Owlet Inc
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
OWLT$4.17-1.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001628280-24-037252
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001628280-24-047870
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 93 previous paragraphs and 87 current paragraphs.
32 unchanged; 31 reworded; 23 added; 27 removed; 3 previous and 1 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (23)
Current report
General and administrative expense increased by $4.3 million, or 79.6%, from $5.4 million for the three months ended September 30, 2023 to $9.8 million for the three months ended September 30, 2024. The increase was driven primarily by impairment charges related to intangible assets and higher compensation expense, including accrued bonuses, severance-related expenses, and stock-based compensation as compared to the same period in the prior year.
Current report
General and administrative expense increased by $1.7 million, or 8.3%, from $20.4 million for the nine months ended September 30, 2023 to $22.1 million for the nine months ended September 30, 2024. The increase was driven primarily by impairment charges related to intangible assets and higher compensation expense, including accrued bonuses, severance-related expenses, and stock-based compensation, partially offset by lower consulting and outside services spend related to transaction costs as compared to the same period in the prior year.
Current report
Research and development expense increased by $0.1 million, or 5.5%, from $2.4 million for the three months ended September 30, 2023 to $2.6 million for the three months ended September 30, 2024. The increase was driven primarily by higher compensation expense, including accrued bonuses and severance-related expenses, partially offset by costs capitalized related to internal-use software as compared to the same period in the prior year.
Current report
Research and development expense decreased by $0.8 million, or 9.9%, from $8.1 million for the nine months ended September 30, 2023 to $7.3 million for the nine months ended September 30, 2024. The decrease was driven primarily by lower stock-based compensation expense, lower regulatory testing, and costs capitalized related to internal-use software, partially offset by accrued bonuses and severance-related expenses as compared to the same period in the prior year.
Current report
*Not meaningful ("NM").
Current report
Interest expense, net for the three months ended September 30, 2024 was mostly flat as compared to the same period in the prior year. Interest expense, net for the three months ended September 30, 2024 included $0.3 million of termination fees related to the SVB term loan and $0.2 million of other interest expense, partially offset by a $0.5 million gain on interest for forgiveness of interest accrued related to an arrangement with a significant vendor that was fully settled in September 2024.
Current report
On September 11, 2024, we entered into the underwriting agreement and issued 3,135,136 shares of our common stock at a price to the public of $3.70 per share, less underwriting discounts and commissions. The net proceeds we received at the closing of the offering on September 13, 2024 were $10.6 million. In addition, we incurred $0.7 million in issuance costs that were unpaid as of September 30, 2024. We provided the underwriter a discount of 7% off the offering price. We also reimbursed the underwriters for $0.2 million in fees and expenses, including legal expenses, out-of-pocket expenses, and clearing expenses.
Current report
Pursuant to the underwriting agreement, we also issued, as a portion of the underwriting compensation payable to the underwriter, a warrant to purchase up to 125,405 shares of our common stock (which was subsequently transferred to certain affiliates of the underwriter, the “Titan Warrants”). The Titan Warrants are initially exercisable on March 13, 2025 at an exercise price of $4.63 and have a term of five years from such initial exercise date.
Current report
•As described below and in Note 4, Debt and Other Financing Arrangements within the Notes to Condensed Consolidated Financial Statements, in September 2024, we entered into a loan facility agreement with WTI Fund X, Inc. and WTI Fund XI, Inc. (collectively “WTI”) for a term loan facility of up to $15.0 million (the “WTI Loan Facility”). On September 11, 2024, we entered into an asset-based revolving credit facility (the "ABL Line of Credit") with a maximum revolving commitment of up to $15.0 million. In connection with these transactions, we used our then-existing cash to repay and extinguish all borrowings outstanding under the line of credit and term loan agreements with SVB and initiated a drawdown of $7.5 million under the WTI Loan Facility.
Current report
SVB Revolver and Term Loan
Current report
On November 23, 2022, we entered into the Third Amended and Restated Loan and Security Agreement (as amended, the “LSA”) with SVB. The LSA provided for a $10.0 million revolving line of credit (the “SVB Revolver”) and for a $8.5 million term loan, which amortized with equal monthly installments of $0.5 million that would have matured on October 1, 2024.
Current report
On September 11, 2024, we used existing cash to prepay and extinguish all borrowings outstanding under the LSA. In addition to normal principal and interest, we paid $0.8 million to extinguish this loan, $0.3 million of which was recorded as interest income (expense), net.
Current report
WTI Loan Facility
Current report
On September 11, 2024 (the “Effective Date”), we entered into the WTI Loan Facility with WTI. We initiated our first drawdown under the WTI Loan Facility of $7.5 million (the “Initial Loan”) shortly after closing.
