FOXO Technologies (FOXO) - 2023 Q4 - Annual Report

Part I Business Overview FOXO commercializes epigenetic biomarker technology for health and longevity, focusing on AI-based Bioinformatics Services and strategic alternatives - FOXO is dedicated to research and development in epigenetic biomarkers to provide data-driven insights for optimal health and longevity[13] - The company has paused sales of its 'Underwriting Report' and 'Longevity Report™' to focus on increasing cash resources and further R&D[15] - FOXO is exploring strategic alternatives, including consumer-facing AI technology applications, business combinations (e.g., KR8 AI Inc.), asset sales, and restructurings to maximize stockholder value[17] - The business is managed under two segments: FOXO Labs (R&D, epigenetic biomarker technology, Bioinformatics Services) and FOXO Life (paused life insurance sales)[20][21] - Key milestones include launching Bioinformatics Services in June 2023 and receiving USPTO allowances for two patents related to machine learning models for epigenetic biomarkers in April and September 2023[24][30][31] - Current strategy focuses on Bioinformatics Services and R&D in health and wellness testing powered by machine learning and AI, leveraging extensive epigenetic datasets from clinical trials[25][26] - The company relies on a limited number of critical third-party suppliers for epigenetic testing materials (saliva kits, arrays) and lab processing services[42] - A 1-for-10 reverse stock split was implemented on November 6, 2023, to regain compliance with NYSE American listing standards[48][49] Risk Factors The company faces numerous significant risks that could materially and adversely affect its business, financial condition, and stock price - The company is exploring strategic alternatives, including mergers and acquisitions, with no assurance of successful identification or completion, or that any alternative will yield additional stockholder value or sufficient operating capital[55][61] - FOXO has a history of losses, accumulating deficits of $177,060,000 as of December 31, 2023, and may not achieve or maintain profitability in the future[55][67] - The company does not have adequate cash resources to fund operations beyond Q3 2024 and requires additional capital, which may not be available on acceptable terms, raising substantial doubt about its ability to continue as a going concern[55][68][74] - Reliance on a limited number of critical third-party suppliers for epigenetic testing services (saliva kits, microarrays, lab processing) poses a risk of supply interruptions or cost increases[57][134] - The company's 'dry lab' data analysis services are not currently subject to CLIA or FDA regulation for general health and wellness, but future regulatory changes or differing interpretations could materially impact the business[57][140][144] - Protecting patent-pending methods of identifying epigenetic biomarkers and intellectual property in general is crucial, as inadequate protection could diminish brand value and allow competitors to mimic services[57][161][162] - The public market for FOXO's securities is volatile, and future share issuances (for financing or services) could result in dilution for existing stockholders[59][187][188] Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[195] Cybersecurity FOXO emphasizes robust cybersecurity measures, guided by GDPR principles, to protect highly personal customer data - FOXO's cybersecurity strategy is built on tightly controlled access management, layered defenses, continuous monitoring, vulnerability testing, rapid response, and internal/supply chain risk management[198][200] - The company uses GDPR as a guidepost for data protection practices and is completing control compliance development for its initial SOC 2 Type II audit[197][200] - The primary cybersecurity risk identified is the storage of customer questions and emails, with a potential breach negatively affecting public trust, customer retention, and revenue[205] - The board of directors does not have specific processes or a subcommittee for monitoring cybersecurity; management, with over 20 years of technology experience, handles monitoring and communicates with the board[207][208] Properties FOXO Technologies Inc. does not own any real property and operates from a leased office space in Minneapolis, MN, on a month-to-month basis - The company does not own any real property[209] - FOXO leases its principal executive offices on a month-to-month basis at 729 N. Washington Ave., Suite 600, Minneapolis, MN 55401[209] Legal Proceedings FOXO is involved in a significant legal proceeding with Smithline Family Trust II, which filed a complaint alleging breach of contract, unjust enrichment, and fraud - Smithline Family Trust II filed a complaint against FOXO and its former CEO, Jon Sabes, alleging breach of contract, unjust enrichment, and fraud, claiming damages exceeding $6,206,768[210] - A settlement agreement was reached on November 7, 2023, requiring FOXO to pay Smithline $2,300,000 in cash by the 12-month anniversary of the agreement's effective date (Settlement Deadline)[213][214] - FOXO agreed to pay Smithline a minimum of 25% of gross proceeds from any equity or equity-linked financing towards the cash settlement payment[214] - The company is currently in default of the Settlement Agreement due to failure to pay $300,000 by December 31, 2023, and is negotiating a resolution with Smithline[87][224] - An Exchange Agreement was entered into on May 28, 2024, where Smithline exchanged its Assumed Warrant for the right to receive up to 8,370,000 shares of Class A Common Stock, subject to beneficial ownership limitations[86][223] Mine Safety Disclosures This item is not applicable to FOXO Technologies Inc - Mine Safety Disclosures are not applicable[225] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities FOXO's Class A Common Stock is listed on NYSE American under 'FOXO', while its Public Warrants trade on the OTC Pink Marketplace under 'FOXOW' - Class A Common Stock (FOXO) is listed on NYSE American, and Public Warrants (FOXOW) are quoted on the OTC Pink Marketplace[228] Security Prices as of June 3, 2024 | Security | Closing Price | | :--------------------------------- | :------------ | | Class A Common Stock | $0.3540 | | Public Warrants | $0.0043 | - As of June 3, 2024, there were 60 active holders of record for Class A Common Stock, one for Public Warrants, nine for private warrants, and one for Smithline Assumed Warrants[230] - The company has never declared or paid cash dividends and does not anticipate doing so, intending to retain all earnings to finance growth and operations[231] Item 6. [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes FOXO's financial condition, results of operations, liquidity, and capital resources for 2023 and 2022, highlighting revenue decrease, net loss improvement, and going concern doubts Formation FOXO Technologies Inc. was formed in 2019 and underwent a reverse recapitalization in September 2022, acquiring Legacy FOXO as the accounting acquirer - FOXO was formed as a limited liability company on November 11, 2019, and converted to a C Corporation in November 2020[234] - The company consummated a Business Combination on September 15, 2022, where Legacy FOXO survived as a wholly-owned subsidiary, and the company's name changed from Delwinds Insurance Acquisition Corp. to FOXO Technologies Inc[235] Overview FOXO commercializes epigenetic biomarker technology for health and longevity, providing data-driven insights, and has paused 'Underwriting Report' and 'Longevity Report™' sales to re-strategize and focus on Bioinformatics Services - FOXO commercializes epigenetic biomarker technology for health and longevity, aiming to provide data-driven insights based on unique biological measures[236] - The company has strategically extended its expertise in epigenetic data processing and analysis to outside parties through Bioinformatics Services to accelerate new discoveries and generate revenue[237] - Sales of 'Underwriting Report' and 'Longevity Report™' have been paused to conserve cash and redevelop/re-strategize these offerings[238] - On October 2, 2023, FOXO paused sales of new life insurance products and moved existing producers out of the MGA Model to focus resources on FOXO Labs[239] Exploration of Strategic Alternatives and Restructuring FOXO is actively exploring strategic alternatives to maximize stockholder value, including potential business combinations with AI technology companies, developing consumer-facing AI healthcare tools, pausing life insurance sales, reducing headcount, and identifying non-core assets for sale - FOXO is exploring strategic alternatives focused on consumer-facing AI technology applications and solutions, and maximizing stockholder value[240] - Strategic options include evaluating KR8 AI Inc. as a suitable acquisition candidate, developing a consumer-facing AI platform leveraging epigenetics, pausing new life insurance sales, reducing headcount and expenses, and identifying non-core business assets for sale[240] Segments The company's business is classified into two reportable segments: FOXO Labs, focusing on R&D and Bioinformatics Services, and FOXO Life, which has paused new life insurance product sales - FOXO manages its business in two reportable segments: FOXO Labs and FOXO Life[242] - FOXO Labs performs R&D, commercializes epigenetic biomarker technology, and anticipates revenue from Bioinformatics Services and other commercialization opportunities, including a potential AI platform[243] - FOXO Labs recognizes revenue from epigenetic testing services and royalties from Illumina, Inc. for the Infinium Mouse Methylation Array[244] - Bioinformatics Services, now a primary offering, provides data processing, quality checking, and analysis using FOXO's cloud-based bioinformatics pipeline[245] Comparability of Financial Results The Business Combination on September 15, 2022, was accounted for as a reverse recapitalization, with Legacy FOXO as the accounting acquirer, meaning prior financial statements reflect Legacy FOXO's historical costs - The Business Combination was accounted for as a reverse recapitalization, with Legacy FOXO determined to be the accounting acquirer[248] - The net assets of the Company were stated at historical cost, with no goodwill or other separately identifiable intangible assets recorded[248] - Prior to the Closing, various transactions occurred, including the exchange of Legacy FOXO Series A preferred stock for Class A Common Stock and the conversion of Bridge Debentures into Class A Common Stock[250] Recent Developments Recent developments include $2.633 million in asset impairment charges, a reduction in headcount to 4 employees, the pausing of Longevity Report sales, the launch of Bioinformatics Services, and private placements to raise capital - Recognized $1,425,000 impairment loss in April 2023 for the digital insurance platform[251] - Recognized impairment charges of $630,000 for the underwriting API and $578,000 for the longevity API in June 2023, as positive cash flows were no longer forecasted[252] - Reduced employee headcount from 22 to 4 in 2023 through layoffs to reduce operating expenses and refocus on Bioinformatics Services[254] - Sales of the Longevity Report are on hold pending recomputation of data models with updated arrays and additional content development[255] - Formally launched Bioinformatics Services in July 2023, offering advanced data solutions for epigenetic data processing and analysis[256] - Completed two rounds of private placements in 2023, raising aggregate gross proceeds of $450,000 and $293,500 respectively[258][260] - A down round provision in Assumed Warrants was triggered in 2023, resulting in 2,007,848 outstanding warrants with an exercise price of $0.80 per share and a deemed dividend of $912,000[261] - Completed an Exchange Offer in May 2023, issuing 795,618 shares of Class A Common Stock to warrant holders, resulting in a deemed dividend of $2,466,000[266][291] - Public Warrants were delisted from NYSE American on May 16, 2023, due to low trading price and began trading on the OTC Pink