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Item 1A. Risk Factors

2024-03-12 compared with 2023-03-22 · 1241 added, 1567 removed, 495 unchanged (85% of the section changed)

The risk factors summarized

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

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

cause the price of our Common Stock to decline.

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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;

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;

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;

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;

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;

Tax Risks Relating to Our Structure

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

Ability to realize all or a portion of the tax benefits that are expected to result from the acquisition of Units from holders of Purple LLC Class B Units, unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns, 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;

Material risks that may affect

our business, results of operation and financial condition include, but are not necessarily limited to, those relating to:

Our level of indebtedness and related covenants could limit our operational and financial flexibility;

We may be required to make certain prepayments on our term loan;

We may need additional funds to execute our business plan, maintain our liquidity and fund operations;

We have in the past experienced and may in the future experience significant fluctuations in our results of operations;

Coliseum is our controlling stockholder and lender, and exercises substantial control over us:

We engage in significant related-party transactions 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 may not successfully anticipate consumer trends and demand;

We operate in the highly competitive sleep products industry;

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

Lack of availability and quality of raw materials, labor, components, and shipping services, or increases in the cost of such inputs, could result in our inability to provide goods or could increase our costs;

We are subject to risk if our information technology systems fail to

perform adequately;

Changes in economic conditions such as raw materials and labor, and impacts on our consumers, could adversely affect our business, results of operations and financial condition;

If we are unable to maintain sufficient production capacity to meet customer demands, we may not have profitable operations or sufficient liquidity or capital resources;

Disruption in our manufacturing facilities has and could increase our costs or lead to delays in shipping;

We use heavy machinery and equipment, which exposes us to potentially significant financial losses and reputational harm;

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;

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

Our future growth and results of operations 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;

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

A reduction in credit availability under our consumer credit programs or the availability of more favorable terms with competitors could adversely affect our results of operations and financial condition;

Over or under supply of raw material inventory and finished products could leave us vulnerable to shortages or shrinkage that may harm our ability to profitably satisfy consumer demand;

Any disruption in our delivery capabilities could adversely affect our results of operations;

If we lose members of the executive team, we may not be able to run our business effectively;

Regulatory requirements may require costly expenditures and expose us to liability;

Climate change and legal or regulatory responses could adversely affect our business;

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

We could be subject to additional sales tax or other indirect tax liabilities;

We could be subject to additional income tax liabilities;

Litigation and the related potential adverse publicity could adversely affect our business;

Failure to protect our proprietary rights 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 may be subject to claims that we or our licensors have infringed the proprietary rights of others;

Purple LLC has licensed certain intellectual property to a third party for the purpose of enabling it to meet contractual obligations to its licensees under contracts previously entered into, and some licensees are competitors of Purple LLC;

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 results of operations could be adversely affected;

Our business and our reputation could be adversely affected if we fail to protect sensitive data, or to comply with evolving regulations relating to our obligation to protect data;

The market price of our Common Stock is volatile;

Anti-takeover provisions and provisions of Delaware law contain anti-takeover provisions;

Significant payment obligations

under our Tax Receivable Agreement are accelerated upon a change of control of our Company, thereby discouraging a potential acquisition

of our Company and adversely affecting any potential control premium payable for shares of our Common Stock.

Provisions in our Second Amended and Restated Certificate of Incorporation may limit our stockholders’ ability to obtain a favorable judicial forum;

Future sales of our Common Stock in the public market may depress our share price;

Our stockholders may experience substantial dilution or may have their interests impaired if we issue additional shares of our capital stock, including as a result of the exercise of the Warrants;

Our only significant asset is our ownership of Purple LLC and such ownership may not be sufficient to enable us to satisfy our financial obligation;

We do not anticipate paying any cash dividends in the foreseeable future;

We may issue debt and equity securities or securities convertible into equity securities;

NASDAQ may delist our securities from its exchange;

We have identified a material weakness in our internal control over financial reporting which has not been remediated as of December 31, 2023;

Obligations under the Tax Receivable Agreement could materially adversely affect our cash flows in the future once we become profitable and begin paying income taxes;

Under certain circumstances, payments under the Tax Receivable Agreement may be accelerated or significantly exceed the actual benefits we realize;

Changes in accounting

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

significantly affect our financial results, and

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

Risks Relating to Our Business and Our

level of indebtedness and related covenants could limit our operational and financial flexibility and adversely affect our business if

we breach such covenants or default on such indebtedness.

On January 23, 2024, to refinance existing obligations, we entered

into a Second Amendment to Term Loan Agreement (the “Second Amendment”) and concurrently therewith an Amended and Restated

Credit Agreement (the “Amended and Restated Credit Agreement) with Coliseum Capital Partners, L.P.

(“CCP”), Blackwell

Partners LLC – Series A (“Blackwell”), Harvest Small Cap Partners Master, Ltd.(“Harvest Master”), Harvest

Small Cap Partners, L.P.

(“Harvest Partners”), and HSCP Strategic IV, L.P.

(“HSCP” and together with CCP, Blackwell,

Harvest Master, and Harvest Partners, the “Lenders”) and Delaware Trust Company, as administrative agent, which amended and

restated the Term Loan Agreement, dated August 7, 2023, among Purple LLC, Purple Inc., Intellibed LLC, Callodine Commercial Finance, LLC

and a group of financial institutions (the “Term Loan Agreement”.) Upon entry into the Amended and Restated Credit Agreement,

we received a term loan in the amount of $61.0 million, which bears interest equal to a rate of(i) the secured overnight financing rate

as administered by the Federal Reserve Bank of New York plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if

Purple LLC elects to pay interest in kind to reduce its cash obligations, 10.25% per annum).

Under the Amended and Restated 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.

In particular, we are restricted from incurring additional debt up to certain amounts, subject to limited exceptions.

We are also restricted from paying dividends or making other distributions or payments on our 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 Amended and Restated Credit Agreement, we will need to first obtain a waiver from the applicable

Agent and Lenders.

Obtaining such waivers, if needed, may impose additional costs on us or we may be unable to obtain such waivers.

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 potentially 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.

If we are not able to maintain

compliance with our covenants under the Amended and Restated Credit Agreement, we may need to seek amendments or waivers to the Amended

and Restated Credit Agreement in the future and may also need to obtain alternative sources of liquidity.

Such alternative sources of

liquidity, including subordinated debt, may not be available on terms favorable to us or at all.

To the extent that waivers and amendments under the Amended and Restated

Credit Agreement are necessary, there can be no guarantee that we will be able to obtain waivers or amendments from the Lenders if, in

the future, we are unable to comply with the covenants and other terms of the Amended and Restated Credit Agreement.

