The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and notes thereto included elsewhere
in this Annual Report (this "Report"). This discussion contains forward-looking
statements about our business, operations and industry that involve risks and
uncertainties, such as statement's regarding our plans, objectives, expectations
and intentions. Our results may differ materially from those currently described
in the sections entitled "Risk Factors" and "Cautionary Note Regarding
Forward-Looking Statements" disclosed in this Report. 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.

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. We believe that
every parent deserves peace of mind and the opportunity to feel their
well-rested best. 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.

Merger

On July 14, 2021, Sandbridge Acquisition Corporation ("SBG") held the Special
Meeting of Stockholders (the "Special Meeting"), at which the SBG stockholders
considered and adopted, among other matters, a proposal to approve the Merger
Agreement and related transactions (the "Merger"). On July 15, 2021, the parties
consummated the Merger. In connection with the Closing, SBG changed its name
from Sandbridge Acquisition Corporation to Owlet, Inc. ("Owlet"). Following the
consummation of the Merger, Owlet became an SEC-registrant and its common stock
and warrants commenced trading on the New York Stock Exchange (''NYSE'') under
the symbols "OWLT" and "OWLT WS", respectively.

As a result of the Merger, each share of Owlet Baby Care Inc.'s preferred stock
and common stock was converted into the right to receive approximately 2.053
shares of Owlet's common stock, par value $0.0001 per share ("Common Stock").
Additionally, the shares of Sandbridge Class B common stock held by Sandbridge
Acquisition Holdings automatically converted to 5,750,000 shares of Common Stock
(of which 2,807,500 shares were subjected to certain vesting conditions). An
aggregate of $197.6 million was paid from SBG's trust account to holders that
properly exercised their right to have initial shares redeemed.

FDA warning letter

On October 1, 2021, the Company received a Warning Letter, dated the same date
(the "Warning Letter"), from the U.S. Food and Drug Administration ("FDA")
regarding the Owlet Smart Sock. The Warning Letter asserts that the Company's
marketing of its Owlet Smart Sock product in the U.S. renders the Owlet Smart
Sock a medical device requiring premarket clearance or approval from the FDA,
and that the Company has not obtained such clearance or approval in violation of
the Federal, Food, Drug, and Cosmetic Act. The Warning Letter is focused solely
on the regulatory classification of the product in the U.S. as a result of the
heart rate and oxygen notifications and related claims. Pursuant to the Warning
Letter and in response to the request by the FDA to cease distribution of the
Owlet Smart Sock in the U.S., the Company suspended distribution of the Owlet
Smart Sock in the U.S. in October 2021. The suspension is specific to shipments
by the Company to customers and retailers in the U.S. Operations in other
countries remain unaffected. In response to the Warning Letter, several national
retailers unilaterally suspended U.S. sales of the Owlet Smart Sock and Owlet
Duo. During the fourth quarter of 2021, the Company agreed with certain
customers and retailers to accept returns of the Owlet Smart Sock and Owlet Duo.
The Company began initial distribution of the Owlet Dream Sock in December 2021
through our ecosystem partners and in January 2022 launched the Owlet Dream Sock
to consumers in the retail and direct-to-consumer channels.

The Company's results of operations for the fourth quarter and year ended
December 31, 2021 were substantially and negatively impacted due to the reversal
of sales for received and anticipated returns of Owlet Smart Sock and Owlet Duo
product. For the quarter and year ended December 31, 2021, the Company recorded
contra-revenue of $23.2 million based on an estimate of customer returns. A
refund liability of $20.1 million has been accrued as of December 31, 2021 in
accrued and other expenses and represents the amount due to customers for
returns that have not been received as of year-end. The Company also recorded a
reduction to cost of revenues of $8.2 million for the year ended December 31,
2021 for the cost of the inventory associated with these customer returns. As of
December 31, 2021, the Company has recorded $1.4 million within inventory for
returned inventory received prior to year-end,
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and one $6.7 million asset in prepaid expenses and other current assets for inventory to be returned but not yet received.

