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Item 1A. Risk Factors

2025-03-14 compared with 2024-03-12 · 948 added, 1683 removed, 53 unchanged (98% of the section changed)

The risk factors summarized

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.

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

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

affect our business if they occur.

Risk Factor Summary

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.

The risk factors 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.

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

believe are immaterial may also affect our business if they occur.

Risks Relating to Our Business and Our Operations

indebtedness, related covenants, and certain prepayment obligations, including make-whole payments, could limit operational and financial

flexibility and adversely affect our business if we breach such covenants or default on such indebtedness.

January 23, 2024, to refinance existing obligations, we entered into a Second Amendment to Term Loan Agreement (the “Second Amendment”)

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

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.

(“HSCP” and together with CCP,

Blackwell, Harvest Master, and Harvest Partners, the “Lenders”).

Upon entry into the Amended and Restated Credit Agreement,

we received a term loan in the amount of $61.0 million.

The Amended and Restated Credit Agreement imposes various affirmative and negative

covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations

or acquisitions, incurrence of additional indebtedness, paying dividends or making distributions and transactions with affiliates, among

other customary covenants.

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.

us from taking actions that we believe would be in the best interests of the business and complicate our ability to execute our business

strategy or compete with less restricted companies.

If we fail to comply with the covenants under the Amended and Restated Credit

Agreement, we may need to seek future amendments or waivers and/or alternative liquidity sources, such as subordinated debt, which may

not be favorable or available.

Before taking any action requiring a waiver under the Amended and Restated Credit Agreement, we must first

obtain approval from the Lenders, which may cause us to incur additional costs and may not be granted.

Non-compliance could lead to defaults,

which could materially adversely affect our financial condition and results of operations, including possible acceleration of our debt

and, as well as other cross-defaulting debt obligations.

Additionally, defaults could significantly impair our ability to secure alternative

financing and limit our business strategies.

Our compliance with these covenants will depend on successfully implementing our business

strategy, as breaches could lead to defaults and acceleration of our debt, potentially forcing us into bankruptcy or liquidation.

In addition, on March 12,

2025, we entered into an Amendment to the Amended and Restated Credit Agreement (the “2025 Amendment”), pursuant to which

the Lenders agreed to provide us with an incremental term loan of $19.0 million.

The 2025 Amendment also amended the Amended and Restated

Credit Agreement to (i) provide for an additional term loan from the 2025 Term Loan Lenders (as defined in the 2025 Amendment) in an aggregate

amount not to exceed $20.0 million, subject to the approval of the Required Lenders in their discretion, (ii) provide for the payment

of substantial make-whole payments in the event we prepay the loans prior to their maturity, and (iii) provide that the incremental term

loan will be senior in right of repayment to the initial term loan.

Under the Amended and Restated

Credit Agreement, we have mandatory prepayment obligations, including upon certain asset dispositions, equity issuances, debt incurrences

and extraordinary receipts of cash.

As amended by the 2025 Amendment, we may be required to make substantial “make-whole”

payments to the Lenders.

If required to prepay or pay such make-whole payments, we may lack the liquidity to do so, resulting in default.

Prepayments, including make-whole payments, would also divert resources from operating expenses, potentially harming relationships with

suppliers, hindering growth strategies, and jeopardizing our business continuity.

In addition, such payments could result in holders of

our Class A Stock not receiving any consideration in a sale of our business, or if we were to liquidate, dissolve, or wind-up, either

voluntarily or involuntarily.

may need additional funds to execute our business plan, maintain our liquidity, repay our debt and fund our operations.

We may not be

able to obtain such funds on acceptable terms or at all.

have experienced recurring operating losses and negative cash flows and may continue to generate operating losses and consume significant

cash resources in the future.

For the years ended December 31, 2024, and 2023, we had negative cash flow from operating activities of

$18.0 million and $54.7 million, respectively.

As of December 31, 2024, we had unrestricted cash and cash equivalents of $29.0 million

and borrowings of $70.7 million under our Amended and Restated Credit Agreement (as defined below), which will become due on December

March 12, 2025, we borrowed an additional $19.0 million under the Amended and Restated Credit Agreement pursuant to the 2025 Amendment

(as defined below), which will also become due on December 31, 2026.

The 2025 Amendment (as defined below) also added certain make-whole

payments with respect to our borrowings under the Amended and Restated Credit Agreement, which would require substantial payments in connection

with certain pre-payments or refinancing of our outstanding borrowings.

connection with the preparation of our 2024 financial statements, we undertook a going concern assessment and concluded the Company will

have sufficient liquidity for its operations for at least one year from the date these consolidated financial statements are issued.

there can be no assurance that we will be able to maintain the liquidity necessary to fund our long-term operations and growth strategies,

or repay our debt obligations when due.

As a result, we may need to secure additional sources of liquidity to fund our long-term operating

activities and capital expenditures.

However, there can be no assurance that we will be able to obtain additional financing as needed

on terms favorable to us, or at all.

If we fail to meet liquidity and capital requirements, we may need to scale back or halt our growth

plans, risking slower growth, losing suppliers, failing to meet customer demands, and losing employees.

We may also need to restructure

our obligations or pursue other measures to address any liquidity deficiency.

the Amended and Restated Credit Agreement, we can request additional loans, but the Lenders may deny requests, limiting our access to

future funds and adversely affecting our liquidity, financial condition and results of operations.

equity or debt financings may involve issuing securities likely to be dilutive to our existing stockholders, such as warrants, as we did

on January 23, 2024 when we issued to the Lenders, as partial consideration for their entering into the Amended and Restated Credit Agreement,

warrants (the “2024 Warrants”) to purchase 20.0 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.

In addition, on March 12, 2025, we issued to the Lenders,

as partial consideration for their entering into the 2025 Amendment, warrants (the “2025 Warrants” and together with the 2024

Warrants, the “Warrants”) to purchase 6.2 million shares of our Common Stock (approximately 6% of our currently outstanding

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

The exercise of such warrants and/or any additional similar

securities in the future would dilute the value and amount of our Common Stock.

Similarly, any new securities we may issue may carry preferences,

superior voting rights, or additional terms that could adversely affect shareholders of our Common Stock.

Future capital raising efforts

may incur substantial costs, such as investment banking, legal, and accounting fees, and could lead to non-cash expenses that negatively

impact our financial condition.

may not realize all the intended benefits of our Restructuring Plan and other cost-saving initiatives, which could adversely affect our

results of operations and our financial condition.

2024, we implemented our Restructuring Plan to consolidate our Utah manufacturing operations into our McDonough, Georgia plant, and we

plan to undertake further cost-saving initiatives in 2025.

However, the remaining costs under our Restructuring Plan may exceed estimates,

and we may not achieve all the expected financial benefits or savings.

Relocating equipment to Georgia and expanding our workforce there

could be challenging.

Replacing experienced Utah employees with less experienced Georgia staff may lead to a loss of knowledge, lower

productivity, and decreased efficiency and quality.

Manufacturing in a single U.S.

region could increase our distribution costs.

Consolidating

plants may cause disruptions in our inventory and raw material supply.

We may not fully sublease our Utah facilities, impacting our financial

The Restructuring Plan, as well as past and future restructurings, including workforce reductions, could harm employee morale,

disrupt business operations, result in the loss of institutional knowledge, damage our reputation, and impair our ability to attract skilled

talent, negatively affecting the business.

addition, we plan to implement additional cost savings measures in 2025 beyond those implemented pursuant to our 2024 Restructuring Plan.

We may not achieve the expected financial benefits or savings from these additional cost savings measures, which could further adversely

affect our results of operations and financial condition.

Additionally, such cost saving measures may adversely affect our ability to

generate additional revenue in the future.

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

1 unchanged sentence

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;

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

costs of employee recruiting and retention;

changes in the pricing or availability of advertising;

changes in our capital expenditures;

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

the introduction of new technologies or products by our competitors;

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

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

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

changes to our executive leadership or our Board;

actions of activist

investors that divert our attention and resources;

the loss of key strategic relationships with partners;

the cost of recapitalization.

In addition, we rely on estimates

and forecasts of our expenses and revenues to provide guidance and inform our business strategies, and some of our past estimates and

forecasts have not been accurate.

The evolving nature of our business makes forecasting 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 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 results of operations, could also adversely affect the market price of our Common Stock, which could result

in securities litigation.

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

core business, and adversely affect our business.

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.

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.

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, 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.

, (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.

LLC is our largest stockholder and Lender, and exercises substantial control over our Board composition, management team members and strategies.

