. 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. 
 
 Our
success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner. Changes 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. 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.
 
 Further,
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.
 
 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 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. 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.
 
 18 

 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. 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
share. 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
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.
 
 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. 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.
 
 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.
 
 19 

 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
us to match. 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. 
 
 We
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. 
 
 In
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. Because we are dependent on outside suppliers for our raw materials,
lack of availability and quality could have a negative effect on our cost of sales and our ability to meet our customers’ demands.
Competitive and marketing pressures may prevent us from passing along price increases to our customers, and the inability to meet our
customers’ demands could cause us to lose sales.
 
 Some
components, such as foam and spring units, are widely used in our industry. Shortages in such components, due to any reason including
increase in demand, weather events, supply chain difficulties within the supplier or otherwise, could adversely affect our production
capacity and financial results. If we were unable to obtain raw materials and components from suppliers, we would have to find replacement
suppliers. Any new arrangements for raw materials and components might not be on favorable terms, if we are able to enter into new arrangements
at all. If a supplier for a component failed to supply such component in required amounts this could significantly interrupt production
and increase costs.
 
 Even
if we are able to obtain raw materials and other production inputs in a timely manner, supply chain constraints, inflation, and other
factors may increase the costs of shipping, raw materials, labor, and other production and operational resources. We have experienced
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.
 
 The
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.
 
 20 

 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. 
 
 The
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.
 
 We
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.
 
 In
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. As a result,
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. 
 
 We
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.
 
 Our
continued success depends, in part, upon our ability to manage and expand our operations, facilities and production capacity. The growth
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. 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. 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 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. In
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.
 
 To
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
or growth. For example, we are experiencing weaker demand than in the past in part as a result of current inflationary trends. Due to
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.
 
 21 

 We
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, 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. If
we are unable to make continuous improvement, achieve greater efficiencies in our operating expenses and improve our products and services,
our business could be adversely affected.
 
 Disruption of operations in our manufacturing
facilities, including as a result of, among other things, workplace injuries, pandemics or natural disasters, has and could increase our
costs of doing business or lead to delays in shipping our products and could materially adversely affect our operating results and our
ability to grow our business. 
 
 We
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, 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
use of heavy machinery and equipment, which exposes us to potentially significant financial losses and reputational harm due to workplace
injuries or industrial accidents that may occur at our facilities. 
 
 Our
manufacturing processes involve the use of heavy machinery and equipment and are subject to risks involving workplace injuries, mechanical
failures, and industrial accidents, including, among other things, personal injury or death resulting from such incidents at our manufacturing
plants. A workplace accident, mechanical failure, industrial accident or any similar problem involving any one or more of our facilities
has required, and may require in the future, that we suspend production at one or more of our manufacturing plants, which could lead to
delays in manufacturing and shipping our products and adversely affect our business and results of operations. 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.
 
 Safety
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.
 
 22 

 We may not be able to identify, complete
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 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.
 
 In
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
or both. Future acquisitions could entail numerous risks, including:
 
 ● 
 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 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; and 

 ● 
 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
complete the integration of any acquired business, or a failure to effectively identify and pursue such acquisitions, could have a material
adverse effect on our business, financial condition and operating results.
 
 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. 
 
 Generally
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.
 
 23 

 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. 
 
 As
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.
 
 We
incur significant research and development and other expenditures in the pursuit of improvements and additions to our product line. If
these efforts do not result in meaningful product improvements or new product introductions, or if we are not able to gain widespread
consumer acceptance of product improvements or new product introductions, our sales, profitability, cash flows and financial condition
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.
 
 A
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, 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. 
 
 The
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.
 
 We
may be unsuccessful in generating additional sales through wholesale channels. We may extend credit terms in connection with such relationships
and such relationships may expose us to the risk of unpaid or late paid invoices. In addition, we may provide fixtures to such partners
that may be difficult to recover or re-use. Our wholesale customers may not purchase our products in the volume we expect.
 
 Profitability,
if any, from sales to wholesale customers and new product offerings may be lower than from our DTC model and current products,
and we may not be successful enough in these newer activities to recoup our investments in them. If any of these issues were to arise,
they could damage our reputation, limit our growth, and negatively affect our operating results.
 
 We
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.
 
 In
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.
 
 New
products may come with unknown warranty and return risks. New product offerings or expansion into new market channels or geographic regions
may subject us to new or additional regulation, which would impose potentially significant compliance and distribution costs.
 
 24 

 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. 
 
 We
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.
 
 We
depend heavily on internet-based advertising to market our products through internet-based media and e-commerce platforms. 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
future.
 
 We
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.
 
 On
October 20, 2020, the United States Department of Justice brought an antitrust lawsuit against Google claiming that Google improperly
uses its monopoly over Internet search to impede competition and harm consumers. Our cost of advertising on Google may remain high if
Google’s monopoly over internet searches is not prevented and competitive search engines are not allowed to compete. Alternatively,
if Google is required because of this lawsuit to split up the company or sell assets, there is no assurance this will decrease advertising
costs and it may lead to increased costs due to an increased number of service providers who obtain oligopoly power to control advertising
costs or inefficiencies from a reduction in scale. Although this lawsuit may lower our advertising costs, there is risk that it may not
and would lead to increased costs which would reduce our profitability and harm our business.
 
 Consumers
are increasingly using digital tools as a part of their shopping experience. As a result, our future growth and profitability will depend
in part on (i) the effectiveness and efficiency of our online experience for disparate worldwide audiences, including advertising
and search optimization programs in generating consumer awareness and sales of our products, (ii) our ability to prevent confusion
among consumers that can result from search engines that allow competitors to use or bid on our trademarks to direct consumers to competitors’
websites, (iii) our ability to prevent internet publication or television broadcast of false or misleading information regarding
our products or our competitors’ products, (iv) the nature and tone of consumer sentiment published on various social media
sites, and (v) the stability of our website. In recent years, a number of direct to consumer, internet-based retailers,
like us, have emerged and have driven up the cost of basic search terms, which has and may continue to increase the cost of our internet-based
marketing programs. More recently, the large traditional mattress manufacturers have been increasing their efforts to increase their direct-to-consumer
sales which also is increasing the cost of our internet-based marketing programs and cost of customer conversion.
 
 In
the past, we have been the target of publications by purported consumer reviewers who claim to have identified health and safety concerns
with our products. While we believe such claims to be baseless, refuting such claims requires us to expend significant resources to educate
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
sales.
 
 The
number of third-party review websites is increasing and customers have many platforms on which they can review our products, and such
reviews are becoming increasingly influential with consumers. Negative reviews from such sources may receive widespread attention from
consumers, which could damage our reputation and brand value and result in lower sales. If we are unable to effectively manage relationships
with such reviewers to promote accurate reviews of our products, reviewers may decline to review our products or may post reviews with
misleading information, which could damage our reputation and make it more difficult for us to improve our brand value.
 
 25 

 If
our marketing messages are ineffective or our advertising expenditures, geographic price-points, and other marketing programs, including
digital programs, are inefficient in creating awareness and consideration of our products and brand name and in driving consumer traffic
to our website, our sales, profitability, cash flows and financial condition may be adversely impacted. In addition, if we are not effective
in preventing the publication of confusing, false or misleading information regarding our brand or our products, or if there arises significant
negative consumer sentiment on social media regarding our brand or our products, our sales, profitability, cash flows and financial condition
may be adversely impacted.
 
 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. 
 
 We
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.
 
 For
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.
 
 26 

 In
connection with the Business Combination, Purple LLC also entered into that certain Credit Agreement dated February 2, 2018, with
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 was funded. In
connection with the funding of the incremental loan, we issued to the Incremental Lenders warrants to purchase shares of our Class A
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
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. 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.
 
 As
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.
 
 See
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. 
 
 To
successfully operate our business, we rely on commercial agreements and strategic relationships with suppliers, service providers and
certain wholesale partners and customers. As we grow, we may acquire other businesses to incorporate into our operations. These arrangements
can be complex and require substantial infrastructure capacity, personnel, and other resource commitments. Further, our business partners
may have disruptions in their businesses or choose to no longer do business with us and the impact of such disruption or choices could
be magnified to the extent such business partners represent a significant part of our business. 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. We may not
be able to implement, maintain, or develop the components of these commercial relationships. Moreover, we may not be able to enter into
additional commercial relationships and strategic alliances on favorable terms or at all.
 
 Our
wholesale relationships may from time to time be terminated by us or our partners, or the terms of such relationships may be amended or
modified. 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 results.
 
 We
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.
 
 27 

 We
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 owned 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.
 
 The
final assembly of some of our mattresses is executed by third-party partners and suppliers. If we are unable to maintain those relationships
or if such third parties are disrupted in their ability to perform such final assembly and we are unable to make alternative arrangements,
our ability to produce certain mattresses may be adversely impacted, which could adversely affect our operating results and financial
position.
 
