Owlet, Inc. quarterly report, Q1 FY2021

Business Context and Reporting Period

This Form 10-Q covers the three months ended March 31, 2021, and was filed by Sandbridge Acquisition Corporation, the SPAC that subsequently intended to become Owlet, Inc. The filing is not an operating-company filing for Owlet’s standalone business. Sandbridge had not commenced operations or generated operating revenue and was seeking a business combination.

On February 15, 2021, Sandbridge entered into an agreement to merge with Owlet Baby Care Inc., a data-driven connectivity platform for parents. The transaction contemplated renaming the combined company Owlet, Inc., subject to stockholder approval and other customary closing conditions. Closing was expected in the third quarter of 2021.

Key Financial Metrics

MetricMarch 31, 2021December 31, 2020 or period amount
Operating revenue$0$0 since inception
General and administrative expenses$3.588 millionPrior comparable quarterly amount not provided
Interest income from Trust Account$37,387Prior comparable quarterly amount not provided
Gain from change in warrant fair value$5.068 millionPrior comparable quarterly amount not provided
Net income$1.517 millionPrior comparable quarterly amount not provided
Cash outside Trust Account$826,465$1.287 million at December 31, 2020
Trust Account investments and cash$230.091 million$230.053 million at December 31, 2020
Total assets$231.204 million$231.614 million at December 31, 2020
Current liabilities$3.456 million$315,328 at December 31, 2020
Warrant liability$18.462 million$23.530 million at December 31, 2020
Deferred underwriting fee payable$8.050 million$8.050 million at December 31, 2020
Class A shares subject to possible redemption$196.236 million$194.719 million at December 31, 2020
Stockholders’ equity$5.000 million$5.000 million at December 31, 2020
Net cash used in operating activities$443,769Prior comparable cash flow amount not provided
Net cash used in financing activities$17,000Prior comparable cash flow amount not provided

The reported net income was primarily driven by the non-cash gain from the decrease in the fair value of warrant liabilities. Class B basic and diluted earnings per share were $0.26; Class A redeemable earnings per share were $0.00.

Material Changes Versus the Prior Comparable Period

  • The filing does not provide a prior-year or prior-quarter statement of operations, so changes in revenue, expenses, profit, and margins versus a comparable period cannot be quantified.
  • Cash outside the Trust Account declined by approximately $461,000 from December 31, 2020 to March 31, 2021.
  • Accrued expenses increased to $3.456 million from $298,328, while accrued offering costs declined to zero from $17,000.
  • The warrant liability declined by approximately $5.068 million, producing an equal non-cash gain in the statement of operations.
  • Shares subject to possible redemption increased to 19,623,614 from 19,471,900, and the related temporary equity balance increased to $196.236 million from $194.719 million.
  • The Trust Account balance was broadly stable, increasing by approximately $37,000, primarily reflecting interest income.

Cash Flow, Liquidity, Outlook, and Risks

Sandbridge generated no operating revenue and used $443,769 in operating activities during the quarter. At March 31, 2021, $826,465 remained outside the Trust Account for working capital, while $230.091 million was restricted in the Trust Account for a business combination or shareholder redemptions.

Management concluded that its cash position, history of losses, and negative working capital raised substantial doubt about the Company’s ability to continue as a going concern unless mitigating actions were taken. The Sponsor, affiliates, officers, and directors could provide working capital loans, but were not obligated to do so. Up to $1.5 million of such loans could be convertible into warrants.

The Company had no long-term debt, capital lease obligations, or operating lease obligations. A related-party administrative support arrangement required payments of up to $10,000 per month; $30,000 was incurred and paid during the quarter. A deferred underwriting fee of $8.050 million would become payable from the Trust Account only if a business combination were completed.

Sandbridge had until September 17, 2022, subject to any approved extension, to complete a business combination. If unsuccessful, it would liquidate, redeem public shares using the Trust Account, and allow the warrants to expire worthless. The proposed Owlet transaction remained subject to stockholder approvals and customary closing conditions.

COVID-19 was identified as a potential adverse factor affecting the Company’s financial position, operations, and search for a target, although the specific impact was not determinable. The Company also disclosed that its disclosure controls were ineffective as of March 31, 2021 because of a subsequent restatement related to the classification of warrants as liabilities rather than equity. Management implemented remediation measures during the second quarter.

Important Facts for Investors to Verify

  • Verify the status, closing date, approvals, and final terms of the Sandbridge-Owlet business combination.
  • Confirm that the filing represents the SPAC’s pre-combination financial condition and does not provide Owlet’s standalone revenue, profitability, cash flow, or operating metrics.
  • Review the level of public-share redemptions and the amount ultimately available to fund the combined company.
  • Assess the effect of the $18.462 million warrant liability, potential warrant dilution, and any subsequent accounting changes.
  • Review the $8.050 million deferred underwriting fee and any additional financing or transaction costs required to complete the merger.
  • Evaluate the going-concern uncertainty and whether working capital loans or other financing were obtained.
  • Review the disclosed control deficiency, related remediation, and any subsequent restatements or material weaknesses.
  • Confirm the post-combination capitalization, including conversion of Class B founder shares, public-share redemptions, equity issuance, and outstanding warrants.