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 will only have the right to exercise its Warrants to the extent that it (together

with its affiliates) would not beneficially own in excess of 49.9% of the shares of Common Stock outstanding immediately after such exercise

(the “Beneficial Ownership Cap”).

As a result of its significant

beneficial ownership of our Common Stock, Coliseum 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 including 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 other stockholders’

ability to influence corporate matters, including control of the composition of our Board and management, as well as our corporate strategies,

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

In addition, Coliseum exercises substantial

control over us as the primary Lender under the Amended and Restated Credit Agreement.

2022, Coliseum delivered to us an unsolicited bid to acquire the remaining outstanding shares of our Common Stock, submitted a notice

of its intent to nominate a slate of directors, which slate would have constituted a majority of the Board, and filed a lawsuit challenging

our issuance of a dividend of shares of preferred stock (the “Action”).

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 agreement to certain standstill provisions, as discussed further in Note 16 – Related Party Transactions

Coliseum Capital Management, LLC of the Notes to the Condensed Consolidated Financial Statements.

The Cooperation Agreement terminated

on the date following our 2024 annual meeting of stockholders.

Under the terms of the Cooperation Agreement, our current Chair of the

Gray, and four of our other current directors, Mr.

Peterson and Ms.

Serow, were appointed or nominated

to serve on our Board.

can be no assurance that Coliseum will not make another unsolicited bid to acquire the remaining outstanding shares of our Common Stock

or attempt to nominate additional or 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 at our business and operations or may demotivate current executives and

discourage other executives from joining the Company.

In addition, 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 or otherwise adversely affect our

results of operations and the value of our business.

We have engaged in numerous related-party transactions with significant

stockholders, directors, and their affiliated entities.

For example, under the Amended and Restated Credit Agreement, as amended by the

2025 Amendment, the Lenders, which include Coliseum, have loaned to us an aggregate of $80.0 million and we have issued Warrants to Coliseum

and the other Lenders to purchase an aggregate of 26.2 million shares of our common stock at $1.50 per share.

Coliseum, our largest stockholder,

has appointed or nominated a total of five directors to serve on our Board, each of whom continues to serve on our Board, including, Adam

Gray, who continues to serve as Chairman.

Any future transactions with the Lenders or any other related parties may give rise to conflicts

of interest or otherwise adversely affect our business.

Our preliminary exploration

of potential strategic alternatives may not be successful, which may adversely affect our ability to compete with larger, including combined,

We regularly engage in dialogue

with market participants regarding potential business combinations, partnerships and other strategic alternatives.

Based on certain recent

preliminary inquiries, the Board has formed a special committee of independent directors and we have engaged a financial advisor to support

them in evaluating any indications of interest and exploring other potential strategic alternatives.

There can be no assurance that any

of such preliminary exploratory activities will result in our engaging in a strategic alternative transaction, or even if we do so, that

any such strategic alternative transaction will result in favorable terms and conditions for us or our shareholders.

If we are unsuccessful

in engaging in a favorable strategic alternative, then our ability to grow our business and compete with larger, including combined, competitors

may be adversely affected.

As a result, we may face liquidity challenges in the long-term and our ability to achieve consistent profitability

may be adversely affected.

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

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

If we misjudge market trends, we may significantly overstock inventory

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

shortages of inventory or 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.

success may depend on our ability to timely anticipate and respond to changing consumer trends.

Those changes and resulting changes in

our product mix and distribution strategy could adversely affect our business and results of operations.

For example, as retail stores

reopened following the COVID-19 pandemic, consumers shifted away from online retail purchases towards brick-and-mortar shopping.

profit margins for sales through wholesale customers are lower than those in our DTC channel, so that shift adversely affected our gross

profit margins.

If we fail to identify and respond to emerging trends, consumer acceptance of the products we manufacture and sell and

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

If we misjudge market trends, we may significantly

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

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

We operate in the highly

competitive sleep products industry, and if we are unable to compete successfully, our results of operations could be adversely affected.

The sleep products industry

is highly competitive and fragmented.

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

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

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

performance and compete across a range of distribution channels.

The highly competitive nature of the sleep products industry means we

are continually subject to the risk of loss of market share, loss of significant customers, reductions in margins, and the inability to

acquire new customers.

We 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, 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

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

New or existing sleep product retailers could enter our markets and

increase the competition we face.

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

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

We will face different market

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

In some markets, our future competitors

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

We may not be as successful as our competitors in

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

history and other factors.

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

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

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

If we are unable to effectively compete with other manufacturers and

retailers of mattresses, pillows, cushions, and our other products our sales, profitability, cash flows and financial condition may be

adversely 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 DTC retailers

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

channels, such as offline and online home shopping networks.

The internet and mobile networks

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

that compete directly with our products.

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

and merchants have more online channels to reach consumers.

We expect competition to continue to intensify.

Online and offline businesses

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

large user communities and well-established brands.

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

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

successful e-commerce companies.

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

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

reduce activity on our platform and harm our profitability.

In addition, sellers in our

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

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

We use product search engines and paid search advertising

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

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

other shopping destinations.

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

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

return policies from e-commerce sellers.

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

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

products to consumers and retailers that we do not offer.

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

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

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

Some of our e-commerce competitors

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

Competitors with other revenue sources may be able to devote

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

platforms and applications and systems development than we can.

Other direct to consumer retailers and e-commerce competitors

may offer or continue to offer faster shipping, 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.

is highly competitive and fragmented, with competition from manufacturers (including those sourcing from low-cost countries), traditional

retailers, and online direct-to-consumer brands.

Competition centers on price, quality, brand recognition, availability, and performance

across various distribution channels.

This competitive environment exposes us to risks of losing market share, significant customers,

margins, and new customer acquisition.

We have introduced new products in the luxury mattress market but have limited experience in this

If we fail to compete effectively with other manufacturers and retailers of our products, our sales, profitability, cash flow,

and financial condition may be materially adversely affected.

Many of our significant competitors,

including established manufacturers, retailers, and new entrants, offer products directly competing with ours.

This increasing competition

from both domestic and international sources, including competitors that source from low-cost locations such as China and Vietnam, could

adversely affect our business, financial condition and results of operations.

Competitors are expanding their distribution channels, with

many offering direct-to-consumer sales online.

Major retailers like Mattress Firm, Amazon, and Walmart also sell competing products.

Additionally,

foreign retailers may vertically integrate by acquiring U.S.

mattress manufacturers or other retailers.

Many of our competitors

have greater financial resources, technical expertise, larger customer bases, established industry relationships, and more mature distribution

They may aggressively pursue market share with new or existing products, and we cannot guarantee we will have the resources

or expertise to compete successfully.

Additionally, competitors with better e-commerce platforms could hurt our sales.

We have limited

ability to predict competitors’ actions, such as new product launches, pricing strategies, or marketing campaigns, which could impact

our market share and product margins.

Competitors may also secure better terms from vendors, adopt more aggressive pricing, and invest

more in technology and marketing.

With many competitors offering a wide range of products, it may be difficult for us to differentiate

through value, style, or functionality.

Additionally, our products are often heavier, and some markets may not support affordable delivery,

limiting our reach.

The retail sleep product industry has low barriers to entry, allowing new or existing retailers to increase competition.

This could delay or prevent us from gaining market share and negatively impact our growth and future results of operations.

Sleep products industry has experienced significant consolidation in recent years, including vertical integrations, with competitors acquiring

brands to expand distribution networks, leverage economies of scale to gain market share and lower prices, gain greater bargaining power

with suppliers, enhance brand recognition, advance research and development, and extend marketing and retail distribution channels.

Consolidation

among retailers may result in fewer sales channels or more restrictive terms for standalone brands.

If we are unable to adapt to these

industry shifts, our growth, results of operations, and market share could be adversely impacted.

Technological

changes, such as advances in artificial intelligence, may render our current technologies obsolete or require costly updates.

technologies may be superior to the technologies we currently use in our products and services.

Adopting new technologies could be hindered

by industry standards, regulations, resistance from clients, expense, or third-party intellectual property rights.

Our competitiveness

may depend on our ability to innovate and adapt to these changes and failure to keep pace may adversely affect our results of operations.

Timely product delivery affects

our competitiveness.

Failure to maintain or enhance our delivery processes and infrastructure could negatively impact our ability to compete.

Disruptions, delays, or increased freight costs with our carriers and freight forwarders could harm sales, increase cancellations, damage

our brand, and adversely affect our results of operations and our financial condition.

