Owlet, Inc. [OWLT-WT] Filings

10-Q 1 owlt-20220930.htm 10-Q owlt-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________________________________________________________________________

FORM 10-Q

____________________________________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-39516

_____________________________________________

Owlet, Inc.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________________


Delaware			85-1615012
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
3300 North Ashton Boulevard, Suite 300 Lehi, Utah			84043
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (844) 334-5330

_____________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

OWLT

New York Stock Exchange

Warrants to purchase common stock

OWLT WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, 2022, the registrant had 114,852,448 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page

PART I.
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	4
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31

PART II.
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
	Signatures	36

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Form 10-Q") and oral statements made from time to time by representatives of Owlet, Inc. (together with its subsidiaries, the "Company," "Owlet," "we," "us" or "our") may contain or incorporate by reference certain statements that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Generally, forward-looking statements include the words "estimate," “may,” “believes,” “plans,” “expects,” “anticipates,” “intends,” “goal,” “potential,” “upcoming,” “outlook,” “guidance,” the negation thereof, or similar expressions, although not all forward-looking statements contain these identifying words. In addition, all statements that address future operating, financial or business results, performance, strategies or initiatives, future efficiencies or savings, anticipated costs or charges, future capitalization, anticipated impacts of recent or pending investments or transactions, and statements expressing general views about future results or performance are forward-looking statements within the meaning of the Reform Act. Our actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or implied by our forward-looking statements. Forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. Many important factors could affect our future results and cause those results to differ materially from those expressed in or implied by the Company's forward-looking statements. Such factors include, but are not limited to, the following:

•the impact of the Warning Letter (defined below), dated October 1, 2021 and corrected in an amendment dated October 5, 2021, from the U.S. Food and Drug Administration (the “FDA”), and our ability to obtain marketing authorization for the medical device functionality of the former Owlet Smart Sock (the “Smart Sock”) or for the Owlet Dream Sock (the “Dream Sock”), which replaced the Smart Sock in the U.S. market, or to fully realize the commercial success of the Dream Sock;

•our ability to grow and manage growth profitably, which may be affected by, among other things, our capital resources, inflation, recession, competition and the impact of discretionary consumer spending, retail sector and demographic trends, employee availability and other economic, business and regulatory conditions;

•our ability to enhance future operating and financial results and continue as a going concern;

•our ability to obtain additional financing in the future;

•risks associated with our current loan and debt agreements, including compliance with debt covenants, restrictions on our access to capital, the impact of our overall debt levels, our ability to finalize an amended agreement with our current lender before the end of 2022, and our ability to generate sufficient future cash flows from operations to meet our debt service obligations and operate our business;;

•our ability to pursue and implement our strategic initiatives, reduce costs and grow revenues, as well as innovate existing products, continue developing new products, meet evolving customer demands and adapt to changes in consumer preferences and retail trends;

•the regulatory pathway for our products and communications from regulators, including the FDA and similar regulators outside of the United States, as well as legal proceedings, regulatory disputes and governmental inquiries;

•our ability to acquire, defend and protect our intellectual property and satisfy regulatory requirements, including but not limited to laws and requirements concerning privacy and data protection, privacy or data breaches, data loss and other risks associated with our digital platform and technologies;

•any defects in new products or enhancements to existing products;

•our ability to obtain and maintain regulatory approval or certification for our products, and any related restrictions and limitations of any approved or certified product;

•expectations regarding developments with regulatory bodies, and the timeline for related submissions by us and decisions by the regulatory bodies and notified bodies;

•our ability to hire, retain, manage and motivate employees, including key personnel;

•our ability to upgrade and maintain our information technology systems;

•changes in and our compliance with laws and regulations applicable to our business; and

•the impact and disruption to our business, financial condition, results of operations, supply chain constraints and logistics due to economic and other conditions beyond our control, such as health epidemics or pandemics, macro-economic uncertainties, social unrest, hostilities, natural disasters or other catastrophic events.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Moreover, we operate in an evolving environment. In addition to the factors described above, new risk factors and uncertainties may emerge from time to time, and factors that the

Company currently deems immaterial may become material, and it is impossible for us to predict such events or how they may affect us. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act.

