As filed with the Securities and Exchange Commission on July 31, 2023

Registration No. 333-273377

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

FOXO Technologies Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   8731    85-1050265
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

729 N. Washington Ave., Suite 600

Minneapolis, Minnesota 55401

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Tyler Danielson
Interim Chief Executive Officer
729 N. Washington Ave., Suite 600
Minneapolis, Minnesota 55401
(612) 562-9447

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Nimish Patel, Esq.
Blake Baron, Esq.
Mitchell Silberberg & Knupp LLP
2049 Century Park East, 18th Floor
Los Angeles, California 90064
(310) 312-2000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 of the Exchange Act.

 

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 7(a)(2)(B) of the Securities Act.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

  

PRELIMINARY PROSPECTUS Subject to Completion, dated July 31, 2023

 

 

 

FOXO Technologies Inc.

 

Up to 5,625,000 Shares of Class A Common Stock

 

This prospectus relates to the potential offer and resale from time to time by the selling stockholders named in this prospectus or their permitted transferees (the “Selling Stockholders”) of up to 5,625,000 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), which consists of (i) an aggregate of 2,812,500 shares of Class A Common Stock that were purchased by the Selling Stockholders on July 14, 2023 and July 20, 2023 in the first tranche purchase of a private placement transaction (the “2023 Private Placement”), pursuant to the terms of Stock Purchase Agreements, dated July 14, 2023, July 20, 2023 and July 20, 2023, that we entered into with each of the Selling Stockholders, as investors in the 2023 Private Placement (collectively, the “Stock Purchase Agreements”), and (ii) an aggregate of 2,812,500 additional shares of Class A Common Stock that the Selling Stockholders have committed to purchase and that will be issued and sold to them in a second tranche purchase under the Stock Purchase Agreements, which second tranche purchase will occur on the second business day following the effective date of the registration statement of which this prospectus forms a part. We are filing the registration statement on Form S-1, of which this prospectus forms a part, to fulfill our contractual obligations with the Selling Stockholders to provide for the resale by the Selling Stockholders of all of the shares of Class A Common Stock that have been and will be purchased by them in both tranches of purchases in the 2023 Private Placement pursuant to the Stock Purchase Agreements. We will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Stockholders pursuant to this prospectus.

 

The Selling Stockholders may offer, sell or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales of the shares of Class A Common Stock; however, we have received an aggregate of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 shares of Class A Common Stock that the Selling Stockholders have purchased in the first tranche purchase under the Stock Purchase Agreements, and we expect to receive an additional aggregate amount of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 additional shares of Class A Common Stock that the Selling Stockholders have committed to purchase in the second tranche purchase under the Stock Purchase Agreements on the second business day following the effective date of the registration statement of which this prospectus forms a part.

 

We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The timing and amount of any sale are within the sole discretion of each Selling Stockholder. The Selling Stockholders will bear all commissions and discounts, if any, attributable to their sale of shares of Class A Common Stock.

 

Sales of a substantial number of our shares of Class A Common Stock in the public market by the Selling Stockholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of the Class A Common Stock and Public Warrants (as defined below) and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of the Class A Common Stock and Public Warrants. See “Risk FactorsRisks Related to this Offering by the Selling StockholdersSales of a substantial number of our securities in the public market by the Selling Stockholders and/or by our other existing stockholders could cause the price of the Class A Common Stock and Public Warrants to fall.”

 

 

 

 

Our registration of the securities covered by this prospectus does not mean that the Selling Stockholders will issue, offer or sell, as applicable, any of the securities. The Selling Stockholders may offer and sell the securities covered by this prospectus in a number of different ways, at varying prices and for varying gains. We provide more information about how the Selling Stockholders may sell the securities in the section entitled “Plan of Distribution.”

 

We do not have sufficient capital to fund our operations. Additionally, our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. Although we raised net proceeds of approximately $202,500 in the first tranche purchase of the 2023 Private Placement and we expect to raise net proceeds of approximately $202,500 in the second tranche purchase of the 2023 Private Placement, based on our cash position as of March 31, 2023 combined with the proceeds of such offering, our management is of the opinion that without additional financing or other increase in our cash and cash equivalents balance, we will not have sufficient resources to enable us to fund our operations through calendar year 2023. Based upon our current operating plan, we expect the net proceeds from the first tranche purchase of the 2023 Private Placement to be sufficient to fund our operations through the end of July 2023, and we expect the net proceeds from the second tranche purchase of the 2023 Private Placement, to the extent they are received, to be sufficient to fund our operations through mid August 2023. If we are unable to raise sufficient capital in the short-term, we will be unable to fund our operations and may be required to evaluate further alternatives, which could include dissolving and liquidating our assets or seeking protection under the bankruptcy laws. A determination to file for bankruptcy could occur at a time that is earlier than when we would otherwise exhaust our cash resources.

 

The Class A Common Stock is listed on the NYSE American LLC (“NYSE American”) under the symbol “FOXO”. The Public Warrants are quoted on the OTC Pink Marketplace under the symbol “FOXOW”. On July 28, 2023, the last reported sales price of the Class A Common Stock was $0.1336 per share and the last reported sales price of the Public Warrants was $0.0198 per Public Warrant.

 

We are an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and will be subject to reduced public company reporting standards. As such, we have elected to comply with certain reduced public company reporting requirements for this and future filings.

 

You should read this prospectus and any prospectus supplement, together with additional information described under the heading “Where You Can Find More Information,” carefully before you invest in any of our securities. 

 

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described in the section titled “Risk Factors” beginning on page 12 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.  

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is            , 2023

 

 

 

 

FREQUENTLY USED TERMS

 

Unless otherwise stated in this prospectus or the context otherwise requires, references to:

 

2021 Bridge Agreements” means, collectively, the stock purchase agreement, 2021 Bridge Debentures, 2021 Bridge Warrants, lock-up agreements and other agreements between Legacy FOXO and the 2021 Bridge Investors, as amended by the 2021 Bridge Amendment, as such agreements may be amended, modified or supplemented from time to time in accordance with their terms.

 

2021 Bridge Amendment” means the contingent amendment agreement, effective as of February 22, 2022, amending the 2021 Bridge Agreements.

 

2021 Bridge Debentures” means the 12.5% Original Issue Discount Convertible Debentures, as may be amended, modified or supplemented from time to time in accordance with their terms, issued by Legacy FOXO between January 2021 and March 2021.

 

2021 Bridge Investors” means all of the purchasers of the 2021 Bridge Debentures.

 

2021 Bridge Warrants” means the warrants to purchase Legacy FOXO Class A Common Stock, as may be amended, modified or supplemented from time to time in accordance with their terms, issued by Legacy FOXO to the 2021 Bridge Investors and the placement agent, or its designees, in connection with such offering.

 

2022 Bridge Debentures” means the 10% Original Issue Discount Convertible Debentures, as may be amended, modified or supplemented from time to time in accordance with their terms, issued by Legacy FOXO in 2022.

 

2022 Bridge Securities Purchase Agreements” means the securities purchase agreements with the purchasers of the 2022 Bridge Debentures, pursuant to which we issued the 2022 Bridge Debentures.

 

Assumed Warrants” means the warrants to purchase shares of Class A Common Stock that, as of the Closing, were issued by the Company to holders of Legacy FOXO warrants outstanding and unexercised immediately prior to the Merger.

 

Board” refers to the board of directors of the Company.

 

Business Combination” or “Mergermeans the business combination of Delwinds and Legacy FOXO pursuant to the terms of the Merger Agreement and the other transactions contemplated by the Merger Agreement.

 

Charter” means the Company’s amended and restated certificate of incorporation that became effective upon consummation of the Business Combination.

 

Closing” means the closing of the Business Combination.

 

Company” means FOXO Technologies Inc., a Delaware corporation, formerly Delwinds Insurance Acquisition Corp. and which includes Legacy FOXO and any other direct or indirect subsidiaries of Legacy FOXO, to the extent applicable.

 

Company Bylaws” means the amended and restated bylaws of the Company adopted on closing of the Business Combination.

 

Delwinds” means Delwinds Insurance Acquisition Corp., a Delaware corporation, which was renamed “FOXO Technologies Inc.” following consummation of the Closing.

 

DGCL” means the Delaware General Corporation Law.

 

 

 

 

Founder Shares” means Delwinds Class B common stock initially purchased by the Sponsor in a private placement prior to the IPO, and the shares of Delwinds Class A Common Stock issued upon the conversion thereof.

 

FOXO,” “we,” “our” or “us” means the Company and its consolidated subsidiaries.

 

IPO” means Delwinds’ initial public offering that was consummated by Delwinds on December 11, 2020.

 

Legacy FOXO” means FOXO Technologies Inc., now known as FOXO Technologies Operating Company, prior to the Business Combination.

 

Merger Agreement” means the Agreement and Plan of Merger, dated February 24, 2022, as amended on April 26, 2022, July 6, 2022 and August 12, 2022, by and among Delwinds, DWIN Merger Sub Inc., Sponsor, as purchaser representative, and Legacy FOXO.

 

Private Warrants” means one (1) whole warrant that was issued by Delwinds in a private placement to the Sponsor at the time of the consummation of the IPO entitling the holder thereof to purchase one (1) share of Class A Common Stock at a purchase price of $11.50 per share.

 

Public Warrant” means one (1) whole redeemable warrant that was issued in the IPO entitling the holder thereof to purchase one (1) share of Class A Common Stock at a purchase price of $11.50 per share.

 

Sponsor” means DIAC Sponsor LLC, a Delaware limited liability company.

 

U.S. GAAP” means generally accepted accounting principles in the United States.

 

Warrants” means Assumed Warrants, Private Warrants and Public Warrants, collectively. 

 

 

 

 

TABLE OF CONTENTS

 

    Page
ABOUT THIS PROSPECTUS   ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   iii
PROSPECTUS SUMMARY   1
THE OFFERING   8
RISK FACTORS   12
USE OF PROCEEDS   39
DETERMINATION OF OFFERING PRICE   39
MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY   39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   40
BUSINESS   64
MANAGEMENT   75
EXECUTIVE COMPENSATION   82
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS   98
BENEFICIAL OWNERSHIP OF SECURITIES   102
SELLING STOCKHOLDERS   104
DESCRIPTION OF SECURITIES OF THE COMPANY   106
SECURITIES ACT RESTRICTIONS ON RESALE OF COMMON STOCK   115
PLAN OF DISTRIBUTION   116
LEGAL MATTERS   118
EXPERTS   118
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   118
WHERE YOU CAN FIND MORE INFORMATION   119
INDEX TO THE FINANCIAL STATEMENTS   F-1

  

You should rely only on the information provided in this prospectus, as well as the information incorporated by reference into this prospectus and any applicable prospectus supplement. Neither we nor the Selling Stockholders have authorized anyone to provide you with different information. Neither we nor the Selling Stockholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date of the applicable document. Since the date of this prospectus and the documents incorporated by reference into this prospectus, our business, financial condition, results of operations and prospects may have changed.

 

i

 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement on Form S-1 that is being filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. By using a shelf registration statement, the Selling Stockholders may sell up to 5,625,000 shares of Class A Common Stock, which consists of (i) an aggregate of 2,812,500 shares of Class A Common Stock that were purchased by the Selling Stockholders on July 14, 2023 and July 20, 2023 in the first tranche purchase of the 2023 Private Placement pursuant to the terms of the Stock Purchase Agreements and (ii) an aggregate of 2,812,500 additional shares of Class A Common Stock that the Selling Stockholders have committed to purchase and that will be issued and sold to them in a second tranche purchase under the Stock Purchase Agreements, which second tranche purchase will occur on the second business day following the effective date of the registration statement of which this prospectus forms a part. We are filing the registration statement on Form S-1, of which this prospectus forms a part, to fulfill our contractual obligations with the Selling Stockholders to provide for the resale by the Selling Stockholders of all of the shares of Class A Common Stock that have been and will be purchased by them in both tranches of purchases in the 2023 Private Placement pursuant to the Stock Purchase Agreements. We will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Stockholders pursuant to this prospectus.

  

A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”

 

Neither we nor the Selling Stockholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared. We and the Selling Stockholders take no responsibility for, and can provide no assurance as to the reliability of any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

 

ii

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this registration statement may constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this registration statement, forward-looking statements may be identified by the use of words such as “estimate,” “continue,” “could,” “may,” “might,” “possible,” “predict,” “should,” “would,” “plan,” “project,” “forecast,” “intend,” “will,” “expect,” “anticipate,” “believe,” “seek,” “target,” “designed to” or other similar expressions that predict or indicate future events or trends or that are not statements of historical facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

 

The Company cautions readers of this registration statement that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, which could cause the actual results to differ materially from the expected results. These forward-looking statements include, but are not limited to, 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), among others. These statements are based on various assumptions, whether or not identified in this registration statement, and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. These forward-looking statements are subject to a number of risks and uncertainties, including:

 

  we have a history of losses and it 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 integrate molecular biotechnology into the life insurance industry;

 

  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 plans to expand operations abroad, through planned partnerships with international life insurance carriers;

 

  our success and ability to establish and grow our epigenetic testing service and the development of epigenetic biomarkers for use in life insurance underwriting;

 

iii

 

 

 

our ability to apply the relatively new field of epigenetics to life insurance underwriting;

 

  our ability to validate and improve the results of our 2019 Pilot Study (as described below);

 

  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;

 

  our ability to maintain compliance now or in the future to laws and regulations relating to laboratory testing, our underwriting technology and consumer engagement services and our use of saliva-based 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 life insurance business operates in;

 

  the ability to contract or maintain MGA (as defined below) relationships from selling life insurance products underwritten and issued by third-party carriers;

 

  our success and ability to establish and grow our MGA Model (as described below);

 

  the impact of an overall decline in life insurance product sales;

 

  competition in the life insurance industry;

 

  our ability to underwrite risks accurately and charge competitive yet profitable premium rates;

 

  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 the extensive insurance industry regulations in each state that we operate;

 

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

 

  our ability to retain our license for patent pending methods of identifying epigenetic biomarkers and identifying saliva-based epigenetic biomarkers or intellectual property in general;

 

  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 employees;

 

  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.

 

iv

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the matters discussed under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and the consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision.

 

Our Business

 

FOXO seeks to enable the commercialization of epigenetic testing technology. We believe that epigenetics has unique and impactful capabilities that have yet to be unlocked. Evidence of this includes the discovery of the “epigenetic clock” as a measure of biological aging and independent predictor of mortality. In conjunction with the growth of epigenetics research, the convergence of two cutting-edge technologies - DNA microarray technology and machine learning - has created what we believe is an unprecedented opportunity to disrupt consumer health testing and its intersecting industries (e.g., life insurance). DNA microarray technological advances have allowed for the cost-effective quantification of genomic data for nearly two decades, and the technology has been further expanded to epigenetic data. While the emergence of next-generation sequencing has shown great promise, we do not believe it is mature enough at this time to match the cost and convenience of microarray technology for epigenetics. More importantly, the rapid rise of artificial intelligence and machine learning technologies have enabled the ability to identify sophisticated patterns within epigenetics data. These patterns are known as “epigenetic biomarkers,” and provide valuable insights into human health.

 

To advance the fundamental science and capabilities of epigenetics, we are conducting pioneering research with leading scientists in the field. To broaden the accessibility of epigenetics to researchers and enterprises around the world, we are contributing to the development of novel technologies – both hardware and software – including the Infinium Mouse Methylation BeadChip and our methylsuite software. The expansion of our Bioinformatic Services further reduces the barrier of entry for clients seeking to conduct epigenetic analysis by leveraging our distinct expertise in epigenetics, machine learning, and bioinformatics. We believe these efforts will facilitate and accelerate both the development and commercialization of epigenetic products.

 

To capitalize on commercial opportunities in industries deemed ripe for disruption, we are harnessing the power of epigenetics to revolutionize how life insurance companies underwrite and sell their products. Our insights into consumers’ health and lifestyle choices will help insurers tailor their offerings to meet their clients’ needs and provide insurers with data to plan for their clients’ future financial needs.

 

To that end, we have developed two core product offerings: the “Underwriting Report” and the “Longevity Report™.” The Underwriting Report allows us to leverage a single assay testing process to generate a panel of impairment scores that can be applied by life insurance underwriters to more accurately assess clients during the underwriting process and provide a more personalized risk assessment. The Longevity Report is a consumer-facing companion product that provides actionable insights to consumers based on their biological age and other epigenetic measures of health. We believe the combination of these two reports provides a valuable win for our insurance carrier partners as well as their customers.

 

The life insurance industry is ripe for disruption by a new underwriting protocol. Historically, when a single carrier has adopted even a single new underwriting test, others tend to follow quickly. Some examples include prescription data, smoking tests, and specimen samples. If other insurance companies do not follow quickly, they may suffer from adverse selection, and get a disproportionate number of mispriced risks. FOXO intends to leverage the combination of the Underwriting Report and the Longevity Report to change the sales and underwriting process to the betterment of consumers and carriers alike.

 

FOXO Labs – Underwriting Report

 

FOXO Labs is commercializing a first of its kind proprietary epigenetic biomarker technology to be used for mortality underwriting risk classification in the global life insurance industry (the “Underwriting Report”). The Underwriting Report provides underwriters with an alternative source of biological mortality risk factors derived from an applicant’s saliva sample. The information provided in the FOXO Underwriting Report will allow underwriters to assess mortality risk without the need for more invasive and time-consuming underwriting processes such as a paramedical exam or the procurement of medical records.

 

1

 

 

The Underwriting Report will allow insurance companies to leverage cutting-edge biotechnology that streamlines the insurance sales and underwriting process compared to the costlier and lengthier process of medical underwriting. We can administer our test using saliva allowing for a quick point-of-sale sample collection. Our non-invasive test can help insurers conduct a multi-panel risk assessment of a proposed insured and make a policy offer without the need for a paramedical exam or medical records. We believe this will (1) make policy sales more efficient and less invasive, and (2) expand the market for accelerated underwriting to higher face amount policies. By collecting a sample at the point of sale (or by mail), we will also streamline and simplify the application and underwriting process. Our multi-panel test can screen for multiple impairments using a single, non-invasive biospecimen that can be used to assess individual health risks. Additionally, as we collect more data and create more refined models we can update our previous measures without the requirement of a new biospecimen. Thus, a saliva-based sample can be self-administered or collected by the agent without the need for a trained paramedical examiner, and the data can be updated in perpetuity as technology advances.

 

The Underwriting Report consists of two sections. The first one is the Biological Age Assessment, which provides an individual’s aggregate biological mortality risk. This can be used by an underwriter to quickly triage good mortality risks, which can be issued a policy immediately, from bad mortality risks, which require further underwriting to properly assess.

 

The core of the Biological Age Assessment is the “Biological DeltaAge,” which is the difference between biological age and chronological age. A Biological DeltaAge above zero indicates an increased mortality risk, and below zero indicates a decreased mortality risk.  

 

The Underwriting Report’s second section outlines specific risk factors that are intended to provide underwriters with more detailed information about an individual’s health with respect to specific impairments. Life and disability insurance underwriters can use this information to eliminate additional underwriting requirements so the insurer can focus on areas of elevated risk.

 

The risk factors include traditional underwriting considerations such as tobacco use, cardiovascular health, metabolic health (e.g., obesity) and liver health (e.g., heavy alcohol use). This information overlaps with key factors obtained through a traditional paramedical exam; however, our test is obtained through a non-invasive saliva sample instead of a blood draw and urine collection. The saliva sample can be collected by mail or by the agent at the point of sale, which reduces the need for scheduling an appointment for a paramedical exam. These exams require fasting and a blood draw, which are additional barriers to the sale. They also need to be scheduled days or weeks in advance, delaying the underwriting process.

 

The Underwriting Report can be provided electronically via an application programming interface (“API”) so an insurer can integrate results into automated underwriting processes and an underwriting workbench. This allows the report to be securely transmitted and used in the way that works best for an insurer’s underwriting teams.

 

FOXO Life – Longevity Report

 

The Longevity Report provides consumers with novel information about their epigenetic makeup, along with specific insights that can help them change their behavior to live longer. The centerpiece of the Longevity Report is “FOXO Age,” which is a holistic measure of how fast an individual is aging. It is displayed on the report in comparison to the consumer’s chronological age.

 

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The Longevity Report also includes four epigenetic health scores: (i) Metabolic, (ii) Cardiovascular, (iii) Inflammation, and (iv) Indulgence scores, which integrate the impact of one’s environment, lifestyle, and behavior affect their health at an epigenetic level. These four epigenetic health scores enable the consumer to make important decisions about how to improve their lifestyle. Users can take tests more than once, and within each score we compare each consumer to the FOXO universe of results. This allows the consumer to review their scores in comparison to others who have received the Longevity Report. With each score, we provide personalized nutritional, lifestyle, and exercise recommendations to help consumers make lifestyle adjustments to extend their longevity. The Longevity Report is accessible through an online dashboard that allows users to view their report as well as sample processing status, from being sent to the lab to final digital report delivery. In the future, we plan to provide consumers with a more comprehensive dashboard that identifies how they are progressing over time with their lifestyle adjustments in response to the recommendations provided with their Longevity Report scores.

 

FOXO is also operationalizing a sales and distribution platform focused on recruiting independent life insurance agents to sell life insurance with our Longevity Report (“FOXO Life”). FOXO Life currently markets and sells life insurance products underwritten and issued by third-party carriers through distribution relationships.  This distribution model (the “MGA Model”) allows FOXO to appoint sales agents and producers to sell insurance products for specific carriers and earn commissions on subsequent policy sales. Depending on the terms of the agreement between FOXO and the carrier, the Longevity Report may be included at the time of the policy purchase at no charge or may be available at an additional cost to the consumer. We believe the Longevity Report will make longevity science a core aspect to the relationship between life insurance and consumers.

 

We began selling insurance products through distribution relationships with third-party carriers in the first quarter of 2023. Through our MGA Model, we earn commission revenues from selling life insurance products supported by our science, technology, and brand marketing. Initially, we do not expect to use epigenetic underwriting technology in the life insurance products we sell through the MGA Model. However, we expect the research and development studies underway will support the introduction and commercialization of our saliva-based underwriting technology through our Underwriting Report in the future.

 

FOXO Labs - Bioinformatic Services

 

Beginning in Q3 2023, FOXO will formally offer “Bioinformatic Services” for in silico processing, quality checking, and/or analysis of raw epigenetic microarray data generated by customers. Our core offering provides customers with several processed data files and a quality report that describes potentially problematic samples and probes along with recommendations on how to address those issues in downstream analysis. Ancillary offerings may include management of sample and data generation as well as downstream analysis, including prediction or classification tasks involving machine learning techniques. These services leverage the unique expertise and partnerships that our team has developed with various commercial labs, manufacturers, researchers, and software developers. It is our hope that these Bioinformatic Services will provide a full service (or piecemeal, as desired) to enable the use of epigenetics for any purpose.

 

Business Trends

 

  Life Insurance Demand. According to the 2023 Insurance Barometer Study, co-authored by nonprofit industry trade associations Life Insurance Marketing and Research Association and Life Happens, since the COVID-19 pandemic there has been a significant increase in consumer interest and demand for life insurance, with 39% of consumers surveyed reporting that they are likely to purchase life insurance in the next year. In addition, the study reported that only 52% of American adults owned life insurance, and 41% of Americans, both insured and uninsured, believe they need more coverage. While two-thirds of Americans report their lives have largely returned to normal following the COVID-19 pandemic, the 2023 Insurance Barometer Study indicated Americans’ intent to purchase life insurance is at an all-time high, with Gen Z adults and Millennials having the highest intent at 44%, and 50%, respectively.

 

  Product Innovation. As life insurance carriers and distributors look to engage consumers’ renewed interest in life insurance coverage, industry analysts suggest that life insurance can succeed by adopting technology to (i) personalize every aspect of the consumer experience, transition from a traditional “assess and service” model toward a customer-centric “prescribe and prevent” model of health management; and (ii) develop innovative product solutions that place emphasis on product flexibility and innovation, including value-added services and nonmonetary benefits to attract consumers. Other analysts point to the need to reduce sales friction for both consumers and agents that stems from long underwriting timelines as a result of invasive blood and urine specimen collection.

 

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Segments

 

We manage and classify our business into two reportable business segments:

 

  (i) FOXO Labs

 

FOXO Labs is commercializing proprietary epigenetic biomarker technology to be used for purposes including mortality underwriting risk classification in the global life insurance industry. Our innovative biomarker technology enables the adoption of new saliva-based health and wellness biomarker solutions for underwriting and risk assessment. Our research demonstrates that epigenetic biomarkers, collected from saliva, provide measures of individual health and wellness factors used in life insurance underwriting traditionally obtained through blood and urine specimens. FOXO Labs anticipates recognizing revenue related to sales of its Bioinformatic Services, Underwriting Services, and Longevity Report.

 

FOXO Labs currently recognizes revenue from providing epigenetic testing services (“Bioinformatic Services”) and collects royalties from Illumina, Inc. related to the sales of the Infinium Mouse Methylation Array. The Company’s saliva-based health and wellness testing solutions are expected to be one of its primary sources of revenue. FOXO Labs conducts research and development and such costs are recorded within research and development expenses on the consolidated statements of operations.

 

FOXO Labs had operated its Bioinformatic Services as an ancillary offering, with revenue recognized as epigenetic biomarker services in our historical financial statements, but now looks to it as a primary offering. Bioinformatic Services provide a data processing, quality checking, and analysis service using FOXO’s cloud-based bioinformatics pipeline, referred to as our epigenetics or longevity pipeline in our historical financial statements. FOXO Labs accepts raw data from third party labs and converts that data into usable values for customers.

 

  (ii) FOXO Life

 

FOXO Life is redefining the relationship between consumers and insurer by combining life insurance with healthy longevity. FOXO Life seeks to transform the value proposition of the life insurance carrier from a provider of mortality risk protection products to a promoter of its customers’ health and wellness. The distribution of insurance products with FOXO’s Longevity Report strives to provide life insurance consumers with valuable information and insights about their individual health and wellness.

 

FOXO Life currently has residual commission revenues from its legacy insurance agency business. FOXO Life has begun receiving insurance commission from the distribution and sale of life insurance policies based on the size and type of policies sold to customers. FOXO Life costs are recorded within selling, general and administrative expenses on the consolidated statements of operations.

 

FOXO Life Insurance Company

 

Due to market conditions, our capitalization following the Business Combination did not materialize in the way the Company anticipated, and we did not possess the funding that we believed would be required to satisfy state regulations and regulatory bodies to issue new life insurance policies through FOXO Life Insurance Company. As such, we decided to not move forward with the launch of FOXO Life Insurance Company.

 

On January 10, 2023, we entered into a merger agreement (the “Security National Merger Agreement”) with Security National Life Insurance Company, a Utah corporation (the “Security National”), FOXO Life, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“FOXO Life”), and FOXO Life Insurance Company (fka Memorial Insurance Company of America (“MICOA”)), an Arkansas corporation and wholly-owned subsidiary of the Seller, pursuant to which, subject to the terms and conditions of the Security National Merger Agreement, the Company agreed to sell FOXO Life Insurance Company to Security National. Specifically, pursuant to the Security National Merger Agreement, FOXO Life Insurance Company merged with and into the Security National, with Security National continuing as the surviving corporation.

 

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On February 3, 2023 (the “Closing Date”), we consummated the sale of FOXO Life Insurance Company to Security National pursuant to the Security National Merger Agreement. As a result of the merger, the Company is no longer required to hold cash and cash equivalents required to be held as statutory capital and surplus, as required under the Arkansas Insurance Code (the “Arkansas Code”).

 

At the closing, all of FOXO Life Insurance’s shares were cancelled and retired and ceased to exist in exchange of an amount equal to FOXO Life Insurance’s statutory capital and surplus amount of $5,002,000 as of the Closing Date, minus $200,000 (the “Merger Consideration”).

 

After the Merger Consideration and Security National’s third party expenses, the transaction resulted in the Company gaining access to $4,751,000 that was previously held as statutory capital and surplus pursuant to the Arkansas Code.

 

Corporate Information

 

Legacy FOXO was formed as a limited liability company on November 11, 2019 to become a separate and independently managed and controlled entity from GWG Holdings, Inc. Legacy FOXO was previously named InsurTech Holdings, LLC and FOXO BioScience LLC. On November 13, 2020, FOXO Bioscience LLC converted into a C-Corporation to become FOXO Technologies Inc.

 

Effective September 15, 2022, we consummated our previously announced Business Combination pursuant to the Merger Agreement, whereby DWIN Merger Sub Inc. merged with and into Legacy FOXO, with Legacy FOXO surviving as a wholly-owned subsidiary of the Company. Upon consummation of our Business Combination, our name changed from Delwinds Insurance Acquisition Corp. to FOXO Technologies Inc.

 

As a result of and upon the Closing, among other things, (1) all outstanding shares of Legacy FOXO Class A Common Stock (after giving effect to the required conversion of all outstanding shares of Legacy FOXO preferred stock into shares of Legacy FOXO Class A Common Stock immediately prior to, and contingent upon, the Closing) and Legacy FOXO Class B Common Stock were converted into 24,718,705 shares of the Company’s Class A Common Stock, (3) all FOXO options and FOXO warrants outstanding immediately prior to the effective time of the Merger were assumed and converted, subject to adjustment pursuant to the terms of the Merger Agreement, into Assumed Options and Assumed Warrants, respectively, of the Company, exercisable for shares of Class A Common Stock and (4) other than in connection with the Assumed Options and Assumed Warrants, all other convertible securities and other rights to purchase capital stock of FOXO were retired and terminated, if they were not converted, exchanged or exercised for FOXO common stock immediately prior to the effective time of the Merger.

 

We maintain two wholly-owned operating subsidiaries, FOXO Labs Inc., formerly named Life Epigenetics Inc., and FOXO Life, LLC, formerly named youSurance General Agency, LLC.

 

FOXO Labs Inc. (or FOXO Labs) is the operating entity for our insurance services platform designed to provide saliva-based underwriting technology and molecular health and wellness engagement services to insurance carrier customers. FOXO Labs maintains a wholly-owned subsidiary, Scientific Testing Partners, LLC, to conduct its research.

 

FOXO Life, LLC is the operating entity for our insurance products platform designed to market and sell life insurance that may be bundled with longevity science.

 

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Recent Developments

 

Asset Impairment

 

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 $1,425,000 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 $630,000 and $578,000 for the underwriting API and longevity API, respectively.

 

2023 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 “Stock Purchase Agreements”), which have substantially similar terms, with each of the Selling Stockholders, pursuant to which the Company agreed to issue and sell to the Selling Stockholders, in a private placement (the “2023 Private Placement”), in two separate tranches each, an aggregate of up to 5,625,000 shares of Class A Common Stock at a price of $0.08 per share (the “Per Share Price”), for aggregate gross proceeds of $450,000.

 

Pursuant to the terms of the Stock Purchase Agreements, the Selling Stockholders initially purchased an aggregate of 2,812,500 shares of Class A Common Stock on the applicable First Tranche Closing Dates, and agreed to purchase an aggregate of 2,812,500 additional shares of Class A Common Stock upon the effectiveness of the Resale Registration Statement (as defined below).

 

Concurrently with the execution of each Stock Purchase Agreement, the Company and the applicable Selling Stockholder entered into a Registration Rights Agreement (each, a “Registration Rights Agreement”), dated as of the applicable First Tranche Closing Date, pursuant to which the Company is required, among other things, to (i) file a resale registration statement (the “Resale Registration Statement”) with the SEC covering all of the shares of Class A Common Stock issued pursuant to the applicable Stock Purchase Agreement within seven (7) calendar days following the execution of the applicable Registration Rights Agreement (the “Filing Deadline”) and (ii) use its commercially reasonable efforts to have the Resale Registration Statement declared effective by the SEC no later than forty-five (45) calendar days following the Filing Deadline (or, in the event of a substantive review by the SEC, ninety (90) calendar days following the Filing Deadline) (the “Effectiveness Deadline”); provided, however, if the SEC notifies the Company that the Resale Registration Statement will not be reviewed or is no longer subject to further review and comments, then the Effectiveness Deadline will be the fifth (5th) trading day following the date on which the Company is so notified (so long as the date of such fifth (5th) trading day precedes the dates otherwise required).