If we fail to deliver products on time, our DTC

and wholesale customers may reduce or stop future orders, and we may face late charges from wholesale partners.

Production or shipment

issues that lead to lower demand could materially impact our business and results of operations

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’

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.

Shortages in such components, due to any reason including

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

capacity and results of operations.

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

Any new arrangements for raw materials and components might not be on favorable terms if we are able to enter into new arrangements

If a supplier for a component failed to supply such component in required amounts this could significantly interrupt production

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, transportation and labor needed to manufacture our products.

Such cost increases

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.

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.

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

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

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

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

There is no assurance that we will be able to fulfill our staffing

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

and financial systems.

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

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

improve the customer’s experience.

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

processes and procedures for improving employee training and retention.

Competition for employees where our production facilities are

located has also increased the costs for employee retention.

We have implemented improved processes and procedures in an environment of

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

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

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

our business could be adversely affected.

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 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

activities, which could adversely affect our business.

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

located in an area that may be subject to hurricanes;

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

activities, which could adversely affect our business.

Our manufacturing processes

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

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

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

failures and industrial accidents, including, among other things, personal injury or death resulting from such incidents at our manufacturing

A workplace accident, mechanical failure, industrial accident or any similar problem involving any one or more of our facilities

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

delays in manufacturing and shipping our products and adversely affect our business and results of operations.

For example, in 2021, we

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

As a result, we evaluated

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

In addition, once safety improvements were

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

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

We have been expanding our business into the wholesale

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

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

may be unsuccessful in generating additional sales through wholesale channels.

We may extend credit terms in connection with such relationships

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

In addition, we may provide fixtures to such partners

that may be difficult to recover or re-use.

Our wholesale customers may not purchase our products in the volume we expect.

Profitability,

if any, from sales to wholesale customers and new product offerings may be lower than from our DTC model and current products,

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

If any of these issues were to arise,

they could damage our reputation, limit our growth, and 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 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 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.

If we are unable

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

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

and our business could be adversely affected.

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

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

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

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

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

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

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

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

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

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

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

marketing programs.

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

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

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

reviews are becoming increasingly influential with consumers.

Negative reviews from such sources may receive widespread attention from

consumers, which could damage our reputation and brand value and 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 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

We rely on external suppliers

for key raw materials like polyurethane foam, oil, spring units, and our Hyper-Elastic Polymer® ingredients.

Any supply issues, quality

concerns, or price fluctuations could raise costs and hinder our ability to meet customer demand.

These issues or concerns may be magnified

to the extent we rely on a limited number of suppliers or a sole supplier.

Competitive pressures may also limit our ability to pass on

price increases, potentially leading to lost sales.

Shortages of widely used components like foam and spring units, due to

factors like increased demand, weather events, or supply chain issues, could impact our production and operations.

If a supplier fails

to deliver, we will need to find replacements, potentially on unfavorable terms.

Any disruption in component supply could significantly

interrupt production and raise costs.

Even with timely access to

raw materials, supply chain constraints, inflation, increased duties and tariffs, and other factors will increase shipping, labor, and

production costs.

Rising costs for materials, transportation, and labor could impact our production efficiency, reduce gross margins,

and negatively affect our results of operations.

Shipping costs and delays have in the past risen and may again in the future rise

due to port closures, congestion, and shortages of containers and ships.

Future disruptions, such as pandemics, geopolitical conflicts,

and increased duties and tariffs, could worsen delays and increase material costs.

These issues may impact our ability to maintain inventory,

meet demand, and affect our operations.

Any significant supply chain interruptions or inability to source materials at acceptable prices

could harm our business.

Our information technology

systems may fail to perform adequately, may be disrupted by natural disasters or other catastrophes, or we may be unable to protect the

privacy, integrity and security of our information systems.

Our operations and our revenue

rely heavily on information technology systems.

Any failure in these systems could disrupt our sales and various functions, including

order processing, inventory management, and product delivery.

Upgrades or improvements to our systems may require significant capital,

time, and resources, potentially causing disruptions.

Difficulties with system upgrades or failures, or an inability to adapt our systems

to business changes could negatively impact our operations.

Our systems may face interruptions or degradation from hardware or software

issues, cyberattacks, natural disasters, power losses, fraud, political conflicts, or other events.

Some systems may lack sufficient redundancy,

and our disaster recovery planning may not cover all scenarios.

They are also vulnerable to natural disasters, security breaches, sabotage,

and data theft.

Any such issues could negatively impact our results of operations.

We collect and store personal

information from customers and suppliers, including customer payment details.

We may share this information with third parties.

targeting sensitive data are a known threat, and hackers may attempt to breach our systems or those of third parties.

Employees, contractors,

or business partners could also intentionally or unintentionally compromise security.

For example, we previously experienced an unauthorized

intrusion involving a former contractor’s credentials, though no personal information was accessed.

Future breaches could occur

if there are weaknesses in our internal controls over financial reporting related to information technology systems.

We and third-party

partners have experienced and, in the future, may experience various cyber-attacks, including phishing, malware, and ransomware attacks.

In 2022, we experienced a spear-phishing attack that led to a $140,000 loss due to unauthorized changes to a vendor’s bank account.

expect continued exposure to similar threats.

Additionally, increasing use of artificial intelligence by us and our third-party partners

may increase these risks.

A breach releasing sensitive data could harm our reputation, result in financial losses, and increase our security

Successful ransomware attacks could disrupt our operations, and while our insurance may cover some losses, it may not be sufficient

for all liabilities.

We are subject to evolving data privacy and breach laws, both at the state level (e.g., the California Consumer Privacy

Act), the federal level, and internationally as we expand.

These laws’ rapid changes and potential inconsistencies increase compliance

costs and non-compliance risks.

While we aim to comply, failure to do so could result in fines, administrative actions, and reputational

Changes in economic

conditions, including the housing market and tariffs, have or will adversely affect our business, results of operations and financial

We have experienced and may

continue to experience volatility due to global and U.S.

market conditions including the housing market, mortgage interest rates, tariffs,

and inflation.

These market conditions impact demand for mattresses and related products.

We have experienced and may continue to experience

a negative impact on our demand as a result of the current housing market.

The impact of newly implemented or threatened tariffs is uncertain

but will increase our costs and may negatively impact the demand for our products.

We may not be able to pass along the costs of such

tariffs to our customers, which could adversely affect our results of operations and financial condition.

Continued inflation may reduce

consumer discretionary spending, negatively affecting demand for our products.

Disruption of our manufacturing

has and could increase our costs of doing business or lead to delays in shipping and could materially adversely affect our business, our

results of operations, and our financial condition.

Disruptions to our manufacturing

operations, whether from the Restructuring Plan, a pandemic, natural disasters, lease issues, or equipment failures, could increase costs,

delay production and shipping, and negatively impact our business, operations, and financial condition.

Workplace injuries, industrial

accidents, or violence could also lead to production suspensions and delays, affecting customer satisfaction, results of operations, financial

condition including our cash flow.

The Restructuring Plan, which consolidated our manufacturing operations into one plant, may heighten

the risk of disruption, particularly from regional economic downturns, hurricanes, pandemics, utility shortages, or other events affecting

our Georgia plant, potentially harming our business.

Future growth and profitability

may depend on our ability to improve our product line, successfully introduce new products, and effectively and efficiently market our

products to attract and retain customers.

mattress, pillow, bedding, bed base, and cushion industries are highly competitive.

Competitors may develop or acquire superior technology.

Our ability to grow market share depends on continually improving and expanding our product line and accessories.

We invest significantly

in research and development to improve and expand our products.

If these efforts fail to lead to meaningful improvements or consumer acceptance,

our results of operations, financial results, and reputation could suffer, potentially harming our business.

A large portion of our gross

profit comes from mattress products.

If we fail to develop or successfully market new models, such as those introduced in recent years,

our results of operations and business could be harmed.

rely on effective marketing messages and efficient advertising to drive consumer awareness and sales.

We continually adjust our strategies,

including messaging, budget, and channels.

However, we may struggle to adapt to changing consumer preferences, competition, and advertising

We rely on internet-based advertising through media and e-commerce platforms.

If these platforms become less effective,

lose users, or fail to target our audience, our advertising may lose effectiveness and adversely affect our business.

Advertising costs

on social media platforms such as Facebook have risen significantly, reducing efficiency, and we expect costs to keep increasing.

rely on relationships with media partners, search engines, social media influencers, and e-commerce platforms to drive traffic and attract

If we can’t maintain or develop these relationships on favorable terms, or if our reputation suffers, our ability to grow could

If we can’t manage these costs or generate expected sales, our business could be adversely affected.

growth may be impacted by the effectiveness of our online experience for targeted audiences, including advertising and search optimization.

