Owlet Inc.

03/09/2026 | Press release | Distributed by Public on 03/09/2026 14:35

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 statements 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, Inc. and its consolidated subsidiaries. Except as otherwise stated, dollars are shown in thousands, except per share amounts.
Overview
Owlet is a leading pediatric health platform and the only company globally to offer U.S. FDA-cleared and internationally medically-certified wearable pediatric monitors for home use. By delivering hospital-grade technology through a consumer-friendly interface, we bridge the critical gap between clinical care and the home.
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.
Components of Operating Results
Revenues
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, with a growing minority portion of revenues being generated from subscriptions to our Owlet360 service.
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 platform costs, and reserves for excess and obsolete inventory. Cost of revenues associated with Owlet360 mainly consist of app store distribution fees.
Operating Expenses
General and Administrative. General and administrative expenses consist primarily of salaries, benefits, stock-based compensation, and bonuses for finance and accounting, legal, human resources, operations, quality 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, litigation settlement costs, insurance loss recovery, and facilities rent.
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.
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, platforms and services, including quality and clinical testing.
Other Income (Expense)
Interest Income (Expense), Net. Interest income (expense), net consists of interest incurred on our outstanding borrowings and amortization of debt financing costs. Interest income consists of interest earned on our money market funds and other cash and cash equivalents.
Common Stock Warrant Liability Adjustment. Mark to market adjustment to recognize the change in fair value of common stock warrant liabilities.
Other Income (Expense), Net. Other income (expense), net includes our net gain (loss) on foreign exchange transactions and transaction costs.
Income Tax Provision. Income tax provision consists primarily of U.S. federal and state income taxes related to the tax jurisdictions in which we conduct business.
Results of Operations
The following table sets forth our results of operations for the periods presented (dollars in thousands, except per share amounts):
Year Ended December 31,
2025 2024
Revenues $ 105,708 $ 78,056
Cost of revenues 52,175 38,748
Gross profit 53,533 39,308
Operating expenses:
General and administrative 29,245 33,967
Sales and marketing 18,473 15,760
Research and development 14,076 9,801
Total operating expenses 61,794 59,528
Operating loss (8,261) (20,220)
Other income (expense):
Interest expense, net (3,418) (1,630)
Common stock warrant liability adjustment (26,571) 9,293
Other income (expense), net (1,400) 75
Total other income (expense), net (31,389) 7,738
Loss before income tax provision (39,650) (12,482)
Income tax provision (28) (54)
Net loss and comprehensive loss $ (39,678) $ (12,536)
Accretion on convertible preferred stock (3,392) (4,926)
Accretion on redeemable common stock (84) (25)
Allocation of net loss attributable to redeemable common stockholders 1,299 270
Net loss attributable to redeemable common stockholders $ (1,215) $ (245)
Net loss attributable to common stockholders $ (41,855) $ (17,217)
Net loss per share attributable to redeemable common stockholders
Basic and diluted $ (2.16) $ (1.42)
Weighted-average number of shares outstanding used to compute net loss per share attributable to redeemable common stockholders
Basic and diluted 562,500 172,131
Net loss per share attributable to common stockholders
Basic and diluted $ (2.31) $ (1.57)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders
Basic and diluted 18,093,925 10,951,270
Revenues
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
Revenues $ 105,708 $ 78,056 $ 27,652 35.4 %
The increase was primarily due to higher sales of Dream Sock and Dream Duo products, reflecting an increase in consumer demand as compared to the prior year. To a lesser extent, growth in revenue generated from subscriptions to our Owlet360 service, which launched in January 2025, also contributed to the increase.
Cost of Revenues and Gross Profit
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
Cost of revenues $ 52,175 $ 38,748 $ 13,427 34.7 %
Gross margin 50.6 % 50.4 %
The increase in cost of revenues was primarily due to the increase in product sales. The increase in gross margin was primarily due to higher revenue, favorable product mix, improved fixed cost absorption, and lower direct product and fulfillment costs. To a lesser extent, the increase in gross margin was also attributed to the growth in revenue from subscriptions to our Owlet360 service. These contributions to gross margin expansion were partially offset by the impact of tariffs, which was more pronounced during the second half of 2025.
General and Administrative
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
General and administrative $ 29,245 $ 33,967 $ (4,722) (13.9 %)
The decrease was driven primarily by the absence of significant litigation settlement costs and impairment charges recognized in 2024, which did not recur in the current period, and lower severance expenses. The decrease was partially offset by increases in headcount related expenses, including salaries, bonus, and benefits, as well as increased stock-based compensation, driven by a notable increase in our common stock price during 2025.
