UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

(Amendment No. 1)

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 001-39783

 

FOXO TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

Delaware   85-1050265
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

729 N. Washington Ave., Suite 600

Minneapolis, MN

  55401
(Address of principal executive offices)   (Zip Code)

 

(612) 562-9447

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class:   Trading Symbol(s)   Name of Each Exchange on Which Registered:
Class A Common Stock, par value $0.0001   FOXO   NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule 12b-2.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of January 19, 2024, there were 8,946,032 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”) of the registrant issued and outstanding.

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of FOXO Technologies Inc. (the “Company”) for the three and nine months ended September 30, 2023 filed with the Securities and Exchange Commission on January 19, 2024 (the “Original 10-Q”). On May 30, 2024, after review and consideration of the errors described below, the Board of Directors, after consultation with Kreit & Chiu CPA LLP, the Company’s independent registered public accounting firm, concluded that the Company’s financial statements for the three and nine months ended September 30, 2023 (the “September 30, 2023 Financial Statements”) could no longer be relied upon as being in compliance with generally accepted accounting principles. Accordingly, the Company is restating the September 30, 2023 Financial Statements.

 

Subsequent to filing the Original 10-Q, the Company determined that the down round provisions of common stock warrants that the Company assumed in a business combination that closed on September 22, 2022 (the “Assumed Warrants”) had been triggered on September 19, 2023. The triggering event occurred as a result of the issuance of rights to receive shares (the “Rights”) under the terms of a Shares for Services Agreement (the “SSA Agreement”) dated September 19, 2023. The SSA Agreement was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 19, 2023. Under Section 3(b)(i) of the Form of Assumed Warrants, the Rights constituted a dilutive issuance and, as such, required the company to reduce the per share exercise price of the outstanding Assumed Warrants and proportionally increase the number of Assumed Warrants outstanding.

 

In accordance with Accounting Standard Update (“ASU”) 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” as amended, when determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings (loss) per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a deemed dividend and as a reduction of income (or an increase in the net loss) available to common stockholders in basic and diluted EPS.

 

In May 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity (that is, deemed dividends) and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The deemed dividend represents the increase in the fair value of the derivative as a result of the modification.

 

During the six months ended June 30, 2023, the Company recorded a deemed dividend of $2.5 million in connection with an Exchange Offer, which is more fully discussed in Note 7 to the accompanying unaudited condensed consolidated financial statements. However, the Company did not record the deemed dividend resulting from the trigger of the down round provisions of the Assumed Warrants in the Original 10-Q. Therefore, the deemed dividend was understated in the three and nine months ended September 30, 2023 by approximately $0.9 million. The Company is required to report any increase in the fair value of the Assumed Warrants resulting from a trigger of the down round provisions as a deemed dividend in its financial statements with a corresponding increase in the net loss available to common shareholders.

 

The error discussed above also resulted in an understatement of the reported number of Assumed Warrants outstanding at September 30, 2023 from a reported 25,868 Assumed Warrants outstanding to a corrected 2,007,848 Assumed Warrants outstanding and an overstatement of the exercise price of the Assumed Warrants from a reported $62.10 per share to a corrected exercise price of $0.80 per share. Accordingly, we are restating our previously filed financial statements to correct these errors. The correction of these errors did not impact assets, liabilities, total stockholders’ deficit, total cash flows, net loss or comprehensive loss.

 

 

 

 

The effect of the restatement on each of our financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 is as follows (dollars in thousands, except per share amounts):

 

Unaudited Condensed Consolidated Balance Sheets Data

 

   As Previously
Reported
September 30,
2023
   Correction   As Restated
September 30,
2023
 
Stockholders’ deficit            
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none shares issued and outstanding  $-   $-   $- 
Common stock, $0.0001 par value, 500,000,000 shares authorized, 5,916,852 shares issued and outstanding  $6   $-   $6 
Additional paid-in-capital  $161,180   $912   $162,092 
Accumulated deficit  $(172,289)  $(912)  $(173,201)
Total stockholders’ deficit  $(11,103)  $-   $(11,103)

 

Unaudited Condensed Consolidated Statements of Operations Data

 

   For the
Three Months
Ended
September 30,
2023
As Previously
Reported
   Correction   For the
Three Months
Ended
September 30,
2023
As Restated
 
             
Net loss  $(3,660)  $-   $(3,660)
Deemed dividends  $-   $(912)  $(912)
Net loss to common stockholders  $(3,660)  $(912)  $(4,572)
Net loss per share, basic and diluted  $(0.75)  $(0.19)  $(0.94)

 

Unaudited Condensed Consolidated Statements of Operations Data

 

   For the
Nine Months
Ended
September 30,
2023
As Previously
Reported
   Correction   For the
Nine Months
Ended
September 30,
2023
As Restated
 
             
Net loss  $(22,592)   -   $(22,592)
Deemed dividends  $(2,466)   (912)  $(3,378)
Net loss to common stockholders  $(25,058)   (912)  $(25,970)
Net loss per share, basic and diluted  $(7.48)   (0.27)  $(7.75)

 

 

 

 

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit Data

 

  

For the
Three Months

Ended

September 30,

2023
As Previously
Reported

   Correction  

For the Three Months

Ended

September 30,

2023 As Restated

 
Additional paid-in-capital at September 30, 2023  $161,180   $912   $162,092 
Accumulated deficit at September 30, 2023  $(172,289)  $(912)  $(173,201)

 

  

For the Nine Months

Ended

September 30,

2023 As Previously Reported

   Correction  

For the Nine Months

Ended

September 30,

2023 As Restated

 
Additional paid-in-capital at September 30, 2023  $161,180   $912   $162,092 
Accumulated deficit at September 30, 2023  $(172,289)  $(912)  $(173,201)

 

Unaudited Condensed Consolidated Statements of Cash Flows Supplemental Data 

 

  

For the Nine Months

Ended

September 30,

2023 As Previously Reported

   Correction  

For the Nine Months

Ended

September 30,

2023 As Restated

 
NONCASH INVESTING AND FINANCING ACTIVITIES:            
Deemed dividends from Exchange Offer and down round provisions of Assumed Warrants  $2,466   $912   $3,378 

 

As a result of the correction of the errors, changes have been made to Part I, Item 1 (Financial Statements), Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Part II, Item 1A (Risk Factors). As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company’s Interim Chief Executive Officer and Interim Chief Financial Officer are providing currently dated certifications, set forth in Exhibits 31.1, 31.2 and 32.1 to this Amendment. Thus, the Company hereby amends Part 1, Items 1 and 2 and Part II, Item 1A of the Original Filing and adds such currently dated certificates and updated XBRL as Exhibits.

 

Except as disclosed above, the Amendment does not modify or update the disclosures presented in, or exhibits to, the Original 10-Q.

 

 

 

 

FOXO TECHNOLOGIES INC.

FORM 10-Q/A FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

 

TABLE OF CONTENTS 

 

PART I - FINANCIAL INFORMATION: 1
Item 1. Financial Statements 1
  Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 1
  Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 2
  Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months ended September 30, 2023 and 2022 3
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022 4
  Notes to Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
Item 4. Controls and Procedures 43
     
PART II - OTHER INFORMATION: 44
Item 1. Legal Proceedings 44
Item 1A. Risk Factors 45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 5. Other Information 49
Item 6. Exhibits 50
SIGNATURES 51

 

i

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

 

This Quarterly Report on Form 10-Q/A, or this Report, and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include, without limitation, Statements regarding estimates and forecasts of financial and performance metrics, projections of market opportunity and market share, potential benefits and the commercial attractiveness to its customers of our products and services, the potential success of our marketing and expansion strategies, realization of the potential benefits of the Business Combination (including with respect to stockholder value and other aspects of our business identified in this Report), as well as other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation, the direct and indirect effects of coronavirus disease 2019, or COVID-19, and related issues that may arise therefrom.

