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What changed in Owlet, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Owlet, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+486 added−504 removedSource: 10-K (2024-03-08) vs 10-K (2023-04-06)

Top changes in Owlet, Inc.'s 2023 10-K

486 paragraphs added · 504 removed · 296 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

67 edited+72 added−87 removed120 unchanged
Biggest changeIn some cases, an IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects. 12 During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them.
Biggest changeIn some cases, an IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.
We believe that the primary competitive factors in our market are: • product quality and performance, including the size, quality, comfort, battery life, reliability, connectivity of the device to the application and/or monitor, and accuracy of our data provided to customers; • customer purchasing experience; • pricing; • product support and service; • effective marketing and education; • brand recognition; • breadth and depth of offerings; • greater market penetration; • technological innovation, product enhancements and speed of innovation • FDA marketing authorizations and similar foreign regulatory authorities marketing authorizations and notified bodies certifications; and • sales and distribution capabilities.
We believe that the primary competitive factors in our market are: • product quality and performance, including the size, quality, comfort, battery life, reliability, connectivity of the device to the application and/or monitor, and accuracy of our data provided to customers; • FDA marketing authorizations and similar foreign regulatory authorities marketing authorizations and notified bodies certifications; • customer purchasing experience; • pricing; • product support and service; • effective marketing and education; • brand recognition; • breadth and depth of offerings; • greater market penetration; • technological innovation, product enhancements and speed of innovation; and • sales and distribution capabilities.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices; 10 • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Other Foreign Regulations Similarly, we are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, manufacturing, and testing; • product standards; • product safety; • product safety reporting; • marketing, sales, and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • record keeping procedures; 17 • advertising and promotion; • recalls and field corrective actions; • import and export restrictions; and • tariff regulations, duties, and tax requirements; We may also become subject to the following additional requirements in many foreign countries in which we may sell future medical devices, including in the areas of: • clinical testing; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • registration for reimbursement; and • necessity of testing performed in country by distributors for licensees.
Other Foreign Regulations Similarly, we are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, manufacturing, and testing; • product standards; • product safety; • product safety reporting; • marketing, sales, and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • record keeping procedures; • advertising and promotion; • recalls and field corrective actions; • import and export restrictions; and • tariff regulations, duties, and tax requirements; We may also become subject to the following additional requirements in many foreign countries in which we may sell future medical devices, including in the areas of: • clinical testing; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • registration for reimbursement; and • necessity of testing performed in country by distributors for licensees.
If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; • recalls, withdrawals, or administrative detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products; • withdrawing 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approvals for our products; or 13 • criminal prosecution.
If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; • recalls, withdrawals, or administrative detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products; • withdrawing 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approvals for our products; or • criminal prosecution.
Other Healthcare Laws and Regulations Other Healthcare Laws Medical device manufacturers are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval or certification.
Other Healthcare Laws and Regulations Other Healthcare Laws 15 Medical device manufacturers are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval or certification.
The aforementioned EU rules are generally applicable in the European Economic Area (EEA) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Regulation of Medical Devices in the European Union 14 The EU has adopted specific directives and regulations regulating the design, manufacture, clinical investigations, conformity assessment, labeling and adverse event reporting for medical devices.
The aforementioned EU rules are generally applicable in the European Economic Area (EEA) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Regulation of Medical Devices in the European Union The EU has adopted specific directives and regulations regulating the design, manufacture, clinical investigations, conformity assessment, labeling and adverse event reporting for medical devices.
We make our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as well as beneficial ownership filings available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC.
We make our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as well as beneficial ownership filings available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC.
The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide 11 additional safety and efficacy data for the device in a larger population or for a longer period of use.
The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use.
Foreign Government Regulation In addition to U.S. regulations, we are subject to a variety of foreign government regulations applicable to general consumer products and medical devices. Regulation of General Consumer Products in the European Union In the European Union ("EU"), consumer products must comply with the General Product Safety Directive No 2001/95/EC.
Foreign Government Regulation In addition to U.S. regulations, we are subject to a variety of foreign government regulations applicable to general consumer products and medical devices. Regulation of General Consumer Products in the European Union 11 In the European Union ("EU"), consumer products must comply with the General Product Safety Directive No 2001/95/EC.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluation of clinical data supporting the 12 safety and performance of the products during normal conditions of use.
Until EUDAMED is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply for the purpose of meeting the 15 obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.
Until EUDAMED is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply for the purpose of meeting the obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.
Unlike the EU Medical Devices Directive, the EU Medical Devices Regulation is directly applicable in all EU member states without the need for member states to implement into national law. In the EU, there is currently no premarket government review of medical devices.
Unlike the EU Medical Devices Directive, the EU Medical Devices Regulation is directly applicable in all EU member states without the need for member states to implement it into national law. In the EU, there is currently no premarket government review of medical devices.
Data Privacy and Security Laws Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related 19 information.
Data Privacy and Security Laws Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information.
Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the Government has recently confirmed that this date has been postponed until July 2024. Devices which have valid a valid certificate issued by EU notified bodies under the EU Medical Devices Regulation (or EU Medical Devices Directive) are subject to transitional arrangements.
Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the Government has recently confirmed that this date has been postponed until July 2025. Devices which have valid a valid certificate issued by EU notified bodies under the EU Medical Devices Regulation (or EU Medical Devices Directive) are subject to transitional arrangements.
Our long-term success depends upon the development and successful commercialization of new products and services, new or improved technologies and additional applications for our existing technologies, including products or applications that may be subject to the oversight of the FDA or comparable foreign regulatory authorities and could require marketing authorization by the FDA or similar approval, clearance, authorization or certification from comparable foreign regulatory authorities.
Our long-term success depends upon the development and successful commercialization of new products and services, new or improved technologies and additional applications for our existing technologies, including products or applications that may be subject to the oversight of the FDA or comparable foreign regulatory authorities and could require marketing authorization by the FDA or similar approval, clearance, authorization or certification from comparable foreign regulatory authorities or notified bodies.
Our issued patents with claims generally directed to placement of fabric electrodes and assembly of such are each expected to expire in the U.S., the EU, Australia, China and Canada in 2038. Pending applications in the aforementioned countries will have expiration dates between 2034 and 2040.
Our issued patents with claims generally directed to placement of fabric electrodes and assembly of such are each expected to expire in the U.S., the EU, Australia, China and Canada in 2038. Pending applications in the aforementioned countries will have expiration dates between 2034 and 2043.
Our patents include utility patents covering technology ranging from placement of electrodes to the base of the baby monitor. We have foreign patents and patent applications pending in the EU, Australia, Canada, and China.
Our patents include utility patents covering technology ranging from placement of electrodes to the base of the baby monitor. We have foreign patents and patent applications pending in 17 the EU, Australia, Canada, China, and Thailand.
These parents are more likely to be early technology adopters and have a high affinity towards actionable insight to care for their children. This is evidenced by the millions of downloads of the Owlet applications and increasing social media engagement across our multiple platforms.
We believe these parents are more likely to be early technology adopters and have a high affinity towards actionable insight to care for their children. This is evidenced by the millions of downloads of the Owlet applications and high social media engagement across our multiple platforms.
However, we expect the industry in which we operate will continue to evolve and may be significantly affected by 8 new product introductions and other market activities of industry participants.
We expect the industry in which we operate will continue to evolve and may be significantly affected by new product introductions and other market activities of industry participants.
Continuing technological advances and new product introductions within the home-use childcare electronics and service industry place our products and services at risk of obsolescence.
Continuing technological advances and new product introductions within the home-use childcare electronics, medical monitoring and service industry place our products and services at risk of obsolescence.
However, from July 2024, products which do not have existing and valid certification under the EU Medical Devices Regulation (or EU Medical Devices Directive) and are therefore not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain.
However, from July 2025, products that do not have existing and valid certification under the EU Medical Devices Directive or EU Medical Devices Regulation and, therefore, are not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain.
Manufacturing We rely on several third-party suppliers for single source components used in our devices, including the WiFi chips, microcontrollers, batteries, accelerometers, temperature sensors, plastics and circuit boards. We follow strict quality guidelines, including a detailed risk-based audit plan following our ISO 9001 quality policy that dictates how often and to what degree we audit our suppliers.
Manufacturing We rely on several third-party suppliers for single source components used in our devices, including the WiFi chips, microcontrollers, batteries, accelerometers, temperature sensors, plastics and circuit boards. We follow strict quality guidelines, including a detailed risk-based audit plan following our ISO certified quality management system that dictates how often and to what degree we audit our suppliers.
Human Capital Resources As of December 31, 2022, we had 106 full-time employees. None of our employees is represented by a labor union, and we consider our employee relations to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees.
Human Capital Resources As of December 31, 2023, we had 76 full-time employees. None of our employees is represented by a labor union, and we consider our employee relations to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees.
Following the expiration of the initial term of the agreement in June 2019, we extended the agreement through June 2022. We have the right to terminate the agreement, without cause, upon six months’ prior written notice to Aoni.
Following the expiration of the initial term of the agreement in June 2019, we extended the agreement through June 2022. In April 2022, we further extended the agreement through June 2024. We have the right to terminate the agreement, without cause, upon six months’ prior written notice to Aoni.
Our issued patents with claims generally directed to an infant sock comprised of a sensing device in a sleeve in the sock and a strap are expected to expire in the U.S. in 2032 and in China in 2035.
Our issued patents with claims generally directed to an infant sock comprised of a sensing device in a sleeve in the sock and a strap are expected to expire in the U.S. and China in 2033.
The device, which we internally call Babysat, uses pulse oximetry technology and is intended to be prescribed by physicians to assist with the in-home monitoring of babies under a physician’s care. The device is designed to provide alerts to parents when their baby’s heart rate or oxygen saturation level (or SpO2) does not fall within prescribed ranges.
The device uses pulse oximetry 7 technology and is intended to be prescribed by physicians to assist with the in-home monitoring of babies under a physician’s care. The device is designed to provide alerts to parents when their baby’s heart rate or oxygen saturation level (or SpO2) does not fall within prescribed ranges.
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the U.S. requires either FDA clearance of a premarket notification submitted under Section 510(k) of the FDCA, or approval of a premarket approval application, or PMA.
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the U.S. requires either FDA clearance of a premarket notification submitted under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDCA”), or approval of a premarket approval application, or PMA.
On February 27, 2023, the United Kingdom (UK) Government and the European Commission reached a political agreement on the “Windsor Agreement” which is likely to lead to further amendments to the Protocol on Ireland/Northern Ireland in order to address some of the perceived shortcomings in its operation.
On February 27, 2023, the United Kingdom (UK) Government and the European Commission reached a political agreement on the “Windsor Agreement” which will amend the Protocol on Ireland/Northern Ireland in order to address some of the perceived shortcomings in its operation.
The initial term of the agreement expired in October 2018, but the term of the agreement automatically extends for additional one-year periods until either we or Benchmark provide notice of non-renewal at least 90 days prior to the end of the then-current term or extension.
The initial term of the agreement was one year and automatically extends for additional one-year periods until either we or Benchmark provide notice of non-renewal at least 90 days prior to the end of the then-current term or extension.
We have a vast infant data set which leads to stronger insights and allows us to develop better products and services, which we believe in turn leads to happier users and drives product purchases.
We also have the benefit of a vast infant data set obtained in the consumer setting which leads to stronger insights and allows us to develop better products and services, which we believe in turn leads to happier users and drives product purchases.
We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of December 31, 2022, we had 68 issued patents (with numerous others pending) and 51 registered trademarks.
We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of February 1, 2024, we had 58 issued patents (with numerous others pending) and 44 registered trademarks.
We cannot be certain that any of the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights in these countries as fully as in the U.S. Ayla Subscription Agreement In May 2014, we entered into a subscription agreement with Ayla Networks, Inc.
We cannot be certain that any of the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights in these countries as fully as in the U.S.
(“Benchmark”), pursuant to which Benchmark provides us certain manufacturing and related services for the production of our Sock Monitoring offerings out of its facilities in Thailand, including procuring materials and assembling and testing finished products.
Manufacturing Services Agreement with Benchmark Electronics In October 2017, we entered into a manufacturing services agreement with Benchmark Electronics, Inc. (“Benchmark”), pursuant to which Benchmark provides us certain manufacturing and related services for the production of our Sock Monitoring offerings out of its facilities in Thailand, including procuring materials and assembling and testing finished products.
We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with new technologies and distribution strategies. Increased competition in the future could adversely affect our revenue, revenue growth rate, margins and market share.
We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with new technologies and distribution strategies.
In addition, new legislation such as the EU Medical Devices Regulation is not applicable in Great Britain. 16 The UK government has passed a new Medicines and Medical Devices Act 2021, which introduces delegated powers in favor of the Secretary of State or an ‘appropriate authority’ to amend or supplement existing regulations in the area of medicinal products and medical devices.
The UK government has passed a new Medicines and Medical Devices Act 2021, which introduces delegated powers in favor of the Secretary of State or an ‘appropriate authority’ to amend or supplement existing regulations in the area of medicinal products and medical devices.
FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination. Clinical Trials Clinical trials are almost always required to support a PMA and de novo classification and are sometimes required to support a 510(k) submission.
FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination.