Sales and Marketing
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
Sales and marketing $ 18,473 $ 15,760 $ 2,713 17.2 %
The increase was driven primarily by higher marketing expenses and increases in headcount related expenses, including salaries, commissions, bonus, and benefits.
Research and Development
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
Research and development $ 14,076 $ 9,801 $ 4,275 43.6 %
The increase was driven primarily by increased investment in research and development, particularly with product development, quality, and clinical testing, and increases in headcount related expenses, including salaries, bonus, and benefits.
Other Income (Expense), Net
Year Ended December 31, Change
(dollars in thousands) 2025 2024 $ %
Interest expense, net $ (3,418) $ (1,630) $ (1,788) 109.7 %
Common stock warrant liability adjustment $ (26,571) $ 9,293 $ (35,864) (385.9 %)
Other income (expense), net $ (1,400) $ 75 $ (1,475) (1966.7 %)
The increase in interest expense was driven primarily by interest and amortization of debt financing costs related to our current term loan facility and asset-based revolving credit facility, which were entered into in September 2024, as well as the absence of a gain on interest for forgiveness of interest accrued related to an arrangement with a significant vendor that was fully settled in September 2024, partially offset by the absence of termination fees related to the SVB term loan that was terminated in September 2024.
Fluctuations in our common stock warrant liability adjustment resulted from an increase in our common stock price, and the related increase in the fair value of liability-classified common stock warrants. As described further in Note 9, most of these common stock warrants were exchanged for common shares in October 2025.
Changes in other income (expense) were driven primarily by transaction costs related to the Warrant Exchange as discussed in Note 9. Common Stock Issuance, Redeemable Common Stock, Common Stock Warrants, and Convertible Preferred Stock, within the Notes to Consolidated Financial Statements included elsewhere in this Report.
Non-GAAP Adjusted EBITDA
We have included a certain non-GAAP financial measure in this Annual Report, adjusted EBITDA. Adjusted EBITDA is defined as net loss adjusted for income tax provision, interest expense, net, depreciation and amortization, impairment of intangible assets, common stock warrant liability adjustment, stock-based compensation, transaction costs, charges related to certain legal matters, net of insurance loss recovery related to certain legal matters, and restructuring costs. We use this non-GAAP financial measure as an internal measure of business operating performance and as performance measures for benchmarking against our peers and competitors. We believe our presentation of adjusted EBITDA provides a meaningful perspective of the underlying operating performance of our current business and enables investors to better understand and evaluate our historical and prospective operating performance. We believe that this non-GAAP financial measure is an important supplemental measure of operating performance because it excludes items that vary from period to period without correlation to our core operating performance and highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures. Due to the nature of the items being excluded, such items do not reflect future gains, losses, expenses or benefits and are not indicative of our future operating performance. We believe investors, analysts and other interested parties use adjusted EBITDA in evaluating issuers, and the presentation of these measures facilitates a comparative assessment of our operating performance in addition to our performance based on GAAP results.
Adjusted EBITDA should not be considered as an alternative to net loss as a measure of financial performance or any other performance measure derived in accordance with GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Adjusted EBITDA is not a recognized term under GAAP, and our presentation of this non-GAAP measure does not replace the presentation of our financial results in accordance with GAAP. Because all companies do not use adjusted EBITDA (and similarly titled financial measures) in the same way, those measures as used by other companies may not be consistent with the way we calculate such measures. See the reconciliation table below for additional information regarding the non-GAAP financial measure included herein (in thousands):
Year Ended December 31,
(dollars in thousands) 2025 2024
GAAP net loss $ (39,678) $ (12,536)
Income tax provision 28 54
Interest expense, net 3,418 1,630
Depreciation and amortization 521 452
Impairment of intangible assets 46 1,897
Common stock warrant liability adjustment 26,571 (9,293)
Stock-based compensation 9,348 8,633
Transaction costs 1,432 394
Charges related to certain legal matters, net of insurance loss recovery related to certain legal matters 282 6,169
Restructuring costs - 764
Non-GAAP Adjusted EBITDA $ 1,968 $ (1,836)
Liquidity and Capital Resources
We fund our operations primarily with proceeds from issuances of our equity securities, borrowings under our loan facilities, and sales of our products and services. As of December 31, 2025, we had cash and cash equivalents of $35,461, and additional availability of $9,897 on our line of credit. We believe our existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet our long-term working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, our planned sales and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in increased dilution to our stockholders. If we were to incur additional debt financing, it would result in increased debt service obligations and the instruments governing such debt could require additional operating and financing covenants that would restrict our operations.