Our failure to satisfy

the required conditions under the Amended and Restated Credit Agreement or maintain compliance with the financial and performance covenants

under the Amended and Restated Credit Agreement could result in future defaults, which would materially adversely affect our financial

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

In addition, any default

under our Amended and Restated Credit Agreement would materially adversely affect our ability to obtain alternative financing, and significantly

limit our ability to execute our business strategies.

may be required to make certain prepayments to our term loan and thereafter will not be able to benefit from that portion of the term

the Amended and Restated Credit Agreement, we have certain mandatory prepayment obligations.

If for any reason we are required to prepay

any amount owed under the Amended and Restated Credit Agreement, we may not have sufficient liquidity available to make such prepayments

and we would be in default on our obligations.

In addition, any prepayment would require us to divert liquidity and capital resources

away from the operating expenses of our business and we may not be able to reborrow the prepaid principal amount, which could adversely

affect our relationships with suppliers and vendors and our ability to execute on our growth strategies and prevent us from taking actions

in our best interest or even continue in business.

may need additional funds to execute our business plan, maintain our liquidity, repay our debt and fund operations and we may not be able to obtain such

funds on acceptable terms or at all.

have recently incurred negative cash flows on an annual basis and may continue to experience negative cash flow in the future.

years ended December 31, 2023, and 2022, we had negative cash flow from operating activities of $54.7 million and $28.8 million, respectively.

We expect to incur significant ongoing operating expenses in connection with the execution of our business strategies.

We will need to

incur significant capital expenses as we seek to expand our business.

efforts to obtain needed capital resources and sources of liquidity may not be sufficient to support our business operations and 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 lose key suppliers, be unable to timely

satisfy customer orders, and be unable to retain our employees.

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

pursue work-out options or other protective measures.

Under the terms of the Amended and Restated Credit Agreement we may

request additional term loans, but the lenders in their discretion may deny such requests, which denial could limit our ability to access

future amounts under the Amended and Restated Credit Agreement and adversely affect our financial condition and results of operations.

In addition, the Amended and Restated Credit Agreement provides for our payment of interest, payable monthly, at a rate equal to (i) the

secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 0.10%, with a floor of 3.5% per annum, plus

(ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce its cash obligations, 10.25% per annum).

To the extent

that the interest rate under the Amended and Restated Credit Agreement exceeds market interest rates, such interest payments will adversely

affect our liquidity, financial position and result of operations.

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

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.

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 liquidity needs, our future operations or growth strategies.

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 January 23, 2024, we issued to

the Lenders as partial consideration for their entering into the Amended and Restated Credit Agreement warrants (the “Warrants”)

to purchase 20 million shares of our Common Stock (approximately 19% of our currently outstanding Common Stock) at a price of $1.50 per

share, subject to certain adjustments.

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

existence of such Warrants, and their ultimate exercise will result in substantial dilution to our stockholders.

A holder of the Warrants

will not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates)

would beneficially own in excess of 49.9% of the shares of Common Stock outstanding immediately after giving effect to such exercise (the

“Beneficial Ownership Cap”).

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 affect our financial condition.

have in the past experienced and may in the future experience significant fluctuations in our results of operations, which could make

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

expectations.

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.

Our quarterly and annual results of operations have fluctuated in the

past and we expect our future results of operations will 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 necessarily be 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 United States or global economies;

disruptions or delays in or increased costs for our production and shipping of our products, whether caused by pandemics or otherwise;

failures in our manufacturing equipment;

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changes to our executive leadership or our Board;

actions of activist investors that divert our attention and resources;

actions of activist

investors that divert our attention and resources;

the loss of key strategic relationships with partners;

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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

The evolving nature of our business makes forecasting results of operations 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.

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.

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 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

and related impacts on our results of operations, could also adversely affect the market price of our Common Stock, which could result

in securities litigation.

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core business, and adversely affect our business.

You should consider our business

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

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

Coliseum Capital

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

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

On September 17, 2022,

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

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

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

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

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

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

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

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

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

slate would constitute a majority of the Board.

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

Committee with respect to the Coliseum proposal.

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

Board and retaining only Mr.

Coliseum Capital Management,

LLC is our controlling stockholder and lender, and exercises substantial control over our Board composition, management team members and

As reported by Coliseum in its Schedule 13D/A filed on January 23,

2024, Coliseum Capital Management LLC (“Coliseum”) beneficially owns 58.5 million shares of Common Stock (which includes 46.9

million shares of Common Stock currently owned and 11.6 million shares of Common Stock that could be acquired upon exercise of its Warrants).

Coliseum also beneficially owns 1.8 million additional Warrants that cannot be exercised if doing so would cause Coliseum to exceed the

Beneficial Ownership Cap.

At any time during which the Warrants are exercisable, Coliseum may not exercise any Warrants that would result

in Coliseum exceeding the Beneficial Ownership Cap.

In addition, as the primary Lender under the Amended and Restated Credit Agreement,

Coliseum exercises substantial control over us, including control of the composition of our Board and management, as well as our corporate

Coliseum also has the ability to influence the outcome of any corporate actions which require stockholder approval, including

but not limited to, the election of directors, significant corporate transactions, such as a merger or other sale of the Company or the

sale of all or substantially all of our assets.

This concentrated voting control will limit your ability to influence corporate matters

and could adversely affect the market price of our Common Stock.

These provisions could also limit the price that investors might be willing

to pay in the future for our Common Stock.

On September 17, 2022, Coliseum, our largest stockholder, delivered

to us an unsolicited bid to acquire the remaining outstanding shares of our 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 the Proposal.

On January 13, 2023, Coliseum submitted a letter to the chairman of

the Board setting forth a 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, 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.

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

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

Holders of PRPLS are entitled

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

on the Board at the 2023 Annual Meeting.

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

Gray, Coliseum’s manager, and one of the existing non-executive directors.

On February 14, 2023, the Special Committee announced

a dividend of one new Proportional Representation Preferred Linked Stock (“PRPLS”) for each 100 shares of Common Stock, with

each PRPLS having 10,000 votes.

Holders of PRPLS were entitled to allocate votes in director elections on a cumulative basis and accordingly

had the opportunity to vote for proportional representation on the Board at our 2023 Annual Meeting.

On February 21, 2023, Coliseum filed a lawsuit in the Delaware Court

of Chancery captioned Coliseum Capital Management, LLC et al.

Pano Anthos et al.

2023-0220-PAF (Del.

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

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

and other related allegations.

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

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

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

who is a significant shareholder.

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

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

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

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

Company for approximately 18 months.

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

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

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

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

current executives and discourage other executives from joining the Company.

In addition, Coliseum’s actions could cause the price

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

over the Company and our Board.

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

may cause it to decrease in the future.

