What changed in this filing

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Item 1A. Risk Factors

2023-05-10 compared with 2022-11-09 · 78 added, 907 removed, 10 unchanged (99% of the section changed)

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

filed with the SEC on March 1, 2022.The disclosure of risks identified below does not imply that the risk has not already materialized.

Changes in economic

conditions, including inflationary trends in the price of our input costs, such as raw materials and labor, and impacts on our consumers,

could adversely affect our business and financial results.

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

The price and availability of these raw materials are subject to market conditions affecting supply and demand.

Given the significance

of the cost of these materials to our products, volatility in the prices of the underlying commodities can significantly affect profitability.

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

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

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

Reductions in consumer discretionary spending

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

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.

Historically,

we have expanded our operations, including expanding our workforce, increasing our product offerings and scaling our infrastructure to

support expansion of our manufacturing capacity, our wholesale channel expansion and the opening of Purple retail showrooms.

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

channels, including wholesale and Purple retail showrooms, and extending our global reach to other countries.

This expansion increases

the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance,

financial resources, and internal financial control and reporting functions.

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

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

If we do not manage growth effectively, the quality of our products and fulfillment capabilities may suffer which could adversely affect

our operating results.

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

If we are unable to satisfy

our liquidity and capital resource requirements, we may have to scale back, postpone or discontinue our growth strategies, which could

result in slower growth, no growth, or shrinking, and we may run the risk of losing key suppliers, we may not be able to timely satisfy

customer orders, and we may not be able to retain our employees.

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

or pursue work-out options.

growth depends in part on our ability to manage the opening and operating of new production facilities and Purple retail showrooms, which

will require our entering into leases and other obligations.

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

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

In general, operating new

facilities and opening Purple retail showrooms in new locations exposes us to laws in other states, including California, that may not

be as employer-friendly as those in which we currently operate, and may expose us to new liabilities.

If we are not able to successfully

manage the process of expanding operations geographically, opening Purple retail showrooms and maintaining operations in an expanding

number of facilities and Purple retail showrooms, we may have to close Purple retail showrooms or operations facilities and incur sunk

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

manage growth effectively, we would need to continue to implement operational, financial and management controls and reporting systems

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

There is no assurance that we will be able to fulfill

our staffing requirements for our business, successfully train and assimilate new employees, or expand our management base and enhance

our operating and financial systems.

Failure to achieve any of these goals will prevent us from managing our growth in an effective manner

and could have a material adverse effect on our business, financial condition or results of operations.

In addition, a softening of demand,

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

or global economies, may result and has resulted in decreased

revenue or growth.

For example, we are experiencing weaker demand 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.

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

improve the customer’s experience.

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

and procedures for improving employee training and retention.

Competition for employees where our production facilities are located also

has increased the costs for employee retention.

We have implemented improved processes and procedures in an environment of continuous

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

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

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

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

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 the COVID-19

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 three of our currently operating manufacturing plants are located

within the same geographic region, regional economic downturns, natural disasters, closures due to COVID-19, the unavailability of utilities

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

operating activities, which could adversely affect our business.

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

is located in an area that may be subject to hurricanes;

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

activities, which could adversely affect our business.

Any disruption of our operations,

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

securities litigation.

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

business, and adversely affect our business.

We may need additional capital to execute

our business plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.

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

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

(ii) increasing our e-commerce sales;

(iii) expanding our wholesale distribution channel;

additional Purple retail showrooms;

(v) expanding our global sales;

(vi) engaging global partners to improve distribution efficiencies

and cost savings;

and (vii) product assortment and category expansion.

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

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

which could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may not be able to timely satisfy

customer orders, and we may not be able to retain our employees.

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

pursue work-out options or other protective measures.

While we have had access to

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

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

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

including approval from KeyBank National Association and a group of financial institutions (the “Institutional Lenders”) under

the 2020 Credit Agreement.

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

The restrictive

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

not be able to satisfy the conditions necessary to obtain additional funds pursuant to the revolving credit facility under the 2020 Credit

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

As a result, there can be no assurance that we will be able to

fund our future operations or growth strategies.