Marketplace[275][276] Non-GAAP Financial Measures FOXO uses Adjusted EBITDA as a non-GAAP financial measure to provide additional insight into its operating performance, excluding various non-cash and non-recurring items for better period-to-period comparisons - Adjusted EBITDA is used as a non-GAAP financial measure to evaluate operating performance, excluding interest, tax, depreciation, amortization, non-cash changes in fair value of convertible debentures and warrants, stock-based compensation, write-offs, and impairment[278][299] Results of Operations For the year ended December 31, 2023, FOXO experienced a significant reduction in net loss and total revenue compared to 2022, driven by decreased expenses and the absence of large non-cash expenses from the prior year Consolidated Results of Operations (Years Ended December 31, 2023 and 2022) | (Dollars in thousands) | 2023 | 2022 | Change in $ | Change in % | | :------------------------------------------------- | :--- | :--- | :---------- | :---------- | | Total revenue | $145 | $511 | $(366) | (72)% | | Cost of sales | 132 | 344 | (212) | (62)% | | Gross profit | 13 | 167 | (154) | (92)% | | Operating expenses: | | | | | | Research and development | 901 | 3,047| (2,146) | (70)% | | Management contingent share plan | (732)| 10,091| (10,823) | (107)% | | Impairments of intangible assets and cloud computing arrangements | 2,633| 1,370| 1,263 | 92% | | Selling, general and administrative | 19,399| 25,826| (6,427) | (25)% | | Total operating expenses | 22,201| 40,334| (18,133) | (45)% | | Loss from operations | (22,188)| (40,167)| 17,979 | 45% | | Non-cash change in fair value of convertible debentures | - | (28,180)| 28,180 | N/A% | | Change in fair value of warrant liability | 303 | 2,076| (1,773) | (85)% | | Loss from PIK Note Amendment and 2022 Debenture Release | (3,521)| - | (3,521) | N/A% | | Forward purchase agreement expense | - | (27,337)| 27,337 | N/A % | | Other non-operating expenses, net | (1,045)| (1,647)| 602 | 37% | | Total non-operating expenses | (4,263)| (55,088)| 50,825 | 92% | | Net loss | $(26,451)| $(95,255)| $68,804 | 72% | | Deemed dividends | (3,378)| - | (3,378) | NA% | | Net loss to common stockholders | $(29,829)| $(95,255)| $65,426 | 70% | - Total revenue decreased by $366,000 (72%) in 2023, primarily due to a $301,000 decrease in Epigenetic biomarker services and a $56,000 reduction in royalty rates from Illumina, Inc[280] - Research and development expenses decreased by $2,146,000 (70%) in 2023, largely due to the completion of a clinical trial agreement and lower employee-related and professional services costs[281] - Selling, general and administrative expenses decreased by $6,427,000 (25%) in 2023, driven by headcount reductions, lower consulting costs, and the absence of a Cantor Commitment Fee, partially offset by public company costs and a $1,313,000 write-off of supplies[285] - Net loss decreased by $68,804,000 (72%) in 2023, mainly due to a decrease in loss from operations and the absence of significant non-cash changes in fair value of convertible debentures and forward purchase agreement expenses incurred in 2022[291] Analysis of Segment Results Segment analysis for 2023 shows revenue declines in both FOXO Labs and FOXO Life, with FOXO Labs' revenue decreasing by 74% and FOXO Life's by 32%, though both segments improved their losses due to cost reductions Segment Revenues and Losses (Years Ended December 31, 2023 and 2022) | (Dollars in thousands) | Revenues 2023 | Revenues 2022 | Losses 2023 | Losses 2022 | | :--------------------- | :------------ | :------------ | :---------- | :---------- | | FOXO Labs | $126 | $483 | $(2,149) | $(2,769) | | FOXO Life | $19 | $28 | $(1,645) | $(3,735) | | Total | $145 | $511 | $(3,794) | $(6,504) | - FOXO Labs' total revenues decreased by $357,000 (74%) in 2023, primarily from a $301,000 decrease in Epigenetic biomarker services and a $56,000 decrease in royalty revenues[293] - FOXO Labs' segment losses decreased by $620,000 (29%) in 2023, driven by reduced clinical trial expenses, lower employee-related costs, and professional services, partially offset by the revenue decrease and a $1,313,000 write-off of supplies[294] - FOXO Life's total revenues decreased by $9,000 (32%) in 2023 due to reduced life insurance commissions as the company ceased placing new policies[295] - FOXO Life's segment losses decreased by $2,090,000 (56%) in 2023, mainly due to lower employee-related expenses and professional services, partially offset by a $251,000 loss on the sale of FOXO Life Insurance Company[296] Other Operating Data The company's Adjusted EBITDA, a non-GAAP measure, improved from a loss of $19.828 million in 2022 to a loss of $13.752 million in 2023, reflecting reduced operating expenses and the absence of certain non-cash charges Adjusted EBITDA Reconciliation (Dollars in thousands) | (Dollars in thousands) | 2023 | 2022 | | :------------------------------------------------- | :--- | :--- | | Net loss | $(26,451)| $(95,255)| | Add: Depreciation and amortization | 1,279| 1,487| | Add: Interest expense | 1,064| 1,440| | Add: Equity-based compensation | 2,586| 17,689| | Add: Non-cash change in fair value of convertible debentures | - | 28,180| | Add: Change in fair value of warrant liability | 303 | (2,076)| | Add: Impairment charges | 2,633| 1,370| | Add: Write off of supplies | 1,313| - | | Add: Loss from PIK Note Amendment and 2022 Debenture Release | 3,521| - | | Add: Forward purchase agreement expense | - | 27,337| | Adjusted EBITDA | $(13,752)| $(19,828)| - Adjusted EBITDA improved from a loss of $19,828,000 in 2022 to a loss of $13,752,000 in 2023[300] Liquidity and Capital Resources (dollars in thousands) FOXO faces significant liquidity challenges with cash at $38,000 by December 31, 2023, and an accumulated deficit of $177,060,000, raising substantial doubt about its going concern ability beyond Q3 2024 without additional financing Cash and Cash Equivalents and Accumulated Deficit | Metric | December 31, 2023 | December 31, 2022 | | :------------------------ | :------------------ | :------------------ | | Cash and cash equivalents | $38 | $5,515 | | Accumulated deficit | $177,060 | $147,231 | - The company has incurred net losses since inception, with $29,829,000 in 2023 and $95,255,000 in 2022[301] - Current capital is insufficient to meet operating requirements beyond the third quarter of 2024, necessitating additional financing or strategic transactions[69][324] - The sale of FOXO Life Insurance Company on February 3, 2023, provided $4,751,000 to fund operations[303] - In 2023, the company completed private placements raising $1,176,000 in net proceeds[310][311] - In Q1 2024, FOXO entered into a Second Strata Purchase Agreement for up to $5,000,000 in Class A Common Stock and a $750,000 promissory note with ClearThink, and issued a $110,000 convertible promissory note to LGH Investments[313][314][315] - The company received NYSE American non-compliance notices for failing to timely file its 10-K and for having a stockholders' deficit and recurring losses, with a compliance deadline of December 12, 2024[318][323] Cash Flow Data (Years Ended December 31, 2023 and 2022) | Years Ended December 31, | 2023 | 2022 | | :----------------------- | :--- | :--- | | Operating Activities | $(6,645)| $(23,760)| | Investing Activities | $- | $(1,870)| | Financing Activities | $1,168| $24,289| - Net cash used in operating activities decreased by $17,115,000 (72%) in 2023, partly due to reduced net loss and access to $4,751,000 from the FOXO Life Insurance Company sale[327] Contractual Obligations as of December 31, 2023 (Dollars in thousands) | | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | Total | | :------------------------ | :--------------- | :---------- | :---------- | :---------------- | :---- | | License agreements | $20 | $40 | $40 | $- | $100 | | Senior PIK Notes | $4,203 | $- | $- | $- | $4,203| | Supplier and other commitments | $54 | $- | $- | $- | $54 | | Total | $4,277 | $40 | $40 | $- | $4,357| Critical Accounting Policies The company's critical accounting policies involve significant management judgment and estimates, particularly for equity-based compensation, fair value of convertible debentures, and the ongoing assessment of its ability to continue as a going concern - Critical accounting policies include equity-based compensation, fair value of convertible debentures, and going concern assessment, all requiring subjective judgments and estimates[335] - Equity-based compensation is measured at fair value using a Black-Scholes valuation model, with assumptions for expected term, volatility, risk-free interest rate, and dividend yield[336][337][338] - The fair value option was elected for convertible debentures, initially valued using a Monte Carlo simulation and later a probability-weighted expected return model, with changes recognized in the consolidated statements of operations[339][341][342] - The going concern assessment involves evaluating cash and working capital for a one-year look-forward period, considering various scenarios and the ability to curtail expenditures[344] Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, 'Improvements to Income Tax Disclosures,' which will be adopted retrospectively on January 1, 2025, with no anticipated material effect on disclosures - ASU 2023-09, 'Improvements to Income Tax Disclosures,' issued in December 2023, requires enhanced annual disclosures for specific categories in rate reconciliation and disaggregated income taxes[345] - The company plans to adopt ASU 2023-09 effective January 1, 2025, applying a retrospective approach, and does not believe it will have a material effect on its disclosures[345] Factors That May Adversely Affect our Results of Operations The company's results of operations are susceptible to adverse impacts from various external factors beyond its control, including general economic conditions, financial market downturns, inflation, interest rate increases, supply chain disruptions, and geopolitical instability - Results of operations may be adversely affected by general economic conditions, financial market downturns, inflation, interest rate increases, supply chain disruptions, and geopolitical instability[346] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, FOXO Technologies Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, FOXO is not required to provide quantitative and qualitative disclosures about market risk[347] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and supplementary data, including the report of independent registered public accounting firms, which are incorporated by reference and set forth on pages F-1 through F-47 of this Annual Report - Consolidated financial statements and report of independent registered public accounting firm are incorporated by reference and located on pages F-1 through F-47[348] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - No changes in or disagreements with accountants on accounting and financial disclosure[349] Controls and Procedures As of December 31, 2023, management concluded that FOXO's disclosure controls and procedures, as well as its internal control over financial reporting, were not effective, with material weaknesses identified in entity-level controls, accounting personnel resources, and segregation of duties - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023[351] - Management concluded that internal control over financial reporting was not effective as of December 31, 2023[354] - Material weaknesses were identified in (i) entity-level controls, (ii) accounting personnel resources with necessary expertise, and (iii) segregation of duties[357] - Remediation actions include engaging third-party consultants, assessing and recruiting finance/accounting personnel, centralizing key processes for segregation of duties, and developing further training[357] - No change in internal control over financial reporting materially affected or is reasonably likely to materially affect internal control over financial reporting during the most recently completed fiscal quarter[359] Other Information There is no other information to report under this item - No