Except as required by federal securities laws, we assume no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, although we may do so from time to time. We do not endorse any projections regarding future results or performance that may be made by third parties.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Owlet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


Assets	September 30, 2022		December 31, 2021
Current assets:
Cash and cash equivalents	$	23,174	$	95,054
Accounts receivable, net of allowance for doubtful accounts of $694 and $403, respectively	20,523		10,468
Inventory	23,789		17,980
Prepaid expenses and other current assets	6,089		12,313
Total current assets	73,575		135,815
Property and equipment, net	1,375		1,870
Right of use assets, net	2,583		—
Intangible assets, net	2,325		1,696
Other assets	822		666
Total assets	$	80,680	$	140,047
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	28,493	$	27,765
Accrued and other expenses	25,385		31,730
Current portion of deferred revenues	1,254		1,061
Line of credit	5,000		—
Current portion of long-term debt	11,997		8,534
Total current liabilities	72,129		69,090
Long-term debt, net	—		7,993
Noncurrent lease liabilities	1,589		—
Common stock warrant liability	2,259		7,061
Other long-term liabilities	284		712
Total liabilities	76,261		84,856
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.0001 par value, 1,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 114,852,448 and 112,996,568 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.	11		11
Additional paid-in capital	207,668		198,602
Accumulated deficit	(203,260)		(143,422)
Total stockholders’ equity	4,419		55,191
Total liabilities and stockholders’ equity	$	80,680	$	140,047

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Revenues	$	17,359	$	31,505	$	57,246	$	78,354
Cost of revenues	12,746		16,624		37,254		37,272
Gross profit	4,613		14,881		19,992		41,082
Operating expenses:
General and administrative	9,673		9,250		29,442		22,516
Sales and marketing	9,695		13,072		31,049		26,759
Research and development	7,066		6,320		23,381		14,269
Total operating expenses	26,434		28,642		83,872		63,544
Operating loss	(21,821)		(13,761)		(63,880)		(22,462)
Other income (expense):
Interest expense, net	(419)		(477)		(847)		(1,378)
Interest expense from contingent beneficial conversion feature	—		(26,061)		—		(26,061)
Preferred stock warrant liability adjustment	—		—		—		(5,578)
Common stock warrant liability adjustment	2,867		5,792		4,802		5,792
Gain on loan forgiveness	—		—		—		2,098
Other income (expense), net	6		66		115		(36)
Total other income (expense), net	2,454		(20,680)		4,070		(25,163)
Loss before income tax benefit (provision)	(19,367)		(34,441)		(59,810)		(47,625)
Income tax benefit (provision)	5		(15)		(28)		(22)
Net loss and comprehensive loss	$	(19,362)	$	(34,456)	$	(59,838)	$	(47,647)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.17)	$	(0.36)	$	(0.54)	$	(1.00)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	111,775,265		96,681,887		110,995,687		47,421,668

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share amounts)

(unaudited)


	Preferred Stock Series A (1)			Preferred Stock Series A-1 (1)			Preferred Stock Series B (1)			Preferred Stock Series B-1 (1)			Common Stock (1)
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balance as of December 31, 2021	—	$	—	—	$	—	—	$	—	—	$	—	112,996,568	$	11	$	198,602	$	(143,422)	$	55,191
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		88,808	—		48		—		48
Issuance of common stock for restricted stock units vesting	—	—		—	—		—	—		—	—		321,098	—		—		—		—
Share-based compensation	—	—		—	—		—	—		—	—		—	—		3,336		—		3,336
Net loss	—	—		—	—		—	—		—	—		—	—		—		(28,758)		(28,758)
Balance as of March 31, 2022	—	$	—	—	$	—	—	$	—	—	$	—	113,406,474	$	11	$	201,986	$	(172,180)	$	29,817
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		418,126	—		166		—		166
Issuance of common stock for restricted stock units vesting	—	—		—	—		—	—		—	—		230,361	—		—		—		—
Share-based compensation	—	—		—	—		—	—		—	—		—	—		3,273		—		3,273
Net loss	—	—		—	—		—	—		—	—		—	—				(11,718)		(11,718)
Balance as of June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	114,054,961	$	11	$	205,425	$	(183,898)	$	21,538
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		305,006	—		41		—		41
Issuance of common stock for restricted stock units vesting	—	—		—	—		—	—		—	—		242,592	—		—		—		—
Issuance of common stock for employee stock purchase plan	—	—		—	—		—	—		—	—		249,889	—		359		—		359
Share-based compensation	—	—		—	—		—	—		—	—					1,843		—		1,843
Net loss	—	—		—	—		—	—		—	—		—	—		—		(19,362)		(19,362)
Balance as of September 30, 2022	—	$	—	—	$	—	—	$	—	—	—		114,852,448	$	11	$	207,668	$	(203,260)	$	4,419