Current report
The WTI Loan Facility consists of two tranches. The first tranche of $10.0 million was available at closing and through September 30, 2024, with $2.5 million of the first tranche availability extendable until December 31, 2024 (the “First Tranche Commitment”). The second tranche of $5.0 million is available through August 15, 2025 (the ‘Second Tranche Commitment”, or together with the First Tranche Commitment, the “Loan Commitments”) upon achievement of (a) at least $48.6 million in revenue for the period commencing October 1, 2024 and ending June 30, 2025 (the “Second Tranche Condition Period”), (b) total cash burn during the Second Tranche Condition Period not to exceed $0.6 million for such period, (c) receipt by us of at least $6.0 million of net proceeds from an equity financing during a period commencing on the closing date and ending on the second tranche borrowing date, and (d) receipt by WTI of our then-current, board-approved operating and financing plan to WTI's satisfaction, as well as compliance with certain reporting conditions. The remaining $2.5 million of the First Tranche Commitment is available until December 31, 2024. Once repaid, we cannot reborrow from the WTI Loan Facility.
Current report
We have the option to prepay the outstanding loans issued under the WTI Loan Facility in whole at any time by repaying all outstanding principal and accrued interest, as well as all scheduled unpaid interest on the loan, including payment-in-kind interest (“PIK Interest”), as if the loan continued to accrue interest through its stated maturity. Provided if the fully diluted market capitalization of our Class A common stock (“common stock”) is greater than or equal to $250.0 million for 10 consecutive Trading Days, then so long as such prepayment is made within 60 days thereafter, the redemption price will be discounted by 30% of the total amount of all scheduled but unpaid interest (but excluding any PIK Interest, which will not be discounted).
Current report
The WTI Loan Facility contains certain reporting and operational covenants that must be met for us to borrow funds under the Loan Commitments and not cause an event of default. Upon the occurrence of an event of default, WTI could elect to force redemption of the outstanding balances under the WTI Loan Facility, requiring us to pay all outstanding principal and accrued interest, as well as all scheduled unpaid interest on the loan, including PIK interest. Upon the occurrence of an event of default, we will also be required to pay default interest on any overdue balances at a rate of 5.0%. The WTI Loan Facility and any loans and obligations issued thereunder are collateralized by substantially all of our assets and are guaranteed by us. As of September 30, 2024, we were in compliance with all financial covenants associated with the WTI Loan Facility.
Current report
As partial consideration for the availability and funding of the WTI Loan Facility, we entered into a Stock Issuance Agreement (the “WTI Stock Issuance Agreement”) with WTI Fund X, LLC (“Fund X”) and WTI Fund XI, LLC (“Fund XI”, and together with Fund X, the “WTI Funds”), dated as of the Effective Date. Pursuant to the WTI Stock Issuance Agreement, we issued to the WTI Funds an aggregate of 750,000 shares of redeemable common stock on the Effective Date, of which 187,500 are subject to forfeiture in the event that we do not draw on any portion of the remaining outstanding Loan Commitment. To the extent we do exercise our option under the Loan Commitments to issue additional debt, a number of forfeitable shares will 'vest' and no longer be subject to forfeiture based on the pro rata portion of the outstanding Loan Commitments drawn against.
Current report
The shares issued to WTI pursuant to the WTI Stock Issuance Agreement contain an embedded redemption option (the"Redemption Option") such that WTI may elect to force us to redeem the shares that are no longer subject to forfeiture for a price of $8.40 per share. The Redemption Option may be exercised, with respect to any amount that is equal to or less than the entire balance of such shares, at any time during the period commencing on the first trading day following the fifth anniversary of the Effective Date and continuing through the date which is 10 years after the Effective Date, subject to certain acceleration provisions set forth in the WTI Stock Issuance Agreement. We have also granted the WTI Funds an option (the “Exchange Option”) to exchange all or any portion of the shares issued pursuant to the WTI Stock Issuance Agreement that are vested and held by the WTI Funds at the time of exercise of the Exchange Option for shares of capital stock in any successor entity under certain circumstances, subject to certain conditions set forth in the WTI Stock Issuance Agreement, as well as certain rights to participate in certain future offerings.