other information to report[360] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to FOXO Technologies Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[361] Part III Directors, Executive Officers and Corporate Governance This section outlines FOXO's Board of Directors and executive officers, including their independence and committee assignments, with Mark White as Interim CEO and Martin Ward as Interim CFO, both also holding positions at KR8 AI Current Directors and Executive Officers | Name | Age | Position | | :-------------------- | :-- | :------------------------------------- | | Mark White | 63 | Interim Chief Executive Officer and Director | | Martin Ward | 66 | Interim Chief Financial Officer | | Bret Barnes | 42 | Chairman and Director | | Francis Colt deWolf III | 56 | Director | - Mark White and Martin Ward were appointed Interim CEO and Interim CFO, respectively, in September 2023, and also serve as executive officers for KR8 AI Inc[366][367] - Bret Barnes and Francis Colt deWolf III are independent directors, and the Board consists of a majority of independent directors[375] - The company has standing Audit, Compensation, and Nominating and Corporate Governance Committees, each operating under a written charter[376] - The Audit Committee consists of Bret Barnes and Francis Colt deWolf III, with Mr. deWolf III qualifying as an audit committee financial expert[378][379] - The Board actively oversees risk management, including cybersecurity risks, receiving regular reports from management[389][390] - The company's Charter limits director liability and requires indemnification and expense advancement to the fullest extent permitted by Delaware law[391] Executive Compensation This section details the compensation of FOXO's named executive officers for 2023 and 2022, including salaries, stock awards, and other compensation, highlighting the $1 annual base salary for current Interim CEO Mark White and Interim CFO Martin Ward Summary Compensation Table (Dollars in thousands) | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Total ($) | | :-------------------------- | :--- | :--------- | :--------------- | :-------- | | Mark White | 2023 | — | 257,500 | 257,500 | | Current Interim CEO | 2022 | — | — | — | | Martin Ward | 2023 | — | 257,500 | 257,500 | | Current Interim CFO | 2022 | — | — | — | | Tyler Danielson | 2023 | 141,923 | — | 210,833 | | Former Interim CEO | 2022 | 205,000 | 5,935,600 | 6,140,622 | | Brian Chen, PhD | 2023 | 163,385 | — | 238,333 | | Former CSO | 2022 | 236,000 | 5,935,600 | 6,171,622 | | Robert Potashnick | 2023 | 141,923 | — | 181,833 | | Former CFO | 2022 | 205,000 | 3,983,100 | 4,188,122 | - The 2020 Equity Incentive Plan was terminated after the approval of the 2022 Plan, with no further awards granted under it[406] - The 2022 Equity Incentive Plan authorizes the grant of stock options, SARs, restricted shares, RSUs, and other equity-based awards, with 651,862 shares of Class A Common Stock available for issuance[418][419] - The Management Contingent Share Plan made 920,000 shares eligible for restricted share awards, initially subject to time-based and performance-based vesting, with performance-based vesting no longer required after the sale of FOXO Life Insurance Company[444][451] - Mark White and Martin Ward, current Interim CEO and CFO, respectively, each receive an annual base salary of $1 and were granted 250,000 fully vested shares of Class A Common Stock on October 3, 2023[473][476][477][479] - Former executives Tyler Danielson, Brian Chen, and Robert Potashnick resigned in September 2023[462][469][472] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides a snapshot of the beneficial ownership of FOXO's Class A Common Stock as of June 3, 2024, showing Interim CEO Mark White and Interim CFO Martin Ward each beneficially own 12.19% Beneficial Ownership of Class A Common Stock as of June 3, 2024 | Name and Address of Beneficial Owner | Number of Shares of Common Stock | % of Class | | :----------------------------------- | :------------------------------- | :--------- | | Mark White | 1,300,000 | 12.19% | | Martin Ward | 1,300,000 | 12.19% | | Bret Barnes | 11,865 | * | | Francis Colt deWolf III | 0 | - | | All current directors and executive officers as a group (four individuals) | 1,311,865 | 12.30% | - Mark White and Martin Ward's beneficial ownership includes 1,300,000 shares of Class A Common Stock held by KR8 AI, an entity they control[485][487] - Applicable percentage of ownership is based on 10,667,258 shares of Class A Common Stock outstanding as of June 3, 2024[484] Certain Relationships and Related Transactions, Director Independence This section details various related party transactions, including a provisional exclusive license agreement with KR8 AI (controlled by current executives) for AI software development, which was later formalized into a Master Software and Services Agreement - FOXO entered into a Letter Agreement with KR8 AI (controlled by Interim CEO Mark White and Interim CFO Martin Ward) for a provisional exclusive license to use KR8's AI Eco System and iOS/Android app for consumer health, wellness, and longevity apps in North America[487][493] - The Letter Agreement stipulated an initial license and development fee of $2,500,000 ($1,500,000 cash, $1,000,000 stock) and a 15% royalty on product subscriber revenues[488][489] - Effective January 12, 2024, a definitive KR8 AI Master License and Services Agreement was signed, granting a perpetual license for AI machine learning epigenetic APP development in the U.S., Canada, and Mexico, with an initial fee of $2,500,000, a $50,000 monthly maintenance fee, and a 15% royalty on Subscriber Revenues[494][495] - On January 19, 2024, FOXO issued 1,300,000 shares of Class A Common Stock to KR8 AI under the License Agreement[499] - The company obtained two demand promissory notes from former director Andrew J. Poole in September and October 2023, totaling $247,233 (no interest) and $42,500 (13.25% interest), respectively[500][501] - The Board reviews and approves related person transactions exceeding $120,000 where any related person has a direct or indirect material interest[514][515] Principal Accountant Fees and Services FOXO experienced multiple changes in its independent registered public accounting firm, with KPMG LLP serving until June 2023, followed by EisnerAmper LLP until January 2024, and then Kreit & Chiu CPA LLP for the fiscal year ended December 31, 2023 - KPMG LLP served as the independent registered public accounting firm until June 12, 2023[519] - EisnerAmper LLP was appointed effective June 12, 2023, and served until January 3, 2024[520] - Kreit & Chiu CPA LLP was engaged on December 29, 2023, to serve as the independent registered public accounting firm for the year ended December 31, 2023[520] Audit and Audit-Related Fees (Fiscal Years Ended December 31, 2023 and 2022) | For the Fiscal Year Ended | 2023 | 2022 | | :------------------------ | :-------- | :---------- | | Audit Fees | $373,236 | $516,187 | | Audit-Related Fees | $110,675 | $704,219 | | Total | $483,911 | $1,220,406 | - The audit committee is responsible for pre-approving all auditing and permissible non-audit services[522] Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm are set forth on pages F-1 through F-47[526] - Financial statement schedules are omitted if not required, not applicable, or if the information is shown in the consolidated financial statements or notes[527] - Required exhibits are incorporated by reference or filed with this Annual Report[528] Form 10-K Summary This item is not applicable to FOXO Technologies Inc - Form 10-K Summary is not applicable[537] Signatures The Annual Report on Form 10-K was duly signed on June 6, 2024, by Mark White as Interim Chief Executive Officer and Martin Ward as Interim Chief Financial Officer, along with other directors - The Annual Report was signed on June 6, 2024[539] - Signatories include Mark White (Interim Chief Executive Officer and Director) and Martin Ward (Interim Chief Financial Officer), and directors Francis Colt deWolf III and Bret Barnes[540][541] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (KPMG LLP) KPMG LLP audited FOXO's consolidated financial statements for 2022, issuing a fair opinion but highlighting substantial doubt about the company's ability to continue as a going concern due to negative cash flows and operating losses - KPMG LLP audited the consolidated financial statements for the year ended December 31, 2022, and expressed a fair opinion[545] - The report included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern due to continued negative cash flows and losses from operations[546] Report of Independent Registered Public Accounting Firm (Kreit & Chiu CPA LLP) Kreit & Chiu CPA LLP audited FOXO's consolidated financial statements for 2023, issuing a fair opinion but emphasizing substantial doubt about the company's ability to continue as a going concern due to negative working capital and recurring losses - Kreit & Chiu CPA LLP audited the consolidated financial statements for the year ended December 31, 2023, and expressed a fair opinion[552] - The report included an explanatory paragraph on going concern, citing a negative working capital and shareholders' deficiency of $14,103,000 and $14,100,000, respectively, as of December 31, 2023, and recurring net losses of $26,451,000 (2023) and $95,255,000 (2022)[553] Consolidated Balance Sheets The consolidated balance sheets present FOXO's financial position as of December 31, 2023, and 2022, showing a significant decrease in total assets and cash, a rise in current liabilities, and a shift to a substantial stockholders' deficit Consolidated Balance Sheet Summary (Dollars in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------- | :---------------- | :---------------- | | Total current assets | $233 | $12,304 | | Total assets | $725 | $35,408 | | Total current liabilities | $14,336 | $6,913 | | Total liabilities | $14,825 | $28,700 | | Total stockholders' (deficit) equity | $(14,100) | $6,708 | - Cash and cash equivalents decreased significantly from $5,515,000 in 2022 to $38,000 in 2023[558] - The company's stockholders' equity shifted from a positive $6,708,000 in 2022 to a deficit of $14,100,000 in 2023[558] - Intangible assets, net, decreased from $2,043,000 in 2022 to $378,000 in 2023, largely due to impairment charges[558] Consolidated Statements of Operations The consolidated statements of operations show a substantial reduction in net loss for FOXO, from $95,255,000 in 2022 to $26,451,000 in 2023, primarily driven by decreased operating expenses and the absence of large non-cash charges, despite a 72% decline in total revenue Consolidated Statements of Operations Summary (Dollars in thousands) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | | :----------------------------------------------- | :--------------------------- | :--------------------------- | | Total revenue | $145 | $511 | | Gross profit | $13 | $167 | | Total operating expenses | $22,201 | $40,334 | | Loss from operations | $(22,188) | $(40,167) | | Non-cash change in fair value of convertible debentures | $- | $(28,180) | | Forward purchase agreement expense | $- | $(27,337) | | Net loss | $(26,451) | $(95,255) | | Net loss to common stockholders | $(29,829) | $(95,255) | - Net loss decreased by $68,804,000 (72%) from $95,255,000 in 2022 to $26,451,000 in 2023[559] - Total revenue decreased by $366,000 (72%) from $511,000 in 2022 to $145,000 in 2023[559] - Operating expenses decreased by $18,133,000 (45%) from $40,334,000 in 2022 to $22,201,000 in 2023[559] Consolidated Statements of Stockholders' (Deficit) Equity The consolidated statements of stockholders' (deficit) equity reflect the impact of the reverse recapitalization in 2022 and subsequent financial activities, leading to a significant accumulated deficit and negative total stockholders' equity by year-end 2023 - The balance of total stockholders' (deficit) equity shifted from $6,708,000 at December 31, 2022, to $(14,100,000) at December 31, 2023[561] - Net loss to common stockholders for 2023 was $(29,829,000), contributing to an accumulated deficit of $(177,060,000)[561] - Deemed dividends related to the Exchange Offer and trigger of down round provisions of Assumed Warrants totaled $(3,378,000) in 2023[561] - Private placements in 2023 resulted in an increase in additional paid-in capital of $862,000[561] Consolidated Statements of Cash Flows The consolidated statements of cash flows show a significant reduction in net cash used in operating activities, from $23,760,000 in 2022 to $6,645,000 in 2023, primarily due to a lower net loss and proceeds from the sale of FOXO Life Insurance Company Consolidated Statements of Cash Flows Summary (Dollars in thousands) | Cash Flow Activity | Year Ended December 31, 2023 | Year Ended December 31, 2022 | | :------------------------- | :--------------------------- | :--------------------------- | | Operating Activities | $(6,645) | $(23,760) | | Investing Activities | $- | $(1,870) | | Financing Activities | $1,168 | $24,289 | | Net change in cash and cash equivalents | $(5,477) | $(1,341) | | Cash and cash equivalents at end of period | $38 | $5,515 | - Net cash used in operating activities decreased by $17,115,000 (72%) in 2023, driven by a reduction in net loss and $4,751,000 from the sale of FOXO Life Insurance Company[327][562] - Net cash provided by financing activities decreased from $24,289,000 in 2022 to $1,168,000 in 2023, reflecting lower proceeds from private placements and the absence of large reverse recapitalization proceeds[329][562] - Cash and cash equivalents at the end of 2023 were $38,000, a significant decrease from $5,515,000 at the end of 2022[562] Notes to Consolidated Financial Statements The Notes to Consolidated Financial Statements provide detailed disclosures on FOXO's business, significant accounting policies, financial instruments, debt, equity, and related party transactions, highlighting ongoing going concern issues and strategic shifts Note 1 DESCRIPTION OF BUSINESS FOXO Technologies Inc. commercializes epigenetic biomarker technology, applying AI and machine learning for health, wellness, and aging insights, with business divided into FOXO Labs and FOXO Life, following a significant Business Combination in September 2022 and the sale of FOXO Life Insurance Company in February 2023 - FOXO commercializes epigenetic biomarker technology, applying AI and machine learning to discover biomarkers for human health, wellness, and aging[564] - The company's business is managed in two reportable segments: FOXO Labs and FOXO Life[565] - A Business Combination was consummated on September 15, 2022, where Delwinds Insurance Acquisition Corp. changed its name to FOXO Technologies Inc., and Legacy FOXO became a wholly-owned subsidiary[567] - FOXO Life Insurance Company was sold on February 3, 2023[568] Note 2 GOING CONCERN AND MANAGEMENT'S PLAN FOXO's history of losses, negative working capital, and insufficient cash ($38,000 as of December 31, 2023) raise substantial doubt about its ability to continue as a going concern beyond Q3 2024, necessitating additional financing and revenue generation - The company incurred net losses to common stockholders of $29,829,000 (2023) and $95,255,000 (2022), with an accumulated deficit of $14,100,000 and a working capital deficit of $14,103,000 as of December 31, 2023[572] - Cash and cash equivalents were $38,000 as of December 31, 2023, and the company's ability to continue as a going concern is dependent on generating revenue and raising additional capital[572][573] - FOXO received official notices of noncompliance from NYSE American for failing to timely file its 10-K for 2023 and for being below compliance with stockholders' equity requirements, with a compliance plan accepted until December 12, 2024[575][579] - The company is in default of its Senior PIK Notes due to missed payments starting November 1, 2023, and is negotiating with holders for a resolution[581] - Substantial doubt exists about the company's ability to continue as a going concern for the one-year period following the issuance of the financial statements[582] Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details FOXO's significant accounting policies, including the reverse recapitalization accounting for the Business Combination, its status as an emerging growth company, the 1-for-10 reverse stock split, and policies for cash, write-offs, impairment, fair value measurements, debt, revenue recognition, equity-based compensation, R&D costs, income taxes, net loss per share, and asset acquisitions - The Business Combination was accounted for as a reverse recapitalization, with Delwinds treated as the 'acquired' company and Legacy FOXO as the accounting acquirer[584] - FOXO is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[587] - A 1-for-10 reverse stock split was effected on November 6, 2023, to regain compliance with NYSE American listing standards[589][590] - The company recognized a $1,313,000 write-off of supplies (Epic+ arrays, mouse arrays, saliva test kits) in 2023 due to project completion and expired warranties[595] - Revenue recognition follows a five-step approach, with revenues primarily from epigenetic biomarker services and royalties, and historically from life insurance commissions[603][604] - FOXO Labs' revenues decreased by $357,000 in 2023, driven by a $301,000 decrease in Epigenetic biomarker services and a $56,000 decrease in royalty revenues[604] - As of October 19, 2023, FOXO Life business activity was terminated due to sustained losses, and FOXO Life Insurance Company was sold on February 3, 2023[608][612] Note 4 INTANGIBLE ASSETS, NET AND CLOUD COMPUTING ARRANGEMENTS, NET FOXO's intangible assets and cloud computing arrangements are subject to annual impairment reviews, with $2,633,000 in impairment losses recognized in 2023 for the digital insurance platform, underwriting API, and longevity API due to revised cash flow forecasts and discontinued sales expectations Intangible Assets, Net (Dollars in thousands) | Asset | 2023 | 2022 | | :------------------------ | :--- | :--- | | Methylation pipeline | $592 | $592 | | Underwriting API | $840 | $840 | | Longevity API | $717 | $717 | | Less accumulated amortization and impairment | $(1,771)| $(106)| | Intangible assets, net | $378 | $2,043| Cloud Computing Arrangements, Net (Dollars in thousands) | Asset | 2023 | 2022 | | :------------------------ | :--- | :--- | | Digital insurance platform| $2,966| $2,966| | Less accumulated amortization and impairment | $(2,966)| $(741)| | Cloud computing arrangements, net | $- | $2,225| - Amortization expense for intangible assets and cloud computing arrangements was $1,257,000 in 2023 and $1,283,000 in 2022[622] - Recognized a $1,425,000 impairment loss in April 2023 for the digital insurance platform[623] - Recognized impairment losses of $630,000 for the underwriting API and $578,000 for the longevity API in June 2023, totaling $2,633,000 in 2023[624][625] Note 5 DEBT This note details FOXO's debt instruments, including the 15% Senior PIK Notes, which matured on April 1, 2024, and are currently in default due to missed payments, and the historical 2021 and 2022 Bridge Debentures, which were converted into equity - FOXO issued 15% Senior PIK Notes in September 2022 for an aggregate principal of $3,458,000, maturing on April 1, 2024[627] - The company is in default of the Senior PIK Notes due to failure to make monthly payments commencing November 1, 2023, leading to an increased interest rate of 22% per annum[628][634] - The PIK Note Amendment, consummated in May 2023, was accounted for as an extinguishment, resulting in a $1,596,000 expense, including $1,339,000 for the issuance of Class A Common Stock to holders[633] - As of December 31, 2023, the $4,203,000 balance of the Senior PIK Notes is recorded as current liabilities[636] - The 2021 Bridge Debentures ($11,812,000 aggregate principal) and 2022 Bridge Debentures ($30,800,000 aggregate principal) were converted into FOXO Class A Common Stock and subsequently exchanged for the Company's Class A Common Stock as part of the Business Combination[637][641][644] Note 6 RELATED PARTY TRANSACTIONS This note details FOXO's related party transactions, including historical office subleases, convertible debentures, and a promissory note with Delwinds, as well as recent demand promissory notes from former director Andrew J. Poole and $595,000 owed to KR8 AI Inc. (controlled by current executives) for management, license, and maintenance fees - The company subleased office space from an investor, with payments treated as additional capital contributions[646] - FOXO obtained a $247,000 demand promissory note (no interest) and a $43,000 demand promissory note (13.25% interest) from former director Andrew J. Poole in September and October 2023, respectively[650][651] - As of December 31, 2023, FOXO owed KR8 AI Inc. $595,000 for management, license, and maintenance fees, with KR8 AI Inc. being equity-owned by FOXO's Interim CEO and Interim CFO[653] - A consulting agreement with a related party, which expired in April 2023, resulted in $2,676,000 of expenses recognized in 2023[654] - Key executive and board changes in 2023 include the resignations of Tyler Danielson (former Interim CEO), Robert Potashnick (former CFO), and Andrew Poole (director), and the appointments of Mark White (Interim CEO) and Martin Ward (Interim CFO)[656][657][658] Note 7 STOCKHOLDERS' (DEFICIT) EQUITY This note details FOXO's stockholders' equity, including authorized shares, 2023 private placements, Finder's Fee and Shares for Services Agreements, and the impact of the Assumed Warrants' down round provision and Exchange Offer, all contributing to the company's current stockholders' deficit - As of December 31, 2023, FOXO had 10,000,000 authorized preferred shares (none issued) and 500,000,000 authorized Class A Common Stock shares, with 7,646,032 shares issued and outstanding[659][660][661] - In 2023, the company completed two rounds of private placements, raising aggregate gross proceeds of $450,000 and $293,500, respectively, through Stock Purchase Agreements[662][663] - The Strata Purchase Agreement with ClearThink Capital Partners, LLC allows FOXO to sell up to $2,000,000 of Class A Common Stock, and in 2023, ClearThink purchased 200,000 restricted shares for $200,000 and an additional 979,000 shares for $246,000[664][668] - A Finder's Fee Agreement with J.H. Darbie & Co., Inc. involved cash fees and the issuance of 25,672 five-year warrants in 2023[670][673] - Shares for Services Agreements with Mitchell Silberberg & Knupp LLP (MSK) and Joseph Gunnar & Co., LLC (JGUN) resulted in the issuance of 292,866 and 276,875 shares of Class A Common Stock, respectively, in satisfaction of outstanding amounts[675][676] - The down round provision of Assumed Warrants was triggered in 2023, increasing outstanding warrants to 2,007,848 with an exercise price of $0.80 per share, resulting in a $912,000 deemed dividend[689] - The Exchange Offer in May 2023 resulted in the issuance of 795,618 shares of Class A Common Stock to Assumed Warrant holders, leading to a $2,466,000 deemed dividend[691][693] - The ELOC Agreement with Cantor Investor, which allowed FOXO to sell up to $40,000,000 in Class A Common Stock, was mutually terminated in November 2022 due to low market capitalization[679][680] Note 8 EQUITY-BASED COMPENSATION This note details FOXO's equity-based compensation plans, including the Management Contingent Share Plan (with 920,000 shares), the terminated 2020 Stock Incentive Plan, and the active 2022 Plan, under which 609,770 restricted shares were granted in 2023, with $1,113,000 in total equity-based compensation expense (excluding Management Contingent Share Plan) - The Management Contingent Share Plan, approved in September 2022, made 920,000 shares of Class A Common Stock available for restricted share awards, subject to time-based vesting conditions[698][699][701] - Performance-based vesting for the Management Contingent Share Plan was no longer required after the sale of FOXO Life Insurance Company on February 3, 2023[702] - For the year ended December 31, 2023, 419,132 shares under the Management Contingent Share Plan were forfeited, resulting in a net reduction of $732,000 in compen