We may need additional capital to execute

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

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

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

(ii) increasing our marketing;

(iii) expanding our distribution channels;

(iv) elevating the premium customer

experience of our products;

(v) opening additional Purple owned retail showrooms;

(vi) expanding our global sales;

(vii) engaging

global partners to improve distribution efficiencies and cost savings;

and (viii) product assortment and category expansion.

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

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

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

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

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

pursue work-out options or other protective measures.

While we have access to a

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

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

funds is subject to certain conditions and restrictive covenants.

Further, our ability to obtain additional capital on acceptable terms

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

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

that we may not be able to satisfy.

Our operating and financial

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

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

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

Subsequently, we entered into

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

For example, on

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

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

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

There is no assurance we will obtain

the capital we require.

As a result, there can be no assurance that we will be able to fund our future operations or growth strategies.

To the extent that future

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

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

2020 Credit Agreement.

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

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

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

In addition, any default under the 2020 Credit

Agreement would adversely affect our ability to obtain alternative financing.

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

stockholders.

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

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

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

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

Furthermore, we may incur

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

distribution expenses and other costs.

We may also be required to recognize non-cash expenses in connection with certain securities

we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

If we cannot raise additional

funds on favorable terms or at all, we may not be able to carry out all or parts of our long-term growth strategy, maintain our growth

and competitiveness or continue in business.

We may not be able

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

we sell, resulting in reduced net sales.

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

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

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

For example, as retail stores reopened following

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

towards brick-and-mortar shopping.

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

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

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

which are generally priced at a premium.

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

sales and financial position.

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

Such shifts in

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

are priced at higher price points.

, (the "Action"), 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 our 2023 Annual Meeting, and other related allegations.

On April 19, 2023, Coliseum and the Company entered into a cooperation

agreement (the “Cooperation Agreement”) settling the Action, which included among other items the appointment of certain new

directors and standstill provisions related to the acquisition of additional stock, the nomination of directors, and other matters.

Cooperation Agreement terminates on the date following our 2024 annual meeting of stockholders.

On April 26, 2023, the Company received

consent under the 2020 Credit Agreement that allowed the Company’s redemption of PRPLS issued by the Company on February 24, 2023.

the Cooperation Agreement terminates, there can be no assurance that Coliseum will not make another unsolicited bid to acquire the remaining

outstanding shares of our Common Stock not already beneficially owned by Coliseum or attempt to nominate replacement members to the Board.

Such future actions by Coliseum 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.

such actions could cause the price of our Common Stock to change based on investors’ perceptions of Coliseum’s actions and

Coliseum’s influence over the Company and our Board.

We have engaged in significant related-party transactions with Coliseum

and other parties that may give rise to conflicts of interest, result in losses to us or otherwise adversely affect our results of operations

and the value of our business.

We have engaged in numerous related-party transactions involving significant

stockholders and directors of the Company, as well as with other entities affiliated with such persons.

Under the Amended and Restated Credit Agreement, the Lenders agreed

to assume the rights and obligations of the Term Loan Lenders under the Term Loan Agreement and, pursuant to the Second Amendment and

the Amended and Restated Credit Agreement, agreed to refinance existing obligations with a term loan in the amount of $61.0 million, to

Further, in connection with the Amended and Restated Credit Agreement we issued the Warrants to the Lenders to purchase 20

million shares of our Common Stock at a price of $1.50 per share, subject to certain adjustments.

The Warrants will expire on the 10-year

anniversary of issuance, or earlier upon redemption.

The Lenders, including Coliseum, our largest stockholder, has appointed one director

to serve on our Board, Adam Gray, who continues to serve on our Board as its Chairman.

As reported by Coliseum in its Schedule 13D/A filed on January 23,

2024, Coliseum beneficially owns 58.5 million shares of Common Stock (which includes 46.9 million shares of Common Stock currently owned

and 11.6 million shares of Common Stock that could be acquired upon exercise of its Warrants).

Coliseum also beneficially owns 1.8 million

additional Warrants that cannot be exercised if doing so would cause Coliseum to exceed the Beneficial Ownership Cap.

At any time during

which the Warrants are exercisable, Coliseum may not exercise any Warrants that would result in Coliseum exceeding the Beneficial Ownership

The Lenders’ current and potential future ownership percentage, combined with their rights under the Amended and Restated Credit

Agreement give the Lenders significant and effective control over the Company.

Future transactions with the Lenders, if any, may give

rise to conflicts of interest or otherwise adversely affect our business.

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

of the products we sell.

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 results of operations.

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 affect our gross profit margins.

Further, general macroeconomic conditions, including persistent inflation,

have and may continue to adversely affect consumer demand for our products, which are generally priced at a premium.

Reductions in consumer

demand for our products has adversely affected and may continue to affect our sales and financial position.

For example, consumers have

recently begun shifting spending to services and experiences.

Such shifts in spending could adversely affect our results of operations

and financial position, particularly as we introduce our luxury products, which are priced at higher price points.

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

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

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

We operate in a highly competitive sleep

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

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

We operate in the highly competitive sleep products industry, and if

we are unable to compete successfully, we may lose customers and our results of operations could be adversely affected.

The sleep products industry

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acquire new customers.

We are in the process of introducing

new product models in the luxury mattress market.

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

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

If we are unable to compete effectively

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

A number of our significant

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

Any such competition by

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

condition and operating results.

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

and are looking for new ways to reach the consumer.

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

to consumers through the Internet and other distribution channels.

Many of our competitors source their products from countries such as

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

Companies providing for the distribution of mattresses online or through

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

addition, retailers outside the U.S.

have integrated vertically in the furniture and sleep product industries, and it is possible that

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

by acquiring a mattress manufacturer.

We have introduced 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 an adverse effect on our business, financial condition and results of operations.

Sleep product

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.

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 offer competing products in their respective channels.

In addition, retailers outside the United States 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 United States by acquiring a mattress manufacturer.

Many of our current and potential

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

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

products through broader and more established distribution channels.

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

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

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

We have limited ability to anticipate the timing

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

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

Our current and potential competitors may secure better terms

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

due to the large number of competitors and their wide range of product offerings, we may not be able to continue to differentiate our

products through value, styling or functionality from those of our competitors.

Our products are also typically heavier than others and

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

services, limiting our ability to serve the market.

histories, greater name recognition, mature distribution methods, greater vertical integration, 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.

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

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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.

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 affected.

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

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

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

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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.

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,

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other shopping destinations.

In addition, the increased competition with our wholesale partners for advertising on search engines could

result in reduced traffic to our website, higher marketing costs, and reduced margins on products purchased by e-commerce customers.

forms of advertising such as television also may increase because of increased competition.

For example, 2024 is an important election

year and historically television and local advertising tend to increase during election years.