 A reduction in the availability of credit
to consumers generally or under our existing consumer credit programs or the availability of more favorable credit terms with competitors
could harm our sales, profitability, cash flows and financial condition. 
 
 We offer financing to consumers
through third-party consumer finance companies. During the year ended December 31, 2022, a significant percentage of our sales were
financed through third-party consumer finance companies. The amount of credit available to consumers may be adversely impacted by macroeconomic
factors that affect the financial position of consumers as suppliers of credit adjust their lending criteria. In addition, changes in
federal regulations effective in 2010 placed additional restrictions on all consumer credit programs, including limiting the types of
promotional credit offerings that may be offered to consumers.
 
 These third-party consumer
finance companies offer consumer financing options to our customers through agreements that may be terminated by us or the companies upon
thirty days’ prior written notice. These consumer finance companies have discretion to control the content of financing offers to
our customers and to set minimum credit standards under which credit is extended to customers. These consumer finance companies may make
more favorable terms available to our competitors, or they may offer more favorable terms in channels other than the channels in which
we focus our efforts.
 
 Reduction of credit availability
due to changing economic conditions, changes in regulatory requirements, or the termination of our agreements with third-party consumer
finance companies could harm our sales, profitability, cash flows and financial condition. The availability of more favorable credit terms
offered by competitors could harm our sales, profitability, cash flows and financial condition.
 
 We attempt to maintain desirable amounts
of raw material inventory and finished products, which in the case of over or under supply could leave us vulnerable to shortages or shrinkage
of components and products that may harm our ability to profitably satisfy consumer demand and may adversely impact our sales and profitability.
 
 Although
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. For example, in 2021 we experienced production delays, which resulted
in wholesale partners not ordering the volume we anticipated. Lower than expected order volume resulted in higher than anticipated levels
of inventory. 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.
 
 Alternatively, if we do not maintain the necessary amounts of products
and raw material inventory on hand we would be vulnerable to shortages in supply of products or components that may harm our ability to
satisfy consumer demand and may adversely impact our sales and profitability. Lead times for ordered components and products may vary
significantly, especially as we source some of our materials and products from China or other countries. Our business may be harmed by
legal, regulatory, economic, political, health concerns, military conflict, and unforeseen risks associated with international trade in
those countries. For example, we previously sourced a component for certain products from a factory in the Ukraine where a military action
has been ongoing. While we have other suppliers for that component that are not likely to be impacted by such military action, the loss
of suppliers could temporarily disrupt production of products. Moreover, we may experience increased costs in sourcing Chinese materials
as a result of the uncertain status of the U.S.-China trade relationship or may experience related disruption if we seek to replace Chinese
suppliers with suppliers in other countries. Any unexpected shortage of products or materials caused by any disruption of supply or an
unexpected increase in the demand for our products, could lead to delays in shipping our products to customers. Any such delays could
adversely affect our sales, customer satisfaction, profitability, cash flows and financial condition.
 
 28 

 We rely upon several key suppliers
that are, in some instances, the only source of supply currently used by us for particular products, materials, components or services.
We currently obtain all of the raw materials and components used to produce our mattresses, pillows and cushions from outside sources
While we believe that these materials and components, or suitable replacements, could be obtained from other sources, in the event of
a disruption or loss of supply of relevant materials or components for any reason, we may not be able to find alternative sources of supply,
or if found, may not be found on comparable terms. A disruption in the supply or substantial increase in cost of any of these products
or services could harm our sales, profitability, cash flows and financial condition. In addition, a change in the financial condition
of some of our suppliers could impede their ability to provide products to us in a timely manner.
 
 In addition, shipping and
freight delays have occurred and may again occur due to port closures, port congestion, and shipping container and ship shortages. These
events, combined with the impacts of the ongoing COVID-19 pandemic, could result in manufacturing and shipping delays and constraints
and limit the ability of our suppliers to provide raw materials and other components in a timely manner, which could adversely affect
our ability to acquire and maintain adequate inventory and meet demand for our products. Shipping delays could also adversely affect our
ability to deliver products to our customers in a timely manner, which could harm our business.
 
 Our success is highly dependent on our ability
to provide timely delivery on a cost-effective basis to our customers, and any disruption in our delivery capabilities or our related
planning and control processes may adversely affect our operating results. 
 
 An important part of our success
is our ability to deliver our products to our customers in a timely manner. This requires successful planning, distribution infrastructure,
ordering, transportation, receipt processing, , suppliers, meeting our distribution requirements, and our contractors meeting our delivery
requirements. Our ability to maintain success depends on the continued identification and implementation of improvements to our planning
processes, distribution infrastructure and supply chain. We also need to ensure that our distribution infrastructure and supply chain
keep pace with our anticipated growth and increased product output. The cost of these enhanced processes could be significant and any
failure to maintain, grow or improve them could adversely affect our operating results.
 
 We rely on common carriers
and freight forwarders to deliver our products to customers on a timely, convenient, and cost-effective basis. We also rely on the systems
of such carriers to provide us with accurate information about the status and delivery of our products. Any disruption to the business
of delivery carriers could cause our business to be adversely affected. Any significant delay in deliveries to our customers could lead
to increased cancellations and returns and cause us to lose sales. Any increase in freight charges could increase our costs of doing business
and harm our sales, profitability, cash flows and financial condition. Lack of accurate information from such carriers could damage our
brand and our relationship with our customers. In some areas, we are testing Company-owned delivery services that have been successful
and efficient, and we intend to continue growing such services as demand and volume dictate. If our Company-owned delivery services do
not continue to deliver products in a timely or cost-effective manner, we may need to revert to third party carriers and our reputation
and business may be adversely affected.
 
 Our business could also be
adversely affected if there are delays in product shipments to us due to freight difficulties, supply chain disruptions or delays (including,
for example, from port closures or shipping or labor shortages), delays in product shipments clearing U.S. Customs and Border Protection
(“CBP”) for reasons of non-compliance or otherwise, challenges with our suppliers or contractors involving strikes
or other difficulties at their principal transport providers or otherwise. The adverse effect on our business could include increase in
freight costs if we choose to use more air freight. Our business could also be adversely affected if the business of our suppliers is
disrupted because of infectious diseases or fear thereof such that quarantines, factory closures, labor disturbances, and transportation
delays result. Such delays and events could adversely affect our profitability and reputation, as well as demand for our products.
 
 In addition, if we are unable
to deliver our products in a timely manner, our customers, both DTC and wholesale, may choose to limit future orders of our products,
or choose to not order products from us at all. If, as a result of production or shipment issues, demand for our products declines or
does not increase, our business and results of operations could be materially and adversely affected.
 
 29 

 We depend on executive employees, and if
we lose the services of members of the executive team, we may not be able to run our business effectively. 
 
 Our future success depends
in part on our ability to attract and retain key executive, merchandising, marketing, sales, finance, operations and engineering personnel.
If any of our executives cease to be employed by us, or if our growth or other changes in circumstances require executives with additional
skill sets, we would have to hire replacement or additional qualified personnel. Our ability to successfully attract and hire other experienced
and qualified executives cannot be assured and may be difficult because we face competition for these professionals from our competitors,
our suppliers and other companies operating in our industry and in our geographic locations. Recruiting qualified executives may be further
complicated by uncertainties resulting from shareholder activism. Departures and any delay in replacing executives could significantly
disrupt our ability to grow and pursue our strategic plans. If we are unable to attract and retain qualified executives and other employees,
including through competitive compensation and other incentives, our business may be adversely affected. While we believe our current
executives have benefitted and will continue to benefit us, we currently employ or may employ interim or acting executives. Finding qualified
replacements is time-consuming, requires Company resources, and may disrupt our growth and achievement of strategic plans. We do not maintain
key-person insurance for members of our executive management team.
 
 If we fail to maintain an effective system
of internal controls, we may not be able to report our financial results accurately, may make a material misstatement in our financial
statements, may experience a financial loss, or may face litigation. Any inability to report and file our financial results accurately
and timely could harm our business and adversely affect the value of our business. 
 
 As a public company, we are
required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with
other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Even when such controls are implemented, management,
including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls
and procedures will prevent all possible errors or loss. Because of the inherent limitations in all control systems, no system of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within the Company or perpetrated against us will
be prevented or have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty
and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of
two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, measures of control may become inadequate because of changes in conditions, new fraudulent
schemes, or the deterioration of compliance with policies or procedures. Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and/or may not be detected.
 
