FOXO Technologies (FOXO) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements for the period ended September 30, 2023 Unaudited Condensed Consolidated Balance Sheets The balance sheets show a significant decline in assets and a shift to a stockholder deficit by September 30, 2023 Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $42 | $5,515 | | Total current assets | $2,585 | $12,304 | | Total assets | $3,131 | $35,408 | | Liabilities and Stockholders' (Deficit) Equity | | | | Total current liabilities | $13,516 | $6,913 | | Total liabilities | $14,234 | $28,700 | | Total stockholders' (deficit) equity | $(11,103) | $6,708 | - The Company's cash and cash equivalents significantly decreased from $5,515 thousand at December 31, 2022, to $42 thousand at September 30, 2023, indicating a substantial reduction in liquidity[14] - Total stockholders' (deficit) equity shifted from a positive $6,708 thousand at December 31, 2022, to a deficit of $(11,103) thousand at September 30, 2023, reflecting accumulated losses and other equity changes[14] Unaudited Condensed Consolidated Statements of Operations The statements of operations reveal a decrease in revenue but a significant improvement in net loss Condensed Consolidated Statements of Operations (Dollars in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $10 | $14 | $35 | $93 | | Gross profit | $(60) | $14 | $(35) | $93 | | Loss from operations | $(3,507) | $(8,813) | $(18,504) | $(19,306) | | Net loss | $(3,660) | $(41,026) | $(22,592) | $(76,932) | | Net loss per share (basic and diluted) | $(0.75) | $(67.04) | $(7.48) | $(128.65) | - Total revenue decreased by 28.6% for the three months ended September 30, 2023, and by 62.4% for the nine months ended September 30, 2023, compared to the respective prior periods[15] - Net loss significantly improved, decreasing by 91.1% to $(3,660) thousand for the three months ended September 30, 2023, and by 70.6% to $(22,592) thousand for the nine months ended September 30, 2023, primarily due to reduced non-operating expenses related to fair value changes of convertible debentures and derivatives[15][196][209] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) The statements reflect an increasing accumulated deficit alongside growth in paid-in capital and outstanding shares - The accumulated deficit increased from $(147,231) thousand at December 31, 2022, to $(172,289) thousand at September 30, 2023, reflecting ongoing net losses[17] - Additional paid-in capital increased from $153,936 thousand to $161,180 thousand during the nine months ended September 30, 2023, driven by private placements, the 2022 Debenture Release, PIK Note Amendment, and Exchange Offer[17] - The number of Class A common stock shares outstanding increased from 2,966,967 at December 31, 2022, to 5,916,852 at September 30, 2023, due to various equity issuances including private placements and conversions[17] Unaudited Condensed Consolidated Statements of Cash Flows Cash flow statements show reduced cash usage in operations but a significant drop in financing activities Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,165) | $(19,232) | | Net cash used in investing activities | $0 | $(1,730) | | 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 end of period | $42 | $10,454 | - Net cash used in operating activities decreased by 68% to $(6,165) thousand for the nine months ended September 30, 2023, compared to $(19,232) thousand in the prior year, primarily due to a lower net loss and less cash used for working capital[18][243] - Net cash provided by financing activities significantly decreased from $24,560 thousand in 2022 to $692 thousand in 2023, mainly due to non-recurring debt financing in the prior period[18][245] Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations of accounting policies and significant corporate events Note 1 Description of Business The company commercializes epigenetic biomarker technology using AI for health, wellness, and aging insights - FOXO Technologies Inc. (formerly Delwinds Insurance Acquisition Corp.) is a leader in commercializing epigenetic biomarker technology, applying AI/machine learning to discover biomarkers for human health, wellness, and aging[20] - The Company entered into a Letter Agreement with KR8 AI Inc. on October 29, 2023, to develop a Direct-to-Consumer app (iOS and Android) combining AI Machine Learning with Foxo's epigenetic biomarker technology for a subscription consumer engagement platform in North America[20] - The Business