 

Pursuant to the Stock Purchase Agreements, if, during the period from the applicable First Tranche Closing Date until ten (10) days after the effective date of the Resale Registration Statement, the Company issues or sells any shares of Class A Common Stock at a price per share less than the Per Share Price (a “Share Dilutive Issuance”), except for Exempt Issuances (as defined in the Stock Purchase Agreements), then the Company will have to pay to such Selling Stockholder, within two (2) business days after such Share Dilutive Issuance, a cash penalty in an amount equal to the number of shares of Class A Common Stock theretofore purchased by such Selling Stockholder under the applicable Stock Purchase Agreement multiplied by the difference between (i) the Per Share Price and (ii) the greater of (A) the price per share of Class A Common Stock paid in the Share Dilutive Issuance and (B) $0.02 (the “Floor Price”).

 

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Additionally, pursuant to the Stock Purchase Agreements, the Company is not permitted, from the date of the applicable Stock Purchase Agreement until ten (10) days after the effective date of the Resale Registration Statement, to issue or sell, enter into any agreement to issue or sell, or announce the issuance or sale or proposed issuance or sale of any Common Stock Equivalents (as defined in the Stock Purchase Agreements) or issue or sell, enter into any agreement to issue or sell, or announce the issuance or sale or proposed issuance or sale of shares of Class A Common Stock, pursuant to which shares of Class A Common Stock may be acquired at a per share price less than the Floor Price, except for (a) Exempt Issuances or (b) the filing of a registration statement so long as such registration statement is not declared effective by the SEC during the period from the date of the applicable Stock Purchase Agreement until ten (10) days after the effective date of the Resale Registration Statement.

  

Layoffs

 

On July 21, 2023, the Company reduced its employee headcount via layoffs from 22 employees to 15 employees. Laid off employees will be paid through July 21, 2023 and will be eligible for unemployment benefits subject to local regulations. These layoffs will allow the Company to reduce its operating expenses while tailoring its strategic focus towards initiatives such as its Bioinformatic Services.

 

Exchange Offer, PIK Note Offer to Amend and 2022 Bridge Debenture Release

 

On May 26, 2023, we consummated two issuer tender offers, the Exchange Offer and the PIK Note Offer to Amend. Pursuant to the Exchange Offer, we offered all holders of Assumed Warrants 4.83 shares of Class A Common Stock in exchange for each Assumed Warrant tendered, and solicited consents from such holders to amend and restate the Original Securities Purchase Agreement (as defined below), which governs the Assumed Warrants, to provide that certain issuances of Class A Common Stock and certain issuances of 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 (as defined below). In order to tender Assumed Warrants in the Exchange Offer, holders of Assumed Warrants were required to, among other things, consent to such amendment and restatement as well as a general release.

 

An aggregate of 1,647,201 Assumed Warrants were tendered in the Exchange Offer, the holders of which purchased at least 50.01% in interest of the 2021 Bridge Debentures based on the initial Subscription Amounts (as defined in the Original Securities Purchase Agreement) thereof (which is the minimum amount required to amend and restate the Original Securities Purchase Agreement). In accordance with NYSE American Company Guide Section 713, the Company’s stockholders approved the issuance of Class A Common Stock in connection with the Exchange Offer at the Company’s 2023 Annual Meeting of Stockholders held on May 26, 2023 (the “Annual Meeting”). We issued an aggregate of 7,955,948 shares of Class A Common Stock to the holders of Assumed Warrants who participated in the Exchange Offer, on the terms and subject to the conditions of the Exchange Offer. As of July 28, 2023, there are 258,652 shares of Class A Common Stock issuable upon exercise of outstanding Assumed Warrants.

 

Pursuant to the PIK Note Offer to Amend, we offered all holders of PIK Notes 1.25 shares of Class A Common Stock for every $1.00 of the Original Principal Amount (as defined in the PIK Notes) of such holder’s PIK Notes, in exchange for the consent by such holder of PIK Notes to amend the PIK Note Purchase Agreement (as defined below) to permit certain 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. In order to participate in the PIK Note Offer to Amend, holders of PIK Notes were also required to consent to a general release.

 

All PIK Note holders participated in the PIK Note Offer to Amend, thereby exceeding the minimum amount of consents required to amend the PIK Note Purchase Agreement (i.e., 50.01% in interest of the aggregate principal balance of the PIK Notes). In accordance with NYSE American Company Guide Section 713, the Company’s stockholders approved the issuance of Class A Common Stock in connection with the PIK Note Offer to Amend at the Annual Meeting. We issued an aggregate of 4,321,875 shares of Class A Common Stock on a pro rata basis to the PIK Note holders who participated in the PIK Note Offer to Amend, on the terms and subject to the conditions of the PIK Note Offer to Amend.

 

As required by the terms of the Exchange Offer and the PIK Note Offer to Amend, the Company filed a registration statement on Form S-1, File No. 333-272892 (the “Resale S-1”), covering all of the shares of Class A Common Stock issued pursuant to the Exchange Offer and the PIK Note Offer to Amend, which was declared effective under the Securities Act by the Securities and Exchange Commission (“SEC”) on July 6, 2023. The Resale S-1 also covers all of the shares of Class A Common Stock issued pursuant to the 2022 Bridge Debenture Release (as defined below).

 

Additionally, we issued Class A Common Stock in exchange for a general release by the former holders of 2022 Bridge Debentures, which 2022 Bridge Debentures were automatically converted into Class A common stock of Legacy FOXO and exchanged by the Company for Class A Common Stock in connection with the Business Combination (the “2022 Bridge Debenture Release”). Each former holder of the 2022 Bridge Debentures that executed the 2022 Bridge Debenture Release received 0.67 shares of Class A Common Stock for every $1.00 of Subscription Amount (as defined in the 2022 Bridge Securities Purchase Agreements) of the 2022 Bridge Debentures previously held by such holder. Pursuant to the 2022 Bridge Debenture Release, two former holders of 2022 Bridge Debentures representing an aggregate Subscription Amount of $10,500,000 executed such general release, and we issued an aggregate of 7,035,000 shares of Class A Common Stock to such former holders of the 2022 Bridge Debentures.

 

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THE OFFERING

 

Issuer   FOXO Technologies Inc.

 

Class A Common Stock Offered by the Selling Stockholders   Up to 5,625,000 shares.
     
    Sales of a substantial number of our shares of Class A Common Stock in the public market by the Selling Stockholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of the Class A Common Stock and Public Warrants (as defined below) and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of the Class A Common Stock and Public Warrants. See “Risk FactorsRisks Related to this Offering by the Selling StockholdersSales of a substantial number of our securities in the public market by the Selling Stockholders and/or by our other existing stockholders could cause the price of the Class A Common Stock and Public Warrants to fall.”
     
Use of Proceeds  

We will not receive any of the proceeds from the sale of the shares of Class A Common Stock by the Selling Stockholders; however, we have received an aggregate of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 shares of Class A Common Stock that the Selling Stockholders have purchased in the first tranche purchase under the Stock Purchase Agreements, and we expect to receive an additional aggregate amount of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 additional shares of Class A Common Stock that the Selling Stockholders have committed to purchase in the second tranche purchase under the Stock Purchase Agreements on the second business day following the effective date of the registration statement of which this prospectus forms a part. We intend to use the proceeds that we receive for working capital purposes.

     
Market for Our Shares of Class A Common Stock and Public Warrants   The Class A Common Stock is listed on the NYSE American under the symbol “FOXO”. The Public Warrants are quoted on the OTC Pink Marketplace under the symbol “FOXOW”.
     
Risk Factors   Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” and elsewhere in this prospectus.

 

The number of shares of the Class A Common Stock outstanding as of July 28, 2023 was 49,293,392, and excludes, as of such date:

 

  6,518,620 shares of Class A Common Stock available for future issuance under our 2022 Equity Incentive Plan (the “2022 Plan”);
     
  2,239,881 shares of Class A Common Stock issuable upon exercise of outstanding stock options issued pursuant to the Legacy FOXO 2020 Equity Incentive Plan with a weighted-average exercise price of $7.09 per share;
     
  10,062,500 shares of Class A Common Stock issuable upon exercise of outstanding Public Warrants;
     
  316,250 shares of Class A Common Stock issuable upon exercise of outstanding Private Warrants; and
     
  258,652 shares of Class A Common Stock issuable upon exercise of outstanding Assumed Warrants.

 

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Risk Factor Summary

 

Our business is subject to numerous risks and uncertainties that represent challenges, including those highlighted in the section entitled “Risk Factors,” that represent challenges that we face in connection with the successful implementation of our strategy and growth of our business. Below we summarize what we believe are the principal risk factors, but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled Risk Factors, together with the other information in this prospectus. The occurrence of one or more of the events or circumstances described in the section entitled “Risk Factors,” alone or in combination with other events or circumstances, and may have an adverse effect on our business, cash flows, financial condition and results of operations. Such risks include, but are not limited to: 

 

Risks Related to this Offering by the Selling Stockholders

 

  Sales of a substantial number of our securities in the public market by the Selling Stockholders and/or by our other existing stockholders could cause the price of the Class A Common Stock and Public Warrants to fall.

 

Risks Related to Our Business and Industry  

 

  We have a history of losses and we 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 in its report on our audited financial statements, which could limit our ability to raise additional capital and thereby materially adversely impact our business.

 

  We do not have adequate cash resources to fund our operations through calendar year 2023 and 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. If we are unable to secure additional funds, we may be forced to delay, reduce or eliminate our commercialization efforts or cease all operations.

 

  Our future success depends in large part on the continued participation in the business of Tyler Danielson, our Interim Chief Executive Officer, which cannot be ensured or guaranteed.

 

  The loss of the services of our other current executives or other key employees, or the failure to attract additional key individuals, could materially adversely impact our business, results of operations and financial condition.

 

  Our business significantly depends upon the strength of our brands, and if we are not able to develop, maintain and enhance our brands, our ability to develop and expand our customer base may be adversely impacted and our business and operating results may be harmed.

 

  Our success depends, in large part, on our ability to commercialize our technology enabled products and services with a high level of service at a competitive price, achieve sufficient sales volume to realize economies of scale, and create innovative new products and services to offer to our customers. Our failure to achieve any of these outcomes would adversely impact our business.

 

  Our success and the growth of our business will depend on our ability to effectively and in a cost-feasible manner acquire, maintain, and engage with our targeted customers. If we fail to acquire, maintain, and engage customers, our business, revenue, operating results, and financial condition will be adversely impacted.

 

 

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Risks Related to Our Epigenetic Testing Services

 

  Our success and ability to establish and grow our epigenetic testing services, the outputting of algorithmic epigenetic biomarkers of health measures, will depend on developing epigenetic biomarkers for use in life insurance underwriting as well as other industries we seek to service. If we fail to develop epigenetic biomarkers that attract and retain life insurance carriers as customers or fail to provide compelling pricing or products compared to current underwriting processes, our operating results and financial condition will be adversely affected.

 

  We intend to provide consumer engagement through our health and wellness platform; however, competition in the personal health and wellness testing market continues to increase and presents a threat to the success of our business.

 

  We rely on a limited number of critical third-party suppliers for our epigenetic testing services and in the event we are unable to procure their materials or services, we may not be able to find suitable replacements or immediately transition to alternative suppliers, which will have an adverse impact on our business.

 

  Our epigenetic testing services face substantial competition, which may result in others discovering, developing or commercializing products and services that are similar to ours, before or more successfully than we can.

 

  We or our partners (or both) may now or in the future be subject to laws and regulations relating to laboratory testing, which could materially adversely impact our ability to offer its products or services.

  

Risks Related to Our Life Insurance Operations

 

  We rely on the selling of life insurance products underwritten and issued by third-party carriers through distribution relationships, and if we are unable to contract or maintain such distribution relationships it could materially adversely impact our business and results of operations.

 

  While recent sales gains have occurred in the life insurance industry, overall the industry has experienced a decline in product sales which, if that trend continues, could materially adversely impact our business and the results of operations.

 

  Competition in the insurance technology market presents an ongoing challenge to the success of our business and if we are unable to compete, our business could be materially adversely impacted.

 

  We may not be successful in establishing the relationships necessary to execute our business plans, which could have a material adverse impact on our ability to generate revenue and our financial condition.

 

  We, as part of our insurance business, may collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customer privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.

 

 

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  We may be unable to prevent or address the misappropriation of our data or data of our customers, which could damage our reputation and materially adversely impact our business.

 

  We may expand operations abroad, through relationships with international life insurance carriers, where we have limited operating experience and where we may be subject to increased regulatory risks and local competition. If we are unsuccessful in our efforts to expand internationally, our business may be harmed.

 

Risks Related to Our Intellectual Property

 

If we are unable to protect our patent pending methods of identifying saliva-based epigenetic biomarkers or intellectual property in general, the value of our brand and other intangible assets may be diminished, and our business may be adversely impacted.

 

We may be unable to obtain sufficiently broad intellectual property protection, or we may lose our intellectual property protection.

 

We may be subject to 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 secrets of their former employers.

 

If we become involved in trademark or patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our development and commercialization efforts of our products and services.

 

Risks Related to Owning Our Securities

 

The public market for our securities is volatile. This may affect not only the ability of our investors to sell their securities, but the price at which they can sell their securities.

 

We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in delisting of the Class A Common Stock.

 

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RISK FACTORS

 

In addition to the other information contained in this prospectus, including the matters addressed under the heading “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the risks and uncertainties described in this prospectus as they identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward- looking statements.

 

The following risk factors apply to the business and operations of the Company. These risk factors are not exhaustive, and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of the Company. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included herein.

  

Risks Related to this Offering by the Selling Stockholders

 

Sales of a substantial number of our securities in the public market by the Selling Stockholders and/or by our other existing stockholders could cause the price of the Class A Common Stock and Public Warrants to fall.

 

The Selling Stockholders can sell, under this prospectus, up to 5,625,000 shares of Class A Common Stock (representing 11.4% of the shares of Class A Common Stock outstanding as of July 28, 2023), which consists of (i) an aggregate of 2,812,500 shares of Class A Common Stock (representing 5.7% of the shares of Class A Common Stock outstanding as of July 28, 2023) that were purchased by the Selling Stockholders on July 14, 2023 and July 20, 2023 in the first tranche purchase of the 2023 Private Placement pursuant to the terms of the Stock Purchase Agreements and (ii) an aggregate of 2,812,500 additional shares of Class A Common Stock (representing 5.7% of the shares of Class A Common Stock outstanding as of July 28, 2023) that the Selling Stockholders have committed to purchase and that will be issued and sold to them in a second tranche purchase under the Stock Purchase Agreements, which second tranche purchase will occur on the second business day following the effective date of the registration statement of which this prospectus forms a part.

 

Sales of a substantial number of our shares of Class A Common Stock in the public market by the Selling Stockholders and/or by our other existing stockholders, as applicable, or the perception that those sales might occur, could depress the market price of the Class A Common Stock or Public Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of the Class A Common Stock or Public Warrants.

 

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Risks Related to Our Business and Industry

 

We have a history of losses and it may not achieve or maintain profitability in the future.

 

We are a development stage company and have not been profitable since our inception in 2019, accumulating deficits of 154,870,000 and $147,231,000 as of March 31, 2023 and December 31, 2022, respectively. We incurred net losses of $7,639,000 and $12,367,000 for the three months ended March 31, 2023 and 2022, respectively, and $95,255,000 and $38,488,000 in the years ended December 31, 2022 and 2021, respectively. We expect we will require significant capital in connection with our efforts, and we will be required to continue to make significant investments to further develop and expand our business. In particular, we expect to expend financial and other resources on sales and marketing as part of our strategy to develop and increase product and service sales, as well as on research and development activities regarding our epigenetic technology. In addition, to the extent our business ramps up as we expect, we will need to increase our headcount in the coming years. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We expect that our net loss will increase in the near term as we continue to make such investments to grow our business. Despite these investments, we may not succeed in increasing our revenue on the timeline that we expect or in an amount sufficient to lower our net loss and ultimately become profitable. Moreover, if our revenue does not increase, we may not be able to reduce costs in a timely manner because many of our costs are fixed, at least in the short term. In addition, if we reduce variable costs to respond to losses, this may limit our ability to enter into agreements with new customers and grow our revenues. Accordingly, we may not achieve or maintain profitability and it may continue to incur significant losses in the future.

 

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements, which could limit our ability to raise additional capital and thereby materially adversely impact our business.

 

Our audited financial statements for the years ended December 31, 2022 and 2021 were prepared assuming that we will continue as a going concern. Primarily as a result of our losses, limited working capital, debt obligations and significant operating costs expected to be incurred in the next twelve months, the report of our independent registered public accounting firm included elsewhere in this prospectus contain an explanatory paragraph on our financial statements stating there is substantial doubt about our ability to continue as a going concern. Such an opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may also make it more difficult to operate our business due to concerns about our ability to meet our contractual obligations.

 

If we are unable to secure additional capital, we may be required to curtail our business initiatives and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause a significant reduction in the scope of our planned development, which could harm its business, financial condition and operating results. It is not possible for us to predict at this time the potential success of our business. The revenue and income potential of our business and operations are currently unknown. The accompanying financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern.

 

We do not have adequate cash resources to fund our operations through calendar year 2023 and 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. If we are unable to secure additional funds, we may be forced to delay, reduce or eliminate our commercialization efforts or cease all operations.

 

Our present capital is insufficient to meet operating requirements or to cover losses, and therefore we need to raise additional funds through financings to carry out our business plans. Many factors will affect our capital needs as well as their amount and timing, including our growth and profitability as well as market disruptions and other developments. Although we raised net proceeds of approximately $202,500 in the first tranche purchase of the 2023 Private Placement and we expect to raise net proceeds of approximately $202,500 in the second tranche purchase of the 2023 Private Placement, based on our cash position as of March 31, 2023 combined with the proceeds of such offering, our management is of the opinion that without additional financing or other increase in our cash and cash equivalents balance, we will not have sufficient resources to enable us to fund our operations through calendar year 2023. Based upon our current operating plan, we expect the net proceeds from the first tranche purchase of the 2023 Private Placement to be sufficient to fund our operations through the end of July 2023, and we expect the net proceeds from the second tranche purchase of the 2023 Private Placement, to the extent they are received, to be sufficient to fund our operations through mid August 2023.

 

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Historically, we have funded our operations, marketing expenditures and capital expenditures primarily through equity issuances and debt instruments. We evaluate financing opportunities from time-to-time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans and operating performance, and the condition of the capital markets at the time we seek financing. We cannot be certain that additional financing will be available to us on favorable terms, or at all.

 

If we raise additional funds through the issuance of equity, equity-linked or debt securities, our existing stockholders may experience dilution. Any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.

 

Our ability to raise additional funds in the short-term will depend on financial, economic and market conditions and the willingness of potential investors or lenders to provide funding, all of which are outside of our control, and we may be unable to raise financing in the short-term, or on terms favorable to us, or at all. Furthermore, high volatility in the capital markets has had, and could continue to have, a negative impact on the price of the Class A Common Stock, and could adversely impact our ability to raise additional funds. If we are unable to obtain sufficient funding, we may be forced to delay, reduce or eliminate our commercialization efforts or cease all operations, and our stockholders could lose all or part of their investment in our Company.

 

If we are unable to raise sufficient capital in the short-term, we will be unable to fund our operations and may be required to evaluate further alternatives, which could include dissolving and liquidating our assets or seeking protection under the bankruptcy laws. A determination to file for bankruptcy could occur at a time that is earlier than when we would otherwise exhaust our cash resources.

 

Recent and future management changes could disrupt our operations and impair our ability to attract and retain key personnel.

 

We have experienced a number of recent changes to our senior management team. The Board appointed Tyler Danielson, our Chief Technology Officer, to serve as our Interim Chief Executive Officer and principal executive officer, effective as of November 14, 2022. Changes in our senior management and uncertainty regarding any future changes may disrupt our operations, impact partner relationships, and impair our ability to recruit and retain other needed personnel. Any such disruption or impairment could have an adverse effect on our business.

 

Our future success depends in large part on the continued participation in the business of Tyler Danielson, our Interim Chief Executive Officer, which cannot be ensured or guaranteed.

 

Tyler Danielson is our Interim Chief Executive Officer. Mr. Danielson will be instrumental in shaping our vision, strategic direction and execution priorities. There can be no assurance that Mr. Danielson will continue to work for us. Mr. Danielson’s departure from service with the Company could materially adversely impact our business.

 

The loss of the services of our other current executives or other key employees, or the failure to attract additional key individuals, could materially adversely impact our business, results of operations and financial condition.

 

Our financial success is dependent to a significant degree upon the efforts of our current executive officers and other key employees. At present, we do not maintain key-man life insurance policies for any of these individuals. In addition, our success and viability will depend to a significant extent upon our ability to attract and retain qualified personnel in all areas of our business, especially the sales, science, and financial management teams. If we were to lose the key members of our respective teams, we would need to replace them with qualified individuals in a timely manner or our business, results of operations, and financial condition could be adversely impacted.

 

Our business significantly depends upon the strength of our brands, and if we are not able to develop, maintain and enhance our brands, our ability to develop and expand our customer base may be adversely impacted and our business and operating results may be harmed.

 

We believe that the brand identity we are developing (encompassing multiple brands) will significantly contribute to the success of our business. Developing, maintaining, and enhancing our brands may require us to make substantial investments and these investments may not be successful. If we fail to develop, maintain or enhance our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition may be materially adversely impacted. Many of our competitors have brands that are well recognized. As a relatively new entrant into the markets in which we operate, we will likely spend considerable money and other resources to create brand awareness and build our reputation. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive.

 

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We may not be able to build brand awareness, and our efforts at building, maintaining and enhancing our reputation could fail. Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers or business partners, data privacy and security issues, and other aspects of our business, whether valid or not, could diminish confidence in our brands, which could adversely impact our reputation and business. Our management team could be subject to negative publicity that could interfere with our ability to successfully establish its brand or impact our ability to compete for business or attract and retain customers.

 

We were formed to become a separate and independently managed and controlled entity from GWG Holdings, Inc. (“GWG”). On April 20, 2022, GWG filed for chapter 11 bankruptcy protection in the Federal Bankruptcy Court for the Southern District of Texas. Our former Chief Executive Officer, who is a former member of the Board, was an officer and director of GWG prior to our initial formation in November 11, 2019. We are not a party to this bankruptcy and our former board member has not been an officer or director of GWG since April 2019, but the bankruptcy proceedings could negatively impact our brand.

 

As we commercialize and expand our product offerings and enter new markets, we need to establish our reputation with customers, and to the extent that we are not successful in creating positive impressions, our business could be adversely impacted. There can be no assurance that we will be able to develop, maintain or enhance our reputation, and failure to do so could materially adversely impact our business, results of operations and financial condition. If we are unable to develop, maintain or enhance consumer awareness of our brands in a cost-effective manner, our business, results of operations and financial condition could be materially adversely impacted.

 

Former or current members of our management team or the Board may, from time to time, be associated with negative media coverage or become involved in legal or regulatory proceedings or investigations unrelated to our business.

 

Former or current members of our management team or the Board have been involved in a wide variety of businesses, including transactions, such as sales and purchases of businesses, and ongoing operations. As a result of such involvement, former or current members of our management team or the Board may from time to time be associated with negative media coverage or become involved in legal or regulatory proceedings or investigations unrelated to our business. Any negative media coverage, regulatory proceedings or investigations related to our management team or the Board may be detrimental to the reputation of our management team or the Board or result in other negative consequences or damages, which could cause a material adverse impact on our business and the stock price of our Company.

 

Development of new products and services will require substantial resources, and we cannot guarantee that we will have the resources or ability to continue such development.

 

Developing new products and services requires substantial technical, financial and human resources, whether or not any products or services are ultimately commercialized. We may pursue what we believe is a promising opportunity only to discover that certain of its risk or resource allocation decisions were incorrect or insufficient, or that individual products, services or its science in general has technology limitations or risks that were previously unknown or underappreciated. In the event material decisions in any of these areas turn out to be incorrect or sub-optimal, we may experience a material adverse impact on our business and ability to fund our operations.

 

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Our success is based, in large part, on our ability to integrate molecular biotechnology into the life insurance industry, and our inability to do so may adversely affect our operating results, business prospects and our ability to repay our obligations.

 

The success of our business is based in large part upon our ability to create new products and services by integrating molecular biotechnology into the life insurance industry. We expect that current and future developments in molecular biotechnology will enhance the life insurance industry; however, the industry’s acceptance of molecular biotechnology will primarily be impacted by a variety of factors such as the acceptance of new products and services by consumers, insurance carriers, and agents; as well as the interpretation of existing laws and regulations (including laws relating to privacy), the passage of new legislation and regulations, actuarial understandings and methodologies, and future innovations in molecular biotechnology. Importantly, the factors that we believe will most significantly affect the development and success of our products and services in the life insurance industry are beyond our control. Any material or adverse development in the life insurance market could adversely affect our operating results, our access to capital, and our business prospects and viability. Because of this, an investment in the Class A Common Stock of our Company generally involves greater risk as compared to investments offered by companies with more diversified business operations in more established markets.

 

Our success depends, in large part, on our ability to commercialize our technology enabled products and services with a high level of service at a competitive price, achieve sufficient sales volume to realize economies of scale, and create innovative new products and services to offer to our customers. Our failure to achieve any of these outcomes would adversely impact our business.

 

Our success depends, in large part, on our ability to extend our technology enabled products and services to market with a high level of service at a competitive price, achieve sufficient sales volume to realize economies of scale, and create innovative new products and services to offer to our customers. The growth and expansion of our business and service offerings, once such offerings are commercialized, is expected to place a continuous significant strain on our management, operational and financial resources. To effectively manage our growth following development and commercialization of our products and services, we must continue to implement and improve our operational, financial and management information systems and to expand, train and manage our employee base. In the event of further growth of our operations or in the number of our third-party relationships, our supply, systems, procedures or internal controls may not be adequate to support our operations and our management may not be able to manage any such growth effectively.

 

Even if we are able to successfully scale our infrastructure and operations, we cannot ensure that demand for our products and services will increase at levels consistent with the growth of our infrastructure. If we fail to generate demand commensurate with this growth or if we fail to scale our infrastructure sufficiently in advance to meet such demand, our business, financial condition and results of operations could be materially adversely impacted.

 

We have limited experience commercializing our products or technology, which makes it difficult to evaluate our prospects and predict our products’ future performance.

 

Our operations to date have been focused on developing and commercializing our technologies and products, including developing and commercializing the Underwriting Report and Longevity Report. The performance of our market tests may not be indicative of the performance our customers experience following commercial launch, and we may need to make modifications to improve our products. Further, the Underwriting Report is being shown to potential insurance customers to gather feedback to achieve a product-market fit and successfully commercialize our products, and we may make modifications to improve the reliability, quality and/or functionality of the Underwriting Report as we receive feedback. There can be no assurance that we will be able to timely achieve market acceptance for either the Longevity Report or Underwriting Report, in the future. We have limited experience developing our products and technology for commercial use, conducting sales and marketing activities at scale and managing customer support at the commercial level. Further, while we are continuing to develop the Underwriting Report and Longevity Report, we have no experience commercializing such reports. Consequently, predictions about our future success or viability are highly uncertain and hard to predict as a result of our limited operating history, the development stage of our products and our limited history commercializing our technologies or products. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations.

 

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Further, we are transitioning from a company with a focus on research and development to a company capable of supporting both research and development and commercial activities, and we may not be successful in this transition. We have encountered in the past, and will encounter in the future, risks and uncertainties, delays and scientific setbacks frequently experienced by development stage companies with limited operating histories in competitive and rapidly changing industries, such as the genomics industry. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business and commercialization activities, are incorrect or change, or if we do not address these risks, delays or uncertainties successfully, our results of operations could differ materially from our expectations, and our business, financial condition and results of operations could be adversely affected. To the extent we are successful in developing our products or technology, but demand for our products/services and/or our generated revenues are not enough to cover our ongoing expenses, we may need to raise additional capital to continue our operations and commercialization of our products and services.

 

We expect our revenue and results of operations to fluctuate on a quarterly and annual basis.

 

Our revenue and results of operations could vary significantly from period-to-period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control. Among other factors, our revenue and results may vary as a result of fluctuations in the number of customers purchasing our products/services, research and development expenditures, and/or the timing and amount of our expenses. Fluctuations and variability across the industry may affect our revenue and results of operations. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow our Company, which may adversely impact our stock price.

 

Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.

 

Our outstanding indebtedness contains several restrictive covenants, including that we cannot, without the prior written consent of 50.01% of the holders of our PIK Notes, create or incur any other indebtedness, with the exception of certain exempt issuances, including but not limited to issuances of Class A Common Stock or Common Stock Equivalents in connection with a Private Placement or Public Financing (each as defined below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Exchange Offer, PIK Note Offer to Amend and 2022 Bridge Debenture Release”). If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our indebtedness and penalties. Limitations on our ability to incur new indebtedness under the terms of our debt securities may limit the amount of new investments we make.

 

The PIK Notes mature on April 1, 2024 (the “Maturity Date”), and accrue interest at an annual interest rate of 15%, commencing on the issuance date, compounded quarterly on each December 20, March 20, June 20 and September 20 until the Maturity Date and on the Maturity Date itself (each, an “Interest Payment Due Date”). Interest is payable by increasing the principal amount of the PIK Notes (with such increased amount accruing interest as well) on each Interest Payment Due Date (“PIK Interest”). Monthly payments on the outstanding principal amount of the PIK Notes, as such amount may be increased as the result of the payment of PIK Interest (the “Outstanding Principal Balance”), will commence on November 1, 2023, until the 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 the PIK Notes terms. A default by us on the PIK Notes would have a material adverse effect on our business, liquidity and the market price of the Class A Common Stock.

 

The Assumed Warrants have anti-dilution rights that could be triggered as part of future financings.

 

If FOXO raises additional funds through the issuance of equity, equity-linked or debt securities, with the exception of certain exempt issuances, with an exercise price lower than $6.21 per share, the anti-dilution protection provisions in the Assumed Warrants will be triggered. Specifically, the exercise price and number of warrant shares of the Assumed Warrants will be adjusted to reflect such lower issuance price as the new equity is sold and the number of shares issuable under the Assumed Warrant will be increased such that the aggregate exercise price after the lower price adjustment shall be equal to the aggregate exercise price prior to adjustment.  This anti-dilution adjustment will have a dilutive effect on the Company’s equity and may hamper its ability to complete future financings.

 

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There is no guarantee that the exercise price of our Warrants will ever be less than the trading price of the Class A Common Stock, and they may expire worthless. In addition, we may reduce the exercise price of the Private and Public Warrants in accordance with the provisions of the Warrant Agreement, and a reduction in exercise price of the Private and Public Warrants would decrease the maximum amount of cash proceeds we could receive upon the exercise in full of the Private and Public Warrants for cash.

 

As of the date of this registration statement, the exercise price for the Public and Private Warrants is $11.50 per share of Class A Common Stock, and the exercise price for the Assumed Warrants is $6.21 per share of Class A Common Stock. On July 28, 2023, the closing price of the Class A Common Stock was $0.1336. If the price of our shares of Class A Common Stock remains below the respective exercise prices of the Warrants, we believe our warrant holders will be unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us. There is no guarantee that the Warrants will be in the money prior to their expiration and, as such, the Warrants may expire worthless. In addition, at the current exercise price of $11.50 per share for the Public and Private Warrants, and $6.21 per share for the Assumed Warrants, we will receive up to $121 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. However, we may lower the exercise price of the Public Warrants and the Private Warrants in accordance with Section 9.8 of the Warrant Agreement to induce the holders to exercise such warrants. The Company may effect such reduction in exercise price without the consent of warrant holders and such reduction would decrease the maximum amount of cash proceeds we would receive upon the exercise in full of the Warrants for cash. In addition, in the event the Company issues Class A Common Stock or common stock equivalents that trigger the full ratchet anti-dilution provision in the Assumed Warrants, then the exercise price of the Assumed Warrants may be reduced and any subsequent exercises would decrease the amount of proceeds the Company receives for each share of Class A Common Stock.