 The accuracy of our financial
reporting depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can
provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or
detect misstatements. Failure to maintain effective internal control over financial reporting, or lapses in disclosure controls and procedures,
could undermine the ability to provide accurate disclosure (including with respect to financial information) on a timely basis, which
could cause investors to lose confidence in our disclosures (including with respect to financial information), require significant resources
to remediate the lapse or deficiency, and expose us to legal or regulatory proceedings. We have in the past identified material weaknesses
in our internal controls over financial reporting, some of which resulted in restatements of our financial statements. We cannot guarantee
that we will not experience material weaknesses in our internal controls in the future. If additional material weaknesses or significant
deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements
and we could be required to restate our financial results, which could lead to substantial additional costs for accounting and legal fees
and stockholder litigation.
 
 30 

 Any failure to maintain such
internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate
basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our
financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which
our common stock is listed, the SEC or other regulatory authorities. In either case, this could result in a material adverse effect on
our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3, which may
impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares to effect an acquisition.
Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a
negative effect on the trading price of our stock.
 
 As a result of our 2022 acquisition
of Intellibed, we are in the process of integrating its systems and processes into ours, including bringing such systems and processes
into our existing framework of internal controls. That process requires us to devote resources that might otherwise be used to grow the
business. If we do not successfully integrate the Intellibed processes into our internal controls, there may be material misstatements
that are not detected in a timely manner.
 
 We may experience litigation or other risks associated with material
weaknesses in our financial reporting internal controls. We have had previous material weaknesses that have been remediated, some of which
resulted in restatements of our previously issued audited financial statements. As a result of such restatements, material weakness, and
other matters that may in the future arise, we face potential for litigation or other disputes which may include, among others, claims
invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses
in our internal control over financial reporting and the preparation of our financial statements. As of the date of this filing, we have
no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in
the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of
operations and financial condition.
 
 We may need to implement additional finance
and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements. 
 
 We have a limited operating
history, and our systems, procedures and controls are still developing to match the complexity of our business. We are required to comply
with a variety of reporting, accounting and other rules and regulations. Compliance with existing requirements is expensive. As a public
company, we are required to comply with additional regulations and other requirements. These and future requirements may increase our
costs and require additional management time and resources. We may need to implement additional finance and accounting systems, procedures
and controls to satisfy our reporting requirements. If our internal control over financial reporting is determined to be ineffective,
such failure could cause investors to lose confidence in our reported financial information, negatively affect the value of our business,
subject us to regulatory investigations and penalties, and could have a material adverse effect on our business. Complying with existing
disclosure and other requirements may require us to expend additional resources and to enhance the capabilities of our finance and accounting
departments. If we are unable to comply with such requirements, our business and stock price may be adversely affected.
 
 31 

 Our business operations could be disrupted
if our information technology systems fail to perform adequately or are disrupted by natural disasters or other catastrophes or if we
are unable to protect the integrity and security of our information systems. 
 
 We depend largely upon our
information technology systems in the conduct of all aspects of our operations. If our information technology systems fail to perform
as anticipated, we could experience difficulties in virtually any area of our operations, including but not limited to receiving orders
from customers, replenishing inventories or delivering our products. We may be required to incur significant capital expenditures in the
pursuit of improvements or upgrades to our management information systems. These efforts may take longer and may require greater financial
and other resources than anticipated, may cause distraction of key personnel, and may cause short-term disruptions to our existing systems
and our business. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures,
or if we are unable to successfully modify our information systems to respond to changes in our business needs, our ability to run our
business could be adversely affected. It is also possible that our competitors could develop better e-commerce platforms than
ours, which could negatively impact our sales.
 
 In addition, our systems may
experience service interruptions or degradation due to hardware and software defects or malfunctions, computer denial-of-service and
other cyberattacks, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications
services, fraud, military or political conflicts, terrorist attacks, computer viruses, or other events. Some of our systems are not fully
redundant and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage,
information hijacking or ransom, and intentional acts of vandalism. Any of these or other systems related problems could, in turn, adversely
affect our sales and profitability.
 
 We are required
to make certain prepayments to any revolving loans and thereafter may not be able to draw upon our revolving line of credit. 
 
 Under
the 2020 Credit Agreement, as amended, if the aggregate amount of cash and cash equivalents we hold exceeds $25.0 million, we are
required to prepay an amount equal to the lesser of (i) the outstanding revolving loans and (ii) the amount of cash and cash
equivalents in excess of $25.0 million. In addition, we are prohibited from making additional borrowings under the revolver if after
giving effect to any borrowing, and any transactions to be consummated therewith, the aggregate amount of cash and cash equivalents exceeds
$25.0 million. Moreover, we may not request any borrowing unless we reasonably believe we will use such proceeds within five (5)
business days for a permitted purpose. As a result of these restrictions, our ability to accumulate cash in excess of $25.0 million
is limited. If for any reason we are unable to borrow on our revolving credit facility, we would be limited in available cash to pay expenses
and meet our obligations, which lack of liquidity could impair our relationships with suppliers and vendors, delay our growth plans or
prevent us from taking actions in our best interest or even continue in business.
 
 The 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, operations, marketing, and customer demand. 
 
 The
COVID-19 pandemic has resulted in far-reaching economic and financial disruptions that have adversely affected, and may continue to adversely
affect, the Company’s business, financial condition, capital, liquidity and results of operations.
 
 Governments
and businesses have adopted measures intended to prevent the spread of COVID-19, including, among other things, restrictions on travel
and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders. These and other measures have,
and may in the future, resulted in disruptions to our activities and operations that have negatively impacted our business, operating
results and financial condition.
 
 32 

 The
duration of the COVID-19 pandemic’s impact on our business, including due to government mandates in response to the pandemic, remains
uncertain and will depend on many factors outside our control, including the timing, extent, trajectory and duration of the pandemic,
the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the imposition
of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products and services.
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. We may be required to take responsive measures against COVID-19
in the future, which could limit our ability to grow our business, and our results of operations and financial condition would be adversely
affected. Additional future impacts, including 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.
 
 The
global outbreak of COVID-19 continues to evolve with frequent new strains. The ultimate impact of the COVID-19 outbreak is highly uncertain
and subject to change. However, the effects of COVID-19 and related government and social responses could have a continuing material impact
on our operations, sales and ability to continue as a going concern. To the extent the COVID-19 pandemic adversely affects our business
and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors”
section, such as those relating to our 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.
 
 The
COVID-19 pandemic created significant uncertainty in our business, slowed our anticipated wholesale partner and showroom plans and resulted
in a temporary contraction of our wholesale and Purple owned retail 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.
 
 If 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 owned 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 economy. If we cannot increase
demand in all our channels, and plan based on more predictable sales patterns, our business may be adversely affected.
 
 Regulatory and Litigation Risks 
 
 Regulatory requirements, including, but
not limited to, trade, customs, environmental, health and safety requirements, may require costly expenditures and expose us to liability. 
 
 Our products and our marketing
and advertising programs are subject to regulation in the U.S. by various federal, state and local regulatory authorities, including the
Federal Trade Commission and the CBP. In addition, our operations are subject to federal, state and local consumer protection regulations
and other laws relating specifically to the sleep product industry. These rules and regulations may conflict and may change from time
to time, as a result of changes in the political environment or otherwise. There may be continuing costs of regulatory compliance including
continuous testing, additional quality control processes and appropriate auditing of design and process compliance.
 
 33 

 In addition, we are subject
to federal, state and local laws and regulations relating to pollution, environmental protection, recycling, and occupational health and
safety. We may not be in complete compliance with all such requirements at all times, and we have been required in the past to make changes
to our facilities in order to comply with these requirements. We have made and will continue to make capital and other expenditures to
comply with environmental and health and safety requirements. If a release of harmful or hazardous substances occurs on or from our properties
or any associated offsite disposal location, or if contamination from prior activities is discovered at any of our properties, we may
be held liable and the amount of such liability could be material. As a manufacturer of mattresses, pillows, cushions and related products,
we use and dispose of a number of substances, such as glue, oil, solvents and other petroleum products, as well as certain foam ingredients,
that may subject us to regulation under numerous foreign, federal and state laws and regulations governing the environment. Among other
laws and regulations, we are subject in the U.S. to the Federal Water Pollution Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act and related state and local statutes and
regulations.
 
 We are also subject to federal
laws and regulations relating to international shipments, customs, and import controls. We may not be in complete compliance with all
such requirements at all times, and if we are not in compliance with such requirements, we may be subject to penalties or fines, which
could have an adverse impact on our financial condition and results of operations.
 
 Our operations could also
be impacted by a number of pending legislative and regulatory proposals to address greenhouse gas emissions in the U.S. and other countries.
The U.S. and certain other countries have adopted international agreements such as the Paris Agreement on climate change that include
commitments for companies to reduce greenhouse gas emissions. The State of California also is considering legislation requiring reporting
on such emissions by companies selling products into that state. In addition, the potential for federal and state actions could increase
costs associated with our manufacturing operations, including costs for raw materials, pollution control equipment and transportation.
Because it is uncertain what laws will be enacted, we cannot predict the potential impact of such laws on our future consolidated financial
condition, results of operations, or cash flows.
 