Our operating and financial

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

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

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

The amendment contains a covenant

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

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

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

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

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

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

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

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

To the extent that future

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

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

2020 Credit Agreement.

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

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

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

In addition, any default under the 2020 Credit

Agreement would adversely affect our ability to obtain alternative financing.

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

stockholders.

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

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

Furthermore, we may incur substantial costs in pursuing

future capital and financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other

We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible

notes and warrants, which will adversely impact our financial condition.

If we cannot raise additional funds on favorable terms or at

all, we may not be able to carry out all or parts of our long-term growth strategy, maintain our growth and competitiveness or continue

We may not be able to identify, complete

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

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

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.

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

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

Future acquisitions could entail numerous risks, including:

difficulties in integrating acquired 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;

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.

For example, we recently acquired Intellibed , which has operated in a higher priced market in which

we may not be able to successfully operate.

Moreover, Intellibed has used different systems and different manufacturing processes using

different personnel.

If we are not able to effectively integrate Intellibed’s systems or products into our operations, our business

will be adversely affected.

In addition, integrating Intellibed into our business will require us to expend significant resources and

significant effort from our management team, which could divert such resources and management’s attention from developing our core

business and adversely affect our results of operations.

Our future growth

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

ability to attract and retain customers.

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

awareness and sales of our products.

We continue to evolve our marketing strategies, adjusting our messages, the amount we spend on advertising

and where we spend it.

We may not always be successful in developing effective messages and new marketing channels, as consumer preferences

and competition change, and in achieving efficiency in our advertising expenditures.

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

If we are unable

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

platform decreases, or if we are unable to direct our advertising to our target consumer groups, our advertising efforts may be ineffective,

and our business could be adversely affected.

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

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

have relationships with traditional and digital media partners, online services, search engines, affiliate marketing websites, directories

and other website and e-commerce businesses to provide content, advertising and other links that direct customers to our website.

We rely on these relationships as significant sources of traffic to our website and to generate new customers.

If we are unable to develop

or maintain these relationships or develop and maintain new relationships for newly developed and necessary marketing services on acceptable

terms, our ability to attract new customers and our financial condition would suffer.

In addition, current or future relationships or

agreements may fail to produce the sales that we anticipate.

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

are increasing.

Increasing advertising costs erode the efficiency of our advertising efforts.

If we are unable to effectively manage our

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

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

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.

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

As a result, our future growth and profitability will depend

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

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

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

websites, (iii) our ability to prevent internet publication or television broadcast of false or misleading information regarding

our products or our competitors’ products, (iv) the nature and tone of consumer sentiment published on various social media

sites, and (v) the stability of our website.

In recent years, a number of direct to consumer, internet-based retailers,

like us, have emerged and have driven up the cost of basic search terms, which has and may continue to increase the cost of our internet-based

marketing programs.

More recently, the large traditional mattress manufacturers have been increasing their efforts to increase their direct

to consumer sales which also is increasing the cost of our internet-based marketing programs and cost of customer conversion.

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

with our products.

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

current and potential customers on the safety of our products.

Even if we are able to broadly disseminate factual information to refute

such claims and reinforce the safety of our products, such claims and attendant adverse publicity could persist and damage our reputation

and brand value and result in lower sales.

number of third-party review websites is increasing and 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.

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 expansion into

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

majority of our sales are made directly to consumers through our DTC channels.

We have been expanding our business into the wholesale

distribution channel through relationships with our wholesale partners but there can be no assurance that we will continue to experience

success with our wholesale partners or that anticipated new locations will be successful.

may be unsuccessful in generating additional sales through wholesale channels.

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.

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

Operating Purple retail

showrooms includes additional risks.

For example, we will incur expenses and accept obligations related to additional leases, insurance,

distribution and delivery challenges, increased employee management, and new marketing challenges.