	Preferred Stock Series A (1)			Preferred Stock Series A-1 (1)			Preferred Stock Series B (1)			Preferred Stock Series B-1 (1)			Common Stock (1)
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balance as of December 31, 2020	26,157,622	$	9,569	20,238,201	$	14,083	12,366,306	$	18,854	3,047,183	$	4,682	22,118,619	$	2	$	3,707	$	(71,718)	$	(68,009)
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		367,432	—		244		—		244
Share-based compensation	—	—		—	—		—	—		—	—		—	—		828				828
Net loss	—	—		—	—		—	—		—	—		—	—		—		(7,857)		(7,857)
Balance as of March 31, 2021	26,157,622	$	9,569	20,238,201	$	14,083	12,366,306	$	18,854	3,047,183	$	4,682	22,486,051	$	2	$	4,779	$	(79,575)	$	(74,794)
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		63,004	—		24		—		24
Share-based compensation	—	—		—	—		—	—		—	—		—	—		785		—		785
Net loss	—	—		—	—		—	—		—	—		—	—				(5,335)		(5,335)
Balance as of June 30, 2021	26,157,622	$	9,569	20,238,201	$	14,083	12,366,306	$	18,854	3,047,183	$	4,682	22,549,055	$	2	$	5,588	$	(84,910)	$	(79,320)
Conversion of redeemable convertible preferred stock into common stock in connection with the reverse recapitalization (Note 2)	(26,157,622)	(9,569)		(20,238,201)	(14,803)		(12,366,306)	(18,854)		(3,047,183)	(4,682)		61,809,312	6		47,182		—		47,188
Conversion of convertible promissory notes to common stock in connection with the reverse recapitalization (Note 2)	—	—		—	—		—	—		—	—		4,633,507	1		7,121		—		7,122
Beneficial conversion feature of convertible promissory notes in connection with the reverse recapitalization (Note 2)	—	—		—	—		—	—		—	—		—	—		26,061		—		26,061
Conversion of preferred stock warrants and common stock warrants in connection with the reverse recapitalization (Note 2)	—	—		—	—		—	—		—	—		1,771,231	—		8,571		—		8,571
Reverse recapitalization transaction, net of fees	—	—		—	—		—	—		—	—		21,959,227	2		101,033		—		101,035
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		96,392	—		77		—		77
Share-based compensation	—	—		—	—		—	—		—	—		—	—		697		—		697
Net loss	—	—		—	—		—	—		—	—		—	—		—		(34,456)		(34,456)
Balance as of September 30, 2021	—	$	—	—	$	—	—	$	—	—	$	—	112,818,724	$	11	$	196,330	$	(119,366)	$	76,975

(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the merger with Sandbridge Acquisition Corporation on July 15, 2021 have been retrospectively adjusted as shares reflecting the exchange ratio of approximately 2.053 established in the Merger.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(59,838)	$	(47,647)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,062		799
Share-based compensation	8,415		2,310
Interest expense from contingent beneficial conversion feature	—		26,061
Preferred stock warrant liability adjustment	—		5,578
Common stock warrant liability adjustment	(4,802)		(5,792)
Gain on loan forgiveness	—		(2,098)
Other adjustments, net	2,140		982
Changes in assets and liabilities:
Accounts receivable	(10,691)		(14,750)
Prepaid expenses and other assets	6,068		(5,000)
Inventory	(6,161)		(2,397)
Accounts payable and accrued and other expenses	(6,901)		6,857
Other, net	(847)		394
Net cash used in operating activities	(71,555)		(34,703)
Cash flows from investing activities
Purchase of property and equipment	(480)		(883)
Purchase of intangible assets	(923)		(677)
Net cash used in investing activities	(1,403)		(1,560)
Cash flows from financing activities
Proceeds from short-term borrowings	35,892		13,708
Payments of short-term borrowings	(30,929)		(8,667)
Proceeds from long-term borrowings	—		5,000
Payments of long-term borrowings	(4,500)		—
Proceeds from reverse capitalization and PIPE financing, net of $0 and $11,836, respectively, of transaction costs	—		133,663
Payments for cash payout of stock options as a result of the Merger	—		(9,890)
Other, net	615		336
Net cash provided by financing activities	1,078		134,150
Net change in cash and cash equivalents	(71,880)		97,887
Cash and cash equivalents at beginning of period	95,054		17,009
Cash and cash equivalents at end of period	$	23,174	$	114,896