We check all quality, regulatory, and safety standards for products that our contract manufacturers make. We deploy a robust manufacturer and supplier selection process including site audits, tooling design and setup quotes, open book pricing, quality specifications, and vendor guides. The Smart Sock and Dream Sock are currently manufactured at ISO 13485 certified manufacturing sites.
We check all quality, regulatory, and safety standards for products that our contract manufacturers make. We deploy a robust manufacturer and supplier selection process including site audits, tooling design and setup quotes, open book pricing, quality specifications, and vendor guides.
From designing innovative and groundbreaking products to employing sophisticated software with proprietary algorithms and backend support, we believe we have built a strong competitive moat and early-mover advantage over potential competition in the connected nursery field.
In 2023, we developed software enhancements for our FDA authorized medical devices, BabySat and Dream Sock with Health Notifications. From designing innovative and groundbreaking products to employing sophisticated software with proprietary algorithms and backend support, we believe we have built a strong competitive moat and early-mover advantage over potential competition in the connected nursery field.
The FDA’s 510(k) clearance process usually takes from three to twelve months but may take longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, FDA collects user fees for certain medical device submissions and annual fees and for medical device establishments.
The FDA’s 510(k) clearance process usually takes from three to twelve months but may take longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement.
Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. 9 Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement.
We received ISO 13485 and MDSAP certifications, as we work to implement the requirements applicable to medical device manufacturer quality management systems. We believe that third-party facilities will be adequate to meet our current and anticipated manufacturing needs.
We received ISO 13485 and MDSAP certifications, as we work to implement and maintain the requirements applicable to medical device manufacturer quality management systems. We believe that third-party facilities are adequate to meet our current and anticipated manufacturing needs. We do not currently plan to manufacture our products or any related components ourselves.
We are actively developing a strategy to enable healthcare providers to obtain reimbursement for products for which we successfully obtain FDA authorization or similar authorization or certification in foreign jurisdictions, including the BabySat, or the services associated with such products.
We are actively developing a strategy to enable healthcare providers to obtain reimbursement for products for which we successfully obtain FDA authorization or similar authorization or certification in foreign jurisdictions, including BabySat, or the services associated with such products. However, this new strategy may not be successful as payors may even refuse to provide coverage and reimbursement for these products.
These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents. 10 While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device.
Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device.
Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.
EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.
EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals. 13 Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular vis-à-vis healthcare professionals and organizations.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
These relationships continue to grow and develop as a result of our novel product and software additions to our connected ecosystem, feature enhancements, omni-channel distribution, and marketing efforts.
These relationships continue to grow and develop as a result of our novel product and software additions to our connected ecosystem, feature enhancements, omni-channel distribution, and marketing efforts. As we bring this valued relationship with consumer users into new medical communities, we believe that our platforms will continue to evolve and expand.
Following these transitional periods, it is expected that all medical devices will require a UK Conformity Assessment (UKCA) mark. Manufacturers may choose to use the UKCA mark on a voluntary basis prior to the regulations coming into force.
Following these transitional periods, it is anticipated that all medical devices will require a UK Conformity Assessed (“UKCA”) mark in order to be placed on the market in Great Britain. Manufacturers may choose to use the UKCA mark on a voluntary basis prior to entry of the new regulations on July 1, 2025.
In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address under the “Resources” menu on the Investors section of our website at https:// investors.owletcare.com. 21 The reference to our website address does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of this Annual Report on Form 10-K. 22
The reference to our website address does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of this Annual Report on Form 10-K.
As our retail penetration increases and brand awareness grows outside of the U.S., we intend to further leverage retail channels and locations to ensure efficient and strategic global customer acquisition in key markets in the future. Our Users The majority of our users are millennials, a brand-conscious and technological savvy generation, with annual income of $50,000 or more.
As our retail penetration increases and brand awareness grows outside of the United States, we intend to further leverage retail channels and locations to ensure efficient and strategic global customer acquisition in key markets in the future. Government Regulation Certain of our products or their features and our operations are subject to regulation by the U.S.
Environmental Matters Our operations, properties and products are subject to a variety of U.S. and foreign environmental laws and regulations governing, among other things, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste and remediation of releases of hazardous materials.
In connection with the services provided under the agreement, Aoni has agreed to indemnify us against certain claims and liabilities, including claims arising in connection with product defects, breach of the agreement, negligence and violations of applicable law. 18 Environmental Matters Our operations, properties and products are subject to a variety of U.S. and foreign environmental laws and regulations governing, among other things, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste and remediation of releases of hazardous materials.
As a result of the Merger, Owlet Baby Care, Inc. became a wholly-owned subsidiary of SBG, and SBG changed its name to Owlet, Inc. Available Information Our website address is www.owletcare.com. The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K.
SBG was incorporated in Delaware on June 23, 2020. On July 15, 2021, SBG closed the Merger with Owlet Baby Care Inc. As a result of the Merger, Owlet Baby Care, Inc. became a wholly-owned subsidiary of SBG, and SBG changed its name to Owlet, Inc. Available Information Our website address is www.owletcare.com.
Food and Drug Administration, or FDA, and other federal and state authorities in the U.S., as well as comparable authorities in foreign jurisdictions. For example, certain of our products may be subject to regulation as medical devices in the U.S. under the FDCA, as implemented and enforced by the FDA. U.S.
Food and Drug Administration, or FDA, and other federal and state authorities in the U.S., as well as comparable authorities in foreign jurisdictions. U.S.
We believe that every parent deserves peace of mind and the opportunity to feel well-rested. We also believe that every child deserves to live a long, happy, and healthy life, and are working to develop products to help further those beliefs.
We also believe that every child deserves to live a long, happy, and healthy life, and we are working to develop products to help further that belief. Products and Services Our devices empower parents with the right information at the right time.
We believe BabySat has the potential to provide significant advantages to the large, wired hospital monitoring technologies on the market today with its wireless, wearable form factor and cloud connected data integration designed for home use. Platform Pipeline We plan to complement our monitoring pipeline with our connected ecosystem pipeline to create a more unified digital parenting experience.
We believe BabySat provides significant advantages to the large, wired hospital monitoring technologies on the market today with its wireless, wearable form factor and cloud connected data integration designed for home use. While our existing primary market is the United States, we intend to continue to expand into international and new geographic markets.
Our ecosystem of digital parenting solutions is helping to transform modern parenting by providing parents data-driven insights into their children’s well-being in the comfort of their own home.
We are providing parents data-driven insights into their children’s well-being in the comfort of their own home. Our digital parenting platform aims to give parents real-time data and insights to help parents feel calmer and more confident and well rested.
We will remain focused on achieving profitability and obtaining FDA marketing authorization to commercialize our Dream Sock with Health Notifications and BabySat device which we believe will open the door to launch additional products and services to continue the expansion of our platform. Leverage Brand to Expand into New Markets.
We are building our data platform with the goal to be parents’ go-to brand in the areas of sleep, safety, health and well-being information. We will remain focused on commercializing our Dream Sock with Health Notifications and BabySat devices, which we believe will open the door to launch additional services to continue the expansion of our data platform.
The Owlet BabySat is designed to be able to be utilized by various telehealth platforms and is designed specifically for babies with diagnosed illnesses and health conditions. In October 2022, we submitted a 510(k) premarket notification to the FDA for a new prescription monitoring device for infants.
The BabySat device, which requires a physician’s or providers prescription, allows Owlet to enter the medical and healthcare markets and compete with traditional hospital dispensed medical devices. BabySat is designed to be able to be utilized by various telehealth platforms and is designed specifically for babies with diagnosed illnesses and health conditions.
As we develop additional products, we believe parents will increasingly rely on our connected ecosystem for digital parenting solutions. In addition, Owlet has collected one of the largest data sets of infant health and sleep and we believe that data will be an invaluable tool in bridging the current gap of sleep and health at home.
Our Platform and Pipeline Over 2 million parents worldwide have used Owlet contributing to one of the largest data sets of infant health and sleep. We believe that data will be an invaluable tool in bridging the current healthcare gap between hospital and home.
Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Post-market Regulation After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
Post-market Regulation After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
Our current research and development efforts are focused on enhancing the customer experience of our existing products, while preparing for the potential commercialization of our medical devices. Competition Historically, baby monitors and nursery products have been fragmented product categories with multiple players and limited brand loyalty, and have integrated limited amounts of technology and data into the caregiver’s experience.
Our current research and development efforts are focused on enhancing the customer experience of our existing products, while supporting commercialization of our medical devices.
Research and Development We are committed to ongoing research and development to create new products and improve the design, operation, and quality of existing products. Our research and development organization includes individuals with expertise in fields including engineering, product design, clinical science, consumer electronics, and embedded software design.
Our research and development organization includes individuals with expertise in fields including engineering, product design, clinical science, consumer electronics, healthcare technologies and embedded software design. Our technical capabilities and commitment to innovation have allowed us to deliver significant product enhancements on a rapid development timeline.
Owlet remains focused on developing the best consumer experience to empower parents with the right information at the right time. As we pursue marketing authorization from applicable regulatory authorities and certification from notified bodies, we believe Owlet could be positioned as a category leader with significant competitive barriers. Further expansion of our ecosystem synergies is also a focus.
As we pursue additional marketing authorizations from applicable regulatory authorities and certification from notified bodies, we believe Owlet could be positioned as a category leader with significant competitive barriers. Research and Development We are committed to ongoing research and development to create new products and improve the design, operation, and quality of existing products.
These proposed changes need to be codified and agreed by the respective parliaments of the UK and EU before taking effect. The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain.
The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain, however, new legislation such as the EU Medical Devices Regulation is not applicable in Great Britain.
Following receipt of the Warning Letter, we ceased distribution of the Smart Sock in the U.S. and have been in regular communications with the FDA regarding our plans to pursue marketing authorization for the notification features that were the subject of the Warning Letter.
Regulatory Interactions In October 2021, we received a Warning Letter from the FDA regarding the health notifications then provided with our Smart Sock that led Owlet to cease the distribution of the Smart Sock in the U.S. Since our Warning Letter, we have cooperated with and have worked diligently to seek marketing authorizations for our products with medical device functionality.
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Item 1. Business. We are Owlet Becoming a parent is a life-changing milestone. New mothers and fathers become caregivers overnight and share the same primary concerns of sleep, safety, health and well-being. Parents, who are increasingly older and busier, assume the roles of doctor, dietitian, and sleep trainer.
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Item 1. Business We are Owlet Globally, we are bringing over 140 million new lives into the world every year.
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In many cases, parents receive minimal guidance, counseling, or affirmation of how well they are caring for their newborn, which often leads to increased anxiety and feelings of worry. Enter Owlet. Kurt Workman, Jordan Monroe, Zack Bomsta, and Jake Colvin founded Owlet because they wanted access to real-time data to give them peace of mind as new parents.
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Yet, the infancy period remains fraught with complexities; in the United States alone, a family will lose over 44 nights of sleep in the first year, and families of young children will see, annually, over 14 million sick visits and 3.4 million emergency room visits, and tragically, more than 3,500 infants are lost unexpectedly in their homes every year.
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Infant monitoring solutions were highly fragmented and provided limited real-time awareness, leading to a less-than-optimal solution for concerned parents. There was also no product on the market available for parents to track a baby’s sleep patterns, oxygen levels, and heart rate at home.
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The majority of these challenges unfold within the security of the home. The persistence of unexpected infant fatalities remains unchanged for over a quarter-century, compounded by a recent increase in Respiratory Syncytial Virus (RSV) and pneumonia among children. The staggering number of healthcare visits underscores a dire need for change, starting with the home. Our belief is steadfast.
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Our founders’ love for their children inspired them to launch Owlet in 2012 and create the Owlet Smart Sock (the "Owlet Smart Sock"), which was first sold in 2015.
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We believe that parenting should come with empowerment, the kind that's informed, data-driven, and supported every step of the way. Owlet stands as a beacon for this empowerment, equipping families with the tools intended for their little ones' safety, health, and joy. Our vision is ambitious yet clear.
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Our Company's mission is to empower parents with the right information at the right time, to give them more peace of mind and help them find more joy in the journey of parenting. Our digital parenting platform aims to give parents real-time data and insights to help parents feel calmer and more confident.
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We want to forge a world where every infant, regardless of socioeconomic background, benefits from health monitoring technologies akin to Owlet's. Our mission is to arm parents with crucial information when they need it most, aiming to safeguard children's health, optimize their well-being, and ensure peaceful sleep. We're committed to improving overall health outcomes. Our values underscore our mission.
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We are also developing in-home pediatric monitoring and analytics technologies, which we believe have the potential to provide parents with additional information about their children and are also designed to notify parents and caregivers of certain biometric findings with the goal of reducing risk of infant death due to Sudden Unexplained Infant Death (SUID) and Sudden Infant Death Syndrome (SIDS) and opportunistically detecting infant ailments such as respiratory syncytial virus (RSV) and supraventricular tachycardia (SVT).
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We advocate for parental leadership in healthcare, backed by technological advancements. We prioritize our collective mission above individual egos, innovate to address genuine needs, and foster a culture of teamwork and mutual support. Our products empower parents with the right information at the right time. Our ecosystem of digital parenting solutions is transforming modern parenting.