 

Our success and the growth of our business will depend on our ability to effectively and in a cost-feasible manner acquire, maintain, and engage with our targeted customers. If we fail to acquire, maintain, and engage customers, our business, revenue, operating results, and financial condition will be adversely impacted.

 

As a new company, we anticipate that sales and marketing expenses will continue to represent a sizeable part of our overall operating costs for the foreseeable future. We cannot guarantee, however, that our investments in sales and marketing will effectively reach potential customers, potential customers will decide to buy our products or services, or that customer spend for our products and services will yield the intended return on investment.

 

In addition, many factors, some of which are beyond our control, may reduce our ability to acquire, maintain and engage with customers, including the following:

 

  potential customers fail to accept or adopt our epigenetic biomarker technology ;

 

  changes in advertising platforms’ pricing, which could result in higher advertising costs, and changes in digital advertising platforms’ policies, that may delay or prevent us from advertising through these channels;

 

  changes in search algorithms by search engines;

 

  ineffectiveness of our marketing efforts and other spend to acquire new customers;

 

  decline in popularity of, or governmental restrictions on, social media platforms where we plan to advertise;

 

  the development of new search engines or social media sites that reduce traffic on existing search engines and social media sites;

 

  suffering reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate;

 

  failing to expand geographically;

 

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  failing to obtain or maintain licensure in jurisdictions where we sell products;

 

  failing to offer new and competitive products;

 

  failing to develop effective distribution systems;

 

  technical or other problems frustrate the customer experience;

 

  we are unable to address customer concerns regarding the content, privacy and security; or

 

  consumer behavior changes as a result of the COVID-19 pandemic.

 

Our inability to overcome these challenges could adversely impact our ability to attract and add new customers, as well as retain existing customers, once obtained, and could have an adverse effect on our business, revenue, operating results and financial condition. Further, if our customer base does not grow, we may be required to incur significantly higher marketing expenses than we currently anticipate in order to attract new customers. A significant decline in our customer base could have a materially adverse impact on our business, financial condition and results of operations.

 

Security incidents or real or perceived errors, failures, or bugs in our systems or websites could adversely impact our operations, result in loss of personal customer information, damage our reputation and brand, and harm our business and operating results.

 

Our success will be dependent on our systems, applications, and software operating and meeting the changing needs of our customers and users. We will rely on our technology and vendors to successfully implement changes to and maintain our systems and services in an efficient and secure manner. Like all information systems and technology, our websites may contain material errors, failures, vulnerabilities or bugs, particularly when new features or capabilities are released, and may be subject to computer viruses or malicious code, break-ins, phishing impersonation attacks, attempts to overload our servers with denial-of-service or other attacks, ransomware and similar incidents or disruptions from unauthorized use of our computer systems, as well as unintentional incidents causing data leakage, any of which could lead to interruptions, delays or website or online app shutdowns, or could cause loss of critical data, or the unauthorized disclosure, access, acquisition, alteration or use of personal or other confidential information.

 

If we experience compromises to our security that result in technology performance, integrity, or availability problems, the complete shutdown of our websites or the loss or unauthorized disclosure, access, acquisition, alteration or use of confidential information, customers or potential customers may lose trust and confidence in us, and may decrease the use of our systems or websites, or stop using our systems or websites entirely. Further, outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our information, including customer information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, they are often not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. Even if we take steps that we believe are adequate to protect us from cyber threats, hacking against our competitors or other companies could create the perception among our customers or potential customers that our systems or websites are not safe to use.

 

A significant impact on the performance, reliability, security, and availability of our systems, software, or services may harm our reputation, impair our ability to operate, retain customers or attract new customers for the FOXO brands, and expose us to legal claims and government action, each of which could have a material adverse impact on our business, results of operations, and financial condition.

 

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Changes in general economic conditions could have a material adverse impact on our business.

 

Changes in general economic conditions, including, for example, interest rates, investor sentiment, changes specifically affecting the insurance industry or biotechnology industry, competition, technological developments, political and diplomatic events, tax laws, and other factors not known to us today, could substantially and materially adversely impact our business. For example, changes in interest rates may increase our cost of capital and ability to raise capital and have a corresponding adverse impact on our operating results. While we may engage in certain hedging activities to mitigate the impact of these changes, none of these conditions are or will be within our control. Changes in general economic conditions may also negatively impact demand for life insurance and our other products and services.

 

If we are unable to maintain effective internal control over financial reporting and disclosure controls and procedures, the accuracy and timing of our financial reporting may be adversely affected.

 

We are required to comply with Section 404 of the Sarbanes-Oxley Act, which requires management assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures. Prior to our Business Combination, although we had effective internal controls and procedures, we were a private company with limited accounting and finance personnel, review processes and other resources with which to address our internal controls and procedures.

 

Based on the evaluation of our internal controls over financial reporting, we concluded that such controls were effective as of December 31, 2022. In addition, based on the evaluation of our disclosure controls and procedures as of March 31, 2023, we concluded such controls were effective. However, due to the current size of our Company and our limited personnel, we may not be able to maintain effective internal control over financial reporting and disclosure controls and procedures in the future.

 

We can give no assurance that we will be able to maintain effective internal control over financial reporting and disclosure controls and procedures, or that no “material weaknesses” in our internal control over financial reporting will be identified in the future. If we encounter “material weaknesses” in our internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis, it could lead to errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations. Further, If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements, restrict access to capital markets and adversely impact our stock price.

 

Our business may be adversely impacted by the continuation of the COVID-19 pandemic.

 

In 2020, the global COVID-19 pandemic spread to every country and every state in the United States. The World Health Organization designated COVID-19 as a pandemic, and numerous countries, including the United States, declared national emergencies with respect to the COVID-19 pandemic. While vaccines have been approved and deployed, the global impact of the outbreak continues to adversely affect many industries, and different geographies continue to reflect the effects of public health restrictions in various ways. The timing and likelihood of achieving widespread global vaccination remain uncertain, and these vaccines may be less effective against new variants, potentially leading people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time.

 

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The economic recovery following the impact of the COVID-19 pandemic is still underway and has been gradual, uneven and characterized by meaningful dispersion across sectors and regions with uncertainty regarding its ultimate length and trajectory. Further, although many jurisdictions have relaxed or lifted restrictions in an effort to generate more economic activity, the risk of continued COVID-19 outbreaks remains, and some jurisdictions may re-impose restrictions in an effort to mitigate risks to public health, especially as more infectious variants of the virus emerge. Increasing infection rates and hospitalizations in certain geographies and a potential resulting market downturn may have a negative impact on our planned products and services as well as the business of third parties on which it may rely, and as a result could materially adversely impact our business, results of operations and financial condition. It is also possible that the global recovery from the COVID-19 pandemic may reduce demand for personal life insurance and our other products and services.

 

These and other potential impacts make it more challenging for management to estimate the future performance of our business. While we cannot predict the specific impacts to our business, financial condition and results of operations, the impacts could be materially negative. These impacts will depend on future developments, which are highly uncertain and out of our control, including, among others, the duration and intensity of the COVID-19 pandemic, as well as the subsequent resumption of business operations and recovery of discretionary consumer spending across the globe. Additional impacts may arise that we are not aware of currently. The potential of such additional impacts intensifies the business and operating risks that we face, and should be considered when reading the additional risk factors below.

 

We may expand operations abroad, including through relationships with international life insurance carriers, where we have limited operating experience and where we may be subject to increased regulatory risks and local competition. If we are unsuccessful in efforts to expand internationally, our business may be harmed.

 

Regulations exist or are under consideration in countries outside the United States, which limit or prevent the sale of direct-to-consumer genetic tests. Some countries, including Australia, require premarket review by their regulatory body similar to that required in the United States by the FDA. Some countries, including Australia, Germany, France and Switzerland, require a physician prescription for genetic tests providing health information, thus limiting our offering in those countries to an ancestry-only test. Other countries require mandatory genetic counseling prior to genetic testing. If similar prohibitions were enacted with respect to epigenetic testing, or the scope of the aforementioned regulations were expanded to include epigenetics, it could limit the available market for our products and services and increase the costs associated with marketing the products and services where we are able to offer our products.

 

We may expand our life insurance business internationally, which will subject us to additional laws and regulatory standards with respect to the insurance business and insurance distribution. We have no previous experience in operating our life insurance business internationally, may incur significant operating expenses in connection thereto, and may not be successful in our compliance with such international laws and regulations.

 

Legal developments in the European Union have created a range of new compliance obligations regarding transfers of personal data from the European Union to the United States, including the GDPR and UK GDPR, which may apply to certain of our activities related to services or products that we offer or may offer to individuals located in the European Union. Significant effort and expense will be required to ensure compliance with the GDPR and UK GDPR, and could cause us to change our business practices. Moreover, requirements under the GDPR and UK GDPR may change periodically or may be modified by the European Union or the UK and/or the laws of one or more countries. The GDPR and UK GDPR impose stringent compliance obligations regarding the handling of personal data and have resulted in the issuance of significant financial penalties for noncompliance, including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million/£17.5 million (whichever is higher) for the most serious violations.

 

We may also need to achieve and maintain International Standards Organization (or ISO) certification of our future Quality Management Systems. If we are not able to achieve or maintain regulatory compliance, we may not be permitted to market our insurance products and/or may be subject to enforcement by EU Competent Authorities, bodies with authority to act on behalf of the government of the applicable EU Member State, or other nations which adopt similar standards, to ensure that the requirements of the directive or regulation are met.

 

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If we fail to comply with any applicable laws and regulations, we may not be able to expand internationally or could become subject to enforcement actions or the imposition of significant monetary fines, other penalties, or claims, which could harm our ability to conduct our business and could have a material adverse impact on our business, financial condition and results of operations.

 

We are exposed to risks related to litigation and other legal proceedings.

 

We operate in a highly regulated and litigious environment. We have and may become involved in legal proceedings, including litigation, arbitration and other claims, and investigations, inspections, audits, claims, inquiries and similar actions by insurance, tax and other governmental authorities.

 

Legal proceedings, in general, and securities, derivative action and class action and multi-district litigation, in particular, can be expensive and disruptive. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years.

 

We are subject to extensive regulation by national, state and local government agencies in the United States, as well as in other countries in which we may operate. There continues to be a heightened level of review and/or audit by regulatory authorities of, and increased litigation regarding, our related industry’s business, compliance and reporting practices. As a result, we are and may be the subject of government actions of the types described above.

 

We cannot predict with certainty the outcomes of any legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could harm our reputation and have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid. In addition, as a result of governmental investigations or proceedings, we may be subject to damages, civil or criminal fines or penalties, or other sanctions. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources.

 

Risks Related to Our Epigenetic Testing Services

 

Our success and ability to establish and grow our epigenetic testing services, the outputting of algorithmic epigenetic biomarkers of health measures, will depend on developing epigenetic biomarkers for use in life insurance underwriting as well as other industries we seek to service. If we fail to develop epigenetic biomarkers that attract and retain life insurance carriers as customers or fail to provide compelling pricing or products compared to current underwriting processes, our operating results and financial condition will be adversely affected.

 

We are still in the process of developing our saliva-based epigenetic biomarkers for use in life insurance underwriting. If our efforts to develop saliva-based epigenetic biomarkers for health and wellness conditions used in life insurance underwriting fail, our ability to attract customers for our underwriting technology services will be adversely impacted.

 

Our ability to attract and add new insurance or reinsurance carriers as customers, as well as retain existing customers, once obtained, depends, in large part, on the ability of our epigenetic biomarkers to provide accurate, cost-effective information for life insurance underwriting. If life insurance carriers or reinsurance carriers do not perceive our underwriting technology services to be valuable, if we fail to introduce new and improved products and services, or if we introduce new products or services that are not favorably received by the market, we may not be able to attract or retain customers. In order for our epigenetic biomarkers technology to provide actuarial value, we may be required to incur significant research and development expenses, costs related to improving our services, and lower margins in order to attract new customers and retain existing customers.

 

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While we will strive to demonstrate the actuarial value of epigenetic biomarker technology we are developing for insurance companies, reinsurers, underwriters, and insurance agents, these counterparts may not embrace our underwriting technology services. Moreover, if we fail to be competitive on pricing and actuarial accuracy, our ability to grow our business and generate revenue by attracting and retaining customers may be adversely impacted.

 

Many factors, some of which are beyond our control, may reduce our ability to sell our underwriting technology services, including those described in this “Risk Factors” section and the following:

 

  our potential carrier customers or regulators not understanding or appreciating our science or results (including lack of understanding of the difference between genetics and epigenetics);

 

  our competitors offering alternative underwriting solutions;

 

  suffering reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate;

 

  failing to offer price competitive products and services;

 

  experiencing technical or other problems that inhibit our ability to service carrier customers in a fast and reliable manner;

 

  being unable to address regulatory concerns regarding the application of epigenetic biomarkers for use in life insurance underwriting;

 

  experiencing regulatory changes that make epigenetics unavailable for use in life insurance underwriting;

 

  being unable to address customer concerns regarding content, privacy and security; or

 

  being impacted by consumer behavior changes as a result of the COVID-19 pandemic.

 

Our inability to overcome these challenges could adversely impact our ability to execute our underwriting technology services business and could have an adverse effect on our business, revenue, operating results and financial condition. The inability to commercialize our underwriting technology services business would have a materially adverse impact on our business, financial condition and results of operations.

 

We are applying the relatively new field of epigenetics science to life insurance underwriting, which we cannot guarantee will produce the results we seek or need for our business model.

 

While the scientific field of epigenetics and its importance in regulating gene expression is well established, the concept of obtaining individually predictive biomarkers of health and wellness from saliva is novel. Most epigenetic research to date has been conducted from blood specimens and has produced extensive peer reviewed publications on the association between DNA methylation and health and wellness factors associated with factors used in life insurance underwriting (e.g., tobacco use, cardiovascular health, metabolic health, alcohol use). These association studies, while informative, differ from the individually predictive epigenetic biomarkers we develop and require for use in life insurance underwriting. In addition, these peer reviewed association studies have not published extensive research on DNA methylation derived from saliva. Accordingly, while we believe that individually predictive biomarkers are attainable in saliva at accuracy levels that are actuarially significant for use in life insurance underwriting, we cannot guarantee the accuracy of such epigenetic biomarkers, and any errors in the accuracy or results provided by such biomarkers could hinder our ability to gain market share in a very competitive industry. If we are unable to obtain individually predictive epigenetic biomarkers in saliva at accuracy levels efficacious for life insurance underwriting, or if the epigenetic biomarkers do not perform as expected, it could significantly affect our ability to generate revenue from such products, which could then result in a complete loss of your investment.

 

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Our 2019 pilot study demonstrated that epigenetic biomarkers are attainable in both blood and saliva for traditional life insurance underwriting risk factors, but further research may not validate or improve the results discovered in the Pilot Study.

 

In 2019, we completed a pilot study that sought to measure a wide range of health and wellness factors used in traditional life insurance underwriting with DNA methylation data derived from blood and saliva (the “Pilot Study”). While the Pilot Study was able to identify patterns of DNA methylation (i.e., epigenetic biomarkers) of individuals that corresponded to clinical health and wellness measurements used in standard life insurance underwriting, we cannot guarantee that the results of the Pilot Study are completely accurate, or that the results of the Pilot Study will be further validated or improved upon in follow-on research which could negatively impact our ability to pursue our business plans and generate revenue.

 

We currently have research projects planned and underway designed to further discover, improve and/or validate the use of our epigenetic biomarkers for our commercial purposes, but we cannot guarantee the results of such research and any negative results may negatively impact our ability to pursue our business plans.

 

Our current and planned research projects are designed to further discover, improve and/or validate the use of epigenetic biomarkers for commercial use. The main research projects we have underway are the Physicians’ Health Study and two other research projects that are intended to inform the utility and capabilities of epigenetics for health assessment.

  

While we believe these research projects will lead to the discovery, improvement, and commercialization of our proprietary epigenetic biomarker technology, we cannot guarantee positive and immediately commercializable results from these studies, nor can we guarantee that potential customers will use our products and services based on the results of such studies. Our results may be misleading or inaccurate, which could adversely impact the acceptance of our products and services, and our overall ability to continue pursuing our business plans. If the results from our research studies differ from what we expect, or if such results are not accepted by our customers, it will adversely impact our ability to pursue our business plans and generate revenue, which could result in a complete loss of your investment.

 

We intend to provide consumer engagement through our health and wellness platform; however, competition in the personal health and wellness testing market continues to increase and presents a threat to the success of our business.

 

The number of companies entering the personal health and wellness testing market with offerings similar to those that we provide through our health and wellness testing platform continues to increase. We believe that our ability to offer consumer engagement services that add value to life insurance depends upon many factors both within and beyond our control, including the following:

 

  the timing and market acceptance of health and wellness products and services, including the developments and enhancements to those products and services offered by us or our competitors;

 

  the customer service and support efforts required to provide personal health and wellness testing services on our platform;

 

  the selling and marketing efforts required to support consumers and agents using our consumer engagement services;

 

  the ease of use, performance, price and reliability of solutions developed either by us or our competitors; and

 

  our brand strength relative to our competitors.

 

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We anticipate we will also face competition from other companies attempting to capitalize on the same, or similar, opportunities as we are, including from existing diagnostic, laboratory services and other companies entering the personal health and wellness testing market with new offerings such as direct access and/or consumer self-pay tests and interpretation services. Some of our current and potential competitors have longer operating histories and greater financial, technical, marketing and other resources than we do. These factors may allow our competitors to respond more quickly or efficiently than we can to new or emerging technologies. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build larger customer bases than we have. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. This could attract customers away from our services and reduce our market share.

 

We rely on a limited number of critical third-party suppliers for our epigenetic testing services and in the event we are unable to procure our materials or services, we may not be able to find suitable replacements or immediately transition to alternative suppliers, which will have an adverse impact on our business.

 

We rely on a limited number of critical third-party suppliers for our epigenetic testing, including: (1) the maker of our kit for the collection of our customers’ saliva; (2) a provider of microarrays; and (3) providers of array processing and wet-lab services to deliver the raw epigenetic data to us. Our suppliers could cease supplying these materials, equipment and/or services at any time, or fail to provide us with sufficient quantities of materials/services or materials/services that meet our specifications, or significantly increase the costs of providing the materials or services to us. Our operations could be interrupted if we encounter delays or difficulties in securing these materials or services, or if we cannot locate an acceptable substitute. Any such interruption could significantly impact our business, financial condition, results of operations and reputation.

  

Our epigenetic testing services face substantial competition, which may result in others discovering, developing or commercializing products and services that are similar to ours, before or more successfully than we can.

 

While we believe we are the first company to seek to directly apply saliva-based epigenetic biomarker technology to life insurance underwriting, we have not yet fully developed and commercialized, and may never successfully develop or commercialize, our saliva-based underwriting technology for the insurance market. Moreover, our business faces substantial competition from larger, more established companies with products and services that have been accepted by insurance and underwriting markets and may impair our ability to compete to commercialize our products and services in the life insurance industry.

 

We recognize that other companies, including larger insurance, insurance technology and biotechnology companies, may be developing or have plans to develop products and services that may compete with ours. Many of our competitors have substantially greater financial, technical, and human resources than we have. In addition, many of our competitors have significantly greater experience than we have in developing various underwriting protocols and marketing and commercializing products and services similar to ours. Our competitors may discover, develop or commercialize products and services that are more effective, safer or less costly than any products or services that we are developing. Our competitors may also obtain regulatory approval for their products and services more rapidly than we may obtain approval for our planned insurance products, underwriting protocol and testing services.

 

We anticipate that competition with our underwriting testing services will be based on a number of factors, including product efficacy, accuracy, availability and price. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop and maintain proprietary products or processes, protect our intellectual property including our trade secrets, and to secure sufficient capital resources to support the development and commercialization of our products and services.

 

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We or our partners (or both) may now or in the future be subject to laws and regulations relating to laboratory testing, which could materially adversely impact our ability to offer our products or services.

 

The clinical laboratory testing sector is highly regulated in the United States. Both us and our partners may now, or in the future, be subject to regulation under the Clinical Laboratory Improvement Amendments (“CLIA”), or similar state laboratory licensure laws. CLIA is a federal law (administered by the Centers for Medicare & Medicaid Services, or CMS) that, in partnership with the states, regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease or impairment of, or assessment of the health of, human beings. CLIA regulations require clinical laboratories to obtain a certificate commensurate with the type of testing being performed and mandate specific standards in areas including personnel qualifications, administration, participation in proficiency testing, patient test management and quality assurance. CLIA certificates must be renewed every two years, and renewal requires undergoing survey and inspection. CLIA and/or state inspectors may conduct random inspections or conduct inspections as a result of a complaint or reported incident.

 

DNA methylation profiling of consumer saliva specimens will be performed by our wet-laboratory partners. The failure of our laboratory partners to hold CLIA certification or accreditation appropriate to the type of testing they perform, or to comply with CLIA regulations or applicable state licensure requirements could result in adverse regulatory action that, if not timely corrected, could result in us being unable to continue using their services, which could adversely affect our business. Similarly, if our laboratory partners do not hold state permits or licenses in those states that require them, it may limit our ability to offer our products and services on a national basis.

 

Because we do not directly analyze human specimens in our facilities, but instead perform only data analysis or “dry lab” services, our bioinformatics and analytic activities are not subject to CLIA. It is possible that, in the future, CLIA may apply to our activities, which could result in us being unable to offer our services or could require additional expenditures to obtain certification, both of which could materially adversely impact our business. We could face similar adverse impacts if a state regulator were to conclude that our bioinformatics activities were subject to state laboratory licensure. Similar adverse consequences could result if CLIA or state regulators disagree with our laboratory partners’ interpretation of CLIA or our applicability to their testing services.

  

Our underwriting technology and molecular health and wellness engagement services may now or in the future be subject to laws and regulations relating to laboratory developed tests and software, which could materially adversely impact our business.

 

The Federal Food, Drug, and Cosmetic Act (the “FDC Act”) gives the United States Food and Drug Administration, or FDA, the authority to regulate manufacturers of medical devices, which are defined to includeamong other requirements, in vitro diagnostic (“IVD”) products (e.g., laboratory instruments, reagents, and collection devices) and software that are intended for use in the diagnosis, treatment, cure, mitigation or prevention of diseases or conditions, including, without limitation, the presence of biomarkers. Medical devices are subject to a variety of regulatory requirements based on their level of risk, including in some cases premarket review and authorization. The FDA enforces its requirements by market surveillance and periodic inspections. The FDA may take a variety of actions in response to violations of the FDC Act and implementing regulations, including, but not limited to, cease and desist orders, injunctions, civil monetary penalties, operating restrictions, or shutdown of production facilities.

 

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The FDA has historically taken the position that laboratory tests developed in-house by a clinical laboratory, sometimes referred to as laboratory developed tests (“LDTs”), are subject to regulation as in vitro diagnostic devices. However, the FDA has generally exercised enforcement discretion (i.e., has exercised discretion not to enforce its requirements) with respect to LDTs. Certain types of LDTs have historically not been subject to enforcement discretion, including LDTs for the COVID-19 pandemic and LDTs offered directly to consumers without a health care provider’s order. Legislative proposals introduced in Congress in 2021 seek to codify or, alternatively, eliminate, FDA authority to regulate LDTs.

 

The FDA also takes the position that stand-alone software that meets the definition of a medical device, known as SaMD, is subject to FDA regulation. Certain categories of medical software, including certain health and wellness software, have been exempted from FDA regulation under the FDC Act. Similarly, the FDA has exercised enforcement discretion with respect to certain types of low risk software products, including those intended to help patients manage chronic conditions.

 

Our products and services include epigenetic analysis of laboratory-generated DNA methylation data using our proprietary bioinformatics and machine learning technology, which is used to inform both our saliva-based underwriting and molecular health and wellness engagement services. We believe that our products and services are not subject to FDA regulation. First, to the extent our products and services are intended to inform underwriting decisions, they do not meet the definition of a medical device. Second, to the extent our products and services incorporate software that is intended solely for health and wellness purposes, we believe such software meets the definition of exempt medical software under the FDC Act, as amended by the 21st Century Cures Act, enacted in 2016. Furthermore, even if elements of our products and services could be construed to be subject to FDA oversight, we believe that such elements would be subject to FDA enforcement discretion to the extent that we use such elements to provide general health and wellness and non-disease-specific information to customers that includes disclaimers and caveats that the information is not intended for medical purposes and poses low risk to consumers.

 

There can be no guarantee that the FDA will now, or in the future, agree with our position. Should the FDA determine that our products and services are subject to FDA regulation, our operations could be adversely affected. If FDA premarket review or approval were required, we could be forced to stop selling our products or services or be required to modify claims or make other changes while we work to obtain FDA clearance, approval or de novo classification. Our business, results of operations and financial condition would be negatively affected until such reviews were completed and clearance, approval or de novo classification to market were obtained or the costs of continuing to operate our business could increase materially.

 

Our use of saliva-based epigenetic biomarkers may in the future be subject to laws and regulations at the state and federal levels relating to the use of such testing or information in life insurance underwriting, which could materially adversely impact our business.

 

Underwriting life insurance is subject to state insurance regulation. We believe the use of epigenetic biomarkers in life insurance underwriting is permissible due to the fact that we are seeking to identify underwriting impairments already used by other insurance carriers in medical underwriting today. Moreover, the use of epigenetic testing or information in life insurance underwriting is not prohibited at either the federal or state level. Florida and Louisiana are the only states that have explicitly sought to prohibit the use of genetic information, which is distinguishable from epigenetic information, for use in life insurance underwriting.

 

Any adverse change in current laws or regulations, or their interpretation, federally or in one or more states in which we operate or plan to operate (or an aggregation of states in which we conduct a significant amount of business) could result in our curtailment or termination of operations in such states, or cause us to not start or modify our operations in a manner that adversely affects our ultimate profitability. Any such action could have a corresponding adverse impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could have a material adverse impact on our business.

 

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Risks Related to Our Life Insurance Operations

 

The life insurance industry has experienced an overall decline in product sales which, if that trend continues, could materially adversely impact our business and results of operations.

 

Ownership of life insurance has been in decline in the United States for decades. While our products and services are designed to address the overall decline in consumer interest in purchasing life insurance products, there can be no assurance that we will be successful in doing so. The reasons for a decline in household ownership of life insurance are complex and multi-faceted. There can, therefore, be no assurance that we will successfully address these multifaceted reasons or that we will generate revenues or become profitable. We may be forced to make significant changes to our anticipated pricing, sales and revenue models to compete with our competitors’ offerings, and even if such changes are implemented, there is no guarantee that such steps will be successful. If the overall market trend of declining demand for personal life insurance continues or worsens, or we are unable to adjust our approach to meet market demands, our business, financial condition and results of operations could be materially adversely impacted.

 

Competition in the insurance technology market presents an ongoing challenge to the success of our business and if we are unable to compete, our business could be materially adversely impacted.

 

The number of technology-based companies entering the insurance market with offerings in life insurance continues to increase. While we believe there are very few, if any, companies commercializing saliva-based epigenetic biomarkers or bundling life insurance with a health and wellness engagement platform, we believe that our ability to compete depends upon many factors both within and beyond our control, including the following:

 

  the speed and size of our customer base as it develops;

 

  the timing and market acceptance of products and services we offer, including the developments and enhancements to those products and services, offered by us or our competitors;

 

  the customer service and support efforts we provide with our products and services;

  

  the selling and marketing efforts we employ against our products and services;

 

  the acceptance of our products by underwriters, insurance companies, agents and consumers;

 

  the ease of use, performance, price and reliability of solutions we develop; and

 

  the brand strength we create relative to our competitors.

 

We will likely face competition from other companies attempting to capitalize on the same, or similar, opportunities as us, including from companies focused on molecular health and wellness, epigenetic biomarkers, and from the overall insurance technology markets inclusive of new offerings such as direct access and/or consumer self-pay tests and genetic interpretation services. Many of our current and potential competitors have longer operating histories and greater financial, technical, marketing and other resources than us. These factors may allow our competitors to respond more quickly or efficiently than we can to new or emerging technologies. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing, which may allow them to build customer bases larger or faster than us. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. This could attract customers away from our services and reduce our market share or prevent us from increasing.

 

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We may not be successful in establishing or maintaining the relationships necessary to execute on our business plans, which could have a material adverse impact on its ability to generate revenue and financial condition.

 

Our sales and distribution efforts focus on independent agent distribution channels. Independent agent distribution channels include independent marketing organizations, broker general agencies and smaller general agencies. In order to serve the broadest range of customers and agents, we established a managing general agency relationship with multiple domestic carrier partners, in order for us to expand the use of our products and services in connection with a full suite of life insurance products (term life insurance, universal life insurance, variable universal life insurance, indexed universal life insurance, whole life insurance, etc.), which we call the “MGA Model” (see “Business” section above for more details). We believe the MGA Model appeals to domestic carrier partners who are seeking to expand the distribution of their products through independent agent distribution channels and who are seeking a differentiated product offering by combining their own policies with our health and wellness offering, as well as replacing blood and urine specimen for life insurance products that are subject to medical underwriting protocols with our saliva-based underwriting protocol.

 

If we are unable to develop or maintain these relationships, or if the MGA Model proves unworkable, our business, financial condition and results of operations may be adversely impacted. Moreover, while we will strive to demonstrate the value of our products and services to consumers, insurance agents, and carriers, these potential customers may not embrace our products and services, thereby hindering our ability to execute on our business plans and generate revenue.

 

We may experience difficulty in marketing and distributing life insurance through third parties, and the use of third parties may result in additional liabilities.

 

Although we intend to distribute life insurance products through a wide variety of distribution channels, we may maintain relationships with a few key distributors, which could result in certain distributor concentration. Distributors may elect to renegotiate the terms of any existing relationships such that those terms may not be attractive or acceptable to us, limit the products they sell, or otherwise reduce or terminate their distribution relationships with us. This could be due to various reasons, such as uncertainty related to product offerings, industry consolidation of distributors or other industry changes that increase the competition for access to distributors, developments in laws or regulations that affect our business or industry including the marketing and sale of our products and services, adverse developments in our business, the distribution of products with features that do not meet minimum thresholds set by the distributor, strategic decisions that impact our business, adverse rating agency actions, or concerns about market-related risks.

 

Key distribution partners could merge, consolidate, change their business models in ways that affect how our products can be sold, or new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts.

 

Also, if we are unsuccessful in attracting and retaining distribution partners, or are unable to maintain our distribution relationships, we may be unable to effectively distribute our product offerings, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

 

In addition, we could, in certain circumstances, be held responsible for the actions of third-party distributors, including broker-dealers, registered representatives, insurance agents and agencies, and marketing organizations, and their respective employees, agents and representatives, in connection with the marketing and sale of our products by such parties in a manner that is deemed not compliant with applicable laws and regulations. This is particularly acute with respect to unaffiliated distributors where we may not be able to directly monitor or control the manner in which products are sold through third-party firms. If products are distributed to customers for whom they are unsuitable or distributed in a manner deemed inappropriate, we could suffer reputational and/or other financial harm to our business.

 

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As part of our insurance business, we may collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customer privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.

 

We may receive and store personally identifiable information, epigenetic information, and other data relating to our customers, as well as other personally identifiable information and other data relating to individuals such as our employees. Security breaches, employee malfeasance, or human or technological error could lead to potential unauthorized disclosure of our customers’ personal information. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our solutions and any failure to comply with such laws and regulations could lead to significant fines, penalties or other liabilities.

 

A security compromise of our information systems or of those of businesses with whom we interact that results in confidential information being accessed by unauthorized or improper persons could harm our reputation and expose us to regulatory actions, customer attrition, remediation expenses, disruption of our business, and claims brought by our customers or others for breaching contractual confidentiality and security provisions or data protection laws.

 

Monetary damages imposed on us could be significant and not covered by our liability insurance. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or sabotage systems evolve frequently and may not immediately produce signs of intrusion, and we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require us to expend substantial additional resources related to the security of our information systems and provide required breach notifications and remediation, diverting resources from other projects and disrupting our businesses. If we experience a data security breach, our reputation could be damaged and we could be subject to additional litigation, regulatory risks and business losses.