E-commerce customers have

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Other direct to consumer retailers and e-commerce competitors

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

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

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

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

We have a limited operating history in an evolving industry

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

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

We have encountered and will continue to encounter

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

to, inconsistent financial results, challenges in forecasting accuracy, determining appropriate investments of our limited resources,

market acceptance of our products and services and future products and services, competition from new and established companies, including

those with greater financial and technical resources, enhancing our products and services and developing new products and services.

Lack of availability and quality of raw

materials, labor, components, and shipping services, or increases in the cost of such inputs, could cause and has caused delays that could

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

may offer or continue to offer faster shipping, flexible 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.

Lack of availability

and quality of raw materials, labor, components and shipping services, or increases in the cost of such inputs, have caused and may continue

to cause delays that could result in our inability to provide goods to our customers or could increase our costs, either of which could

adversely affect our results of operations.

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.

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’

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.

components, such as foam and spring units, are widely used in our industry.

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increase in demand, weather events, supply chain difficulties within the supplier or otherwise, could adversely affect our production

capacity and financial results.

capacity and results of operations.

If we were unable to obtain raw materials and components from suppliers, we would have to find replacement

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and increase costs.

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.

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, transportation and labor needed to manufacture our products.

Such cost increases

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

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

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

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

have increased.

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

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

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

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

Any significant delay or interruption in our supply

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

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

The COVID-19 pandemic also disrupted our relationship

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

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

These increased costs or inability to obtain

sufficient labor also could harm out business.

Changes in economic conditions, including inflationary

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

and financial results.

could adversely affect our production capacity and efficiency and reduce our gross margins and adversely affect our results of operations.

and freight costs and delays have also been increasing as port closures, port congestion, shipping lane disruptions, and shipping container

and ship shortages have increased.

To the extent that unforeseen events such as future pandemics or geopolitical conflicts 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 including additional

duties and tariffs, which could adversely affect our results of operations 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.

We are subject to risk

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.

New SEC rules related to cybersecurity risk management may further increase the Company’s regulatory burden and

the related cost of compliance.

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 results of operations.

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, results of operations and financial condition.

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

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

The price and availability of these

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

Given the significance of the cost of these materials to our

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

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

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

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

Reductions in consumer discretionary spending

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

We have cash accounts, credit card processing

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

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

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

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

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

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

While we have regained access to our accounts

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

The closure of SVB or any

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

If we are unable to

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

In addition, we engage

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

While we have regained our ability to process

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

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

position and results of operations could be adversely affected.

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

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

The potential loss of SVB

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

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

The previous growth

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

or sufficient capital resources.

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

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

opening of Purple owned retail showrooms.

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

new products, developing new and broader distribution channels including wholesale and Purple owned retail showrooms, and extending our

global reach to other countries.

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

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 and the broader inflationary environment.

In addition, 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 are unable to maintain sufficient production capacity to meet customer demands, we may not have profitable operations or sufficient

liquidity or capital resources.

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

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

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

new and broader distribution channels including wholesale, Purple showrooms, and online marketplaces, and extending our global reach to

other countries.

This planned expansion will increase the complexity of our business and places significant strain on our management,

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

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

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

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

our operating results.

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.

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.

future success may depend, in part, upon our ability to manage our operations, facilities and production capacity.

Past growth in our

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

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

our results of operations.

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.

growth may depend on our ability to manage operating production facilities and Purple showrooms, which will require leases and other obligations.

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

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

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

If we are not able

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

in an expanding number of facilities and Purple owned retail showrooms, we may have to close facilities and incur sunk costs and continuing

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

In general, operating new facilities and opening Purple 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 compliance risks, expenses and liabilities.

If we are not able to successfully manage the process of expanding operations

geographically, opening new Purple showrooms and maintaining operations in an expanding number of facilities and Purple showrooms, we

may have to close facilities and incur sunk costs and continuing obligations that could put a strain upon our resources, damage our brand

and reputation and limit our growth.

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

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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

requirements for our business, successfully train and assimilate new employees, maintain our management team and enhance our operating

and financial systems.

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

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

In addition, a softening of demand, whether

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

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

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

uncertainty in the weaking U.S.

and global economies caused by inflation and other factors, we may not be able to accurately forecast

our growth rate.

Failure to achieve any of these goals will likely 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 United States 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

Due to uncertainty in the weakening United States and global economies caused by inflation and other factors, we may not be able

to accurately forecast our anticipated results of operations.

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.

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

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

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Competition for employees where our production facilities are

located also has increased the costs for employee retention.

located has also increased the costs for employee retention.

We have implemented improved processes and procedures in an environment of

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

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

we are unable to make continuous improvements, 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 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.

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 integrate

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 our 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 affected.

This could negatively impact our ability to grow

our business and our results of operations.

Disruption of operations

in our manufacturing facilities has and could increase our costs of doing business or lead to delays in shipping our products and could

materially adversely affect our results of operations and our ability to grow our business.

disruption of operations at 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 termination or expiration of a lease or mechanical failures in our manufacturing equipment,

would likely increase our costs of doing business and lead to delays in manufacturing and shipping our products to customers and could

adversely affect our results of operations 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 customer satisfaction,

results of operations, 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

geographic region, regional economic downturns, natural disasters, closures due to pandemics, 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

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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, which exposes us to potentially significant financial losses and reputational harm due

to workplace injuries or industrial accidents that may occur at our facilities.

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

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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

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

with customers.

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

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

impact the market price of our Class A common stock.

If we are unable to meet workplace safety standards or, if our employees or customers

perceive us having a poor safety record, it could materially impact our ability to attract and retain new employees and our reputation

with our customers could suffer, which could adversely affect our business and results of operations.

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

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

The occurrence of such incidents has resulted in and could

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

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

our financial condition and operations.

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

or workers’ compensation claims, as well as securities litigation resulting from any related impact on the market price of our Class

A common stock, which could also adversely affect our financial condition and reputation.

While we maintain insurance coverage for certain

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

We may not be able to identify, complete

or successfully integrate acquisitions, and any 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.

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.

Changes in accounting standards and subjective

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

Agreement, could significantly affect our financial results.

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

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

management, including but not limited to estimates that affect our revenue recognition, accounts receivable and allowance for doubtful

accounts, valuation of inventories, cost of revenues, sales returns, warranty liabilities, the recognition and measurement of loss contingencies,

warrant liabilities, estimates of current and deferred income taxes, deferred income tax valuation allowances and amounts associated with

our Tax Receivable Agreement with our founders dated February 22, 2018 (the “Tax Receivable Agreement”).

Changes in these

rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change

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

Our future growth and profitability may

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

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

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

our product line and related accessory products.

also adversely and materially affect our reputation with customers, adversely affect our results of operations, and negatively impact

the market price of our Common Stock.