Combination closed on September 15, 2022, with FOXO Technologies Operating Company becoming a wholly-owned subsidiary of FOXO Technologies Inc., conducting all core business operations[23][24] Note 2 Going Concern Uncertainty and Management's Plan The company faces substantial doubt about its ability to continue as a going concern due to recurring losses and low cash reserves - The Company has a history of losses, with a net loss of $3,660 thousand and $22,592 thousand for the three and nine months ended September 30, 2023, respectively, and an accumulated deficit of $172,289 thousand as of September 30, 2023[25] - As of September 30, 2023, the Company had only $42 thousand in cash and cash equivalents, and cash used in operating activities for the nine months ended September 30, 2023, was $6,165 thousand, raising substantial doubt about its ability to continue as a going concern[25] - The Company failed to make PIK Note payments due November 1, 2023, constituting an event of default, which increased the interest rate from 15% to 22% per annum and allows holders to accelerate the Maturity Date at 130% of the outstanding principal balance[30][31] - The Company received a NYSE American notice of noncompliance on June 12, 2023, due to a stockholders' deficit and sustained losses, requiring a compliance plan by December 12, 2024[28] Note 3 Summary of Significant Accounting Policies The financial statements are prepared under U.S. GAAP for interim reporting, with the company classified as an emerging growth company - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, with certain disclosures condensed or omitted[33] - The Company is an 'emerging growth company' and takes advantage of certain exemptions from reporting requirements[35] Note 4 Intangible Assets and Cloud Computing Arrangements The company recognized significant impairment losses on its intangible assets and cloud computing arrangements in 2023 Intangible Assets (Dollars in thousands) | Asset | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Methylation pipeline | $592 | $592 | | Underwriting API | $840 | $840 | | Longevity API | $717 | $717 | | Less: accumulated amortization and impairment | $(1,721) | $(106) | | Intangible assets, net | $428 | $2,043 | Cloud Computing Arrangements (Dollars in thousands) | Asset | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Digital insurance platform | $2,966 | $2,966 | | Less: accumulated amortization and impairment | $(2,966) | $(741) | | Cloud computing arrangements, net | $0 | $2,225 | - The Company recognized a $1,425 thousand impairment loss in April 2023 for the digital insurance platform, as its usage and cash flows no longer supported the asset[39] - In June 2023, the underwriting API and longevity API were fully impaired, resulting in charges of $630 thousand and $578 thousand, respectively, due to no longer forecasting positive cash flows[40] Note 5 Debt The company details its Senior PIK Notes, a subsequent amendment accounted for as an extinguishment, and a recent default - The Company issued 15% Senior Promissory Notes (Senior PIK Notes) totaling $3,458 thousand in September 2022, with net proceeds of $2,918 thousand[41] - On May 26, 2023, the Company consummated the PIK Note Offer to Amend, issuing 432,188 shares of Class A Common Stock to holders in exchange for consent to amendments allowing future equity/debt issuances without prepaying the PIK Notes[44][46] - The PIK Note Amendment was accounted for as an extinguishment, resulting in a $1,596 thousand expense[47] - The Company defaulted on PIK Note payments due November 1, 2023, increasing the interest rate from 15% to 22% per annum and allowing holders to accelerate the debt at 130% of the outstanding principal balance[49][50] Note 6 Related Party Transactions This note describes transactions with related parties, including loans, consulting agreements, and key management changes - As of September 30, 2023, $500 thousand was remaining due to the Sponsor from a loan to finance Business Combination transaction costs[55] - On September 19, 2023, the Company obtained a $247 thousand interest-free demand promissory note from former director Andrew J. Poole to pay for directors' and officers' insurance[56] - Expenses related to a consulting agreement with a related party decreased significantly, with $0 recognized for the three months ended September 30, 2023, compared to $2,081 thousand in the prior year, as the agreement expired in April 2023[57] - Key management changes occurred