Impact of COVID-19

There continues to be worldwide impact from the novel coronavirus ("COVID-19")
pandemic. The impact of COVID-19 includes changes in consumer and business
behavior, pandemic fears, market downturns, and restrictions on business and
individual activities, which have created significant volatility in the global
economy that has led to reduced economic activity. The full extent to which the
COVID-19 pandemic will directly or indirectly impact our cash flow, business,
financial condition, results of operations and prospects will depend on future
developments that are uncertain.

As a result of the COVID-19 pandemic, we have safety procedures in place at our
headquarters and encourage our employees and contractors to work remotely, where
possible, in accordance with local public health recommendations, each of which
represented a significant change in how we operate our business. In light of the
pandemic, we expect to continue to take actions as may be required or
recommended by government authorities or as we determine are in the best
interest of our employees.

We have experienced relatively minor impacts on our inventory availability and
delivery capacity since the outbreak, neither of which has materially impacted
our ability to service our customers. We continue to work with our existing
manufacturing, logistics and other supply chain partners to build key processes
to ensure that our ability to service our customers is not significantly
disrupted. Ongoing actions to bolster key aspects of the supply chain to support
our continued growth include geographically diversifying manufacturing
operations to ensure adequate manufacturing capacity and to shorten transit
times, implementing alternative order fulfillment options to reduce warehousing
costs, developing contingency plans for unexpected third-party manufacturing
disruptions, and increasing headcount dedicated to managing and optimizing
supply chain processes. We have experienced cost inflation resulting from the
increased demand for raw materials and distribution services associated with the
impact of COVID-19.

Components of operating results

Revenue

We recognize revenue from the following sources: (1) products, (2) mobile
applications, and (3) content. 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.

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.

Functionnary costs

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, and other professional services;
corporate travel and entertainment; depreciation and amortization of property
and equipment; and facilities rent.

We expect that our general and administrative expenses will increase in future
periods compared to periods prior to the Merger as a result of additional costs
related to being a public company, including Securities Exchange Act of 1934, as
amended (the "Exchange Act") reporting expenses; expenses associated with
Sarbanes-Oxley compliance; incremental independent auditor fees; incremental
legal fees; investor relations expenses; registrar and transfer agent fees;
incremental director and officer liability insurance costs; and director
compensation.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries,
commissions, benefits, stock-based compensation, commissions, 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.

We expect sales and marketing expenses to continue to increase in future periods as we drive sales growth through new and existing marketing initiatives and expand into other international markets.

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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.

We plan to make significant investments in the development of our monitoring pipeline in future periods and expect our research and development expenditures to increase.

Other Income (Expense)

Gain on loan forgiveness. The gain on loan forgiveness is the gain recognized as a result of loan forgiveness from the Small Business Administration’s Paycheck Protection Program.

Interest Expense, Net. 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.
"Financial Statements and Supplementary Data - Note 7," included in this Report.

Adjustment to liability related to preferred share purchase warrants. Mark-to-market adjustment to recognize the change in fair value of the liability related to preferred share purchase warrants in other income (expense).

Adjustment to liability related to common share purchase warrants. Mark-to-market adjustment to recognize the change in fair value of the common share purchase warrant liability in other income (expense).

Other income (expenses), net. Other income (expense), net, includes our net foreign exchange gain (loss) and loss on extinguishment of debt.

Income tax provision. The income tax provision mainly consists of we federal and state income taxes related to the tax jurisdictions in which we operate.

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Operating results

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,
                                                                             2021                    2020
Revenues                                                               $         75.8          $         75.4
Cost of revenues                                                                 40.8                    39.5
Gross profit                                                                     35.1                    35.9

Operating expenses:
General and administrative                                                       32.3                    13.1
Sales and marketing                                                              37.1                    19.3
Research and development                                                         21.4                    10.5
Total operating expenses                                                         90.9                    42.9
Operating loss                                                                  (55.8)                   (7.0)
Other income (expense):
Gain on loan forgiveness                                                          2.1                       -
Interest expense, net                                                            (1.8)                   (1.4)

Debit interest related to the potential profit conversion function

                                                                         (26.1)                      -
Preferred stock warrant liability adjustment                                     (5.6)                   (2.0)
Common stock warrant liability adjustment                                        15.7                       -
Other income (expense), net                                                      (0.3)                   (0.2)
Total other income (expense), net                                               (15.9)                   (3.5)
Loss before income tax provision                                                (71.7)                  (10.5)
Income tax provision                                                              0.0                     0.0
Net loss and comprehensive loss                                        $        (71.7)         $        (10.5)