Tariffs announced in 2025 have adversely impacted our cost of goods sold and gross margins and may continue to affect cash flows if elevated tariff rates persist.
Equity Financings
Refer to Note 9 within the Notes to Consolidated Financial Statements included elsewhere in this Report for additional details regarding our common stock issuance, redeemable common stock, common stock warrants, and convertible preferred stock.
On August 7, 2025, we entered into a privately negotiated Exchange Agreement with certain Holders of our Series A Warrants and Series B Warrants, in which the Holders agreed to exchange with us their Series A Warrants relating to an aggregate of 7,215,737 shares of common stock and, if applicable, their Series B Warrants relating to an aggregate of 1,799,021 shares of common stock, for an aggregate of 5,426,429 of newly issued shares of common stock. We consummated the Exchanges and the issuance of the Exchange Shares on October 10, 2025. See Note 9. Common Stock Issuance, Redeemable Common Stock, Common Stock Warrants, and Convertible Preferred Stock, within the Notes to Consolidated Financial Statements included elsewhere in this Report, for additional details regarding this agreement.
On October 23, 2025, we completed an underwritten public offering in which we issued and sold 4,196,000 shares of our common stock at a price of $7.15 per share. Subsequently, the underwriters exercised their over-allotment option for an additional 629,400 shares, which settled after the initial closing and increased the total shares issued in the offering to 4,825,400. From this offering, we received net proceeds of $32,109 after deducting underwriting discounts and commissions.
Debt and Other Financing Arrangements
Refer to Note 6 within the Notes to Consolidated Financial Statements included elsewhere in this Report for additional details regarding our debt arrangements, including the expected maturity of such arrangements.
WTI Loan Facility
As of December 31, 2025 principal outstanding on the loan was $7,012. The net carrying value of the WTI Loan Facility was $5,609, which includes the outstanding principal and accrued PIK interest of $249, net of $1,652 in unamortized debt financing costs.
As of December 31, 2025, we were in compliance with all covenants under the WTI Loan Facility.
ABL Line of Credit
We, as guarantor, and our wholly-owned subsidiary, OBCI, as borrower, maintain an asset-based revolving credit facility (the "ABL Line of Credit") with a maximum principal amount of up to $20,000 (the "Revolving Commitment"). The ABL Line of Credit is collateralized by substantially all of our assets.
As of December 31, 2025, there was $6,932 of outstanding borrowings under the ABL Line of Credit, and the remaining borrowing base availability was $9,897 as of December 31, 2025.
As of December 31, 2025, we were in compliance with all covenants under the Credit Agreement.
Financed Insurance Premiums
In 2025, we renewed a number of its insurance policies and entered into several new short-term commercial premium finance agreements with premium finance companies totaling $886 to be paid within one year, accruing interest at a weighted average rate of 8.4%. As of December 31, 2025, the remaining principal balance on the combined financed insurance premiums was $489.
Funding Requirements
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 consolidated financial statements are issued.
We have historically experienced recurring operating losses, with the exception of the third quarter of 2025, and have generated negative cash flows from operations, resulting in an accumulated deficit of $307,873 as of December 31, 2025, and during the year ended December 31, 2025 and 2024, we had negative cash flows from operations of $10,792 and $11,209, respectively. As of December 31, 2025, we had $35,461 of cash on hand.
As we continue to address these financial conditions, management has undertaken the following actions:
•As described in Note 9, Common Stock Issuance, Redeemable Common Stock, Common Stock Warrants, and Convertible Preferred Stock, in October 2025 we completed an offering for the sale of 4,825,400 shares of our common stock at an offering price to the public of $7.15 per share. From this offering, we received net proceeds of $32,109 after deducting underwriting discounts and commissions. We intend to use the net proceeds of this offering to support continued commercialization and research and development, and for general corporate purposes.
•As described further in Note 9, Common Stock Issuance, Redeemable Common Stock, Common Stock Warrants, and Convertible Preferred Stock, in September 2024, we issued 3,135,136 shares of our common stock and received net proceeds of $10,590 and in February 2024, we consummated a sale of preferred stock and warrants to purchase our common stock for a gross purchase price of $9,250.