in September 2023, with Tyler Danielson resigning as Interim CEO, Robert Potashnick resigning as CFO, and Mark White appointed Interim CEO and Director, and Martin Ward appointed Interim CFO[59][60] Note 7 Stockholders' (Deficit) Equity This note details the company's equity structure, warrants, and significant equity transactions during the period - The Company's Amended and Restated Company Charter authorizes 500,000,000 shares of Class A Common Stock and 10,000,000 shares of preferred stock; no preferred stock was issued or outstanding as of September 30, 2023[61][62] - Public Warrants (1,006,250) and Private Placement Warrants (31,623) entitle holders to purchase Class A Common Stock at $115.00 per share, exercisable 30 days after Business Combination completion[63][64] - Assumed Warrants (190,619) from the Business Combination allow purchase of Class A Common Stock at $62.10 per share and include a down round provision[68] - The Exchange Offer, consummated on May 26, 2023, resulted in the issuance of 795,618 shares of Class A Common Stock for 164,751 tendered Assumed Warrants, recorded as a $2,466 thousand deemed dividend[69][71] - The 2022 Bridge Debenture Release in June 2023 involved issuing 703,500 shares of Class A Common Stock to former holders in exchange for a general release, recognizing an expense of $2,181 thousand[72][74] - The 2023 Private Placement, completed in two tranches in July and August 2023, raised aggregate gross proceeds of $743.5 thousand from the sale of 929,376 shares of Class A Common Stock[75][76] Note 8 Net Loss Per Share Net loss per share improved significantly year-over-year, with potential dilutive securities excluded from the calculation - Net loss per share of Class A common stock (basic and diluted) was $(0.75) for the three months ended September 30, 2023, a significant improvement from $(67.04) in the prior year[82] - For the nine months ended September 30, 2023, net loss per share was $(7.48), compared to $(128.65) in the prior year[82] - The computation of diluted net loss per share excluded 1,278,835 Class A common stock equivalents as of September 30, 2023 (including public, private, and assumed warrants, and assumed options), because their inclusion would be anti-dilutive due to the Company's loss position[80][83] Note 9 Fair Value Measurements The fair value of the company's warrant liability decreased significantly during the period Fair Value Measurements of Warrant Liability (Dollars in thousands) | Metric | Sep 30, 2023 Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Warrant liability | $67 | $65 | $2 | $0 | | Metric | Dec 31, 2022 Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Warrant liability | $311 | $302 | $9 | $0 | - The warrant liability decreased from $311 thousand at December 31, 2022, to $67 thousand at September 30, 2023[85] - Public Warrants are classified as Level 1 due to observable market quotes, while Private Placement Warrants are classified as Level 2 with an insignificant adjustment for marketability restrictions[86] Note 10 FOXO Life Insurance Company The company completed the sale of its life insurance subsidiary, gaining access to previously restricted capital - On February 3, 2023, the Company completed the sale of FOXO Life Insurance Company to Security National Life Insurance Company[88] - The transaction resulted in the Company gaining access to $4,751 thousand that was previously held as statutory capital and surplus, after accounting for the merger consideration and buyer's third-party expenses[88][151] - A total loss of $251 thousand was recognized within selling, general and administrative expense related to the sale[88] Note 11 Business Segment The company operates two segments, FOXO Labs and FOXO Life, with the latter's business activities being discontinued - The Company manages two reportable business segments: FOXO Labs and FOXO Life[89] - FOXO Labs focuses on commercializing proprietary epigenetic biomarker technology for underwriting risk classification and generates revenue from epigenetic biomarker services and royalties[89][90] - FOXO Life aimed to combine life insurance with a molecular health and wellness platform but discontinued this business activity as of October 19, 2023, due to sustained losses[89][147] Segment Revenue and Earnings (Dollars in thousands) | Segment | Three Months Ended Sep 30, 2023 Revenue | Three Months Ended Sep 30, 2022 Revenue | Three Months Ended Sep 30, 2023 Earnings | Three Months Ended Sep 30, 2022 Earnings | | :--- | :--- | :--- | :--- | :--- | | FOXO Labs | $6 | $7 | $(269) | $(500) | | FOXO Life | $4 | $7 | $(139) | $(1,158) | | Total | $10 | $14 | $(408) | $(1,658) | | Segment | Nine Months Ended Sep 30, 2023 Revenue | Nine Months Ended Sep 30, 2022 Revenue | Nine Months Ended Sep 30, 2023 Earnings | Nine Months Ended Sep 30, 2022 Earnings | | :--- | :--- | :--- | :--- | :--- | | FOXO Labs | $20 | $71 | $(873) | $(1,952) | | FOXO Life | $15 | $22 | $(1,029) | $(3,070) | | Total | $35 | $93 | $(1,902) | $(5,022) | Note 12 Commitments and Contingencies This note outlines license agreements, legal settlements, and severance accruals - The Company has license agreements with The Regents of University of California for DNA Methylation Based Predictor of Mortality and GrimAge/PhenoAge technology, requiring maintenance fees and royalties on sales[95][96] - A legal proceeding with Smithline Family Trust II was settled on November 7, 2023, with the Company agreeing to pay $2,300 thousand in cash by November 7, 2024, with payments from equity financings[103][104] - As of September 30, 2023, the Company accrued $1,528 thousand for former CEO severance, pending review of termination cause. If terminated with cause, $9,130 thousand of previously recognized stock-based compensation expense would be reversed[106][107][108] - The Company has an accrual of $2,300 thousand related to the settlement of legal proceedings as of September 30, 2023[110] Note 13 Subsequent Events The company details significant events after the reporting period, including financing, stock splits, and new agreements - On October 2, 2023, the Company obtained a $43 thousand loan from Andrew J. Poole, a former director, for legal fees, accruing interest at 13.25% per annum[113] - On October 13, 2023, the Company entered into a Strata Purchase Agreement with ClearThink Capital Partners, LLC, to sell up to $2,000 thousand of Class A common stock, with a purchase price at 85% of the lowest daily VWAP during a valuation period[114] - Concurrently, a Securities Purchase Agreement (SPA) with ClearThink involved the sale of 200,000 restricted shares of Common Stock for $200 thousand in two closings in October 2023[117] - On October 31, 2023, NYSE American halted trading in the Common Stock due to low selling price, leading to a 1-for-10 reverse stock split implemented on November 6, 2023, to regain compliance[122][123][124] - On October 3, 2023, Mark White (Interim CEO) and Martin Ward (Interim CFO) were each granted 250,000 shares of Class A common stock, fully earned and not subject to vesting[132] - Effective January 12, 2024, the Company entered into a Master Software and Services Agreement with KR8 AI Inc. (whose equity owners include the Interim CEO and CFO) for a perpetual license to develop an AI machine learning epigenetic app in the U.S., Canada, and Mexico, involving an initial $2,500 thousand fee, $50 thousand monthly maintenance, and 15% royalty on subscriber revenues[133][134] - On January 19, 2023, the Company issued 1,300,000 shares of Common Stock to KR8 AI Inc. under the Master Software and Services Agreement[137] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial conditions, operational results, strategic shifts, and ongoing liquidity challenges Overview The company is focused on commercializing health and longevity science through its epigenetic biomarker technology - FOXO is focused on commercializing health and longevity science through epigenetic biomarker technology, leveraging AI and machine learning for new discoveries[139] - The Company offers Bioinformatics Services to other researchers and partners, providing data processing, quality checking, and analysis using its cloud-based bioinformatics pipeline[139][144] - Historically, core product offerings included the 'Underwriting Report' (paused) and 'Longevity Report™' (paused for redevelopment), both leveraging epigenetic insights for life insurance[140] Segments The company operates through its FOXO Labs segment after discontinuing the FOXO Life insurance business - FOXO Labs performs R&D and commercializes epigenetic biomarker technology, generating revenue from epigenetic testing services and royalties[142][143] - FOXO Life aimed to combine life insurance with a healthy longevity platform but decided to sell certain assets and terminate this business activity as of October 19, 2023, due to sustained losses[145][147] - The sale of FOXO Life Insurance Company on February 3, 2023, provided access to $4,751 thousand previously held as