If we are not successful in our efforts

to profitably operate these new stores, our reputation and brand could be damaged, growth could be limited, and our business may be harmed.

addition, offerings of new products through our e-commerce, wholesale distribution channel and Purple retail showrooms may present

new and difficult challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures

or other quality issues.

Expansion of sales channels may require the development of additional, differentiated products to avoid price

and distribution conflicts between and within sales channels.

Wholesale expansion increases our risk as our wholesale partners will require

delaying payments to us on net terms ranging from a few days to 60 or more days, or they may delay paying us beyond the agreed-upon net

terms or fail to pay.

Our Company showroom expansion increases our risk for inventory shrinkage from destruction, theft, obsolescence

and other factors that render such inventory unusable or unsellable.

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.

Our future growth and profitability depend,

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

We manufacture our mattresses

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

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

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.

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

If those third-party suppliers are unable

to provide us with such components or if our assembly capacity is insufficient, our ability to respond to customer demand may be adversely

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

We have engaged in significant related-party

transactions with affiliates and owners that may give rise to conflicts of interest, result in losses to the Company or otherwise adversely

affect our operations and the value of our business.

have engaged in numerous related-party transactions involving significant shareholders and directors of the Company, as well as with other

entities affiliated with such persons.

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

Terry and Tony Pearce, granted equity incentive awards in Purple LLC to certain key employees at that time.

As a result of the structure

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

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

Those participants’ ownership interests had certain restrictions, including vesting requirements.

These equity incentives granted

to key employees prior to the Business Combination are forfeited to the extent the grant to an employee is not fully vested at the time

that such employee’s employment is terminated.

Before and for a period of time since the Business Combination, all forfeitures occurring

from departing employees have inured to the benefit of only the owners of InnoHold, and not all of our stockholders.

This means that the

forfeited equity did not increase our currently approved equity incentive pool.

Because the forfeited equity resulting from these departures

prior to this distribution was held at InnoHold, that forfeited equity did not replenish our equity incentive pool and could not be used

for equity grants to those who have replaced and will replace these employees or for other purposes essential to the business.

2019, to avoid future forfeitures from inuring only to the benefit of InnoHold’s owners, InnoHold distributed to the incentive participants

their pro rata share of InnoHold’s ownership of shares of Class B common stock, par value $0.0001 (“Class B Stock”)

in Purple Inc.

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

benefit of all shareholders.

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

and Class B Units

in Purple LLC which also will be subject to the same vesting requirements and result in forfeitures inuring to the benefit of all shareholders.

Our current equity incentive pool, as approved by the stockholders prior to the Business Combination in the Purple Innovation, Inc.

Equity Incentive Plan (“2017 Equity Incentive Plan”), did not account for the departure, before this distribution by InnoHold,

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

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

the unanticipated need to use shares from the existing pool to hire and retain other key employees needed to achieve the Company’s

growth objectives.

If the equity pool is not refreshed, there is a risk that we may not be able to hire and retain such key employees.

If the equity pool is refreshed with authorized shares of the Company that are issued in accordance with our 2017 Equity Incentive Plan,

our stockholders will be diluted.

This distribution by InnoHold to the equity incentive participants has caused us to incur administrative

expenses related to the distributions, the management of the differing vesting schedules and compliance with their rights under the distribution

In addition, the calculations of the distributive share and related income tax withholdings with respect to holders of InnoHold’s

Class B Units, as well as the processes by which such distributions and withholdings are made, are highly complex.

As a result, there

is a risk that the recipients of such distributions or other third parties may claim that we have miscalculated the distribution or income

tax withholding amounts or failed to timely pay the taxes.

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

of management’s attention from our operations and defense or settlement costs, could negatively impact our operations and financial

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

the Coliseum Capital Partners, L.P.

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

Co-invest Debt Fund, L.P.

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

by Purple Inc.

The Former Lenders also were stockholders and warrant holders of the Company and appointed one director to serve on our

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

Further, on February 26, 2019, the Amended

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

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

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

Class A Stock.

On March 27, 2020, the Amended and Restated Credit Agreement was amended to allow Purple LLC at its election

a 5% paid-in-kind interest deferral for the first two quarters of 2020.