•As described in Note 6 Debt and Other Financing Arrangements, in September 2024, we entered into a loan facility agreement with WTI Fund X, Inc. and WTI Fund XI, Inc. (collectively "WTI" or "Lenders") for a term loan facility of up to $15,000 (the "WTI Loan Facility"). In July 2025, WTI granted a 90-day extension, making the Second Tranche Commitment available through November 13, 2025, which was previously available through August 15, 2025. On September 11, 2024, we entered into a credit and security agreement (the "Credit Agreement") for an asset-based revolving credit facility (the "ABL Line of Credit") with the financial institutions party thereto from time to time as lenders (collectively, the "Lenders") and ABL OPCO LLC, a Delaware limited liability company, in its capacity as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), with a maximum revolving commitment amount of up to $15,000, with an additional $5,000 revolving commitment available on September 11, 2025. On June 11, 2025, we entered into a First Amendment to the Credit Agreement (the "First Amendment") to, among other things, (i) modify certain financial covenants required to be maintained by our wholly-owned subsidiary, Owlet Baby Care, Inc., a Delaware corporation ("OBCI"), (ii) increase the amount of capital expenditures that may be incurred by OBCI during certain fiscal years, and (iii) expand the eligibility of certain accounts receivable that OBCI can borrow against. As of December 31, 2025, we have borrowings of $7,012 under the WTI Loan Facility and $6,932 under the ABL Line of Credit.
We believe our existing cash, borrowing capacity under the ABL Line of Credit, and cash provided by operations will be sufficient to meet operating cash flow requirements for at least twelve months from the date of issuance of the December 31, 2025 consolidated financial statements. The accompanying consolidated financial statements 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.
There can be no assurance that we will generate sufficient future cash flows from operations due to potential factors, including but not limited to inflation, recession, or reduced demand for our products. If revenues decrease from current levels, we may be unable to further reduce costs, or such reductions may limit our ability to pursue strategic initiatives and grow revenues in the future.
Cash Flows
The following table summarizes our cash flow (in thousands):
Year Ended December 31,
2025 2024
Net cash used in operating activities $ (10,792) $ (11,209)
Net cash used in investing activities (943) (761)
Net cash provided by financing activities 32,115 16,044
Net change in cash, cash equivalents, and restricted cash $ 20,380 $ 4,074
Subsequent to the release of our preliminary earnings results on March 4, 2025, we identified and corrected a $524 classification error between cash flows from operating activities and financing activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2024. Additionally, a balance sheet classification entry was recorded resulting in a $346 decrease in the current portion of long-term and other debt and increase in long term debt, net in the Consolidated Balance Sheet as of December 31, 2024.
Operating Activities
For the year ended December 31, 2025, net cash used in operating activities was $10,792 as compared to net cash used in operating activities of $11,209 in the prior year. The change in operating cash flows was primarily driven by an increase in net loss adjusted for non-cash items (adjustments to reconcile net loss to net cash used in operating activities), partially offset by an increase in accounts receivable due to increased sales.
Investing Activities
For both the year ended December 31, 2025 and December 31, 2024, we used $943 and $761 respectively, to invest in various projects, primarily for the development and enhancement of our new subscription app.
Financing Activities
For the year ended December 31, 2025 and 2024, net cash provided by financing activities was $32,115 and $16,044, respectively. The increase is primarily driven by the fact that we received more from the net proceeds from the issuance of common stock in the current period than in the prior period, partially offset by less long-term borrowings in the current period as compared to the prior period.
Critical 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 our significant accounting policies, estimates, and methods used in the preparation of the consolidated financial statements, see Part II. Item 8. "Financial Statements and Supplementary Data" - Note 2.
The accounting policies and estimates described below are those we consider most critical in preparing our consolidated financial statements because they require management to make subjective and complex judgments about matters that are inherently uncertain. Actual results may differ from these estimates under different assumptions or conditions.
Sales Returns, Rebates, Discounts, and Allowances
Our contracts include promises to provide rights of return to customers 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 income (loss) for anticipated sales returns, discounts, and allowances, based on our analysis of historical sales returns and contractual discounts and allowances. Expected returns and estimated rebates and allowances that have been earned but not yet honored or paid out are included in accrued and other expenses in the accompanying consolidated balance sheets. Estimated discounts that have been earned but not yet honored or paid out are included as a reduction to accounts receivable, net. 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.