statutory capital and surplus[150][151] Comparability of Financial Results The 2022 Business Combination was accounted for as a reverse recapitalization, impacting financial comparability - The Business Combination on September 15, 2022, was accounted for as a reverse recapitalization, with FOXO Technologies Operating Company (Legacy FOXO) as the accounting acquirer[153] - Upon closing, all outstanding Legacy FOXO Class A and Class B common stock were converted into 1,551,874 shares of the Company's Class A Common Stock[155] Recent Developments The company has recently undertaken asset impairments, significant layoffs, and various capital-raising efforts - The Company recognized $2,633 thousand in impairment losses during the nine months ended September 30, 2023, for its digital insurance platform, underwriting API, and longevity API, as these assets no longer supported positive cash flows[156][157] - Employee headcount was reduced from 22 to 4 by October 2023 through layoffs, aiming to reduce operating expenses and focus on Bioinformatics Services[158] - The Longevity Report is currently on hold due to the need to recompute data models with an updated array and develop additional content based on market research[159][160] - The Company launched Bioinformatics Services on July 19, 2023, as a primary offering, providing advanced data solutions for epigenetic data processing and analysis to clients in academia, healthcare, government, and pharmaceutical research[161] - The 2023 Private Placement, completed in two rounds, generated aggregate gross proceeds of $743.5 thousand from the sale of 929,376 shares of Class A Common Stock[163][165] - The Exchange Offer and PIK Note Offer to Amend, consummated on May 26, 2023, facilitated amendments to existing agreements to permit future equity/debt issuances without triggering anti-dilution adjustments or requiring PIK Note prepayment, issuing 795,618 and 432,188 shares of Class A Common Stock, respectively[167][171][176] - The Company received a NYSE American notice of noncompliance on June 12, 2023, due to a stockholders' deficit and losses, and submitted a compliance plan by July 12, 2023, with an 18-month cure period[184][185] Non-GAAP Financial Measures Management utilizes Adjusted EBITDA to evaluate the company's operating performance - Management uses Adjusted EBITDA as a non-GAAP financial measure to evaluate operating performance, excluding interest, tax, depreciation, amortization, non-cash fair value changes, stock-based compensation, and impairment[187] Results of Operations The company experienced lower revenue but a significantly reduced net loss due to decreased operating and non-operating expenses Key Financial Results (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $10 | $14 | $(4) | (29)% | | Gross profit | $(60) | $14 | $(74) | (529)% | | Research and development | $283 | $558 | $(275) | (49)% | | Management contingent share plan | $(1,553) | $0 | $(1,553) | N/A% | | Selling, general and administrative | $4,717 | $8,269 | $(3,552) | (43)% | | Loss from operations | $(3,507) | $(8,813) | $5,306 | 60% | | Non-operating expense | $(153) | $(32,213) | $32,060 | (100)% | | Net loss | $(3,660) | $(41,026) | $37,366 | (91)% | | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $35 | $93 | $(58) | (62)% | | Gross profit | $(35) | $93 | $(128) | (138)% | | Research and development | $925 | $2,160 | $(1,235) | (57)% | | Management contingent share plan | $(141) | $0 | $(141) | N/A% | | Impairment | $2,633 | $0 | $2,633 | N/A% | | Selling, general and administrative | $15,052 | $17,239 | $(2,187) | (13)% | | Loss from operations | $(18,504) | $(19,306) | $802 | (4)% | | Non-operating expense | $(4,088) | $(57,626) | $53,538 | (93)% | | Net loss | $(22,592) | $(76,932) | $54,340 | (71)% | - Total revenue decreased by 29% for the three months and 62% for the nine months ended September 30, 2023, primarily due to lower life insurance commissions and reduced royalty revenue from Illumina, Inc[190][198][200][203][211][213] - Net loss significantly decreased by 91% for the three months and 71% for the nine months ended September 30, 2023, mainly driven by reduced non-operating expenses related to fair value changes of convertible debentures and derivatives[194][196][208][209] - Research and development expenses decreased by 49% for the three months and 57% for the nine months ended September 30, 2023, due to lower employee-related expenses, professional services, and the discontinuation of certain R&D