Current report
ABL Line of Credit
Current report
On September 11, 2024 (the “Effective Date”), we entered into a Credit and Security Agreement (the “Credit Agreement”), which provides for an asset-based revolving credit facility (the “ABL Line of Credit”) with a maximum principal amount of up to $15.0 million. The maximum amount shall increase to $20.0 million on September 11, 2025. The ABL Line of Credit is collateralized by substantially all of our assets. Loans and other obligations under the Credit Agreement bear interest at a rate per annum equal to the 1-month Secured Overnight Financing Rate (subject to a floor of 3.50%) plus a margin, which varies between 7.50% and 8.50% depending on the our earnings before interest, taxes, depreciation and amortization (“EBITDA”); provided that the interest rate shall not exceed the maximum rate permitted under applicable law.
Current report
The ABL Line of Credit matures on September 10, 2027 (the “Maturity Date”). If for any reason the Credit Agreement is terminated or all outstanding loans and other obligations are paid in full and the ABL Line of Credit is terminated before the Maturity Date, we will be obligated to pay a prepayment fee equal to a percentage of the then-current Revolving Commitment, which percentage decreases on certain anniversary of the closing date.
Current report
The Credit Agreement contains representations, warranties, covenants, and events of default customary for agreements of this type. As of September 30, 2024, we were in compliance with all financial covenants associated with the Credit Agreement and there was $9.9 million of outstanding borrowings. As of September 30, 2024, the borrowing base availability under the Credit Agreement was $0.7 million.
Removed paragraphs (27)
Previous report
General and administrative expense increased by $0.2 million, or 2.7%, from $6.1 million for the three months ended June 30, 2023 to $6.3 million for the three months ended June 30, 2024. The increase was driven primarily by higher spend on outside consulting services, partially offset by lower cost of corporate insurance due to more favorable rates as compared to the same period in the prior year.
Previous report
General and administrative expense decreased by $2.7 million, or 17.7%, from $15.0 million for the six months ended June 30, 2023 to $12.3 million for the six months ended June 30, 2024. The decrease was driven primarily by lower spend on outside consulting services, including lower transactions costs, and lower cost of corporate insurance due to more favorable rates as compared to the same period in the prior year.
Previous report
Research and development expense decreased by $0.4 million, or 14.2%, from $2.7 million for the three months ended June 30, 2023 to $2.4 million for the three months ended June 30, 2024. The decrease was primarily driven by lower compensation expense from reduced research and development headcount as a result of the restructuring actions initiated in 2022.
Previous report
Research and development expense decreased by $0.9 million, or 16.6%, from $5.6 million for the six months ended June 30, 2023 to $4.7 million for the six months ended June 30, 2024. The decrease was primarily driven by lower compensation expense from reduced research and development headcount as a result of the restructuring actions initiated in 2022.
Previous report
Interest expense was mostly flat for the three months ended June 30, 2024 as compared to the same period in the prior year.
Previous report
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. 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.
Previous report
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.
Previous report
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 convertible preferred stock equal to the greater of (i) one thousand dollars per share or (ii) the consideration per share of Series A convertible 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 convertible preferred stock.
Previous report
The Series B convertible preferred stock is convertible into common stock at the option of the holder at any time after February 29, 2024 and ranks, with respect to dividend rights, rights of redemption and rights upon a liquidation event, (i) equal to the Company’s Series A convertible preferred stock, (ii) senior to the common stock and all other classes or series of equity securities of the Company established after February 29, 2024, unless such shares or equity securities expressly provide that they rank in parity with or senior to the Series B convertible preferred stock with respect to dividend rights, rights of redemption or rights upon a liquidation event, (iii) on parity with each class or series of equity securities of the Company established after the February 29, 2024, the terms of which expressly provide that it ranks on parity with the Series B convertible preferred stock with respect to dividend rights, rights of redemption and rights upon a liquidation event and (iv) junior to each class or series of equity securities of the Company established after February 29, 2024, the terms of which expressly provide that it ranks senior to the Series B convertible preferred stock with respect to dividend rights, rights of redemption and rights upon a liquidation event. Except as otherwise provided in the certificate of designation relating to the Series B convertible preferred stock or as required by law, holders of shares of Series B 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.
Previous report
At any time from and after March 1, 2029, the holders of at least a majority of the 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 the outstanding shares of Series B convertible preferred stock will automatically be: (i) converted into shares of common stock at a conversion rate of 129.6596 per share, (ii) subject to certain exceptions and limitations, redeemed for an amount per share of Series B 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.
Previous report
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 B convertible preferred stock equal to the greater of (i) one thousand dollars per share or (ii) the consideration per share of Series B convertible 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 B convertible preferred stock.
Previous report
•As described in Note 4, Long-Term Debt and Other Financing Arrangements, we have entered into amendments to our financing arrangement with SVB, which, among other revisions, (i) deferred certain payments of principal (ii) deferred the maturity of the revolving line of credit from April 22, 2024 to December 31, 2024, (iii) had SVB waive certain stated events of default, (iv) expanded the eligibility of inventory and accounts that the Company can borrow against, and (v) modified certain financial covenants required of the Company.