Revenues
                                    For the years ended December 31,                    Change
(dollars in millions)                       2021                        2020         $          %
Revenues                   $            75.8                          $ 75.4      $ 0.4       0.6  %



Revenues increased by $0.4 million, or 0.6%, from $75.4 million for the year
ended December 31, 2020 to $75.8 million for the year ended December 31, 2021.
The increase was due to an increase of revenues during the first nine months of
2021 of $23.9 million, primarily from increased sales volume of the Owlet Smart
Sock. The increase during the first nine months of 2021 was substantially offset
by net contra-revenue in the fourth quarter of 2021 due to the impact of the
Warning Letter. 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 Owlet Smart
Sock and Owlet Duo product from U.S. retailers.


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Revenue cost and gross profit

                                    For the years ended December 31,                     Change
(dollars in millions)              2021                                2020          $            %
Cost of revenues           $          40.8                           $ 39.5       $  1.3        3.2  %
Gross profit               $          35.1                           $ 35.9       $ (0.8)      (2.3  %)
Gross margin                          46.2  %                          47.6  %



Cost of revenues increased by $1.3 million, or 3.2%, from $39.5 million for the
year ended December 31, 2020 to $40.8 million for the year ended December 31,
2021. The increase was primarily due to cost inflation, including increased
material, transportation, and hosting costs, partially offset by lower warranty
expense. The decrease in warranty expense was partially attributable to the
significant decrease in product shipment during the fourth quarter of 2021.
Gross margin decreased from 47.6% for the year ended December 31, 2020 to 46.2%
for the year ended December 31, 2021 primarily due to higher returns and cost
inflation partially offset by lower warranty expense.


General and administrative

                                                     For the years ended December 31,                           Change
(dollars in millions)                                    2021                    2020                  $                     %
General and administrative                       $            32.3          $      13.1          $      19.2                  146.1  %



General and administrative expense increased by $19.2 million, or 146.1%, from
$13.1 million for the year ended December 31, 2020 to $32.3 million for the year
ended December 31, 2021. The increase was driven primarily by compensation
expense, including share-based compensation, from additional general and
administrative headcount. Additionally, the Company saw an increase in legal,
accounting, and consulting costs related to the Merger as well as incremental
ongoing costs of being a public company.


Sales and Marketing

                                    For the years ended December 31,                     Change
(dollars in millions)                       2021                        2020         $            %
Sales and marketing        $            37.1                          $ 19.3      $ 17.8        92.5  %



Sales and marketing expense increased by $17.8 million, or 92.5%, from $19.3
million for the year ended December 31, 2020 to $37.1 million for the year ended
December 31, 2021. The increase was primarily driven by increases in digital
advertising and retail channel marketing spend and an increase in compensation
expense, including share-based compensation, from additional sales and marketing
headcount.


Research and Development

                                                   For the years ended December 31,                           Change
(dollars in millions)                                  2021                    2020                  $                     %
Research and development                       $            21.4          $      10.5          $      11.0                  104.7  %



Research and development expense increased by $11.0 million, or 104.7%, from
$10.5 million for the year ended December 31, 2020 to $21.4 million for the year
ended December 31, 2021. These 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 expenses.



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Other Income (Expense)

                                           For the years ended December 31,                             Change
(dollars in millions)                         2021                     2020                  $                       %
Gain on loan forgiveness              $              2.1          $         -          $       2.1                           NM
Interest expense, net                 $             (1.8)         $      (1.4)         $      (0.4)                     28.2  %
Interest expense from
contingent beneficial
conversion feature                    $            (26.1)         $         -          $     (26.1)                          NM
Preferred stock warrant
liability adjustment                  $             (5.6)         $      (2.0)         $      (3.6)                    185.8  %
Common stock warrant liability
adjustment                            $             15.7          $         -          $      15.7                           NM
Other income, net                     $             (0.3)         $      (0.2)         $      (0.1)                     77.8  %

NM - Not meaningful


For the year ended December 31, 2021we recognized a gain of $2.1 million on the cancellation of our SBA PPP loan.