 

Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” or similar expressions are intended to identify forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or other events occur in the future. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described in Part I., Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2023, and elsewhere in this Report such as, but not limited to:

 

we have a history of losses and may not achieve or maintain profitability in the future;

 

our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern, which could limit our ability to raise additional capital;

 

we will require additional capital to commercialize our product and service offerings and grow our business, which may not be available on terms acceptable to us or at all;

 

the loss of the services of our current executives or other key employees, or failure to attract additional key employees;

 

the strength of our brands and our ability to develop, maintain and enhance our brands and our ability to develop and expand our customer base;

 

access to the substantial resources to continue the development of new products and services;

 

our ability to commercialize our technology enabled products and services with a high level of service at a competitive price, achieve sufficient sales volumes to realize economies of scale and create innovative new products and services to offer to our customers;

 

our ability to effectively and in a cost-feasible manner acquire, maintain and engage with our targeted customers;

 

the impact on our business of security incidents or real or perceived errors, failures or bugs in our systems and/or websites

 

the impact of changes in the general economic conditions;

 

our success and ability to establish and grow our epigenetic testing service and the development of epigenetic biomarkers;

 

our ability to apply the relatively new field of epigenetics to the industries in which we seek to operate;

 

our ability to validate and improve the results of our 2019 Pilot Study;

 

the impact of competition in the personal health and wellness testing market;

 

our ability to procure materials and services from third-party suppliers for our epigenetic testing services;

 

ii

 

 

our ability to maintain compliance now or in the future to laws and regulations relating to laboratory testing, our consumer engagement services and our use of epigenetic biomarkers;

 

our ability to maintain focus on our main business line initiatives, while providing ancillary product and service offerings that support our baseline technology;

 

our ability to satisfy the regulatory conditions that our business operates in;

 

the ability to contract or maintain relationships related to selling life insurance products underwritten and issued by third-party carriers;

  

competition in the industries in which we operate or seek to operate;

 

the dependence on search engines, social media platforms, content-based online advertising and other online sources to attract customers to our website;

 

our ability to comply with customer privacy and data privacy and security laws and regulations;

 

our ability to prevent or address the misappropriation of our data;

 

our ability to comply with current and changes to regulations in the jurisdiction in which we operate;

 

the impact of new legislation or legal requirements affecting how we communicate with our customers;

 

our ability to obtain sufficiently broad protection of our intellectual property throughout the world;

 

the impact of changes in trademark or patent law in the United States and other jurisdictions;

 

the impact of claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secret of their former employers;

 

lawsuits and other claims by third parties or investigations by various regulatory agencies that we may be subjected to and are required to report to, including but not limited to, the SEC;

 

our ability to successfully register and enforce our trademarks;

 

the impact of claims challenging the inventorship of our patents and other intellectual property;

 

the adequacy of our patent terms to protect our competitive position; and

 

the risks to our proprietary software and source code from our use of open source software.

 

Unless expressly indicated or the context requires otherwise, the terms “FOXO,” the “Company,” “we,” “us” or “our” in this Report refer to FOXO Technologies Inc., a Delaware corporation, and, where appropriate, its subsidiaries.

 

iii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

FOXO technologies inc. and subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(Unaudited)

 

   September 30,   December 31, 
   2023   2022 
        
Assets        
Current assets        
Cash and cash equivalents  $42   $5,515 
Supplies   1,131    1,313 
Prepaid expenses   1,306    2,686 
Prepaid consulting fees   
-
    2,676 
Other current assets   106    114 
Total current assets   2,585    12,304 
Intangible assets   428    2,043 
Reinsurance recoverables   
-
    18,573 
Cloud computing arrangements   
-
    2,225 
Other assets   118    263 
Total assets  $3,131   $35,408 
           
Liabilities and Stockholders’ (Deficit) Equity          
Current liabilities          
Accounts payable  $4,816   $3,466 
Related party payables   747    500 
Senior PIK Notes   4,006    1,409 
Accrued severance   1,528    1,045 
Accrued settlement   2,300    - 
Accrued and other liabilities   119    493 
Total current liabilities   13,516    6,913 
Warrant liability   67    311 
Senior PIK Notes   
-
    1,730 
Policy reserves   
-
    18,573 
Other liabilities   651    1,173 
Total liabilities   14,234    28,700 
Commitments and contingencies (Note 12)   
 
    
 
 
Stockholders’ (deficit) equity          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, none issued or outstanding as of September 30, 2023 and December 31, 2022
   
-
    
-
 
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 5,916,852 and 2,966,967 issued, and 5,916,852 and 2,752,890 outstanding as of September 30, 2023 and December 31, 2022, respectively   6    3 
Treasury stock, at cost, 0 and 214,077 as of September 30, 2023 and December 31, 2022, respectively   
-
    
-
 
Additional paid-in capital   162,092    153,936 
Accumulated deficit   (173,201)   (147,231)
Total stockholders’ (deficit) equity   (11,103)   6,708 
Total liabilities and stockholders’ (deficit) equity  $3,131   $35,408 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

1

 

 

Foxo Technologies INc. and subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Total revenue  $10   $14   $35   $93 
Cost of sales   70    
-
    70    
-
 
Gross profit   (60)   14    (35)   93 
Operating expenses:                    
Research and development   283    558    925    2,160 
Management contingent share plan expense (forfeitures)   (1,553)   
-
    (141)   
-
 
Impairment of intangible assets and cloud computing arrangements   
-
    
-
    2,633    
-
 
Selling, general and administrative   4,717    8,269    15,052    17,239 
Total operating expenses   3,447    8,827    18,469    19,399 
Loss from operations   (3,507)   (8,813)   (18,504)   (19,306)
Non-cash change in fair value of convertible debentures   
-
    (3,697)   
-
    (28,180)
Change in fair value of warrant liability   36    1,349    244    1,349 
Change in fair value of forward purchase put derivative   
-
    (1,284)   
 
    (1,284)
Change in fair value of forward purchase collateral derivative   
-
    (27,378)   
 
    (27,378)
Loss from PIK Note Amendment and 2022 Debenture Release   
 
    
-
    (3,521)   
-
 
Interest expense   (148)   (424)   (865)   (1,250)
Other income (expense)   (41)   (779)   54    (883)
Total non-operating expense   (153)   (32,213)   (4,088)   (57,626)
Loss before income taxes   (3,660)   (41,026)   (22,592)   (76,932)
Provision for income taxes   
-
    
-
    
-
    
 
 
Net loss  $(3,660)  $(41,026)  $(22,592)  $(76,932)

Deemed dividends related to the Exchange Offer and trigger of down round provisions of Assumed Warrants

   (912)   
-
    (3,378)   
-
 
Net loss to common stockholders  $(4,572)  $(41,026)  $(25,970)  $(76,932)
                     
Net loss per share of Class A common stock, basic and diluted
  $(0.94)  $(67.04)  $(7.75)  $(128.65)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

  

2

 

FOXO TECHNOLOGIES INC. and subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Dollars in thousands)

(Unaudited)

 