Previous report
•During the year ended December 31, 2022, we undertook restructuring actions, which significantly reduced employee headcount and reduced operating spend. This included the reduction of consulting and outside services, the reduction of marketing programs, and the prioritization of and sequencing of research and development projects.
Previous report
Loan and Security Agreement with Silicon Valley Bank
Previous report
On November 23, 2022, we entered into the Third Amended and Restated Loan and Security Agreement (the “November 2022 LSA”) with Silicon Valley Bank, now a division of First Citizens Bank and Trust Company ("SVB"). 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. On March 27, 2023, we entered into the first amendment to the November 2022 LSA with SVB (the “March 2023 Amendment”), which, among certain other revisions, (i) deferred certain payments of principal by us until September 1, 2023, (ii) had SVB waive certain stated events of default, (iii) expanded the eligibility of inventory and accounts that we can borrow against, and (iv) modified certain financial covenants required of us.
Previous report
On August 10, 2023, we entered into the second amendment to the November 2022 LSA with SVB (the “August 2023 Amendment”) that clarified the calculation of the financial covenants under the agreement.
Previous report
On November 13, 2023, we entered into a waiver and third amendment to the November 2022 LSA with SVB (the "November 2023 Amendment") to, among other things, waive a covenant violation and to revise the adjusted EBITDA requirements for future periods.
Previous report
On March 8, 2024, we entered into a waiver and fourth amendment to the November 2022 LSA (the "March 2024 Amendment" and together with the November 2022 LSA, the March 2023 Amendment, the August 2023 Amendment, and the November 2023 Amendment, the "LSA") with SVB, which, among other revisions, (i) deferred the maturity of the revolving line of credit (the "SVB Revolver") from April 22, 2024 to December 31, 2024, (ii) had SVB waive certain stated events of default, (iii) expanded the eligibility of inventory and accounts that we can borrow against, and (iv) modified certain financial covenants required of the Company.
Previous report
On May 10, 2024, the Company entered into a waiver agreement with SVB to waive a covenant violation of the adjusted EBITDA covenant for the three months ended December 31, 2023.
Previous report
As of June 30, 2024, the Company was in compliance with all applicable covenants under the LSA.
Previous report
Line of Credit
Previous report
The LSA provides for a $10.0 million revolving line of credit (the “SVB Revolver”) as of June 30, 2024. 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. 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 June 30, 2024 the borrowing base availability was $9.7 million.
Previous report
The SVB Revolver facility matures and terminates on December 31, 2024. As of June 30, 2024, 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% for advances on the SVB Revolver, as defined by the LSA.
Previous report
Term Loan
Previous report
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 $2.0 million was outstanding as of June 30, 2024. The Term Loan amortizes with equal monthly installments of $0.5 million and matures on October 1, 2024 (the "Term Loan Maturity Date").
Previous report
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, which is 3.50% for the Term Loan (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. 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.
Previous report
We believe that the fair value of the Term Loan approximates the recorded amount as of June 30, 2024 and December 31, 2023, as the interest rates on the long-term debt are variable and the rates are based on market interest rates (bank's prime rate) after consideration of default and credit risk (using Level 2 inputs).
Reworded paragraphs (31)
Previous wording
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Report and in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Reform Act. See “Cautionary Note Regarding Forward-Looking Statements” before Part I of this Report. You should consider our forward-looking statements in light of the risks discussed in our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this Report, the “Risk Factors” section of our Form 10–K and this Report, and our other filings with the SEC.
Current wording
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Report and in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Reform Act. See “Cautionary Note Regarding Forward-Looking Statements” before Part I of this Report. You should consider our forward-looking statements in light of the risks discussed in our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this Report, the “Risk Factors” section of our Form 10–K and this Report, and our other filings with the SEC. Note that amounts within Item 2 are presented in millions and may not sum due to rounding.
Previous wording
We recognize revenue primarily from products and the associated mobile applications. Revenues are recognized when control of goods and services is transferred to customers in an amount that reflects the consideration expected to be received by us in exchange for those goods and services. Substantially all of the Company’s revenues were derived from product sales.
Current wording
We recognize revenue primarily from products and the associated mobile applications. Revenues are recognized when control of goods and services is transferred to customers in an amount that reflects the consideration expected to be received by us in exchange for those goods and services. Substantially all of our revenues were derived from product sales.