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.

For the year ended December 31, 2021, we recognized a loss of $5.6 million for
the year ended December 31, 2021 resulting from the increase in the fair value
of the preferred stock warrants prior to the Merger. We recognized a gain of
$15.7 million for the mark to market adjustment for common stock warrants
resulting from the decrease in the fair value of the common stock warrants
assumed in the Merger.



Cash and capital resources

Prior to the Merger, we funded our operations primarily with proceeds from
issuances of our convertible preferred stock, borrowings under our loan
facilities, issuances of convertible promissory notes, and sales of our products
and services. As of December 31, 2021, we had cash and cash equivalents of $95.1
million.

Funding Requirements

Since inception, we have generated recurring losses which have resulted in an
accumulated deficit of $143.4 million and $71.7 million as of December 31, 2021
and December 31, 2020, respectively, and we expect to incur additional losses in
the future. On July 15, 2021, we consummated the Merger and received
approximately $133.9 million in net proceeds from the Merger and PIPE
Investment. Therefore, as of the date on which these consolidated financial
statements were issued, the Company believes that its cash on hand, together
with cash generated from sales to customers, will satisfy its working capital
and capital requirements for at least the next twelve months. However, we are
still in the growth stage of our business and expect to continue to make
substantial investments in our business, including in the expansion of our
product portfolio and in our research and development, sales and marketing
teams, in addition to incurring additional costs as a result of being a public
company. There can be no assurance that we will be able to obtain additional
debt or equity financing on terms acceptable to us, if at all, or that we will
generate sufficient future revenues. Failure to secure additional funding may
require us to modify, delay, or abandon some of our planned future expansion or
development, or to otherwise enact operating cost reductions available to
management, which could have a material adverse effect on our business,
operating results, financial condition, and ability to achieve our intended
business objectives.

Loan and guarantee agreement with Bank of Silicon Valley

As of December 31, 2021 we had an amended and restated loan and security
agreement (the "A&R LSA") with Silicon Valley Bank (''SVB'') which we entered
into on April 22, 2020, and which replaced the loan and security agreement
previously in place (the ''Original LSA''). These agreements provided us with
both a line of credit (the ''SVB Revolver'') and a term loan (the ''Term
Note'').

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Our borrowing capacity under the SVB Revolver was $17.5 million as of
December 31, 2021. The SVB Revolver is an asset based lending facility subject
to borrowing base capacity which is limited by borrowing base calculations based
on the sum of specified percentages of eligible accounts receivable and eligible
inventory. As of December 31, 2021, the SVB Revolver bore interest at an annual
rate equal to (i) the greater of the bank's prime rate plus 0.75%, or 5.50% when
a streamline period is in effect and (ii) the greater of the bank's prime rate
plus 1.25%, or 6.00% at all other times. Each streamline period commences the
first day of the month following a written report of our liquidity and ends the
first day after we fail to maintain a required cash and cash availability
streamline threshold, provided no event of default has occurred and is
continuing. If an event of default has occurred and is continuing, SVB may
maintain our streamline status at its discretion. The required cash and cash
availability streamline threshold was $8.0 million as of December 31, 2021, and
we were within a streamline period. The actual interest rate on the SVB Revolver
was 5.50% as of December 31, 2021. The SVB Revolver is subject to renewal and is
scheduled to mature on April 22, 2024. As of December 31, 2021, there were no
outstanding borrowings under the SVB Revolver.

Our Term Note had an aggregate principal balance of $14.0 million as of
December 31, 2021, bore interest at a rate equal to the greater of the bank's
prime rate plus 3.50%, or 6.50%, and required 30 consecutive equal monthly
payments of principal beginning on November 1, 2021. The Term Note matures on
April 1, 2024.

Our borrowings under the LSA A&R and subsequent amendments are secured by substantially all of our present and future assets.