We also need to manage consumer sentiment, prevent false information about our products, and ensure website stability.

The increased presence

of direct-to-consumer internet retailers and traditional mattress and furniture retailers and manufacturers has increased competition

for search terms, driving up marketing costs.

The growing number of third-party review websites gives customers many platforms to

review our products, and negative reviews can significantly impact our reputation and brand and may adversely affect our results of operations.

If we can’t manage relationships with reviewers to ensure accurate feedback, misleading reviews may harm our brand and hinder efforts

to improve it.

Ineffective marketing messages, inefficient advertising, or poorly targeted programs may harm brand awareness, consumer

traffic, and our financial performance.

Additionally, failure to prevent misleading information or negative sentiment on social media

could also negatively impact our results of operations and financial condition.

expansion into wholesale distribution and new sales channels, new products, market segments and geographic regions subjects us to additional

business, legal, financial, and competitive risks.

of our sales are through DTC channels, but we have expanded into wholesale distribution.

However, we cannot guarantee success with wholesale

We may struggle to generate additional sales through wholesale channels, and extending credit terms to wholesale partners could

expose us to the risk of unpaid or late invoices.

Providing fixtures to wholesale partners could also pose challenges in recovery or reuse.

Wholesale customers may not purchase at expected volumes, and gross profit from wholesale sales are lower than DTC.

If these issues arise,

they could harm our reputation, limit growth, and negatively impact our results of operations.

may struggle to open additional Purple showrooms beyond those already established.

Operating showrooms involves risks such as inventory

shrinkage, increased expenses, lease obligations, distribution challenges, and employee management.

If we fail to operate these stores

profitably or if we close unprofitable stores, it could harm our reputation, limit growth, and negatively impact our business.

into new product offerings through e-commerce, wholesale, and Purple showrooms presents challenges, including potential service disruptions,

quality issues, and customer claims.

Expanding sales channels may also require new products to avoid conflicts between channels.

may introduce warranty and return risks.

Expanding into new markets or regions could expose us to additional regulations, leading to increased

compliance and distribution costs.

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

business relationships.

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

certain wholesale partners and customers.

As we grow, we may acquire other businesses to incorporate into our operations.

These arrangements

can be complex and require substantial infrastructure capacity, personnel, and other resource commitments.

Further, our business partners

may have disruptions in their businesses or choose to no longer do business with us and the impact of such disruption or choices could

be magnified to the extent such business partners represent a significant part of our business.

Moreover, our business partners and their

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

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 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

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

Our relationships with our wholesale partners may not be profitable

to us or may impose additional costs that we would not otherwise incur under our DTC operations.

Our wholesale partners may choose

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

loss of revenue.

Our wholesale partners may experience their own business disruptions, including for example bankruptcy, that could affect

their ability to continue to do business with us.

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

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

Our wholesale partners may compete against us in DTC or other

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

Further, maintaining these relationships may require the

commitment of significant amounts of time, financial resources and management attention, and may result in prohibitions on certain sales

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

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

Our business is expanding

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.

If we are unable to maintain those relationships

or if such third parties are disrupted in their ability to perform such final assembly and we are unable to make alternative arrangements,

our ability to produce certain mattresses may be adversely 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.

rely on commercial agreements and strategic relationships with suppliers, service providers, and wholesale partners.

Disruptions in these

relationships or strategic decisions by partners could negatively affect our business.

For example, (i) one of our competitors is purchasing

one of our wholesale partners, which could disrupt our relationship or prevent us from continuing to sell our products in favorable placements

alongside the competitor’s products 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

We may also struggle to maintain or develop these relationships and may not be able to secure new ones on favorable terms.

sell products through wholesale partnerships and may seek to expand these relationships.

However, these wholesale partnerships may not

be profitable and could incur additional costs compared to our DTC operations.

Wholesale relationships may be terminated or modified,

or wholesale partners may reduce orders or fail to meet their obligations, resulting in lost sales and adversely affecting our financial

performance, results of operations and financial condition.

Disputes with partners or the termination or amendment of agreements could

lead to expenses, delayed payments, liabilities, and distractions from our strategic objectives.

If we cannot renew or replace agreements

on favorable terms, it could harm our business.

Wholesale partners may also compete against us in key channels, harming our business.

Maintaining these relationships may require significant resources and could limit our sales channels, adversely affecting other areas

of our business.

are expanding Purple showrooms across the U.S., which may compete with our wholesale partners for customers.

This omni-channel strategy

carries the risk of diminishing sales in other channels, increasing costs, and the potential loss of wholesale partners.

Managing this

omni-channel strategy may require significant resources, potentially impacting other areas of our business.

If our financial performance

falls short of expectations, we may struggle to secure favorable payment terms or obtain credit from commercial partners that have extended

credit to us.

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

through third-party consumer finance companies.

During the year ended December 31, 2023, a significant percentage of our sales were

financed through third-party consumer finance companies.

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.

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

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

of credit to consumers or the availability of more favorable credit terms with 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

of raw materials and finished goods inventory.

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

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

Excessive inventory also takes

warehouse space that prevents efficient use for other activities.

For example, in 2021 we experienced production delays, which resulted

in wholesale partners not ordering the volume we anticipated.

Lower than expected order volume resulted in higher than anticipated levels

of inventory.

While we take efforts to right-size all raw materials and finished goods inventory, if our efforts are not successful,

we could continue to experience excess amounts of some items of raw materials and finished goods and related shrinkage and inefficiencies

that could adversely 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

that are, in some instances, the only source of supply currently used by us for particular products, materials, components or services.

We currently obtain all of the raw materials and components used to produce our mattresses, pillows and cushions from outside sources.

While we believe that these materials and components, or suitable replacements, could be obtained from other sources, in the event of

a disruption or loss of supply of relevant materials or components for any reason, we may not be able to find alternative sources of supply,

or if found, may not be found on comparable terms.

A disruption in the supply or substantial increase in cost of any of these products

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

In addition, a change in the financial condition

of some of our suppliers could impede their ability to provide products to us in a timely manner.

In addition, shipping and

freight delays have occurred and may again occur due to port closures, port congestion, 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

is our ability to deliver our products to our customers in a timely manner.

This requires successful planning, distribution infrastructure,

ordering, transportation, receipt processing, suppliers, meeting our distribution requirements, and our contractors meeting our delivery

requirements.

Our ability to maintain success depends on the continued identification and implementation of improvements to our planning

processes, distribution infrastructure and supply chain.

We also need to ensure that our distribution infrastructure and supply chain

keep pace with our anticipated growth and increased product output.

The cost of these enhanced processes could be significant and any

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

We rely on common carriers

and freight forwarders to deliver our products to customers on a timely, convenient, and cost-effective basis.

We also rely on the systems

of such carriers to provide us with accurate information about the status and delivery of our products.

Any disruption to the business

of delivery carriers could cause our business to be adversely affected.

Any significant delay in deliveries to our customers could lead

to increased cancellations and returns and cause us to lose sales.

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

and adversely affect our results of operations and financial condition.

Lack of accurate information from such carriers could damage our

brand and our relationship with our customers.

In some areas, we are testing Company-owned delivery services that have been successful

and efficient, and we intend to continue growing such services as demand and volume dictate.

If our Company-owned delivery services do

not continue to deliver products in a timely or cost-effective manner, we may need to revert to third party carriers and our reputation

and business may be adversely affected.

Our business could also be

adversely affected if there are delays in product shipments to us due to freight difficulties, supply chain disruptions or delays (including,

for example, from port closures, 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 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

in part on our ability to attract and retain key executive, merchandising, marketing, sales, finance, operations and engineering personnel.

If any of our executives cease to be employed by us, or if our growth or other changes in circumstances require executives with additional

skill sets, we would have to hire replacement or additional qualified personnel.

Our ability to successfully attract and hire other experienced

and qualified executives cannot be assured and may be difficult because we face competition for these professionals from our competitors,

our suppliers and other companies operating in our industry and in our geographic locations.

Recruiting qualified executives may be further

complicated by uncertainties resulting from 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.

We offer consumer financing

through third-party finance companies, with a significant portion of our sales financed in 2024.

Macroeconomic factors and changes in

credit lending criteria may reduce available credit, and we may face higher costs to maintain lending approvals.

Additionally, federal

regulations are placing more restrictions on consumer credit programs, including promotional credit offers.