 

Numerous local, municipal, state, federal, and international laws and regulations address privacy and the collection, storing, sharing, use, disclosure, and protection of certain types of data, including the Personal Information Protection and Electronic Documents Act, the Telephone Consumer Protection Act of 1991, or the TCPA, Section 5 of the Federal Trade Commission Act, and effective as of January 1, 2020, the California Consumer Privacy Act (or the CCPA). These laws, rules, and regulations evolve frequently and their scope may continually change, through new legislation, amendments to existing legislation, and changes in enforcement, and may be inconsistent from one jurisdiction to another. For example, the CCPA, which went into effect on January 1, 2020, requires, among other things, new disclosures to California consumers and affords such consumers new abilities to opt out of certain sales of personal information. The CCPA provides for fines of up to $7,500 per violation. Aspects of the CCPA and its interpretation and enforcement remain uncertain. The effects of this legislation are potentially far-reaching and may require FOXO to modify its data processing practices and policies and incur substantial compliance-related costs and expenses. The CCPA has been amended on multiple occasions. For example, the California Privacy Rights Act (or CPRA) recently was approved by California voters and significantly modifies the CCPA, potentially resulting in further uncertainty and requiring FOXO to incur additional costs and expenses in an effort to comply. The CPRA became operative on January 1, 2023 (and applies only to consumer data collected on or after January 1, 2022, with enforcement beginning July 1, 2023). While the CCPA will remain operative and enforceable from now until July 1, 2023, we will continue to monitor developments related to the CPRA. The effects of this legislation are potentially far-reaching and may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses. Additionally, many laws and regulations relating to privacy and the collection, storing, sharing, use, disclosure, and protection of certain types of data are subject to varying degrees of enforcement and new and changing interpretations by courts. The CCPA and other changes in laws or regulations relating to privacy, data protection, breach notifications, and information security, particularly any new or modified laws or regulations, or changes to the interpretation or enforcement of such laws or regulations, which require enhanced protection of certain types of data or new obligations with regard to data retention, transfer, or disclosure, could greatly increase the cost of providing our products and services, require significant changes to our operations, or even prevent us from providing our products and services in jurisdictions in which we currently operate and in which we may operate in the future.

  

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We may also be required to comply with increasingly complex and changing data security and privacy regulations in the UK, the European Union (the “EU”) and in other jurisdictions in which we plan to conduct business that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. For example, the EU’s General Data Protection Regulation (the “GDPR”), now also enacted in the UK as the UK GDPR, has imposed stringent compliance obligations regarding the handling of personal data and has resulted in the issuance of significant financial penalties for noncompliance. Further, in July 2020, the Court of Justice of the European Union released a decision in the Schrems II case (Data Protection Commission v. Facebook Ireland, Schrems), declaring the EU-US Privacy Shield invalid and calling into question data transfers carried out under the European Commission’s Standard Contractual Clauses. As a result of the decision, we may face additional scrutiny from EU regulators in relation to the transfer of personal data from the EU to the United States. Noncompliance with the GDPR can trigger fines of up to the greater of €20 million or 4% of global annual revenues. In the United States, there have been proposals for federal privacy legislation and many new state privacy laws have been enacted or proposed. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. We may also face audits or investigations by one or more domestic or foreign government agencies or our customers pursuant to our contractual obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices in certain jurisdictions, any of which could materially adversely impact our business, financial condition and results of operations.

 

Despite our efforts to comply with applicable laws, regulations, and other obligations relating to privacy, data protection, and information security, it is possible that our interpretations of the law or best practices could be inconsistent with, or fail, or be alleged to fail to meet all requirements of, such laws, regulations, or obligations. Our failure, or the failure by its third-party providers on its platform, to comply with applicable laws or regulations or any other obligations relating to privacy, data protection, or information security, or any compromise of security that results in unauthorized access to, or use or release of personally identifiable information or other data relating to our customers, or other individuals, or the perception that any of the foregoing types of failure or compromise have occurred, could damage our reputation, discourage new and existing customers from using our products or services, or result in fines, investigations, or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, financial condition, and results of operations. Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and materially adversely impact our business, financial condition, and results of operations.

 

We will be subject to the terms of our privacy policies and privacy-related obligations. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or others, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental or regulatory investigations, enforcement actions, regulatory fines, compliance orders, litigation or public statements against us by consumer advocacy groups or others, and could cause customers to lose trust in us, all of which could be costly and have an adverse impact on our business. In addition, new and changed rules and regulations regarding privacy, data protection (in particular those that impact the use of artificial intelligence) and cross-border transfers of customer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and data protection requirements. Moreover, if any third-party that we work with violates applicable laws or its policies, such violations also may put personal information at risk, which may result in increased regulatory scrutiny and have a material adverse effect on our reputation, business, financial condition and results of operations.

 

We may be unable to prevent or address the misappropriation of our data, which could damage our reputation and materially adversely impact our business.

 

Third parties may misappropriate our data through website scraping, bots or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites or online apps may misappropriate data and attempt to imitate our brand or the functionality of our planned website. If we become aware of such websites or online apps, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites or online apps in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations immediately or completely. In some cases, particularly in the case of websites or online apps operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites or online apps. Regardless of whether we can successfully enforce our rights against the operators of these websites or online apps, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.

 

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Changes in state laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could negatively impact our business.

 

State statutes typically provide state regulatory agencies with significant powers to interpret, administer and enforce the laws relating to the purchase of life insurance policies. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules, even if not contained in state statutes. State regulators may also impose rules that may restrict and negatively impact our industry. Because of the history of certain abuses in the industry, we believe it is likely that state insurance regulation will increase and grow more complex during the foreseeable future. We cannot, however, predict what any new regulation would specifically involve.

 

The emergence of new biotechnologies has led to frequent legislation governing the use of genetic information in insurance. The federal regulation, Genetic Information Nondiscrimination Act (“GINA”), prohibits the use of genetic information by health insurers, but it does not apply to life insurance or epigenetics at this time. To date, a small minority of states have adopted a GINA-like framework, essentially prohibiting the use of genetic information for life insurance underwriting and risk classification. Other states have laws regulating, though not prohibiting, the use of genetic information in life insurance. While epigenetics’ distinguishable features exempt it from the text of, and rationale behind, current laws regulating the use of genetic information in life insurance, any adverse change in present laws or regulations, or their interpretation in one or more states in which we may operate (or an aggregation of states in which we may conduct a significant amount of business) could result in our curtailment or termination of operations in such jurisdictions, or cause us to modify our operations in a way that adversely affects our profitability. Any such action could have a corresponding material and negative impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could also have a material adverse effect on our business, financial condition and results of operations.

 

New legislation or legal requirements may affect how we communicate with customers, which could have a material adverse impact on our business model, financial condition, and results of operations.

 

State and federal lawmakers and insurance regulators are focusing upon the use of customer communications, including concerns about transparency, deception, and fairness, in particular. Changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. In addition, our business and operations are subject to various U.S. federal, state, and local consumer protection laws, including laws which place restrictions on the use of automated tools and technologies to communicate with wireless telephone subscribers or consumers generally. For example, a California law, effective as of July 2019, makes it unlawful for any person to use a bot to communicate with a person in California online with the intent to mislead the other person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase of goods or services in a commercial transaction. Although we take steps to comply with this and other laws restricting the use of electronic communication tools, no assurance can be given that we will not be exposed to civil litigation or regulatory enforcement. Further, to the extent that any changes in law or regulation further restrict the ways in which we communicate with prospective or current customers, these restrictions could result in a material reduction in our customer acquisition and retention, reducing the growth prospects of our business, and materially adversely impact our business, financial condition and results of operations.

 

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Risks Related to Our Intellectual Property

 

If we are unable to protect our patent pending methods of identifying saliva-based epigenetic biomarkers or intellectual property in general, the value of our brand and other intangible assets may be diminished, and our business may be adversely impacted.

 

We depend on our proprietary technology, intellectual property and services for our business plans, success and ability to compete. We rely and expect to continue to rely on a combination of confidentiality and other agreements with our employees, consultants and third parties with whom we have relationships or with whom we plan to have relationships, and who may have access to confidential or patentable aspects of our research and development output, as well as the trademark, copyright, patent and trade secret protection and common law rights and laws, to protect our proprietary rights. For example, we rely on trade secret protection for building and validating an extensive number of machine learning models that use epigenetic data derived from different types of tissues to predict a wide variety of targets, such as direct mappings to life insurance classification, smoking use and/or extent, alcohol use and/or extent, etc. Although we enter into confidentiality and other agreements to protect these and other proprietary technologies, any of these parties may breach the agreements and disclose information before a patent application is filed, and jeopardize our ability to seek patent protection, if we were not able to use the courts to enjoin the disclosure in advance. In addition, our ability to obtain and maintain valid and enforceable patents or patent licenses depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Since publications in the scientific literature often lag behind the actual discoveries, and patent applications do not publish until 18 months after filing, we are never certain we are the first to make the inventions claimed in any of our patents or that we are the first to file for patent protection of such patents. In other words, priority is never known until an application is prosecuted. Additionally, third parties may knowingly or unknowingly infringe our proprietary rights, and third parties may challenge our proprietary rights held, pending and future patent, copyright, trademark and other applications, which, if successful, may not be approved and which may affect our ability to prevent infringement without incurring substantial expense. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States.

 

If the protection of our proprietary rights are inadequate to prevent use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations. Despite our efforts to protect our proprietary rights, attempts may be made to copy or reverse engineer aspects of our products or services, or to obtain and use information that we regard as proprietary and which a judge may not enjoin. Accordingly, we may be unable to protect our proprietary rights against unauthorized third-party copying or use. Furthermore, as a practical matter, policing the unauthorized use of our intellectual property would be difficult for us, because of the private nature of our competitors and because our competitors may offer competing products as software-as-a-service, which may limit the ability to discover a competitor’s use of our proprietary technology. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Litigation and/or any of the events above could result in substantial costs and diversion of resources, and could have a material adverse impact on our business, financial condition and results of operations.

 

We may be unable to obtain sufficiently broad protection, or we may lose intellectual property protection.

 

As patent and trademark prosecution of biotechnology inventions is highly uncertain, involves complex legal and factual questions, and has been the subject of litigation in recent years, the issuance, scope, validity, enforceability and commercial value of our intellectual property rights are highly uncertain. Our pending and future trademark or patent applications may not result in issued trademarks and patents that protect our products and services, which would render us unable to prevent others from commercializing the same or similar products and services that we offer. The coverage of trademark and patent claims may be significantly reduced before such intellectual property approval is granted and the scope and validity of issued trademarks and patents can also be challenged after grant, which, if successful, may not provide us meaningful protection, may not allow us to exclude competitors or may not provide us with any competitive advantage.

 

Despite our efforts, we may not be able to maintain confidentiality for our trade secrets and proprietary know-how. In addition, our trade secrets and proprietary know-how may otherwise become known or be independently discovered by others. No guarantee can be given that others will not independently develop substantially equivalent proprietary information or techniques, or otherwise gain access to our proprietary technology. We rely on a combination of patent, trademark, and trade secret protection to establish and protect the ideas, concepts, and know-how for the products, services and technology we develop. Our failure to establish patent, trademark and trade secret protection for our technology and intellectual property rights could enable our competitors to more effectively compete and have an adverse impact on our business, financial condition and results of operations.

 

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We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting and defending trademarks or future patents on our products and services in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may encounter difficulties in protecting and defending such rights in foreign jurisdictions. Our owned and licensed patent applications are pending in the U.S. only and thus these present patent applications, even if granted, cannot cover any foreign countries in the future. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies (even copying from the patent disclosures) in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

Many companies have encountered significant problems in protecting and defending intellectual property rights in various foreign jurisdictions. The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents in such countries. Proceedings to enforce our current trademark and potential future patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our intellectual property at risk of not issuing, being invalidated, or interpreted narrowly, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

Changes in trademark or patent law in the United States and other jurisdictions could diminish the value of our potential future trademarks and patents in general, thereby adversely impacting our ability to protect our products and services.

 

Changes in either the trademark or patent laws or in interpretations of trademark or patent laws in the United States or other countries or regions may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our potential future trademarks and patents or in third-party intellectual property. In the United States, prior to March 16, 2013, assuming that other requirements for patentability were satisfied, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. On or after March 16, 2013, under the Leahy-Smith America Invents Act (or the America Invents Act), enacted on September 16, 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are satisfied, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. As such, a third party that files a patent application in the United States Patent and Trademark Office (the “USPTO”) before us could be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either file any patent application related to our products or services, or invent any of the inventions claimed in our or its licensor’s patents or patent applications.

 

The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents, all of which could have a material adverse impact on our business.

 

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Recent U.S. Supreme Court rulings have also narrowed the scope of patent protection available in specific circumstances (e.g., regarding domestic processes) and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

 

We may be subject to 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 secrets of their former employers.

 

We have employed and expect to employ or contract with individuals who were previously employed by or were independent contractors for universities or other companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or other third parties, or to claims that we have improperly used or obtained such trade secrets. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, or lose the ability to use certain technologies, all of which could adversely impact our business. A loss of use of certain technologies or key research personnel work product could hamper or prevent our ability to commercialize potential products and services, which could harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

We may not be successful in registering and enforcing our trademarks.

 

As we apply to register our unregistered trademarks in the United States and other countries, our applications may not be allowed for registration in a timely fashion or at all, and our registered trademarks may not be maintained or enforced. Trademark enforcement is always uncertain, since proving infringement requires a showing of consumer confusion in addition to use by the defendant of a similar or identical trademark. In addition, opposition or cancellation proceedings may be filed against our trademark applications and registrations, and our trademarks may not survive such proceedings. In certain countries outside of the United States, trademark registration is required to enforce trademark rights. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

 

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

 

We may be subject to claims that former employees, collaborators or other third parties have an interest in our future owned or in-licensed patents, trade secrets or other intellectual property as an inventor or co-inventor. Ownership disputes may arise, for example, from conflicting obligations of employees, consultants or others who are involved in developing our future products and services.

 

Litigation may be necessary to defend against these and other claims by a third party challenging inventorship of our or our licensors’ ownership of our future owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or a right to use, intellectual property or technology that is important to our product or services. Alternatively, we may need to obtain one or more additional licenses from certain third parties, which could be time-consuming and expensive and could result in substantial costs and diversion of resources and could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse impact on our business, financial condition, and results of operations.

 

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If we become involved in trademark or patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our development and commercialization efforts of our products and services.

 

There is a substantial amount of litigation, both within and outside the United States, involving trademark, patent and other intellectual property rights in the insurance technology industry, including patent and trademark infringement lawsuits, declaratory judgment litigation and adversarial proceedings before the USPTO, including trademark oppositions and cancellations, patent interferences, derivation proceedings, ex parte reexaminations, post-grant review and inter partes review, as well as corresponding proceedings in foreign courts and foreign patent offices.

 

We may, in the future, become involved with litigation or actions at the USPTO or foreign patent offices with various third parties. We expect that the number of such claims may increase as our industry expands, more trademarks and patents are issued, the number of products or services increases and the level of competition in our industry increases. Any infringement claim, regardless of its validity, could harm our business by, among other things, resulting in time-consuming and costly litigation, diverting management’s time and attention from the development of our business, requiring the payment of monetary damages (including possible treble damages, attorney’s fees, costs and expenses) or royalty payments.

 

It may be necessary for us to pursue litigation or adversarial proceedings before the trademark or patent office in order to enforce our patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any such litigation might not be favorable to us, and even if we were to prevail, such litigation could result in substantial costs and diversion of resources and could have a material adverse impact on our business, financial condition and results of operations.

 

As we move into new markets and expand our products or services offerings, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product or service revenue and against whom our own patents may provide little or no deterrence or protection.

 

Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our current or future products, technologies and services may infringe. We cannot be certain that we have identified or addressed all potentially significant third-party patents in advance of an infringement claim being made against us. In addition, similar to what other companies in our industry have experienced, we expect our competitors and others may have trademarks or patents or may in the future obtain trademarks or patents, and assert that making, having made, using, selling, offering to sell or importing its products or services infringes these trademarks or patents. Defense of infringement and other claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business. Parties making claims against us may be able to sustain the costs of complex trademark or patent litigation more effectively than we can because they have substantially greater resources. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products or services and could result in the award of substantial damages against us, including possible treble damages, attorney’s fees, costs and expenses if we are found to have willfully infringed. In the event of a successful claim of infringement against us, we may be required to pay damages and ongoing royalties and obtain one or more licenses from third parties, or be prohibited from selling certain products or services. We may not be able to obtain these licenses on acceptable or commercially reasonable terms, if at all, or these licenses may be non-exclusive, which could result our competitors gaining access to the same intellectual property. In addition, we could encounter delays in product or service introductions while we attempt to develop alternative products or services to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing products or services, and the prohibition of sale of any of our products or services could materially impact our business and our ability to gain market acceptance for our products or services.

 

We maintain multiple forms of proprietary information, the value of which is derived from the proprietary nature of such information. Employees of ours or third parties that are or become privy to our proprietary information may, despite our efforts, misappropriate such information. Such misappropriation may result in publication or other public release of such information. In such an event, although we may have a cause of action against any such parties, such legal action is costly and may not result in sufficient compensation to ameliorate the loss of competitive advantages enjoyed by our confidential possession of such proprietary information. Additionally, such proprietary information, once published or otherwise released to the public, may not be returned to a secret state, and may be copied or otherwise imitated or used by competitors of ours without legal recourse or means of compensation by us. Such loss could materially adversely impact our business, financial condition and results of operations.

 

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation, although courts are empowered to protect confidential information using protective orders. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the Class A Common Stock.

 

In addition, our agreements with some of our customers, suppliers or other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could materially adversely impact our business, financial condition and results of operations.

 

Patent terms may be inadequate to protect our competitive position with respect to our products and services for an adequate amount of time.

 

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our products and services are obtained, once the patent life has expired, we may be open to competition from competitive products — and the patent document itself is a disclosure enabling such competitors. Given the amount of time required for the development, testing and regulatory review of new products and services, patents protecting such products and services might expire before or shortly after such products and services are commercialized. As a result, our future owned and currently licensed patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to ours.

 

We utilize open-source software, which may pose particular risks to our proprietary software and source code.

 

We use open-source software in our proprietary software and will use open-source software in the future. Companies that incorporate open-source software into their proprietary software and products have, from time-to-time, faced claims challenging the use of open-source software and compliance with open-source license terms. Some licenses governing the use of open-source software contain requirements that we make available source code for modifications or derivative works we create based upon the open-source software, and that we license such modifications or derivative works under the terms of a particular open-source license or other license granting third parties certain rights of further use. By the terms of certain open-source licenses, we could be required to release the source code of certain aspects of our proprietary software, and to make our proprietary software available under open-source licenses to third parties at no cost if we combine certain aspects of proprietary software with open-source software in certain manners. Although we monitor our use of open-source software and have a policy of full compliance with all open-source software license terms, we cannot assure that all open-source software is reviewed prior to use in our software, that our developers have not incorporated open-source software into our proprietary software, or that they will not do so in the future.

 

Additionally, the terms of many open-source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that open-source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide certain aspects of its proprietary software. Companies that incorporate open-source software into their products have, in the past, faced claims seeking enforcement of open-source license provisions and claims asserting ownership of open-source software incorporated into their proprietary software, and claims for damages for failure to fully comply with those applicable licenses. If an author or other third party that distributes such open-source software were to allege that we have not complied with the conditions of an open-source license, we could incur significant legal costs defending ourselves against such allegations. In the event such claims were successful, we could be subject to significant damages or be enjoined from the distribution of our proprietary software. In addition, the terms of open-source software licenses may require us to provide certain aspects of our software that we develop using such open-source software to others on unfavorable license terms. As a result of our current or future use of open-source software, we may face claims or litigation, be required to release certain aspects of our proprietary source code, pay damages for breach of contract, re-engineer its proprietary software, discontinue making our proprietary software available in the event that re-engineering cannot be accomplished on a timely basis, discontinue certain aspects or functionality of our products and testing services, or take other remedial action. Any such re-engineering or other remedial efforts could require significant additional research and development resources, and we may not be able to successfully complete any such re-engineering or other remedial efforts. Further, in addition to risks related to license requirements, use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of the software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a material adverse impact on our business, financial condition and results of operations.

 

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Risks Related to Owning Our Securities

 

The public market for our securities is volatile. This may affect not only the ability of our investors to sell their securities, but the price at which they can sell their securities.

 

Since the consummation of our Business Combination, the Class A Common Stock (NYSE American: FOXO) has traded as low as $0.23 per share, and day-to-day trading has been volatile at times. This volatility may continue or increase in the future. The market price for the securities may be significantly affected by factors such as progress in the development of our technology, commercialization of our technology, variations in quarterly and yearly operating results, general trends in the life insurance industry, and other uncertainties further described in this section. Furthermore, recently the stock market has experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies, such as the market reactions to internet marketed ‘short squeezes’, the coronavirus outbreak and recent macroeconomic factors such as inflationary pressures and higher interest rates. Such broad market fluctuations may adversely affect the market price of our securities.

 

We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in delisting of the Class A Common Stock.

 

The Class A Common Stock is listed on the NYSE American. In order to maintain this listing, we must maintain a certain share price, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low selling price” which the exchange generally considers $0.20 per share and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. There are no assurances how the market price of the Class A Common Stock will be impacted in future periods as a result of the general uncertainties in the capital markets and any specific impact on our Company as a result of the recent volatility in the capital markets.

 

On June 12, 2023, we received an official notice of noncompliance (the “NYSE American Notice”) from NYSE Regulation (“NYSE”) stating that we are below compliance with Section 1003(a)(i) in the NYSE American Company Guide (the “Company Guide”) since we reported stockholders’ deficit of $(30,000) at March 31, 2023, and losses from continuing operations and/or net losses in its two most recent fiscal years ended December 31, 2022. Section 1003(a)(i) of the Company Guide requires a listed company to have stockholders’ equity of $2 million or more if the listed company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years.

 

We are now subject to the procedures and requirements set forth in Section 1009 of the Company Guide. As required by the NYSE American Notice, on July 12, 2023, we submitted a plan (the “Plan”) to NYSE advising of actions we have taken or will take to regain compliance with the continued listing standards by December 12, 2024. If NYSE accepts the Plan, we will have an eighteen (18) month cure period to comply with the Plan and will be subject to periodic reviews including quarterly monitoring for compliance with the Plan. The NYSE American Notice has no immediate effect on the listing or trading of the Class A Common Stock on NYSE American. We intend to consider available options to regain compliance with the stockholders’ equity requirement, but no decisions have been made at this time. There can be no assurance that we will ultimately regain compliance with all applicable NYSE American listing standards.

 

If we are unable to retain compliance with all applicable NYSE American listing standards, the Class A Common Stock would be subject to delisting. If the NYSE American delists the Class A Common Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for the Class A Common Stock, reduced liquidity and market price of the Class A Common Stock, decreased analyst coverage of the Class A Common Stock, and an inability for us to obtain any additional financing to fund our operations that we may need.

 

If the Class A Common Stock is delisted, the Class A Common Stock may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a penny stock to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a penny stock, unless exempt, the rules impose additional sales practice requirements and burdens on broker-dealers (subject to certain exceptions) and could discourage broker-dealers from effecting transactions in our stock, further limiting the liquidity of our shares, and an investor may find it more difficult to acquire or dispose of the Class A Common Stock on the secondary market.

 

These factors could have a material adverse effect on the trading price, liquidity, value and marketability of the Class A Common Stock.

 

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USE OF PROCEEDS

 

All of the shares of Class A Common Stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales. However, we have received an aggregate of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 shares of Class A Common Stock that the Selling Stockholders have purchased in the first tranche purchase under the Stock Purchase Agreements, and we expect to receive an additional aggregate amount of $225,000 in gross proceeds from the sale of an aggregate of 2,812,500 additional shares of Class A Common Stock that the Selling Stockholders have committed to purchase in the second tranche purchase under the Stock Purchase Agreements on the second business day following the effective date of the registration statement of which this prospectus forms a part. We intend to use the proceeds that we receive for working capital purposes.

 

DETERMINATION OF OFFERING PRICE

 

We cannot currently determine the price or prices at which shares of Class A Common Stock may be sold by the Selling Stockholders under this prospectus.

 

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

 

Market Price and Ticker Symbols

 

The Class A Common Stock is currently listed on NYSE American under the symbol “FOXO”. The Public Warrants are currently quoted on the OTC Pink Marketplace under the symbol “FOXOW”.

 

The closing price of the Class A Common Stock on July 28, 2023 was $0.1336.

 

The closing price of the Public Warrants on July 28, 2023 was $0.0198.

 

Holders

 

As of July 28, 2023, there were 74 holders of record of shares of Class A Common Stock, 1 holder of record of Public Warrants, 9 holders of record of Private Warrants and 7 holders of record of Assumed Warrants. We believe a substantially greater number of beneficial owners hold shares of Class A Common Stock or Public Warrants through brokers, banks or other nominees. 

 

Dividend Policy

 

We have never declared or paid any cash dividend on our capital stock. We do not anticipate paying any cash dividends in the foreseeable future and we intend to retain all of our earnings, if any, to finance our growth and operations and to fund the expansion of our business. Payment of any dividends will be made in the discretion of the Board. The Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as the Board may deem relevant. In addition, our ability to pay dividends is limited by our credit facilities and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this registration statement. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere particularly in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this registration statement. Unless otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us” and other similar terms refer to FOXO and its consolidated subsidiaries after the Business Combination. Dollar amounts are in thousands, unless otherwise noted.

 

Formation

 

We were formed as a limited liability company on November 11, 2019, following our separation (the “Separation”) from GWG Holdings, Inc. (the “Member”). We were previously named InsurTech Holdings, LLC and FOXO BioScience LLC. On November 13, 2020, FOXO Bioscience LLC completed a conversion to a C Corporation (“Corporate Conversion”) and became FOXO.

 

Effective September 15, 2022, we consummated our previously announced Business Combination pursuant to the Merger Agreement, whereby DWIN Merger Sub Inc. merged with and into Legacy FOXO, with Legacy FOXO surviving as a wholly-owned subsidiary of the Company. Upon consummation of our Business Combination, our name changed from Delwinds Insurance Acquisition Corp. to FOXO Technologies Inc.

 

Overview 

 

FOXO seeks to enable the commercialization of epigenetic testing technology. We believe that epigenetics has unique and impactful capabilities that have yet to be unlocked. Evidence of this includes the discovery of the “epigenetic clock” as a measure of biological aging and independent predictor of mortality. In conjunction with the growth of epigenetics research, the convergence of two cutting-edge technologies - DNA microarray technology and machine learning - has created what we believe is an unprecedented opportunity to disrupt consumer health testing and its intersecting industries (e.g., life insurance). DNA microarray technological advances have allowed for the cost-effective quantification of genomic data for nearly two decades, and the technology has been further expanded to epigenetic data. While the emergence of next-generation sequencing has shown great promise, we do not believe it is mature enough at this time to match the cost and convenience of microarray technology for epigenetics. More importantly, the rapid rise of artificial intelligence and machine learning technologies have enabled the ability to identify sophisticated patterns within epigenetics data. These patterns are known as “epigenetic biomarkers,” and provide valuable insights into human health.

  

To advance the fundamental science and capabilities of epigenetics, we are conducting pioneering research with leading scientists in the field. To broaden the accessibility of epigenetics to researchers and enterprises around the world, we are contributing to the development of novel technologies – both hardware and software – including the Infinium Mouse Methylation BeadChip and our methylsuite software. The expansion of our Bioinformatic Services further reduces the barrier of entry for clients seeking to conduct epigenetic analysis by leveraging our distinct expertise in epigenetics, machine learning, and bioinformatics. We believe these efforts will facilitate and accelerate both the development and commercialization of epigenetic products. 

 

To capitalize on commercial opportunities in industries deemed ripe for disruption, we are harnessing the power of epigenetics to revolutionize how life insurance companies underwrite and sell their products. Our insights into consumers’ health and lifestyle choices will help insurers tailor their offerings to meet their clients’ needs and provide insurers with data to plan for their clients’ future financial needs.

 

To that end, we have developed two core product offerings: the “Underwriting Report” and the “Longevity Report™.” The Underwriting Report allows us to leverage a single assay testing process to generate a panel of impairment scores that can be applied by life insurance underwriters to more accurately assess clients during the underwriting process and provide a more personalized risk assessment. The Longevity Report is a consumer-facing companion product that provides actionable insights to consumers based on their biological age and other epigenetic measures of health. We believe the combination of these two reports provides a valuable win for our insurance carrier partners as well as their customers.

 

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FOXO is operationalizing a sales and distribution platform focused on recruiting independent life insurance agents to sell life insurance with our Longevity Report. FOXO currently markets and sells life insurance products underwritten and issued by third-party carriers through distribution relationships.  This distribution model (the “MGA Model”) allows FOXO to appoint sales agents and producers to sell insurance products for specific carriers and earn commissions on subsequent policy sales. Depending on the terms of the agreement between FOXO and the carrier, the Longevity Report may be included at the time of the policy purchase at no charge or may be available at an additional cost to the consumer. We believe the Longevity Report will make longevity science a core aspect to the relationship between life insurance and consumers.

 

The life insurance industry is ripe for disruption by a new underwriting protocol. Historically, when a single carrier has adopted even a single new underwriting test, others tend to follow quickly. Some examples include prescription data, smoking tests, and specimen samples. If other insurance companies do not follow quickly, they may suffer from adverse selection, and get a disproportionate number of mispriced risks. FOXO intends to leverage the combination of the Underwriting Report and the Longevity Report to revolutionize the life insurance sales and underwriting experience to the betterment of consumers and carriers alike.

 

Business Trends

 

  Life Insurance Demand. According to the 2023 Insurance Barometer Study, co-authored by nonprofit industry trade associations Life Insurance Marketing and Research Association and Life Happens, since the COVID-19 pandemic there has been a significant increase in consumer interest and demand for life insurance, with 39% of consumers surveyed reporting that they are likely to purchase life insurance in the next year. In addition, the study reported that only 52% of American adults owned life insurance, and 41% of Americans, both insured and uninsured, believe they need more coverage. While two-thirds of Americans report their lives have largely returned to normal following the COVID-19 pandemic, the 2023 Insurance Barometer Study indicated Americans’ intent to purchase life insurance is at an all-time high, with Gen Z adults and Millennials having the highest intent at 44%, and 50%, respectively.

 

  Product Innovation. As life insurance carriers and distributors look to engage consumers’ renewed interest in life insurance coverage, industry analysts suggest that life insurance can succeed by adopting technology to (i) personalize every aspect of the consumer experience, transition from a traditional “assess and service” model toward a customer-centric “prescribe and prevent” model of health management; and (ii) develop innovative product solutions that place emphasis on product flexibility and innovation, including value-added services and nonmonetary benefits to attract consumers. Other analysts point to the need to reduce sales friction for both consumers and agents that stems from long underwriting timelines as a result of invasive blood and urine specimen collection.

 

Segments

 

We manage and classify our business into two reportable business segments:

 

  (i) FOXO Labs

 

FOXO Labs is commercializing proprietary epigenetic biomarker technology to be used for purposes including mortality underwriting risk classification in the global life insurance industry. Our innovative biomarker technology enables the adoption of new saliva-based health and wellness biomarker solutions for underwriting and risk assessment. Our research demonstrates that epigenetic biomarkers, collected from saliva, provide measures of individual health and wellness factors used in life insurance underwriting traditionally obtained through blood and urine specimens. FOXO Labs anticipates recognizing revenue related to sales of its Bioinformatic Services, Underwriting Services, and Longevity Report.

 

FOXO Labs currently recognizes revenue from providing epigenetic testing services (“Bioinformatic Services”) and collects royalties from Illumina, Inc. related to the sales of the Infinium Mouse Methylation Array. The Company’s saliva-based health and wellness testing solutions are expected to be one of its primary sources of revenue. FOXO Labs conducts research and development and such costs are recorded within research and development expenses on the consolidated statements of operations.