projects[191][199][204][212] - Selling, general and administrative expenses decreased by 43% for the three months and 13% for the nine months ended September 30, 2023, primarily due to the completion of a consulting agreement and lower employee-related expenses, partially offset by public company costs and intangible asset amortization[193][201][207][214] Other Operating Data Adjusted EBITDA improved year-over-year, reflecting better operational performance after excluding non-cash and infrequent items Adjusted EBITDA Reconciliation (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(3,660) | $(41,026) | $(22,592) | $(76,932) | | Add: Depreciation and amortization | $75 | $74 | $1,251 | $159 | | Add: Interest expense | $148 | $424 | $865 | $1,250 | | Add: Stock-based compensation | $(1,312) | $3,866 | $2,582 | $5,556 | | Add: Change in fair value of warrant liability | $(36) | $(1,349) | $(244) | $(1,349) | | Add: Change in fair value of forward purchase put derivative | $0 | $1,284 | $0 | $1,284 | | Add: Change in fair value of forward purchase collateral derivative | $0 | $27,378 | $0 | $27,378 | | Add: Impairment of intangible assets and cloud computing arrangements | $0 | $0 | $2,633 | $0 | | Add: Loss from PIK Note Amendment and 2022 Debenture Release | $0 | $0 | $3,521 | $0 | | Add: Non-cash change in fair value of convertible debentures | $0 | $3,697 | $0 | $28,180 | | Adjusted EBITDA | $(4,785) | $(5,652) | $(11,984) | $(14,474) | - Adjusted EBITDA improved from $(5,652) thousand to $(4,785) thousand for the three months ended September 30, 2023, and from $(14,474) thousand to $(11,984) thousand for the nine months ended September 30, 2023, reflecting better operational performance after excluding non-cash and infrequent items[218] Liquidity and Capital Resources The company faces significant liquidity challenges with minimal cash reserves and requires additional financing to continue operations - The Company had cash and cash equivalents of $42 thousand as of September 30, 2023, a significant decrease from $5,515 thousand at December 31, 2022[219] - The Company has incurred net losses since inception, with an accumulated deficit of $172,289 thousand as of September 30, 2023, and expects to incur additional losses, indicating insufficient capital to fund operations for the next 12 months[219][237] - The sale of FOXO Life Insurance Company in Q1 2023 provided access to $4,751 thousand in cash, which was used to fund operations[221] - The 2023 Private Placement provided net proceeds of $260 thousand and $217 thousand from two tranches, totaling $477 thousand[228] - The Company entered into a Strata Purchase Agreement in October 2023 to sell up to $2,000 thousand of Class A common stock to ClearThink Capital Partners, LLC, and a concurrent SPA for $200 thousand in restricted shares[229][232] - The Company expects to fund operations through January 2024 based on current plans and cash position, but requires additional financing beyond that point[238] Contractual Obligations as of September 30, 2023 (Dollars in thousands) | Obligation | Less than 1 Year | 1 - 3 years | 3 - 5 years | More than 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | License agreements | $20 | $40 | $40 | $0 | $100 | | Senior PIK Notes | $4,006 | $0 | $0 | $0 | $4,006 | | Supplier and other commitments | $14 | $0 | $0 | $0 | $14 | | Total | $4,080 | $40 | $40 | $0 | $4,160 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, detailed market risk disclosures are not required - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[259] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the reporting period - The Company's Certifying Officers concluded that disclosure controls and procedures were effective as of September 30, 2023[261] - There were no material changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023[262] - The Company acknowledges that disclosure controls and procedures provide only reasonable, not absolute, assurance and may not prevent all errors or fraud due to inherent limitations and resource constraints[263] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company details the settlement of a legal dispute with Smithline Family Trust II - On November 7, 2023, the Company entered into a Settlement Agreement with Smithline Family Trust II to resolve all disputes, including claims for breach of contract, unjust enrichment, and fraud[265] - The Company agreed to pay Smithline $2,300,000 in cash by November 7, 2024, with a minimum of 25% of gross proceeds