Previous wording
General and Administrative. General and administrative expenses consist primarily of salaries, benefits, stock-based compensation, and bonuses for finance and accounting, legal, human resources and administrative executives and employees; third-party legal, accounting, customer service, software, and other professional services; corporate travel and entertainment; depreciation and amortization of property and equipment; and facilities rent.
Current wording
General and Administrative. General and administrative expenses consist primarily of salaries, benefits, stock-based compensation, and bonuses for finance and accounting, legal, human resources and administrative executives and employees, third-party legal, accounting, customer service, software, and other professional services, corporate travel and entertainment, depreciation and amortization of property and equipment, asset impairment charges, and facilities rent.
Previous wording
Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, benefits, stock-based compensation, and bonuses for sales and marketing employees and contractors; third-party marketing expenses such as social media and search engine marketing; email marketing and print marketing.
Current wording
Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, benefits, stock-based compensation, and bonuses for sales and marketing employees and contractors, third-party marketing expenses such as social media and search engine marketing, retail marketing, email marketing, and print marketing.
Previous wording
Research and Development. Research and development expenses consist primarily of salaries, benefits, stock-based compensation, and bonuses for employees and contractors engaged in the design, development, maintenance and testing of our products and platforms.
Current wording
Research and Development. Research and development expenses consist primarily of salaries, benefits, stock-based compensation, and bonuses for employees and contractors engaged in the design, development, maintenance and testing of our products and platforms, including clinical testing.
Previous wording
Interest Expense, Net. Interest expense consists of interest incurred on our outstanding borrowings, including interest incurred on past due payables with one of our vendors as described in Note 5, Commitments and Contingencies, to the condensed consolidated financial statements included elsewhere in this Report, and amortization of the associated deferred financing costs. Interest expense is presented net of interest income earned on our money market account.
Current wording
Interest Income (Expense), Net. Interest income (expense), net consists of interest incurred on our outstanding borrowings, debt extinguishment costs, gain on interest for forgiveness of interest accrued related to an arrangement with a significant vendor, and amortization of the associated deferred financing costs. Interest income consists of interest earned on our money market account.
Previous wording
Common Stock Warrant Liability Adjustment. Mark to market adjustment to recognize the change in fair value of common stock warrant liabilities in other income (expense).
Current wording
Common Stock Warrant Liability Adjustment. Mark to market adjustment to recognize the change in fair value of common stock warrant liabilities.
Previous wording
The following table sets forth our results of operations for the periods indicated in millions (note that amounts within this Item 2 shown in millions may not sum due to rounding):
Current wording
The following table sets forth our results of operations for the periods, indicated in millions:
Previous wording
Revenues increased by $11.6 million, or 48.8%, from $23.8 million for the six months ended June 30, 2023 to $35.4 million for the six months ended June 30, 2024. The increase was primarily due to higher sales of Owlet Sock products, reflecting an increase in consumer demand across all sales channels as compared to the same period in the prior year.
Current wording
Revenues increased by $12.9 million, or 140.9%, from $9.2 million for the three months ended September 30, 2023 to $22.1 million for the three months ended September 30, 2024. Theincrease was primarily due to higher sales of Dream Sock products, reflecting an increase in consumer demand across all sales channels as compared to the same period in the prior year. During the three months ended September 30, 2023, we signed a new distribution agreement with a large retailer that offered more favorable terms. As a result, certain sales were delayed until the three months ended December 31, 2023, which reduced revenue for the three months ended September 30, 2023.
Previous wording
Revenues increased by $7.6 million, or 58.2%, from $13.1 million for the three months ended June 30, 2023 to $20.7 million for the three months ended June 30, 2024. The increase was primarily due to higher sales of Owlet Sock products, reflecting an increase in consumer demand across all sales channels as compared to the same period in the prior year.
Current wording
Revenues increased by $24.6 million, or 74.4%, from $33.0 million for the nine months ended September 30, 2023 to $57.6 million for the nine months ended September 30, 2024. Theincrease was primarily due to higher sales of Dream Sock products, reflecting an increase in consumer demand across all sales channels as compared to the same period in the prior year.
Previous wording
Cost of revenues increased by $2.6 million, or 33.0%, from $7.9 million for the three months ended June 30, 2023 to $10.4 million for the three months ended June 30, 2024. The increase was primarily due to the increase in product sales. Gross margin increased from 40.0% for the three months ended June 30, 2023 to 49.5% for the three months ended June 30, 2024 primarily due to higher revenue and lower direct product and fulfillment costs.