On January 31, 2022, the Company further amended the A&R LSA, which modified the
Term Note annual interest rate equal to the greater of the bank's prime rate
plus 2.50% or 5.75%, modified the SVB Revolver annual interest rate equal to (i)
the greater of the bank's prime rate plus 0.75% or 5.00% when the streamline
period is in effect and (ii) the greater of the bank's prime rate plus 1.25% or
5.00% at all other times, and decreased the advance rate for borrowing base
receivables and inventory, and increased the cash and cash availability
streamline threshold from $8,000 to $50,000.

The amendment replaced the existing EBITDA clause for 2022 and beyond with a net revenue clause and increased the minimum cash and cash availability threshold by $5.0 million for $30.0 million.

Financed insurance premium

In September 2020, the Company entered into a short-term commercial premium
finance agreement with AFCO Credit Corporation for various corporate liability
insurance policies totaling $0.6 million to be paid in eight equal monthly
payments. The financed insurance premium accrued interest at a rate of 4.09%. As
of December 31, 2020, the remaining principal balance on the financed insurance
premium was $0.3 million.

During the year ended December 31, 2021, the Company renewed its corporate
liability policies and entered into several new short-term commercial premium
finance agreements with AFCO Credit Corporation totaling $4.7 million to be paid
in ten equal monthly payments, all of which accrue interest at a rate of 3.59%.
As of December 31, 2021, the remaining principal balance on the financed
insurance premium was $2.5 million.

Paycheck Protection Program Loan

In April 2020, we applied for and received proceeds from the U.S. Small Business
Administration (''SBA'') Paycheck Protection Program (''PPP'') in the amount of
$2.1 million, with SVB as lender for the loan (the ''PPP Loan''), under the
Federal Coronavirus Aid, Relief, and Economic Security Act (the ''CARES Act'').
The PPP Loan was considered necessary to support our ongoing operations due to
economic uncertainty at the time resulting from the COVID-19 pandemic and
reduced access to alternative sources of liquidity.

Under the terms of the PPP Loan, interest accrued on the outstanding principal
at a rate of 1.0% per annum. The CARES Act and the PPP provide a mechanism for
forgiveness of up to the full amount borrowed. Under the PPP, we applied for
forgiveness for all of the PPP Loan. On June 15, 2021, we received forgiveness
for the PPP loan for the full amount of $2.1 million of principal. As a result
of the PPP loan being forgiven, we recognized a $2.1 million gain for the year
ended December 31, 2021.


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Cash flow

The following table summarizes our cash flows (in millions):

                                                   Year Ended December 31,
                                                      2021                 

2020

Net cash used in operating activities       $       (40.6)               $ 

(0.1)

Net cash used in investing activities                (2.0)                 

(1.1)

Net cash provided by financing activities           120.6                   

6.5

Net change in cash and cash equivalents     $        78.0                $  5.3



Operating Activities

For the year ended December 31, 2021, net cash used in operating activities was
$40.6 million as compared to net cash used in operating activities of $0.1
million in the prior year. The change in operating cash flows was primarily
driven by a higher net loss. The higher net loss was partially offset by higher
non-cash charges, net, primarily driven by the interest expense from contingent
beneficial conversion features, and a larger net decrease in net assets and
liabilities as compared to the prior year, primarily driven by an increase in
accrued returns from accepted and anticipated customer returns for products
subject to the Warning Letter. The Company expects the settlement of the higher
accrued returns resulting from the Warning Letter to have a negative impact to
cash flows from operations for 2022.

Investing activities

For the year ended December 31, 2021, net cash used in investing activities
increased to $2.0 million from $1.1 million for the year ended December 31, 2020
due to higher purchases of intangible assets. We expect our capital expenditures
to continue to grow in future periods, primarily driven by investments to expand
our production capabilities to additional factories in other geographical
locations, as well as investments in tooling and equipment to manufacture new
products.

Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities
increased to $120.6 million from $6.5 million for the year ended December 31,
2020, primarily driven by cash provided from the reverse recapitalization and
PIPE financing, partially offset by higher net repayment on our line of credit.


Indemnification

In the ordinary course of business, we enter into agreements that may include
indemnification provisions. Pursuant to such agreements, we may indemnify, hold
harmless, and defend an indemnified party for losses suffered or incurred by the
indemnified party. Some of the provisions will limit losses to those arising
from third-party actions. In some cases, the indemnification will continue after
the termination of the agreement. The maximum potential amount of future
payments we could be required to make under these provisions is not
determinable. We have never incurred material costs to defend lawsuits or settle
claims related to these indemnification provisions.