   FOXO Technologies Operating Company   FOXO Technologies Inc.             
   Series A
Preferred Stock
   Common Stock (Class A)   Common Stock (Class B)   Common Stock (Class A)   Treasury Stock   Additional
Paid-
   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   in-Capital   Deficit   Total 
Three Months Ended September 30, 2022                                                
Balance, June 30, 2022   800,000   $21,854    154,516   $
      -
    200,000   $
      -
    
-
   $
       -
    
-
   $12,026   $(87,882)  $(54,002)
Activity prior to the business combination:                                                            
Net loss to common stockholders   -    
-
    -    
-
    -    
-
    -    
-
    -    
-
    (9,531)   (9,531)
Equity-based compensation   -    
-
    -    
-
    -    
-
    -    
-
    -    211    
-
    211 
Effects of the business combination:                                                            
Conversion of Series A Preferred Stock   (800,000)   (21,854)   800,000    
-
    
-
    
-
    
-
    
-
    
-
    21,854    
-
    
-
 
Conversion of Bridge Loans   
-
    
-
    1,517,273    
-
    
-
    
-
    
-
    
-
    
-
    88,975    
-
    88,975 
Conversion of Class B Common Stock   
-
    
-
    200,000    
-
    (200,000)   
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Conversion of existing Class A Common Stock   
-
    
-
    (2,671,789)   
-
    
-
    
-
    1,551,871    1    
-
    
-
    
-
    1 
Reverse recapitalization   
-
    
-
    
-
    
-
    
-
    
-
    814,365    1    
-
    19,677    
-
    19,678 
Activity after the business combination:                                                            
Net loss to common stockholders   
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    (31,495)   (31,495)
Equity-based compensation   
-
    
-
    
-
    
-
    
-
    
-
    917,500    1    
-
    329    
-
    330 
Cantor Commitment Fee   
-
    
-
    
-
    
-
    
-
    
-
    19,048    
-
    
-
    1,600    
-
    1,600 
Balance, September 30, 2022   
-
   $
-
    
-
   $
-
    
-
   $
-
    3,302,784   $3    
-
   $144,672   $(128,908)  $15,767 
                                                             
Nine Months Ended September 30, 2022                                                            
Balance, December 31, 2021   800,000   $21,854    3,021   $
-
    200,000   $
-
    
-
   $
-
    
-
   $4,902   $(51,976)  $(25,220)
Activity prior to the business combination:                                                            
Net loss to common stockholders   -    
-
    -    
-
    -    
-
    -    
-
    -    
-
    (45,437)   (45,437)
Lease contributions   -    
-
    -    
-
    -    
-
    -    
-
    -    225    
-
    225 
Equity-based compensation   -    
-
    -    
-
    -    
-
    -    
-
    -    717    
-
    717 
Warrant repurchase   -    
-
    -    
-
    -    
-
    -    
-
    -    (507)   
-
    (507)
Issuance of shares for exercised stock options   
-
    
-
    1,495    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Issuance of shares for consulting agreement   
-
    
-
    150,000    
-
    
-
    
-
    
-
    
-
    
-
    211    
-
    211 
Effects of the business combination:                                                            
Conversion of Series A Preferred Stock   (800,000)   (21,854)   800,000    
-
    
-
    
-
    
-
    
-
    
-
    21,854    
-
    
-
 
Conversion of Bridge Loans   
-
    
-
    1,517,273    
-
    
-
    
-
    
-
    
-
    
-
    88,975    
-
    88,975 
Conversion of Class B Common Stock   
-
    
-
    200,000    
-
    (200,000)   
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Conversion of existing Class A Common Stock   
-
    
-
    (2,671,789)   
-
    
-
    
-
    1,551,871    1    
-
    
-
    
-
    1 
Reverse recapitalization   
-
    
-
    
-
    
-
    
-
    
-
    814,365    1    
-
    19,677    
-
    19,678 
Activity after the business combination:                                                            
Net loss to common stockholders   -    
-
    -    
-
    -    
-
    -    
-
    -    
-
    (31,495)   (31,495 
Equity-based compensation   -    
-
    -    
-
    -    
-
    917,500    1    -    329    
-
    330 
Cantor Commitment Fee   -    
-
    -    
-
    -    
-
    19,048    
-
    -    1,600    
-
    1,600 
Balance, September 30, 2022   
-
   $
-
    
-
   $
-
    
-
   $
-
    3,302,784   $3    
-
   $144,672   $(128,908)  $15,767 
                                                             
Three Months Ended September 30, 2023                                                            
Balance, June 30, 2023   
-
   $
-
    
-
   $
-
    
-
    
-
    4,648,096   $5    
-
   $161,594   $(168,629)  $(7,030)
Net loss to common stockholders   -    
-
    -    
-
    -    
-
    -    
-
    -    
-
    (4,572)   (4,572)
Stock-based compensation   
-
    
-
    
-
    
-
    
-
    
-
    (329,032)   
-
    
-
    (1,447)   
-
    (1,447)
Private placements net of issuance costs   
-
    
-
    
-
    
-
    
-
    
-
    929,376    1    
-
    443    
-
    444 
Issuance of shares to Joseph Gunner                                 276,875              221         221 
Issuance of shares to MSK                                 292,867              234    
-
    234 
Deemed dividend related to down round provisions of Assumed Warrants   -    
-
    -    
-
    -    
-
    -    
-
         912    
-
   912 
Issuance of shares to employees   
-
    
-
    
-
    
-
    
-
    
-
    98,670    
-
    
-
    135    
-
    135 
                                                             
Balance, September 30, 2023   
-
   $
-
    
-
   $
-
    
-
   $
-
    5,916,852   $6    
-
   $162,092   $(173,201)  $(11,103)
                                                             
Nine Months Ended September 30, 2023                                                            
Balance, December 31, 2022   
-
   $
-
    
-
   $
-
    
-
   $
-
    2,966,967   $3    (214,077)   153,936    (147,231)   6,708 
Net loss to common stockholders   -    
-
    -    
-
    -    
-
    -    
-
    -    
-
    (25,970)   (25,970)
Stock-based compensation   
-
    
-
    
-
    
-
    
-
    
-
    (365,132)   
-
    
-
    226    
-
    226 
2022 Debenture Release   
-
    
-
    
-
    
-
    
-
    
-
    703,500    1    
-
    2,180    
-
    2,181 
PIK Note Amendment   
-
    
-
    
-
    
-
    
-
    
-
    432,188    
-
    
-
    1,339    
-
    1,339 
Exchange Offer   
-
    
-
    
-
    
-
    
-
    
-
    795,618    1    
-
    2,466    
-
    2,467 
Deemed dividends from trigger of down round provisions of  Assumed Warrants                                                     -      
-
      -       912      
-
      912  
Private placements net of issuance costs   -    
-
    -    
-
    -    
-
    929,376    1    -    443    
-
    443 
Issuance of shares to employees   -    
-
    -    
-
    -    
-
    98,670    
-
    -    135    
-
    135 
Issuance of shares to MSK   -    
-
    -    
-
    -    
-
    292,867    
-
    -    234    
-
    234 
Issuance of shares to Joseph Gunner   -    
-
    -    
-
    -    
-
    276,875    
-
    -    221    
-
    221 
Treasury stock   
-
    
-
    
-
    
-
    
-
    
-
    (214,077)   
-
    214,077    
-
    
-
    
-
 
Balance, September 30, 2023   
-
   $
-
    
-
   $
-
    
-
   $
-
    5,916,852   $5    
-
   $162,092   $(173,201)  $(11,103)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