Some of our agreements with

third-party finance companies, which offer financing to our customers, may be terminated by them with 30 days’ notice.

They control financing

offers and credit standards and may provide better terms to our competitors or in channels outside our focus.

Reduced credit availability

from economic changes, regulatory shifts, terminated agreements, or competitors offering better terms could negatively impact 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 satisfy

consumer demand and could adversely affect our results of operations.

have in the past accumulated and may again in the future accumulate excess raw material inventory, which is vulnerable to shrinkage, theft,

obsolescence, or otherwise becoming unsellable, and excess finished product inventory.

Excess inventory uses valuable warehouse space.

If our efforts to manage inventory are unsuccessful, excess stock and related inefficiencies could negatively impact our results of operations.

On the other hand, failing to maintain adequate inventory levels could lead to supply shortages, harming our ability to meet consumer

demand and negatively affecting operations.

Lead times for products and components, especially those sourced internationally, can vary.

Risks from legal, economic, political, or health issues, as well as disruptions in global trade, including due to tariffs or trade wars,

could impact production and result in inadequate inventory levels.

Sourcing challenges, particularly from China, due to trade tensions,

tariffs or other geopolitical factors, will also increase costs and disrupt supply.

Any shortages or delays in meeting demand could harm

customer satisfaction, results of operations and financial condition.

We rely on key suppliers,

some of which are our only sources for certain products, materials, or services.

While alternative suppliers may be available, disruptions

or cost increases in the supply of materials could negatively affect our results of operations and financial condition.

Additionally,

changes in a supplier’s financial condition could delay their product delivery to us.

Shipping delays from port closures, congestion,

and shortages of containers or ships could disrupt manufacturing, supply of materials, and inventory management.

These delays may hinder

our ability to meet product demand and deliver on time, negatively impacting our business and results of operations.

If we lose members of

the leadership team we may not be able to run our business effectively.

Our success depends on attracting

and retaining key personnel in areas like executive leadership, marketing, sales, innovation, and operations.

If members of our leadership

team leave or additional expertise is needed, finding qualified replacements may be challenging due to competition and potential uncertainties

from our ownership structure or stockholder activism.

Delays in replacing members of the leadership team could disrupt growth and strategic

If we fail to offer competitive compensation and incentives, it may adversely affect our business.

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 our leadership team and other participating employees.

Additionally, we do not have key-person insurance for our executives.

Regulatory and Litigation Risks

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may require costly expenditures and expose us to liability.

Our products and our marketing

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

and other laws relating specifically to the sleep product industry.

These rules and regulations may conflict and may change from time

to time, as a result of changes in the political environment or otherwise.

There may be continuing costs of regulatory compliance including

continuous testing, additional quality control processes and appropriate auditing of design and process compliance.

In addition, we are subject

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

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

or any associated offsite disposal location, or if contamination from prior activities is discovered at any of our properties, we may

be held liable, and the amount of such liability could be material.

As a manufacturer of mattresses, pillows, cushions and related products,

we use and dispose of a number of substances, such as glue, oil, solvents and other petroleum products, as well as certain foam ingredients,

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

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 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

and laws specifically governing the internet, e-commerce, electronic devices, and other services.

These regulations and laws

may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification,

electronic waste, energy consumption, electronic contracts and other communications, competition, consumer protection, trade and protectionist

measures, web services, the provision of online payment services, information reporting requirements, unencumbered internet access to

our services or access to our facilities, the design and operation of websites and the characteristics and quality of products and services.

It is not clear how existing laws governing issues such as property ownership, libel and personal privacy apply to the internet, e-commerce, digital

content, and web services.

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

and increase our cost of doing business.

Claims have been made against

us for alleged violations of the Americans with Disabilities Act (“ADA”) related to accessibility to our website by the blind.

The law is unsettled as to which types of websites the ADA covers and what standards are applicable, but courts in certain jurisdictions

have recognized these types of ADA claims.

While we 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

health and environmental provisions such as California Proposition 65 (the Safe Drinking Water and Toxic Enforcement Act of 1986).

example, previously we received a claim that one of our products did not have the proper label required by Proposition 65 warning of exposures

to chemicals that cause cancer, birth defects or other reproductive harm.

In that case, we resolved the claim by adding the required warning

While we make efforts to comply with Proposition 65, in the future we may be subject to such claims and be required to expend resources

defending these claims and complying with Proposition 65.

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 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

the fire retardancy of mattresses, regulating the handling of mattresses in connection with preventing or controlling the spread of bed

bugs could be passed, or requiring the collection or recycling of discarded mattresses, could result in product recalls or in a significant

increase in the cost of operating our business.

In addition, failure to comply with these various regulations may result in penalties,

the inability to conduct business as previously conducted or at all, or adverse publicity, among other things.

Adoption of multi-layered

regulatory regimes, particularly if they conflict with each other, could increase our costs, alter our manufacturing processes and impair

the performance of our products which may have an adverse effect on our business.

Our products, marketing, and

advertising are regulated by various U.S.

authorities, including the Federal Trade Commission, as well as consumer protection laws specific

to the sleep product industry.

These regulations may change or conflict with each other, leading to ongoing compliance costs, such as

quality control and compliance processes.

We are subject to federal, state, and local environmental, health, and safety regulations, including

those related to environmental protection, recycling, and occupational health and safety.

While we strive for compliance, past changes

to our facilities have been required, and we will continue to invest in meeting these standards.

If harmful substances are released or

contamination is found on our properties, we may face significant liability.

As a manufacturer of mattresses and related products, we

handle regulated substances, which subject us to various environmental laws.

For example, we are subject to 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 subject to federal

laws on international shipments, customs, and import controls.

Non-compliance may result in penalties or fines, adversely affecting our

financial condition and results of operations.

We are subject to laws covering the internet, e-commerce, electronic devices, taxation,

privacy, data protection, pricing, consumer protection, employment, disabilities, and more.

The application of traditional areas of the

law to newly developed technologies may be unclear, and unfavorable regulations could reduce demand for our products, increase costs,

or limit access to our products.

Our ongoing efforts to enhance compliance and regularly test our site, as well as legal challenges

we may face, may increase our business costs.

Additionally, we are subject to health and environmental regulations like California Proposition

65, which require resources for compliance, and with respect to which we have experienced and may in the future face claims, requiring

resources for defense.

Laws addressing climate change could impose stricter standards, raise our costs, disrupt our business and negatively

impact our financial condition and results of operations.

Negative public perception or climate-related litigation could harm our reputation

and 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.

Consumer Product

Safety Commission (CPSC) and other jurisdictions have fire retardancy standards for the mattress industry, with some states and Congress

considering stricter regulations.

These standards require fire retardant materials, quality assurance programs, random product testing,

and documentation retention, which can be costly.

If testing or inspections show our products don’t meet flammability standards,

we could face production halts, recalls, fines, or penalties, negatively impacting our operations and financial condition.

New legislation

on fire retardancy, bed bug prevention, or mattress recycling could lead to recalls or higher operating costs.

Non-compliance may result

in penalties, business restrictions, or negative publicity.

Conflicting regulations could raise costs, change manufacturing processes,

and harm product performance, negatively affecting our business.

We could be subject

to additional sales tax or other indirect tax liabilities.

The application of indirect

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

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

and foreign jurisdictions have considered or adopted laws or administrative practices, with or without notice, that impose additional

obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added, or similar

Failure to comply with such laws or administrative practices or a successful assertion by such states or foreign jurisdictions

requiring us to collect taxes where we did not, could result in substantial tax liabilities for past sales, as well as penalties and interest.

We are subject to sales tax

or other indirect tax obligations as imposed by the various states in the United States.

If the tax authorities in these jurisdictions

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

We are currently undergoing routine audits in a few

or other indirect tax obligations as imposed by the various states and jurisdictions in the United States.

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 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 statutes and regulations that impose these taxes were established before the

adoption and growth of the internet and e-commerce.

States may consider or adopt laws or administrative practices, which impose

additional obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added,

or similar taxes.

Failure to comply or a successful assertion by states requiring us to collect taxes where we did not, could result in

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

If the tax authorities challenge our filings or request

an audit, our tax liability may increase.

We are currently undergoing routine audits in a few states.

We may be subject to laws

regulations, and administrative practices that require us to collect information from our customers, vendors, merchants, and other third

parties for tax reporting purposes and report such information to various government agencies.

The scope of such requirements continues

to expand, requiring us to develop and implement new compliance systems.

