Purple Innovation, Inc.

Current report

These restrictions may prevent 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.

Current report

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.

Current report

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.

Current report

We 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 31, 2026.

Current report

On 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.

Current report

In 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. However, 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.

Current report

Under 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.

Current report

Future 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.

Current report

We 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.

Current report

In 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 condition. 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.

Current report

In 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.

Current report

In 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 Board, Mr. Gray, and four of our other current directors, Mr. Darling, Mr. Pate, Mr. Peterson and Ms. Serow, were appointed or nominated to serve on our Board.

Current report

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.

Current report

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

Current report

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.

Current report

The sleep products industry 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 sector. 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.

Current report

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 channels. 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.

Current report

The 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.

Current report

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

Current report

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

Current report

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.

Current report

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.

Current report

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.

Current report

We collect and store personal information from customers and suppliers, including customer payment details. We may share this information with third parties. Cyberattacks 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. We 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 costs. 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 damage.

Current report

Changes in economic conditions, including the housing market and tariffs, have or will adversely affect our business, results of operations and financial condition.

Current report

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.

Current report

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.

Current report

The 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.

Current report

We 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 efficiency. 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. We rely on relationships with media partners, search engines, social media influencers, and e-commerce platforms to drive traffic and attract customers. If we can’t maintain or develop these relationships on favorable terms, or if our reputation suffers, our ability to grow could be impacted. If we can’t manage these costs or generate expected sales, our business could be adversely affected.

Current report

Our 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.

Current report

Most of our sales are through DTC channels, but we have expanded into wholesale distribution. However, we cannot guarantee success with wholesale partners. 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.

Current report

We 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. Expanding 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. New products 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.

Current report

We 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.

Current report

We 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.

Current report

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.

Current report

We 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.

Current report

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.

Current report

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 plans. 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.

Current report

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.

Current report

The U.S. 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.

Previous report

Material risks that may affect our business, results of operation and financial condition include, but are not necessarily limited to, those relating to:

Previous report

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.

Previous report

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. Our ability to comply with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall business strategy. The breach of any of these covenants or restrictions could result in a default, which could 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.

Previous report

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.

Previous report

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.

Previous report

We 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 loan.

Previous report

Under 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.

Previous report

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

Previous report

Our 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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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

Previous report

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.

Previous report

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 Purple LLC. 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.

Previous report

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 Cap. 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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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.

Previous report

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 consumer. Many newer competitors in the mattress industry have begun to offer products directly to consumers through the internet and other distribution channels. Many of our competitors source their products from countries such as China and Vietnam, where the costs may be lower than our costs. Companies providing for the distribution of mattresses online or through retail stores, such as Mattress Firm, Amazon and Walmart, also 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.

Previous report

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. We have limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by our competitors, which could inhibit our ability to retain or increase market share, or to maintain our product margins. Our current and potential competitors may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing. Also, due to the large number of competitors and their wide range of product offerings, we may not be able to continue to differentiate our products through value, styling or functionality from those of our competitors. Our products are also typically heavier than others and some markets we wish to expand into will not support delivery of our heavy products through parcel services or other affordable home delivery services, limiting our ability to serve the market.

Previous report

In addition, the barriers to entry into the retail sleep product industry are relatively low. New or existing sleep product retailers could enter our markets and increase the competition we face. Competition in existing and new markets may also prevent or delay our ability to gain relative market share. Any of the developments described above could have a material adverse effect on our planned growth and future results of operations.

Previous report

We will face different market dynamics and competition as we develop new products to expand our presence in our target markets. In some markets, our future competitors may have greater brand recognition and broader distribution than we currently enjoy. We may not be as successful as our competitors in generating revenues in those markets due to the lack of recognition of our brands, lack of customer acceptance, lack of product quality history and other factors. As a result, any new expansion efforts could be costlier and less profitable than our efforts in our existing markets. If we are not as successful as our competitors are in our target markets, our sales could decline, our margins could be impacted negatively and we could lose market share, any of which could materially harm our business.

Previous report

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.

Previous report

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

Previous report

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.

Previous report

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.

Previous report

In addition, sellers in our industry are increasingly utilizing multiple sales channels, including the acquisition of new customers by paying for search-related advertisements on horizontal search engine sites, such as Google, Yahoo!, Naver and Baidu. We use product search engines and paid search advertising to help users find our sites, but these services also have the potential to divert users to other online shopping destinations. Consumers may choose to search for products with a horizontal search engine or shopping comparison website, and such sites may also send users to other shopping destinations. 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. Traditional 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.

Previous report

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.

Previous report

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.

Previous report

In manufacturing products, we use various commodity components, such as polyurethane foam, oil, spring units, ingredients for our Hyper-Elastic Polymer® material, our water-based adhesive and other raw materials. Because we are dependent on outside suppliers for our raw materials, lack of availability and quality could have a negative effect on our cost of sales and our ability to meet our customers’ demands. Competitive and marketing pressures may prevent us from passing along price increases to our customers, and the inability to meet our customers’ demands could cause us to lose sales.

Previous report

Some components, such as foam and spring units, are widely used in our industry. Shortages in such components, due to any reason including increase in demand, weather events, supply chain difficulties within the supplier or otherwise, could adversely affect our production capacity and results of operations. If we were unable to obtain raw materials and components from suppliers, we would have to find replacement suppliers. Any new arrangements for raw materials and components might not be on favorable terms if we are able to enter into new arrangements at all. If a supplier for a component failed to supply such component in required amounts this could significantly interrupt production and increase costs.

Previous report

Even if we are able to obtain raw materials and other production inputs in a timely manner, supply chain constraints, inflation and other factors may increase the costs of shipping, raw materials, labor and other production and operational resources. We have experienced and may continue to experience increases in the cost of core materials, 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.

Previous report

Shipping 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.

Current report — wording carried from elsewhere

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.

Previous report — wording carried elsewhere

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:

Previous report — wording carried elsewhere

An increasing number of states and foreign jurisdictions have considered or adopted laws or administrative practices, with or without notice, that impose additional obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added, or similar taxes. Failure to comply with such laws or administrative practices or a successful assertion by such states or foreign jurisdictions requiring us to collect taxes where we did not, could result in substantial tax liabilities for past sales, as well as penalties and interest.

Previous report — wording carried elsewhere

We are subject to sales tax or other indirect tax obligations as imposed by the various states in the United States. If the tax authorities in these jurisdictions were to challenge our filings or request an audit, our tax liability may increase. We are currently undergoing routine audits in a few states.

Previous report — wording carried elsewhere

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.

Previous report — wording carried elsewhere

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.

Previous report — wording carried elsewhere

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