3

 

  

FOXO TECHNOLOGIES INC. and subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

   Nine Months Ended
September 30,
 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(22,592)  $(76,932)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,251    159 
Loss from PIK Note Amendment and 2022 Debenture Release   3,521    
-
 
Equity-based compensation   361    1,002 
Cantor Commitment Fee   
-
    1,600 
Amortization of consulting fees paid in common stock   2,221    2,954 
Impairment of intangible assets and cloud computing arrangements   2,633    
-
 
Change in fair value of convertible debentures   
-
    28,180 
Change in fair value of forward purchase agreement collateral derivative   
-
    27,378 
Change in fair value of warrants   (244)   (1,349)
Change in fair value of forward purchase agreement put derivative   
-
    1,284 
Conversion of accrued interest   
-
    593 
PIK interest   419    
-
 
Amortization of debt issuance costs   448    
-
 
Contributions in the form of rent payments   
-
    225 
Recognition of prepaid offering costs upon election of fair value option   
-
    107 
Other   100    
-
 
Changes in operating assets and liabilities:          
Supplies   182    (1,762)
Prepaid expenses and consulting fees   1,835    (1,002)
Other current assets   3    
-
 
Cloud computing arrangements   
-
    (1,941)
Reinsurance recoverables   18,573    709 
Accounts payable   1,806    (489)
Accrued and other liabilities   1,891    761 
Policy reserves   (18,573)   (709)
Net cash used in operating activities   (6,165)   (19,232)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   
-
    (108)
Development of internal use software   
-
    (1,622)
Net cash used in investing activities   
-
    (1,730)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of convertible debentures   
-
    28,000 
Warrant repurchase   
-
    (507)
Senior PIK Notes proceeds   
-
    3,458 
Reverse recapitalization proceeds   
-
    23,226 
Forward purchase agreement escrow   
-
    (29,135)
Forward purchase agreement proceeds   
-
    484 
Forward purchase agreement collateral release to Meteora   
-
    733 
Private placements   744    
-
 
Related party promissory note   247    (1,160)
Deferred offering costs   (299)   (539)
Net cash provided by financing activities   692    24,560 
Net change in cash and cash equivalents   (5,473)   3,598 
Cash and cash equivalents at beginning of period   5,515    6,856 
Cash and cash equivalents at end of period  $42   $10,454 
           
NONCASH INVESTING AND FINANCING ACTIVITIES:          
2022 Debenture Release  $2,181   $
-
 
PIK Note Amendment  $1,339   $
-
 

Deemed dividends from Exchange Offer and trigger of down round provisions of Assumed Warrants

  $ 3,378     $
-
 
Conversion of debt  $
-
   $88,382 
Conversion of preferred stock  $
-
   $21,854 
Accrued internal use software  $
-
   $239 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

4

 

  

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Note 1  DESCRIPTION OF BUSINESS

 

FOXO Technologies Inc. (“FOXO” or the “Company”), formerly known as Delwinds Insurance Acquisition Corp. (“Delwinds”), a Delaware corporation, was originally formed in April 2020 as a publicly traded special purpose company for the purpose of effecting a merger, capital stock exchange, asset acquisition, reorganization, or similar business combination involving one or more businesses. FOXO is a leader in commercializing epigenetic biomarker technology to support groundbreaking scientific research and disruptive next-generation business initiatives. The Company applies automated machine learning and artificial intelligence technologies to discover epigenetic biomarkers of human health, wellness and aging. On October 29th, 2023 the Company entered into a Letter Agreement with KR8 AI Inc. to develop a Direct to Consumer app (iOS and Android) combining its AI Machine Learning technology to provide a commercial application of Foxo’s epigenetic biomarker technology as a subscription consumer engagement platform. The Letter Agreement limits the distribution of any such apps to consumers in North America. The Letter Agreement provides that KR8 will grant the Company a non-provisional exclusive License with a perpetual term upon the parties’ signing of a definitive license agreement. 

 

The Company manages and reports results of operations for the Company’s epigenetic biomarker technology business operations.

 

The Business Combination

 

On February 24, 2022, Delwinds entered into a definitive Agreement and Plan of Merger, dated as of February 24, 2022, as amended on April 26, 2022, July 6, 2022 and August 12, 2022 (the “Merger Agreement”), with FOXO Technologies Inc., now known as FOXO Technologies Operating Company (“FOXO Technologies Operating Company” or “Legacy FOXO”), DWIN Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Delwinds (“Merger Sub”), and DIAC Sponsor LLC (the “Sponsor”), in its capacity as the representative of the stockholders of Delwinds from and after the closing (the “Closing”) of the transactions contemplated by the Merger Agreement (collectively, the “Business Combination”).

 

The Business Combination was approved by Delwinds’ stockholders on September 14, 2022 and closed on September 15, 2022 (the “Closing Date”) whereby Merger Sub merged into FOXO Technologies Operating Company, with FOXO Technologies Operating Company surviving the merger as a wholly owned subsidiary of the Company (the “Combined Company”), and with FOXO Technologies Operating Company security holders becoming security holders of the Combined Company. Immediately upon the Closing, the name of Delwinds was changed to FOXO Technologies Inc.

 

Following the Closing, FOXO is a holding company whose wholly-owned subsidiary, FOXO Technologies Operating Company, conducts all of the core business operations. FOXO Technologies Operating Company maintains its two wholly-owned subsidiaries, FOXO Labs Inc. and FOXO Life, LLC. FOXO Labs maintains a wholly-owned subsidiary, Scientific Testing Partners, LLC, while FOXO Life Insurance Company was a wholly-owned subsidiary of FOXO Life, LLC. See Note 10 for more information on FOXO Life Insurance Company. References to “FOXO” and the “Company” in these condensed consolidated financial statements refer to FOXO Technologies Operating Company and its wholly-owned subsidiaries prior to the Closing and FOXO Technologies Inc. following the Closing.

 

Note 2  GOING CONCERN UNCERTAINTY AND MANAGEMENT’S PLAN

 

The Company’s history of losses requires management to critically assess its ability to continue operating as a going concern. For the three and nine months ended September 30, 2023, the Company incurred net losses of $3,660 and $22,592 respectively. As of September 30, 2023, the Company had an accumulated deficit of $173,201. Cash used in operating activities for the nine months ended September 30, 2023 was $6,165. As of September 30, 2023, the Company had $42 of available cash and cash equivalents.

 

5

 

  

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

  

The Company’s ability to continue as a going concern is dependent on generating revenue, raising additional equity or debt capital, reducing losses and improving future cash flows. The Company will continue ongoing capital raise initiatives and has demonstrated previous success in raising capital to support its operations. For instance, in the first and second quarters of 2022, the Company issued convertible debentures for $28,000 that subsequently converted to equity. The Company also completed its transaction with Delwinds that was initially intended to provide up to $300,000 of capital to the Company. An equity line of credit agreement, a backstop agreement, and forward purchase agreement were also part of the Business Combination and were intended to provide capital. Ultimately, the series of transactions associated with the Business Combination did not result in any net proceeds for the Company. Additionally, we are unlikely to receive proceeds from the exercise of outstanding warrants as a result of the difference between our current trading price of the Company’s Class A Common Stock and the exercise price of the various warrants.