 We are also subject to regulations
and laws specifically governing the internet, e-commerce, electronic devices, and other services. These regulations and laws
may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification,
electronic waste, energy consumption, electronic contracts and other communications, competition, consumer protection, trade and protectionist
measures, web services, the provision of online payment services, information reporting requirements, unencumbered Internet access to
our services or access to our facilities, the design and operation of websites and the characteristics and quality of products and services.
It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the internet, e-commerce, digital
content, and web services. Unfavorable regulations and laws could diminish the demand for, or availability of, our products and services
and increase our cost of doing business.
 
 Claims have been made against
us for alleged violations of the Americans with Disabilities Act (“ADA”) related to accessibility to our website by the blind.
The law is unsettled as to which types of websites the ADA covers and what standards are applicable, but courts in certain jurisdictions
have recognized these types of ADA claims. While we comply with industry standards and are continuing to significantly enhance our compliance
efforts for making our website accessible to the blind, and regularly test our site for this purpose, we may be subject to such claims
and, as a result, we may be required to expend resources in defense of these claims that could increase our cost of doing business.
 
 We are also subject to various
health and environmental provisions such as California Proposition 65 (the Safe Drinking Water and Toxic Enforcement Act of 1986). For
example, previously we received a claim that one of our products did not have the proper label required by Proposition 65 warning of exposures
to chemicals that cause cancer, birth defects or other reproductive harm. In that case, we resolved the claim by adding the required warning
label. While we make efforts to comply with Proposition 65, in the future we may be subject to such claims and be required to expend resources
defending these claims and complying with Proposition 65.
 
 34 

 Regulatory requirements relating to the
manufacture and disposal of mattresses may increase our product costs and increase the risk of disruption to our business. 
 
 The U.S. Consumer Product
Safety Commission (“CPSC”) and other jurisdictions have adopted rules relating to fire retardancy standards for the mattress
industry. Some states and the U.S. Congress continue to consider fire retardancy regulations that may be different from or more stringent
than the current standard. In addition, these regulations require manufacturers to implement quality assurance programs and encourage
manufacturers to conduct random testing of products. These regulations also require maintenance and retention of compliance documentation.
These quality assurance and documentation requirements are costly to implement and maintain. If any product testing, other evidence, or
regulatory inspections yield results indicating that any of our products may not meet the flammability standards, we may be required to
temporarily cease production and distribution or to recall products from the field, and we may be subject to fines or penalties, any of
which outcomes could harm our business, reputation, sales, profitability, cash flows and financial condition.
 
 The CPSC adopted new flammability
standards and related regulations which became effective nationwide in July 2007 for mattresses and mattress and foundation sets. Compliance
with these requirements has resulted in higher materials and manufacturing costs for our products and has required modifications to our
information systems and business operations, further increasing our costs and negatively impacting our capacity. Some states and the U.S.
Congress continue to consider fire retardancy regulations that may be different from or more stringent than the CPSC standard. Adoption
of multi-layered regulatory regimes, particularly if they conflict with each other, could increase our costs, alter our manufacturing
processes and impair the performance of our products which may have an adverse effect on our business.
 
 California requires mattress
retailers delivering mattresses via common carrier in California to offer to pick up their customers’ old mattresses at no cost
to the customer. Additionally, California, Rhode Island and Connecticut have all enacted laws requiring the recycling fees for mattresses
discarded in their states. Also, we anticipate that Oregon’s new mattress recycling law will go into effect in 2024. State and local
sleep product industry regulations and regulatory proposals vary among the states in which we operate but generally impose or propose
requirements as to the proper labeling of sleep product merchandise, restrictions regarding the identification of merchandise as “new”
or otherwise, controls as to hygiene and other aspects of product handling, packaging, disposal, sales, resales and penalties for violations.
We or our suppliers may be required to incur significant expense to the extent that these regulations change and require new and different
compliance measures.
 
 New legislation aimed at improving
the fire retardancy of mattresses, regulating the handling of mattresses in connection with preventing or controlling the spread of bed
bugs could be passed, or requiring the collection or recycling of discarded mattresses, could result in product recalls or in a significant
increase in the cost of operating our business. In addition, failure to comply with these various regulations may result in penalties,
the inability to conduct business as previously conducted or at all, or adverse publicity, among other things. Adoption of multi-layered
regulatory regimes, particularly if they conflict with each other, could increase our costs, alter our manufacturing processes and impair
the performance of our products which may have an adverse effect on our business. We are also subject to various health and environmental
provisions such as 16 CFR Part 1633 (Standard for the Flammability (Open Flame) of Mattress Sets).
 
 We could be subject to additional sales
tax or other indirect tax liabilities. 
 
 The application of indirect
taxes (such as sales and use tax, value-added tax (“VAT”), goods and services tax, business tax and gross receipt tax) to e-commerce businesses
and to our users is a complex and evolving issue and we may be unable to timely or accurately determine our obligations with respect to
such indirect taxes, if any, in various jurisdictions. Many of the fundamental statutes and regulations that impose these taxes were established
before the adoption and growth of the Internet and e-commerce. 
 
 35 

 An increasing number of states
and foreign jurisdictions have considered or adopted laws or administrative practices, with or without notice, that impose additional
obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added, or similar
taxes. Failure to comply with such laws or administrative practices or a successful assertion by such states or foreign jurisdictions
requiring us to collect taxes where we did not, could result in substantial tax liabilities for past sales, as well as penalties and interest.
 
 We are subject to sales tax
or other indirect tax obligations as imposed by the various states in the United States. If the tax authorities in these jurisdictions
were to challenge our filings or request an audit, our tax liability may increase. We are currently undergoing routine audits in a few
states. Moreover, as a result of our Intellibed acquisition, we are now subject to Intellibed’s sales tax or other indirect tax
obligations and taxing authority challenges. Failure to properly identify and pay Intellibed’s tax obligations could result in a
significant negative impact.
 
 We may be subject to laws,
regulations, and administrative practices that require us to collect information from our customers, vendors, merchants, and other third
parties for tax reporting purposes and report such information to various government agencies. The scope of such requirements continues
to expand, requiring us to develop and implement new compliance systems. Failure to comply with such laws and regulations could result
in significant penalties.
 
 The U.S. Supreme Court ruling
in South Dakota v. Wayfair, Inc. , No.17-494, reversed a longstanding precedent that remote sellers are not required to collect
state and local sales taxes. We cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce.
The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing,
new or revised taxes on our business, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business
online and decrease the attractiveness of selling products over the internet. The application of these taxes on our business could also
create significant increases in internal costs necessary to capture data and collect and remit taxes. There have been, and will continue
to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which
we conduct or will conduct business.
 
 We could be subject to additional income
tax liabilities. 
 
 We are subject to federal
and state income taxes in the U.S. tax laws, regulations, and administrative practices in the U.S. and in various state and local jurisdictions
are subject to significant change or increase, and significant judgment is required in evaluating and estimating our provision and accruals
for taxes. In addition, some states and cities require additional taxes or fees for the right to sell mattresses in their jurisdiction.
While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such taxes and fees, these
reserves may prove to be insufficient.
 
 Our determination of our tax
liability is always subject to audit and review by applicable tax authorities. Any adverse outcome of any such audit or review could harm
our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect
our financial results in the period or periods for which such determination is made. Regardless of the outcome, responding to any such
audit or review could cause us to incur significant costs and could divert resources away from our operations.
 
 There are many transactions
that occur during the ordinary course of business for which the ultimate tax liability is uncertain. Our effective tax rates could be
affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in
jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related
tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses,
acquisitions (including integrations) and investments, changes in the price of our securities, changes in our deferred tax assets and
liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles,
and interpretations.
 
 A number of U.S. states have
attempted to increase corporate tax revenues by taking an expansive view of corporate presence to attempt to impose corporate income taxes
and other direct business taxes on companies that have no physical presence in their state, and taxing authorities in other jurisdictions
may take similar actions. Many U.S. states are also altering their apportionment formulas to increase the amount of taxable income or
loss attributable to their state from certain out-of-state businesses. Further, we are required to pay sales and other taxes
and fees to states where our products are warehoused before shipping or where Purple owned retail showrooms are located presently or in
the future. If more taxing authorities are successful in applying direct taxes to internet companies that do not have a physical presence
in their respective jurisdictions, this could increase our effective tax rate.
 
 36 

 Proposed legislation in the U.S. Congress,
including changes in U.S. tax law, and the recently enacted Inflation Reduction Act of 2022 may adversely impact the Company and the value
of shares of Class A common stock. 
 