In connection with the consummation of the Merger, we entered into
indemnification agreements with our directors and officers that may require us
to indemnify our directors and officers against liabilities that may arise by
reason of their status or service as directors or officers to the fullest extent
permitted by Delaware corporate law. We currently have directors' and officers'
insurance coverage that reduces our exposure and enables us to recover a portion
of any future amounts paid. We believe the estimated fair value of these
indemnification agreements in excess of applicable insurance coverage is
immaterial.

Significant Accounting Policies and Estimates

Our significant accounting policies are fundamental to understanding our results
of operations and financial condition as they require that we use estimates and
assumptions that may affect the value of our assets or liabilities and financial
results. 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 1.

The accounting policies and estimates described below are those that the Company considers to be the most critical in the preparation of its consolidated financial statements because they require management to make subjective and complex judgments.

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on inherently uncertain issues. Actual results may differ from these estimates under different assumptions or conditions.

Returns of sales, discounts, discounts and discounts

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. Revenues are
reduced in the accompanying consolidated statements of operations and
comprehensive loss for anticipated sales returns, discounts, and allowances,
based on our analysis of historical sales returns and contractual discounts and
allowances. Expected returns, as well as estimated discounts and allowances that
have been earned but not yet honored or paid out, are included in accrued and
other expenses in the accompanying balance sheets. Actual returns may vary from
estimates if we experience a change in actual sales returns or exchange patterns
due to unanticipated changes in products or competitive pressures.

Sales return rates, excluding the impact of regulatory actions, have been
sufficiently predictable to allow us to estimate expected future returns. We
review the actual returns as a percentage of sales to determine the historical
rate of return. 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. Actual returns may
vary from estimates if we experience a change in actual sales returns or
exchange patterns due to unanticipated changes in products, competitive
pressures, or regulatory actions. As a result of the FDA Warning Letter received
October 1, 2021, the Company's results of operations for the fourth quarter and
year-ended 2021 were substantially and negatively impacted due to the reduction
of revenues for received and anticipated returns of Owlet Smart Sock and Owlet
Monitor Duo product. For the quarter and year ended December 31, 2021, the
Company recorded contra-revenue of $23.2 million and accrued returns of
$20.1 million as of December 31, 2021.

Sales rebates, discounts, and allowances provided to our customers have been
sufficiently predictable to allow us to estimate expected future discounts and
allowances. Discounts and allowances are estimable based on existing and
expected promotional programs and contractual terms in place at the time of
sale. New promotional programs or changes to existing promotional programs could
impact the estimated sales rebates, discounts, and allowances

The estimates and assumptions used to reserve for rights of return, rebates,
discounts, and allowances have been accurate in all material respects and have
not materially changed in the past.

Warranty reserves

Our products include an assurance-type limited warranty. The estimated warranty
costs, which are expensed at the time of sale and included in cost of revenues,
are based on the results of historical trends and warranty claim rates incurred
and are adjusted for any current or expected trends as appropriate. The warranty
reserve estimate can be affected by the release of new products or updates which
could have failure rates that differ from historical products. We regularly
assess and adjust the estimate of accrued warranty claims by updating claims
rates for actual trends and projected claim costs.

Determination of the fair value of common shares before the merger

For the period during which the Company's common stock was not publicly traded,
the estimated fair value of our common stock has been determined by our Board as
of the date of each option award grant with input from management, considering
our most recently available third-party valuation of common stock, and our
Board's assessment of additional objective and subjective factors that it
believed were relevant and which may have changed from the date of the most
recent valuation through the date of the grant. We believe that the Board has
the relevant experience and expertise to determine fair value of our common
stock. Third-party valuations were performed in accordance with the guidance
outlined in the American Institute of Certified Public Accountants' Accounting
and Valuation Guide, Valuation of Privately-Held-Company Equity Securities
Issued as Compensation. Management has considered numerous factors in
determining the best estimate of fair value of our common stock, including the
following:

•the valuation carried out by unrelated specialist third parties;

•our results of operations, financial condition and capital resources;

• our stage of development and current business conditions and projections, including the introduction of new products;

•the lack of marketability of our common stock;

•the hiring of key personnel and the experience of our management;

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•the likelihood of a liquidity event occurring, such as an IPO or sale of our company given prevailing market conditions;

•the nature and history of our activities;

•industry trends and the competitive environment;

•the illiquidity of stock-based awards involving securities of a private company; and

•General economic, regulatory and capital market conditions.