Current wording
Cost of revenues increased by $4.7 million, or 80.7%, from $5.9 million for the three months ended September 30, 2023 to $10.6 million for the three months ended September 30, 2024. The increase was primarily due to the increase in product sales. Gross margin increased from 36.3% for the three months ended September 30, 2023 to 52.2% for the three months ended September 30, 2024 primarily due to higher revenue and lower direct product and fulfillment costs.
Previous wording
Cost of revenues increased by $4.2 million, or 29.2%, from $14.4 million for the six months ended June 30, 2023 to $18.7 million for the six months ended June 30, 2024. The increase was primarily due to the increase in product sales. Gross margin increased from 39.4% for the six months ended June 30, 2023 to 47.4% for the six months ended June 30, 2024 primarily due to higher revenue and lower direct product and fulfillment costs.
Current wording
Cost of revenues increased by $8.9 million, or 44.0%, from $20.3 million for the nine months ended September 30, 2023 to $29.2 million for the nine months ended September 30, 2024. The increase was primarily due to the increase in product sales. Gross margin increased from 38.5% for the nine months ended September 30, 2023 to 49.2% for the nine months ended September 30, 2024 primarily due to higher revenue and lower direct product and fulfillment costs.
Previous wording
Sales and marketing expense increased by $0.8 million, or 25.1%, from $3.1 million for the three months ended June 30, 2023 to $3.9 million for the three months ended June 30, 2024. The increase was driven by higher spend on digital advertising and retail marketing, as well as higher compensation expense due to increased sales and marketing headcount and sales commissions as compared to the same period in the prior year.
Current wording
Sales and marketing expense increased by $0.7 million, or 20.6%, from $3.3 million for the three months ended September 30, 2023 to $4.0 million for the three months ended September 30, 2024. The increase was driven primarily by higher compensation expense due to accrued bonuses as well as higher spend on brand and content expenses as compared to the same period in the prior year.
Previous wording
Sales and marketing expense increased by $1.3 million, or 20.5%, from $6.4 million for the six months ended June 30, 2023 to $7.7 million for the six months ended June 30, 2024. The increase was driven by higher spend on digital advertising and retail marketing, as well as higher compensation expense due to increased sales and marketing headcount and sales commissions as compared to the same period in the prior year.
Current wording
Sales and marketing expense increased by $2.0 million, or 20.5%, from $9.8 million for the nine months ended September 30, 2023 to $11.8 million for the nine months ended September 30, 2024. The increase was driven primarily by higher compensation expense due to accrued bonuses and higher spend on social media marketing and public relations as compared to the same period in the prior year.
Previous wording
Interest expense decreased by $2.7 million, from $2.9 million for the six months ended June 30, 2023 to $0.1 million for the six months ended June 30, 2024. As described in Note 5, Commitments and Contingencies, to the condensed 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. The present value of the future payments was expensed and included within interest expense, net on the condensed consolidated statements of operations for the six months ended June 30, 2023.
Current wording
Interest expense decreased by $2.7 million, from $3.0 million for the nine months ended September 30, 2023 to $0.3 million for the nine months ended September 30, 2024. During the nine months ended September 30, 2023, 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. The present value of the future payments was expensed and included within interest expense, net on the condensed consolidated statements of operations in that period. In January 2024, the agreement was amended and the schedule of interest payments was modified from 36 months to 28 months, but the amount of interest payable was unchanged. In September 2024, the agreement was amended again, allowing us to terminate the agreement with a final interest payment of $0.6 million, which was then fully settled in September 2024. The reduction in the total cumulative interest payments to $2.2 million resulted in us recording a reduction of interest expense at termination of $0.5 million.
Previous wording
For the three months ended June 30, 2024, we recognized a gain of $1.0 million as compared to a loss of $1.6 million for the same period in the prior year resulting from a decrease in the fair value of common stock warrants outstanding. Additionally, the gain recognized for the three months ended June 30, 2024 included the decrease in fair value of the newly issued Series B Warrants, which were not outstanding during the same period in the prior year.
Current wording
For the three months ended September 30, 2024, we recognized a loss of $0.7 million as compared to a gain of $2.4 million for the same period in the prior year, resulting from an increase in the fair value of common stock warrants outstanding. The loss recognized for the three months ended September 30, 2024 included the increase in fair value of the Series B Warrants that were issued in February 2024, which were not outstanding during the same period in the prior year. The gain of $2.4 million for the three months ended September 30, 2023 resulted from a decrease in the fair value of common stock warrants outstanding.
Previous wording
For the six months ended June 30, 2024, we recognized a gain of $10.2 million as compared to a gain of $0.3 million for the same period in the prior year resulting from a larger decrease in the fair value of common stock warrants outstanding. Additionally, the gain recognized for the six months ended June 30, 2024 included the decrease in fair value of the newly issued Series B Warrants, which were not outstanding during the same period in the prior year.