 Changes to U.S. tax laws (which
changes may have retroactive application) could adversely affect the Company or holders of Class A common stock. In recent years, many
changes to U.S. federal income tax laws have been proposed and, in some cases, enacted, and additional changes to U.S. federal income
tax laws may continue to occur in the future. Additionally, states in which we operate or own assets may impose new or increased taxes.
 
 In addition, the Inflation
Reduction Act of 2022 was signed into law on August 16, 2022, and includes provisions that will impact the U.S. federal income taxation
of corporations. Among other items, this legislation includes provisions that will impose a minimum tax on the book income of certain
large corporations and an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such
stock. Any of these or similar developments or changes in federal or state tax laws or tax rulings could adversely affect our operating
 
 results and holders of our Class A common stock.
 
 Litigation related to the PRPLS issuance
may adversely impact the Company. 
 
 On February 21, 2023, Coliseum
filed a lawsuit in the Delaware Court of Chancery, captioned Coliseum Capital Management, LLC et al. v. Pano Anthos et al., Case No. 2023-0220-PAF
(Del. Ch. Feb. 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. Such litigation
may require management to devote additional resources and attention that would otherwise be directed to our operations, and could delay
the timing of the 2023 Annual Meeting.
 
 Risks Relating to our Intellectual Property and Use of Technology 
 
 We may not be able to protect our product
designs, brand, and other proprietary rights adequately, which could adversely affect our competitive position and reduce the value of
our products and brands, and litigation to protect our intellectual property rights may be costly. 
 
 We attempt to strengthen and
differentiate our product portfolio by developing new and innovative brands, product designs and functionality and materials for use in
our products. We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar
intellectual property as critical to our success. We rely on intellectual property laws and trade secret protection to protect our proprietary
rights. We also rely on contractual provisions such as confidentiality agreements, non-competition agreements and license agreements with
our vendors, contractors, employees, customers, and others to protect our proprietary rights. If we are unable to enforce these contractual
provisions for any reason, including the FTC’s currently proposed ban on non-competition provisions, we may not be able to protect
our proprietary rights adequately, which could result in a negative impact on our operations.
 
 We own various U.S. and foreign
patents and patent applications related to certain elements of the design and function of our products including mattresses, pillows,
cushions and related products, as well as related to proprietary formulas and related technology for certain materials used in the manufacturing
of our products. We own numerous registered and unregistered trademarks and trademark applications, as well as other intellectual property
rights, including trade secrets, trade dress and copyrights, which we believe have significant value and are important to the marketing
of our products. Our success will depend in part on our ability to protect our products, methods, processes and other technologies, to
preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties.
 
 Despite our efforts, we may not be able to adequately protect or enforce
our intellectual property and other proprietary rights. We have seen an increase in the number of counterfeit goods and products that
infringe on our patents, trademarks and trade dress. We have increased our proactive policing of these counterfeit goods which has led
to an increased cost of intellectual property enforcement, including a patent infringement case we have filed against Diamond Mattress
Company, Inc. and the ongoing intellectual property action filed with the International Trade Commission. We anticipate our expenditures
of financial and managerial resources in these and other potential litigations could be significant, depending on how they progress. These
types of litigations could extend for months or years. There is no guarantee that any litigation will result in an outcome favorable to
us, and even if we obtain favorable judgments, the prevalence of infringement or counterfeit goods could continue to cause harm to the
business and diminish the value of our intellectual property.
 
 37 

 Effective protection or enforcement
of intellectual property rights may be unavailable or limited in the jurisdictions in which we do business. We also may be unable to acquire
or maintain appropriate trademarks and domain names in all jurisdictions in which we do business. Furthermore, regulations governing domain
names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. Third parties that license our
proprietary rights also may take actions that diminish the value of our proprietary rights or reputation. We also cannot be certain that
others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights. If
we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations.
 
 We, or the owners of any intellectual property
rights licensed to us, may be subject to claims that we or such licensors have infringed the proprietary rights of others, which could
require us and our licensors to obtain a license or change designs. 
 
 As we continue to increase
our innovations and create new products and technologies, and as we enter new product spaces, we may be limited by the intellectual property
rights of others. We respect the intellectual property rights of others; however, our ability to innovate and increase our product footprint
may be limited by the intellectual property rights of those other parties.
 
 We have been subject to, and
expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights
of third parties. Although we do not believe any of our products infringe upon the proprietary rights of others, there is no assurance
that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or pursued
against us or those from whom we have licenses or that any such assertions or prosecutions will not have a material adverse effect on
our business. Regardless of whether any such claims are valid or can be asserted successfully, defending against such claims could cause
us to incur costs and could divert resources away from our other activities. In addition, assertion of infringement claims could result
in injunctions that prevent us from distributing our products. If any claims or actions are asserted against us or those from whom we
have licenses, we may seek to obtain a license to the intellectual property rights that are in dispute. Such a license may not be available
on reasonable terms, or at all, which could force us to change our designs.
 
 Purple LLC has licensed certain intellectual
property to EdiZONE, LLC (“EdiZONE”), which is owned by Tony and Terry Pearce, former members of our Board, via TNT Holdings,
LLC (“TNT Holdings”), for the purpose of enabling EdiZONE to meet its contractual obligations to licensees of EdiZONE under
contracts entered into years before the Business Combination, and some of those licensees are competitors of Purple LLC and have exclusivity
rights that Purple LLC is required to observe. 
 
 Prior to the Business Combination,
we also entered into an Amended and Restated Confidential Assignment and License Back Agreement with EdiZONE, an entity beneficially owned
and controlled by the founders, Tony Pearce and Terry Pearce (former employees, directors and beneficial majority shareholders), through
their ownership of TNT Holdings, pursuant to which EdiZONE transferred tangible and intellectual property to us and we licensed back to
EdiZONE certain intellectual property previously licensed by EdiZONE to third parties prior to the Business Combination in order to enable
EdiZONE to continue to meet certain pre-existing license obligations to those third parties. EdiZONE and the Pearces have agreed
to not modify or extend these third-party licenses and to not enter new third-party licenses. As these third-party license obligations
end, all rights under the license revert to the Company.
 
 Among EdiZONE’s previously
entered into licenses of comfort-related intellectual property, as described above, one license includes exclusivity rights that may prohibit
us from selling our existing mattresses or potentially new mattress products in the European Union. That risk may be addressed by redesign
of the configuration of the Hyper-Elastic Polymer material in that geographic region by either using existing technologies already assigned
by EdiZONE to Purple LLC or developing new technologies. Alternatively, that risk may not exist at all to the extent Purple LLC’s
current mattress products are the subject of expired patent rights licensed by that licensee or because Purple LLC is not the licensor.
However, there can be no assurance that our future sales in the European Union, if any, will not be challenged by EdiZONE’s licensee
as a violation of the license agreement, or that any redesigned mattresses created by us will be successful in that market when we may
enter it. If Purple LLC’s activities are challenged by a licensee, Purple LLC has an indemnification obligation to EdiZONE and the
Pearces, which may be an expense to the Company.
 
 38 

 Purple LLC has obtained, with
the cooperation of EdiZONE and the Pearces, the right at Purple LLC’s expense to enforce its intellectual property rights against
any of these licensees in the event they violate their licenses with EdiZONE or infringe on intellectual property owned by Purple LLC,
provided that Purple LLC will indemnify EdiZONE and fund the expense of such enforcement. In the event such enforcement is deemed necessary
by Purple LLC, Purple LLC may not be successful in any such efforts to enforce its intellectual property and other rights and this may
harm our business.
 
 While the current license
back to EdiZONE, as amended following the Business Combination, is much narrower than the license that existed at the time of the Business
Combination, EdiZONE’s third-party licenses may lead to conflicts between us and EdiZONE. If conflicts do arise and are not properly
addressed, disputes may occur which may be detrimental to the Company.
 
 If we cannot keep pace with rapid technological
developments to provide new and innovative programs, products and services, the use of our products and our revenues could decline. 
 
 Rapid, significant technological
changes continue to confront the industries in which we operate. We cannot predict the effect of technological changes on our business.
We expect that new services and technologies applicable to the industries in which we operate will continue to emerge. These new services
and technologies may be superior to, or render obsolete, the technologies we currently use in our products and services. Incorporating
new technologies into our products and services may require substantial expenditures and take considerable time, and ultimately may not
be successful. In addition, our ability to adopt new services and develop new technologies may be inhibited by industry-wide standards,
new laws and regulations, resistance to change from clients or merchants, or third parties’ intellectual property rights. Our success
will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards.
 
 Our business and our reputation could be
adversely affected by the failure to protect sensitive employee, customer and consumer data, or to comply with evolving regulations relating
to our obligation to protect such data. 
 