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Our Platform Our purpose-built suite of connected digital parenting products and services is designed to help parents know more about their children and gain peace of mind in their roles as caregivers. We have developed deep and enduring relationships with our users and brand advocates around the world.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeElsewhere in Europe, we can generally market a medical device only if we receive a certification by a notified body, i.e., an independent organization accredited or designated by an EU member state or a marketing authorization from other foreign regulatory authorities (and meet certain pre-marketing requirements) and, in some cases, pricing 42 approval, from the appropriate regulatory authorities.
Biggest changeSee “If any governmental authority or notified body were to require marketing authorization or similar certification for any product that we sell for which we have not obtained such marketing authorization or certification, we could be subject to regulatory enforcement actions and/or be required to cease selling or recall the product pending receipt of marketing authorization or similar certification from such other governmental authority or notified body, which can be a lengthy and time-consuming process, harm financial results and have long-term negative effects on our operations.” In Europe, we can generally market a medical device only if we receive a certification by a notified body, i.e., an independent organization accredited or designated by an EU member state or a marketing authorization from other foreign regulatory authorities (and meet certain pre-marketing requirements) and, in some cases, pricing approval, from the appropriate regulatory authorities.
We will still need additional funding to fund our operations, but additional funds may not be available to us on acceptable terms on a timely basis, if at all. We may seek funds through borrowings or through additional rounds of financing, including private or public equity or debt offerings, or by other means.
We will still need additional funding to fund our operations, but additional funds may not be available to us on acceptable terms on a timely basis, if at all. We may seek funds through borrowings or additional rounds of financing, including private or public equity or debt offerings, or by other means.
Such returns have had, and may continue to have, a material adverse effect on our business, financial condition and results of operations. In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our retailers. Identifying retailers, and negotiating and documenting relationships with them, requires significant time and resources.
Such returns have had, and may have, a material adverse effect on our business, financial condition and results of operations. In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our retailers. Identifying retailers, and negotiating and documenting relationships with them, requires significant time and resources.
Any transition to a new contract manufacturer, or any transition of products between existing manufacturers, could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our products, could require that we modify the design of our products, or could require clearance, approval by the FDA, or similar clearances, approvals, or certifications from foreign regulatory authorities or notified bodies, depending on the nature of the product and the changes associated with the transition to the new manufacturer.
Any transition to a new contract manufacturer, or any transition of products between existing manufacturers, could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our products, could require that we modify the design of our products, or could require clearance, or approval by the FDA, or similar clearances, approvals, or certifications from foreign regulatory authorities or notified bodies, depending on the nature of the product and the changes associated with the transition to the new manufacturer.
Inventory levels in excess of consumer demand may result in inventory write-downs or write-offs and the sale of inventory at discounted prices, may affect our gross margin and could impair the strength of our brand. Reserves and write-downs for rebates, promotions and excess inventory are recorded based on our forecast of future demand.
Inventory levels in excess of consumer demand may result in inventory write-downs or write-offs and the sale of inventory at discounted prices, may affect our gross margin and could impair the strength of our brand. Reserves and write-downs for rebates, promotions and excess inventory are recorded based on our forecast of future demand.
Actual future demand could be less than our forecast, which may result in additional reserves and write-downs in the future, or actual demand could be stronger than our forecast, which may result in increased shipping costs and a reduction to previously recorded reserves and write-downs in the future and increase the volatility of our operating results.
Actual future demand could be less than our forecast, which may result in additional reserves and write-downs in the future, or actual demand could be stronger than our forecast, which may result in increased shipping costs and a reduction to previously recorded reserves and write-downs in the future and increase the volatility of our operating results.
Introductions of new or advanced products and services could also adversely impact the sales of our existing products and services to consumers.
Introductions of new or advanced products and services could also adversely impact the sales of our existing products and services to consumers.
These risks include: • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • the imposition of requirements to maintain data and the processing of that data on servers located within the U.S. or in foreign countries; • a shortage of high-quality employees, sales people and distributors; • the loss of any key personnel that possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with or changes in foreign tax laws, regulations and requirements and economic and trade sanctions programs including, for example, the U.S., UK and EU sanctions relating to the Russian Federation, Ukraine and the Republic of Belarus initially implemented in February 2022; • evolution in regulatory landscapes, such as on account of the UK leaving the EU, and uncertainties that arise from such evolution; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts; • financial and civil unrest worldwide; • outbreaks of illnesses, pandemics or other local or global health issues; • natural or man-made disasters; • the inability to collect amounts paid by foreign government customers to our appointed foreign agents; • longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and • difficulties in enforcing or defending intellectual property rights.
These risks include: 29 • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • the imposition of requirements to maintain data and the processing of that data on servers located within the U.S. or in foreign countries; • a shortage of high-quality employees, sales people and distributors; • the loss of any key personnel that possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with or changes in foreign tax laws, regulations and requirements and economic and trade sanctions programs including, for example, the U.S., UK and EU sanctions relating to the Russian Federation, Ukraine and the Republic of Belarus initially implemented in February 2022; • evolution in regulatory landscapes, such as on account of the UK leaving the EU, and uncertainties that arise from such evolution; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts; • financial and civil unrest worldwide; • outbreaks of illnesses, pandemics or other local or global health issues; • natural or man-made disasters; • the inability to collect amounts paid by foreign government customers to our appointed foreign agents; • longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and • difficulties in enforcing or defending intellectual property rights.
Any claims of patent or other intellectual property infringement against us, even those without merit, could: • be expensive and time-consuming to defend and result in payment of significant damages to third parties; • force us to stop making or selling products and services that incorporate the intellectual property; • require us to redesign, reengineer or rebrand our products and services, product candidates and technologies; • require us to enter into royalty agreements that would increase the costs of our products and services; 55 • require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims; • divert the attention of our management and other key employees; and • result in our customers or potential customers deferring or limiting their purchase or use of the affected products and services impacted by the claims until the claims are resolved; any of which could have a material adverse effect on our business, financial condition and results of operations.
Any claims of patent or other intellectual property infringement against us, even those without merit, could: • be expensive and time-consuming to defend and result in payment of significant damages to third parties; • force us to stop making or selling products and services that incorporate the intellectual property; • require us to redesign, reengineer or rebrand our products and services, product candidates and technologies; • require us to enter into royalty agreements that would increase the costs of our products and services; • require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims; • divert the attention of our management and other key employees; and • result in our customers or potential customers deferring or limiting their purchase or use of the affected products and services impacted by the claims until the claims are resolved; any of which could have a material adverse effect on our business, financial condition and results of operations.
A person or entity does not have to have actual knowledge of this statute or specific intent to violate it to have committed a violation; • federal civil and criminal false claims laws, including the federal civil False Claims Act, and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal government programs that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government, including federal healthcare programs.
A person or entity does not have to have actual knowledge of this statute or specific intent to violate it to have committed a violation; • federal civil and criminal false claims laws, including the federal civil False Claims Act, and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or 44 causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal government programs that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government, including federal healthcare programs.
The healthcare laws and regulations that may affect our ability to operate include, but are not limited to: 47 • the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, the purchasing, leasing, ordering or arranging for the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
The healthcare laws and regulations that may affect our ability to operate include, but are not limited to: • the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, the purchasing, leasing, ordering or arranging for the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
If the FDA or foreign regulatory authorities determine that our products authorized or certified for marketing as medical devices were promoted for off-label use, or that false, misleading or inadequately substantiated promotional claims have been made by us or our commercial partners, it could request that we or our commercial partners modify those promotional materials or take regulatory or enforcement actions, including the issuance of an untitled letter or warning letter, injunction, seizure, civil fine and criminal penalties.
If the FDA or foreign regulatory authorities determine that 41 our products authorized or certified for marketing as medical devices were promoted for off-label use, or that false, misleading or inadequately substantiated promotional claims have been made by us or our commercial partners, it could request that we or our commercial partners modify those promotional materials or take regulatory or enforcement actions, including the issuance of an untitled letter or warning letter, injunction, seizure, civil fine and criminal penalties.
Any growth strategy that we may decide to execute will require that we: • manage our commercial operations effectively; • identify, recruit, retain, incentivize and integrate additional employees; • provide adequate training and supervision to maintain our high-quality standards and preserve our culture and values; • manage our internal development and operational efforts effectively while carrying out our contractual obligations to third parties; and • continue to improve our operational, financial and management controls, reports systems and procedures.
Any growth strategy that we may decide to execute will require that we: • manage our commercial operations effectively; • identify, recruit, retain, incentivize and integrate additional employees; • provide adequate training and supervision to maintain our high-quality standards and preserve our culture and values; 20 • manage our internal development and operational efforts effectively while carrying out our contractual obligations to third parties; and • continue to improve our operational, financial and management controls, reports systems and procedures.
Expanding our commercial strategy based on third-party payor coverage and reimbursement may not be successful and will subject us to new risks, including, without limitation, changes in third-party payor coding, 48 coverage and reimbursement rates for our products that obtain FDA or foreign regulatory authorities authorization or notified bodies certification which could affect the adoption of such products and negatively impact our future revenue.
Expanding our commercial strategy based on third-party payor coverage and reimbursement may not be successful and will subject us to new risks, including, without limitation, changes in third-party payor coding, coverage and reimbursement rates for our products that obtain FDA or foreign regulatory authorities authorization or notified bodies certification which could affect the adoption of such products and negatively impact our future revenue.
Our products require significant expertise to manufacture, and our contract manufacturers may encounter difficulties in scaling up production of our products, including problems with quality control and assurance, component supply shortages, increased costs, shortages of qualified personnel, the long lead time required to develop additional facilities for purposes of testing our products or difficulties associated with compliance with local, state, federal and foreign regulatory requirements.
Our products require 25 significant expertise to manufacture, and our contract manufacturers may encounter difficulties in scaling up production of our products, including problems with quality control and assurance, component supply shortages, increased costs, shortages of qualified personnel, the long lead time required to develop additional facilities for purposes of testing our products or difficulties associated with compliance with local, state, federal and foreign regulatory requirements.
If there is insufficient UK approved body capacity, there is a risk that our product certification could be delayed which might impact our ability to market products in Great Britain after the respective transition periods. 43 We have relied and expect to continue to rely on third parties to conduct our nonclinical and clinical studies and perform other tasks for us.
If there is insufficient UK approved body capacity, there is a risk that our product certification could be delayed which might impact our ability to market products in Great Britain after the respective transition periods. We have relied and expect to continue to rely on third parties to conduct our nonclinical and clinical studies and perform other tasks for us.
The risk factors described below should be read together with the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission ("SEC"). Risks Related to Our Business and Operations We have a limited operating history.
The risk factors described below should be read together with the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission ("SEC"). 19 Risks Related to Our Business and Operations We have a limited operating history.
Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion 33 or debarment from government contracting.
Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion or debarment from government contracting.
In a given period, if these distributors and retailers are unable to sell an adequate amount of their Owlet product inventories, or if they decide to decrease or become unwilling to manage or sell their Owlet product inventories for any reason, our sales to and through these third parties could decline, which could result in lower sales volume or increased sales returns, excess inventory or inventory write-offs.
In a given period, if these distributors and retailers are unable to sell an adequate amount of their Owlet product inventories, or if they decide to decrease or become unwilling to manage or sell their Owlet product inventories for 24 any reason, our sales to and through these third parties could decline, which could result in lower sales volume or increased sales returns, excess inventory or inventory write-offs.
We recruit professionals on a global basis and must comply with the immigration laws in the countries in which we operate, including the U.S. Some of our employees are working under Owlet-sponsored temporary work visas, including H1-B visas. Statutory law limits the number of new H1-B temporary work permit petitions that may be approved in a fiscal year.
In addition, we recruit professionals on a global basis and must comply with the immigration laws in the countries in which we operate, including the U.S. Some of our employees are working under Owlet-sponsored temporary work visas, including H1-B visas. Statutory law limits the number of new H1-B temporary work permit petitions that may be approved in a fiscal year.
Furthermore, there is a possibility that the current U.S. immigration visa program may be significantly overhauled, and the number of H1-B visas available, as well as the process to obtain them, may be subject to significant change. Any resulting changes to this visa program could impact our ability to recruit, hire and 51 retain qualified skilled personnel.
Furthermore, there is a possibility that the current U.S. immigration visa program may be significantly overhauled, and the number of H1-B visas available, as well as the process to obtain them, may be subject to significant change. Any resulting changes to this visa program could impact our ability to recruit, hire and retain qualified skilled personnel.
Further, our insurance coverage may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. Any disruption of service at our third-party data and call centers or other cloud infrastructure services could interrupt or delay our ability to deliver our services to our customers.
Further, our insurance coverage may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. 32 Any disruption of service at our third-party data and call centers or other cloud infrastructure services could interrupt or delay our ability to deliver our services to our customers.
Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of common stock purchasable upon exercise of a warrant.
Although our ability to 59 amend the terms of the public warrants with the consent of at least 50% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or shares, shorten the exercise period or decrease the number of shares of common stock purchasable upon exercise of a warrant.
Year over year declines in revenue, our low, current cash balance, recurring operating losses, and negative cash flows from operations since inception raise substantial 24 doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued.
Year over year declines in revenue, our low, current cash balance, recurring operating losses, and negative cash flows from operations since inception raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued.
Historically, we have had retail customers declare bankruptcy and stop operations, negatively affecting our sales and business. If regulatory actions such as the Warning Letter we received in October 2021 regarding the regulatory status of the Smart Sock are threatened or taken against us or our products, retailers may stop carrying our products.