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Note 1. Basis of Presentation

Organization

Owlet Baby Care Inc. was incorporated on February 24, 2014 as a Delaware corporation. On February 15, 2021, Owlet Baby Care Inc. ("Old Owlet") entered into a Merger Agreement with Sandbridge Acquisition Corporation ("SBG") and Project Olympus Merger Sub, Inc. (“Merger Sub”), whereby on July 15, 2021 Merger Sub merged with and into Old Owlet, with Old Owlet surviving as a wholly owned subsidiary of SBG (the "Merger"). Following the Merger, SBG was renamed Owlet, Inc. ("Owlet", "OWLT", or the "Company"). See Note 2 for further details of the Merger.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Owlet, Inc. (together with its subsidiaries, the "Company," "Owlet," "we," "us" or "our") and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, and cash flows for the interim periods presented. All dollar amounts, except per share amounts, in the notes are presented in thousands, unless otherwise specified.

As a result of the merger completed with Sandbridge Acquisition Corporation on July 15, 2021 (the "Merger"), prior period share and per share amounts presented in the accompanying consolidated financial statements and these related notes have been retrospectively adjusted (see Note 2).

The Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods, as further discussed in Note 4.

Certain prior year amounts have been reclassified to conform to the current period presentation.

U.S. Food and Drug Administration Letter

On October 1, 2021, the Company received a warning letter, later corrected in an amendment to the letter dated October 5, 2021 (the letter and amendment collectively, the “Warning Letter”), from the U.S. Food and Drug Administration (the “FDA”) regarding the Owlet Smart Sock (the "Smart Sock"). During the fourth quarter of 2021, the Company agreed with certain customers and retailers to accept returns of the Smart Sock and Owlet Monitor Duo.

A refund liability of $6,843 and $20,145 has been accrued as of September 30, 2022 and December 31, 2021, respectively, in accrued and other expenses and represents the amount due to customers.

During the three months ended September 30, 2022, the FDA informed the Company that certain features of the Dream Sock – namely its display of pulse rate and blood oxygen saturation are medical device features requiring marketing authorization. The Company has advised the FDA of our plan to submit a de novo classification request for marketing. The FDA has indicated that it does not anticipate the need for enforcement action pending a decision on the marketing application. If the FDA changes its enforcement approach to the Dream Sock pending the submission of the marketing application or the FDA’s review and decision on the application, or if the Company fails to timely submit such application, we may be required to recall product or otherwise be restricted from selling the product as currently designed with these specific display features until after FDA marketing authorization has been received.

Risks and Uncertainties; Going Concern

In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.

Since inception, the Company has experienced recurring operating losses and generated negative cash flows from operations, resulting in an accumulated deficit of $203,260 as of September 30, 2022. During the year ended December 31, 2021 and the nine months ended September 30, 2022, we had negative cash flows from operations of $40,556 and $71,555, respectively. As of September 30, 2022, we had $23,174 of cash on hand.

Year over year declines in revenue, the current cash balance, recurring operating losses, and negative cash flows from operations since inception, in addition to the noncompliance with its debt covenant (see Note 6), raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements have been prepared on a going concern basis and accordingly, do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

As the Company continues to address these financial conditions, management has undertaken the following actions:

•As described further in Note 6, the Company entered into a waiver agreement with Silicon Valley Bank ("SVB") related to the covenant violations for the three months ended June 30, 2022. The Company was also in violation of its financial covenant for the three months ended September 30, 2022. The Company is actively engaged with SVB to come to terms on an amended financing agreement, including revised financial and liquidity covenants for future periods. The Company expects to finalize an amended agreement with SVB prior to the end of the fiscal year.