Current wording
For the nine months ended September 30, 2024, we recognized a gain of $9.5 million as compared to a gain of $2.7 million for the same period in the prior year resulting from a larger decrease in the fair value of common stock warrants outstanding. Additionally, the gain recognized for the nine months ended September 30, 2024 included the decrease in fair value of the Series B Warrants that were issued in February 2024, which were not outstanding during the same period in the prior year.
Previous wording
We have historically funded our operations primarily with proceeds from issuances of our convertible preferred stock, issuances of our common stock, borrowings under our loan facilities, issuances of convertible promissory notes, and sales of our products and services. As of June 30, 2024, we had cash and cash equivalents of $15.4 million.
Current wording
We have historically funded our operations primarily with proceeds from issuances of our convertible preferred stock, issuances of our common stock, borrowings under our loan facilities, issuances of convertible promissory notes, and sales of our products and services. As of September 30, 2024, we had cash and cash equivalents of $21.5 million.
Previous wording
On February 25, 2024 we entered into a private placement investment agreement with certain investors, pursuant to which we issued and sold to the investors (i) an aggregate of 9,250 shares of the Company’s Series B convertible preferred stock, par value $0.0001 per share and (ii) warrants to purchase an aggregate of 1,799,021 shares of our common stock, par value $0.0001 per share (the “Series B Warrants”), for an aggregate purchase price of $9.3 million.
Current wording
On February 25, 2024, we entered into a private placement investment agreement with certain investors, pursuant to which we issued and sold to the investors (i) an aggregate of 9,250 shares of our Series B convertible preferred stock, par value $0.0001 per share and (ii) warrants to purchase an aggregate of 1,799,021 shares of our common stock, par value $0.0001 per share (the “Series B Warrants”), for an aggregate gross purchase price of $9.3 million.
Previous wording
Each of the Series B Warrants sold in the private placement offering is exercisable for one share of common stock at an exercise price of $7.7125 per share, is immediately exercisable, and will expire on March 1, 2029. As the Series B 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 $6.9 million. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $2.4 million allocated to the Series B convertible preferred stock. The Series B convertible stock will accrete to its redemption value, starting from the issuance date to the date at which the shares become redeemable on March 1, 2029. Accretion will be recorded as a deemed dividend. None of the Series B Warrants have been exercised as of June 30, 2024.
Current wording
Each of the Series B Warrants sold in the private placement offering is exercisable for one share of common stock at an exercise price of $7.71 per share, is immediately exercisable, and will expire on March 1, 2029. As the Series B 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 $6.9 million. The total proceeds from the offering were first allocated to the liability-classified warrants, based on their fair values, with the residual $2.4 million allocated to the Series B convertible preferred stock.
Previous wording
We incurred $0.4 million of issuance costs related to the offering. Issuance costs allocated to the preferred stock of $0.1 million were recorded as a reduction to the Series B convertible preferred stock. Issuance costs allocated to the liability classified warrants of $0.3 million were recorded as an expense within general and administrative expenses.
Current wording
We incurred $0.4 million of issuance costs related to the offering. Issuance costs allocated to the preferred stock of $0.1 million were recorded as a reduction to the Series B convertible preferred stock.
Previous wording
In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements included elsewhere in this Report are issued.
Current wording
In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying condensed consolidated financial statements included elsewhere in this Report are issued.
Previous wording
Since inception, we have experienced recurring operating losses and generated negative cash flows from operations, resulting in an accumulated deficit of $253.5 million as of June 30, 2024. During the six months ended June 30, 2024 and 2023, we had negative cash flows from operations of $6.7 million and $16.8 million, respectively. As of June 30, 2024, we had $15.4 million of cash on hand.
Current wording
Since inception, we have experienced recurring operating losses and generated negative cash flows from operations, resulting in an accumulated deficit of $259.1 million as of September 30, 2024. During the nine months ended September 30, 2024 and 2023, we had negative cash flows from operations of $14.5 million and $22.0 million, respectively. As of September 30, 2024, we had $21.5 million of cash on hand.