Historically, we have had retail customers declare bankruptcy and stop operations, negatively affecting our sales and business. If regulatory actions such as the Warning Letter we received in October 2021 regarding the regulatory status of the Smart Sock are threatened or taken against us or our products, retailers may stop carrying and return our products.
In addition, as we expand our business internationally, the application and implementation of existing, new or future international laws regarding indirect taxes (such as a Value Added Tax) could materially and adversely affect our business, financial condition and results of operations. The applicability of sales, use and other tax laws or regulations on our business is uncertain.
In addition, as we expand our business internationally, the application and implementation of existing, new or future international laws regarding indirect taxes (such as a Value Added Tax) could materially and adversely affect our business, financial condition and results of operations. 34 The applicability of sales, use and other tax laws or regulations on our business is uncertain.
In addition, even if FDA marketing authorization is obtained, if safety or effectiveness problems are later identified with any medical device products, we may need to initiate a product recall. 40 To support any submissions to the FDA seeking marketing authorizations, we may be required to conduct clinical testing of our product candidates.
In addition, even if FDA marketing authorization is obtained, if safety or effectiveness problems are later identified with any medical device products, we may need to initiate a product recall. To support any submissions to the FDA seeking marketing authorizations, we may be required to conduct clinical testing of our product candidates.
Risks Related to Our Intellectual Property 52 Our success depends in part on our proprietary technology, and if we are unable to obtain, maintain or successfully enforce our intellectual property rights, the commercial value of our products and services will be adversely affected, our competitive position may be harmed and we may be unable to operate our business profitably.
Risks Related to Our Intellectual Property Our success depends in part on our proprietary technology, and if we are unable to obtain, maintain or successfully enforce our intellectual property rights, the commercial value of our products and services will be adversely affected, our competitive position may be harmed and we may be unable to operate our business profitably.
Any recalls of our products or enforcement actions would divert managerial and financial resources and could have an adverse effect on our financial condition and results of operations. In addition, given our dependence upon 50 consumer perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects.
Any recalls of our products or enforcement actions would divert managerial and financial resources and could have an adverse effect on our financial condition and results of operations. In addition, given our dependence upon consumer perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects.
Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products and services that we consider proprietary and a trade secret. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable.
Unauthorized parties may also 51 attempt to copy or reverse engineer certain aspects of our products and services that we consider proprietary and a trade secret. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable.
In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act. Furthermore, our stockholders may not continue to approve our advisory vote on named executive officer compensation that is required to be voted on by our stockholders annually pursuant to the Dodd-Frank Act.
In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act. Furthermore, our stockholders may not continue to approve our advisory vote on named executive officer compensation that is required to be voted on by our stockholders 48 annually pursuant to the Dodd-Frank Act.
For instance, the introduction or announcement of new or advanced products and services may shorten the life cycle of our existing products or reduce demand, thereby reducing any benefits of successful product or service introductions and potentially leading to challenges in managing write-downs or write-offs of inventory of existing products and services.
For instance, the introduction or announcement of new or advanced products and services may shorten the life cycle of our existing products or reduce demand, thereby reducing any benefits of 26 successful product or service introductions and potentially leading to challenges in managing write-downs or write-offs of inventory of existing products and services.
For instance, the introduction or announcement of new or advanced products and services may shorten the life cycle of our existing products or reduce demand, thereby reducing any benefits of successful product or service introductions and potentially leading to challenges in managing write-downs or write-offs of inventory of existing products and services.
For instance, the introduction or announcement of new or advanced products and services may shorten the life cycle of our existing products or reduce demand, thereby reducing any benefits of 27 successful product or service introductions and potentially leading to challenges in managing write-downs or write-offs of inventory of existing products and services.
Each of these material weaknesses resulted in immaterial adjustments that were recorded as out-of-period adjustments within the year ended December 31, 2022. • We did not design and maintain effective controls over the accounting for convertible preferred stock and warrant arrangements.
Each of these 35 material weaknesses resulted in immaterial adjustments that were recorded as out-of-period adjustments within the year ended December 31, 2022. • We did not design and maintain effective controls over the accounting for convertible preferred stock and warrant arrangements.
The terms and policies for maintenance of existing applications and the approval process of new applications are very broad and subject to interpretation and frequent changes, and Apple and Google have complete control over the approval or removal of each mobile application submitted to or offered on their respective platforms.
The terms and policies 23 for maintenance of existing applications and the approval process of new applications are very broad and subject to interpretation and frequent changes, and Apple and Google have complete control over the approval or removal of each mobile application submitted to or offered on their respective platforms.
We are heavily dependent on customers 32 who use our products and services, in particular our Smart Sock, to provide good reviews and word-of-mouth recommendations to contribute to the growth of our brand and reputation. Customers who are dissatisfied with their experiences with our products and services or services may post negative reviews.
We are heavily dependent on customers who use our products and services, in particular our Smart Sock, to provide good reviews and word-of-mouth recommendations to contribute to the growth of our brand and reputation. Customers who are dissatisfied with their experiences with our products and services or services may post negative reviews.
Although physicians may use any medical devices we 45 market off-label because the FDA and foreign regulatory authorities do not restrict or regulate a physician’s choice of treatment within the practice of medicine, we are prohibited from marketing or promoting any medical devices for off-label use.
Although physicians may use any medical devices we market off-label because the FDA and foreign regulatory authorities do not restrict or regulate a physician’s choice of treatment within the practice of medicine, we are prohibited from marketing or promoting any medical devices for off-label use.
We are in the costly and challenging process of compiling the system and processing 39 documentation necessary to perform the evaluation needed to comply with Section 404, but we may not be able to complete our testing and any required remediation in a timely fashion.
We are in the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404, but we may not be able to complete our testing and any required remediation in a timely fashion.
Many of our employees and consultants were previously employed at or engaged by other companies, including our competitors or potential competitors. Some of these employees, consultants and contractors may have executed 56 proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment.
Many of our employees and consultants were previously employed at or engaged by other companies, including our competitors or potential competitors. Some of these employees, consultants and contractors may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment.
We are subject to the Payment Card Industry Data Security Standard (“PCI DSS”) issued by the PCI Council, which includes guidelines with regard to the security policies and practices we should adopt regarding the physical and electronic storage, processing and transmission of cardholder data.
We are 33 subject to the Payment Card Industry Data Security Standard (“PCI DSS”) issued by the PCI Council, which includes guidelines with regard to the security policies and practices we should adopt regarding the physical and electronic storage, processing and transmission of cardholder data.
Such clinical testing must be conducted in compliance with FDA requirements pertaining to research with human subjects. Among other requirements, we must obtain informed consent from study subjects and approval by institutional review boards (“IRB”) before such studies may begin.
Such clinical testing must be conducted in compliance with FDA requirements 37 pertaining to research with human subjects. Among other requirements, we must obtain informed consent from study subjects and approval by institutional review boards (“IRB”) before such studies may begin.
Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations. 53 If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations. If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranty. Claims could also be asserted under state consumer protection acts.
Any such product liability claims may include allegations 47 of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranty. Claims could also be asserted under state consumer protection acts.
We are also highly dependent on our senior management, other key officers, our engineers, marketing and field sales team, and may be increasingly dependent on healthcare and clinical specialists for the sale of any medical devices we may market, if approved.
We are highly dependent on our senior management, other key officers, our engineers, marketing and field sales team, and may be increasingly dependent on healthcare and clinical specialists for the sale of any medical devices we may market, if approved.
We are involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, could materially and adversely affect our business, financial condition and results of operations. 34 We are, and may in the future become, party to litigation, regulatory proceedings or other disputes.
We are involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, could materially and adversely affect our business, financial condition and results of operations. We are, and may in the future become, party to litigation, regulatory proceedings or other disputes.
We are actively developing a strategy to enable healthcare providers to obtain reimbursement for products for which we successfully obtain FDA authorization and similar foreign authorization or certification (when applicable), including for BabySat, or the services associated with such products.
We are actively developing a strategy to enable healthcare providers to obtain reimbursement for products for which we successfully obtain FDA authorization and similar foreign authorization or certification (when applicable), including for BabySat, or the services associated 45 with such products.
Furthermore, certain state governments have enacted legislation to limit or increase transparency of 49 interactions with healthcare providers, pursuant to which we are required by law to disclose payments and other transfers of value to healthcare providers licensed by certain states.
Furthermore, certain state governments have enacted legislation to limit or increase transparency of interactions with healthcare providers, pursuant to which we are required by law to disclose payments and other transfers of value to healthcare providers licensed by certain states.
A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products and services, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.
A loss of key personnel or their work product could hamper or prevent our ability to 53 commercialize our products and services, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.
Further, state, federal and foreign laws and regulations governing the privacy and security of personal information are evolving rapidly and could impact our ability to identify and market to potential 31 and existing customers.
Further, state, federal and foreign laws and regulations governing the privacy and security of personal information are evolving rapidly and could impact our ability to identify and market to potential and existing customers.
Moreover, failure by us or one of our manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA or comparable regulatory bodies could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA or FTC and their counterparts in international jurisdictions; • litigation, fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts and holds; • unanticipated expenditures to address or defend such actions; 44 • delays in clearing, approving, authorizing, or certifying, or refusal to clear, approve, authorize, or certify, our products, where applicable; • withdrawals or suspensions of clearance, approval, authorization or certification of our products or those of our third-party suppliers by the FDA or other regulatory authorities or notified bodies, where applicable; • product recalls or seizures; • adverse publicity; • orders for device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions.
Moreover, failure by us or one of our manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA or comparable regulatory bodies could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA or Federal Trade Commission ("FTC") and their counterparts in international jurisdictions; • litigation, fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts and holds; • unanticipated expenditures to address or defend such actions; • delays in clearing, approving, authorizing, or certifying, or refusal to clear, approve, authorize, or certify, our products, where applicable; • withdrawals or suspensions of clearance, approval, authorization or certification of our products or those of our third-party suppliers by the FDA or other regulatory authorities or notified bodies, where applicable; • product recalls or seizures; 40 • adverse publicity; • orders for device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions.
Depending on the nature of the attack, a successful attack may also bring into question our internal 35 control over financial reporting.
Depending on the nature of the attack, a successful attack may also bring into question our internal control over financial reporting.
If the FDA or other regulatory body makes public its determination that any of our products is a medical device that is not in compliance with applicable requirements, such as occurred in the FDA’s October 1, 2021 Warning Letter with respect to the Smart Sock, or takes some other public action such as issuing a public enforcement action or recommending or mandating a recall, customers may react negatively and stop purchasing or recommending our products or services, or may demand refunds.
If the FDA or other regulatory body makes public any determination that any of our products is not in compliance with applicable requirements, such as occurred in the FDA’s October 1, 2021 Warning Letter with respect to the Smart Sock, or takes some other public action such as issuing a public enforcement action or recommending or mandating a recall, customers may react negatively and stop purchasing or recommending our products or services, or may demand refunds.
At any time from and after February 17, 2028, the holders of at least a majority of our then outstanding shares of Series A Convertible Preferred Stock may specify a date and time or the occurrence of an event by vote or written consent that all, and not less than all, of such outstanding shares will automatically be: (i) converted into shares of common stock at the conversion rate then in effect, (ii) subject to certain exceptions and limitations, redeemed for an amount per share of Series A Preferred Stock equal to the liquidation preference of $1,000 per share plus all accrued or declared but unpaid dividends as of the redemption date and time or (iii) a combination of the foregoing.
At any time from and after February 17, 2028, the holders of at least a majority of our then outstanding shares of Series A Convertible Preferred Stock and, at any time from and after March 1, 2029, the holders of at least a majority of our then outstanding shares of Series B Convertible Preferred Stock may specify a date and time or the occurrence of an event by vote or written consent that all, and not less than all, of such outstanding shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, as applicable, will automatically be: (i) converted into shares of common stock at the conversion rate then in effect, (ii) subject to certain exceptions and limitations, redeemed for an amount per share of such applicable shares of Series A Preferred Stock or Series B 57 Preferred Stock equal to the liquidation preference of $1,000 per share plus all accrued or declared but unpaid dividends as of the redemption date and time or (iii) a combination of the foregoing.
For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.
According to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.
In addition, under certain circumstances, our loan and security agreement preclude us from paying dividends, and the terms of our Series A Convertible Preferred Stock preclude us from paying dividends without the consent of the holders of at least a majority of the 60 outstanding shares of Series A Convertible Preferred Stock.
In addition, under certain circumstances, our loan and security agreement preclude us from paying dividends, and the terms of our Convertible Preferred Stock preclude us from paying dividends without the consent of the holders of at least a majority of the outstanding shares of Convertible Preferred Stock.
Furthermore, the FTC and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive.
The FTC and many state Attorneys General also continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive.
Even if we are successful, these relationships may not result in increased customer use of our services or increased revenue. If our distributors or retail customers experience financial difficulties due to various factors, we may not be able to collect our receivables, which could materially or adversely affect our profitability, cash flows, working capital and business operations.
Even if we are successful, these relationships may not result in increased customer use of our services or increased revenue. Our distributors or retail customers may experience financial difficulties, and we may not be able to collect our receivables, which could materially or adversely affect our profitability, cash flows, working capital and business operations.