If we are unable to meet workplace safety standards or, if our employees or customers perceive us

having a poor safety record, it could materially impact our ability to attract and retain new employees and our reputation with our customers

could suffer, which could adversely affect our business and results of operations.

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

affect our results of operations and our ability to grow our business.

The occurrence of such incidents has resulted 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 could adversely affect our financial

condition and results of 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 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.

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.

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

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

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.

consumer acceptance of product improvements or new product introductions, our results of operations and financial condition could be adversely

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

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

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

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

or successfully market and sell new mattress models, 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.

or successfully market and sell new mattress models, such as the new mattress models announced in 2023, our results of operations could

be adversely affected, and our business will be harmed.

For example, we have introduced several new mattress models, including luxury

mattress models, and have expanded our brand to include higher-priced mattresses.

If we are not able to successfully market these new

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

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

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

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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 owned retail showrooms beyond those already opened in cities across the U.S.

Operating Purple

owned retail showrooms includes additional risks.

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

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

If we are not successful

in our efforts to profitably operate these new stores, our reputation and brand could be damaged, growth could be limited, and our business

may be harmed.

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

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

failures or other quality issues.

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

price and distribution conflicts between and within sales channels.

Wholesale expansion increases our risk as our wholesale partners will

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

net terms or fail to pay.

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

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

they could damage our reputation, limit our growth, and adversely affect our results of operations.

may be unsuccessful in opening any Purple showrooms beyond those already opened in cities across the United States.

Operating Purple 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, the method of compensating showroom employees, and new marketing challenges.

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 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

Our Purple showroom expansion increases our risk of 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 upon the strength of our Purple brand and the effectiveness and efficiency of our marketing programs and our

ability to attract and retain customers.

may subject us to new or additional regulations, which would impose on us potentially significant compliance and distribution costs.

future growth and results of operations 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.

We continue to evolve our marketing strategies by 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.

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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.

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

media influencers, 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.

If we are unable to develop or maintain these or new relationships for necessary marketing services on acceptable terms or if our reputation

suffers due to these relationships, our ability to attract new customers and our financial condition could 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.

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

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

As a result, our future growth and results of operations

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

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

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marketing programs.

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

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

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

customers on the safety of our products.

Even if we broadly disseminate factual information to refute such claims and reinforce the safety

of our products, such claims and attendant adverse publicity could persist and damage our reputation and brand value and result in lower

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

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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.

consumers, which could damage our reputation and brand value and adversely affect our results of operations.

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

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.

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

entities affiliated with such persons.

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

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

that time through a separately created entity.

As a result of the structure of those awards being granted through a separate entity, the

equity incentives were required, because of the structure of the Business Combination, to be exchanged for ownership units in InnoHold,

to avoid those equity interests becoming of no value to the participants.

Those participants’ ownership interests had certain restrictions,

including vesting requirements.

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

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

Before and for

a period of time since the Business Combination, all forfeitures occurring from departing employees have inured to the benefit of only

the owners of InnoHold, and not all of our stockholders.

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

equity incentive pool.

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

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

employees or for other purposes essential to the business.

During 2019, to avoid future forfeitures from inuring only to the benefit of

InnoHold’s owners, InnoHold distributed to the incentive participants their pro rata share of InnoHold’s ownership of shares

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

and Class B Common Units (“Class

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

InnoHold distributed additional

paired shares of Class B Stock in Purple Inc.

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

requirements and result in forfeitures inuring to the benefit of all shareholders.

Our current equity incentive pool, as approved by the

stockholders prior to the Business Combination in the Purple Innovation, Inc.

2017 Equity Incentive Plan (“2017 Equity Incentive

Plan”), did not account for the departure, before this distribution by InnoHold, of such key employees who had existing equity grants

through InnoHold, and there is a risk that we will have to seek approval from the Board and stockholders to refresh the equity incentive

pool earlier than anticipated at the time of the Business Combination because of the unanticipated need to use shares from the existing

pool to hire and retain other key employees needed to achieve the Company’s growth objectives.

If the equity pool is not refreshed,

there is a risk that we may not be able to hire and retain such key employees.

If the equity pool is refreshed with authorized shares

of the Company that are issued in accordance with our 2017 Equity Incentive Plan, our stockholders will be diluted.

This distribution

by InnoHold to the equity incentive participants has caused us to incur administrative expenses related to the distributions, the management

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

In addition, the calculations of

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

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

As a result, there is a risk that the recipients

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

failed to timely pay the taxes.

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

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

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

Coliseum Capital Partners, L.P.

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

Debt Fund, L.P.

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

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

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

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

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

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

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

common stock.

On March 27, 2020, the Amended and Restated Credit Agreement was amended to allow Purple LLC at its election a 5% paid-in-kind

interest deferral for the first two quarters of 2020.

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

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

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

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

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

On September 3, 2020,

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

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

The Former Lenders further have continuing

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

Company at the time of the Business Combination.

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

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

The Former Lenders currently own, in the aggregate, approximately

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

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

of interest or otherwise adversely affect our business.

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

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

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

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

Our business could

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

to our website, our results of operations and financial condition may be adversely affected.

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 results of operations and financial condition could be adversely

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

business relationships.

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

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

For example, we understand that it is possible

that Mattress Firm, Inc.

may be sold to Tempur Sealy International, Inc.

which could disrupt our relationship with Mattress Firm or prevent

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

be able to implement, maintain, or develop the components of these commercial relationships.

Moreover, we may not be able to enter into

additional commercial relationships and strategic alliances on favorable terms or at all.

For example, (i) one of our wholesale partners

may be sold to one of our competitors, which could disrupt our relationship with that wholesale partner or prevent us from continuing

to sell our products in favorable placements alongside the competitor’s products within the wholesale partner’s stores or

at all in the wholesale partner’s stores, and (ii) one of our competitors owns a manufacturing company with which we have a manufacturing

relationship, and that competitor could disrupt that relationship to harm our manufacturing efforts.

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.

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

effect on our results of operations and financial condition.

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 results of operations.

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

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

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

have opened and plan to continue to open a growing number of Purple showrooms in cities across the United States.

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.

into additional Purple 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.

final assembly of some of our mattresses is executed by third-party partners and suppliers.

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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

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.

our ability to produce certain mattresses may be adversely affected, which could adversely affect our results of operations and financial

of our commercial relationships involve commercial partners extending terms of payment to us.

If our financial performance fails to meet

the expectations of our commercial partners, our ability to obtain favorable terms with our commercial partners may suffer or we may not

be able to obtain credit terms at all.

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 adversely affect our results of operations and financial condition.

We offer financing to consumers

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financed through third-party consumer finance companies.

The amount of credit available to consumers may be adversely impacted by macroeconomic

The amount of credit available to consumers may be adversely affected 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.