On May 15, 2020, the Amended and Restated Credit Agreement

was further amended to remove a negative covenant so that there would not be an event of default if the Former Lenders acquired 25% or

more ownership of the Company.

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

Credit Agreement with the Former Lenders, that, among other things, waives an event of default as a result of InnoHold ceasing to own

25% or more of the aggregate equity interests in the Company, subject to certain conditions as more fully provided in such waiver.

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

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

The Former Lenders further

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

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

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

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

The Former Lenders currently own, in the aggregate,

approximately 45.0% 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.

On September 17, 2022, Coliseum Capital Management, LLC (“CCM”),

our largest shareholder and an affiliate of the Former Lenders, delivered to us an unsolicited bid to acquire the remaining outstanding

shares of our Class A and Class B Stock not already beneficially owned by CCM for $4.35 per share in cash.

There can be no assurance that

CCM’s proposed transaction will occur.

Responding to unsolicited bids, including the bid received from CCM, may require management

to devote additional resources and attention that would otherwise be directed to our operations.

Note 15, Related-Party Transactions of the Notes to the Condensed Consolidated Financial Statements, included in PART I, ITEM 1 of this

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

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.

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 began to reopen following the elimination

or easing of restrictions in connection with the COVID-19 pandemic, consumers began to shift 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 we anticipate will continue to adversely impact our gross profit margins.

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

which are generally priced at a premium.

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

sales and financial position.

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

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

If we misjudge market trends, we may significantly overstock inventory

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

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

Our business could

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

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

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.

We may not be able to implement, maintain,

or develop the components of these commercial relationships.

Moreover, we may not be able to enter into additional commercial relationships

and strategic alliances on favorable terms or at all.

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

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

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

Disputes with wholesale partners also may arise related to such

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

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

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

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

We may in the future enter into amendments on less favorable terms

or encounter parties that have difficulty meeting their contractual obligations to us, which could adversely affect our operating results.

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

failure to effectively integrate acquisitions;

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

impairment of other relationships;

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

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

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

We anticipate

increasing the number of these partnerships.

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

costs that we would not otherwise incur under our DTC operations.

Our wholesale partners may choose not to continue doing business

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

Our wholesale

partners may experience their own business disruptions, including for example bankruptcy, that could affect their ability to continue

to do business with us.

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

or interfere with their other legal rights.

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

to us and may erode our business in such channels.

Further, maintaining these relationships may require the commitment of significant

amounts of time, financial resources and management attention, and may result in prohibitions on certain sales channels through exclusivity

requirements, which may adversely affect other aspects of our business.

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

Our business is expanding

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

partners for customers.

In our effort to make our products available to consumers in multiple retail channels, there is the risk that

sales may diminish in other channels, costs may be incurred without an increase in overall sales and our wholesale partners may no longer

carry our products.

Managing an omni-channel distribution strategy, including the relationships with business partners in each channel,

may require significant amounts of time, resources and attention which may adversely affect other aspects of our business.

We operate in a highly competitive Comfort

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

The Comfort Industry market

is highly competitive and fragmented.

We face competition from many manufacturers (including competitors that primarily manufacture and

import from China and other low-cost countries), traditional brick-and-mortar retailers and online retailers, including direct-to-consumer competitors.

Participants in the Comfort Industry compete primarily on price, quality, brand name recognition, product availability and product performance

and compete across a range of distribution channels.

The highly competitive nature of the Comfort Industry means we are continually subject

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

A number of our significant

competitors offer products that compete directly with our products.

Any such competition by established manufacturers and retailers or

new entrants into the market could have a material adverse effect on our business, financial condition and operating results.

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

Many newer competitors in the mattress industry have begun to offer products directly to consumers through the Internet and

other distribution channels.

Some of our established competitors and partners have begun to offer products similar to ours as well.

Many of our competitors source their products from countries such as China and Vietnam, where the costs may be lower than our costs.

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

by acquiring a mattress manufacturer.