While we were able to announce the closing of a private equity offering in February 2023 which provided an infusion of capital of $30.0 million and as of March 27, 2023 we were able to amend our existing debt and line of credit held by Silicon Valley Bank, now a division of First Citizens Bank and Trust Company (“SVB”), we anticipate needing to raise additional capital to fund our future operations in order to remain as a going concern.
While we were able to announce the closing of a private equity offering in February 2023 which provided an infusion of capital of $30.0 million and we were able to amend our existing debt and line of credit held by Silicon Valley Bank, now a division of First Citizens Bank and Trust Company (“SVB”), as of March, 27, 2023, August 10, 2023, and November 13, 2023, we anticipate needing to raise additional capital to fund our future operations in order to remain as a going concern.
Further, as part of a restructuring program implemented in the third quarter of 2022 to increase cost efficiencies across the organization, we commenced a workforce reduction of 74 employees, and as of December 31, 2022 the number of our full-time employees decreased to 106.
Further, as part of a restructuring program implemented in the third quarter of 2022 to increase cost efficiencies across the organization, we commenced a workforce reduction of 74 employees, and as of December 31, 2022 the number of our full-time employees decreased to 106. As of December 31, 2023, the number of full-time employees was 76.
While as of March 27, 2023, we 37 were able to amend our existing debt and line of credit held SVB to have SVB waive certain stated events of default under that agreement and expand our access to capital, we cannot assure that in the future we will always be able to satisfy and maintain all bank covenants.
While as of March 27, 2023, and on November 13, 2023, we were able to amend our existing debt and line of credit held SVB to have SVB waive certain stated events of default under that agreement and expand our access to capital, we cannot assure that in the future we will always be able to satisfy and maintain all bank covenants.
In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In the event that we are subject to or affected by or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In addition, some of our products are regulated by the FDA or foreign regulatory agencies as medical devices, which will require marketing authorization from the FDA or similar marketing authorization or certification from other applicable regulatory authorities or notified bodies prior to commercialization.
In addition, some of our products are regulated by the FDA and foreign regulatory agencies as medical devices and require marketing authorization from the FDA and similar marketing authorization or certification from other applicable regulatory authorities or notified bodies prior to commercialization.
We currently rely on a single manufacturer located in Thailand, Benchmark, for the manufacture of our Owlet Sock products. Additionally, we currently rely on a separate single manufacturer located in China, Shenzhen Aoni Electronic, for the manufacture of our Owlet Cam. We expect to rely on limited manufacturers for future products we may develop.
Additionally, we currently rely on a separate single manufacturer located in China, Shenzhen Aoni Electronic, for the manufacture of our Owlet Cam. We expect to rely on limited manufacturers for future products we may develop.
Furthermore, federal, state and international laws and regulations can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties, fines and significant legal liability, if our information technology security efforts fail.
Furthermore, federal, state and international laws and regulations can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties, fines and significant legal liability, if our IT security efforts fail.
As of December 31, 2022, $8.0 million in aggregate principal amount was outstanding under the loan. See Part II. Item 8. "Financial Statements and Supplementary Data - Note 7," included in this Report . Changes in tax laws may impact our future financial position and results of operations.
As of December 31, 2023, $5.0 million in aggregate principal amount was outstanding under the term loan. See Part II. Item 8. "Financial Statements and Supplementary Data - Note 7," included in this Report . Changes in tax laws may impact our future financial position and results of operations.
Risks Related to Regulation of Our Industry and Products We are required to obtain and maintain marketing authorizations or certifications from the FDA, foreign regulatory authorities or notified bodies for medical device products in the U.S. or in foreign jurisdictions, which can be a lengthy and time-consuming process, and a failure to do so on a timely basis, or at all, could severely harm our business.
We are required to obtain and maintain marketing authorizations or certifications from the FDA, foreign regulatory authorities or notified bodies for medical device products in the U.S. or in foreign jurisdictions, which can be a lengthy and time-consuming process, and a failure to do so on a timely basis, or at all, could severely harm our business.
Once we cease to be an emerging growth company, our independent registered public accounting firm will also be required, pursuant to Section 404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over financial reporting in each annual report on Form 10-K to be filed with the SEC.
Once we cease to be an emerging growth company and cease to be a non-accelerated filer, our independent registered public accounting firm will also be required, pursuant to Section 404(b) of the Sarbanes-Oxley Act, to attest to the effectiveness of our internal control over financial reporting in each annual report on Form 10-K to be filed with the SEC.
The price of our common stock and warrants may fluctuate due to a variety of factors, including: • actual or anticipated fluctuations in our operating results or future prospects; • our announcements or our competitors’ announcements of new products and services; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by us or our competitors, such as acquisitions or restructurings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; 57 • regulatory or other governmental actions such as the Warning Letter issued to us on October 1, 2021, and actions taken in response to those actions; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in our growth rates or our competitors’ growth rates; • developments regarding our patents or proprietary rights or those of our competitors; • ongoing legal proceedings; • commencement of, or involvement in, litigation involving the combined company; • our ability to raise additional capital as needed; • changes in our capital structure, such as future issuances of securities or the incurrence of new or additional debt; • the volume of shares of common stock available for public sale and the size of our public float; • conversion of our outstanding Series A Convertible Preferred Stock and exercise of our outstanding warrants, and the resale of such shares into the market; • additions and departures of key personnel; • concerns or allegations as to the safety or efficacy of our products and services; • sales of stock by us or members of our management team, our board of directors (the “Board”) or certain significant stockholders; • changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally; and • changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad, interest rates, fuel prices, international currency fluctuations, corruption, political instability, acts of war, including the Russian Federation's invasion of Ukraine in February 2022, acts of terrorism, and the COVID-19 pandemic or other public health crises.
The price of our common stock and warrants may fluctuate due to a variety of factors, including: • actual or anticipated fluctuations in our operating results or future prospects; • our announcements or our competitors’ announcements of new products and services; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by us or our competitors, such as acquisitions or restructurings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • regulatory or other governmental actions, and actions taken in response to those actions; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in our growth rates or our competitors’ growth rates; • developments regarding our patents or proprietary rights or those of our competitors; • ongoing legal proceedings; • commencement of, or involvement in, litigation involving the combined company; • our ability to raise additional capital as needed; • changes in our capital structure, such as future issuances of securities or the incurrence of new or additional debt; • the volume of shares of common stock available for public sale and the size of our public float; • conversion of our outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (collectively, “Convertible Preferred Stock”) and exercise of our outstanding warrants, and the resale of such shares into the market; • additions and departures of key personnel; • concerns or allegations as to the safety or efficacy of our products and services; 54 • sales of stock by us or members of our management team, our board of directors (the “Board”) or certain significant stockholders; • changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally; and • changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad, interest rates, fuel prices, international currency fluctuations, corruption, political instability, acts of war, such as the ongoing wars between Russia and Ukraine and Israel and Hamas, acts of terrorism, and the COVID-19 pandemic or other public health crises.
To the extent we market any medical devices or other healthcare products and services, our relationships with customers, physicians and third-party payors may be subject, directly or indirectly, to federal, state and foreign healthcare fraud and abuse laws, false claims laws, and other healthcare laws and regulations.
For any medical devices or other healthcare products and services we offer, our relationships with healthcare customers, physicians, and third-party payors may be subject, directly or indirectly, to federal, state and foreign healthcare fraud and abuse laws, false claims laws, and other healthcare laws and regulations.
Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, regulatory investigations or enforcement actions, litigation (including class actions), damage our reputation, and adversely affect our business and results of operations.
In addition, some of our products and products in development may be regulated by the FDA or foreign regulatory agencies as medical devices, which 29 may require marketing authorization or similar certification from applicable regulatory authorities or notified bodies, including marketing authorization from the FDA, prior to commercialization.
In addition, some of our products and products in development are regulated by the FDA and foreign regulatory agencies as medical devices, which requires marketing authorization or similar certification from applicable regulatory authorities or notified bodies, including marketing authorization from the FDA, prior to commercialization.
As previously reported, in connection with the re-issuance of our consolidated financial statements as of and for the fiscal year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting. These identified material weaknesses in our internal control over financial reporting continued to exist as of December 31, 2022.
As previously reported, in connection with the re-issuance of our consolidated financial statements as of and for the fiscal year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting. Further, during the year ended December 31, 2022, we identified additional material weaknesses to our internal control over financial reporting.
The regulation foresees a three-year transitional period and will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas.
It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be adversely impacted.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be adversely impacted. We are subject to a series of risks regarding climate change.
As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. The redemption of our outstanding Series A Convertible Preferred Stock on or after February 17, 2028 may require us to make a significant cash payment.
As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. The redemption of our outstanding Convertible Preferred Stock may require us to make a significant cash payment.
Those factors, coupled with our current cash balance and noncompliance with one of our revenue covenants, raise substantial doubt as to our ability to continue as a going concern. Any measures we undertake to address these financial conditions may not be successful.
Those factors, coupled with our current cash balance and current debt obligations, raise substantial doubt as to our ability to continue as a going concern. Any measures we undertake to address these financial conditions may not be successful.
Following receipt of the Warning Letter, our revenue decreased from $75.2 million for the year ended December 31, 2021 to $69.2 million for the year ended December 31, 2022.
Following receipt of the Warning Letter, our revenue decreased from $75.8 million for the year ended December 31, 2021 to $69.2 million for the year ended December 31, 2022, and decreased to $54.0 million for the year ended December 31, 2023.
Item 1A. Risk Factors. Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not the only risks that we face.
Item 1A. Risk Factors. Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected.
Our business and operations may suffer in the event of information technology system failures, cyberattacks or deficiencies in our cybersecurity. We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on IT systems and infrastructure to operate our business.
Our business and operations may suffer in the event of IT system failures, cyberattacks or deficiencies in our cybersecurity. We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on IT systems and infrastructure, including those of third-party service providers we rely on, to operate our business.
Rapid growth increases the challenges involved in addressing these goals in a cost-effective or timely manner, or at all.
Rapid growth and rapid contractions increase the challenges involved in addressing these goals in a cost-effective or timely manner, or at all.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs a result of a transition to a primarily remote working environment during 2021, the Company entered into agreements to sub-lease its office space through July 31, 2024, but maintains the ability to re-occupy the space subsequent to the expiration of the sub-lease.
Biggest changeAs a result of a transition to a primarily remote working environment during 2021, we entered into agreements to sub-lease its office space through July 31, 2024, but maintains the ability to re-occupy the space subsequent to the expiration of the sub-lease. We entered into an office lease in 2022 with approximately 7,600 square feet, suitable for our current needs.
Item 2. Properties. 63 Our corporate headquarters are located in Lehi, Utah, where we lease approximately 56,000 square feet of office space. We use this leased space primarily for management, marketing, finance, legal, regulatory compliance, human resources and general administrative teams , research and development, engineering and laboratory space .
Item 2. Properties. Our corporate headquarters are located in Lehi, Utah, where we lease approximately 56,000 square feet of office space. We use this leased space primarily for management, marketing, finance, legal, regulatory compliance, human resources and general administrative teams , research and development, engineering and laboratory space .
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The Company has entered into an office lease in 2022 with approximately 7,600 square feet, suitable for its current needs. This newly leased space is intended to be utilized primarily for research and development, engineering and laboratory space .
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This newly leased space is utilized primarily for business meetings, research and development, engineering, quality and laboratory space .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeBoth complaints allege, among other things, that the Company and certain of its officers and directors made false and/or misleading statements and failed to disclose certain information regarding the FDA’s likely classification of the Smart Sock product as a medical device requiring marketing authorization.
Biggest changeBoth complaints allege, among other things, that the Company and certain of its officers and directors made false and/or misleading statements and failed to disclose certain information regarding the FDA’s likely classification of the Owlet Smart Sock as a medical device requiring marketing authorization. 61 On September 8, 2023, the Court ruled that while the Butala and Cherian cases were consolidated, there would be two distinct and separate classes to represent the Section 10(b) Claims and Section 14(a) Claims, respectively, and appointed lead plaintiffs and lead counsel for each class.
District Court for the Central District of California, Butala v. Owlet, Inc., et al., Case No. 2:21-cv-09016, and Cherian v. Owlet, Inc., et al., Case No. 2:21-cv-09293.
District Court for the Central District of California, the first captioned Butala v. Owlet, Inc., Case No. 2:21-cv-09016, and the second captioned Cherian v. Owlet, Inc., Case No. 2:21-cv-09293.
Both complaints allege violations of the Securities Exchange Act of 1934 against the Company and certain of its officers and directors on behalf of a putative class of investors who (i) purchased the Company’s common stock between March 31, 2021 and October 4, 2021 or (ii) held common stock in Sandbridge Acquisition Corporation (“SBG”) as of June 1, 2021 and were eligible to vote at SBG’s special meeting held on July 14, 2021.
Both complaints alleged violations of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company and certain of its officers and directors on behalf of a putative class of investors who: (a) purchased the Company’s common stock between March 31, 2021 and October 4, 2021 (“Section 10(b) Claims”); or (b) held common stock in SBG as of June 1, 2021, and were eligible to vote at SBG's special meeting held on July 14, 2021 (“Section 14(a) Claims”).