Previous wording
Recurring operating losses, negative cash flows from operations since inception, and a low cash balance relative to current obligations raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying condensed consolidated financial statements included elsewhere in this Report are issued. The condensed consolidated financial statements included elsewhere in this Report have been prepared on a going concern basis and accordingly, do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Current wording
Recurring operating losses, negative cash flows from operations since inception, and a low cash balance relative to current obligations raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying condensed consolidated financial statements included elsewhere in this Report are issued. The condensed consolidated financial statements included elsewhere in this Report have been prepared on a going concern basis and accordingly, do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Previous wording
As we continue to address these financial conditions, management have undertaken the following actions:
Current wording
As we continue to address these financial conditions, we have undertaken the following actions:
Previous wording
•As described above, 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. On February 29, 2024, we consummated a sale of preferred stock and warrants to purchase our common stock for aggregate gross proceeds of $9.3 million.
Current wording
•As described above, in September 2024, we issued 3,135,136 shares of common stock for aggregate net proceeds of $9.8 million. In February 2024, we consummated a sale of preferred stock and warrants to purchase our common stock for aggregate net proceeds of $8.9 million.
Previous wording
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected. We also could be required to seek funds through arrangements with partners or others that may require us to relinquish rights or jointly own some aspects of our technologies, products or services that we would otherwise pursue on our own.
Current wording
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected.
Previous wording
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 $1.4 million to be paid in eleven equal monthly payments, accruing interest at a rate of 9.0%. As of June 30, 2024, the remaining principal balance on the combined financed insurance premiums was $0.1 million.
Current wording
In July 2024, we renewed our corporate directors & officers and employment liability policies and entered into several new short-term commercial premium finance agreements with First Insurance Funding totaling $0.6 million to be paid within one year, accruing interest at a weighted average rate of 8.6%. As of September 30, 2024, the remaining principal balance on the combined financed insurance premiums was $0.5 million.
Previous wording
For the six months ended June 30, 2024, net cash used in operating activities was $6.7 million as compared to net cash used in operating activities of $16.8 million in the prior year. The change in operating cash flows was primarily driven by a lower operating loss, which was $8.0 million for the six months ended June 30, 2024 as compared to an operating loss of $17.7 million for the same period in the prior year.
Current wording
For the nine months ended September 30, 2024, net cash used in operating activities was $14.5 million as compared to net cash used in operating activities of $22.0 million in the prior year. The change in operating cash flows was primarily driven by a lower operating loss, which was $12.8 million for the nine months ended September 30, 2024 as compared to an operating loss of $25.6 million for the same period in the prior year.
Previous wording
For the six months ended June 30, 2024 and 2023, we used substantially no cash for investing activities, due to the prioritization of research and development projects in correlation with the restructuring actions taken during the fiscal year 2022.
Current wording
For the nine months ended September 30, 2024, we used $0.7 million to invest in various projects, including the development of our new subscription app. For the nine months ended September 30, 2023, we used substantially no cash for investing activities due to the prioritization of research and development projects that supported seeking regulatory clearances for our products.
Previous wording
For the six months ended June 30, 2024 and 2023, net cash provided by financing activities was $5.6 million and $30.3 million, respectively. The decrease is primarily driven by the higher amount proceeds raised by the Series A preferred stock offering in February 2023 as compared to the proceeds raised by the Series B preferred stock offering in February 2024. Additionally, the Company made payments on the Term Loan totaling $3.0 million during the six months ended June 30, 2024, compared to payments totaling $1.5 million during the six months ended June 30, 2023.
Current wording
For the nine months ended September 30, 2024 and 2023, net cash provided by financing activities was $20.6 million and $25.9 million, respectively. The decrease is primarily driven by the higher amount proceeds raised by the Series A preferred stock offering in February 2023 as compared to the combined proceeds raised by the common stock offering in September 2024 and the Series B preferred stock offering in February 2024. Additionally, in September 2024, we drew down $7.5 million under the WTI Loan Facility and we made payments on the Term Loan totaling $5.0 million during the nine months ended September 30, 2024, compared to payments totaling $2.0 million during the nine months ended September 30, 2023.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
We also could be required to seek funds through arrangements with partners or others that may require us to relinquish rights or jointly own some aspects of our technologies, products or services that we would otherwise pursue on our own.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
On February 17, 2023 the Company entered into private placement investment agreements with certain investors, pursuant to which the Company 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 the Company’s common stock, par value $0.0001 per share, (“Series A Warrants”) for an aggregate purchase price of $30.0 million.
Previous report — wording carried elsewhere
Each of the Series A 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. As the Series A 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. 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. 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. None of the Series A Warrants had been exercised as of June 30, 2024.
Previous report — wording carried elsewhere
The Company incurred $2.0 million of issuance costs related to the offering. Issuance costs allocated to the preferred stock of $0.3 million were recorded as a reduction to the Series A convertible preferred stock. Issuance costs allocated to the liability classified warrants of $1.7 million were recorded as an expense within general and administrative expenses.