Many of our current and potential

competitors may have substantially greater financial support, technical and marketing resources, larger customer bases, longer operating

histories, greater name recognition, mature distribution methods, and more established relationships in the industry than we do and sell

products through broader and more established distribution channels.

These competitors, or new entrants into the market, may compete aggressively

and gain market share with existing or new products, and may pursue or expand their presence in the Comfort Industry.

We cannot be sure

we will have the resources or expertise to compete successfully in the future.

We have limited ability to anticipate the timing and scale

of new product introductions, advertising campaigns or new pricing strategies by our competitors, which could inhibit our ability to retain

or increase market share, or to maintain our product margins.

Our current and potential competitors may secure better terms from vendors,

adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing.

Also, due to the large

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

value, styling or functionality from those of our competitors.

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

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

limiting our ability to serve the market.

In addition, the barriers

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

New or existing sleep product retailers could enter our markets and

increase the competition we face.

Competition in existing and new markets may also prevent or delay our ability to gain relative market

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

We will face different market

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

In some markets, our future competitors

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

We may not be as successful as our competitors in

generating revenues in those markets due to the lack of recognition of our brands, lack of customer acceptance, lack of product quality

history and other factors.

As a result, any new expansion efforts could be costlier and less profitable than our efforts in our existing

If we are not as successful as our competitors are in our target markets, our sales could decline, our margins could be impacted

negatively and we could lose market share, any of which could materially harm our business.

If we are unable to effectively

compete with other manufacturers and retailers of mattresses, pillows, cushions, and our other products our sales, profitability, cash

flows and financial condition may be adversely impacted.

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, or may experience a financial loss.

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.

During 2021, we identified a material weakness in internal

control over financial reporting related to ineffective information technology general controls in the areas of user access and segregation

of duties related to certain information technology systems that support the Company’s financial reporting processes.

that these control deficiencies were a result of turnover of critical IT leadership;

insufficient training of IT resources;

and inadequate

risk-assessment processes to identify and assess access in certain IT environments that could impact internal controls over financial

Because the material weakness creates a reasonable possibility that a material misstatement to our consolidated financial statements

would not be prevented or detected on a timely basis, the Company’s management concluded that at December 31, 2021 and September

30, 2022, the Company’s internal control over financial reporting was ineffective.

We continue to evaluate, design

and work through the process of implementing controls and procedures under a remediation plan designed to address this material weakness,

but there can be no assurance that we will be able to remediate this material weakness in a timely manner or at all.

If our remediation

measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our

internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required

to restate our financial results, which could lead to substantial additional costs for accounting and legal fees and stockholder litigation.

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

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.

In addition, we may 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.

Any such litigation

or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

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

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 are required

to make certain prepayments to any revolving loans and thereafter may not be able to draw upon our revolving line of credit.

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.

As a result of these two 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.

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.

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

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

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.

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 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, and we rely on trademark, copyright, and patent law, trade secret protection, and confidentiality

agreements and license agreements with our vendors, contractors, employees, customers, and others to protect our proprietary rights.

We own various U.S.

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.

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.

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.

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.

The protection of our intellectual

property, such as preventing counterfeit goods from entering the market or defending our patents, may require the expenditure of significant

financial and managerial resources.

For example, we recently filed an action with the International Trade Commission to combat a number

of counterfeit goods;

such action could take up to sixteen (16) months to be completed and may not result in judgments that are favorable

Even if we obtain a favorable judgment from the International Trade Commission, the prevalence of counterfeit goods could continue

harm our ability to enforce some of our intellectual property, our brand, our trade dress, and a number of our patents.

We may not be

able to discover or determine the extent of all unauthorized use of our proprietary rights.

Policing the unauthorized use of our proprietary

technology, trademarks and copyrights can be difficult and expensive.

Litigation has been and may continue to be necessary to protect

our intellectual property rights, which may be costly and may divert our management’s attention away from our core business.

there is no guarantee that litigation would result in an outcome favorable to us.

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.

Purple LLC has licensed certain intellectual

property to EdiZONE, LLC, 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

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 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.