 In the ordinary course of
our business, we collect and store certain personal information from individuals, such as our customers and suppliers, and we process
customer payment card and check information for purchases via our website. In addition, we may share with third-parties personal information
we have collected. Cyber-attacks designed to gain access to sensitive information by breaching security systems of large organizations
leading to unauthorized release of confidential information have occurred at a number of major U.S. companies despite widespread recognition
of the cyber-attack threat and improved data protection methods. Computer hackers may attempt to penetrate our computer system or the
systems of third-parties with which we have shared personal information and, if successful, misappropriate personal information, payment
card or check information or confidential Company business information. In addition, a Company employee, contractor or other third party
with whom we do business may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently
cause a breach involving such information. Breaches involving any such information could be more likely to the extent we have any material
weakness in internal control over financial reporting related to information technology general controls in the areas of user access and
segregation of duties related to certain IT systems that support the Company’s financial reporting processes.
 
 We and third-parties with
which we have shared personal information have been subject to attempts to breach the security of networks, IT infrastructure, and controls
through cyber-attack, malware, computer viruses, social engineering attacks, ransomware attacks, and other means of unauthorized access.
For example, in 2022, we experienced a spear-phishing attack that resulted in the unauthorized change to a significant vendor’s
bank account to which we made payments that were lost in part until the scheme was discovered. We expect that this attack will result
in costs to us of up to $250,000. We anticipate that we may, in the future, continue to be subject to these and similar cyber threats.
A breach of systems resulting in the unauthorized release of sensitive data could also adversely affect our reputation and lead to financial
losses from remedial actions or potential liability, possibly including punitive damages, and could also materially increase the costs
we already incur to protect against these risks. In addition, cyber-attacks, such as ransomware attacks, if successful, could interfere
with our ability to access and use systems and records that are necessary to operate our business. Such attacks could materially adversely
affect our reputation, relationships with customers, and operations and could require us to expend significant resources to resolve such
issues. We continue to balance the additional risk with the cost to protect us against a breach. Additionally, while losses arising from
a breach may be covered in part by insurance that we carry, such coverage may not be adequate for liabilities or losses actually incurred.
 
 39 

 We may be subject to data
privacy and data breach laws in the states in which we do business, and as we expand into other countries, we may be subject to additional
data privacy laws and regulations. In many states, state data privacy laws (such as the California Consumer Privacy Act), including application
and interpretation, are rapidly evolving. The rapidly evolving nature of state and federal privacy laws, including potential inconsistencies
between such laws and uncertainty as to their application, adds additional compliance costs and increases our risk of non-compliance.
While we attempt to comply with such laws, we may not be in compliance at all times in all respects. Failure to comply with such laws
may subject us to fines, administrative actions, and reputational harm. 
 
 Risks Relating to our Organizational Structure 
 
 The market price of our Class A common stock
may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above your
purchase price. 
 
 The market price of our stock
has historically experienced high levels of volatility. If you purchase shares of our Class A common stock, you may not be able to resell
those shares at or above your purchase price. The market price of our Class A common stock has fluctuated and may fluctuate significantly
in response to numerous factors, some of which are beyond our control and may not be related to our operating performance, including but
not limited to: 
 
 ● 
 announcements of new offerings, products, services or technologies, commercial relationships, acquisitions, or other events by us or our competitors; 

 ● 
 price and volume fluctuations in the overall stock market from time to time; 

 ● 
 significant volatility in the market price and trading volume of companies in our industry; 

 ● 
 fluctuations in the trading volume of our shares or the size of our public float; 

 ● 
 actual or anticipated changes or fluctuations in our results of operations; 

 ● 
 whether our results of operations meet the expectations of securities analysts or investors; 

 ● 
 actual or anticipated changes in the expectations of investors or securities analysts; 

 ● 
 litigation involving us, our industry, or both; 

 ● 
 regulatory developments in the United States, foreign countries, or both; 

 ● 
 general or industry economic conditions and trends; 

 ● 
 terrorist attacks, political upheaval, natural disasters, public health crises, or other major catastrophic events; 

 ● 
 sales of large blocks of our common stock; 

 ● 
 departures of key employees; 

 ● 
 an adverse impact on us from any of the other risks cited herein; or 

 ● 
 unsolicited takeover bids and proposals. 

 In addition, if the stock
market for companies in our industry or related industries, or the stock market generally, experiences a loss of investor confidence,
the trading price of our Class A common stock could decline for reasons unrelated to our business, financial condition or results of operations.
Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.
The trading price of our Class A common stock might also decline in reaction to events that affect other companies in our industry even
if these events do not directly affect us. In the past, stockholders have filed securities class action litigation following periods of
market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources
and the attention of management from our core business, and adversely affect our business.
 
 40 

 Anti-takeover provisions in our Second
Amended and Restated Certificate of Incorporation, our Second Amended and restated Bylaws as well as provisions of Delaware law and our
Rights Agreement, contain anti-takeover provisions, any of which could delay or discourage a merger, tender offer, or assumption of control
of the Company not approved by our Board of Directors that some stockholders may consider favorable. 
 
 Provisions of Delaware law,
our Second Amended and Restated Certificate of Incorporation, and our Second Amended and Restated Bylaws and our Rights Agreement could
hamper a third party’s acquisition of us, or discourage a third party from attempting to acquire control of us. You may not have
the opportunity to participate in these transactions. These provisions could also limit the price that investors might be willing to pay
in the future for equity interests in the Company. These provisions include: 
 
 ● 
 the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board; 

 ● 
 a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; 

 ● 
 a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members of our Board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; 

 ● 
 the requirement that changes or amendments to certain provisions of our certificate of incorporation or bylaws must be approved by holders of at least two-thirds of our common stock; and 

 ● 
 advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. 

 In December 2022, we amended
our bylaws to add requirements relating to stockholder nominations of directors, including a requirement that stockholder nominees complete
a written questionnaire and that stockholder nominees make themselves available for interviews by our Board upon request.
 
 In addition, we are subject
to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain transactions with stockholders owning
15% or more of our outstanding voting stock or require us to obtain stockholder approval prior to engaging in such transactions. Coliseum
collectively holds approximately 44.7% of our outstanding voting stock. Any delay or prevention of a change in control transaction or
changes in our Board could adversely affect our ability to execute transactions that are needed to carry out our operations and growth
strategies and cause the market price of our common stock to decline.
 
 Further, on September 25,
2022, we adopted the Rights Agreement. The intent of the Rights Agreement is to protect our stockholders’ interests by encouraging
anyone seeking control of our Company to negotiate with our Board. However, the Rights Agreement could make it more difficult for a third
party to acquire us without the consent of our Board, even if doing so may be beneficial to our stockholders. The Rights Agreement may
discourage, delay or prevent a tender offer or takeover attempt, including offers or attempts that could result in a premium over the
market price of our common stock. The Rights Agreement could reduce the price that stockholders might be willing to pay for shares of
our common stock in the future. The anti-takeover provisions of the Rights Agreement may entrench management and make it more difficult
to replace management even if the stockholders consider it beneficial to do so.
 
 On February 14, 2023, the
Board’s Special Committee announced a dividend of one new 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 for proportional representation. With the issuance of PRPLS, all shareholders, including those not affiliated
with Coliseum, will be able to cumulate their PRPLS votes on director candidates they feel will best represent the interests of all shareholders.
The PRPLS enable shareholders who are not affiliated with CCM to choose and elect as many as 55% of the directors on the Board. However,
the issuance of PRPLS has been challenged in court by Coliseum, and there is no guarantee that Coliseum will not prevail.
 
 41 

 Provisions in our Second Amended and Restated
Certificate of Incorporation could make it very difficult for an investor to bring any legal actions against us and our directors or officers
and could require us to pay any amounts incurred by our directors or officers in any such actions. 
 
 Our Second Amended and Restated
Certificate of Incorporation provides that, to the fullest extent permitted by law, our directors shall not be personally liable for monetary
damages for breach of fiduciary duties. Our Second Amended and Restated Certificate of Incorporation also allows us to indemnify our directors
and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. Additionally,
we sign indemnification agreements with our directors and officers that provide them with similar indemnification rights. This means that
if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they
incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification
obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations
and cash flows, and adversely affect the value of our business.
 
 Provisions in our Second Amended and Restated
Certificate of Incorporation may limit our stockholders’ ability to obtain a favorable judicial forum. 
 
 Our Second Amended and Restated
Certificate of Incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for substantially
all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers, employees or agents. It also provides that, unless we consent to the selection of an alternative
forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought
on our behalf; any action asserting a claim for or based on a breach of duty or obligation owed by any current or former director, officer
or employee of ours to us or to our stockholders, including any claim alleging the aiding and abetting of such a breach; any action asserting
a claim against us or any current or former director, officer or employee of ours arising pursuant to any provision of the Delaware General
Corporation Law or our certificate of incorporation or bylaws; or any action asserting a claim related to or involving us that is governed
by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce any liability or duty
created by the Securities Act of 1933, as amended, (the “Securities Act”) or the Exchange Act or any other claim for which
the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27
of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange
Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal
and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. This
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers or employees.
Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could
have a material adverse effect on our business, financial condition, results of operations and prospects.
 