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.
Revenue for Contracts with Customers
We generated substantially all of our revenues from the sale of our hardware products, primarily the Owlet Dream Sock, Owlet Cam, and Owlet Monitor Duo. The transaction price is calculated as selling price less the estimate of variable consideration, including future returns, volume rebates, and sales incentives related to current period sales.
Arrangements with Multiple Performance Obligations
We enter into contracts that have multiple performance obligations. Product sales include two performance obligations. The first performance obligation is the delivery of hardware and embedded firmware essential to the functionality of the hardware. Embedded firmware allows the hardware to recognize inputs to the hardware and provide appropriate outputs. The second performance obligation is the implied right to connect the downloadable mobile application, provided free of charge, to the hardware, which enables users to view and access real-time data outputs. The implied right to receive future unspecified application upgrades, added features, firmware updates, and bug fixes, on a when-and-if available basis, are considered part of the embedded firmware, and connection to the downloadable mobile applications performance obligations.
We allocate the transaction price to each performance obligation based on a relative standalone selling price ("SSP"). Our process for determining our SSP considers multiple factors, including an adjusted market assessment and consumer behaviors, and varies depending on the facts and circumstances of each performance obligation. Revenues allocated to the delivery of the hardware and embedded firmware essential to the functionality of the hardware represent substantially all of the arrangements consideration and reflect the our best estimate of the selling price if it was sold regularly on a stand-alone basis. SSP for the mobile application is estimated based on relevant market and consumer data.
Revenues are recognized at the time the related performance obligation is satisfied by transferring control of the promised good or service to a customer. Revenues allocated to the hardware and embedded firmware are recognized at the time of product delivery, provided the other conditions for revenue recognition have been met. This generally occurs upon delivery of the product to a third-party carrier. Revenues allocated to the implied right to access the mobile application and the implied right to receive, on a when-and-if-available basis, future unspecified application upgrades, added features, and bug fixes, are recognized on a straight-line basis over the estimated usage period of the underlying hardware product. The usage period is estimated based on historical user activity and ranges from 10 to 27 months.
We record revenues net of sales tax and variable consideration such as discounts and customer returns. Payment terms are short-term in nature and, as a result, do not have any significant financing components. We record estimated reductions to revenue in the form of variable consideration for customer sales programs, returns, and incentive offerings including rebates, markdowns, promotions, and volume-based incentives.
Consideration payable to a customer, such as cooperative advertising and pricing promotions to retailers and distributors, is recorded as a reduction to revenue. Deferred revenues represent advance payments received from customers prior to performance by us. Sales taxes collected from customers which are remitted to governmental authorities are not included in revenue and are reflected as a liability in the accompanying consolidated balance sheets.
Inventory
Inventory includes material and third-party assembly costs. Inventory is recorded at the lower of cost or net realizable value, with cost being determined using the weighted average cost method. We review inventory for excess supply, obsolescence, and valuations above estimated realizable amounts, and write down inventory to net realizable value when net realizable value does not exceed cost. Substantially all of our inventory consisted of finished goods as of December 31, 2025 and 2024.
Warrant Liability
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 480 and ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own shares of common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-operating gain or loss in the consolidated statements of operations and comprehensive income (loss). See Part II. Item 8. "Financial Statements and Supplementary Data - Note 10" included in this Report for further discussion on fair value considerations.
Redeemable Shares
In connection with the Loan Facility Agreement with WTI, we issued redeemable common shares to WTI. The shares issued to WTI 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. Because the shares are redeemable at the option of the WTI Funds, the shares are recorded in mezzanine equity on the consolidated balance sheets.
The redeemable common shares were initially recorded at their fair value determined using a combination of the value of the our stock on the date of issuance and the theoretic value of a stand-alone put option valued using a Black-Scholes put option model discounted by a present value factor that considers the credit spread between an estimated company specific discount rate and the risk-free rate of return.
Smaller Reporting Company
We qualify as a "smaller reporting company" as defined under the Exchange Act. We will remain a smaller reporting company until (1) as of the last business day of our most recent second fiscal quarter, our prior year's annual revenues are at least $100,000 and our voting and non-voting common stock held by non-affiliates as of such second fiscal quarter end is at least $250,000 or (2) our voting and non-voting common stock held by non-affiliates is at least $700,000 measured on the last business day of our most recent second fiscal quarter. Smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations.
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