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

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.

If any of these third parties

violate their licenses with EdiZONE or infringe on intellectual property owned by Purple LLC and Purple LLC is unable to take effective

action against such violating or infringing parties, we may be unable to protect against this infringement or the effects of such violations

and our business could be harmed.

Purple LLC has obtained, with

the cooperation of EdiZONE and the Pearces, the right to enforce its intellectual property rights at Purple LLC’s option, provided

that Purple LLC will indemnify EdiZONE and fund the expense of such enforcement.

In 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.

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

with the SEC on March 22, 2023.The disclosure of risks identified below does not imply that the risk has not already materialized.

Anti-takeover provisions in our Second Amended

and Restated Certificate of Incorporation, as well as provisions of Delaware law and our stockholder rights plan, contain anti-takeover

and Restated Certificate of Incorporation, our Third Amended and Restated Bylaws as well as provisions of Delaware law, 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

and our Second Amended and Restated Certificate of Incorporation could hamper a third party’s acquisition of us, or discourage a

third party from attempting to acquire control of us.

Provisions of Delaware law, our Second Amended and Restated Certificate

of Incorporation, and our Third Amended and Restated Bylaws 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.

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These provisions

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

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;

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.

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;

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

our stockholders;

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;

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;

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

1 unchanged sentence

15% or more of our outstanding voting stock or require us to obtain stockholder approval prior to engaging in such transactions.

certain of its affiliates collectively hold approximately 45.0% of our outstanding voting stock.

Any delay or prevention of a change in

control transaction or changes in our board of directors 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.

Additionally, on September

25, 2022, we adopted a restated stockholder rights plan that would cause substantial dilution to, and substantially increase the costs

paid by, a stockholder who attempts to acquire us on terms not approved by our board.

The intent of the stockholder rights plan is to

protect our stockholders’ interests by encouraging anyone seeking control of our Company to negotiate with our board.

stockholder rights plan 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.

This plan 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.

This plan could reduce the price that stockholders

might be willing to pay for shares of our common stock in the future.

Furthermore, the anti-takeover provisions of our stockholder rights

plan may entrench management and make it more difficult to replace management even if the stockholders consider it beneficial to do so.

We may issue debt

and equity securities or securities convertible into equity securities, any of which may be senior to our Class A Stock as to distributions

and in liquidation, which could negatively affect the value of our Class A Stock.

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 March 2022 we completed a public offering of shares of Class A Stock.

In the event of our liquidation, our lenders and holders of our

debt would receive distributions of our available assets before distributions to holders of our Class A Stock, and holders of securities

senior to the Class A Stock would receive distributions of our available assets before distributions to the holders of our Class A Stock.

Because our decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond

our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings.

Further, market conditions

could require us to accept less favorable terms for the issuance of our securities in the future.

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

$118.7 million.

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.

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.

We may have experienced ownership changes in the past, and we may experience ownership changes in the future and/or

subsequent shifts in our stock ownership (some of which may be outside our control).

Thus, our ability to utilize carryforwards of our

net operating losses, including net operating losses acquired from the Intellibed acquisition, and other tax attributes to reduce future

tax liabilities may be substantially restricted.

At this time, we have not completed a study to assess the impact, if any, of ownership

changes on our NOLs under Section 382 of the Code.

The amount of our deferred

tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence

in the form of a three-year cumulative loss is present or both.

Should we no longer have a level of sustained profitability, excluding

nonrecurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source

of taxable income for the realization of our deferred tax assets, namely NOL carryforwards.

This may result in the need to record

a valuation allowance against all or an additional portion of our deferred tax assets, which could adversely affect our results of operations.

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.

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.

For example, though it did not involve access to or release of personal information, we recently

experienced an unauthorized intrusion into one of our vendor’s system using a former contractor’s credentials that resulted

in access to email addresses and an unauthorized email being sent under a valid Purple email address.

Breaches involving any personal

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

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.

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.

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

What changed 10-Q

Item 1A. Risk Factors