Failure to comply with such laws and regulations could result

in significant penalties.

The United States Supreme

Court ruling in South Dakota v.

Wayfair, Inc.

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.

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 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

liability is always subject to audit and review by applicable tax authorities.

Any adverse outcome of any such audit or review could harm

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

that occur during the ordinary course of business for which the ultimate tax liability is uncertain.

Our effective tax rates could be

affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in

jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related

tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses,

acquisitions (including integrations) and investments, changes in the price of our securities, changes in our deferred tax assets and

liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles

and interpretations.

A number of 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.

and rules that require us to collect information from our customers, vendors, merchants, and other third parties for tax reporting purposes

and report such information to government agencies.

The scope of such requirements continues to expand, requiring us to develop and implement

new compliance systems.

Failure to comply with such laws and regulations could result in significant penalties.

Pending or unforeseen

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

We attempt to strengthen and

differentiate our product portfolio by developing new and innovative brands, product designs and functionality and materials for use in

our products.

We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar

intellectual property as critical to our success.

We rely on intellectual property laws and trade secret protection to protect our proprietary

We also rely on contractual provisions such as confidentiality agreements, non-competition agreements and license agreements with

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

our intellectual property and other proprietary rights.

We have seen an increase in the number of counterfeit goods and products that

infringe on our patents, trademarks and trade dress.

We have increased our proactive policing of these counterfeit goods which has led

to an increased cost of intellectual property enforcement, including 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

of financial and managerial resources in these and other potential litigations could be significant, depending on how they progress.

types of litigations could extend for months or years.

There is no guarantee that any litigation will result in an outcome favorable to

us, and even if we obtain favorable judgments, the prevalence of infringement or counterfeit goods could continue to cause harm to the

business and diminish the value of our intellectual property.

Effective protection or enforcement

of intellectual property rights may be unavailable or limited in the jurisdictions in which we do business.

We also may be unable to acquire

or maintain appropriate trademarks and domain names in all jurisdictions in which we do business.

Furthermore, regulations governing domain

names may not protect our trademarks and similar proprietary rights.

We may be unable to prevent third parties from acquiring domain names

that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.

Third parties that license our

proprietary rights also may take actions that diminish the value of our proprietary rights or reputation.

We also cannot be certain that

others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights.

we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations.

We, or the owners of

any intellectual property rights licensed to us, may be subject to claims that we or such licensors have infringed the proprietary rights

of others, which could require us and our licensors to obtain a license or change designs.

As we continue to increase

our innovations and create new products and technologies, and as we enter new product 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

expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights

of third parties.

Although we do not believe any of our products infringe upon the proprietary rights of others, there is no assurance

that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or pursued

against us or those from whom we have licenses or that any such assertions or prosecutions will not have 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

We may be involved in legal

proceedings arising in the ordinary course of business, including commercial, product liability, employment and intellectual property

Litigation is unpredictable, and it is possible that the outcome of future claims asserted, or adverse publicity resulting from

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

Risks Relating to our Intellectual Property

We may not be able to

adequately protect our product designs, brand and other proprietary rights, which could adversely affect our competitive position, reduce

the value of our products and brands, and may result in costly litigation to protect our intellectual property rights.

We focus on strengthening

and differentiating our product portfolio through innovation in design and materials.

Our intellectual property, including trademarks,

patents, and trade secrets, is vital to our success.

We rely on intellectual property laws and contractual protections, like confidentiality

and non-compete agreements, to safeguard our rights.

If we cannot enforce these protections, it could negatively impact our operations.

and foreign patents for product designs, function, formulas, materials, and technologies, along with trademarks, trade secrets,

trade dress, and copyrights.

Our success relies on protecting these intellectual property rights and avoiding infringement on third-party

Despite our efforts, we may

not fully protect our intellectual property and proprietary rights.

Counterfeit goods and patent/trademark infringements are increasing,

leading to higher enforcement costs, including actions with the International Trade Commission seeking general exclusion orders against

foreign entities.

We expect significant financial and managerial resources to be spent on protecting our intellectual property rights.

Even with favorable outcomes, infringement and counterfeits could harm our business and intellectual property value.

Laws may not adequately

safeguard our trademarks.

Licensees could also harm our proprietary rights or reputation.

Inadequate protection of our intellectual property

could negatively impact our results of operations.

We may be subject to

claims that we or the licensors of intellectual property rights licensed to us have infringed on proprietary rights, which could require

us and our licensors to obtain a license or change designs.

As we increase our innovations,

create new products and technologies, and enter new product categories, we may be limited by the intellectual property rights of others.

We respect the intellectual property rights of others but our ability to innovate and increase product offerings may be limited by the

intellectual property rights of other parties.

We have in the past and may in the future face claims regarding alleged intellectual

property infringement, though we believe our products do not infringe others’ rights.

However, we cannot guarantee that such claims, including

claims of invalidity and indemnification, will not arise or negatively impact our business.

Defending against these claims could incur

costs and divert resources.

Infringement claims could also result in injunctions preventing distribution of our products or forcing us

to alter our designs if licensing terms are unavailable or unreasonable.

We previously 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 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

entered into licenses of comfort-related intellectual property, as described above, one license includes exclusivity rights that may prohibit

us from selling our existing mattresses or potentially new mattress products in the European Union.

That risk may be addressed by 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.

Alternatively, that risk may not exist at all to the extent Purple LLC’s

current mattress products are the subject of expired patent rights licensed by that licensee or because Purple LLC is not the licensor.

However, there can be no assurance that our future sales in the European Union, if any, will not be challenged by EdiZONE’s licensee

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

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, 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

back to EdiZONE, as amended following the Business Combination, is much narrower than the license that existed at the time of the Business

Combination, EdiZONE’s third-party licenses may lead to conflicts between us and EdiZONE.

If conflicts do arise and are not properly

addressed, disputes may occur which may be detrimental to 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

changes continue to confront the industries in which we operate.

We cannot predict the effect of technological changes on our business.

We expect that new services and technologies applicable to 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

our business, we collect and store certain personal information from individuals, such as our customers and suppliers, and we process

customer payment card and check information for purchases via our website.

In addition, we may share with third-parties personal information

we have collected.

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, 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.

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.

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.

to licensees.

Some of those licensees are competitors and have exclusive rights that we may be required to observe.

Before the Business Combination,

we entered into an Amended and Restated Confidential Assignment and License Back Agreement with EdiZONE, controlled by our founders, pursuant

to which EdiZONE transferred intellectual property to us and licensed back certain intellectual property to meet pre-existing third-party

EdiZONE agreed not to modify, extend, or enter new third-party licenses, with all rights reverting to us as these licenses

One of EdiZONE’s prior licenses grants exclusivity to a third party of an earlier technology that could prevent us from

selling a mattress made from that earlier technology in the European Union.

This risk could be mitigated by redesigning our Hyper-Elastic

Polymer material using existing or new technologies.

However, there is no guarantee that any of our future sales in the European Union

won’t be challenged by EdiZONE’s licensee, and any such redesigned mattresses may not succeed.

If challenged, we are required

to indemnify EdiZONE.

We have the right to enforce our intellectual property against licensees who violate their agreements or infringe

on our intellectual property.

We must indemnify EdiZONE and cover enforcement costs.

However, there is no guarantee that such enforcement

efforts would succeed, which could negatively impact our business.

Risks Relating to our Common Stock

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 listing criteria.

We cannot assure that our Common Stock will continue to be listed on NASDAQ in the future.

To continue listing our Common Stock on NASDAQ, we must maintain certain governance, financial, distribution and stock price levels.

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.

we do not regain compliance within 180 calendar days, NASDAQ may grant a second compliance period of 180 calendar days or it may determine

to delist our Common Stock, at which point we would have an opportunity to appeal the delisting determination to a hearings panel.

November 11, 2024, we received written notice from NASDAQ that we were not in compliance with Nasdaq minimum share price rule, since the

closing price of our Common Stock had been below $1.00 per share for 30 consecutive business days.

However, we regained such compliance

on February 3, 2025.

It is possible that we may again fail to comply with such minimum bid price requirement in the future if our stock

price again falls below $1.00 for an extended period.

Currently, our stock price has been below $1.00 since February 19, 2025.

If we are unable to comply

with NASDAQ’S continued listing requirements, our Common Stock may be subject to delisting.