•During the three months ended September 30, 2022, the Company undertook restructuring actions, which significantly reduced employee headcount and will reduce operating spend. This includes the reduction of consulting and outside services, the reduction of marketing programs, and the prioritization of and sequencing of research and development projects. The Company recognized $1,204 of restructuring charges within operating expenses on the condensed consolidated statements of operations related to our July 2022 restructuring. The restructuring charges consisted primarily of severance expense and related employee benefits, most of which was paid during the three months ended September 30, 2022. The Company does not expect to incur any additional expense related to the restructuring.

We have not generated sufficient cash flows from operations to satisfy our capital requirements. There can be no assurance that the Company will generate sufficient future cash flows from operations due to potential factors, including but not limited to inflation or recession or reduced demand for the Company’s products. If revenues further decrease from current levels, the Company may be unable to further reduce costs, or such reductions may limit our ability to pursue strategic initiatives and grow revenues in the future.

There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, if at all. Failure to secure additional funding may require us to modify, delay or abandon some of our planned future development, or to otherwise enact further operating cost reductions, which could have a material adverse effect on our business, operating results, financial condition and ability to achieve our intended business objectives.

If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected. We also could be required to seek funds through arrangements with partners or others that may require us to relinquish rights or jointly own some aspects of our technologies, products or services that we would otherwise pursue on our own.

The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. As of September 30, 2022, substantially all of the Company's cash was held with Silicon Valley Bank and exceeded federally insured limits. To date, the Company has not experienced a loss or lack of access to its invested cash; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

Out-of-Period Adjustments

During the three months ended September 30, 2022, the Company recorded out-of-period adjustments totaling a net income impact of $1,290 to correct errors identified relating to the three months ended March 31, 2022, as well as the three and six months ended June 30, 2022. These adjustments increased costs of revenues by $665 and operating expenses by $675 for the three months ended September 30, 2022. Management has evaluated the impact of these adjustments and concluded that the adjustments are not material to the previously issued or current period consolidated financial statements, and as a result, recorded the correction as an out-of-period adjustment.

Note 2. Merger

On July 15, 2021, the Company consummated the Merger (the "Closing"). In connection with the Closing, SBG changed its name from Sandbridge Acquisition Corporation to Owlet, Inc.

Prior to the Merger, Old Owlet and SBG filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, SBG was renamed Owlet, Inc., and became the parent of the consolidated filing group, with Old Owlet as a subsidiary.

Immediately prior to the Closing:

(1)All 30,104,000 outstanding shares of Old Owlet redeemable convertible preferred stock were converted into an equivalent number of shares of Old Owlet common stock on a one-to-one basis.

(2)The $7,122 of principal and accrued interest related to the Old Owlet related party convertible notes payable were converted into shares of Old Owlet preferred stock at a conversion price of $3.1546 per share resulting in the recognition of interest expense from the contingent beneficial conversion feature. The preferred stock was immediately converted into an equivalent number of shares of Old Owlet common stock on a one-to-one basis. The remaining $2 of related party convertible notes was redeemed for cash.

(3)All 429,314 Old Owlet common stock warrants were exercised on a cashless basis and settled in Old Owlet common stock on a net basis.

(4)All 433,356 Old Owlet Series A preferred stock warrants were exercised on a cashless basis and settled in an equivalent number of shares of Old Owlet preferred stock. The preferred stock was immediately converted into an equivalent number of shares of Old Owlet common stock on a one-to-one basis.

Pursuant to the Merger Agreement, at the Closing:

•Each share of Old Owlet’s common stock outstanding prior to the Merger, including shares of Old Owlet common stock issued pursuant to the conversion of the Old Owlet preferred stock, convertible notes and warrants, was converted into the right to receive approximately 2.053 shares of Owlet's common stock. Accordingly, Old Owlet common stock exchanged into 90,824,573 shares of Owlet common stock.