The Court has consolidated the Butala and Cherian cases but has yet to appoint a lead plaintiff. The Company intends to vigorously defend itself against these claims, including by filing a motion to dismiss on behalf of itself and the named officers and directors. Item 4. Mine Safety Disclosures. Not applicable. 62 PART II
The Company intends to vigorously defend itself against these claims and filed in response to each complaint, on February 9, 2024, its motions to dismiss the cases in response to these complaints, on behalf of itself and the named officers and directors. Item 4. Mine Safety Disclosures. Not applicable. 62 PART II
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Amended complaints were filed for each class on November 21, 2023, and then further amended in consolidated filings on December 22, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser Sales of Unregistered Equity Securities We did not have any sales of unregistered equity securities during the year ended December 31, 2022. Purchases of Equity Securities We did not repurchase shares of our common stock during the three months ended December 31, 2022.
Biggest changePurchases of Equity Securities We did not repurchase shares of our common stock during the three months ended December 31, 2023. Item 6. [Reserved] 63
Additionally, the terms of our Series A Convertible Preferred Stock preclude us from paying dividends without the consent of the holders of at least a majority of the outstanding shares of Series A Convertible Preferred Stock.
Additionally, the terms of our Convertible Preferred Stock preclude us from paying dividends without the consent of the holders of at least a majority of the outstanding shares of such applicable series of Convertible Preferred Stock.
Holders of Record As of April 3, 2023, there were 143 holders of record. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We have never declared or paid dividends on our capital stock.
The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We have never declared or paid dividends on our capital stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market information for Common Stock Our common stock and our publicly traded warrants to purchase our common stock are listed on the NYSE under the symbols “OWLT” and “OWLT WS”, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market information for Common Stock Our common stock is listed on the NYSE under the symbol “OWLT.” Holders of Record As of March 4, 2024, there were 86 holders of record.
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Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser Sales of Unregistered Equity Securities Except as previously disclosed in our Current Report on Form 8-K filed with the SEC on February 21, 2023, there were no unregistered sales of equity securities for the year ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

52 edited+33 added−24 removed26 unchanged
Biggest changeThese increases were primarily driven by an increase in compensation expense, including share-based compensation, from additional research and development headcount and an increase in consulting and outside services spend, including services associated with regulatory approval. 67 Other Income (Expense) For the years ended December 31, Change (dollars in millions) 2022 2021 $ % Interest expense, net $ (1.1) $ (1.8) $ 0.7 (37.7 %) Interest expense from contingent beneficial conversion feature $ — $ (26.1) $ 26.1 (100.0 %) Preferred stock warrant liability adjustment $ — $ (5.6) $ 5.6 (100 %) Common stock warrant liability adjustment $ 6.3 $ 15.7 $ (9.4) (59.8 %) Gain on loan forgiveness $ — $ 2.1 $ (2.1) (100 %) Other income (expense), net $ 0.1 $ (0.3) $ 0.4 (125.2 %) For the year ended December 31, 2021, we recognized a gain of $2.1 million on the forgiveness of our SBA PPP loan.
Biggest changeAdditionally, the Company took cost saving measures to reduce spend on consulting services. 67 Other Income (Expense) For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % Interest expense, net $ (3.2) $ (1.1) $ (2.1) 189.0 % Common stock warrant liability adjustment $ (0.9) $ 6.3 $ (7.3) (114.6 %) Other income (expense), net $ (0.1) $ 0.1 $ (0.2) (282.3 %) Interest expense increased by $2.1 million, from $1.1 million for the year ended December 31, 2022 to $3.2 million for the year ended December 31, 2023.
The Series A Preferred Stock is convertible into common stock at the option of the holder at any time after February 17, 2023 and ranks, with respect to dividend rights, rights of redemption and rights upon a liquidation event, (i) senior to the common stock and all other classes or series of equity securities of the Company established after February 17, 2023, unless such shares or equity securities expressly provide that they rank in parity with or senior to the Series A Preferred Stock with respect to dividend rights, rights of redemption or rights upon a liquidation event, (ii) on parity with each class or series of equity securities of the Company established after the February 17, 2023, the terms of which expressly provide that it ranks on parity with the Series A Preferred Stock with respect to dividend rights, rights of redemption and rights upon a liquidation event and (iii) junior to each class or series of equity securities of the Company established after February 17, 2023, the terms of which expressly provide that it ranks senior to the Series A Preferred Stock with respect to dividend rights, rights of redemption and rights upon a liquidation event.
The Series A convertible preferred stock is convertible into common stock at the option of the holder at any time after February 17, 2023 and ranks, with respect to dividend rights, rights of redemption and rights upon a liquidation event, (i) senior to the common stock and all other classes or series of equity securities of the Company established after February 17, 2023, unless such shares or equity securities expressly provide that they rank in parity with or senior to the Series A convertible preferred stock with respect to dividend rights, rights of redemption or rights upon a liquidation event, (ii) on parity with each class or series of equity securities of the Company established after the February 17, 2023, the terms of which expressly provide that it ranks on parity with the Series A convertible preferred stock with respect to dividend rights, rights of redemption and rights upon a liquidation event and (iii) junior to each class or series of equity securities of the Company established after February 17, 2023, the terms of which expressly provide that it ranks senior to the Series A convertible preferred stock with respect to dividend rights, rights of redemption and rights upon a liquidation event.
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.
If revenues further decrease from current levels, we 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 69 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.
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.
Cost of Revenues Cost of revenues consists of product costs, including contract manufacturing, shipping and handling, depreciation and amortization relating to tooling and manufacturing equipment and software, warranty replacement, fulfillment costs, warehousing, hosting, and reserves for excess and obsolete inventory. 64 Operating Expenses General and Administrative.
Cost of Revenues Cost of revenues consists of product costs, including contract manufacturing, shipping and handling, depreciation and amortization relating to tooling and manufacturing equipment and software, warranty replacement, fulfillment costs, warehousing, hosting, and reserves for excess and obsolete inventory. Operating Expenses General and Administrative.
The historical rate of return is used as a basis for estimating future returns based on current sales. The sales return estimate can be affected by the release of new products and changes to sales channels.
The historical rate of return is used as a basis for estimating future returns based on current sales. The sales return estimate can be affected by the release of new products and changes 72 to sales channels.
Our policy for recording interest and penalties related to income taxes, including uncertain tax positions, is to record such items as a component of the provision for income taxes. Emerging Growth Company Status Following the Merger, we qualify as an emerging growth company (‘‘EGC’’) as defined in the Jumpstart our Business Startups (‘‘JOBS’’) Act.
Our policy for recording interest and penalties related to income taxes, including uncertain tax positions, is to record such items as a component of the provision for income taxes. Emerging Growth Company Status We qualify as an emerging growth company (‘‘EGC’’) as defined in the Jumpstart our Business Startups (‘‘JOBS’’) Act.
As of December 31, 2022 and December 31, 2021, we recorded a full valuation allowance on our deferred tax assets. Uncertain tax positions are recorded when it is more likely than not that a given tax position would not be sustained upon examination by taxing authorities.
As of December 31, 2023 and December 31, 2022, we recorded a full valuation allowance on our deferred tax assets. Uncertain tax positions are recorded when it is more likely than not that a given tax position would not be sustained upon examination by taxing authorities.
At any time from and after February 17, 2023, the holders of at least a majority of the then outstanding shares of Series A preferred stock may specify a date and time or the occurrence of an event by vote or written consent that all, and not less than all, of the outstanding shares of Series A preferred stock will automatically be: (i) converted into shares of common stock at the Conversion Rate, (ii) subject to certain exceptions and limitations, redeemed for an amount per share of Series A preferred stock equal to the liquidation preference of one thousand dollars per share, plus all accrued or declared but unpaid dividends as of the redemption date and time or (iii) a combination of the foregoing.
At any time from and after February 17, 2028, the holders of at least a majority of the then outstanding shares of Series A convertible preferred stock may specify a date and time or the occurrence of an event by vote or written consent that all, and not less than all, of the outstanding shares of Series A preferred stock will automatically be: (i) converted into shares of common stock at a conversion rate of 145.7726 per share (the "Conversion Rate"), (ii) subject to certain exceptions and limitations, redeemed for an amount per share of Series A preferred stock equal to the liquidation preference of one thousand dollars per share, plus all accrued or declared but unpaid dividends as of the redemption date and time or (iii) a combination of the foregoing.
Based on positions taken in our tax filings, we concluded that there are no significant uncertain tax positions requiring disclosure as of December 31, 2022 and December 31, 2021, and that there are no material amounts of unrecognized tax benefits.
Based on positions taken in our tax filings, we concluded that there are no significant uncertain tax positions requiring disclosure as of December 31, 2023 and December 31, 2022, and that there are no material amounts of unrecognized tax benefits.
For a summary of the Company’s significant accounting policies, estimates, and methods used in the preparation of the consolidated financial statements, see Part II. Item 8. "Financial Statements and Supplementary Data” - Note 2.
For a summary of our significant accounting policies, estimates, and methods used in the preparation of the consolidated financial statements, see Part II. Item 8. "Financial Statements and Supplementary Data” - Note 2.
The Series A Preferred Stock has a liquidation preference of $1,000.00 per share. 68 Subject to certain exceptions, upon the occurrence of a fundamental change, voluntary or involuntary liquidation, dissolution or winding-up of the Company, the Company will be required to pay an amount per share of Series A Preferred Stock equal to the greater of (i) one thousand dollars per share or (ii) the consideration per share of Series A Preferred Stock as would have been payable had all such shares been converted to common stock immediately prior to the liquidation event, plus, in each case, the aggregate amount of all declared but unpaid dividends thereon to the date of final distribution to the holders of Series A Preferred Stock.
Subject to certain exceptions, upon the occurrence of a fundamental change, voluntary or involuntary liquidation, dissolution or winding-up of the Company, we will be required to pay an amount per share of Series A Preferred 68 Stock equal to the greater of (i) one thousand dollars per share or (ii) the consideration per share of Series A Preferred Stock as would have been payable had all such shares been converted to common stock immediately prior to the liquidation event, plus, in each case, the aggregate amount of all declared but unpaid dividends thereon to the date of final distribution to the holders of Series A Preferred Stock.
Pursuant to the terms of the definitive agreements, Owlet issued shares of Series A Preferred Stock that are convertible into approximately 61.2 million shares of common stock. Each purchaser also received a warrant to purchase 180% of the number of shares of common stock into which their Series A preferred stock is convertible.
Pursuant to the terms of the definitive agreements, Owlet issued shares of Series A Preferred Stock that are convertible into approximately 4.4 million shares of common stock. Each purchaser also received a warrant to purchase 180% of the number of shares of common stock into which their Series A preferred stock is convertible.
The Term Loan accrues interest on the outstanding principal amount at a floating rate per annum equal to the greater of (i) five and three-quarters percent (5.75%) and (ii) the prime rate plus the prime rate margin (as defined in the LSA), and such interest is payable (a) monthly in arrears, (b) on each prepayment date and (c) on the Term Loan Maturity Date.
The Term Loan accrues interest on the outstanding principal amount at a floating rate per annum equal to the greater of (i) five and three-quarters percent (5.75%) and (ii) the prime rate plus a prime rate margin of 3.50%, and such interest is payable (a) monthly in arrears, (b) on each prepayment date and (c) on the Term Loan Maturity Date.
Year over year declines in revenue, the low, current cash balance, recurring operating losses, and negative cash flows from operations since inception raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued.
Year over year declines in revenue, recurring operating losses, negative cash flows from operations since inception, and a low cash balance relative to current debt obligations raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements are issued.
Term Loan The LSA also provides for an $8.5 million term loan (the “Term Loan”), replacing the term loans made under the previous agreement, of which $8.0 million was outstanding as of December 31, 2022. The Term Loan amortizes with equal monthly installments of $500,000 and matures on October 1, 2024.
Term Loan The LSA also provided for an $8.5 million term loan (the “Term Loan”), replacing the term loans made under the previous agreement, of which $5.0 million was outstanding as of December 31, 2023. The Term Loan amortizes with equal monthly installments of $0.5 million and matures on October 1, 2024.
Line of Credit The LSA provides for a $17.5 million revolving line of credit (the “SVB Revolver”), with a reduced maximum availability of $10.0 million as of December 31, 2022. The SVB Revolver is an asset based lending facility subject to borrowing base availability which is limited by specified percentages of eligible accounts receivable and eligible inventory.
Line of Credit The LSA provides for a $10.0 million revolving line of credit (the “SVB Revolver”) as of December 31, 2023. The SVB Revolver is an asset-based lending facility subject to borrowing base availability, which is limited by specified percentages of eligible accounts receivable and eligible inventory.
In connection with the Merger, the Company raised $133.9 million net proceeds, which combined with the sale of products and services funded our operations from the date of the Merger through the year ended December 31, 2022. As of December 31, 2022, we had cash and cash equivalents of $11.2 million.
In connection with the Merger, we raised $133.9 million net proceeds, which combined with the sale of products and services funded our operations from the date of the Merger through the year ended December 31, 2022. As of December 31, 2023, we had cash and cash equivalents of $16.6 million.