Suppliers of credit may

also require us to pay more in order to maintain lending approval levels and related sales.

In addition, changes in federal regulations

place 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.

30 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

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.

finance companies or the availability of more favorable credit terms offered by competitors could adversely affect our results of operations

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 could adversely

affect our results of operations.

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

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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.

that could adversely affect our results of operations.

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 could adversely affect our results of operations.

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.

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 United States-China

trade relationship and conflicts between China and Taiwan 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 customer satisfaction, results of operations and financial condition.

We rely upon several key suppliers

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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.

or services could adversely affect our results of operations and financial condition.

In addition, a change in the financial condition

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In addition, shipping and

freight delays have occurred and may again occur due to port closures, port congestion, and shipping container and ship shortages.

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.

freight delays have occurred and may again occur due to port closures, port congestion, shipping lane disruptions, and shipping container

and ship shortages.

These events 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 adversely affect our business and results of operations.

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 could adversely affect our results of operations.

An important part of our success

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The cost of these enhanced processes could be significant and any

failure to maintain, grow or improve them could adversely affect our operating results.

failure to maintain, grow or improve them could adversely affect our results of operations.

We rely on common carriers

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Any increase in freight charges could increase our costs of doing business

and harm our sales, profitability, cash flows and financial condition.

and adversely affect our results of operations and financial condition.

Lack of accurate information from such carriers could damage our

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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.

for example, from port closures, shipping lane disruptions, or shipping or labor shortages), delays in product shipments clearing United

States 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 increases 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 results of operations and reputation.

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.

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.

or choose not to order products from us at all.

We may also incur late charges for late deliveries to our wholesale customers.

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.

We depend on our 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

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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.

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.

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 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

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.

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

If we are unable to comply with such requirements, our business and stock price may be adversely affected.

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.

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

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.

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.

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.

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

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.

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.

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.

complicated by uncertainties resulting from the effective control of our Company by Coliseum or stockholder 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.

For example, due to our recent results of operations and stock price, our short-term incentive plans, long-terms

incentive plans, and option grants may not be adequate to retain executives and other participating employees.

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.

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.

Regulatory 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.

and advertising programs are subject to regulation in the United States 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

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to federal, state and local laws and regulations relating to pollution, environmental protection, recycling, and occupational health and

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.

We may not be in compliance with all such requirements at all times.

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

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that may subject us to regulation under numerous foreign, federal and state laws and regulations governing the environment.

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

subject to laws such as the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water

Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability 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.

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 may not be always in compliance with all such

requirements.

Non-compliance with such requirements may subject us to penalties or fines, which could have an adverse effect on our financial

condition and results of operations.

We are also subject to regulations

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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.

While we attempt to 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.

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

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defending these claims and complying with Proposition 65.

Regulatory requirements relating to the

manufacture and disposal of mattresses may increase our product costs and increase the risk of disruption to our business.

Consumer Product

Safety Commission (“CPSC”) and other jurisdictions have adopted rules relating to fire retardancy standards for the mattress

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.

Climate change and legal

or regulatory responses could adversely affect our business, results of operations and financial condition.

The enactment of new laws

and regulations to address or limit the effects of climate change, or changes to existing laws and regulations, could mandate more restrictive

standards or require such changes on a more accelerated time frame.

The consequences of climate change and the ensuing governmental regulations

could disrupt our operations or harm our ability to source necessary materials and components and manufacture our products, which could

adversely affect our results of operations or financial condition.

The United States 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 has recently passed legislation requiring reporting on greenhouse emissions

and climate related financial risk 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 or how they will be enforced, we cannot predict the potential impact

of such laws on our future financial condition or results of operations.

If public perception of our compliance with laws and regulations

related to climate change is negative, it could adversely affect our business, reputation and stockholder perception.

Adverse publicity

or climate-related litigation that impacts our Company could also have a negative impact on our business.

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

to our business.

The United States Consumer

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

mattress industry.

Some states and the United States 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.

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.

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.

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 results of operations and financial condition.

The CPSC adopted flammability

standards and related regulations 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 United States Congress continue to consider fire

retardancy regulations that may be different from or more stringent than the CPSC standard.

New legislation aimed at improving

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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.

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.

taxes (such as sales and use tax, value-added tax (“VAT”), goods and services tax, business tax and gross receipt tax) to

applicable 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

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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,

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in significant penalties.

Supreme Court ruling

in South Dakota v.

The United States Supreme

Court ruling in South Dakota v.

Wayfair, Inc.

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

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 currently collect and report on sales tax in all states in which we do 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

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.

and state income taxes in the United States tax laws, regulations, and administrative practices in the United States 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

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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.

our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may could adversely affect

our results of operations 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

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and interpretations.

A number of U.S.

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.

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

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.

Proposed legislation in the U.S.

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

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.

Pano Anthos et al., Case No.

2023-0220-PAF

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.

A number of 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 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 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.

Pending or unforeseen

litigation and the potential for adverse publicity associated with litigation could adversely affect our business, reputation, results

of operations or financial condition.

We may be involved from time

to time in various legal proceedings arising in the ordinary course of its business, including commercial, product liability, employment

and intellectual property claims.

Litigation is inherently unpredictable, and it is possible that the ultimate outcome of one or more

claims asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely

affect our business, reputation, results of operations or financial condition.

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 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 may result in costly litigation to protect our intellectual property rights.

We attempt to strengthen and

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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.

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.

our vendors, contractors, employees, customers, competitors 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 United States

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

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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.

to an increased cost of intellectual property enforcement, including the intellectual property action filed with the International Trade

Commission that lead to a general exclusion order against a large number of foreign entities that were importing infringing products.

Additionally, we have seen an increase in competitive products that infringe our intellectual property.

We anticipate our expenditures

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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.

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.

our innovations and create new products and technologies, and as we enter new product categories, we may be limited by the intellectual

property rights of others.

We attempt to 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 other parties.

We have been subject to, and

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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.

against us or those from whom we have licenses or that any such assertions or prosecutions will not have an 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”), for the purpose of enabling EdiZONE to meet its contractual obligations

to licensees of EdiZONE under contracts entered into years before the Business Combination.

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.

we entered into an Amended and Restated Confidential Assignment and License Back Agreement with EdiZONE, an entity beneficially owned

and controlled our founders, 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 has 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 us.

Among EdiZONE’s previously

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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

That risk may be addressed by redesigning

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.

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as a violation of the license agreement, or that any redesigned mattresses created by us will be successful in that market when we may

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 Purple LLC’s activities are challenged by a licensee, Purple LLC has an indemnification obligation to EdiZONE.

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.

the cooperation of EdiZONE, the right at its 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 could adversely affect our business.

While the current license

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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.

addressed, disputes may occur which may be detrimental to us.

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 results

of operations could be adversely affected.