 Future sales of our Class A common stock
in the public market may depress our share price. 
 
 Sales of a substantial number
of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the market price
of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities or other securities
convertible into or exchangeable for equity securities, regardless of whether there is any relationship between such sales and the performance
of our business. As of February 28, 2023, we had 104,780,323 shares of Class A common stock outstanding, held by approximately 87 stockholders
of record, all of which shares were, and continue to be, eligible for sale in the public market, subject in some cases to compliance with
the requirements of Rule 144, including the volume limitations and manner of sale requirements. The market price of our Class A common
stock could decline as a result of sales by a few large stockholders, such as Coliseum, in the market or the perception that these sales
could occur. These sales might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate.
 
 Our stockholders may experience substantial
dilution in the value of their investment or may otherwise have their interests impaired if we issue additional shares of our capital
stock. 
 
 Our charter allows us to issue
up to 300 million shares of our Common Stock, including 210 million shares of Class A common stock and 90 million shares
of Class B common stock, and up to five million shares of undesignated preferred stock, par value $0.0001 per share. For example, in February
2023 we issued 13,400,000 shares of Class A common stock. To raise additional capital, we may in the future sell additional shares of
our Class A common stock or other securities convertible into or exchangeable for our Class A common stock at prices that are lower than
the prices paid by existing stockholders, and investors purchasing shares or other securities in the future could have rights superior
to existing stockholders, which could result in substantial dilution to the interests of existing stockholders.
 
 42 

 Pursuant to our Second Amended
and Restated Certificate of Incorporation, the Board may authorize the issuance of up to five million shares of preferred stock at any
time and from time to time, with such terms and preferences as the Board determines and without any stockholder approval other than as
may be required by NASDAQ Global Market rules. The issuance of such shares of preferred stock could dilute the interest of, or impair
the voting power of, our common stockholders. The issuance of such preferred stock could also be used as a method of discouraging, delaying,
or preventing a change of control.
 
 Our only significant asset is our ownership
of Purple LLC and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends
on our Class A common stock or satisfy our other financial obligations, including our obligations under the Tax Receivable Agreement. 
 
 We are a holding company and
do not directly own any operating assets other than our ownership of interests in Purple LLC. We depend on Purple LLC for distributions,
loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded
company, to pay any dividends, and to satisfy our obligations under the Tax Receivable Agreement. The earnings from, or other available
assets of, Purple LLC may not be sufficient to make distributions or pay dividends, pay expenses or satisfy our other financial obligations,
including our obligations under the Tax Receivable Agreement. Moreover, our debt covenants may not allow us to pay dividends.
 
 We do not anticipate paying any cash dividends
in the foreseeable future. 
 
 We intend to retain future
earnings, if any, for use in the business or for other corporate purposes and do not anticipate that cash dividends with respect to our
Class A common stock will be paid in the foreseeable future. Any decision as to the future payment of dividends will depend on our
results of operations, financial position and such other factors as our Board, in its discretion, deems relevant. Moreover, our debt covenants
may not allow us to pay dividends. As a result, capital appreciation, if any, of our Class A common stock will be a stockholder’s
sole source of gain for the foreseeable future.
 
 Our level of indebtedness and related covenants
could limit our operational and financial flexibility and significant adversely affect our business if we breach such covenants and default
on such indebtedness. 
 
 As of March 21, 2023, Purple
LLC had no debt outstanding under the 2020 Credit Agreement. Under the 2020 Credit Agreement, we are subject to a number of affirmative
and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business
combinations or acquisitions, incurrence of additional indebtedness, and transactions with affiliates, among other customary covenants,
subject to certain exceptions. In particular, we are (i) subject to annual capital expenditure limits that can be adjusted based
on the Company achieving certain Net Leverage Ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from incurring
additional debt up to certain amounts, subject to limited exceptions, as set forth in the Credit Agreement, and (iii) maintain minimum
Consolidated Net Leverage Ratio and Fixed Charge Coverage Ratio (as those terms are defined in the Credit Agreement) thresholds at certain
measurement dates. Purple LLC is also restricted from paying dividends or making other distributions or payments on its capital stock,
subject to limited exceptions.
 
 These restrictions may prevent
us from taking actions that we believe would be in the best interests of the business and may make it difficult for us to successfully
execute our business strategy or effectively compete with companies that are not similarly restricted. If we determine that we need to
take any action that is restricted under the 2020 Credit Agreement, we will need to first obtain a waiver from the Institutional Lenders.
Obtaining such waivers, if needed, may impose additional costs on the Company or we may be unable to obtain such waivers. Our ability
to comply with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall
business strategy. The breach of any of these covenants or restrictions could result in a default, which could result in the acceleration
of our outstanding debt. In the event of an acceleration of such debt, we could be forced to apply all available cash flows to repay such
debt, which could also force us into bankruptcy or liquidation.
 
 43 

 In the past, we have been
required to negotiate with our lenders to obtain amendments to the 2020 Credit Agreement to avoid non-compliance with certain of our covenants
under the 2020 Credit Agreement. For example, 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
acquisitions of other business 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 additional negative
covenants during the covenant amendment period include additional restrictions on certain consolidations, mergers, acquisitions, asset
sales, statutory divisions, liens, indebtedness, investments, guaranty obligations, and restricted payments
 
 On
February 17, 2023, we entered into the fifth amendment to the Credit Agreement. The fifth amendment reduced our credit availability to
a $50 million revolving line of credit. The fifth amendment provides that the maximum leverage ratio covenant will not be tested for the
first and second quarters of 2023, and revises the ratio to 4.50x for the third quarter of 2023 and 3.00x for the fourth quarter of 2023
and thereafter. In addition, the minimum fixed charge coverage ratio covenant will also not be tested for the first and second quarters
of 2023, and revised to 1.50x for the third and fourth quarters of 2023, and 2.00x for the first quarter of 2024 and thereafter. Other
changes in the fifth amendment include new minimum EBIDTA covenants requiring we pass a minimum EBITDA test, limits on growth capital
expenditures, and restricts the number of Purple owned retail showrooms we can open in 2023, 2024 and 2025. Our 2020 Credit Agreement,
as amended, can be found as an exhibit to our Current Report on Form 8-K filed with the SEC on February 21, 2023.
 
 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 amendments 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, and significantly limit our ability to execute on our business
strategies.
 
 We may issue debt and equity securities
or securities convertible into equity securities, any of which may be senior to our Class A common stock as to distributions and in liquidation,
which could negatively affect the value of our Class A common stock. 
 
 In
the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is unsecured
or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or
unsecured notes, preferred stock, hybrid securities or securities convertible into or exchangeable for equity securities. In the event
of our liquidation, our lenders and holders of our debt would receive distributions of our available assets before distributions to holders
of our Class A common stock, and holders of securities senior to the Class A common stock would receive distributions of our available
assets before distributions to the holders of our Class A common stock. Because our decision to incur debt and issue securities in future
offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing
or nature of our future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the
issuance of our securities in the future.
 
 44 

 Tax Risks Relating to our Structure 
 
 Although we may be entitled to tax benefits
relating to additional tax depreciation or amortization deductions as a result of the tax basis step-up we receive in connection
with the exchanges of Class B Units and shares of Class B Stock into our Class A common stock and related transactions,
we will be required to pay InnoHold 80% of these tax benefits under the Tax Receivable Agreement. 
 
 Owners of Class B Units
and shares of Class B common stock may, subject to certain conditions and transfer restrictions, exchange their Class B Units
and shares of Class B common stock (together with an equal number of Class B Units, the “Paired Securities”) for shares
of Class A common stock pursuant to an exchange agreement, dated February 2, 2018, with Purple LLC, InnoHold and the Class B Unit
holders who became a party thereto (the “Exchange Agreement”). The deemed exchanges in the Business Combination and any exchanges
pursuant to the Exchange Agreement are expected to result in increases in our allocable share of the tax basis of the tangible and intangible
assets of Purple LLC. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore
reduce the amount of income or franchise tax that we would otherwise be required to pay in the future, although the Internal Revenue Service
or any applicable foreign, state or local tax authority may challenge all or part of that tax basis increase, and a court could sustain
such a challenge. As of December 31, 2022, there have been 43.6 million exchanges of Class B Units and shares of Class B
common stock for shares of Class A common stock, in addition to the deemed exchanges that occurred in connection with the Business
Combination.
 