 

During the first quarter of 2023, the Company completed the sale of FOXO Life Insurance Company in order to gain access to the cash held as statutory capital and surplus at FOXO Life Insurance Company. See Note 10 for more information. The Company used the cash previously held at FOXO Life Insurance Company to fund its operation as it continues to (i) pursue additional avenues to capitalize the Company and (ii) commercialize its products to generate revenue. See Notes 5 and 7 for additional information on the Exchange Offer and PIK Note Offer to Amend that were structured to allow the Company to more easily raise capital. See Note 13 for information on the 2023 Private Placement.

 

On June 12, 2023, the Company received an official notice of noncompliance (the “NYSE American Notice”) from NYSE Regulation (“NYSE”) stating that the Company is below compliance with Section 1003(a)(i) in the NYSE American Company Guide since the Company reported stockholders’ deficit of $(30) at March 31, 2023, and losses from continuing operations and/or net losses in its two most recent fiscal years ended December 31, 2022. As required by the NYSE American Notice, on July 12, 2023, the Company submitted a compliance plan (the “Plan”) to NYSE advising of actions it has taken or will take to regain compliance with the NYSE American continued listing standards by December 12, 2024, and if NYSE accepts the Plan, the Company has an eighteen (18) month period to comply with the Plan. Should the Plan not be accepted or the Company be unable to comply with the Plan, then it may make it more difficult for the Company to raise capital.

 

However, the Company can provide no assurance that these actions will be successful or that additional sources of financing will be available on favorable terms, if at all. As such, until additional equity or debt capital is secured and the Company begins generating sufficient revenue, there is substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the issuance of these condensed consolidated financial statements. In the event that the Company is unable to secure additional financing by mid-January 2024, it may be unable to fund its operations and will be required to evaluate further alternatives, which could include further curtailing or suspending its operations, selling the Company, dissolving and liquidating its assets or seeking protection under the bankruptcy laws. A determination to take any of these actions could occur at a time that is earlier than when the Company would otherwise exhaust its cash resources.

 

As previously disclosed, on September 20, 2022, the Company issued to certain investors 15% Senior Promissory Notes (the “PIK Notes”) in an aggregate principal amount of $3,458, each with a maturity date of April 1, 2024 (the “Maturity Date”). Pursuant to the terms of the PIK Notes, commencing on November 1, 2023, and on each one month anniversary thereof, the Company is required to pay the holders of the PIK Notes an equal amount until their outstanding principal balance has been paid in full on the Maturity Date, or, if earlier, upon acceleration or prepayment of the PIK Notes in accordance with their terms. The Company failed to make the payments due on November 1, 2023, which constitutes an event of default under the PIK Notes.

 

As a result of this event of default, the interest rate of the PIK Notes increased from 15% per annum (compounded quarterly on each December 20, March 20, June 20 and September 20) to 22% per annum (compounded annually and computed on the basis of a 360-day year). In addition, the holders of the PIK Notes may, among other remedies, accelerate the Maturity Date and declare all indebtedness under the PIK Notes due and payable at 130% of the outstanding principal balance.

 

In October 2023, the Company announced that the Company is in discussions with the holders of the PIK Notes with respect to certain amendments to the PIK Notes to cure the event of default; however, there has been no agreement that the PIK Note holders will agree to amend the PIK Notes.

 

6

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Note 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting, and thus the accompanying unaudited condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations or cash flows. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022 and the notes thereto. The consolidated balance sheet data as of December 31, 2022 was derived from the audited consolidated financial statements as of that date but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal or recurring nature, which are necessary for a fair presentation of financial position, operating results and cash flows for the periods presented. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

  

The unaudited condensed consolidated financial statements include the accounts of FOXO and its wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012, and it thus may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. For further information regarding the Company’s basis of presentation and use of estimates, refer to the audited consolidated financial statements as of and for the year ended December 31, 2022. The policies and estimates described in that report are used for preparing the Company’s quarterly unaudited condensed consolidated financial statements.

  

Note 4  INTANGIBLE ASSETS AND CLOUD COMPUTING ARRANGEMENTS

 

The components of intangible assets and cloud computing arrangements as of September 30, 2023 and December 31, 2022 were as follows:

 

   September 30,
2023
   December 31,
2022
 
Methylation pipeline  $592   $592 
Underwriting API   840    840 
Longevity API   717    717 
Less: accumulated amortization and impairment   (1,721)   (106)
Intangible assets  $428   $2,043 

 

   September 30,
2023
   December 31,
2022
 
Digital insurance platform  $2,966   $2,966 
Less: accumulated amortization and impairment   (2,966)   (741)
Cloud computing arrangements  $
-
   $2,225 

 

Amortization of the Company’s intangible assets and cloud computing arrangements is recorded on a straight-line basis within selling, general and administrative expenses. The Company recognized amortization expense of $49 and $1,208 for the three and nine months ended September 30, 2023 and did not have any amortization expense for the three and nine months ended September 30, 2022.

 

7

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

In April of 2023 and as part of the Company’s planning, the Company finalized its objectives and key results (“OKRs”) for the second quarter of 2023. As part of the OKR process the Company’s goals to support the digital insurance platform indicated that the manner in which the digital insurance platform is used and corresponding cash flows would no longer support the asset. Accordingly, the Company recognized a $1,425 impairment loss in April of 2023 representing the remaining unamortized balance of the digital insurance platform at the date of impairment.

 

In June of 2023, the Company determined that both the underwriting API and longevity API were fully impaired as it no longer forecasted positive cash flows from the longevity report or underwriting report. For the longevity report, the Company sells the product at cost. For the underwriting report, the Company no longer expects sales during the amortization period. Accordingly, the Company has determined the assets are not recoverable and the cash flows no longer support the assets. The Company recognized impairment charges of $630 and $578 for the underwriting API and longevity API, respectively. The Company recognized an impairment loss of $0 and $2,633 for the three and nine months ended September 30, 2023, respectively.

 

Note 5  DEBT

 

On September 20, 2022, the Company entered into separate Securities Purchase Agreements with accredited investors pursuant to which the Company issued its 15% Senior Promissory Notes (the “Senior PIK Notes”) in the aggregate principal amount of $3,458. The Company received net proceeds of $2,918, after deducting fees and expenses of $540.

 

The Senior PIK Notes bear interest at 15% per annum, paid in arrears quarterly by payment in kind through the issuance of additional Senior PIK Notes (“PIK Interest”). The Senior PIK Notes mature on April 1, 2024 (the “Maturity Date”). Commencing on November 1, 2023, the Company is required to pay the holders of the Senior PIK Notes and on each one month anniversary thereof an equal amount until the outstanding principal balance has been paid in full on the Maturity Date. If the Senior PIK Notes are prepaid in the first year, the Company is required to pay the holders the outstanding principal balance, excluding any increases as a result of PIK Interest, multiplied by 1.15.

 

The Company had agreed to not obtain additional equity or debt financing, without the consent of a majority of the holders of the Senior PIK Notes, other than if a financing pays amounts owed on the Senior PIK Notes, with the exception of certain exempt issuances. The Company shall not incur other indebtedness, except for certain exempt indebtedness, until such time the Senior PIK Notes are repaid in full; however, the Senior PIK Notes are unsecured.

 

PIK Note Amendment

 

On May 26, 2023, the Company consummated two issuer tender offers: (i) the Exchange Offer (as described below in Note 7) and (ii) the Offer to Amend 15% Senior Promissory Notes and Consent Solicitation, commenced on April 27, 2023 (the “PIK Note Offer to Amend”), pursuant to which the Company offered all holders of Senior PIK Notes 0.125 shares of Class A Common Stock for every $1.00 of the Original Principal Amount (as defined in the Senior PIK Notes) of such holder’s Senior PIK Notes, in exchange for the consent by such holder of Senior PIK Notes to amendments to the Senior Promissory Note Purchase Agreement, dated September 20, 2022, between the Company and each purchaser of Senior PIK Notes (the “PIK Note Purchase Agreement”).