from any equity or equity-linked financing (excluding convertible debt until conversion) to be applied towards the payment[266] - The Company also agreed to use commercially reasonable efforts to pay $300,000 in cash to Smithline by December 31, 2023[267] - The settlement includes restrictions on filing resale registration statements without Smithline's consent until $300,000 is paid, and a provision for issuing additional shares to Smithline under certain future registration events[268][269] Item 1A. Risk Factors The company outlines significant risks including historical losses, capital needs, and potential delisting Risks Related to Our Business and Industry The company faces risks from its history of losses, inadequate cash resources, and restrictive debt covenants - The Company has a history of losses, accumulating deficits of $172,289 thousand as of September 30, 2023, and may not achieve or maintain profitability in the future, requiring significant capital investments for growth[271] - The Company lacks adequate cash resources to fund operations through December 31, 2024, and requires additional capital, which may not be available on acceptable terms, potentially forcing delays, reductions, or cessation of commercialization efforts[272][276][277] - Covenants in outstanding indebtedness, particularly the Senior PIK Notes, restrict the Company's ability to incur new debt or equity financing without consent, limiting financial flexibility[279] - The Company is negotiating with PIK note holders to restructure notes due to default on November 1, 2023, which increased the interest rate from 15% to 22% and allows acceleration of debt at 130% of the principal balance[280] Risks Related to Our Epigenetic Testing Services The company's research may not yield commercially viable results, impacting future revenue generation - The Company's research projects for epigenetic biomarkers may not yield positive or immediately commercializable results, potentially impacting the acceptance of products and services and the ability to generate revenue[288][289][290] Risks Related to Owning Our Securities Security ownership risks include potential delisting, unlikely warrant exercise, and challenges in maintaining internal controls - The Company is at risk of delisting from NYSE American due to non-compliance with listing standards, specifically having a stockholders' deficit and sustained losses, which could adversely affect trading, liquidity, and market price of Class A Common Stock[291][292][293] - The exercise price of Public and Private Warrants ($115.00) and Assumed Warrants ($62.10) is significantly higher than the Class A Common Stock closing price of $0.276 as of January 18, 2024, making it unlikely for warrant holders to cash exercise, potentially resulting in no cash proceeds to the Company[282] - The Company may reduce the exercise price of warrants without holder consent, which would decrease potential cash proceeds, and anti-dilution provisions in Assumed Warrants could be triggered by future financings, further diluting equity[281][282] - Failure to maintain effective internal control over financial reporting and disclosure controls could adversely affect financial reporting accuracy and timing, potentially leading to restatements, litigation, and negative investor confidence[283][285] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details a 2023 Private Placement conducted under an exemption from securities registration - The Company sold 562,500 shares of Class A Common Stock in a 2023 Private Placement to three accredited investors for aggregate gross proceeds of $450 thousand[297] - These shares were issued under the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D[298] - Sales commissions of $24 thousand were paid to J.H. Darbie & Co., Inc. for this placement[299] Item 5. Other Information This section reports the resignation of a director from the company's board - Murdoc Khaleghi resigned from the Company's Board of Directors on August 9, 2023, for personal reasons[301] - His resignation was not related to any disagreement with the Company's operations, policies, or practices[301] Item 6. Exhibits This section lists the certifications and interactive data files filed with the report - The report includes certifications from the Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 302 and 18 U.S.C. Section 1350[304] - Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase, and Cover Page Interactive Data File) are filed as exhibits[304]