 

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FOXO Labs had operated its Bioinformatic Services as an ancillary offering, with revenue recognized as epigenetic biomarker services in our historical financial statements, but now looks to it as a primary offering. Bioinformatic Services provide a data processing, quality checking, and analysis service using FOXO’s cloud-based bioinformatics pipeline, referred to as our epigenetics or longevity pipeline in our historical financial statements. FOXO Labs accepts raw data from third party labs and converts that data into usable values for customers.

 

  (ii) FOXO Life

 

FOXO Life is redefining the relationship between consumers and insurer by combining life insurance with healthy longevity. FOXO Life seeks to transform the value proposition of the life insurance carrier from a provider of mortality risk protection products to a promoter of its customers’ health and wellness. The distribution of insurance products with FOXO’s Longevity Report strives to provide life insurance consumers with valuable information and insights about their individual health and wellness.

 

FOXO Life currently has residual commission revenues from its legacy insurance agency business. FOXO Life has begun receiving insurance commission from the distribution and sale of life insurance policies based on the size and type of policies sold to customers. FOXO Life costs are recorded within selling, general and administrative expenses on the consolidated statements of operations.

 

FOXO Life Insurance Company

 

Due to market conditions, our capitalization following the Business Combination did not materialize in the way the Company anticipated, and we did not possess the funding that we believed would be required to satisfy state regulations and regulatory bodies to issue new life insurance policies through FOXO Life Insurance Company. As such, we decided to not move forward with the launch of FOXO Life Insurance Company.

 

On January 10, 2023, we entered into a merger agreement (the “Security National Merger Agreement”) with Security National Life Insurance Company, a Utah corporation (the “Security National”), FOXO Life, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“FOXO Life”), and FOXO Life Insurance Company (fka Memorial Insurance Company of America (“MICOA”)), an Arkansas corporation and wholly-owned subsidiary of the Seller, pursuant to which, subject to the terms and conditions of the Security National Merger Agreement, the Company agreed to sell FOXO Life Insurance Company to Security National. Specifically, pursuant to the Security National Merger Agreement, FOXO Life Insurance Company merged with and into the Security National, with Security National continuing as the surviving corporation.

 

On February 3, 2023 (the “Closing Date”), we consummated the sale of FOXO Life Insurance Company to Security National pursuant to the Security National Merger Agreement. As a result of the merger, the Company is no longer required to hold cash and cash equivalents required to be held as statutory capital and surplus, as required under the Arkansas Insurance Code (the “Arkansas Code”).

 

At the closing, all of FOXO Life Insurance’s shares were cancelled and retired and ceased to exist in exchange of an amount equal to FOXO Life Insurance’s statutory capital and surplus amount of $5,002 as of the Closing Date, minus $200 (the “Merger Consideration”).

 

After the Merger Consideration and Security National’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 Code.

 

Comparability of Financial Results

 

On September 15, 2022, we consummated the transactions contemplated by the Merger Agreement. Immediately upon the Closing, the name of the combined company was changed to FOXO Technologies Inc.

 

Legacy FOXO was determined to be the accounting acquirer in the Business Combination. Accordingly, the acquisition of Legacy FOXO by the Company was accounted for as a reverse recapitalization. Under this method of accounting, the Company was treated as the acquiree for financial reporting purposes. The net assets of the Company were stated at their historical cost, with no goodwill or other separately identifiable intangible assets recorded. The balance sheet, results of operations and cash flows prior to the Business Combination are those of Legacy FOXO.

 

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Simultaneously with the execution of the Merger Agreement, Delwinds entered into a Common Stock Purchase Agreement (the “ELOC Agreement”) with CF Principal Investments LLC (the “Cantor Investor”), pursuant to which, assuming satisfaction of certain conditions and subject to limitations set forth in the ELOC Agreement, the Company would have the right, from time to time to sell the Cantor Investor up to $40,000 in shares of the Company’s Class A common stock (the “Class A Common Stock”) until the first day of the next month following the 36-month anniversary of when the SEC has declared effective a registration statement covering the resale of such shares of Class A Common Stock or until the date on which the facility has been fully utilized, if earlier. On November 8, 2022, the Company and Cantor mutually terminated the ELOC Agreement. Upon the termination of the ELOC Agreement, the related Registration Rights Agreement, dated as of February 24, 2022 (the “Registration Rights Agreement”), by and between the Company and Cantor was automatically terminated in accordance with its terms.

 

In accordance with the terms of the Merger Agreement, at Closing, the Company (i) acquired 100% of the issued and outstanding Legacy FOXO Class A common stock (the “FOXO Class A Common Stock”) in exchange for equity consideration in the form of the Company’s Class A Common Stock, (ii) acquired 100% of the issued and outstanding shares of Legacy FOXO Class B common stock (the “FOXO Class B Common Stock”) in exchange for equity consideration in the form of the Company’s Class A Common Stock.

 

Immediately prior to the Closing, the following transactions occurred:

 

  8,000,000 shares of Legacy FOXO Series A preferred stock (the “FOXO Preferred Stock”) were exchanged for 8,000,000 shares of FOXO Class A Common Stock.

 

  The 2021 Bridge Debentures in the principal amount, together with accrued and unpaid interest, of $24,402 were converted into 6,759,642 shares of FOXO Class A Common Stock.

 

  The 2022 Bridge Debentures in the principal amount, together with accrued and unpaid interest, of $34,496 were converted into 7,810,509 shares of FOXO Class A Common Stock.

 

As a result of and upon the Closing, among other things, (1) all outstanding shares of FOXO Class A Common Stock (after giving effect to the conversion of the FOXO Preferred Stock into shares of FOXO Class A Common Stock) and FOXO Class B Common Stock were converted into 15,518,705 shares of the Company’s Class A Common Stock, (2) all FOXO options and FOXO warrants outstanding immediately before the Closing (“Assumed Options” and “Assumed Warrants”, as applicable) were assumed and converted, subject to adjustment pursuant to the terms of the Merger Agreement, into options and warrants, respectively, of the Company, exercisable for share of the Company’s Class A Common Stock and (3) other than the Assumed Options and Assumed Warrants, all other convertible securities and other rights to purchase capital stock Legacy FOXO were retired and terminated, if they were not converted, exchanged or exercised for Legacy FOXO stock immediately prior the Closing.

 

Recent Developments

 

Asset Impairment

 

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.

 

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2023 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 “Stock Purchase Agreements”), which have substantially similar terms, with each of the Selling Stockholders, pursuant to which the Company agreed to issue and sell to the Selling Stockholders, in a private placement (the “2023 Private Placement”), in two separate tranches each, an aggregate of up to 5,625,000 shares of Class A Common Stock at a price of $0.08 per share (the “Per Share Price”), for aggregate gross proceeds of $450,000.

 

Pursuant to the terms of the Stock Purchase Agreements, the Selling Stockholders initially purchased an aggregate of 2,812,500 shares of Class A Common Stock on the applicable First Tranche Closing Dates, and agreed to purchase an aggregate of 2,812,500 additional shares of Class A Common Stock upon the effectiveness of the Resale Registration Statement (as defined below).

 

Concurrently with the execution of each Stock Purchase Agreement, the Company and the applicable Selling Stockholder entered into a Registration Rights Agreement (each, a “Registration Rights Agreement”), dated as of the applicable First Tranche Closing Date, pursuant to which the Company is required, among other things, to (i) file a resale registration statement (the “Resale Registration Statement”) with the SEC covering all of the shares of Class A Common Stock issued pursuant to the applicable Stock Purchase Agreement within seven (7) calendar days following the execution of the applicable Registration Rights Agreement (the “Filing Deadline”) and (ii) use its commercially reasonable efforts to have the Resale Registration Statement declared effective by the SEC no later than forty-five (45) calendar days following the Filing Deadline (or, in the event of a substantive review by the SEC, ninety (90) calendar days following the Filing Deadline) (the “Effectiveness Deadline”); provided, however, if the SEC notifies the Company that the Resale Registration Statement will not be reviewed or is no longer subject to further review and comments, then the Effectiveness Deadline will be the fifth (5th) trading day following the date on which the Company is so notified (so long as the date of such fifth (5th) trading day precedes the dates otherwise required).

 

Pursuant to the Stock Purchase Agreements, if, during the period from the applicable First Tranche Closing Date until ten (10) days after the effective date of the Resale Registration Statement, the Company issues or sells any shares of Class A Common Stock at a price per share less than the Per Share Price (a “Share Dilutive Issuance”), except for Exempt Issuances (as defined in the Stock Purchase Agreements), then the Company will have to pay to such Selling Stockholder, within two (2) business days after such Share Dilutive Issuance, a cash penalty in an amount equal to the number of shares of Class A Common Stock theretofore purchased by such Selling Stockholder under the applicable Stock Purchase Agreement multiplied by the difference between (i) the Per Share Price and (ii) the greater of (A) the price per share of Class A Common Stock paid in the Share Dilutive Issuance and (B) $0.02 (the “Floor Price”).

 

Additionally, pursuant to the Stock Purchase Agreements, the Company is not permitted, from the date of the applicable Stock Purchase Agreement until ten (10) days after the effective date of the Resale Registration Statement, to issue or sell, enter into any agreement to issue or sell, or announce the issuance or sale or proposed issuance or sale of any Common Stock Equivalents (as defined in the Stock Purchase Agreements) or issue or sell, enter into any agreement to issue or sell, or announce the issuance or sale or proposed issuance or sale of shares of Class A Common Stock, pursuant to which shares of Class A Common Stock may be acquired at a per share price less than the Floor Price, except for (a) Exempt Issuances or (b) the filing of a registration statement so long as such registration statement is not declared effective by the SEC during the period from the date of the applicable Stock Purchase Agreement until ten (10) days after the effective date of the Resale Registration Statement.

 

Layoffs

 

On July 21, 2023, the Company reduced its employee headcount via layoffs from 22 employees to 15 employees. Laid off employees will be paid through July 21, 2023 and will be eligible for unemployment benefits subject to local regulations. These layoffs will allow the Company to reduce its operating expenses while tailoring its strategic focus towards initiatives such as its Bioinformatic Services.

 

Exchange Offer, PIK Note Offer to Amend and 2022 Bridge Debenture Release

 

On May 26, 2023, we consummated two issuer tender offers: (i) the Offer to Exchange Warrants to Acquire Shares of Class A Common Stock and Consent Solicitation, commenced on April 27, 2023 (the “Exchange Offer”), pursuant to which we offered all holders of Assumed Warrants 4.83 shares of Class A Common Stock in exchange for each Assumed Warrant tendered 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 we offered all holders of PIK Notes 1.25 shares of Class A Common Stock for every $1.00 of the Original Principal Amount (as defined in the PIK Notes) of such holder’s PIK Notes, in exchange for the consent by such holder of PIK Notes to amendments to the Senior Promissory Note Purchase Agreement, dated September 20, 2022, between us and each purchaser of PIK Notes (the “PIK Note Purchase Agreement”). The Exchange Offer and the PIK Note Offer to Amend each expired at 11:59 p.m., Eastern Time, on May 26, 2023 (the “Exchange Offer Expiration Date” or the “PIK Note Offer to Amend Expiration Date,” as applicable).

 

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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 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 (the “Amendment and Restatement”), 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 (as defined below), the 2022 Bridge Debenture Release (as defined below), a Private Placement (as defined below) and a Public Financing (as defined below), and as Private Placement Additional Consideration (as defined below), 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.

 

In order to tender Assumed Warrants in the Exchange Offer, holders were required to consent to the Amendment and Restatement and a general release (the “Exchange Offer General Release Agreement”). Holders who tendered their Assumed Warrants in the Exchange Offer were deemed to have authorized, approved, consented to and executed the Amendment and Restatement and the Exchange Offer General Release Agreement.

 

The consummation of the Exchange Offer was conditioned upon, among other things, stockholder approval of the issuance of Class A Common Stock as required by NYSE American Company Guide Section 713, and that Assumed Warrants, the holders of which purchased at least 50.01% in interest of the 2021 Bridge Debentures based on the initial Subscription Amounts (as defined in the Original Securities Purchase Agreement) thereof (which is the minimum amount required to amend and restate the Original Securities Purchase Agreement), are tendered in the Exchange Offer.

 

An aggregate of 1,647,201 Assumed Warrants were tendered in the Exchange Offer, the holders of which purchased at least 50.01% in interest of the 2021 Bridge Debentures based on the initial Subscription Amounts thereof. The Company’s stockholders approved the issuance of Class A Common Stock in connection with the Exchange Offer at the Company’s 2023 Annual Meeting of Stockholders held on May 26, 2023 (the “Annual Meeting”). We issued an aggregate of 7,955,948 shares of Class A Common Stock to the holders of Assumed Warrants who participated in the Exchange Offer, on the terms and subject to the conditions of the Exchange Offer. The Amendment and Restatement and the Exchange Offer General Release Agreement are each effective as of the Exchange Offer Expiration Date. As of July 28, 2023, there are 258,652 shares of Class A Common Stock issuable upon exercise of outstanding Assumed Warrants.

 

Pursuant to the PIK Note Offer to Amend, the Company solicited approval from holders of 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, (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 below), (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 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”).

 

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In order to participate in the PIK Note Offer to Amend, in addition to consenting to the PIK Note Amendment, holders of PIK Notes were required to consent to a general release (the “PIK Note Offer to Amend General Release Agreement”). Holders who participated in the PIK Note Offer to Amend were deemed to have authorized, approved, consented to and executed the PIK Note Amendment and the PIK Note Offer to Amend General Release Agreement.

 

The consummation of the PIK Note Offer to Amend was conditioned upon, among other things, stockholder approval of the issuance of Class A Common Stock as required by NYSE American Company Guide Section 713, and the receipt of consent of holders that purchased at least 50.01% in interest of the aggregate principal balance of the PIK Notes (which is the minimum amount required to amend the PIK Note Purchase Agreement) (the “Majority Consent”).

 

All PIK Note holders participated in the PIK Note Offer to Amend, and therefore Majority Consent was obtained. The Company’s stockholders approved the issuance of Class A Common Stock in connection with the PIK Note Offer to Amend at the Annual Meeting. We issued an aggregate of 4,321,875 shares of Class A Common Stock on a pro rata basis to the PIK Note holders who participated in the PIK Note Offer to Amend, on the terms and subject to the conditions of the PIK Note Offer to Amend. The PIK Note Amendment and the PIK Note Offer to Amend General Release Agreement are each effective as of the PIK Note Offer to Amend Expiration Date.

 

The shares of Class A Common Stock issued in the Exchange Offer and the PIK Note Offer to Amend are “restricted securities” and may not be sold by the holder absent a registration statement covering their resale or an exemption from the registration requirements of federal and applicable state securities laws. The terms of the Exchange Offer and the PIK Note Offer to Amend require the Company to undertake at its sole expense to file appropriate resale registration statements with the SEC covering all of the shares of Class A Common Stock issued pursuant to the Exchange Offer and the PIK Note Offer to Amend promptly following the issuance of such shares of Class A Common Stock, but no later than 30 days thereafter (the “Filing Deadline”); provided that the Company (a) will use its commercially reasonable efforts to have the registration statements declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 60th day after the applicable Filing Deadline (or the 90th day if the SEC notifies the Company that it will review the applicable registration statement) and (ii) the fifth business day after the date that the Company is notified by the SEC that the applicable registration statement will not be reviewed or will not be subject to further review (the “Target Effectiveness Date”), (b) will issue to each holder of Assumed Warrants and PIK Notes participating in the Exchange Offer or PIK Note Offer to Amend, as applicable, an additional 5% of the shares of Class A Common Stock originally issued in the Exchange Offer or the PIK Note Offer to Amend, as applicable, to such participating holder for each 30-day period from the Filing Deadline until the Company files the applicable initial registration statement, pro-rated for each day beyond the Filing Deadline, up to a total of 20% of the shares of Class A Common Stock originally issued in the Exchange Offer or the PIK Note Offer to Amend, as applicable, to such participating holder (the “Additional Shares”), (c) will issue to each holder of Assumed Warrants or PIK Notes participating in the Exchange Offer or PIK Note Offer to Amend, as applicable, an additional 5% of the shares of Class A Common Stock originally issued in the Exchange Offer or PIK Note Offer to Amend, as applicable, to such participating holder for each 30-day period from the Target Effectiveness Date until the applicable initial registration statement is declared effective, pro-rated for each day beyond the Target Effectiveness Date, up to, together with the Additional Shares, a total of 20% of the shares of Class A Common Stock originally issued in the Exchange Offer or PIK Note Offer to Amend, as applicable, to such participating holder, and (d) may not, without prepaying the PIK Notes in full, effect a reverse split of the outstanding shares of Class A Common Stock sooner than 15 calendar days after the registration statement covering the resale of the shares of Class A Common Stock issued pursuant to the PIK Note Offer to Amend is declared effective by the SEC. The Company filed a registration statement on Form S-1, File No. 333-272892, covering all of the shares of Class A Common Stock issued pursuant to the Exchange Offer, the PIK Note Offer to Amend and the 2022 Bridge Debenture Release, which was declared effective under the Securities Act by the SEC on July 6, 2023.

 

Because the PIK Note Amendment was approved, if the Company conducts a Private Placement, each investor who participates in the Private Placement who was a holder of Assumed Warrants or PIK Notes as of the commencement of the Exchange Offer or the PIK Note Offer to Amend, as applicable, and each former holder of 2022 Bridge Debentures, may receive additional shares of Class A Common Stock or Common Stock Equivalents (as defined in the Original Securities Purchase Agreement or the PIK Note Purchase Agreement, as applicable) in addition to the other terms of such Private Placement offered to all investors, whether or not such holder participated in the Exchange Offer or the PIK Note Offer to Amend, as applicable (the “Private Placement Additional Consideration”).

 

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Additionally, we issued Class A Common Stock in exchange for a general release by the former holders of 2022 Bridge Debentures, which 2022 Bridge Debentures were automatically converted into Class A common stock of Legacy FOXO and exchanged by the Company for Class A Common Stock in connection with the Business Combination (the “2022 Bridge Debenture Release”). Each former holder of the 2022 Bridge Debentures that executed the 2022 Bridge Debenture Release received 0.67 shares of Class A Common Stock for every $1.00 of Subscription Amount (as defined in the 2022 Bridge Securities Purchase Agreements) of the 2022 Bridge Debentures previously held by such holder. Pursuant to the 2022 Bridge Debenture Release, two former holders of 2022 Bridge Debentures representing an aggregate Subscription Amount of $10,500,000 executed such general release, and we issued an aggregate of 7,035,000 shares of Class A Common Stock to such former holders of the 2022 Bridge Debentures.

 

Non-GAAP Financial Measures

 

To supplement our financial information presented in accordance with U.S. GAAP, management periodically uses certain “non-GAAP financial measures,” as such term is defined under the rules of the SEC, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example, non-GAAP measures may exclude the impact of certain items such as acquisitions, divestitures, gains, losses and impairments, or items outside of management’s control. Management believes that the following non-GAAP financial measure provides investors and analysts useful insight into our financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative to, the most directly comparable measure determined in accordance with U.S. GAAP. Further, the calculation of these non-GAAP financial measures may differ from the calculation of similarly titled financial measures presented by other companies and therefore may not be comparable among companies.

 

Adjusted EBITDA provides additional insight into our underlying, ongoing operating performance and facilitates period-to-period comparisons by excluding the earnings impact of interest, tax, depreciation and amortization, impairment, non-cash change in fair value of convertible debentures, changes in fair value of warrant liabilities, expenses related to the forward purchase agreement and equity-based compensation. Management believes that presenting Adjusted EBITDA is more representative of our operational performance and may be more useful for investors. Adjusted EBITDA along with a reconciliation to net loss is shown in Other Operating Data within the Results of Operations below.

 

Results of Operations

 

Upon closing of the Business Combination, we changed our name to FOXO Technologies Inc. Results of operations included within this registration statement pertaining to periods ending prior to the Closing of the Business Combination on September 15, 2022 are those of Legacy FOXO.

 

Three Months Ended March 31, 2023 and 2022

 

(Dollars in thousands)  2023   2022   Change in
$
   Change in
%
 
Total revenue  $13   $40   $(27)   (68)%
Operating expenses:                    
Research and development   309    601    (292)   (49)%
Management contingent share plan   764    -    764    N/A%
Selling, general and administrative   6,332    4,002    2,330    58%
Total operating expenses   7,405    4,603    2,802    61%
Loss from operations   (7,392)   (4,563)   (2,829)   62%
Non-operating expense   (247)   (7,804)   7,557    (97)%
Net loss  $(7,639)  $(12,367)  $4,728    (38)%

 

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Revenues. Total revenues were $13 for the three months ended March 31, 2023, compared to $40 for the three months ended March 31, 2022. The decrease in revenue was primarily driven by lower royalty revenue of $25 in the three months ended March 31, 2023 compared to the prior period related to a reduction of the royalty rate on Illumina, Inc.’s license to manufacture and sell Infinium Mouse Methylation Arrays using our epigenetic research. The remaining decrease relates to life insurance commissions earned as we ceased placing policies from our legacy agency business.

 

Research and Development. Research and development expenses were $309 for the three months ended March 31, 2023, compared to $601 for the three months ended March 31, 2022. The decrease of $292, or 49%, was primarily driven by lower employee-related expenses and professional services to reduce our cost structure following the closing of the Business Combination. Additionally, there was an incremental $81 of research and development expenses in the three months ended March 31, 2022 related to a sponsored research agreement with the Children’s Hospital of Philadelphia (“CHOP”) and other research that is no longer ongoing.

 

Management Contingent Share Plan. Management contingent share plan expenses were $764 for the three months ended March 31, 2023, as a result of issuing awards as part of the Business Combination. We began recognizing expense related to the performance condition for entering into a commercial research collaboration agreement.

 

Selling, General and Administrative. Selling, general and administrative expenses were $6,332 for the three months ended March 31, 2023 compared to $4,002 for the three months ended March 31, 2022. The increase of $2,330, or 58%, was primarily due to costs incurred in the three months ended March 31, 2023 that did not occur in the prior period including (i) amortization of $2,081 of compensation costs associated with the Consulting Agreement (as defined below under “Certain Relationships and Related Person Transactions — Legacy FOXO — Consulting Agreement), (ii) amortization expense of $922 related to our cloud computing arrangements and intangible assets, (iii) a loss of $251 on the sale of FOXO Life Insurance Company, and (iv) incremental costs of being a public company. These increases were offset by lower employee-related expenses and professional services to reduce our cost structure following the closing of the Business Combination.

 

Non-operating expense. Non-operating expense was $247 for the three months ended March 31, 2023, compared to $7,804 for the three months ended March 31, 2022. The decrease in non-operating expense primarily related to the conversion of our 2021 Bridge Debentures and 2022 Bridge Debentures as part of the Business Combination. For the three months ended March 31, 2022 we recognized $7,432 of expense related to measuring the Bridge Debentures at fair value. We also recognized lower interest expense of $97 for the three months March 31, 2023 compared to the prior period as a result of having less outstanding debt.

 

Net Loss. Net loss was $7,639 for the three months ended March 31, 2023, a decrease of $4,728 or 38% compared to $12,367 in the prior comparable period. The decrease in net loss was primarily related to the conversion of our 2021 Bridge Debentures and 2022 Bridge Debentures that was partially offset by increases in non-cash charges including the Management Contingent Share Plan (as defined below), Consulting Agreement, and amortization expense.

 

Analysis of Segment Results:

 

The following is an analysis of our results by reportable segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The primary income measure used for assessing reportable segment performance is earnings before interest, income taxes, depreciation, amortization, and stock-based compensation. Segment Earnings by reportable segment also excludes corporate and other costs, including management, IT, and overhead costs. For further information regarding our reportable business segments, please refer to our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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FOXO Labs

 

(Dollars in thousands)  2023   2022   Change in
$
   Change in
%
 
Total revenue  $7   $32   $(25)   (78)%
Research and development expenses   297    536    (239)   (45)%
Segment Earnings  $(290)  $(504)  $214    (42)%

 

Revenues. Total revenues were $7 and $32 for the three months ended March 31, 2023 and 2022, respectively. The decrease in revenue was driven by lower royalty revenue of $25 in the three months ended March 31, 2023 compared to the prior period related to a reduction of the royalty rate on Illumina, Inc.’s license to manufacture and sell Infinium Mouse Methylation Arrays using our epigenetic research.

 

Segment Earnings. Segment Earnings increased from ($504) for the three months ended March 31, 2022 to ($290) for the three months ended March 31, 2023. The increase of $214 was primarily driven by lower employee-related expenses and professional services to reduce our cost structure following the closing of the Business Combination. Additionally, there was an incremental $81 of research and development expenses in the three months ended March 31, 2022 related to a sponsored research agreement with the Children’s Hospital of Philadelphia (“CHOP”) and other research that is no longer ongoing.

 

FOXO Life

 

(Dollars in thousands)  2022   2021   Change in
$
   Change in
%
 
Total revenue  $6   $8   $(2)   (25)%
Selling, general and administrative expenses   653    811    (158)   (19)%
Segment Earnings  $(647)  $(803)  $156    (19)%

 

Revenues. Total revenues were $6 for the three months ended March 31, 2023 compared to $8 for the three months ended March 31, 2022. The decrease was due to reduced life insurance commissions earned as we ceased placing policies from our legacy agency business.

 

Segment Earnings. Segment Earnings increased from ($803) for the three months ended March 31, 2022 to ($647) for the three months ended March 31, 2023. The increase was driven by lower employee-related expenses and professional services to reduce our cost structure following the closing of the Business Combination partially offset by a $251 loss on the sale of FOXO Life Insurance Company.

 

Other Operating Data:

 

We use Adjusted EBITDA to evaluate our operating performance. Adjusted EBITDA does not represent and should not be considered an alternative to net income as determined by U.S. GAAP, and our calculations thereof may not be comparable to those reported by other companies. We believe Adjusted EBITDA is an important measure of operating performance and provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on U.S. GAAP measures and because it eliminates items that have less bearing on our operating performance. Adjusted EBITDA, as presented herein, is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. We use non-GAAP financial measures as supplements to our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA is a measure of operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net (loss) income as determined in accordance with U.S. GAAP.

 

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We reconcile our non-GAAP financial measure to our net loss, which is its most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. Our management uses Adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of our business model. Adjusted EBITDA is not presented in accordance with U.S. GAAP. Adjusted EBITDA includes adjustments for provision for income taxes, as applicable, interest income and expense, depreciation and amortization, stock-based compensation, and certain other infrequent and/or unpredictable non-cash charges or benefits, such as changes in fair value of convertible debentures.

 

   For the three months ended
March 31,
 
(Dollars in thousands)  2023   2022 
Net loss  $(7,639)  $(12,367)
Add: Depreciation and amortization   929    31 
Add: Interest expense   225    322 
Add: Stock-based compensation (1)   2,626    231 
Add: Non-cash change in fair value of convertible debentures   -    7,432 
Adjusted EBITDA  $(3,859)  $(4,351)

 

(1)Includes expense recognized related to the shares issued to the Consulting Agreement. See Note 6 of the unaudited consolidated financial statements.

 

Years Ended December 31, 2022 and 2021

 

(Dollars in thousands)  2022   2021   Change in
$
   Change in
%
 
Total revenue  $511   $120   $391    326%
Cost of sales   344    -    344    N/A %
Gross profit   167    120    47    39%
Operating expenses:                    
Research and development   3,047    4,879    (1,832)   (38)%
Management contingent share plan   10,091    -    10,091    N/A %
Selling, general and administrative   27,196    10,272    16,924    165%
Total operating expenses   40,334    15,151    25,183    166%
Loss from operations   (40,167)   (15,031)   (25,136)   167%
Non-cash change in fair value of convertible debentures   (28,180)   (21,703)   (6,477)   30%
Change in fair value of warrant liability   2,076    -    2,076    N/A %
Forward purchase agreement expense   (27,337)   -    (27,337)   N/A %
Other non-operating expenses   (1,647)   (1,754)   107    (6)%
Total non-operating expense   (55,088)   (23,457)   (31,631)   135%
Net loss  $(95,255)  $(38,488)  $(56,767)   147%

 

Revenues. Total revenues were $511 for the year ended December 31, 2022, compared to $120 for the year ended December 31, 2021. During the year ended December 31, 2022, the Company recognized $400 of revenue related to epigenetic biomarker services that did occur in the year ended December 31, 2021. This increase was offset by a combined $9 decrease in life insurance commissions earned and epigenetic biomarker royalties because we ceased placing policies from our legacy agency business and had a reduction of the royalty rate on Illumina, Inc.’s license to manufacture and sell Infinium Mouse Methylation Arrays using our epigenetic research.

 

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Research and Development. Research and development expenses were $3,047 for the year ended December 31, 2022, compared to $4,879 for the year ended December 31, 2021. The decrease of $1,832, or 38%, was driven by $3,310 of expenses incurred during the year ended December 31, 2021, related to Harvard University’s Brigham and Women’s Hospital Physicians’ Health Study (“PHS”) that were insignificant in the comparable period. This included three milestone payments totaling $926 thousand, required at commencement, upon transfer of clinical data, and upon the receipt of human materials used in the study, respectively. There are no additional milestone payments due for PHS. The remaining expenses related to supplies and data processing to obtain epigenetic data. PHS is currently in a data organizing and analysis phase. As such, the Company does not expect to incur additional material expenses related to PHS after December 31, 2022. This decrease was partially offset by $696 of incremental research and development costs associated with a clinical trial agreement with The Brigham and Women’s Hospital, Inc. (“VECTOR”), the majority of which related to a payment at contract inception. The research study associated with this arrangement is on hold. Additional employee-related expenses incurred during the year ended December 31, 2022, also partially offset the decrease in research and development expenses over the comparison period.

 

Management Contingent Share Plan.  Management contingent share plan expenses were $10,091 for the year ended December 31, 2022, as a result of issuing awards as part of the Business Combination. We began recognizing expense related to the performance condition for entering into a commercial research collaboration agreement. $8,695 of the expense recognized on the Management Contingent Share Plan relates to the service-based conditions that no longer applied to the former CEO and is subject to forfeiture pending conclusion of the Board of Director’s review. As of December 31, 2022, the Board of Directors was in process of reviewing whether our former Chief Executive Officer, Jon Sabes, was terminated with or without cause. Accordingly, we have yet to make a determination on our obligations to the former Chief Executive Officer. We have recognized expenses related to his management contingent share plan per the terms of that arrangement while the matter remains under review.

 

Selling, General and Administrative. Selling, general and administrative expenses were $27,196 for the year ended December 31, 2022 compared to $10,272 for the year ended December 31, 2021. The increase of $16,924, or 165%, was primarily due to (i) $6,654 of equity-based compensation costs associated with the Consulting Agreement, Cantor Commitment Fee, and vendor shares in the year ended December 31, 2022, (ii) $1,283 of amortization expense that began when assets were placed in service in the year ended December 31, 2022, and (iii) $1,370 of impairment charges in the year ended December 31, 2022, related to the health study tool and insurance license. The remaining increase of $7,617 was incurred to support business growth and the implementation of our business plan, primarily related to employee-related expenses, insurance expenses, as well as incremental professional services incurred in connection with the Business Combinations.

 

Non-Cash Change in Fair Value of Convertible Debentures. The non-cash change in fair value of convertible debentures was $28,180 for the year ended December 31, 2022, compared to $21,703 for the year ended December 31, 2021. We elected the fair value option to account for the 2021 Bridge Debentures and 2022 Bridge Debentures. The increase in fair value for the year ended December 31, 2021, was the result of the increased likelihood of voluntary or mandatory conversion at OIP, which represents a favorable result to holders of the debentures. The change for the year ended December 31, 2022, also reflected the increase in fair value associated with incurring additional debt.

 

Change in Fair Value of Warrant Liabilities. The change in fair value of warrant liabilities was $2,076 during the year ended December 31, 2022 as a result of a reduction in the fair value of derivative warrant liabilities assumed as part of the Business Combination.

 

Forward Purchase Agreement Expense. The forward purchase agreement expense was $27,337 during the year ended December 31, 2022 due to the forward purchase agreement entered into as part of the Business Combination and the decline in our stock price. The expense primarily relates to the cancellation of the agreement, amounts released from escrow to the counterparty as a result of open market sales, and settling the collateral liability.