•Certain option holders elected to cash out an aggregate of 496,717 vested options to purchase shares of Old Owlet common stock at a value of approximately $20.53 per share for an aggregate value of $9,890, net of exercise price. All remaining outstanding Old Owlet Options were converted into options exercisable for shares of Owlet common stock with the same terms except for the number of shares exercisable and the exercise price, each of which were adjusted using the exchange ratio of approximately 2.053.

•Holders of 19,758,773 shares of Sandbridge Class A common stock exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from SBG’s initial public offering, calculated as of two business days prior to the consummation of the Merger, which was $10.00 per share, or $197,588 in the aggregate. All remaining 3,241,227 shares of Sandbridge Class A common stock converted into 3,241,227 shares of Owlet common stock.

•All shares of SBG's Class B common stock which were held by Sandbridge Acquisition Holdings LLC, the independent directors, and an advisor of Sandbridge (“Founder Shares”) automatically converted to 5,750,000 shares of Owlet common stock, of which 2,807,500 shares are subject to vesting and forfeiture (the “earnout shares") (see Part II, Item 8 "Financial Statements and Supplementary Data - Note 10 to the Consolidated Financial Statements - Common Stock Warrants and Earnout Shares" in the Form 10-K for more information on the earnout shares).

•Pursuant to subscription agreements entered into in connection with the Merger (collectively, the “Subscription Agreements”), certain investors purchased an aggregate of 12,968,000 newly-issued

shares of Owlet common stock at a purchase price of $10.00 per share for an aggregate purchase price of $129,680 (the "PIPE Investment" or “PIPE”).

The following summarizes the shares of Common Stock issued and outstanding immediately after the Merger:


Owlet equity holders (1)	90,824,573	81	%
SBG public stockholders (3)	3,241,227	3	%
Founder Shares (2) (3)	5,750,000	5	%
PIPE investors (3)	12,968,000	11	%
Owlet common stock immediately after Merger	112,783,800	100	%

1.Excludes 3,150,463 shares of Common Stock underlying outstanding Owlet option awards.

2.Includes 2,807,500 Earnout Shares which were outstanding but remained subject to price-based performance vesting.

3.The SBG public stockholders, Founder Shares and PIPE investors are presented combined in the condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) on the line item Reverse recapitalization transaction, net of fees.

The Merger is accounted for as a reverse recapitalization in accordance with U.S. GAAP. This determination is primarily based on Old Owlet stockholders comprising a relative majority of the voting power of Owlet and having the ability to nominate the members of the board, Old Owlet operations prior to the Merger comprising only the ongoing operations of Owlet, and Old Owlet senior management comprising a majority of the senior management of Owlet. Under this method of accounting, SBG was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of Owlet represent a continuation of the financial statements of Old Owlet with the Merger being treated as the equivalent of Owlet issuing stock for the net assets of SBG, accompanied by a recapitalization. The net assets of SBG are stated at historical costs, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Owlet. All periods prior to the Merger have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization.

In connection with the Merger, the Company raised $145,499 of gross proceeds including the contribution of $213,407 of cash held in SBG’s trust account from its initial public offering, net of redemptions of SBG public stockholders of $197,588, and $129,680 of cash received in connection with the PIPE financing. The amount recorded to additional paid-in-capital was $101,259, comprised of $133,889 net proceeds less $22,806 recognized for the warrant liabilities, $9,890 cash payout of options, plus $66 of assumed current assets and liabilities. The Company incurred $16,980 of transaction costs, consisting of banking, legal, and other professional fees, of which $11,610 was recorded as a reduction of proceeds to additional paid-in capital. The remaining $5,370 was expensed as general and administrative expense recognized in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2021.

Note 3. Certain Balance Sheet Accounts

Inventory

Substantially all of the Company's inventory consisted of finished goods as of September 30, 2022 and December 31, 2021.