 

Pursuant to the PIK Note Offer to Amend, the Company solicited approval from holders of Senior PIK Notes to amend the PIK Note Purchase Agreement to permit the following issuances by the Company of Class A Common Stock and Common Stock Equivalents (as defined in the PIK Note Purchase Agreement), without prepaying the PIK Notes: (i) the issuance of shares of Class A Common Stock in connection with the PIK Offer Note Offer to Amend, (ii) the issuance of shares of Class A Common Stock in connection with the Exchange Offer (as defined in Note 7), (iii) the issuance of shares of Class A Common Stock or Common Stock Equivalents (as defined in the PIK Note Purchase Agreement) in connection with the 2022 Bridge Debenture Release (as defined in Note 7), (iv) the issuance of shares of Class A Common Stock or Common Stock Equivalents (as defined in the PIK Note Purchase Agreement) in (a) a private placement of the Company’s equity, equity-linked or debt securities resulting in gross proceeds to the Company no greater than $5 million (a “Private Placement”) and/or (b) a registered offering of the Company’s equity, equity-linked or debt securities resulting in gross proceeds to the Company no greater than $20 million (a “Public Financing”); provided that (A) the proceeds of a Private Placement resulting in gross proceeds to the Company of at least $2 million are used by the Company to prepay not less than 25% of the Outstanding Principal Balance (as defined in the Senior PIK Notes) as of the date of prepayment on a pro rata basis upon the closing of such Private Placement, and (B) the proceeds of a Public Financing resulting in gross proceeds to the Company of at least $10 million are used by the Company to prepay all of the Outstanding Principal Balance as of the date of prepayment upon the closing of such Public Financing, and (v) the issuance of shares of Class A Common Stock or Common Stock Equivalents (as defined in the PIK Note Purchase Agreement) as Private Placement Additional Consideration (as defined below) (collectively, the “PIK Note Amendment”).

 

The Company received consents from all Senior PIK Note holders and all required approvals, including stockholder approval, and issued on a pro rata basis to the holders of the Senior PIK Notes 432,188 shares of Class A Common Stock in consideration for the PIK Note Amendment.

 

The Company accounted for the PIK Note Amendment as an extinguishment as the consideration of $1,339 paid to Senior PIK Note holders in the form of Class A Common Stock caused the cash flows after the PIK Note Amendment to change by more than 10%. Due to the short-term nature of the Senior PIK Notes, the Company determined the reacquisition price of debt was equal to the principal amount at the time of the amendment. The Company recognized $1,596 of expense related to the PIK Note Amendment consisting of $256 of unamortized debt issuance costs and $1,339 for the issuance of Class A Common Stock

 

8

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

The Company will continue to pay PIK Interest until maturity or repayment.

 

As per the Current Report on Form 8-K filed November 2, 2023, Pursuant to the terms of the PIK Notes, commencing on November 1, 2023, and on each one month anniversary thereof, the Company is required to pay the holders of the PIK Notes an equal amount until their outstanding principal balance has been paid in full on the Maturity Date, or, if earlier, upon acceleration or prepayment of the PIK Notes in accordance with their terms. The Company failed to make the payments due on November 1, 2023, which constitutes an event of default under the PIK Notes.

 

As a result of this event of default, the interest rate of the PIK Notes increased from 15% per annum (compounded quarterly on each December 20, March 20, June 20 and September 20) to 22% per annum (compounded annually and computed on the basis of a 360-day year). In addition, the holders of the PIK Notes may, among other remedies, accelerate the Maturity Date and declare all indebtedness under the PIK Notes due and payable at 130% of the outstanding principal balance.

 

Given the Company’s current cash constraints, the Company is currently in discussions with the holders of the PIK Notes with respect to certain amendments to the PIK Notes to cure the event of default; however, there can be no assurance that the PIK Note holders will agree to amend the PIK Notes.

  

As of September 30, 2023, the Company has recorded $4,006 balance as current liabilities based on the monthly installments payment schedule. For the three and nine months ended September 30, 2023 the Company recognized $145 and $420, respectively of contractual interest expense on the Senior PIK Notes; and $0 and $448, respectively related to the amortization of debt issuance costs on the Senior PIK Notes. The amortization of debt issuance costs includes $256 of unamortized debt issuance costs at the time of the PIK Note Amendment. Additionally, the Company recognized $593 and $1,627 of contractual interest expense related to the 12.5% Original Issue Discount Convertible Debentures issued in 2021 by Legacy FOXO (the “2021 Bridge Debentures”) for the three and nine months ended September 30, 2022 of which $181 and $508, respectively is for related party holders.

 

Note 6  RELATED PARTY TRANSACTIONS

 

Office Space

 

The Company subleased its office space from an investor through May of 2022. The investor paid all lease costs, including common area maintenance and other property management fees, on the Company’s behalf. These payments were treated as additional capital contributions.

 

2021 Bridge Debentures

 

Prior to the conversion of the 2021 Bridge Debentures to shares of FOXO Technologies Operating Company Class A Common Stock and subsequent exchange for Class A Common Stock of the Company at Closing of the Business Combination, certain related parties invested in the 2021 Bridge Debentures.

 

Sponsor Loan

 

In order to finance transaction costs in connection with the business Combination, the Sponsor or an affiliate of the Sponsor loaned Delwinds funds for working capital. As of September 30, 2023, $500 was remaining due to the Sponsor and is shown as a related party payable in the consolidated balance sheet.

 

9

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Demand Promissory Note

 

On September 19, 2023, the Company obtained a $247 loan from Andrew J. Poole, a former director of the Company (the “Loan”), to be used to pay for directors’ and officers’ insurance through November 2023. The Company issued to Mr. Poole a demand promissory note for $247 evidencing the Loan (the “Note”). The Note does not bear interest. The Note is due on demand, and in the absence of any demand, the Note will be due one year from the issuance date. The Note may be prepaid, in whole or in part, without penalty at any time.

 

Consulting Agreement

 

In April 2022, the Company executed a consulting agreement (the “Consulting Agreement”) with an individual (the “Consultant”) considered to be a related party of the Company as a result of his investment in the 2021 Bridge Debentures. The agreement, which expired in April 2023, had a minimum term of twelve months, over which the Consultant is to provide services that include, but are not limited to, advisory services relating to the implementation and completion of the Business Combination. Following the execution of the agreement, as compensation for such services to be rendered as well as related expenses over the term of the contract, the Consultant was paid a cash fee of $1,425. The Consulting Agreement also calls for the payment of an equity fee as compensation for such services. The Company issued 150,000 shares of Legacy FOXO Class A Common Stock to the Consultant during the second quarter of 2022 to satisfy the equity fee that converted into 87,126 shares of Class A Common Stock. The Company has determined that all compensation costs related to the Consulting Agreement, including both cash fees and the equity fee, represent remuneration for services to be rendered evenly over the contract term. Thus, all such costs were initially recorded at fair value as prepaid consulting fees in the consolidated balance sheet and are being recognized as selling, general and administrative expenses in the condensed consolidated statement of operations on a straight-line basis over the term of the contract. For the three and nine months ended September 30, 2023, $0 and $2,676, respectively, in expenses were recognized related to the Consulting Agreement. For both the three and nine months ended September 30, 2022 the Company recognized $2,081 and $3,568, respectively, in expenses for the Consulting Agreement.