The assumptions underlying these valuations were highly complex and subjective
and represented management's best estimates, which involved inherent
uncertainties and the application of management's judgment. As a result, if we
had used significantly different assumptions or estimates, the fair value of our
common stock and our stock-based compensation expense could be materially
different.

Since a public trading market for our common stock has been established after
the Merger, it will no longer be necessary for our Board to estimate the fair
value of our common stock in connection with our accounting for granted stock
options and other such awards we may grant, as the fair value of our common
stock will be determined based on the quoted market price of our common stock.

Liability related to preferred share purchase warrants

We classify warrants to purchase shares of our redeemable convertible preferred
stock as a liability on our consolidated balance sheets as each warrant is a
free-standing instrument that may require us to transfer consideration upon
exercise. The preferred stock warrants were settled immediately prior to the
Merger on July 15, 2021, as further described in Part II. Item 8. "Financial
Statements and Supplementary Data - Note 3."

Each warrant is initially recorded at fair value upon issuance, net of issuance
costs, using the Black-Scholes option pricing model, and is subsequently
re-measured to fair value at each subsequent balance sheet date. Changes in fair
value of warrants are recognized as a component of preferred stock warrant
liability adjustment in the consolidated statements of operations and
comprehensive loss.

The Black-Scholes valuation model requires significant estimates including the
expected volatility of our common stock, expected dividend yield, option term
and risk-free rate. We derive our volatility from the average historical stock
volatilities of peer public companies over a period equivalent to the expected
term of the awards. As our historical share option exercise experience does not
provide a reasonable basis upon which to estimate the expected term, we estimate
the expected term using the simplified method based on the vesting and
contractual terms of the award. Under the simplified method, the expected term
is equal to the average of the stock-based award's weighted average vesting
period and its contractual term. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant. Expected dividend
yield is 0.0% as we do not anticipate paying dividends on our common stock for
the foreseeable future.

Income Taxes

In evaluating the ability to recover our deferred income tax assets, we consider
all available positive and negative evidence, including our operating results,
ongoing tax planning and forecasts of future taxable income on a
jurisdiction-by-jurisdiction basis. In the event we determine that we would be
able to realize our deferred tax assets in the future in excess of their net
recorded amount, we would make an adjustment to the valuation allowance that
would reduce the provision for income taxes. Conversely, in the event that all
or part of the net deferred tax assets are determined to not be realizable in
the future, an adjustment to the valuation allowance would be charged to
earnings in the period when such a determination is made. As of December 31,
2021 and December 31, 2020, 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. Based on positions taken in our tax filings, we concluded that
there are no significant uncertain tax positions requiring disclosure as of
December 31, 2021 and December 31, 2020, and that there are no material amounts
of unrecognized tax benefits. 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. The JOBS Act
permits companies with EGC status to take advantage of an extended transition
period to comply with new or revised accounting standards, delaying the adoption
of these accounting standards until they would apply to private companies. We
intend to use this extended transition period
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to enable us to comply with new or revised accounting standards that have
different effective dates for public and private companies until the earlier of
the date we (i) are no longer an EGC or (ii) affirmatively and irrevocably opt
out of the extended transition period provided in the JOBS Act. As a result, our
consolidated financial statements may not be comparable to companies that comply
with the new or revised accounting standards as of public company effective
dates.

In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act. 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.

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 $1.07 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.

Small filing company

Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited consolidated financial statements. We will remain a smaller
reporting company until the last day of the fiscal year in which (i) the market
value of our Common Stock held by non-affiliates exceeds $250 million as of the
prior June 30, or (ii) our annual revenues exceeded $100 million during such
completed fiscal year and the market value of our Common Stock held
by non-affiliates exceeds $700 million as of the prior June 30.

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