Rapid, significant technological

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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.

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.

We expect that new services and technologies applicable to our industries 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

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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.

Cyberattacks 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 United States 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, although it did not involve access to or release of any personal

information, we recently experienced an unauthorized intrusion into one of our vendor’s systems 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 information technology systems that support our 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.

which we have shared personal information have been subject to attempts to breach the security of networks, information technology infrastructure,

and controls through cyberattack, malware, computer viruses, social engineering attacks, ransomware attacks, and other means of unauthorized

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.

This attack resulted in costs to us of

approximately $140,000.

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.

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

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, cyberattacks, 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 adversely affect our reputation,

relationships with customers, and results of operations and could require us to expend significant resources to resolve such issues.

continue to balance the additional risk with the cost to protect us against a cyber breach.

Additionally, while losses arising from a

cyber breach may be covered in part by insurance that we carry, such coverage may not be adequate for liabilities or losses actually incurred.

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.

There are new SEC rules requiring disclosure of both material cybersecurity events and our process for handling

cybersecurity matters, and we are evaluating our processes to ensure compliance with these new rules.

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 Common Stock

The market price of

our Common Stock is volatile and may decline regardless of our results of operations, and you may not be able to resell your shares at

or above your purchase price.

The market price of our Common

Stock has historically experienced high levels of volatility.

If you purchase shares of our 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:

The market price of our 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 results of operations, including but not limited

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;

price and volume fluctuations in the overall stock market;

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

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

sales of large blocks of our common stock;

sales of large blocks of our Common Stock, including SEC filings related to such potential sales;

departures of key employees;

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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.

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.

the trading price of our 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 results of operations of those companies.

The trading price of our 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

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 Common Stock.

Anti-takeover provisions

in our Second Amended 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 our

Company not approved by our Board of Directors that some stockholders may consider favorable.

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.

These provisions could also limit the price that investors might be willing to pay in the future

for Common Stock.

These provisions include:

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

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.

the issuance of PRPLS has been challenged in court by Coliseum, and there is no guarantee that Coliseum will not prevail.

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.

by Coliseum in its Schedule 13D/A filed on January 23, 2024, Coliseum beneficially owns 58.5 million shares of Common Stock (which includes

46.9 million shares of Common Stock currently owned and 11.6 million shares of Common Stock that could be acquired upon exercise of its

Coliseum also beneficially owns $1.8 million additional Warrants that cannot be exercised if doing so would cause Coliseum

to exceed the Beneficial Ownership Cap.

At any time during which the Warrants are exercisable, Coliseum may not exercise any Warrants

that would result in Coliseum exceeding the Beneficial Ownership Cap.

Any delay or prevention of a change of 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.

Significant payment

obligations under our Tax Receivable Agreement are accelerated upon a change of control of our Company, thereby discouraging a potential

acquisition of our Company and adversely affecting any potential control premium payable for shares of our Common Stock.

In connection with the Business

Combination, on February 22, 2018 we entered into the Tax Receivable Agreement with our founders (the “Tax Receivable Agreement”),

which generally provides for our payment to our former founders of 80% of certain tax benefits that we realize as a result of certain

increases in our asset tax basis and of certain other tax benefits.

If we experience a change of control (as defined under the Tax Receivable

Agreement, which includes certain mergers, asset sales and other forms of business combinations and change of control events), we could

be required to make an immediate lump-sum payment to our former founders under the terms of the Tax Receivable Agreement (as defined herein).

We currently estimate the liability associated with this lump-sum payment as of December 31, 2023 to be approximately $119.8 million on

a discounted basis.

The acceleration of such a

material lump-sum payment obligation under our Tax Receivable Agreement could materially adversely affect a third party’s acquisition

of us, discourage a third party from attempting to acquire control of us or materially adversely affect the price payable for shares of

our Common Stock pursuant to such a transaction.

As a result, you may not have the opportunity to participate in, or realize a potential

control premium for your shares pursuant to, such a change of control transaction.

These obligations could also limit the price that investors

might be willing to pay in the future for our Common Stock.

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 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

Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, our directors shall not be personally liable

for monetary damages for breach of fiduciary duties.

Our Second Amended and Restated Certificate of Incorporation and our third Amended

and Restated Bylaws also requires 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 anyone was able to enforce an action against our directors or

officers, we would likely 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 or results of operations.

Additionally, 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 (i) derivative action

or proceeding brought on our behalf;

(ii) 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;

(iii) 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 Second Amended and Restated Certificate of Incorporation or our Third

Amended and Restated Bylaws;

or (iv) any action asserting a claim related to or involving us that is governed by the internal affairs

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 Securities Exchange Act of 1934, as amended (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 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, 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.

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.

choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder 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.

Future sales of our

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

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

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.

of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of

our 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.

In connection with the issuance of Warrants pursuant to the Amended and Restated Credit Agreement, On January 23, 2024,

the Company entered into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with

CCP, Blackwell, Coliseum Capital Co-Invest III, L.P., Harvest Master, Harvest Partners, and HSCP (the “Holders”), providing

for the registration under the Securities Act of the shares of Common Stock issuable upon the exercise of the Warrants.

The Registration

Rights Agreement provided that on or prior to February 22, 2024, the Company was required to prepare and file with the SEC pursuant to

Rule 415 of the Securities Act a registration statement to register the resale of the shares issuable upon the exercise of the Warrants

and our Common Stock held by the Holders of such date (the “Registrable Securities”).

The Company received an extension from

the Holders to file the registration statement on or prior to March 22, 2024.

The market price of our Common Stock could decline as a

result of sales in the market by a few large stockholders, such as Coliseum or the Holders, or the perception that these sales could occur,

including as a result of the Registration Statement discussed above.

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, including as a result of the exercise of the Warrants.

Our Second Amended and Restated

Certificate of Incorporation allows us to issue up to 300 million shares of our Common Stock, including 210 million shares of

Common Stock and 90 million shares of Class B Stock, and up to five million shares of undesignated preferred stock.

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.

2023 we issued 13,400,000 shares of Common Stock pursuant to an underwritten public offering.

To raise additional capital, we may in the

future sell additional shares of our Common Stock or other securities convertible into or exchangeable for our 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.

example, on January 23, 2024, we issued to the Lenders under the Amended and Restated Credit Agreement Warrants to purchase 20,000,000

of our Common Stock (approximately 19% of our currently outstanding Common Stock) at a price of $1.50 per share, subject to certain adjustments.

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

The exercise of the Warrants will dilute the

value of the Common Stock and stockholder voting power.

Pursuant to our Second Amended

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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.

may be required by NASDAQ 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 enable us to satisfy our financial obligations.

We are a holding company and

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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.

The earnings from, or other available assets of, Purple LLC may not be sufficient to allow us to pay our financial obligations.