 

Other Expense. We recognized other expense of $1,647 for the year ended December 31, 2022 compared to $1,754 for the year ended December 31, 2021. This decrease was the result of a $400 investment impairment in the year ended December 31, 2021 that was partially offset by incremental contractual interest expense incurred in the year ended December 31, 2022 in connection with the 2021 Bridge Amendment.

 

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Net Loss. Net loss was $95,255 for the year ended December 31, 2022, which reflects an increase of $56,767 or 147% over the $38,488 net loss in the prior year comparable period. This increase was primarily due to increases in non-cash change in fair value of convertible debentures, increases in selling, general and administrative expenses, and incurring forward purchase agreement expenses.

 

Analysis of Segment Results:

 

The following is an analysis of our results by reportable segment for the year ended December 31, 2022 compared to the year ended December 31, 2021. The primary income measure used for assessing reportable segment performance is earnings before interest, income taxes, depreciation, amortization, and equity-based compensation. Segment Earnings by reportable segment also excludes corporate and other costs, including management, IT, and overhead costs. For further information regarding our reportable business segments, please refer to our consolidated financial statements and related notes included elsewhere in this prospectus.

 

FOXO Labs

 

(Dollars in thousands)  2022   2021   Change in
$
   Change in
%
 
Total revenue  $483   $85   $398    468%
Research and development expenses   3,252    4,875    (1,623)   (33)%
Segment Earnings  $(2,769)  $(4,790)  $2,021    (42)%

 

Revenues. Total revenues were $483 and $85 for the year ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, the Company recognized $400 of revenue related to epigenetic biomarker services with the remaining revenue in both periods from earned royalties on Illumina, Inc.’s license to manufacture and sell Infinium Mouse Methylation Arrays using our epigenetic research.

 

Segment Earnings. Segment Earnings increased from ($4,790) for the year ended December 31, 2021 to ($2,769) for the year ended December 31, 2022. The increase of $2,021 was driven by $3,310 of expenses incurred during the year ended December 31, 2021 related to PHS that were insignificant in the 2022 comparable period. This decrease was partially offset by $696 of incremental research and development costs associated with VECTOR, the majority of which related to a payment at contract inception. The research study associated with this arrangement is on hold. Additional employee-related expenses incurred during the year ended December 31, 2022 also partially offset the decrease in research and development expenses over the comparison period.

  

FOXO Life

 

(Dollars in thousands)  2022   2021   Change in
$
   Change in
%
 
Total revenue  $28   $35   $(7)   (20)%
Selling, general and administrative expenses   3,763    2,416    1,347    56%
Segment Earnings  $(3,735)  $(2,381)  $(1,354)   57%

 

Revenues. Total revenues were $28 for the year ended December 31, 2022 compared to $35 for the year ended December 31, 2021. The decrease was due to reduced life insurance commissions earned as we ceased placing policies from our legacy agency business.

 

Segment Earnings. Segment Earnings decreased from ($2,381) for the year ended December 31, 2021 to ($3,735) for the year ended December 31, 2022. The decrease of ($1,354) was primarily due to incremental employee-related expenses and costs for professional services.

 

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Other Operating Data:

 

We use Adjusted EBITDA to evaluate our operating performance. Adjusted EBITDA does not represent and should not be considered an alternative to net income as determined by U.S. GAAP, and our calculations thereof may not be comparable to those reported by other companies. We believe Adjusted EBITDA is an important measure of operating performance and provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on U.S. GAAP measures and because it eliminates items that have less bearing on our operating performance. Adjusted EBITDA, as presented herein, is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. We use non-GAAP financial measures as supplements to our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA is a measure of operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net (loss) income as determined in accordance with U.S. GAAP.

 

We reconcile our non-GAAP financial measure to our net loss, which is its most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. Our management uses Adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of our business model. Adjusted EBITDA is not presented in accordance with U.S. GAAP. Adjusted EBITDA includes adjustments for provision for income taxes, as applicable, interest income and expense, depreciation and amortization, equity-based compensation, and certain other infrequent and/or unpredictable non-cash charges or benefits, such as impairment, changes in fair value of convertible debentures, changes in fair value of warrant liabilities, and expenses related to the forward purchase agreement.

 

   For the year ended
December 31,
 
(Dollars in thousands)  2022   2021 
Net loss  $(95,255)  $(38,488)
Add: Depreciation and amortization   1,487    98 
Add: Interest expense   1,440    1,118 
Add: Equity-based compensation (1)   17,689    131 
Add: Non-cash change in fair value of convertible debentures   28,180    21,703 
Add: Change in fair value of warrant liability   (2,076)   - 
Add: Impairment charges (2)   1,370    400 
Add: Forward purchase agreement expense   27,337    - 
Adjusted EBITDA  $(19,828)  $(15,038)

 

(1)Includes expense recognized related to the shares issued to the Consultant, vendor shares, and for the Cantor Commitment Fee. See Notes 6 and 7 of the consolidated financial statements.

 

(2)Includes impairment for the health study tool, insurance license and investment impairment. See Notes 3 and 4 of the consolidated financial statements.

 

Liquidity and Capital Resources

 

Sources of Liquidity and Capital

 

We had cash and cash equivalents of $2,155 and $5,515 as of March 31, 2023 and December 31, 2022, respectively. Excluding amounts required to be held as statutory capital and surplus at FOXO Life Insurance Company we had cash and cash equivalents of $2,155 and $513 as of March 31, 2023 and December 31, 2022, respectively. We have incurred net losses since our inception. For the three months ended March 31, 2023 and 2022, we incurred net losses of $7,639 and $12,367, respectively. We had an accumulated deficit of $154,870 and $147,231, respectively, as of March 31, 2023, and December 31, 2022. We have generated limited revenue to date and expect to incur additional losses in future periods.

 

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As part of the Business Combination, we entered into a Forward Purchase Agreement and ELOC Agreement to fund our business; however, these agreements have since been terminated as a result of the performance of our stock. The Business Combination ultimately resulted in a significant number of redemptions limiting our proceeds. 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 Class A Common Stock and the exercise price of the various Warrants, as further discussed below. Our current revenue is not adequate to fund our operations in the next twelve months, as further described under “Liquidity Update” below, and requires us to fund our business through other avenues until the time we achieve adequate scale. Securing additional capital is necessary to execute on our business strategy.

 

FOXO Life Insurance Company Sale

 

As discussed above under “FOXO Life Insurance Company,” we consummated the sale of FOXO Life Insurance Company to Security National pursuant to the Security National Merger Agreement. After the Merger Consideration and Security National’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 Code.

 

Impact of this Offering on Liquidity

 

Sales of a substantial number of our shares of Class A Common Stock in the public market by the Selling Stockholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of the Class A Common Stock and Public Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our shares of Class A Common Stock and Public Warrants. The total amount of shares being registered for resale represent a substantial percentage  of our total outstanding Class A Common Stock as of the date of this prospectus. The shares being offered for resale in this prospectus represent 11.4% of our current total outstanding Class A Common Stock, assuming the exercise of all Warrants. These shares may be resold for so long as the registration statement, of which this prospectus forms a part, is available for use. The sale of all securities being offered in this prospectus could result in a significant decline in the public trading price of the Class A Common Stock.

 

Prior Financings

 

Prior to the closing of the Business Combination, we financed our business through a combination of equity and debt, consisting of proceeds from a subscription receivable and proceeds from convertible debenture offerings. The subscription receivable initially totaled $20,000, with the last installment being received during the third quarter of 2021.

 

During the first quarter of 2021, we entered into separate securities purchase agreements with the 2021 Bridge Investors, pursuant to which we issued convertible debentures for $11,812 in aggregate principal. After an original issue discount of 12.5% we received cash proceeds of $10,500 for this issuance. Additionally, we incurred an incremental $888 of fees and expenses related to the offering. The 2021 Bridge Debentures were issued in three tranches, on January 25, 2021, February 23, 2021, and March 4, 2021.

 

Additionally, during the first quarter of 2022, we entered into separate securities purchase agreements with the investors, pursuant to which we issued the 2022 Bridge Debentures for $24,750 in aggregate principal. After an original issue discount of 10.0% we received cash proceeds of $22,500 for this issuance. In the second quarter of 2022, we issued additional 2022 Bridge Debentures pursuant to which we raised an additional $5,500 in cash proceeds or $6,050 in aggregate principal amount under the same terms as the issuance of the 2022 Bridge Debentures in the first quarter of 2022, resulting in total cash proceeds of $28,000 from the issuance of the 2022 Bridge Debentures.

 

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Immediately prior to the Closing, the 2021 Bridge Debentures and 2022 Bridge Debentures were converted into 6,759,642 and 7,810,509, respectively, shares of FOXO Class A Common Stock and were subsequently exchanged for shares of the Company’s Class A Common Stock at the Closing of the Business Combination.

 

During the third quarter of 2022, we entered into separate securities purchase agreements pursuant to which we issued our PIK Notes in the aggregate principal of $3,458. We received net proceeds of $2,918, after deducting fees and expenses of $540.

 

Exchange Offer and PIK Note Offer to Amend

 

As discussed above, we consummated an Exchange Offer whereby holders of the Assumed Warrants were able to exchange such Assumed Warrants for shares of Class A Common Stock. Pursuant to the Exchange Offer, we solicited consents from a sufficient amount of holders of Assumed Warrants to amend and restate the Original Securities Purchase Agreement, pursuant to the terms of the Amendment and Restatement, to provide that certain previous and future issuances of Class A Common Stock and 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. Additionally, we consummated the PIK Note Offer to Amend, whereby we amended our PIK Notes to permit certain issuances of Class A Common Stock and Common Stock Equivalents (as defined in the PIK Note Purchase Agreement), without prepaying the PIK Notes as required by the terms of the PIK Note Purchase Agreement. Both the Exchange Offer and PIK Note Amendment were designed to facilitate future capital raises.

 

Going Concern

 

Our primary uses of cash are to fund our operations as we continue to grow our business. We expect to continue to incur operating losses in the near term to support the growth of our business. Capital expenditures have historically not been material to our consolidated operations, and we do not anticipate making material capital expenditures in 2023 or beyond. We expect that our liquidity requirements will continue to consist of working capital and general corporate expenses associated with the growth of our business. Based on our current planned operations, we do not have sufficient capital to fund our operations for at least 12 months from the date hereof. We expect to address our liquidity needs through the pursuit of additional funding through a combination of equity or debt financings to enable us to fund our operations.

 

The proceeds from the FOXO Life Insurance Company sale were sufficient to fund our operations through June 2023. Together with cost saving measures that the Company expects to implement, which include layoffs effective as of July 21, 2023, we expect the $202.5 in net proceeds from the first tranche purchase of the 2023 Private Placement to be sufficient to fund our operations through the end of July 2023, and we expect the anticipated $202.5 in net proceeds from the second tranche purchase of the 2023 Private Placement to be sufficient to fund our operations through mid August 2023. The amounts of net proceeds in the foregoing sentence do not give effect to the payment of legal fees and other expenses in connection with the 2023 Private Placement. In the event we are unable to secure financing by that time, we may be forced to sell the company, suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our Company. 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.

 

We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We may raise additional capital through equity offerings, debt financings or other capital sources. If we do raise additional capital through public or private equity offerings, or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely impact our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take certain actions. As discussed above under “Recent Developments – Exchange Offer, PIK Note Offer to Amend and 2022 Bridge Debenture Release,” we consummated the Exchange Offer and the PIK Note Offer to Amend, whereby we solicited consents from a sufficient amount of holders of Assumed Warrants and PIK Notes, as applicable, to amend the agreements governing such securities in order to help us raise additional capital.

 

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Liquidity Update

 

In connection with the evaluation of the Business Combination, our management prepared and provided to our Board of Directors and Delwinds’ financial advisor unaudited prospective financial information. The prospective financial information was prepared using a number of assumptions, including assumptions with respect to general business, economic, market, regulatory and financial conditions and various other factors, all of which are difficult to predict and many of which are beyond FOXO’s control. Due to several factors including but not limited to the timing and lack of funding from the Business Combination that has caused us to limit our expenditures and initiatives, we do not expect to achieve the projected revenue for 2023. As a result, we never sold policies through FOXO Life Insurance Company and some research activities that were previously anticipated have not been conducted or have been postponed which has impacted our ability to offer our underwriting services in 2023. We launched our MGA model, but have not been able to provide it with the resources previously anticipated. We also assumed that with sufficient scale we would reduce the costs of our testing. We have yet to achieve these cost savings that would make our offerings more attractive to consumers. Given the already mentioned leadership changes and that the prospective financial information was prepared prior to the Business Combination, we believe such projections should not be used as a frame of reference by investors.

 

Cash Flows

 

Three Months Ended March 31, 2023 and 2022

 

The following table summarizes our cash flow data for the three months ended March 31, 2023 and 2022 (dollars in thousands):

 

   Cash Provided by /
(Used in)
 
Three Months Ended March 31,  2022   2021 
Operating Activities  $(3,360)  $(7,186)
Investing Activities  $-   $(558)
Financing Activities  $-   $22,481 

 

Operating Activities

 

Net cash used for operating activities in the three months ended March 31, 2023 was $3,360 compared to $7,186 in the three months ended March 31, 2022. Operating cash flow increased $3,826, or 53%, from the three months ended March 31, 2023 to the three months ended March 31, 2022. The increase was the result of a lower net loss, driven by non-cash items, as well as less cash used for working capital purposes.

 

Investing Activities

 

Net cash used for investing activities in the three months ended March 31, 2023 was $0 compared to $558 in the three months ended March 31, 2022. This investing cash flow increase of $558 was due to the completion of the development of our internal use software.

 

Financing Activities

 

Net cash provided by financing activities in the three months ended March 31, 2023 was $0 compared to $22,481 in the three months ended March 31, 2022. This financing cash flow decrease was the result of non-recurring debt financing that occurred in the three months ended March 31, 2022.

 

Years Ended December 31, 2022 and 2021

 

The following table summarizes our cash flow data for the years ended December 31, 2022 and 2021 (dollars in thousands):

 

   Cash Provided by /
(Used in)
 
Years Ended December 31,  2022   2021 
Operating Activities  $(23,760)  $(15,055)
Investing Activities  $(1,870)  $(355)
Financing Activities  $24,289   $14,143 

 

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Operating Activities

 

Net cash used for operating activities in the year ended December 31, 2022 was $23,760 compared to $15,055 in the year ended December 31, 2021. Operating cash flow decreased $8,705, or 58%, from the year ended December 31, 2021 to the year ended December 31, 2022. The decrease was the result of an increased net loss, primarily driven by non-cash items, as well as increased working capital.

  

Investing Activities

 

Net cash used for investing activities in the year ended December 31, 2022 was $1,870 compared to $355 in the year ended December 31, 2021. This investing cash flow decrease of $1,515 was due to incremental costs incurred to develop internal use software, partially offset by a decrease in investments made.

 

Financing Activities

 

Net cash provided by financing activities in the year ended December 31, 2022 was $24,289 compared to $14,143 in the year ended December 31, 2021. This financing cash flow increase was the result of higher debt proceeds of $28,000 from the 2022 Bridge Debentures and $2,918 net proceeds from the PIK Notes compared to $10,500 from the 2021 Bridge Debentures. This was partially offset by reduced proceeds received on our Subscription Receivable during the year ended December 31, 2021, warrant repurchases and the series of transactions associated with the Business Combination.

 

Off-Balance Sheet Financing Arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial assets.

 

Contractual Obligations

 

Our contractual obligations as of March 31, 2023 include:

 

   Amounts Due by Period 
(Dollars in thousands)  Less than
1 Year
   1 - 3 years   3 - 5 years   More than
5 years
   Total 
License agreements (a)  $40    80    80    -   $200 
PIK Notes (b)   3,722    -    -    -    3,722 
Supplier and other commitments (c)   384    -    -    -    384 
Total  $4,146    80    80    -   $4,306 

 

(a)License agreements remain in place until the licensor’s patents expire or are abandoned. Amounts do not include development milestones that have not been reached as of March 31, 2023.

 

(b)Represents the principal balance as of March 31, 2023. The PIK Notes are subject to prepayment penalties and interest is paid through the issuance of additional PIK Notes. The ultimate amount required to settle the PIK Note will vary depending on when it is settled. See Note 5 of the unaudited consolidated financial statements.

 

(c)The Company has supplier and other commitments comprising the balance shown. See Note 12 of the unaudited consolidated financial statements.

 

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Critical Accounting Policies

 

The preparation of the consolidated financial statements and related notes included under “Item 8. Financial Statements” and related disclosures in conformity with GAAP. The preparation of these consolidated financial statements requires the selection of the appropriate accounting principles to be applied and the judgments and assumptions on which to base accounting estimates, which affect the reported amounts of assets and liabilities as of the date of the balance sheets, the reported amounts of revenue and expenses during the reporting periods, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results and outcomes may differ materially from our estimates, judgments, and assumptions. We periodically review our estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.

 

We define our critical accounting policies and estimates as those that require us to make subjective judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements which require significant estimates and judgments are as follows:

 

Equity-Based Compensation

 

Historically, prior to the Business Combination, we offered equity-based compensation to employees and nonemployees in the form of stock options and restricted stock. We measure and recognize all equity-based payments to employees, service providers and board members at fair value. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statements of operations based on the estimated fair value of those awards on the grant date or reporting date, if required to be remeasured, and amortized on a straight-line basis over the requisite service period. We recognize forfeitures as incurred. We utilize a Black-Scholes valuation model to estimate the fair value of stock options and this model requires the input of assumptions, including the exercise price, volatility, expected term, discount rate, and the fair value of the underlying membership or stock on the date of grant. These inputs are provided at the grant date for an equity classified award and each measurement date for a liability classified award. Equity-based compensation awards are considered granted (i) when there is a mutual understanding of key terms, (ii) we are contingently obligated to issue the options, and (iii) the option holder begins to benefit or be adversely impacted by changes in our stock price. This primarily occurs at the time the stock option agreements are executed.

 

Our option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying units or stock, the expected term of the equity-based award, the expected volatility of the price of our common units or stock, risk-free interest rates, and the expected dividend yield of our common units or stock. The assumptions used in our option pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our equity-based compensation expense could be materially different in the future.

 

These assumptions were estimated as follows:

 

  Fair Value of Our Common Stock: As Legacy FOXO’s common stock was not publicly traded, we estimated the fair value of our common stock, as discussed in the section “Common Stock Valuations” below.

 

  Risk-Free Interest Rate: We based the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield to maturity available on a U.S. Treasury constant maturity security with a term commensurate with the expected term of the stock options.

 

  Expected Term: We estimated the expected term using the simplified method due to the lack of historical exercise activity for our common stock. The simplified method calculates the expected term as the mid-point between the vesting term and the contractual term of the award.

 

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  Volatility: As Legacy FOXO was a privately held company with no trading history prior, we estimated the stock price volatility factor by referencing historical volatilities of comparable peer companies. To determine a set of comparable peer companies, we considered similar public companies and selected those that are most similar to us in size, stage of life cycle, and financial leverage. We intend to continue to apply this process using the same or similar public companies until sufficient historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer comparable to our business, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

  Dividend yield: We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

 

Common Stock Valuations

 

Prior to our initial public offering FOXO Technologies Operating Company’s common stock was not publicly traded, the fair value of our equity, which is the basis upon which all of our equity-based compensation awards was measured and recognized, was determined by our board of directors, with input from management and third-party valuation specialists. The third-party valuation specialists apply valuation techniques and methods that conform to generally accepted valuation practices and standards established by the American Society of Appraisers in accordance with Uniform Standards of Professional Appraisal Practice. The valuation methodologies and techniques utilized are also consistent with guidance issued by the American Institute of Certified Public Accountants in its Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, 2013. The specialists used a variety of both objective and subjective factors, including:

 

  the nature of our business and its history since inception;

 

  the prices, rights, preferences, and privileges of our preferred units relative to those of our common units;

 

  our stage of development;

 

  our operating and financial performance and forecast;

 

  the present value of estimated future cash flows;

 

  the likelihood of achieving a liquidity event for the shares of common units underlying the options to purchase common stock, such as an initial public offering or sale of our company, given prevailing market conditions and the nature and history of our business;

 

  any adjustment necessary to recognize a lack of marketability for our common stock;

 

  the market performance of comparable publicly traded companies; and

 

  conditions in the U.S. and global capital markets.

 

An initial valuation was performed by an independent third-party valuation specialist in November 2019, concurrent with the formation of Legacy FOXO as a limited liability company. In this valuation, the Cost Approach was used to determine enterprise value based on the fair market value of our assets. This approach was utilized given our lack of earnings history and the start-up nature of our business and operations, both of which brought into question our ability to continue as a going concern. At the time of this valuation, the estimated enterprise value was primarily based on the subscription receivable. Another valuation was performed by an independent third-party valuation specialist in November 2020 following the corporate conversion of Legacy FOXO and in anticipation of issuing stock options. The valuation was performed using the same methodology, but also considered a liquidation preference for preferred stock calculated using a Black-Scholes valuation model. At the time of this valuation, the majority of the subscription receivable had already been collected, causing a reduction in the estimated enterprise value. The liquidation preference for preferred stock and a discount for lack of marketability also had an adverse impact on valuation, which was determined to be $0.21 per share of common stock.

 

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We have historically refreshed enterprise valuations to determine the fair value of our equity-based compensation at grant date for stock options based on the methodologies as described.

 

We conduct performance reviews twice annually following the end of the second and fourth quarter. Our first stock option grant occurred following our biannual review after the fourth quarter of 2020, with the formal grant occurring when the stock option agreements were executed in April 2021. At that time, the fair value of our common stock was $0.09 per share. While the preferred stock is outstanding, holders have protection from share issuance at a price below the original issue price (“OIP”). Accordingly, for stock options granted in April 2021, the exercise price per option was set at an amount slightly above the anticipated OIP. Stock options granted in April 2021 comprise the majority of stock options outstanding as of December 31, 2022.

 

We completed our biannual review following the second quarter of 2021 as we entered into negotiations with Delwinds. At this time, stock options were issued with the same exercise price as the April 2021 grant. This was determined to be a good faith estimate as a result of the uncertainty of the transaction, prior values of common stock, and the historical investment of our preferred stockholder. As a result of a letter of intent (the “Letter of Intent”) to merge with Delwinds, we considered it prudent to have another valuation performed to record equity-based compensation expense in the consolidated financial statements reflective of the updated circumstances surrounding our company. This valuation report was received subsequent to the grant of the stock options but is reflected in the consolidated financial statements for this grant.

 

This valuation report reflected a change in methodology due to the letter of intent related to the Business Combination and development of our Company as a result of the in-process August order to acquire MICOA. This valuation report used a probability weighting of the Market Approach and Income Approach. The Market Approach reflected the offer from Delwinds based on the pre-money valuation of FOXO plus a Monte Carlo simulation to capture the value from earn-out shares based on exceeding specified per share price targets after closing. The Income Approach utilized a discounted cash flow analysis to provide an estimate of enterprise value based on the present value of anticipated future cash flows. As with prior valuations, a Black-Scholes valuation model was used to value each equity class by creating a series of call options on our equity value, with exercise prices based on the liquidation preferences and participation rights. The non-marketability discount in this valuation report was 20%.

 

Stock options were granted in January and February of 2022 after the completion of our biannual review following the fourth quarter of 2021 based on the valuation discussed above as the circumstances surrounding our common stock remained relatively stable during the timeframe from the valuation report to the option grant.

 

Application of these approaches and methodologies involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected operations, the selection of comparable public companies, and the probability of and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.

 

Fair Value of Convertible Debentures

 

We elected the fair value option to account for the 2021 Bridge Debentures and 2022 Bridge Debentures. The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We elected the fair value option to better depict the ultimate liability associated with the debentures, including all features and embedded derivatives. The debentures accounted for under the fair value option election represent debt host financial instruments containing certain embedded features that would otherwise be required to be bifurcated from the debt host and recognized as separate derivative liabilities subject to initial and subsequent periodic fair value measurement in accordance with U.S. GAAP. When the fair value option election is applied to financial liabilities, bifurcation of embedded derivatives is not required, and the financial liability in totality is recorded at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each balance sheet date thereafter. Upon remeasurement, the portion of a change in estimated fair value attributable to a change in instrument-specific credit risk is recognized as a component of other comprehensive income (loss) and the remaining amount of a change in estimated fair value is to be recognized in the consolidated statements of operations.

 

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During 2021, the fair value of the 2021 Bridge Debentures was determined using a Monte Carlo simulation, which is commonly used to value convertible debt instruments, and is intended to provide an estimated fair value that approximates the equity value that would be received upon conversion. The significant assumptions used in those models were as follows:

 

  Likelihood of term extension: The Securities Purchase Agreements gave us the right to extend the maturity date for each issuance of convertible debentures for an additional three-month period and incur an extension amount rate of 110% of the outstanding balance. Increases in the likelihood of term extension as of a given reporting date increase the potential principal amount and thus the estimated fair value of the convertible debentures derived from the Monte Carlo simulation. Conversely, in the event that term extension is less likely as of a given reporting date, the principal is less likely to be increased, meaning the estimated fair value is likely to stay nearer to the issuance-date fair value.

 

  Likelihood of conversion: The convertible debentures allowed for both: (i) voluntary conversion of aggregate principal and accrued and unpaid interest to shares of Class A common stock at the option of the holder at a price per share equal to nine and (ii) mandatory conversion of aggregate principal and accrued and unpaid interest upon FOXO consummating an offering of common stock, including a special purpose acquisition company transaction, for an aggregate price of at least $5,000 at a price per share equal to the lower of (a) 70% of the offering price per share or (b) nine. Given the terms of the convertible debt, and depending upon the fair value of our equity as of a given reporting date, voluntary and mandatory conversion features are often beneficial to holders and thus have the potential to materially increase the estimated fair value of the convertible debentures. For mandatory conversion, increases in the fair value of our equity as of a given reporting date make conversion at nine more likely, which is a favorable result to holders of the convertible debentures as compared to conversion at a price per share equal to 70% of a qualified offering price and thus increases the estimated fair value. Conversely, and while still beneficial to holders, conversion at a price per share equal to 70% of a qualified offering price increases the estimated fair value of the convertible debentures to a lesser degree than conversion at nine. Voluntary conversion is considered in the Monte Carlo simulation and affects the estimated fair value in scenarios in which a qualified offering event that would affect mandatory conversion does not take place.

 

Other notable, but not significant, assumptions utilized in the Monte Carlo simulations included, but were not limited to, implied borrowing and annualized volatility rates.

 

As a result of the execution of the Merger Agreement on February 24, 2022, the ultimate value to holders of the 2021 Bridge Debentures and 2022 Bridge Debentures upon voluntary or mandatory conversion became clearer, and thus management determined that a Monte Carlo simulation was no longer appropriate for purposes of estimating fair value. Thus, for the first and second quarters of 2022, the estimated fair value of the 2021 Bridge Debentures and 2022 Bridge Debentures was calculated using a probability-weighted expected return model. The significant assumptions used in the models were as follows:

 

  Timing of conversion: The probability-weighted expected return model required management to estimate, based on known facts and circumstances at the time of valuation, the date on which conversion of the debentures will take place. That estimate drives the discount factor utilized in the model, which impacts the derived fair value. If the conversion date is set further in the future, a greater discount rate would be applied, driving down the fair value of the debt in a conversion scenario.

 

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  Likelihood of conversion: The 2021 Bridge Debentures contain voluntary and mandatory conversion provisions, which are discussed at length above. As the fair value of our equity increases, both conversion mechanisms represent an increasingly favorable result to holders and thus as the likelihood of conversion increases, so too does the estimated fair value of our liability related to the 2021 Bridge Debentures. The 2022 Bridge Debentures allow for both: (i) voluntary conversion of aggregate principal and unpaid interest thereon to shares of Class A common stock at any time after two hundred seventy days following the original issue dates, at a conversion price equal to $5.00 per share, except that if there has been no mandatory conversion within three hundred sixty days following the original issue date, the conversion price following such three hundred sixty-day period would be equal to $4.00 per share; and (ii) mandatory conversion of aggregate principal and unpaid interest thereon upon consummation of an offering of common stock, including a special purpose acquisition company transaction, for an aggregate price of at least $5,000, at a conversion price equal to 75% of the offering price per share. In the conversion scenario, the probability-weighted expected return model determines which conversion mechanism is most favorable to holders and assumes holders will choose the most favorable option in estimating fair value. Depending upon the fair value of our equity as of a given reporting date, these conversion features are often beneficial to holders and thus, increases in the likelihood of conversion increase the estimated fair value of our liability related to the 2022 Bridge Debentures.

 

Other notable, but not significant, assumptions used in the probability-weighted expected return model included, but were not limited to, implied borrowing rates. Upon close of the business combination, the 2021 Bridge Debenture and 2022 Bridge Debentures were remeasured at fair value based on the actual conversion.

 

Going Concern

 

On a quarterly basis, we assess going concern uncertainty for our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital to operate for a period of at least one year from the date our consolidated financial statements are issued or are available to be issued (the “look-forward period”). Based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, among other factors, and our ability to delay or curtail those expenditures or programs within the look-forward period, if necessary. 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.

 

Recent Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removed certain exceptions to the general principles in ASC 740 and clarified and amended existing guidance to improve consistent application. This amended guidance was effective for public entities for interim and annual periods beginning after December 15, 2021. The Company adopted ASU 2019-12 effective January 1, 2022 and it did not have a material impact on the Company’s consolidated financial statements.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815 -40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. ASU 2020-06 also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This amended guidance is effective for public and private companies for fiscal years beginning after December 15, 2021, and December 15, 2023, respectively, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the amended guidance prospectively effective January 1, 2021. The impact is not material to the Company’s results of operations or financial position as the Company had no debt prior to the issuance of convertible debentures in 2021.

 

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Factors That May Adversely Affect our Results of Operations

 

Our results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business.

 

Quantitative and Qualitative Information about Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

 

Emerging Growth Company Status

 

The Company is an “emerging growth company” as defined in the Jobs Act and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until it is no longer an emerging growth company under Section 107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company avails itself of the extended transition period and, therefore, while the Company is an emerging growth company, it will not be subject to new or revised accounting standards the same time that they become applicable to other public companies that are not emerging growth companies, unless it chooses to early adopt a new or revised accounting standard.

 

Smaller Reporting Company Status

 

The Company is also a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. The Company will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of the Company’s shares of Class A Common Stock held by non-affiliates exceeds $250 million as of the prior September 30, or (ii) its annual revenue exceeded $100 million during such completed fiscal year and the market value of its ordinary shares held by non-affiliates exceeds $700 million as of the prior September 30.

 

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BUSINESS

 

Our Business

 

FOXO seeks to enable the commercialization of epigenetic testing technology. We believe that epigenetics has unique and impactful capabilities that have yet to be unlocked. Evidence of this includes the discovery of the “epigenetic clock” as a measure of biological aging and independent predictor of mortality. In conjunction with the growth of epigenetics research, the convergence of two cutting-edge technologies - DNA microarray technology and machine learning -has created what we believe is an unprecedented opportunity to disrupt consumer health testing and its intersecting industries (e.g., life insurance). DNA microarray technological advances have allowed for the cost-effective quantification of genomic data for nearly two decades, and the technology has been further expanded to epigenetic data. While the emergence of next-generation sequencing has shown great promise, we do not believe it is mature enough at this time to match the cost and convenience of microarray technology for epigenetics. More importantly, the rapid rise of artificial intelligence and machine learning technologies have enabled the ability to identify sophisticated patterns within epigenetics data. These patterns are known as “epigenetic biomarkers,” and provide valuable insights into human health.

 

To advance the fundamental science and capabilities of epigenetics, we are conducting pioneering research with leading scientists in the field. To broaden the accessibility of epigenetics to researchers and enterprises around the world, we are contributing to the development of novel technologies – both hardware and software – including the Infinium Mouse Methylation BeadChip and our methylsuite software. The expansion of our Bioinformatic Services further reduces the barrier of entry for clients seeking to conduct epigenetic analysis by leveraging our distinct expertise in epigenetics, machine learning, and bioinformatics. We believe these efforts will facilitate and accelerate both the development and commercialization of epigenetic products.

