Business Context and Reporting Period
Owlet, Inc. filed this Form 10-Q for the quarter ended June 30, 2021. At that date, the reporting entity was Sandbridge Acquisition Corporation, a blank-check company and predecessor to Owlet. It had not commenced operating activities or generated revenue. The business combination with Owlet Baby Care Inc. closed on July 15, 2021, after the reporting date; therefore, these financial statements do not present Owlet Baby Care’s operating results.
The financial statements are unaudited and cover the three and six months ended June 30, 2021. The comparable 2020 period was only June 23, 2020, the predecessor’s inception date, through June 30, 2020.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $1.7 million | $5.3 million |
| Loss from operations | $1.7 million | $5.3 million |
| Net loss | $8.6 million | $7.1 million |
| Interest income | $5,738 | $43,125 |
| Change in fair value of warrants | $6.9 million loss | $1.8 million loss |
| Net cash used in operating activities | Not separately provided | $800,797 |
| Cash outside Trust Account | $469,437 at June 30, 2021 | |
| Cash and investments in Trust Account | $230.1 million at June 30, 2021 | |
| Total liabilities | $38.2 million at June 30, 2021 | |
| Warrant liability | $25.3 million at June 30, 2021 |
There were no operating margins because the company had no revenue or operating business. The Class B net loss per share was $1.49 for the quarter and $1.23 for the six-month period. The Trust Account consisted primarily of U.S. Treasury money market investments and was intended to fund the business combination, subject to redemptions and transaction costs.
Material Changes Versus the Prior Comparable Period
- The six-month 2021 net loss was $7.1 million versus a $1,000 loss during the period from inception through June 30, 2020, reflecting the costs of being a public SPAC and the non-cash warrant remeasurement.
- General and administrative expenses increased to $5.3 million for the six months ended June 30, 2021 from $1,000 in the 2020 inception period.
- The warrant liability increased from $23.5 million at December 31, 2020 to $25.3 million at June 30, 2021, producing a $1.8 million non-cash loss for the six-month period.
- Cash outside the Trust Account declined from $1.3 million at December 31, 2020 to $469,437 at June 30, 2021.
- Accrued expenses increased from $298,328 to $4.8 million, primarily reflecting accumulated transaction and operating obligations.
- Shares subject to possible redemption decreased from 19.5 million at December 31, 2020 to 18.8 million at June 30, 2021.
Business Combination, Outlook, Risks and Unusual Items
On July 15, 2021, the company completed its merger with Owlet Baby Care Inc. and changed its name to Owlet, Inc. A total of 19.8 million Class A shares were presented for redemption. Approximately $32.4 million remained in the Trust Account after redemptions, and a concurrent private placement generated $129.7 million of gross proceeds. After transaction fees and expenses, approximately $135.4 million of cash was available to the combined company.
The transaction is expected to be accounted for as a reverse recapitalization, with Owlet Baby Care treated as the accounting acquirer. The filing provides no post-combination revenue or earnings guidance. Management’s discussion describes Owlet’s digital parenting platform and market opportunity, but those statements are forward-looking and are not results for this reporting period.
- Management determined that the company’s losses, limited unrestricted cash and negative working capital raised substantial doubt about its ability to continue as a going concern before completion of the business combination.
- COVID-19 could negatively affect the company’s financial position, operations and business-combination activities, although the specific impact was not determinable.
- The company reported no material legal proceedings and no long-term debt or off-balance-sheet arrangements as of June 30, 2021.
- Disclosure controls were not effective because of a material weakness related to the prior classification of warrants as equity rather than liabilities. Management implemented remediation efforts but stated that their effectiveness could not yet be assured.
- The filing identifies risks related to the business combination, competition, growth execution, product defects, regulatory approvals, privacy and data protection, cybersecurity, intellectual property, COVID-19, financing needs and the ability to deploy transaction proceeds effectively.
- The 18.1 million outstanding public and private warrants generally have an $11.50 exercise price and may create future dilution; changes in their fair value can materially affect reported earnings.
Important Facts for Investors to Verify
- Review the post-July 15, 2021 filings for Owlet Baby Care’s historical operating results, revenue growth, gross margins, cash burn and operating forecasts, which are not included in this SPAC-period Form 10-Q.
- Reconcile the approximately $135.4 million of post-transaction cash available with actual cash balances, transaction expenses and subsequent capital needs.
- Assess redemption levels, PIPE financing terms, shares issued to former Owlet equityholders and the resulting fully diluted share count.
- Monitor the material weakness remediation and any subsequent changes in internal controls.
- Evaluate warrant dilution, redemption provisions and the impact of warrant fair-value changes on future earnings.
- Confirm management’s ability to address the going-concern issues identified at June 30, 2021 and fund operations after the business combination.