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.

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.

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

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.

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

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.

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 covenants in our

Amended and Restated Credit Agreement do not allow us to pay dividends.

As a result, capital appreciation, if any, of our Common Stock

will be a stockholder’s sole source of gain for the foreseeable future.

may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Common Stock

as to distributions and in liquidation, which could negatively affect the value of our Common Stock.

the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is unsecured

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unsecured notes, preferred stock, hybrid securities or securities convertible into or exchangeable for equity securities.

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.

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

example, on January 23, 2024, we issued to the Lenders under the Amended and Restated Credit Agreement warrants to purchase up to 20,000,000

shares of our Common Stock at a price of $1.50 per share, subject to certain adjustments.

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 Common Stock, and holders of securities senior to the Common Stock would receive distributions of our

available assets before distributions to the holders of our 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.

NASDAQ may delist

our securities from its exchange, which could harm our business and limit our stockholders ’ liquidity.

Our Common Stock is currently

listed on NASDAQ, which has qualitative and quantitative listing criteria.

However, we cannot assure that our Common Stock will continue

to be listed on NASDAQ in the future.

In order to continue listing our Common Stock on NASDAQ, we must maintain certain financial, distribution

and stock price levels.

Generally, we must maintain a minimum amount in stockholders’ equity, a minimum number of holders of our

Common Stock, and a $1.00 minimum per share bid price for our Common Stock.

If we fail to maintain a $1.00 minimum per share bid price

for a period of 30 consecutive business days, we have 180 calendar days to maintain our Common Stock at a $1.00 minimum per share bid

price for 10 consecutive trading days.

If we do not regain compliance within 180 calendar days, NASDAQ may grant a second compliance period

of 180 calendar days or it may make a determination to delist our Common Stock, at which point we would have an opportunity to appeal

the delisting determination to a hearings panel.

we are unable to comply with the continued listing requirements, our Common Stock may be subject to delisting.

If NASDAQ delists our Common

Stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities

could be quoted on an over-the-counter market.

If this were to occur, we could face significant material adverse consequences, including:

a limited availability of market quotations for our securities;

reduced liquidity for our securities;

a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

a limited amount of news and analyst coverage;

a decreased ability to issue additional securities or obtain additional financing in the future.

have identified a material weakness in our internal control over financial reporting which has not been remediated as of December 31,

I f we fail to effectively remediate our material weakness or otherwise 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 adversely affect the value of our Common Stock.

As a public company,

we are required to establish and maintain internal control 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 losses.

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.

In the course of preparing

our financial statements as of September 30, 2023, we identified certain errors in our accounting for warranty reserves, relating specifically

to our warranty reserves under wholesale contracts.

As part of such process, we identified a material weakness in our internal control

over financial reporting.

Our internal control over financial reporting did not result in the proper accounting of warranty reserves relating

to our long-term warranty obligations, which due to its cumulative impact on our consolidated financial statements as of September 30,

2023, we determined to be a material weakness.

Our management has concluded that our internal control over financial reporting continues

to be not effective as of December 31, 2023.

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

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.

We cannot guarantee

that we will not experience additional material weaknesses in our internal control 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.

Any failure to maintain such

internal control could adversely affect 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 NASDAQ, the SEC or other regulatory

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 control could also cause investors to

lose confidence in our reported financial information, which could have a negative effect on the trading price of our Common Stock.

Tax Risks Relating

to our Structure

Obligations under the

Tax Receivable Agreement could materially adversely affect our cash flows in the future if we become profitable and begin paying income

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.

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.

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.

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.

Combination, we entered into the Tax Receivable Agreement with our founders, which generally provides for our payment to our former founders

of 80% of certain tax benefits that we realize as a result of certain increases in our asset tax basis and of certain other tax benefits.

As of December 31, 2023, our preliminary estimate of our liability under the Tax Receivable Agreement was approximately $168.6 million.

To the extent we realize 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.

However, because we have not been profitable or paid income taxes

recently, as of December 31, 2023, we determined the likelihood of a future Tax Receivable Agreement liability was not probable and therefore

no liability has been recorded.

If we become profitable and

begin to pay income taxes and thus realize tax savings resulting from the tax benefits covered by the Tax Receivable Agreement, we will

begin to owe payable obligations under the Tax Receivable Agreement.

As a result, such payment obligations could materially adversely

affect our cash flow if we become profitable.

Under certain circumstances,

payments under the Tax Receivable Agreement may be accelerated or significantly exceed the actual benefits we realize.

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.

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.

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;

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.

of control of our 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 our former founders equal to the present value

of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement.

As of December 31, 2023 we estimate

the potential lump-sum payment to be approximately $119.8 million 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.

Such provisions that prohibit or adversely affect a change of control will limit your ability

to influence corporate matters and could adversely affect the price payable to you for your Common Stock in such a transaction.

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.

in the absence of an early termination of the Tax Receivable Agreement, change of control of our Company or a payment that is more than

90 days late under the Tax Receivable Agreement, there may be a material adverse effect on our liquidity if the payments under the Tax

Receivable Agreement exceed the actual income or franchise tax savings that we realize from 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.

Changes in accounting

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

affect our financial results.

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

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

management, including but not limited to estimates that affect our revenue recognition, accounts receivable and allowance for doubtful

accounts, valuation of inventories, cost of revenues, sales returns, warranty liabilities, the recognition and measurement of loss contingencies,

warrant liabilities, estimates of current and deferred income taxes, deferred income tax valuation allowances and amounts associated with

our Tax Receivable Agreement.

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, results of operations or financial condition.

For example, we performed a goodwill

impairment analysis as of September 30, 2023, that estimated the implied fair value of our goodwill using a variety of valuation methods,

including both the income and market approaches.

As a result of our impairment assessment performed, we determined goodwill was impaired

and recorded an impairment charge to write off the entire $6.9 million balance of goodwill.

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

Under Section 382 and

6 unchanged sentences

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.

Unresolved Staff Comments

Thus, our ability to utilize our NOLs, including net operating losses acquired from our Intellibed acquisition, and

other tax attributes to reduce future tax liabilities may be substantially restricted.

As of December 31, 2023, we have not completed

a study to assess whether an ownership change has occurred, as defined by IRC Sections 382 and 383, or whether there have been ownership

changes since the Company's formation due to the complexity and cost associated with such study, and the fact that there may be additional

such ownership changes in the future.

The federal and state net operating loss carryforwards and research and development credit carryforwards

that can be utilized in the future could be significantly limited.

There can be no assurance that the Company will ever be able to realize

the benefit of some or all of the federal and state loss carryforwards or credit carryforwards, either due to ongoing operating losses

or due to ownership change limitations.

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-K

Item 1A. Risk Factors