 

Contractor Agreement

 

In October 2021, FOXO entered into a Contractor Agreement with Dr. Murdoc Khaleghi, one of its former directors, under which Dr. Khaleghi served as FOXO’s Chief Medical Officer. The Company paid Dr. Khaleghi $0 in 2023 and $27 and $81 for the three and nine months ended September 30, 2022, respectively.

 

Board and Executive Departures:

 

In addition to Dr. Khaleghi who resigned in 2022, the following Board members resigned in 2023;

 

Mr. Tyler Danielson resigned as Interim Chief Executive Officer on September 14, 2023

 

Mr. Robert Potashnick resigned as Chief Financial Officer effective September 13, 2023 

 

Andrew Poole resigned as director on November 21, 2023

  

Board Appointment:

 

Mark White was appointed on September 19, 2023 as Interim Chief Executive Officer and Director.

 

Executive Appointment:

 

Martin Ward was appointed on September 19, 2023 as Interim Chief Financial Officer

 

10

 

  

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Note 7  STOCKHOLDERS’ (DEFICIT) EQUITY

 

In connection with the Business Combination, the Company adopted the second amended and restated certificate of incorporation (the “Amended and Restated Company Charter”) to, among other things, increase the total number of authorized shares of all capital stock, par value $0.0001 per share, to 510,000,000 shares, consisting of (i) 500,000,000 shares of Class A Common Stock and (ii) 10,000,000 shares of preferred stock.

 

Preferred Stock

 

The Amended and Restated Company Charter authorizes the Company to issue 10,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2023, there were no shares of preferred stock issued or outstanding.

 

Warrants

 

Public Warrants and Private Placement Warrants

 

The Company issued 1,006,250 common stock warrants in connection with Delwinds’ initial public offering (the “IPO”) (the “Public Warrants”). Simultaneously with the closing of the IPO, Delwinds consummated the private placement of 31,623 common stock warrants (the “Private Placement Warrants”).

 

Public Warrants may only be exercised for a whole number of shares. Each Public Warrant entitles the holder to purchase one share of Class A Common Stock at a price of $115.00 per share, subject to adjustment. The Public Warrants became exercisable 30 days after the completion of a Business Combination. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

 

The Company may redeem the Public Warrants:

 

in whole and not in part;

 

at a price of $0.10 per warrant;

 

upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable; and

 

if, and only if, the reported last sale price of the Company’s Class A Common Stock equals or exceeds $180.00 per share for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.

 

If and when the warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.

 

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis”. The exercise price and number of shares of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

 

11

 

  

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

  

The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the Class A Common Stock issuable upon the exercise of the Private Placement Warrants were not transferable, assignable or salable until 30 days after the Business Combination was completed, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

Assumed Warrants

 

At Closing of the Business Combination, the Company assumed common stock warrants to purchase FOXO Class A Common Stock (“Assumed Warrants”) and exchanged such Assumed Warrants for common stock warrants to purchase 190,619 shares of the Company’s Class A Common Stock. Each Assumed Warrant entitled the holder to purchase one share of Class A Common Stock at a price of $62.10 per share, subject to adjustment. The Assumed Warrants are exercisable over a three-year period from the date of issuance. The terms of the Assumed Warrants include down round provisions that should the Company issue common stock for a consideration of less than $62.10 per share then the exercise price shall be lowered to the new consideration amount on a per share basis with a simultaneous and corresponding increase to the number of warrants. A triggering event occurred as a result of the issuance of a rights to receive shares (the “Rights”) under the terms of a Shares for Services Agreement dated September 19, 2023. Therefore, as of September 30, 2023, 2,007,848 Assumed Warrants were outstanding with an exercise price of $0.80 per share. The incremental value of the modification to the Assumed Warrants as a result of the trigger of the down round provisions of $912, was recorded as a deemed dividend in the three and nine months ended September 30, 2023. The incremental fair value of the Assumed Warrants as a result of the trigger of the down round provisions was measured using the Black Scholes valuation model with the following assumptions: risk free rate of 5.16 %, volatility of 99.62%, term of .43 years and expected dividend yield of $0.

 

Also, during the nine months ended September 30, 2023, the Company recorded a deemed dividend of $2,466 as a result of the Exchange Offer discussed below.

 

Exchange Offer

 

On May 26, 2023, the Company consummated its tender offer commenced on April 27, 2023, to all 190,619 holders of Assumed Warrants to receive 48.3 shares of the Company’s Class A Common Stock in exchange for each Assumed Warrant tendered (the “Exchange Offer”). The consideration was accounted for as a deemed dividend to the warrant holders, is calculated based on the fair value of common stock at consummation of the offering and reflected in net loss to common stockholders.

 

As part of the Exchange Offer, the Company also solicited consents from holders of the Assumed Warrants to amend and restate in its entirety the Securities Purchase Agreement, dated as of January 25, 2021 (the “Original Securities Purchase Agreement”), by and between Legacy FOXO (and assumed by the Company in connection with the Business Combination) and each purchaser of 2021 Bridge Debentures and warrants to purchase shares of FOXO Class A Common Stock, as amended (together with the 2021 Bridge Debentures, the “Original Securities”) identified on the signature pages thereto, which governs all of the Assumed Warrants and the Original Securities (together with the Assumed Warrants, the “Securities”), pursuant to the terms of an Amended and Restated Securities Purchase Agreement, to provide that the issuance of shares of Class A Common Stock and certain issuances of Common Stock Equivalents (as defined in the Original Securities Purchase Agreement) in connection with the Exchange Offer, the PIK Note Amendment, the 2022 Bridge Debenture Release (as defined below), and a Private Placement and a Public Financing, as well as any previous issuance of Class A Common Stock or Common Stock Equivalents (as defined in the Original Securities Purchase Agreement), do not trigger, and cannot be deemed to have triggered, any anti-dilution adjustments in the Securities.

 

Pursuant to the Exchange Offer, an aggregate of 164,751 Assumed Warrants were tendered and an aggregate of 795,618 shares of Class A Common Stock were issued to the holders of Assumed Warrants resulting in a deemed dividend of $2,466. After the Exchange Offer, 25,868 Assumed Warrants remained outstanding. At the same time 432,188 shares of Class A Common Stock were issued as part of the PIK Note Amendment as discussed in Note 5.

 

2022 Bridge Debenture Release

 

The Company entered into two separate general release agreements in June of 2023 (the “General Release Agreements” and such transaction, the “2022 Bridge Debenture Release”). The General Release Agreements are with former registered holders (the “Investors”) of 10% Original Issue Discount Convertible Debentures issued in 2022 by Legacy FOXO (the “2022 Bridge Debentures”).

 

12

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Pursuant to their respective General Release Agreement, each Investor released, waived and discharged the Company from any and all claims that such Investor had, have or may have against the Company from the beginning of time through the effective date of their respective General Release Agreement (the “Release”). As consideration for the Release and each Investor’s other obligations, covenants, agreements, representations and warranties set forth in their respective General Release Agreement, the Company issued to each Investor 0.067 shares of Class A Common Stock for every $1.00 of Subscription Amount (as defined in the securities purchase agreements governing the 2022 Bridge Debentures) of 2022 Bridge Debentures purchased by such Investor. Pursuant to the General Release Agreements, the Company issued an aggregate of 703,500 shares of Class A Common Stock.