 

To capitalize on commercial opportunities in industries deemed ripe for disruption, we are harnessing the power of epigenetics to revolutionize how life insurance companies underwrite and sell their products. Our insights into consumers’ health and lifestyle choices will help insurers tailor their offerings to meet their clients’ needs and provide insurers with data to plan for their clients’ future financial needs.

 

To that end, we have developed two core product offerings: the “Underwriting Report” and the “Longevity Report™.” The Underwriting Report allows us to leverage a single assay testing process to generate a panel of impairment scores that can be applied by life insurance underwriters to more accurately assess clients during the underwriting process and provide a more personalized risk assessment. The Longevity Report is a consumer-facing companion product that provides actionable insights to consumers based on their biological age and other epigenetic measures of health. We believe the combination of these two reports provides a valuable win for our insurance carrier partners as well as their customers.

 

The life insurance industry is ripe for disruption by a new underwriting protocol. Historically, when a single carrier has adopted even a single new underwriting test, others tend to follow quickly. Some examples include prescription data, smoking tests, and specimen samples. If other insurance companies do not follow quickly, they may suffer from adverse selection, and get a disproportionate number of mispriced risks. FOXO intends to leverage the combination of the Underwriting Report and the Longevity Report to change the sales and underwriting process to the betterment of consumers and carriers alike.

 

FOXO Labs – Underwriting Report

 

FOXO Labs is commercializing a first of its kind proprietary epigenetic biomarker technology to be used for purposes including mortality underwriting risk classification in the global life insurance industry (the “Underwriting Report”). The Underwriting Report provides underwriters with an alternative source of biological mortality risk factors derived from an applicant’s saliva sample. The information provided in the FOXO Underwriting Report will allow underwriters to assess mortality risk without the need for more invasive and time-consuming underwriting processes such as a paramedical exam or the procurement of medical records.

 

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The Underwriting Report will allow insurance companies to leverage cutting-edge biotechnology that streamlines the insurance sales and underwriting process compared to the costlier and lengthier process of medical underwriting. We can administer our test using saliva, allowing for a quick point-of-sale sample collection. Our non-invasive test can help insurers conduct a multi-panel risk assessment of a proposed insured and make a policy offer without the need for a paramedical exam or medical records. We believe this will (1) make policy sales more efficient and less invasive, and (2) expand the market for accelerated underwriting to higher face amount policies. By collecting a sample at the point of sale (or by mail), we will also streamline and simplify the application and underwriting process. Our multi-panel test can screen for multiple impairments using a single, non-invasive biospecimen that can be used to assess individual health risks. Additionally, as we collect more data and create more refined models we can update our previous measures without the requirement of a new biospecimen. Thus, a saliva-based sample can be self-administered or collected by the agent without the need for a trained paramedical examiner, and the data can be updated in perpetuity as technology advances.

 

The Underwriting Report consists of two sections. The first one is the Biological Age Assessment, which provides an individual’s aggregate biological mortality risk. This can be used by an underwriter to quickly triage good mortality risks, which can be issued a policy immediately, from bad mortality risks, which require further underwriting to properly assess.

 

The core of the Biological Age Assessment is the “Biological DeltaAge,” which is the difference between biological age and chronological age. A Biological DeltaAge above zero indicates an increased mortality risk, and below zero indicates a decreased mortality risk.  

 

The Underwriting Report’s second section outlines specific risk factors that are intended to provide underwriters with more detailed information about an individual’s health with respect to specific impairments. Life and disability insurance underwriters can use this information to eliminate additional underwriting requirements so the insurer can focus on areas of elevated risk.

 

The risk factors include traditional underwriting considerations such as tobacco use, cardiovascular health, metabolic health (e.g., obesity) and liver health (e.g., heavy alcohol use). This information overlaps with key factors obtained through a traditional paramedical exam; however, our test is obtained through a non-invasive saliva sample instead of a blood draw and urine collection. The saliva sample can be collected by mail or by the agent at the point of sale, which reduces the need for scheduling an appointment for a paramedical exam. These exams require fasting and a blood draw, which are additional barriers to the sale. They also need to be scheduled days or weeks in advance, delaying the underwriting process.

 

The Underwriting Report can be provided electronically via an application programming interface (“API”) so an insurer can integrate results into automated underwriting processes and an underwriting workbench. This allows the report to be securely transmitted and used in the way that works best for an insurer’s underwriting teams.

 

FOXO Life – Longevity Report

 

The Longevity Report provides consumers with novel information about their epigenetic makeup, along with specific insights that can help them change their behavior to live longer. The centerpiece of the Longevity Report is “FOXO Age,” which is a holistic measure of how fast an individual is aging. It is displayed on the report in comparison to the consumer’s chronological age.

 

The Longevity Report also includes four epigenetic health scores: (i) Metabolic, (ii) Cardiovascular, (iii) Inflammation, and (iv) Indulgence scores, which integrate the impact of one’s environment, lifestyle, and behavior affect their health at an epigenetic level. These four epigenetic health scores enable the consumer to make important decisions about how to improve their lifestyle. Users can take tests more than once, and within each score we compare each consumer to the FOXO universe of results. This allows the consumer to review their scores in comparison to others who have received the Longevity Report. With each score, we provide personalized nutritional, lifestyle, and exercise recommendations to help consumers make lifestyle adjustments to extend their longevity. The Longevity Report is accessible through an online dashboard that allows users to view their report as well as sample processing status, from being sent to the lab to final digital report delivery. In the future, we plan to provide consumers with a more comprehensive dashboard that identifies how they are progressing over time with their lifestyle adjustments in response to the recommendations provided with their Longevity Report scores.

 

FOXO is also operationalizing a sales and distribution platform focused on recruiting independent life insurance agents to sell life insurance with our Longevity Report (“FOXO Life”). FOXO Life currently markets and sells life insurance products underwritten and issued by third-party carriers through distribution relationships.  This distribution model (the “MGA Model”) allows FOXO to appoint sales agents and producers to sell insurance products for specific carriers and earn commissions on subsequent policy sales. Depending on the terms of the agreement between FOXO and the carrier, the Longevity Report may be included at the time of the policy purchase at no charge or may be available at an additional cost to the consumer. We believe the Longevity Report will make longevity science a core aspect to the relationship between life insurance and consumers.

 

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We began selling insurance products through distribution relationships with third-party carriers in the first quarter of 2023. Through our MGA Model, we earn commission revenues, marketing allowances, and service fee revenues from selling life insurance products supported by our science, technology, and brand marketing. Initially, we do not expect to use epigenetic underwriting technology in the life insurance products we sell through the MGA Model. However, we expect the research and development studies underway will support the introduction and commercialization of our saliva-based underwriting technology through our Underwriting Report in the future.

 

FOXO Labs - Bioinformatic Services

 

Beginning in Q3 2023, FOXO will formally offer “Bioinformatic Services” for in silico processing, quality checking, and/or analysis of raw epigenetic microarray data generated by customers. Our core offering provides customers with several processed data files and a quality report that describes potentially problematic samples and probes along with recommendations on how to address those issues in downstream analysis. Ancillary offerings may include management of sample and data generation as well as downstream analysis, including prediction or classification tasks involving machine learning techniques. These services leverage the unique expertise and partnerships that our team has developed with various commercial labs, manufacturers, researchers, and software developers. It is our hope that these Bioinformatic Services will provide a full service (or piecemeal, as desired) to enable the use of epigenetics for any purpose.

 

Competitive Strengths

 

Our Chief Science Officer, Dr. Brian Chen, is a leading expert in the field of epigenetic science. Dr. Chen manages our research and development and has played an instrumental role in demonstrating that machine learning paired with epigenetic data can provide valuable insights into human health. Our Data Science team is led by Nichole Rigby who has created all of our models and epigenetic data processing used in our research, service, and product offerings. Our product and technical teams, led by Tyler Danielson (Interim CEO) are experienced in bringing consumer facing experiences as well as backend APIs to market.

 

We leverage the native cloud software from Amazon Web Services (“AWS”), working with artificial intelligence (“AI”) companies like DataRobot to develop our models and deploy them securely in the best-in-class systems. Our systems and processes will be difficult for competitors to replicate as most of our systems are automated, from shipping kits to processing data from our labs and producing results for use in our reports. Our systems, through the usage of AI, are also built to continuously and autonomously develop, which makes it even more difficult to be replicated. This autonomous development includes having the AI test hundreds of models to build each predictor. We have leaders with extensive experience applying AI technologies to biological data.  

 

Key Value Drivers

 

We are modernizing the life insurance industry through a new digital technology stack designed to help us execute on our business and support our ambitious growth plans. To support our business, we have developed a technology stack that provides us with scalable operational infrastructure that offers a high degree of flexibility and adaptability in its operational software architecture. To that end, we have built a digital life insurance product services platform that will operationalize our MGA sales operations. The goal of our technology operations is to be able to service life insurance carriers worldwide, at scale. In addition, we are building operational technology that supports researchers and epigenetic analyses.

 

We expect that the operational software platform technology that we have developed with advanced architecture will enable us to meet our business requirements efficiently and effectively. Our operational software goal is to build a basic, modern, core operating infrastructure that enables us to service our sales, marketing, and operations across our entire platform. The platform’s operating system is substantially complete with the majority of the attentive costs associated with the build already incurred. It is built to support our saliva-based underwriting technology and consumer engagement platform, complete with saliva kit distribution and specimen tracking systems, Longevity Report production, consumer dashboard interface, and mobile application access. We expect that our operating platform will support our ability to efficiently grow at scale as we market and sell life insurance products and technology services.

 

We believe our product and service offerings described below allow for significant scaling at a time when we observe (i) burgeoning consumer interest in health and longevity; (ii) increased interest in life insurance due the COVID-19 pandemic; and (iii) a significant opportunity to disrupt a large, old, and slow life insurance industry with innovative applications of fast-moving modern technology. We believe our products and services can help reverse a general decline in household ownership of life insurance in the United States by providing a simplified pathway to purchase life insurance with longevity-focused products that re-establish their relevance with consumers and restore life insurance as a tool for greater social good.

 

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Together, we believe our operating systems comprise a technology innovation stack that makes FOXO capable of scaling to support the demand it expects to receive from the products and services it intends to sell worldwide. Whether running 1,000 saliva-tests or 10,000,000, we believe the design of our operating platform and underlying systems will allow them to be highly scalable — and as a result we expect to be able to address accelerating demand in large and growing markets. In addition, as demand and volume of our saliva-based underwriting technology services scale, we expect to be able to realize significant cost savings across our platforms on the raw material inputs involved in providing our services. Our technology stack is supported by what we believe are best-in-class cloud computing platforms.

 

We have also built a number of technologies that support researchers and commercial enterprises with epigenetic processing, quality checking, and analysis. Extending our technology to researchers in longevity and genomic sciences is a key initiative of our business. We are supporting longevity and genomic sciences in a number of ways including the development of our MethylSuite, which is a bioinformatics software package that supports calculating, reporting and interpreting epigenetic data derived from microarray technology; and the Infinium Mouse Methylation Array, a new microarray designed to advance epigenetic research in model organisms.

 

Privacy and Security

 

FOXO Technologies is entrusted with highly personal data and is committed to protecting the privacy and security of its customers and organization. Protection and access to company data is the keystone of the cybersecurity strategy and is considered the utmost of business requirements.

 

FOXO uses the General Data Protection Regulation (“GDPR”) as its guidepost for data protection practices and continues to monitor emerging U.S. laws.

 

FOXO’s security program is built on the following key success factors: tightly controlled access management based on least-privilege authorization, layered defenses, continuous monitoring, vulnerability testing, rapid response, internal and supply chain risk management, strong executive support, and regular development of a security culture. Integration of our compliance command center tool enables continuous monitoring of policy and practices covering service organization control 2 (“SOC 2”) compliance.

 

Protecting data privacy and security is an organizational-wide responsibility. We protect customer data with a variety of processes and monitoring tools, such as:

 

  Access control is tightly managed with single sign-on, multi-factor authentication, and sensitive data access limited by least-privilege authorization appropriate for job duties and reviewed quarterly.

 

  Internal Risk Assessments are performed quarterly to identify areas of risk to mitigate or eliminate to improve security.

 

  Supply chain risk is being evaluated in an ongoing manner with our comprehensive Third-Party Risk Management program. We use a variety of tools to monitor key Software as a Service (“SaaS”) provider’s security positions as well as regular Risk Assessment questionnaires and evaluations.

 

  Our internal security team is augmented with a 24/7 Security Operations Center with analysts available to respond to alerts and protect data based on continuous monitoring for indicators of compromise including elevation of privilege, suspicious access, and data exfiltration.

 

  Recognizing employees are heavily targeted for compromise, security prioritizes social engineering and phishing awareness with weekly organization-wide updates, quarterly and annual training. Additionally, we manage client systems with end-point protection tools and monitoring agents to prevent malware and ransomware attacks. Samples are uniquely identified with a code number only, and de-identified to minimize potential exposure during processing.

 

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  All data is encrypted at rest and in transit with industry standards.

 

  Regular network and application penetration testing is performed to identify potential vulnerabilities.

 

Security is an ongoing focus with continuous improvement to strengthen our security posture, strengthen data protection, eliminate gaps, and expand our security-as-a-culture. We are completing our control compliance development in preparation for our initial SOC 2 Type II audit. Having a SOC 2 Report will improve our ability to sell to large organizations and attest to our use of best practices for protecting sensitive data. SOC 2 compliant policies, procedures, and controls will make it easier to achieve other security certifications, further increasing customer confidence in FOXO security.

 

Intellectual Property

 

Our approach to intellectual property is guided by the following strategic guidelines: create proprietary intellectual property that adds value, credibility, and competitive advantage; file patents, if possible; and protect our intellectual property as trade-secrets where meaningful patent protection cannot be achieved.

 

Proprietary Intellectual Property 

 

We currently maintain and will continue to create significant trade-secret intellectual property regarding epigenetic biomarker technology. We work with patent attorneys with particular expertise in the intersection of artificial intelligence, machine learning, and biotechnology to file patent applications for our inventions where it furthers the protection of our intellectual property. The Pilot Study, as defined below, serves as the basis of our current proprietary intellectual property assets (trade-secrets and patent claims). Our patent applications are based on the use of machine learning for epigenetic biomarker identification, the application of epigenetics for underwriting risk classification, and synthetic DNA methylation prediction. The following patent applications were filed in the United States only with a non-publication request to prolong confidentiality and allow for an option to abandon one or more in favor of trade secret protection: 

 

  Patent Application USAN 16/579,777: “A Machine Learning Model Trained to Classify Risk Using DNA Epigenetic Data” (filed September 23, 2019).

 

  Patent Application USAN 16/579,818: “A Machine Learning Model Trained to Determine Biochemical State and/or Medical Condition Using DNA Epigenetic Data” (filed September 23, 2019), which has been allowed.

 

  Patent Application USAN 16/591,296: “Synthetic Probe” (filed October 2, 2019).

 

A further patent application will be published in due course: Patent Application USAN 17/482,405: “Machine Learned Quality Control for Epigenetic Data” (filed September 22, 2021). 

 

Licensed Intellectual Property

 

We have licensed “epigenetic clock” patent applications from UCLA for use in the life insurance industry. These licenses require us to achieve certain milestones and pay royalties for the commercial use of the technologies. We intend to continue to pursue licensed technology where we believe such technology adds value to our products or services. Our licensed technology includes:

 

  Patent Application USAN 16/323,490 entitled “DNA Methylation Based Predictor of Mortality” (aka “DNAm Age”, “EEAA”, “Horvath Clock”) (filed February 5, 2019).

 

  Patent Application USAN 17/282,318 entitled “DNA Methylation Biomarker of Aging for Human Ex Vivo and In Vivo Studies” (aka “GrimAge”) (filed April 1, 2021).

 

  Patent Application USAN 16/963,065 entitled “Phenotypic Age and DNA Methylation Based Biomarkers for Life Expectancy and Morbidity” (aka “PhenoAge”) (filed July 17, 2020).

 

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Market Opportunity

 

In 2019, we completed a pilot study that sought to measure a wide range of health and wellness factors used in traditional life insurance underwriting with DNA methylation data derived from blood and saliva (the “Pilot Study”). The Pilot Study began after we concluded market research to inform the product-market fit of combining longevity science with life insurance. Starting in 2018, we initiated market research to begin working with creative marketing assets to engage agents and consumers. Our market research included renting a retail storefront in the downtown Minneapolis skyway where we constructed and operated a consumer “learning laboratory.” We used this learning laboratory to recruit participants for our Pilot Study, host events, post social media content, a podcast, and hold learning seminars. This market research allowed us to develop our consumer value proposition, which includes a full range of benefits to support healthy longevity. The learning laboratory taught us that our value proposition appealed most to consumers who were tech-savvy, forward-thinking, open-minded, and in the market for life insurance. In addition, we found that consumers were much more interested in life insurance when we included their longevity as part of the product purchasing experience. Key learnings from our marketing research included:

 

  75% of visitors reported they would buy life insurance that included molecular health and wellness insights;

 

  47% reported they would purchase our life insurance offering even if it were more expensive;

 

  44% of visitors reported that they had purchased life insurance;

 

  38% of visitors reported that they purchased life insurance when they first got married;

 

  younger consumers, aged 40 and younger, were the most engaged demographic participating in events, social media, site traffic, and consumer surveys; and

 

  older consumers, aged 45 and older, had the most questions about their data and privacy.

 

In 2019, we engaged an insurance industry-leading consultancy to conduct additional market research beyond our Pilot Study to further confirm our product-market fit hypothesis with agents and consumers. In 2020, the overwhelming conclusion from the market research study was that the proposition of bundling molecular health and wellness with life insurance and a saliva-based underwriting protocol was “incredibly strong.”

 

The market research itself consisted of surveying 500 consumers and 125 agents with a 20-minute online survey designed to gather feedback on our value propositions. The objectives of the consumer survey were to measure and rank interest in, and general propensity to pay for (or otherwise perceive distinct or differentiated value in), a life insurance product offering that provides direct consumer benefits around individualized health and wellness information and aging. Key results from the research include:

 

  agents surveyed highlighted the pain point of medical underwriting — and believed that the carrier who supports and embraces saliva-based underwriting technology stands to “win all the business;”;

 

  68% of consumers surveyed indicated they were either excited, motivated, or interested in their individualized health and wellness information;

 

  there was a high level of perceived value in receiving health and wellness information, particularly with agents;

 

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  the impact of bundling the health and wellness value proposition had the immediate effect of moving almost 10% of consumers from non-purchasers of life insurance to prospective purchasers; and

 

  58% of consumers who indicated they had an interest in purchasing life insurance in the next two years preferred the FOXO Life concept over life insurance that did not include health and wellness information.

 

Overall, we believe our market research further confirms our product-market-fit hypothesis that longevity science bundled with life insurance will have an immediate and strong appeal to consumers and agents alike. In addition, our market research indicates that a saliva-based underwriting protocol that replaces the need for blood and urine specimen collection will be a highly desired offering. The results from our market research have informed our go-to-market and business development strategy.

 

Competition 

 

We will encounter significant competition in the life insurance and molecular health and wellness testing business. Many of these competitors have greater financial and other resources than we do and may have significantly greater access to capital markets. Moreover, some of these competitors have significant cash reserves and can better fund shortfalls in collections that might have a more pronounced impact on companies such as FOXO. They also likely have a greater market share. In addition, we compete against other companies seeking to commercialize epigenetic biomarker underwriting technology, both within the insurance industry, as well as in other applications in other markets. In the event that the life insurance companies make a significant effort to compete against our business, we would experience significant challenges to our business model.

 

Competition can take many forms, including the pricing of the financing, transaction structuring, timeliness, and responsiveness in processing a seller’s application and customer service. Some of the competitors may outperform us in these areas. Some competitors target the same type of life insurance clients as we do and generally have operated in the markets for a longer period of time than us. Increased competition may result in increased costs of issuing policies through our MGAs, or it may affect the availability and quality of policies that are available for issuance through our MGAs. These factors could adversely affect our profitability by reducing our return on investment or increasing our risk. 

 

Research & Development

 

Consumer interest in health and wellness is at an all-time high. This excitement is partly spurred by recent advances in fields such as artificial intelligence, biotechnology, and longevity science. We want tools that arm our users with valuable insights about their own health and wellness. We have developed and innovated on a number of biomarkers to help us achieve this for our consumers.

 

Predictive Biomarkers

 

Many clinical biomarkers represent indicators of chronic disease conditions. Oftentimes, by the time the chronic disease sets in, the opportunity for prevention has long passed. Providing early indicators of health trajectories at a molecular scale may provide novel personalized insights into health before the onset of chronic disease. By, first, bringing awareness to a potential health issue before it arises, we believe small lifestyle interventions early on can prevent or slow the development of chronic conditions. Molecular biomarkers through the use of epigenetics may serve as a means to identify more subtle changes in health at a molecular level.

 

In order to identify subtle changes in epigenetic patterning at the early stages of the development of chronic diseases, one must leverage long-standing longitudinal datasets that have obtained biospecimens from a large number of individuals, then followed those individuals for decades to observe who developed chronic diseases. Then one may examine the epigenetic patterns of those who never developed chronic diseases and compare their epigenetic patterns to those who developed specific chronic diseases. Such a study cannot be easily conducted in modern biobanks because of the lack of longitudinal health data on individuals, especially over decades of time – most biobanks are fairly new.

 

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We have completed the acquisition of epigenetic data through Harvard University and Brigham and Women’s Hospital’s Physicians’ Health Study (“PHS”), a longitudinal cohort of over 10,000 individuals. Based on our knowledge of published reports and industry knowledge, we believe this represents one of the largest epigenetic datasets in the world, particularly one with longitudinal health data spanning decades.  We plan to initiate research collaborations with external scientists at major research institutions to accelerate the discovery of predictive epigenetic biomarkers. Due to bandwidth limitations, we believe the advantage of this approach is that it accelerates the time to discover and bring new products to market by making the data more widely available to a larger number of world-class researchers. Furthermore, limited-to-no additional capital will be needed in the next quarter for this effort as we have completed the milestone payments related to this research study. 

 

Biomarkers with Proven Responses

 

The key to biotech products that work in real-world scenarios is rigorous science in both the development and validation of each technology. Because consumers are demanding tools that provide real-time feedback on the effectiveness of lifestyle interventions, ultimately, large randomized trials are needed to develop, improve, and validate the technology.

 

In collaboration with a large academic research institution, we completed generating epigenetic data in randomized controlled trials that tested the effects of vitamin D3, omega-3 fatty acid (eicosapentaenoic acid (“EPA”) + docosahexaenoic acid (“DHA”)), multivitamin, and other supplements and vitamins. The rich longitudinal health data with the epigenetic data that we generated are ripe for the use of artificial intelligence (“AI”) to identify subtle molecular indicators of salutary changes. The value of a more “sensitive” indicator of health changes is that you may not have to wait weeks or months before knowing if a certain intervention is effective for you. Such epigenetic biomarkers may allow rapid “n-of-1” (i.e., personalized health) testing of a number of interventions providing more personalized health regimens to people.

 

Strategically, we also plan to accelerate discovery by leveraging research collaborations with world-class scientists at major research institutions. And, since the data has already been generated, no further capital is needed for the initial phase of analysis.

 

Government Regulation

 

The life insurance and direct-to-consumer testing business is highly regulated at both the federal and state levels. We are subject to federal and state regulation and supervision in the life insurance business. As described below, there are significant regulations in many states that require us to obtain specific licenses or approvals to be able to sell life insurance in those states. We continually research and monitor the regulatory environment and regulatory changes that may apply to our business and intend to apply for the appropriate licenses in the required states, if such licenses are necessary, both federally and at the state level. We plan to provide our products and services under a distributed testing mode with separated “dry” and “wet” labs, with FOXO Labs analyzing epigenetic biomarkers based on data from outsourced testing performed by its partner “wet” lab. Risks related to regulation are detailed in the section entitled “Risk Factors — Risks Related to Our Life Insurance Operations.”

 

Insurance Regulation — Insurance Products

 

The operations of FOXO Life activities, including working with licensed insurance agents, are subject to a complex, state-by-state regulatory framework that includes company and producer licensing requirements, life insurance product regulation, financial regulation, and/or market conduct regulation. Many of these regulations are based upon the NAIC Model Rules, a set of laws, regulations, and guidelines promulgated by the National Association of Insurance Commissioners as proposed statements of insurance law to be adopted by the 50 states. The inclusion of our planned Longevity Report with the sale of life insurance is consistent with other life insurance consumer health and engagement models that are well established in the marketplace. FOXO Life does not expect significant regulatory hurdles for bundling or marketing molecular health and wellness with life insurance.

 

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Insurance Regulation — Epigenetic Biomarkers

 

Underwriting life insurance is subject to state insurance regulation. We believe the use of epigenetic biomarkers in life insurance underwriting is permissible due to the fact that we are seeking to identify similar underwriting impairments already used by other insurance carriers in medical underwriting today. Moreover, the use of epigenetic testing or information in life insurance underwriting is not prohibited at either the federal or state level. Florida and Louisiana are the only states that have explicitly sought to prohibit the use of genetic information, which is distinguishable from epigenetic information, for use in life insurance underwriting.

 

Any adverse change in current laws or regulations, or their interpretation, federally or in one or more states in which we operate or plan to operate (or an aggregation of states in which we conduct a significant amount of business) could result in our curtailment or termination of operations in such states, or cause us to not start or modify our operations in a manner that adversely affects our ultimate profitability. Any such action could have a corresponding material adverse impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could have a material adverse impact on our business.

 

Human Testing Services — Consumer Engagement and Underwriting

 

Conducting human testing is subject to state and federal regulation. Clinical Laboratory Improvement Amendments, or CLIA, is the federal law (administered by the Centers for Medicare & Medicaid Services, or “CMS”) that, in partnership with the states, regulates clinical laboratories that perform testing on human specimens. The Federal Food, Drug, and Cosmetic Act (the “FDC Act”) gives the United States Food and Drug Administration, or FDA, the authority to regulate manufacturers of medical devices. We do not believe that our “dry lab” data analysis services require certification under CLIA, or that FDA jurisdiction or enforcement would be exercised over insurance underwriting or our use of data analysis for general health and wellness and non-diagnostic or medical treatment purposes (see section titled “Risk Factors — Risks Related to Our Epigenetic Testing Services”).

 

Any adverse change in present laws or regulations, or their interpretation, federally or in one or more states in which we operate or plan to operate (or an aggregation of states in which we conduct a significant amount of business) could result in our curtailment or termination of operations in such jurisdictions, or cause us to not start or modify its operations in a way that adversely affects our ultimate profitability. Further, the failure of our wet-laboratory partners to hold a CLIA certification appropriate to the type of testing they provide could result in adverse regulatory action (see section titled “Risk Factors — Risks Related to Our Epigenetic Testing Services”). Any such action could have a corresponding material adverse impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could have a material adverse impact on our business.

 

Suppliers and Lab Processing

 

Our supplies and lab processing primarily includes vendors that provide our saliva kits, arrays, and process samples at laboratories. We utilize third-parties for these supplies and services. While we consider many of these third-parties single suppliers, we have qualified second sources for our saliva kits and lab processing. Our arrays are specialized, and we would not be able to quickly change suppliers should the need arise.

 

Supply interruptions, tariffs on components used on our saliva kits, arrays and others, or price increases may slow production, delay shipments to our customers or increase production costs in the future, any of which could adversely affect our financial results. Although we have not experienced any significant delays or interruptions, we expect that delays, interruptions or non-optimal scheduling of production related to interruptions in components we use to provide our services would result in an increase to our costs. We can give no assurance that global supply-chain constraints, geopolitical conflicts or limited ability for third-parties to be able to provide the materials and components we need will not adversely affect our ability to procure materials and components necessary to develop our products.

 

Facilities

 

We do not own any real property but lease an office space. Our principal executive offices are located at 729 N. Washington Ave., Suite 600, Minneapolis, MN 55401.

 

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Employees

 

As of July 28, 2023, after taking into account layoffs effective as of July 21, 2023, we have four executive officers and approximately 14 other employees and consultants supporting our business. We have sought to bring together a diverse and multidisciplinary group of professionals who share in our passion for modernizing the life insurance industry with longevity science. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Layoffs” for more information regarding the layoffs.

 

Legal Proceedings

 

Smithline Family Trust II vs. FOXO Technologies Inc. and Jon Sabes

 

On November 18, 2022, Smithline Family Trust II (“Smithline”) filed a complaint against the Company and Jon Sabes, the Company’s former Chief Executive Officer and a former member of the Company’s board of directors, in the Supreme Court of the State of New York, County of New York, Index 0654430/2022. The complaint asserts claims for breach of contract, unjust enrichment and fraud, alleging that (i) the Company breached its obligations to Smithline pursuant to that certain Securities Purchase Agreement, dated January 25, 2021, between Legacy FOXO and Smithline, an accompanying 12.5% Original Issue Discount Convertible Debenture, due February 23, 2022, and Warrant to purchase shares of FOXO common stock until February 23, 2024 (collectively, including any amendment or other document entered into in connection therewith, the “Financing Documents”), (ii) the Company and Mr. Sabes were unjustly enriched as a result of their alleged actions and omissions in connection with the Financing Documents, and (iii) the Company and Mr. Sabes made materially false statements or omitted material information in connection with the Financing Documents. The complaint claims damages in excess of a minimum of $6,206,768 on each of the three causes of action, plus attorneys’ fees and costs.

 

On December 23, 2022, FOXO removed this action from the Supreme Court of the State of New York, County of New York to the United States District Court for the Southern District of New York, Case 1:22-cv-10858-VEC. The action was assigned to Judge Valerie E. Caproni.

 

On February 1, 2023, Defendant Jon Sabes moved to dismiss the Complaint as to Defendant Sabes pursuant to Fed. R. Civ. P. 12(b)(2) and 12(b)(6).

 

On February 22, 2023, Smithline filed an Amended Complaint. The Company filed its Answer to the Amended Complaint on March 8, 2023.

 

On March 15, 2023, Defendant Jon Sabes moved to dismiss the Amended Complaint as to Defendant Sabes pursuant to Fed. R. Civ. P. 12(b)(1), (2) & (6). On April 17, 2023, Smithline filed its opposition to Defendant Sabes’ motion. Sabes’ motion remains undecided.

 

This action is in the discovery phase of the litigation process and the Company is unable to determine the outcome. The Company is contesting this case vigorously.

 

SEC Investigation

 

On March 3, 2023, the Company received a document request from the SEC indicating that the SEC was conducting an investigation regarding the Company and sought documents concerning (1) Jon Sabes’ termination as CEO, (2) Jon Sabes’ resignation from the Company’s board of directors, and (3) Steven Sabes’ termination as COO, and is voluntarily responding to the SEC’s request. According to the SEC’s request, its investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of the Company or any person, event, or security. At this point, the Company cannot predict the eventual scope, duration or outcome of this matter.

 

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Delaware 205 Petition

 

On March 30, 2023, the Company filed a petition in the Delaware Court of Chancery pursuant to Section 205 of the Delaware General Corporation Law seeking validation of the Charter, which included a 464,000,000 share increase in the number of authorized shares of Class A Common Stock (the “2022 Class A Increase Amendment”), and all shares of Class A Common Stock issued at or after the filing of the Charter, to resolve any uncertainty with respect to those matters (captioned In re FOXO Technologies Inc., C.A. No. 2023-0379-LWW (Del. Ch.), the “Section 205 Action”).

 

On April 13, 2023, the Court of Chancery held a hearing in the Section 205 Action and issued an order in the Section 205 Action granting the Company’s petition validating the 2022 Class A Increase Amendment and the Charter, and all shares of capital stock of the Company issued in reliance on the effectiveness of the 2022 Class A Increase Amendment and the Charter. 

 

Corporate Information

 

Legacy FOXO was formed as a limited liability company on November 11, 2019 to become a separate and independently managed and controlled entity from GWG Holdings, Inc. Legacy FOXO was previously named InsurTech Holdings, LLC and FOXO BioScience LLC. On November 13, 2020, FOXO Bioscience LLC converted into a C-Corporation to become FOXO Technologies Inc.