Income tax provision consists primarily of U.S. federal and state income taxes related to the tax jurisdictions in which we conduct business. 65 Results of Operations The following table sets forth our results of operations for the periods indicated in millions (note that amounts within this Item 7 shown in millions may not sum due to rounding): For the years ended December 31, 2022 2021 Revenues $ 69.2 $ 75.8 Cost of revenues 45.9 40.8 Gross profit 23.3 35.1 Operating expenses: General and administrative 41.5 32.3 Sales and marketing 38.5 37.1 Research and development 27.9 21.4 Total operating expenses 107.9 90.9 Operating loss (84.6) (55.8) Other income (expense): Interest expense, net (1.1) (1.8) Interest expense from contingent beneficial conversion feature — (26.1) Preferred stock warrant liability adjustment — (5.6) Common stock warrant liability adjustment 6.3 15.7 Gain on loan forgiveness — 2.1 Other income (expense), net 0.1 (0.3) Total other income (expense), net 5.3 (15.9) Loss before income tax provision (79.3) (71.7) Income tax provision 0.0 0.0 Net loss and comprehensive loss $ (79.3) $ (71.7) Revenues For the years ended December 31, Change (dollars in millions) 2022 2021 $ % Revenues $ 69.2 $ 75.8 $ (6.6) (8.8 %) Revenues decreased by $6.6 million, or 8.8%, from $75.8 million for the year ended December 31, 2021 to $69.2 million for the year ended December 31, 2022.
Income tax provision consists primarily of U.S. federal and state income taxes related to the tax jurisdictions in which we conduct business. 65 Results of Operations The following table sets forth our results of operations for the periods indicated in millions (note that amounts within this Item 7 shown in millions may not sum due to rounding): For the Years Ended December 31, 2023 2022 Revenues $ 54.0 $ 69.2 Cost of revenues 31.4 45.9 Gross profit 22.6 23.3 Operating expenses: General and administrative 27.3 41.5 Sales and marketing 13.5 38.5 Research and development 10.3 27.9 Total operating expenses 51.2 107.9 Operating loss (28.6) (84.6) Other income (expense): Interest expense, net (3.2) (1.1) Common stock warrant liability adjustment (0.9) 6.3 Other income (expense), net (0.1) 0.1 Total other income (expense), net (4.3) 5.3 Loss before income tax provision (32.9) (79.3) Income tax provision 0.0 0.0 Net loss and comprehensive loss $ (32.9) $ (79.3) Revenues For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % Revenues $ 54.0 $ 69.2 $ (15.2) (22.0 %) Revenues decreased by $15.2 million, or 22.0%, from $69.2 million for the year ended December 31, 2022 to $54.0 million for the year ended December 31, 2023.
Funding Requirements and Going Concern In accordance with Accounting Standards Update 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 consolidated financial statements are issued.
None of the warrants have been exercised as of the filing of this Annual Report on Form 10-K. 69 Funding Requirements and Going Concern In accordance with Accounting Standards Update 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 consolidated financial statements are issued.
Actual results may differ from these estimates under different assumptions or conditions. 72 Sales Returns, Rebates, Discounts, and Allowances Our contract liabilities include promises to provide customers rights of return as well as promises to issue discounts and provide rebates or allowances to certain retail channel customers if specified conditions are met.
Sales Returns, Rebates, Discounts, and Allowances Our contract liabilities include promises to provide customers rights of return as well as promises to issue discounts and provide rebates or allowances to certain retail channel customers if specified conditions are met.
General and Administrative For the years ended December 31, Change (dollars in millions) 2022 2021 $ % General and administrative $ 41.5 $ 32.3 $ 9.2 28.5 % General and administrative expense increased by $9.2 million, or 28.5%, from $32.3 million for the year ended December 31, 2021 to $41.5 million for the year ended December 31, 2022.
General and Administrative For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % General and administrative $ 27.3 $ 41.5 $ (14.2) (34.2 %) General and administrative expense decreased by $14.2 million, or 34.2%, from $41.5 million for the year ended December 31, 2022 to $27.3 million for the year ended December 31, 2023.
As a result of the PPP loan being forgiven, we recognized a $2.1 million gain for the year ended December 31, 2021. 71 Cash Flows The following table summarizes our cash flow (in millions): Year Ended December 31, 2022 2021 Net cash used in operating activities $ (81.4) $ (40.6) Net cash used in investing activities (1.6) (2.0) Net cash provided by financing activities (0.9) 120.6 Net change in cash and cash equivalents $ (83.8) $ 78.0 Operating Activities For the year ended December 31, 2022, net cash used in operating activities was $81.4 million as compared to net cash used in operating activities of $40.6 million in the prior year.
Cash Flows The following table summarizes our cash flow (in millions): 71 Year Ended December 31, 2023 2022 Net cash used in operating activities $ (23.5) $ (81.4) Net cash used in investing activities (0.1) (1.6) Net cash provided by financing activities 28.9 (0.9) Net change in cash and cash equivalents $ 5.3 $ (83.8) Operating Activities For the year ended December 31, 2023, net cash used in operating activities was $23.5 million as compared to net cash used in operating activities of $81.4 million in the prior year.
Subject to certain conditions set forth in the JOBS Act, as an EGC, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosures that may be required of non-EGCs under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the consolidated financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. 73 We anticipate that we will remain an EGC under the JOBS Act until the earliest of (i) December 31, 2025, (ii) the last date of our fiscal year in which we have total annual gross revenues of at least $1.235 billion, (iii) the date on which we are deemed to be a ‘‘large accelerated filer’’ under the rules of the SEC, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Subject to certain conditions set forth in the JOBS Act, as an EGC, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosures that may be required of non-EGCs under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the consolidated financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
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, recession, reduced demand for the Company’s products, or the FDA's denial of the Company's de novo classification request for marketing authorization.
There can be no assurance that we will generate sufficient future cash flows from operations due to potential factors, including but not limited to inflation, recession, or reduced demand for our products.
The accounting policies and estimates described below are those the Company considers most critical in preparing its consolidated financial statements because they require management to make subjective and complex judgments about matters that are inherently uncertain.
The accounting policies and estimates described below are those we consider most critical in preparing its consolidated financial statements because they require management to make subjective and complex judgments about matters that are inherently uncertain. Actual results may differ from these estimates under different assumptions or conditions.
On March 27, 2023, the Company entered into the first amendment to the LSA with Silicon Valley Bank, now a division of First Citizens Bank and Trust Company (the “SVB Amendment”), that (i) deferred certain payments of principal by the Company until September 1, 2023, (ii) had Silicon Valley bank waive certain stated events of default, (iii) to expand the eligibility of inventory and accounts that the Company can borrow against, (iv) to modify certain financial covenants required of the Company, and (v) certain other revisions in the first amendment.
On March 27, 2023, we entered into the first amendment to the November 2022 LSA with SVB (the “March 2023 Amendment”), which, among other revisions, (i) deferred certain payments of principal by the Company until September 1, 2023, (ii) had SVB waive certain stated events of default, (iii) expanded the eligibility of inventory and accounts that the Company can borrow against, and (iv) modified certain financial covenants required of the Company.
Loan and Security Agreement with Silicon Valley Bank On November 23, 2022, the Company entered into the Third Amended and Restated Loan and Security Agreement (the “LSA”) with Silicon Valley Bank. The LSA amended, restated and replaced in its entirety the prior Second Amended and Restated Loan and Security Agreement, dated April 22, 2020, and all prior amendments.
The November 2022 LSA amended, restated and replaced in its entirety the prior Second Amended and Restated Loan and Security Agreement, dated April 22, 2020, and all prior amendments.
Borrowing base availability can be impacted based upon the period's eligible accounts receivable and eligible inventory, and may be significantly lower than the maximum borrowing base availability. The SVB Revolver facility matures and terminates on April 22, 2024.
Borrowing base availability can be impacted based upon the period’s eligible accounts receivable and eligible inventory and may be significantly lower than the full $10.0 million line of credit. As of December 31, 2023, borrowing base availability was $9.3 million. The SVB Revolver facility matures and terminates on April 22, 2024.
Research and Development For the years ended December 31, Change (dollars in millions) 2022 2021 $ % Research and development $ 27.9 $ 21.4 $ 6.5 30.2 % Research and development expense increased by $6.5 million, or 30.2%, from $21.4 million for the year ended December 31, 2021 to $27.9 million for the year ended December 31, 2022.
Research and Development For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % Research and development $ 10.3 $ 27.9 $ (17.5) (62.9 %) Research and development expense decreased by $17.5 million, or 62.9%, from $27.9 million for the year ended December 31, 2022 to $10.3 million for the year ended December 31, 2023.
The 2023 Private Placement Warrants have a per share exercise price of $0.333 and are exercisable by the holder at any time on or before February 17, 2028.
The 2024 Private Placement Warrants have a per share exercise price of $7.7125 and are exercisable by the holder at any time on or before March 1, 2029.
Financed Insurance Premium In July 2022, the Company renewed its director and officer liability policies and entered into a new short-term commercial premium finance agreement with First Insurance Funding to be paid in eleven equal monthly payments, accruing interest at a rate of 4.40%.
Financed Insurance Premium In July 2023, we renewed our corporate directors & officers and employment liability policies and entered into a new short-term commercial premium finance agreement with First Insurance Funding totaling $0.9 million to be paid in eleven equal monthly payments, accruing interest at a rate of 8.29% (the "Financed Insurance Premium").
As of December 31, 2022, the SVB Revolver bore interest on the outstanding principal amount at a floating rate per annum equal to the greater of (i) 5.00% and (ii) the prime rate plus the prime rate margin, which is 1.25% or 1.75%, dependent upon the Company's liquidity, as defined by the LSA.
As of December 31, 2023, the SVB Revolver bore interest on the outstanding principal amount at a floating rate per annum equal to the greater of (i) 5.00% and (ii) the prime rate plus the prime rate margin, which is 2.25%. As of December 31, 2023 there was $9.3 million of outstanding borrowings under the SVB Revolver.
Sales and Marketing For the years ended December 31, Change (dollars in millions) 2022 2021 $ % Sales and marketing $ 38.5 $ 37.1 $ 1.4 3.8 % Sales and marketing expense increased by $1.4 million, or 3.8%, from $37.1 million for the year ended December 31, 2021 to $38.5 million for the year ended December 31, 2022.
Sales and Marketing For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % Sales and marketing $ 13.5 $ 38.5 $ (25.0) (64.9 %) Sales and marketing expense decreased by $25.0 million, or 64.9%, from $38.5 million for the year ended December 31, 2022 to $13.5 million for the year ended December 31, 2023.
Since inception, the Company has experienced recurring operating losses and generated negative cash flows from operations, which have resulted in an accumulated deficit of $222.8 million and $143.4 million as of December 31, 2022 and December 31, 2021, respectively, and negative cash flows from operations of $81.4 million and $40.6 million for the years ended December 31, 2022 and December 31, 2021, respectively.
Since inception, we have experienced recurring operating losses and generated negative cash flows from operations, resulting in an accumulated deficit of $255.7 million as of December 31, 2023. During the years ended December 31, 2023 and 2022, we had negative cash flows from operations of $23.5 million and $81.4 million, respectively.
For the year ended December 31, 2021, we recognized a loss of $5.6 million resulting from the increase in the fair value of the preferred stock warrants prior to the Merger.
For the year ended December 31, 2023, we recognized a loss of $0.9 as compared to a gain of $6.3 million for the same period in the prior year resulting from an increase in the fair value of common stock warrants outstanding.
All outstanding principal and accrued and unpaid interest and all other Term Loan-related outstanding obligations shall become due and payable in full on the Term Loan maturity date. As of December 31, 2022, the Company was in violation of its minimum net revenue requirement for the three months ended December 31, 2022.
All outstanding principal and accrued and unpaid interest and all other Term Loan-related outstanding obligations shall become due and payable in full on the Term Loan maturity date.
We believe that every parent deserves peace of mind and the opportunity to feel their well-rested best.
Our digital parenting platform aims to give parents real-time data and insights to help parents feel calmer and more confident. We believe that every parent deserves peace of mind and the opportunity to feel their well-rested best.
The decrease was primarily due to lower sales of Owlet Sock products, impacted by lower consumer sell-through levels and retailers targeting lower inventory levels, reflecting macroeconomic conditions. Provisions for returns and chargeback allowances decreased significantly as compared to the prior year, primarily due to the impact of the FDA Warning Letter.
The decrease was primarily due to lower sales of Owlet Sock products, impacted by retailers targeting lower inventory levels, reflecting macroeconomic conditions.
Overview Our mission is to empower parents with the right information at the right time, to give them more peace of mind and help them find more joy in the journey of parenting. Our digital parenting platform aims to give parents real-time data and insights to help parents feel calmer and more confident.
Throughout this Item 7, unless otherwise noted, "we", "us", "our" and the "Company" refer to Owlet, Inc. and its consolidated subsidiaries. Overview Our mission is to empower parents with the right information at the right time, to give them more peace of mind and help them find more joy in the journey of parenting.
Interest expense consists of interest incurred on our outstanding borrowings and amortization of the associated deferred financing costs net of interest income earned on our money market account. Interest Expense from Contingent Beneficial Conversion Feature. Interest expense from contingent beneficial conversion feature relates to a charge associated with the contingent beneficial conversion feature described in Part II. Item 8.
Interest expense consists of interest incurred on our outstanding borrowings and amortization of the associated deferred financing costs net of interest income earned on our money market account. Common Stock Warrant Liability Adjustment. Mark to market adjustment to recognize the change in fair value of the common stock warrant liability in other income (expense). Other Income (Expense), Net.