Property and Equipment, net

Property and equipment consisted of the following as of:


	September 30, 2022		December 31, 2021
Tooling and manufacturing equipment	$	2,694	$	2,333
Furniture and fixtures	639		579
Computer equipment	667		625
Software	213		213
Leasehold improvements	29		26
Total property and equipment	4,242		3,776
Less accumulated depreciation and amortization	(2,867)		(1,906)
Property and equipment, net	$	1,375	$	1,870

Depreciation and amortization expense on property and equipment was $332 and $253 for the three months ended September 30, 2022 and September 30, 2021, respectively. For the three months ended September 30, 2022 and September 30, 2021, the Company allocated $210 and $160, respectively, of depreciation expense related to tooling and manufacturing equipment to cost of revenues.

Depreciation and amortization expense on property and equipment was $966 and $691 for the nine months ended September 30, 2022 and September 30, 2021, respectively. For the nine months ended September 30, 2022 and September 30, 2021, the Company allocated $608 and $457, respectively, of depreciation expense related to tooling and manufacturing equipment to cost of revenues.

Intangible Assets Subject to Amortization

Intangible assets were $2,325, net of accumulated amortization of $473 as of September 30, 2022 and $1,696, net of accumulated amortization of $329, as of December 31, 2021.

Capitalized software development costs were $1,873 and $1,101 as of September 30, 2022 and December 31, 2021, respectively. The Company's internally developed software capitalized within intangible assets on the balance sheet is still in development and not ready for general release. As such, the Company has not recognized any amortization for the nine months ended September 30, 2022.

The Company recognized $41 of impairment charges during the three and nine months ended September 30, 2022 to fully impair content-related intangible assets no longer in use. The Company did not recognize any impairment charges related to intangible assets during the three and nine months ended September 30, 2021.

Accrued and Other Expenses

Accrued and other expenses, among other things, included accrued sales returns of $8,897 and $21,179 as of September 30, 2022 and December 31, 2021, respectively. As described in Note 1, $6,843 and $20,145 of the accrued sales returns as of September 30, 2022 and December 31, 2021, respectively, was attributable to returns resulting from the Warning Letter.

Changes in accrued warranty were as follows:


	For the Three Months Ended September 30,
	2022		2021
Accrued warranty, beginning of period	$	775	$	992
Provision for warranties issued during the period	157		485
Settlements of warranty claims during the period	(118)		(287)
Accrued warranty, end of period	$	814	$	1,190


	For the Nine Months Ended September 30,
	2022		2021
Accrued warranty, beginning of period	$	661	$	924
Provision for warranties issued during the period	550		708
Settlements of warranty claims during the period	(397)		(442)
Accrued warranty, end of period	$	814	$	1,190

Stockholders' Equity

The Company is authorized to issue up to 100,000,000 shares of $0.0001 par value preferred stock, of which none is currently outstanding.

Note 4. Leases

The new lease standard was adopted on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance and did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.

Leases are determined at inception by assessing whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Owlet's leases consist of leases for corporate offices and office equipment, and have remaining lease terms of 2 to 5 years, with options for renewal. Renewal and termination options have not been included in the lease terms, as it is not reasonably certain that such options will be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Owlet uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Upon adoption, Owlet recorded lease assets and lease liabilities of approximately $3,003 and $3,764, respectively, which did not have a net impact on the condensed consolidated statements of cash flows. The lease assets were adjusted for deferred rent, lease incentives, and prepaid rent, which were recorded as a decrease to accrued and other expenses and other long-term liabilities for the amounts of $234 and $527, respectively. There were no finance leases as of adoption or during the nine months ended September 30, 2022.

Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items in the Company’s Consolidated Statements of Operations and

Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common area maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.

The impact of the new lease standard on the September 30, 2022 consolidated balance sheet was as follows:


	September 30, 2022
Right of use assets, net	$	2,583

Accrued and other expenses	$	1,629
Noncurrent lease liabilities	1,589
Total lease liabilities, net	$	3,218

Weighted average remaining lease term	1.9 years

Weighted average discount rate	6.3%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs were $390 for the three months ended September 30, 2022, which included an immaterial offset related to short-term and variable lease costs. Total operating lease costs were $1,089 for the nine months ended September 30, 2022, which included an immaterial offset related to short-term and variable lease costs.