 

The Company issued shares to the Investors in exchange for the release and recognized expense of $2,181 based on the shares issued and corresponding fair value of common stock at the time of issuance.

 

Private Placement

 

From July 14, 2023 through July 20, 2023 (each such date, a “First Tranche Closing Date”), the Company entered into three separate Stock Purchase Agreements (the SPAs), which have substantially similar terms, with three accredited investors (the “Buyers”), pursuant to which the Company agreed to issue and sell to the Buyers, in a private placement (the “2023 Private Placement”), in two separate tranches each, an aggregate of up to 562,500 shares of the Company’s Class A Common Stock at a price of $0.80 per share, for aggregate gross proceeds of $450. The net proceeds from the 2023 Private Placement, after deducting placement agent fees and other offering expenses, was approximately $260. Pursuant to the terms of the SPAs, the Buyers initially purchased an aggregate of 281,250 shares of Class A Common Stock on the applicable First Tranche Closing Dates, and purchased an aggregate of 281,250 additional shares of Class A Common Stock on August 4, 2023, following the effectiveness of the First Resale Registration Statement.

 

On August 23, 2023, the Company entered into three additional Stock Purchase Agreements (the “Second Round SPAs”) and Registration Rights Agreements (the “Second Round RRAs”), with the Buyers, pursuant to which the Company issued and sold to the Buyers, in the second round of the 2023 Private Placement (the “2023 PIPE Second Round”), in two separate tranches each, an aggregate of 366,876 shares of Class A Common Stock at the Per Share Price for aggregate gross proceeds of $293.5 and aggregate net proceeds of approximately $217, after deducting placement agent fees and other offering expenses. Pursuant to the terms of the Second Round SPAs, the Buyers initially purchased an aggregate of 183,438 shares of Class A Common Stock on August 23, 2023, and purchased an aggregate of 183,438 additional shares of Class A Common Stock on September 7, 2023, following the effectiveness of the Second Resale Registration Statement.

 

Treasury Stock

 

The Company cancelled the outstanding treasury stock on April 14, 2023.

 

Note 8  NET LOSS PER SHARE

 

The Business Combination was accounted for as a reverse recapitalization by which FOXO Technologies Operating Company issued equity for the net assets of Delwinds accompanied by a recapitalization. Earnings per share has been recast for all historical periods to reflect the Company’s capital structure for all comparative periods.

 

The Company excluded the effect of the 69,668 Management Contingent Shares outstanding and not vested as of September 30, 2023 from the computation of basic net loss per share for the three and nine months ended September 30, 2023, as the conditions to trigger the vesting of the Management Contingent Shares had not been satisfied as of September 30, 2023. Shares issued to the Company’s former CEO pursuant to the Management Contingent Share Plan which are under review to determine if such shares should be forfeited in accordance with such plan are included in net loss per share. See Note 12 for additional information.

 

The Company excluded the effect of the Public Warrants, the Private Placement Warrants, the Assumed Options, and Assumed Warrants from the computation of diluted net loss per share for the three and nine months ended September 30, 2023 as their inclusion would have been anti-dilutive because the Company was in a loss position for such periods. The Assumed Options, the Assumed Warrants, and Bridge Debentures were excluded from the three and nine months ended September 30, 2022 as their inclusion would have been anti-dilutive because the Company was in a loss position for such periods.

 

The following table sets forth the calculation of basic and diluted earnings per share for the periods indicated based on the weighted average number of shares outstanding during the respective periods:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Net loss - basic and diluted  $(3,660)  $(41,026)  $(22,592)  $(76,932)
Deemed dividend related to the Exchange Offer and down round provisions of Assumed Warrants   (912)   
-
    (3,378)   
-
 
Net loss to common stockholders - basic and diluted
  $(4,572)  $(41,026)  $(25,970)  $(76,932)
Basic and diluted weighted average number of Class A Common Stock
   4,878    612    3,350    598 
Basic and diluted net loss per share available to Class A Common Stock
  $(0.94)  $(67.04)  $(7.75)  $(128.65)

 

 

13

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

The following Class A common stock equivalents have been excluded from the computation of diluted net loss per common share as the effect would be antidilutive and reduce the net loss per common stock (shares in actuals):

 

   As of September 30, 
   2023   2022 
Public and private warrants   1,037,873    1,037,873 
Assumed warrants   2,007,848    190,619 
Assumed options   215,094    296,579 
Total antidilutive shares   3,260,815    1,525,071 

 

Note 9  FAIR VALUE MEASUREMENTS

 

The following table presents information about the Company’s assets and liabilities that are measured on a recurring basis as of September 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.

 

   Fair Value Measurements Using Inputs Considered as: 
September 30, 2023  Fair Value   Level 1   Level 2   Level 3 
Liabilities:                
Warrant liability  $67   $65   $2   $
-
 
Total liabilities  $67   $65   $2   $
-
 

 

   Fair Value Measurements Using Inputs Considered as: 
December 31, 2022  Fair Value   Level 1   Level 2   Level 3 
Liabilities:                
Warrant liability  $311   $302   $9   $
-
 
Total liabilities  $311   $302   $9   $
-
 

 

Warrant Liability

 

The Public Warrants and Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liability on the Company’s balance sheet. The warrant liability is measured at fair value on a recurring basis, with any changes, if applicable, in the fair value presented as change in fair value of warrant liability in the Company’s statement of operations. The measurement of the Public Warrants is classified as Level 1 due to the use of an observable market quote in an active market under ticker FOXOW:OTCPK. As the transfer of the Private Placement Warrants to anyone outside of a small group of individuals who are permitted transferees would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant, with an insignificant adjustment for short-term marketability restrictions. As such, the Private Placement Warrants are classified as Level 2.

 

Bridge Debentures

 

The Company elected the fair value option on both the 2021 and 2022 Bridge Debentures that converted to shares of FOXO Class A Common Stock as part of the Business Combination. Changes in the Company’s prior fair value measurements are recorded as non-cash change in fair value of convertible debentures in the condensed consolidated statements of operations.

 

14

 

 

Foxo technologies inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

 

Note 10  FOXO LIFE INSURANCE COMPANY

 

On February 3, 2023, the Company consummated the previously announced sale of FOXO Life Insurance Company to Security National Life Insurance Company (the “Buyer”). At closing, all of the FOXO Life Insurance Company’s shares were cancelled and retired and ceased to exist in exchange for the assignment to the Company of FOXO Life Insurance Company’s statutory capital and surplus amount of $5,002, as of the closing date, minus $200 (the “Merger Consideration”). Pursuant to the transaction, at the closing, the Company paid the Buyer’s third-party out-of-pocket costs and expenses of $51 resulting in a total loss of $251 that was recognized within selling, general and administrative expense on the condensed consolidated statements of operations and in the FOXO Life segment. After the Merger Consideration and Buyer’s third party expenses, the transaction resulted in the Company gaining access to $4,751 that was previously held as statutory capital and surplus pursuant to the Arkansas Insurance Code.

 

Note 11  BUSINESS SEGMENT

 

The Company manages and classifies its business into two reportable business segments:

 

  FOXO Labs is commercializing proprietary epigenetic biomarker technology to be used for underwriting risk classification in the global life insurance industry. The Company’s innovative biomarker technology enables the adoption of new saliva-based health and wellness biomarker solutions for underwriting and risk assessment. The Company’s research demonstrates that epigenetic biomarkers, collected from sal