If NASDAQ delists our Common Stock from

trading on its exchange or if we decide to voluntarily delist from NASDAQ and/or deregister our Common Stock under the federal securities

laws, we could face significant material adverse consequences, including but not limited to (i) a limited availability of market quotations

for our Common Stock;

(ii) reduced liquidity for our Common Stock;

(iii) 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;

(iv) a limited amount of news and analyst coverage, and in the event of deregistration

of our Common Stock, less public disclosure about us;

and (v) a decreased ability to issue additional securities or obtain additional

financing in the future.

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.

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

at or above their 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 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;

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

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

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

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

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

litigation involving us, our industry, or both;

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

general or industry economic conditions and trends;

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

Stock has been highly volatile, and stockholders may not be able to resell shares at or above their purchase price.

It can fluctuate significantly

due to various factors, some beyond our control and unrelated to our results of operations, including but not limited to:

actual or anticipated changes or fluctuations in our results of operations or fluctuations in the trading volume of our shares or the size of our public float;

actual or anticipated changes in the expectations of investors or securities analysts, including our results of operations, or the extent to which analysts cover our stock;

fluctuations in the overall stock market and volatility in the market price and trading volume of companies in our industry, or general or industry economic conditions and trends;

relevant regulatory developments in any jurisdiction, or litigation involving us or our industry;

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

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

departures of key employees;

an adverse impact on us from any of the other risks cited herein.

unsolicited takeover bids and proposals.

In addition, if the stock

market for companies in our industry or related industries, or the stock market generally, experiences a loss of investor confidence,

the trading price of our 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

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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:

the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board;

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

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

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

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

In December 2022, we amended

our bylaws to add requirements relating to stockholder nominations of directors, including a requirement that stockholder nominees complete

a written questionnaire and that stockholder nominees make themselves available for interviews by our Board upon request.

In addition, we are subject

to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain transactions with stockholders owning

Provisions of Delaware law,

our Second Amended and Restated Certificate of Incorporation, our Third Amended and Restated Bylaws and the existence of a significant

stockholder who is our primary lender, could discourage a third party from attempting to acquire control of us.

Stockholders may not have

the opportunity to participate in these transactions.

These provisions or circumstances could also limit the price that investors might

be willing to pay in the future for Common Stock, including the potential to realize a premium for shares pursuant to a change in control

We have amended our bylaws to add requirements relating to stockholder nominations of directors, including that stockholder

nominees complete a written questionnaire and make themselves available for interviews by our Board.

In addition, we are subject to the

provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain transactions with stockholders owning 15%

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

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.

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).

The existence of such a large stockholder may limit the potential for third party offers to acquire the Company.

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.

obligations under our Tax Receivable Agreement are accelerated upon a change of control and may discourage the potential acquisition of

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

Prior to us being a public

company, we entered into the Tax Receivable Agreement with our founders (the “Tax Receivable Agreement”), which 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), 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).

estimate the liability associated with this lump-sum payment as of December 31, 2024, to be approximately $131.1 million on a discounted

The acceleration of such a material lump-sum payment obligation under our Tax Receivable Agreement could materially adversely affect

a third party’s acquisition, discourage a third party from attempting to acquire control, or materially adversely affect the price

payable for our Common Stock pursuant to such a transaction.

As a result, stockholders may not have the opportunity to participate in

or realize a potential control premium for 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.

Our Second Amended and

Restated Certificate of Incorporation could make it very difficult for an investor to bring any legal actions against us, our directors,

or our officers and may limit our stockholders’ ability to obtain a favorable judicial forum.

Our Second Amended and Restated

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 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.

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 certain claims against us or any current or former director, officer or employee;

or (iv) 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 certain suits brought to enforce certain liability or duty or any other claim for which the federal courts have exclusive jurisdiction.

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.

This 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 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 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

and Restated Certificate of Incorporation, the Board may authorize the issuance of up to five million shares of preferred stock at any

time and from time to time, with such terms and preferences as the Board determines and without any stockholder approval other than as

may be required by NASDAQ 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.

Sales or the perception of

future sales of a substantial number of shares of our Common Stock could depress the market price of our Common Stock and impair our ability

to raise capital through the sale of additional equity or other convertible securities, regardless of any relationship between such sales

and the performance of our business.

connection with the issuance of Warrants pursuant to the Amended and Restated Credit Agreement and the 2025 Amendment, the Company entered

into a Second Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with CCP, Blackwell,

Coliseum Capital Co-Invest III, L.P.

(“C-3”), Harvest Master, Harvest Partners, and HSCP (the “Holders”), providing

for the registration of the Warrants, the shares of Common Stock issuable upon the exercise of the Warrants, and the Class A Common Stock

held by the Holders as of such date (the “Registrable Securities”).

The market price of our Common Stock could decline as

a result of sales 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.

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

price that we deem appropriate.

stockholders may experience substantial dilution in the value of their investment or may otherwise have their interests impaired if we

issue additional debt or equity securities or securities convertible into equity securities, as well as due to the exercise of the currently

outstanding Warrants.

We may attempt to increase

our capital by entering additional secured or unsecured debt or debt-like financing, or by issuing additional debt or equity securities,

including issuances of secured or unsecured notes, preferred stock, hybrid securities or convertible securities.

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 Class A common stock and 90 million shares of Class B common stock, and up to five million shares of undesignated preferred

We have previously sold and

may in the future sell additional shares of our Common Stock or convertible securities at prices that are lower than the prices paid by

existing stockholders, and investors purchasing shares or other securities could have rights superior to existing stockholders, which

could result in substantial dilution of existing stockholders.

For example, in February 2023 we issued 13.4 million shares of Common Stock

pursuant to a public offering, on January 23, 2024, we issued to the Lenders under the Amended and Restated Credit Agreement the 2024

Warrants to purchase 20.0 million shares of our Common Stock at a price of $1.50 per share, subject to adjustments, and on March 12, 2025,

we issued to the Lenders under the 2025 Amendment the 2025 Warrants to purchase 6.2 million shares of our Common Stock at a price of $1.50

per share, subject to adjustments.

The exercise of the Warrants will dilute the value of Class A common stock and stockholder voting power.

addition, the Warrants include full-ratchet anti-dilution protections, subject to certain conditions, which could result in the Warrants

becoming exercisable for a significantly greater number of shares if we engage in a dilutive financing.

the event of our liquidation, holders of our debt would receive distributions of our assets before distributions to holders of our Common

Stock, including substantial make-whole payments, and holders of securities senior to the Common Stock would receive distributions of

our assets before distributions to the holders of our Common Stock.

Because future debt and equity 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.

Market conditions could impose less favorable terms for the issuance of our securities in the future.

Our only significant

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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

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

or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or

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

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.

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 adversely affect the value of our Common Stock.

We are required to maintain

internal controls over financial reporting and disclosure, as mandated by the Sarbanes-Oxley Act and SEC rules.

However, even with these

controls, management cannot guarantee that they will prevent all errors or fraud.

All control systems have inherent limitations, such

as human error, circumvention, or collusion, and cannot provide absolute assurance of detection or prevention.

Controls may also become

inadequate over time due to changes, new fraudulent schemes, or deteriorating compliance, increasing the risk of undetected misstatements.

The accuracy of our financial reporting relies on effective internal controls, which can only provide reasonable assurance and may not

detect all misstatements.

Any failure in internal controls or disclosure procedures could undermine the accuracy and timeliness of our

disclosures, potentially eroding investor confidence, requiring significant resources to fix, and exposing us to legal or regulatory actions.

For example, we identified a material weakness in our warranty reserve accounting during the preparation of our September 30, 2023, financial

However, as of June 30, 2024, we concluded that the material weakness has been remediated and that our internal controls over

financial reporting are effective.

continue to evaluate, design and implement controls and procedures designed to avoid material weaknesses.

If our efforts are insufficient

or if new weaknesses arise, our financial statements may be misstated, potentially requiring restatements, incurring additional accounting,

legal costs, and exposing us to shareholder litigation.

We cannot guarantee against future material

weaknesses in our internal control.

Failure to maintain effective internal control could impact the accuracy and timeliness of our financial

reporting, potentially leading to sanctions from NASDAQ, the SEC, or other regulators.

Failure to timely file will cause us to be ineligible

to utilize short form registration statements on Form S-3, which may also impair our ability to raise capital, execute business strategies,

or issue shares for acquisitions.

Additionally, it could erode investor confidence and negatively affect our stock price.

Tax Risks Relating

1 unchanged sentence

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 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,

Tax Receivable Agreement could materially adversely affect our future cash flow if we become profitable and begin paying income taxes.

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 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

related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership

change” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders

over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards (“NOLs”)

and other pre-change tax attributes to offset its post-change income may be limited.