As the Company continues to address these financial conditions, management has undertaken the following actions: • The Company consummated a sale of newly issued Series A Convertible Preferred Stock ("Series A preferred stock") and warrants to purchase its common stock ("2023 private placement warrants") involving participation from new and existing investors, for aggregate gross proceeds of $30.0 million. • As described in Note 7, in March 2023 the Company further amended its financing arrangement with SVB, under which the principal payments on the term note will be deferred until September 2023.
As we continue to address these financial conditions, management has undertaken the following actions: • As described further in Note 9, on February 17, 2023, we consummated a sale of preferred stock and warrants to purchase our common stock for aggregate gross proceeds of $30.0 million.
See Part I, Item 1A. “Risk Factors—An active, liquid trading market for our common stock may not be sustained” in this Report. Components of Operating Results Revenues We recognize revenue primarily from products and the associated mobile applications.
The plan was accepted by the NYSE in July 2023. See Part I, Item 1A. “Risk Factors—Our failure to meet the NYSE’s continued listing requirements could result in a delisting of our common stock” in this Report. 64 Components of Operating Results Revenues We recognize revenue primarily from products and the associated mobile applications.
Each purchaser also received a 2023 Private Placement Warrant to purchase 180% of the number of shares of common stock into which their Series A Preferred Stock is convertible. The 2023 Private Placement Warrants have a per share exercise price of $0.333 and are exercisable by the holder at any time on or before February 17, 2028.
The 2023 Private Placement Warrants have a per share exercise price of $4.66 and are exercisable by the holder at any time on or before February 17, 2028. 2024 Private Placement Financing On February 29, 2024, the Company consummated a sale of newly issued Series B Convertible Preferred Stock ("Series B Preferred Stock") and warrants to purchase its common stock ("2024 Private Placement Warrants"), involving participation from existing investors, for aggregate gross proceeds of $9.3 million.
Customer discounts increased year over year, reflecting higher promotional activity for the introduction of the Dream Sock and in response to lower consumer sell-through levels. 66 Cost of Revenues and Gross Profit For the years ended December 31, Change (dollars in millions) 2022 2021 $ % Cost of revenues $ 45.9 $ 40.8 $ 5.1 12.5 % Gross profit $ 23.3 $ 35.1 $ (11.7) (33.5 %) Gross margin 33.7 % 46.2 % Cost of revenues increased by $5.1 million, or 12.5%, from $40.8 million for the year ended December 31, 2021 to $45.9 million for the year ended December 31, 2022.
The year ended December 31, 2022 included the initial launch of the Dream Sock product and included significant sell-in sales of the Dream Sock across all channel partners, which did not occur in 2023. 66 Cost of Revenues and Gross Profit For the Years Ended December 31, Change (dollars in millions) 2023 2022 $ % Cost of revenues $ 31.4 $ 45.9 $ (14.5) (31.5 %) Gross profit $ 22.6 $ 23.3 $ (0.7) (3.1 %) Gross margin 41.8 % 33.7 % Cost of revenues decreased by $14.5 million, or 31.5%, from $45.9 million for the year ended December 31, 2022 to $31.4 million for the year ended December 31, 2023.
The increase was primarily driven by increases in compensation expense, including share-based compensation, from additional sales and marketing headcount, substantially offset by decreases in digital advertising and marketing spend.
The decrease was driven by a decrease in all sales and marketing spend, including lower compensation expense from reduced sales and marketing headcount. Additionally, we reduced spend on digital advertising and retail channel marketing spend.
Investing Activities For the year ended December 31, 2022, net cash used in investing activities decreased to $1.6 million from $2.0 million for the year ended December 31, 2021 due to lower capital expenditures.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities decreased to $0.1 million from $1.6 million for the year ended December 31, 2022. The decrease in cash used for investing activities is primarily related to the prioritization of research and development projects in correlation with the restructuring actions taken during the fiscal year 2022.
The increase was primarily due to cost inflation, including increased material, transportation, and hosting costs. Gross margin decreased from 46.2% for the year ended December 31, 2021 to 33.7% for the year ended December 31, 2022 primarily due to higher cost of revenues.
The decrease was primarily due to the decrease in product sales. Gross margin increased from 33.7% for the year ended December 31, 2022 to 41.8% for the year ended December 31, 2023 primarily due to lower product returns and lower direct product costs.
Financing Activities For the year ended December 31, 2022, net cash provided by financing activities decreased to $0.9 million from $120.6 million for the year ended December 31, 2021, primarily driven by cash provided from the reverse recapitalization and PIPE financing in the prior year.
Financing Activities For the year ended December 31, 2023, net cash provided by financing activities was $28.9 million as compared to cash used in financing activities of $0.9 million for the year ended December 31, 2022, primarily driven by the private placement offering of shares of preferred stock in February 2023, partially offset by debt payments.
NYSE Notification On November 29, 2022, we received notice (the “NYSE Notification”) from the New York Stock Exchange (“NYSE”) indicating that we are not in compliance with Section 802.01C of the NYSE Listed Company Manual (“Section 802.01C”) because the average closing price of our common stock was less than $1.00 over a consecutive 30 trading-day period.
NYSE Notification In April 2023, we were notified by NYSE that we were not in compliance with Section 802.01B of the NYSE Listed Company Manual as the average global market capitalization of our common stock over a consecutive 30 trading-day period and, at the same time, our last reported stockholders’ equity were each less than $50 million (the "NYSE Notification").
We also believe that every child deserves to live a long, happy, and healthy life, and we are working to develop products to help facilitate that belief. 2023 Private Placement Financing On February 17, 2023, the Company consummated a sale of newly issued Series A Convertible Preferred Stock ("Series A Preferred Stock") and warrants to purchase its Class A common stock ("2023 Private Placement Warrants") involving participation from new and existing investors, for aggregate gross proceeds of $30.0 million.
We also believe that every child deserves to live a long, happy, and healthy life, and we are working to develop products to help facilitate that belief.
This most recent amendment also revised the financial covenants for future periods. • During the year ended December 31, 2022, the Company undertook restructuring actions, which included significantly reducing employee headcount and reducing operating spend, significantly reducing run-rate expenses existing the quarter ended December 31, 2022. We have not generated sufficient cash flows from operations to satisfy our capital requirements.
The restructuring charges consisted primarily of severance expense and related employee benefits, most of which was paid during the year. We have not generated sufficient cash flows from operations to satisfy our capital requirements.
Removed
Throughout this Item 7, unless otherwise noted, "we", "us", "our" and the "Company" refer to Owlet Baby Care Inc. and its consolidated subsidiary before the Merger transaction with Sandbridge Acquisition Corporation and to Owlet, Inc. and its consolidated subsidiaries after the Merger transaction with Sandbridge Acquisition Corporation.
Added
Dream Sock De Novo Device Classification Our Dream Sock received a de novo device classification from United States Food and Drug Administration (“FDA”) for a first-of-its kind, over-the-counter device for use in the home environment that provides a notification to the caregiver when an infant’s pulse rate and/or oxygen saturation moves outside of preset ranges (“Health Notifications”), displays the infant’s live pulse rate and oxygen saturation values and trends (“Live Health Readings”), and is intended for use in infants who are 1 to 18 months of age and between 6 and 30 pounds. 2023 Private Placement Financing On February 17, 2023, the Company consummated a sale of newly issued Series A Convertible Preferred Stock ("Series A Preferred Stock") and warrants to purchase its common stock ("2023 Private Placement Warrants") involving participation from new and existing investors, for aggregate gross proceeds of $30.0 million.
Removed
The NYSE Notification does not result in the immediate delisting of our common stock from the NYSE. We have notified the NYSE of our intent to cure the stock price deficiency and return to compliance with the NYSE continued listing standards.
Added
Pursuant to the terms of the definitive agreement, Owlet issued shares of Series B Preferred Stock that are convertible into approximately 1,199,351 shares of common stock. Each purchaser also received a warrant to purchase 150% of the number of shares of common stock into which their Series B Preferred Stock is convertible.
Removed
Under NYSE rules, we have until six months from receipt of the NYSE Notification or our 2023 annual meeting of stockholders to cure the stock price deficiency and regain compliance with the NYSE’s continued listing standards.
Added
In May 2023, we submitted a business plan advising the NYSE of the definitive actions we had taken as of the date of that submission and were planning on taking in order to bring us into compliance with NYSE continued listing standards within 18 months of receipt of the NYSE Notification.
Removed
Our common stock will continue to be listed and trade on the NYSE during this cure period, subject to our compliance with other NYSE continued listing standards. If our common stock is delisted, it may be difficult for our stockholders to sell their common stock without depressing the market price for our common stock, or at all.
Added
The decrease was driven primarily by lower compensation expense, including stock-based compensation, from reduced general and administrative headcount as a result of the restructuring actions taken during the fiscal year 2022. Additionally, we took cost saving measures to reduce spend on consulting services.
Removed
"Financial Statements and Supplementary Data - Note 8," included in this Report . Preferred Stock Warrant Liability Adjustment. Mark to market adjustment to recognize the change in fair value of the preferred stock warrant liability in other income (expense). Common Stock Warrant Liability Adjustment.
Added
These decreases were primarily driven by lower compensation expense from reduced research and development headcount.
Removed
Mark to market adjustment to recognize the change in fair value of the common stock warrant liability in other income (expense). Gain on Loan Forgiveness . Gain on loan forgiveness consists of the gain recognized subsequent to the forgiveness of the Small Business Administration Paycheck Protection Program loan. Other Income (Expense), Net.
Added
As described in Note 7, Commitments and Contingencies to the consolidated financial statements included elsewhere in this Report, we entered into an agreement with a significant vendor to pay $3.0 million of interest over 36 months with respect to past due payables.
Removed
During the fourth quarter of 2021 and for the year ended December 31, 2021, the Company recorded a contra-revenue adjustment of $23.2 million resulting from received and anticipated returns of the Smart Sock and Owlet Monitor Duo product from U.S. retailers.
Added
The present value of the future payments was expensed and included within interest expense, net on the consolidated statements of operations for the year ended December 31, 2023.
Removed
The increase was driven primarily by compensation expense, primarily share-based compensation, from additional general and administrative headcount and increased bad debt expense for certain distributor and retail customers.
Added
On February 17, 2023 we entered into private placement investment agreements with certain investors, pursuant to which we issued and sold to the investors (i) an aggregate of 30,000 shares of the Company’s Series A convertible preferred stock, par value $0.0001 per share and (ii) warrants to purchase an aggregate of 7,871,712 shares of our common stock, par value $0.0001 per share (“February 2023 Warrants”) for an aggregate purchase price of $30.0 million.
Removed
For the year ended December 31, 2021, we recognized interest expense from the contingent beneficial conversion feature as a charge recorded at the date of the Merger, which is described in the notes to the consolidated financial statements in Item 8.
Added
Except as otherwise provided in the certificate of designation relating to the Series A convertible preferred stock or as required by law, holders of shares of Series A convertible preferred stock are entitled to vote with the holders of shares of common stock (and any other class or series that may similarly be entitled to vote with the holders of common stock) on an as-converted to common stock basis at any annual or special meeting of stockholders of the Company, and not as a separate class.
Removed
We recognized a gain of $15.7 million and $6.3 million for the mark to market adjustment for common stock warrants resulting from the decrease in the fair value of the common stock warrants for the years ended December 31, 2021 and December 31, 2022, respectively.
Added
Each of the February 2023 Warrants sold in the private placement offering is exercisable for one share of common stock at an exercise price of $4.66 per share, is immediately exercisable, and will expire on February 17, 2028. None of the warrants have been exercised as of December 31, 2023.
Removed
On February 17, 2023, the Company consummated a sale of newly issued Series A Preferred Stock and 2023 Private Placement Warrants for aggregate gross proceeds of $30.0 million, prior to deducting offering expenses.
Added
As the February 2023 Warrants could require cash settlement in certain scenarios, the warrants were classified as liabilities upon issuance and were initially recorded at an aggregate estimated fair value of $26.1 million.
Removed
The 2023 Private Placement Warrants also provide for an exercise on a cash or cashless net exercise basis at any time after February 17, 2023 and will be automatically exercised on a cashless basis if not exercised prior to the expiration of the five-year term.
Added
The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $3.9 million allocated to the Series A convertible preferred stock.
Removed
Upon a fundamental change or other liquidation event, the 2023 Private Placement Warrants will automatically net exercise if not exercised before the consummation of such event. On March 10, 2023, Silicon Valley Bank ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver.
Added
The Series A convertible stock will accrete to its redemption value, starting from the issuance date to the date at which the shares become redeemable on February 17, 2028. Accretion will be recorded as a deemed dividend. We incurred $2.0 million of issuance costs related to the offering, of which $1.5 million were paid as of December 31, 2023.
Removed
On March 12, 2023, the Secretary of the Treasury, the chair of the Federal Reserve Board and the chairman of the FDIC released a joint statement related to the FDIC's resolution of the SVB receivership, which provided that all depositors would have access to all their money starting March 13, 2023.
Added
Issuance costs allocated to the preferred stock of $0.3 million were recorded as a reduction to the Series A preferred stock. Issuance costs allocated to the liability classified warrants of $1.7 million were recorded as an expense within general and administrative expenses.

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