Supplemental cash flow information related to leases was as follows:


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities	$	437	$	1,231
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	530

The following table shows the future maturities of lease liabilities for leases in effect as of September 30, 2022:


Years Ending December 31,	Lease Liabilities
2022 (excluding the nine months ended September 30, 2022)	$	437
2023	1,798
2024	1,170
2025	18
Total lease payments	3,423
Less: imputed interest	(205)
Total	$	3,218

As of September 30, 2022, the Company had three sublease arrangements which are noncancellable and have remaining lease terms of 1.7 to 1.8 years. These subleases do not contain any options to renew or terminate the sublease agreement. The following table shows the expected future sublease receipts as of September 30, 2022:


Years Ending December 31,	Sublease Receipts
2022 (excluding the nine months ended September 30, 2022)	$	288
2023	1,178
2024	679
Total expected sublease receipts	$	2,145

The Company recognized sublease income of $287 and $62 for the three months ended September 30, 2022 and September 30, 2021, respectively. The Company recognized sublease income of $687 and $85 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

As previously disclosed in our 2021 Annual Report on Form 10-K and under the previous lease standard (Topic ASC 840), future minimum lease payments under non-cancelable operating leases at December 31, 2021 were as follows:


Years Ending December 31,	Amount
2022	$	1,541
2023	1,587
2024	953
Total	$	4,081

Rental expense under operating leases was approximately $371 and $1,111 for the three and nine months ended September 30, 2021, respectively.

Note 5. Deferred Revenues

Deferred revenues relate to performance obligations for which payments are received from customers prior to the satisfaction of the Company’s obligations to its customers. Deferred revenues primarily consist of amounts allocated to the mobile application, unspecified upgrade rights, and content, and are recognized over the service period of the performance obligations, which range from 5 to 27 months.

Changes in the total deferred revenues balance were as follows:


	For the Three Months Ended September 30,
	2022		2021
Beginning balance	$	1,379	$	1,831
Deferral of revenues	702		1,410
Recognition of deferred revenues	(557)		(1,167)
Ending balance	$	1,524	$	2,074

The Company recognized $451 and $848 of revenue during the three months ended September 30, 2022 and 2021, respectively, that was included in the deferred revenue balance at the beginning of the respective period.


	For the Nine Months Ended September 30,
	2022		2021
Beginning balance	$	1,235	$	1,802
Deferral of revenues	2,132		3,428
Recognition of deferred revenues	(1,843)		(3,156)
Ending balance	$	1,524	$	2,074

The Company recognized $982 and $1,502 of revenue during the nine months ended September 30, 2022 and 2021, respectively, that was included in the deferred revenue balance at the beginning of the respective period.

Note 6. Long-Term Debt and Other Financing Arrangements

The following is a summary of the Company’s long-term indebtedness as of:


	September 30, 2022		December 31, 2021
Term note payable to SVB, maturing on April 1, 2024	$	9,500	$	14,000
Financed insurance premium	2,497		2,534
Total debt	11,997		16,534
Less: current portion	(11,997)		(8,534)
Less: debt discount and debt issuance costs	—		(7)
Total long-term debt, net	$	—	$	7,993

As of September 30, 2022, the Company was in violation of its minimum net revenue requirement for the three months ended September 30, 2022 under the amended and restated loan and security agreement, which governs both the Company’s term loan and its line of credit. As a result, the $9,500 term note and the Company’s line of credit with $5,000 of outstanding borrowings is presented as a current liability.

The Company is actively engaged with SVB to come to terms on a further amended financing agreement, including revised financial and liquidity covenants for future periods. The Company expects to finalize an amended agreement with SVB prior to the end of the fiscal year.

Future Aggregate Maturities

As of September 30, 2022, future aggregate maturities of the Term Note and Financed Insurance Premium (defined below) payables were as follows:


Years Ending December 31,	Amount
2022 (excluding the nine months ended September 30, 2022)	$	2,323
2023	7,674
2024

Owlet, Inc. [OWLT-WT] Filings
Owlet, Inc. [OWLT] Filings
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-13]
10-K	[2022-03-25]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
S-1	[2021-08-05]
10-Q	[2021-05-27]
10-K	[2021-03-25]
10-Q	[2020-11-13]
S-1	[2020-08-24]

Owlet, Inc. [OWLT-WT] Filings

Owlet, Inc. [OWLT] Filings