If finalized, Treasury Regulations currently proposed

under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other tax attributes if we undergo a future

ownership change.

Thus, our ability to utilize 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.

with our founders requires us to pay 80% of certain tax benefits realized from increases in asset tax basis and other tax benefits.

of December 31, 2024, our preliminary estimate of liability under the agreement was $169.0 million.

This liability may increase if we

realize future tax benefits, face changes in tax rates, or if payments are accelerated.

However, since we have not been profitable recently,

we determined as of December 31, 2024, that the likelihood of incurring a liability was not probable and no liability was recorded.

we become profitable and realize tax savings covered by the Tax Receivable Agreement, we will incur payment obligations, which could negatively

impact our cash flow.

The lump sum payment of $131.1

million required upon early termination of the Tax Receivable Agreement in the event of a change in control could negatively impact liquidity,

delay or prevent business transactions, and reduce the value of our Common Stock.

If our cash resources are insufficient, we may need

to incur additional debt to meet these obligations, which could materially harm our financial condition.

Even without early termination,

a change of control, or late payments, our liquidity could be adversely affected if payments under the Tax Receivable Agreement exceed

the tax savings we realize, or if distributions from Purple LLC are insufficient to cover payments after taxes and expenses.

Our ability to utilize

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

Future use and amount of our Current NOLs and other

tax benefits is uncertain.

Under Section 382 and related provisions of the Internal Revenue Code

of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change”, the corporation’s ability

to use its pre-change net operating loss carryforwards (“NOLs”) and other pre-change tax attributes to offset its post-change

income may be limited.

Generally, an ownership change is defined as a change in its equity ownership by certain stockholders over a three-year

period of greater than 50 percentage points (by value).

If finalized, Treasury Regulations currently proposed under Section 382 of the

Code may further limit our ability to utilize our pre-change NOLs or other tax attributes if we undergo a future ownership change.

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, 2024, we completed a study

to assess whether an ownership change has occurred, as defined by IRC Section 382, or whether there have been ownership changes since

the Company’s formation.

The results of this study indicate that we experienced one ownership change on December 31, 2021.

experience ownership changes in the future as a result of subsequent shifts in our stock ownership.

As a result, if we generate taxable

income, our ability to use our pre-change NOL and tax credits carryforwards to reduce U.S.

federal and state taxable income may be subject

to further limitations, which could result in increased future tax liabilities to us.

Moreover, our federal NOLs from years prior to 2018

can be carried forward for a maximum of 20 years from the year in which the NOL was incurred, and our state NOLs are subject to carryforward

limitations that vary from state to state;

as a result, all or a portion of those carryforwards could expire before being available to

reduce future income tax liabilities.

On June 27, 2024, our Board

approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately

$310.7 million to reduce potential future federal income tax obligations from becoming substantially limited by future ownership of our

Common Stock.

At the Special Meeting, stockholders ratified the NOL Rights Plan.

Under the NOL Rights Plan, the Board authorized and declared

a dividend of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on July 26, 2024.

Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess

of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage),

the Rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan.

In connection with the NOL Rights Plan, the Board adopted, and our stockholders approved at the Special Meeting, the NOL Protective Charter

Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock

that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership

of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership

Use of our Current NOLs and

other tax benefits depends on our ability to generate taxable income in the future.

We cannot ensure whether we will have future taxable

income or, if we do, whether such income or our Current NOLs or other tax benefits at such time will exceed any potential limitation under

Code Section 382.

The IRS may challenge

our Current NOLs and other tax benefits .

As of December 31, 2024, the

amount of our Current NOLs has not been audited or validated by the Internal Revenue Service (the “IRS”).

The IRS could challenge

the amount of our Current NOLs, which could result in an increase in our future liability for income taxes.

In addition, determining whether

an ownership change under Code Section 382 has occurred is subject to uncertainty because of the complexity and ambiguity of the provisions

of Code Section 382 and because of limits on timely knowledge that any publicly traded company can have about the ownership of and transactions

in its securities.

We cannot ensure that the IRS or another taxing authority will not claim in the future that we experienced an ownership

change under Code Section 382 and attempt to reduce the benefit of our Current NOLs and other tax benefits available, even if the NOL

Protective Charter Amendment is in place.

There is continued risk

of ownership change under Code Section 382 .

Although the NOL Protective

Charter Amendment and NOL Rights Plan intend to reduce the likelihood of an ownership change under Code Section 382, we cannot ensure

that the NOL Protective Charter Amendment and the NOL Rights Plan will be effective.

The amount by which a future ownership interest under

Code Section 382 may change could, for example, be affected by purchases of our Common Stock by stockholders who are 5% stockholders (as

defined under Code Section 382) or by purchases of stock or other interests in corporations, partnerships or other legal entities that

own 4.9% or more of our Common Stock, over which we have no control.

Further, while the NOL Protective Charter Amendment and the NOL Rights

Plan allow for the exercise of currently outstanding conversion rights, exchange rights, warrants or options or otherwise, such exercises

may result in an ownership change under Code Section 382.

It may also be in our best interests, considering all relevant facts and circumstances

at the time, to permit the acquisition of our Common Stock in excess of the specified limitations or to issue new or redeem existing equity

in the future, all of which may increase the likelihood of an ownership change under Code Section 382.

The Current NOL protections

under the NOL Protective Charter Amendment and NOL Rights Plan will expire by their terms on June 30, 2025.

The NOL Protective Charter

Amendment and the NOL Rights Plan may potentially adversely affect the market for, and negatively impact the value of, our Common Stock .

The NOL Protective Charter

Amendment and the NOL Rights Plan intend to prohibit or deter a stockholder’s ability to acquire, directly, indirectly or constructively,

additional shares of our Common Stock in excess of specific limitations.

A stockholder’s ability to dispose of our Common Stock

may be limited by reducing potential acquirers for such shares.

A stockholder’s ownership of our Common Stock may become subject

to the restrictions of the NOL Protective Charter Amendment, or may trigger applicable thresholds under the NOL Rights Plan, upon actions

taken by Persons (as such term is defined in the NOL Protective Charter Amendment or the NOL Rights Plan, as applicable) related to, or

affiliated with, such stockholder.

Because the NOL Protective

Charter Amendment and the NOL Rights Plan were approved by our stockholders at the Special Meeting, we have included a legend reflecting

the transfer restrictions included in the NOL Protective Charter Amendment and the Rights issued pursuant to the NOL Rights Plan on certificates

representing newly issued or transferred shares of our Common Stock and disclosed such Rights and restrictions to Persons holding our

Common Stock in uncertificated form, and to the public generally.

Because certain buyers, including Persons who wish to acquire more than

4.9% of our Common Stock and certain institutional holders who may not be comfortable holding our Common Stock with restrictive legends,

may choose not to purchase our Common Stock, the NOL Protective Charter Amendment and the NOL Rights Plan could have an adverse effect

on the marketability and trading value of our Common Stock in an amount that could more than offset any value preserved from protecting

our Current NOLs.

The NOL Protective Charter Amendment and NOL Rights Plan could also have a negative impact on the trading value of our

Common Stock by deterring Persons or groups of Persons from acquiring our Common Stock, including in acquisitions that might result in

some or all our stockholders receiving a premium above market value.

The NOL Protective Charter

Amendment and the NOL Rights Plan may have an anti-takeover effect .

While the NOL Protective Charter

Amendment is not intended to prevent, or even discourage, a proposal to acquire the Company, the NOL Protective Charter Amendment may

have a potential anti-takeover effect because, among other things, it will restrict the ability of a Person, entity or group to accumulate

more than 4.9% of our Common Stock and the ability of Persons, entities or groups now owning more than 4.9% of our Common Stock to acquire

any significant amount of additional shares of our Common Stock, in each case, without the approval of our Board.

Similarly, while the

NOL Rights Plan is not intended to prevent, or even discourage, a proposal to acquire the Company the NOL Rights Plan may have a potential

anti-takeover effect because, among other things, an Acquiring Person (as such term is defined in the NOL Rights Plan) may have its ownership

interest diluted upon the occurrence of a triggering event.

The overall effects of the NOL Protective Charter Amendment and NOL Rights

Plan may be to render more difficult or discourage a merger, tender offer, proxy contest or assumption of control by a substantial holder

of our Common Stock and have an adverse effect on the marketability and the trading value of our Common Stock.

However, the NOL Protective

Charter Amendment and NOL Rights Plan should not interfere with any merger or other business combination approved by the Board.

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