 In connection with the Business
Combination, we entered into the Tax Receivable Agreement, which generally provides for the payment by us to InnoHold of 80% of certain
tax benefits, if any, that we realize as a result of these increases in tax basis and of certain other tax benefits related to entering
into the Tax Receivable Agreement, including income or franchise tax benefits attributable to payments under the Tax Receivable Agreement.
These payment obligations pursuant to the Tax Receivable Agreement are the obligation of the Company and not of Purple LLC. The actual
increase in our allocable share of the Company’s tax basis in its assets, as well as the amount and timing of any payments under
the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the market price of shares
of our common stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of our income.
For example, in January 2023 we paid $0.3 million to InnoHold under the Tax Receivable Agreement. As of December 31, 2022, the Company’s
preliminary estimate of the liability under the Tax Receivable Agreement resulting from the deemed exchanges that occurred in connection
with the Business Combination and subsequent exchanges of 43.6 million Paired Securities as of December 31, 2022 was approximately
$168.8 million. The Company determined the likelihood of a future Tax Receivable Agreement liability was not probable and therefore no
liability has been recorded. To the extent the Company realizes tax benefits in future years, or in the event of a change in future tax
rates, or if payments under the Tax Receivable Agreement are required to be accelerated, this liability may increase.
 
 Because not all of the relevant
factors described above are known at this time with respect to the exchanges that have occurred, and none of the relevant factors are
known with respect to 0.4 million future exchanges (whether this year or in subsequent years), except as estimated above, we cannot yet
with certainty determine the final amounts that will be payable under the Tax Receivable Agreement. However, as a result of the size and
frequency of the exchanges and the resulting increases in the tax basis of the tangible and intangible assets of Purple LLC, the payments
under the Tax Receivable Agreement will be substantial and could have a material adverse effect on our financial condition. The payments
under the Tax Receivable Agreement are not conditioned upon continued ownership of the Company by the holders of Class B Units.
 
 InnoHold will not be required
to reimburse us for any excess payments that may previously have been made under the Tax Receivable Agreement, for example, due to adjustments
resulting from examinations by taxing authorities. Rather, excess payments made to such holders will be netted against payments otherwise
to be made, if any, after the determination of such excess. As a result, in certain circumstances we could make payments under the Tax
Receivable Agreement in excess of our actual income or franchise tax savings, if any, and we may not be able to recoup such excess, which
could materially impair our financial condition and adversely affect our liquidity.
 
 45 

 If all of the 0.4 million
Paired Securities outstanding as of December 31, 2022 were exchanged for shares of Class A common stock pursuant to the Exchange
Agreement, and the fair market value of the Class A common stock at the time of such exchange were equal to $4.32 per share (the
closing price of a share of our Class A common stock on February 28, 2023), our aggregate liability under the Tax Receivable Agreement
would not increase from the estimated $168.8 million liability described above, with the amount payable in estimated annual amounts
ranging from $0.0 million to $18.7 million over a 20-year period. The foregoing estimate of our aggregate liability is based on certain
assumptions, including that there are no changes in relevant tax law, that we are able to fully depreciate or amortize our assets, and
that we recognize taxable income sufficient to realize the full benefit of the increased depreciation and amortization of our assets in
each of the tax years. These assumptions may not be accurate with respect to all or any exchanges of Paired Securities for Class A
common stock. As a result, the amount and timing of our actual aggregate liability under the Tax Receivable Agreement may differ materially
from our estimates depending on a number of factors, including those described above and elsewhere in this Annual Report on Form 10-K.
 
 In certain cases, payments under the Tax
Receivable Agreement may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject
to the Tax Receivable Agreement. 
 
 The Tax Receivable Agreement
provides that, in the event that we exercise our right to early termination of the Tax Receivable Agreement, or in the event of a change
of control of the Company or we are more than 90 days late in making of a payment due under the Tax Receivable Agreement, the Tax Receivable
Agreement will terminate, and we will be required to make a lump-sum payment to InnoHold equal to the present value of all forecasted
future payments that would have otherwise been made under the Tax Receivable Agreement, which lump-sum payment would be based
on certain assumptions, including those relating to our future taxable income. We estimate the potential lump-sum payment to be approximately
$108.5 million as of February 28, 2023. This potential early termination payment can be significantly impacted by the discounted interest
rate at the time of termination. The change of control payment to InnoHold and the other owners could be substantial and could exceed
the actual tax benefits that we receive as a result of acquiring units from other owners of Purple LLC because the amounts of such payments
would be calculated assuming that we would have been able to use the potential tax benefits each year for the remainder of the amortization
periods applicable to the basis increases, and that tax rates applicable to us would be the same as they were in the year of the termination.
In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and
could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other
changes of control due to the additional transaction cost a potential acquirer may attribute to satisfying such obligations. There can
be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.
 
 Decisions made in the course
of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control,
may influence the timing and amount of payments that are received by InnoHold under the Tax Receivable Agreement. For example, the earlier
disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the Tax Receivable Agreement
and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction will increase
an existing owner’s tax liability without giving rise to any rights of InnoHold to receive payments under the Tax Receivable Agreement.
 
 Even in the absence of an
early termination of the Tax Receivable Agreement, change of control of the Company or a payment that is more than 90 days late under
the Tax Receivable Agreement, there may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement
exceed the actual income or franchise tax savings that we realize in respect of the tax attributes subject to the Tax Receivable Agreement
or if distributions to us by Purple LLC are not sufficient to permit us to make payments under the Tax Receivable Agreement after we have
paid taxes and other expenses. Furthermore, our obligations to make payments under the Tax Receivable Agreement could make us a less attractive
target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are deemed realized
under the Tax Receivable Agreement. We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement
to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies
or otherwise which may have a material adverse effect on our financial condition. There can be no assurance that we will be able to finance
our obligations under the Tax Receivable Agreement.
 
 46 

 We may not be able to realize all or a portion
of the tax benefits that are expected to result from the acquisition of Units from Purple LLC Class B Unitholders. 
 
 Pursuant to the Tax Receivable
Agreement, the Company will share tax savings resulting from (A) the amortization of the anticipated step-up in tax basis
in Purple LLC’s assets as a result of (i) the Business Combination and (ii) the exchange of (a) the Class B
Units and (b) the Class B common stock, in each case that were received in connection with the Business Combination, for shares
of Class A common stock pursuant to the Exchange Agreement and (B) certain other related transactions with InnoHold in connection
with the Business Combination. The amount of any such tax savings attributable to the payment of cash to InnoHold in connection with the
Business Combination and the exchanges contemplated by the Exchange Agreement will be paid 80% to InnoHold and other owners of such securities
and retained 20% by the Company. Our ability to realize, and benefit from, these tax savings depends on a number of assumptions, including
that we will earn sufficient taxable income each year during the period over which the deductions arising from any such basis increases
and payments are available and that there are no adverse changes in applicable law or regulations. If our actual taxable income were insufficient
to fully utilize such tax benefits or there were adverse changes in applicable law or regulations, we may be unable to realize all or
a portion of these expected benefits and our cash flows and stockholders’ equity could be negatively affected.
 
 Unanticipated changes in effective tax rates,
including as a result of new tax jurisdictions, or adverse outcomes resulting from examination of our income or other tax returns could
adversely affect our financial condition and results of operations. 
 
 Our future effective tax rates
could be subject to volatility or adversely affected by a number of factors, including:
 
 ● 
 changes in the valuation of our deferred tax assets and liabilities; 

 ● 
 expected timing and amount of the release of any tax valuation allowances; 

 ● 
 tax effects of stock-based compensation; 

 ● 
 costs related to intercompany restructurings; and 

 ● 
 the addition of new tax jurisdictions or changes in tax laws, regulations or interpretations thereof. 

 In addition, we may be subject
to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have
an adverse effect on our financial condition and results of operations.
 
 Our ability to utilize our net operating
loss carryforwards and certain other tax attributes may be limited. 
 
 Under Section 382 and
related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership
change” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders
over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards (“NOLs”)
and other pre-change tax attributes to offset its post-change income may be limited. If finalized, Treasury Regulations currently proposed
under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other tax attributes if we undergo a future
ownership change. Thus, our ability to utilize carryforwards of our net operating losses, including net operating losses acquired from
the Intellibed acquisition, and other tax attributes to reduce future tax liabilities may be substantially restricted. As of December
31, 2022, we have not completed a Section 382 analysis and an ownership change may have occurred. There may be significant annual
limitations on the NOLs and other tax attributes. Until an analysis is completed, there can be no assurance that the existing net operating
loss carry-forwards or credits are not subject to significant limitation. In addition, we may experience ownership changes in the future
which could further limit our existing NOLs.
 
 47 

 Item 1B. Unresolved Staff Comments 
 
 None.
Purple Innovation, Inc. 10-K

Item 1A. Risk Factors