 

Effective September 15, 2022 we consummated our previously announced Business Combination pursuant to the Merger Agreement, whereby DWIN Merger Sub Inc. merged with and into Legacy FOXO, with Legacy FOXO surviving as a wholly-owned subsidiary of Delwinds. Upon consummation of our Business Combination, our name changed from Delwinds Insurance Acquisition Corp. to FOXO Technologies Inc.

 

As a result of and upon the Closing, among other things, (1) all outstanding shares of Legacy FOXO Class A Common Stock (after giving effect to the required conversion of all outstanding shares of Legacy FOXO preferred stock into shares of Legacy FOXO Class A Common Stock immediately prior to, and contingent upon, the Closing) and Legacy FOXO Class B Common Stock were converted into 24,718,705 shares of the Company’s Class A Common Stock, (3) all FOXO options and FOXO warrants outstanding immediately prior to the effective time of the Merger were assumed and converted, subject to adjustment pursuant to the terms of the Merger Agreement, into options and warrants, respectively, of the Company, exercisable for shares of Class A Common Stock and (4) other than Assumed Options and Assumed Warrants, all other convertible securities and other rights to purchase capital stock of FOXO were retired and terminated, if they were not converted, exchanged or exercised for FOXO common stock immediately prior to the effective time of the Merger.

 

We maintain two wholly-owned operating subsidiaries, FOXO Labs Inc., formerly named Life Epigenetics Inc., and FOXO Life, LLC, formerly named youSurance General Agency, LLC.

 

FOXO Labs Inc. (“FOXO Labs”) is the operating entity for our services platform designed to provide saliva-based epigenetic technology, bioinformatic services, and molecular health and wellness engagement services. FOXO Labs maintains a wholly-owned subsidiary, Scientific Testing Partners, LLC, to conduct its research.

 

FOXO Life, LLC is the operating entity for our insurance products platform designed to market and sell life insurance that may be bundled with longevity science. FOXO Life is licensed as a general insurance agency and previously maintained a wholly-owned subsidiary, FOXO Life Insurance Company.

 

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MANAGEMENT

 

Executive Officers and Directors

 

The business and affairs of the Company are managed by or under the direction of the Board.

 

The following table sets forth the name, age and position of each of the current directors and executive officers of the Company:

 

Name   Age   Position
Executive Officers        
Tyler Danielson   37   Interim Chief Executive Officer and Chief Technology Officer
Robert Potashnick   43   Chief Financial Officer
Brian Chen, PhD   44   Chief Science Officer
Michael Will   42   General Counsel
Non-Employee Directors        
Andrew J. Poole(1)(2)(3)   42   Class III Director
Bret Barnes(1)(2)(3)   41   Chairman and Director
Murdoc Khaleghi   42   Class II Director

 

(1)Member of nominating and corporate governance committee.

 

(2)Member of compensation committee.

 

(3)Member of audit committee.

 

The principal occupations and positions for at least the past five years of our directors are described below. There are no family relationships among any of our directors or executive officers.

 

Executive Officers

 

Tyler Danielson Interim Chief Executive Officer and Chief Technology Officer

 

Mr. Danielson has served as the Interim Chief Executive Officer since November 2022 and the Chief Technology Officer of FOXO since 2020. From 2019 to 2020, Mr. Danielson served as Platform Product Owner of Cargill, a global food distributor. Before that, from 2015 to 2019, Mr. Danielson served as User Interface Software Architect at brightpeak financial, a division of Thrivent Financial. Mr. Danielson holds a Master’s Degree in Computer Science from the University of Minnesota.

 

Robert Potashnick Chief Financial Officer

 

Mr. Potashnick has served as the Chief Financial Officer of FOXO since the beginning of 2021. From 2017 to 2020, Mr. Potashnick served in capital planning and business development finance roles at UnitedHealth Group (NYSE American: UNH). Before that, from 2010 to 2017, Mr. Potashnick worked as a certified public accountant at PricewaterhouseCoopers LLP. Other prior work experiences include working in mergers and acquisitions at Blaige & Company and as a trader at Great Point Trading. Mr. Potashnick holds a Bachelor of Arts degree in Economics from Northwestern University, a Master’s Degree in Accountancy from the University of Illinois, and a MBA (Finance/Strategy) from DePaul University.

 

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Brian Chen, PhD Chief Science Officer

 

Mr. Chen has served as the Chief Science Officer of FOXO since 2019. Prior to that time, from 2017 to 2019, Mr. Chen served as Vice President of Research and Analytics at Actua Life & Annuity, Ltd., an insurtech startup that later became FOXO Labs, Inc. Mr. Chen holds a Ph.D. degree from University of California, Los Angeles and a Master’s Degree in Public Health from the University of California, Berkeley.

 

Michael WillGeneral Counsel

 

Mr. Will has served as the General Counsel of FOXO since 2019. From 2016 to 2019, Mr. Will served as Legal and Compliance Officer, and then Senior Counsel, of brightpeak financial, a division of Thrivent Financial. Mr. Will also supported Thrivent’s life insurance manufacturing and distribution teams on products including universal life, variable universal life, and whole life plus. Prior to brightpeak/Thrivent, Mr. Will spent ten years in private practice representing property & casualty insurance carriers on a variety of first and third-party coverage matters. Mr. Will holds a Bachelor of Arts degree from Gustavus Adolphus College, and a Juris Doctor degree from the University of St. Thomas School of Law. Mr. Will is licensed to practice law before the state and federal courts of the State of Minnesota.

 

Non-Employee Directors

 

Andrew J. Poole Director

 

Mr. Poole has served as a director of FOXO since September 2022. He previously served as Chief Executive Officer and Chairman of Delwinds from its inception until the Closing of the Business Combination and has over 18 years of diversified investment experience. Mr. Poole was the Chief Investment Officer of Tiberius, a blank check company which went public in March 2018 with $174.225 million held in trust and which consummated its initial business combination with International General Insurance Holdings Ltd. (Nasdaq: IGIC), or “IGI,” an international specialty insurance and reinsurance group registered in Bermuda, in March 2020 under very challenging market conditions. Upon the closing of Tiberius’ business combination, Mr. Poole joined the board of IGI. Concurrently, since October 2015 he has been and remains an investment consultant at The Gray Insurance Company. Mr. Poole’s most recent role prior to joining Tiberius and The Gray Insurance Company was as Partner and Portfolio Manager at Scoria Capital Partners, LP, a long/short equity hedge fund, where he managed a portion of the firm’s capital including insurance sector investments from 2013 to 2015. Prior to Scoria, Mr. Poole held various positions at Diamondback Capital Management from 2005 to 2012 (including Portfolio Manager from 2011 onwards) and SAC Capital from 2004 to 2005, both of which are multi-strategy multi-manager cross capital structure long/short hedge funds. Earlier, Mr. Poole started his career at Swiss Re (SIX: SREN) working in facultative property placements in 2003 and was on the board of Family Security, a personal lines insurance company, from 2013 to 2015 prior to the sale of the company to United Insurance Holdings Corporation (Nasdaq: UIHC). Mr. Poole is a graduate of The George Washington University. We believe Mr. Poole is qualified to serve on the Board due to his background in investment management of insurance investments, his extensive public company insurance valuation expertise and deep knowledge of, and connections in, the insurance industry.

 

Murdoc Khaleghi, M.D. Director

 

Dr. Khaleghi is a physician with 20 years of experience, and also a researcher and author. He has served as a member of the Board since July of 2021. He currently serves as the Chief Medical Officer of Helium, a role he has held since 2020. From 2012 until 2022, Dr. Khaleghi served as the Chief Medical Officer of WellnessFX. He also served as the Chief Medical Officer of Neurotrack from 2020 until 2022. Dr. Khaleghi also serves as Chief Medical Officer, or on the board of directors, of a number of private medical device and technology companies. From 2015 to 2017, he was the Chief Medical Officer of EverlyWell, where he was the first employee hired. Dr. Khaleghi attended the University of California San Diego and holds a degree in Bioengineering as well as a Doctor of Medicine. Dr. Khaleghi also has an MBA from the University of California, Berkeley, an MBA from Columbia Business School and a Master’s degree in Computer Science from University of Pennsylvania. Dr. Khaleghi holds a medical license from the Colorado Medical Board and the Medical Board of California. We believe that Dr. Khaleghi’s financial and industry experience qualify him to serve on the Board.

 

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Bret Barnes Chairman and Director

 

Mr. Barnes has served as a member of the Board since November 2021 and became Chairman in November 2022. Since April 2007, Mr. Barnes has served as a Staff Bioinformatics Scientist for Illumina, Inc. (NASDAQ: ILMN). Mr. Barnes has developed a number of patents and products, including methods to examine methylation of genomic DNA and methods for diagnosing respiratory pathogens and predicting COVID-19 related outcomes. Mr. Barnes has been the core bioinformatics lead on all Infinium Methylation products, including all original and new novel design capabilities. In addition to his array development efforts, Mr. Barnes has been instrumental in developing structural variant detection algorithms via DNA sequencing at Illumina, Inc. Prior to that position, Mr. Barnes served as a Bioinformatics Software Engineer from 2005 to 2007 at Science Applications International Corporation (NYSE American: SAIC). Mr. Barnes holds a Bachelor of Science degree in Bioinformatics from the University of California, Santa Cruz. Mr. Barnes was among the first graduates at University of California, Santa Cruz to receive a degree in bioinformatics. We believe that Mr. Barnes’ industry experience qualifies him to serve on the Board.

 

Board of Directors

 

Following the consummation of the Business Combination, the Board was divided into three classes, as nearly equal in number as possible and designated Class I, Class II and Class III. The term of the initial Class I directors expired at the first annual meeting of the stockholders following the consummation of the Business Combination, which was held on May 26, 2023. The term of the initial Class II directors will expire at the second annual meeting of the stockholders following the consummation of the Business Combination and the term of the initial Class III directors will expire on the third annual meeting of the stockholders following the consummation of the Business Combination.

 

Directors elected at annual meetings of stockholders following the consummation of the Business Combination will be elected for terms expiring at the next annual meeting of stockholders or until the election and qualification of their respective successors in office, subject to their earlier death, resignation, removal or the earlier termination of his or her term of office. At our 2023 Annual Meeting of Stockholders held on May 26, 2023, our stockholders elected Mr. Barnes, formerly a Class I director, to serve as a director until the next annual meeting of stockholders or until the election and qualification of his successor.

 

Our Charter and Company Bylaws provide that the authorized number of directors may be changed only by resolution of the Board. Subject to the terms of any preferred stock, any or all of the directors may be removed from office at any time, with or without cause, and only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of voting stock of the Company entitled to vote at an election of directors. Any vacancy on the Board, including a vacancy resulting from an enlargement of the Board, may be filled only by the affirmative vote of a majority of the Company’s directors then in office.

 

When considering whether directors and director nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively in light of its business and structure, the Board expects to focus primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above in order to provide an appropriate mix of experience and skills relevant to the size and nature of its business.

 

Director Independence

 

As a result of the Class A Common Stock being listed on the NYSE American following the consummation of the Business Combination, it is required to comply with the applicable rules of such exchange in determining whether a director is independent. Prior to the completion of the Business Combination, the Board undertook a review of the independence of the individuals named above and have determined that each of Dr. Khaleghi, Mr. Barnes and Mr. Poole qualifies as “independent” as defined under the applicable NYSE American rules, and the Board consists of a majority of “independent directors,” as defined under the rules of the SEC and NYSE American relating to director independence requirements. In addition, the Company is subject to the rules of the SEC and NYSE American relating to the membership, qualifications and operations of the audit committee, as discussed below.

 

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Board Committees

 

The Board directs the management of its business and affairs, as provided by Delaware law, and will conduct its business through meetings of the Board and standing committees. The Company has a standing audit committee, compensation committee and nominating and corporate governance committee, each of which operates under a written charter.

 

In addition, from time to time, special committees may be established under the direction of the Board when the Board deems it necessary or advisable to address specific issues. Current copies of the Company’s committee charters are posted on its website, www.foxotechnologies.com, as required by applicable SEC and the NYSE American rules. The information on or available through any of such website is not deemed incorporated in this registration statement and does not form part of this registration statement.

 

Audit Committee

 

The Company’s audit committee consists of Bret Barnes and Andrew Poole. The Board has determined that each of these individuals meets the independence requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, Rule 10A-3 under the Exchange Act and the applicable listing standards of the NYSE American. Each member of the Company’s audit committee meets the requirements for financial literacy under the applicable NYSE American rules. In arriving at this determination, the Board has examined each audit committee member’s scope of experience and the nature of their prior and/or current employment.

 

The Board has determined that Mr. Poole qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the NYSE American rules. In making this determination, the Board has considered Mr. Poole’s formal education and previous and current experience in financial and accounting roles. Both the Company’s independent registered public accounting firm and management periodically will meet privately with the Company’s audit committee.

 

The audit committee’s responsibilities include, among other things:

 

  appointing, compensating, retaining, evaluating, terminating and overseeing the Company’s independent registered public accounting firm;

 

  discussing with the Company’s independent registered public accounting firm their independence from management;

 

  reviewing with the Company’s independent registered public accounting firm the scope and results of their audit;

 

  pre-approving all audit and permissible non-audit services to be performed by the Company’s independent registered public accounting firm;

 

  overseeing the financial reporting process and discussing with management and the Company’s independent registered public accounting firm the interim and annual financial statements that the Company files with the SEC;

 

  reviewing and monitoring the Company’s accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; and

 

  establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters.

 

The composition and function of the audit committee complies with applicable requirements of the Sarbanes-Oxley Act, SEC rules and regulations and NYSE American listing rules. The Company will comply with future requirements to the extent they become applicable to the Company.

 

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Compensation Committee

 

The Company’s compensation committee consists of Bret Barnes and Andrew Poole. Bret Barnes and Andrew Poole are non-employee directors, as defined in Rule 16b-3 promulgated under the Exchange Act. The Board has determined that Bret Barnes and Andrew Poole are “independent” as defined under the applicable NYSE American listing standards, including the standards specific to members of a compensation committee.

 

The compensation committee’s responsibilities include, among other things:

 

  reviewing and approving corporate goals and objectives relevant to the compensation of the Company’s Chief Executive Officer, evaluating the performance of the Company’s Chief Executive Officer in light of these goals and objectives and setting or making recommendations to the Board regarding the compensation of the Company’s Chief Executive Officer;

 

  reviewing and setting or making recommendations to the Board regarding the compensation of the Company’s other executive officers;

 

  making recommendations to the Board regarding the compensation of the Company’s directors;

 

  reviewing and approving or making recommendations to the Board regarding the Company’s incentive compensation and equity-based plans and arrangements; and

 

  appointing and overseeing any compensation consultants.

 

The composition and function of its compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act, SEC rules and regulations and the NYSE American listing rules. The Company will comply with future requirements to the extent they become applicable to the Company.

 

Nominating and Corporate Governance Committee

 

The Company’s nominating and corporate governance committee consists of Bret Barnes and Andrew Poole. The Board has determined that each of Bret Barnes and Andrew Poole is “independent” as defined under the applicable listing standards of the NYSE American and SEC rules and regulations.

 

The nominating and corporate governance committee’s responsibilities include, among other things:

 

  identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board;

 

  recommending to the Board the nominees for election to the Board at annual meetings of the Company’s stockholders;

 

  overseeing an evaluation of the Board and its committees; and

 

  developing and recommending to the Board a set of corporate governance guidelines.

 

The composition and function of the nominating and corporate governance committee complies with all applicable requirements of the Sarbanes-Oxley Act, SEC rules and regulations and NYSE American listing rules. The Company will comply with future requirements to the extent they become applicable to the Company.

 

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Compensation Committee Interlocks and Insider Participation

 

None of the members of the Company’s compensation committee has ever been an executive officer or employee of the Company. None of the Company’s executive officers currently serve, or have served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers that will serve as a member of the Board or compensation committee.

 

Role of the Board in Risk Oversight/Risk Committee

 

One of the key functions of the Board is informed oversight of the Company’s risk management process. The Board does not anticipate having a standing risk management committee, but rather anticipates administering this oversight function directly through the Board as a whole, as well as through various standing committees of the Board that address risks inherent in their respective areas of oversight. For example, the Company audit committee will be responsible for overseeing the management of risks associated with the Company’s financial reporting, accounting, and auditing matters; the Company’s compensation committee will oversee the management of risks associated with our compensation policies and programs.

 

Board Oversight of Cybersecurity Risks

 

The Company faces a number of risks, including cybersecurity risks and those other risks described under the section titled “Risk Factors” included in this registration statement. The Board plays an active role in monitoring cybersecurity risks and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the Company’s operations. In addition to regular reports from each of the Board’s committees, the Board receives regular reports from management, including its chief technology officer and chief security officer, on material cybersecurity risks and the degree of the Company’s exposure to those risks. While the Board oversees its cybersecurity risk management, management is responsible for day-to-day risk management processes. Management works with third party service providers to maintain appropriate controls. We believe this division of responsibilities is the most effective approach for addressing the Company’s cybersecurity risks and that the Board leadership structure supports this approach.

 

Limitation on Liability and Indemnification of Directors and Officers

 

The Charter contains provisions that limit the liability of the Company’s directors for damages to the fullest extent permitted by Delaware law. Consequently, the Company’s directors will not be personally liable to the Company or its stockholders for damages as a result of an act or failure to act in his or her capacity as a director, unless:

 

  the presumption that directors are acting in good faith, on an informed basis, and with a view to the interests of the corporation has been rebutted; and

 

  it is proven that the director’s act or failure to act constituted a breach of his or her fiduciary duties as a director and such breach involved intentional misconduct, fraud or a knowing violation of law.

 

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The Charter requires the Company to indemnify and advance expenses to, to the fullest extent permitted by applicable law, its directors, officers and agents. The Company maintains a directors’ and officers’ insurance policy pursuant to which the Company’s directors and officers are insured against liability for actions taken in their capacities as directors and officers. Finally, the Charter prohibits any retroactive changes to the rights or protections or increasing the liability of any director in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

 

In addition, the Company has entered and will enter into separate indemnification agreements with the Company’s directors and officers. These agreements, among other things, require the Company to indemnify its directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as one of the Company’s directors or officers or any other company or enterprise to which the person provides services at the Company’s request.

 

We believe these provisions in the Charter are necessary to attract and retain qualified persons as directors and officers for the Company.

 

Corporate Governance Guidelines and Code of Business Conduct

 

The Board adopted Corporate Governance Guidelines that address items such as the qualifications and responsibilities of its directors and director candidates and corporate governance policies and standards applicable to its directors. In addition, the Board adopted a Code of Business Conduct and Ethics that applies to all of its employees, officers and directors, including its Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers.

 

The full text of the Company’s Corporate Governance Guidelines and its Code of Business Conduct and Ethics is posted on the Corporate Governance portion of the Company’s website at www.foxotechnologies.com. Information contained on or accessible through the Company’s website is not a part of this registration statement, and the inclusion of the Company’s website address in this registration statement is an inactive textual reference only. The Company intends to make any legally required disclosures regarding amendments to, or waivers of, provisions of its Code of Business Conduct and Ethics on its website rather than by filing a Current Report on Form 8-K.

 

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EXECUTIVE COMPENSATION

 

Unless the context otherwise requires, any reference in this section of this registration statement to “FOXO,” “we,” “us,” or “our” refers to FOXO and its consolidated subsidiaries after the consummation of the Business Combination and to the Company and its subsidiaries after the Business Combination.

 

FOXO is an “emerging growth company,” as defined in the JOBS Act, and thus the following disclosures are intended to comply with the scaled disclosure requirements applicable to emerging growth companies and “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Exchange Act, which require compensation disclosure for our principal executive officer and the two most highly compensated executive officers other than our principal executive officer, whom we refer to as our “named executive officers.”

 

This section discusses the material components of the executive compensation program offered to our named executive officers. Our named executive officers for the years ended December 31, 2022 and 2021 were as follows:

 

  Tyler Danielson, our Chief Technology Officer and Interim Chief Executive Officer;

 

  Brian Chen, PhD, our Chief Science Officer;

 

  Robert Potashnick, our Chief Financial Officer;

 

  Jon Sabes, our former Chief Executive Officer and Chairman; and

 

  Steven Sabes, our former Chief Operating Officer.

 

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that FOXO adopts could vary materially from our historical practices and currently planned programs summarized in this discussion.

 

We will continue to update, in accordance with the rules and regulations of the SEC, information in this section regarding the compensation of our named executive officers.

 

Executive Compensation Overview

 

Compensation Philosophy

 

FOXO has designed its compensation and benefits program to attract, retain, incentivize and reward talented and qualified executives who share our philosophy and desire to achieve our enterprise goals. We believe our compensation program should promote the success of FOXO and align executive incentives with the long-term interest of its stockholders. Our current compensation programs reflect our startup origins in that they consist primarily of base salaries and short-term incentive compensation, as well as the grant of options to purchase stock. As we recently transitioned from a private company to a publicly traded company, we intend to evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require.

 

Compensation Elements

 

The compensation for our named executive officers consists of the following:

 

Compensation Element   Purpose
Base Salary   To provide stable and competitive income.
     
Equity-Based Compensation   To encourage executives to maximize long-term stockholder value (provided in the form of stock option awards).
     
Short-Term Incentive Compensation   To motivate and reward short-term behaviors, actions and results that drive long-term value creation.

 

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To accomplish both its short-term and long-term objectives, the compensation program emphasizes pay-for-performance, with two variable components. Base salary is intended to provide a fixed component of compensation commensurate with the executive’s skill set, experience, role and responsibilities, and is compared against those in similar positions at similar companies. Variable components include short-term incentive compensation and long-term equity-based incentives, which are used to align each component of incentive compensation with our short and long-term business objectives. Discretionary biannual incentive bonuses, paid in the form of stock option awards, and/or cash, are worth, at maximum, 10% of each named executive officer’s annual base salary per review cycle, for an annual total value of up to 20% of each named executive officer’s base salary.

 

Summary Compensation Table

 

The following table sets forth information regarding the total compensation awarded to and earned by our named executive officers for services rendered in all capacities for the years ended December 31, 2022 and 2021.

 

               Option   Stock     
       Salary   Bonus   Awards   Awards   Total 
Name and Principal Position  Year   ($)   ($)(1)   ($)(2)   ($)(2)(3)   ($) 
Tyler Danielson   2022    205,000        22    5,935,600    6,140,622 
Interim Chief Executive Officer and
Chief Technology Officer
   2021    195,000    500    40,845    682    237,027 
                               
Brian Chen, PhD   2022    236,000        22    5,935,600    6,171,622 
Chief Science Officer   2021    236,000    500    49,903        286,403 
                               
Robert Potashnick   2022    205,000        22    3,983,100    4,188,122 
Chief Financial Officer   2021    180,000    500    39,148        219,648 
                               
Jon Sabes   2022    480,000        22    27,389,670    27,869,692 
Former Chief Executive Officer   2021    480,000    500    1,184        481,684 
                               
Steven Sabes   2022    200,000        22    3,983,100    4,183,122 
Former Chief Operating Officer   2021    200,000    500    43,031        243,531 

 

(1)2021 amounts reflect the payment of a holiday bonus earned and paid in the year ended December 31, 2021.

 

(2)Amounts reflect the aggregate grant date fair value of stock option awards and restricted stock granted under FOXO’s 2020 Equity Incentive Plan (the “2020 Plan”) to our named executive officers during the year ended December 31, 2021 and 2022, computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. See Note 8 of the audited consolidated financial statements included elsewhere in this registration statement for a discussion of the relevant assumptions used in calculating this amount for the year ended December 31, 2021. These amounts do not reflect the actual economic value that may be realized by the named executive officer.

 

(3)2022 amounts reflect the aggregate fair value of restricted stock as part of FOXO’s Management Contingent Share Plan to our named executive officers during the year ended December 31, 2022, computed in accordance with FASB ASC 718, Compensation – Stock Compensation. See Note 8 of the consolidated financial statements included elsewhere in this registration statement for a discussion of the relevant assumptions used in calculating this amount. These amounts do not reflect the actual economic value that may be realized by the named executive officer.

 

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Narrative Disclosure to the Summary Compensation Table

 

Equity-Based Compensation

 

Legacy FOXO previously utilized its 2020 Equity Incentive Plan, or the 2020 Plan, to enable it and its affiliates to attract and retain qualified employees (including officers), consultants and directors to contribute to its long range success, provide incentives that aligned their interests with those of Legacy FOXO stockholders, and promote the success of its business. The Legacy FOXO board of directors adopted, and the Legacy FOXO stockholders approved, the 2020 Plan in 2020. The 2020 Plan governs and previously facilitated the grant of incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, cash awards and other equity-based awards.

 

Prior to the closing of the Business Combination, our named executive officers received equity-based compensation in the form of stock option awards under the 2020 Plan, as described below. Under the 2020 Plan, stock option awards generally vest monthly over a three-year period and have a term of five years. Prior to the adoption of the 2020 Plan and the Corporate Conversion, equity-based compensation was provided in the form of profits interests agreements, as described previously.

 

Following the approval of the 2022 Plan, the 2020 Plan was terminated and no further awards will be granted under the 2020 Plan.

 

The following describes certain material terms of the 2020 Plan.

 

Grants, Generally. The 2020 Plan provided both for the direct award or sale of shares and for the grant of incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”). ISOs may have been granted only to Legacy FOXO employees. All other awards may have been granted to employees, consultants and directors of Legacy FOXO.

 

The maximum number of shares of Legacy FOXO common stock that may have been issued over the term of the 2020 Plan was 7,000,000 shares on a pre-Business Combination basis, or approximately 4,065,861 on a post-Business Combination basis. As of December 31, 2022, stock options to purchase 2,765,099 shares of FOXO Class A Common Stock on a post-Business Combination basis with a weighted-average exercise price of $7.02 per share were outstanding under the 2020 Plan. Additionally, 30,000 shares on a pre-Business Combination basis or 17,425 on a post-Business Combination basis of restricted stock were granted pursuant to the 2020 Plan to an employee who is a named executive officer now but was not at the time of issuance. There were no outstanding awards under the 2020 Plan other than these options and restricted stock.

 

Administration. The Legacy FOXO board of directors, or a committee delegated by the Legacy FOXO board of directors, administered the 2020 Plan. Our Board has assumed such role following the Business Combination. During the term and subject to the terms of the 2020 Plan, the administrator had the power to, among other things, construe and interpret the 2020 Plan and apply its provisions, determined when awards were to be granted under the 2020 Plan and the applicable grant date, prescribed the terms and conditions of each award, including, without limitation, the exercise price and medium of payment and vesting provisions, and specified the provisions of the award agreement relating to such grant, made decisions with respect to outstanding awards that may have become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments, and exercised discretion to make any and all other determinations which it determined to be necessary or advisable for the administration of the 2020 Plan.

 

Options. Each of the named executive officers was granted a mix of ISOs and NSOs. See the “Outstanding Equity Awards” table below for further information about our named executive officers’ outstanding options as of December 31, 2021.

 

Under the terms of the 2020 Plan, no stock option is exercisable after the expiration of five years from the grant date.

 

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The exercise price per share of options granted under the 2020 Plan must be at least 100% of the fair market value per share of Legacy FOXO common stock on the grant date, subject to certain exceptions. Subject to the provisions of the 2020 Plan, the administrator determined the other terms of options, including any vesting and exercisability requirements, the method of payment of the option exercise price, the option expiration date, and the period following termination of service during which options may remain exercisable.

 

Adjustments upon Changes in Stock. In the event of changes in the outstanding Legacy FOXO common stock (now, our shares of Class A Common Stock) or in the capital structure of Legacy FOXO by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the grant date of any award, awards granted under the 2020 Plan and any award agreements, the exercise price of options, the maximum number of shares of Legacy FOXO common stock subject to all awards set forth above would be equitably adjusted or substituted, as to the number, price or kind of a share of Legacy FOXO common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of such award.

 

Effect of Change in Control. Unless otherwise provided in an award agreement, in the event of a participant’s termination of continuous service without cause or for good reason (as defined in the 2020 Plan) during the 12-month period following a change in control, all outstanding options will become fully vested and immediately exercisable.

 

Short-Term Incentive Compensation

 

As outlined in our compensation policy, our named executive officers are eligible to earn discretionary biannual incentive bonuses. These discretionary incentive bonuses are worth, at maximum, 10% of each named executive officer’s annual base salary per review cycle, for an annual total value of up to 20% of each named executive officer’s base salary. Review cycles occur biannually, following the second and fourth quarter of each year, and discretionary incentive bonuses are paid at the conclusion of these review cycles. Discretionary biannual incentive bonuses awarded to named executive officers are paid in the form of stock option awards, cash, or some combination of the two. As such, since our named executive officers typically received their biannual incentive bonuses in the form of stock options, these amounts, as applicable to each year presented, are included in the “option awards” column of the summary compensation table above.

 

Agreements with Named Executive Officers

 

Agreement with Tyler Danielson

 

We entered into an offer letter with Tyler Danielson on September 3, 2020, pursuant to which Mr. Danielson agreed to serve as our Chief Technology Officer and receive an annual base salary of $195,000. Mr. Danielson’s employment will continue until such time as either the Company or Mr. Danielson terminates employment. Mr. Danielson was granted 17,425 shares of restricted stock on a post-business combination basis as replacement for a signing bonus that was initially intended to be in the form of a Sprinter Van.

 

Mr. Danielson is also eligible to participate in a discretionary incentive compensation plan and receive annual incentive compensation in the form of cash and/or stock options based on individual performance and the Company’s achievement of certain milestones, with a payment expected to equate to up to 20% of annual base salary. Incentive compensation will be at the discretion of the Company.

 

Mr. Danielson is also eligible for standard benefit plans made available to management-level employees.

 

The Company has yet to enter into a new employment agreement with Mr. Danielson to reflect his role as our Interim Chief Executive Officer. 

 

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Agreement with Robert Potashnick

 

We entered into an employment agreement with Robert Potashnick on December 29, 2020, pursuant to which Mr. Potashnick agreed to serve as our Chief Financial Officer and receive an annual base salary of $180,000. Mr. Potashnick’s employment will continue until such time either the Company or Mr. Potashnick terminates the employment agreement.

 

Mr. Potashnick is eligible to participate in a discretionary incentive compensation plan and receive annual incentive compensation in the form of cash and/or stock options based on individual performance and the Company’s achievement of certain milestones, with a payment expected to equate to up to 20% of annual base salary. No later than thirty days of the commencement date of the employment agreement, the Company compensated Mr. Potashnick with (i) a cash compensation signing bonus of $30,000; and (ii) an initial grant of 78,413 incentive stock options on a post-Business Combination basis. Additionally, in the absence of an executive incentive compensation plan by the compensation committee of the Board, Mr. Potashnick is eligible for an additional annual bonus of up to 20% of his salary.

 

The employment agreement provides that Mr. Potashnick is also eligible for standard benefit plans made available to management-level employees.

 

The Company has the right immediately to terminate Mr. Potashnick’s employment for cause (as defined in his employment agreement) during the employment period upon notice to Mr. Potashnick.

 

In the event of a termination of Mr. Potashnick’s employment, the Company shall pay Mr. Potashnick: (i) any unpaid base salary on the Company’s regular payday, prorated to the effective date of termination; and (ii) the dollar value of all accrued and unused vacation benefits based upon Mr. Potashnick’s base salary. The Company shall also reimburse Mr. Potashnick in accordance with and subject to the requirements of the Company’s expense reimbursement practices for any reasonable and necessary business expenses incurred by Mr. Potashnick’s on behalf of the Company on or before the date on which his employment terminates, and reported and properly documented on expense reports.

 

The Company has the right to terminate Mr. Potashnick’s employment without cause during the employment period upon notice to Mr. Potashnick. In the event of a termination without cause (as defined in his employment agreement), the Company will pay Mr. Potashnick severance compensation in an amount equal to an amount of one half of Mr. Potashnick’s base salary in effect on the date on which Mr. Potashnick’s employment is terminated, payable in a lump sum within thirty (30) days after the date of the termination. If Mr. Potashnick is eligible for and elects to continue group health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), he will be allowed to do so. The Company will also pay Mr. Potashnick a bonus under the Company’s equity incentive plan prorated based upon the number of days for which Mr. Potashnick was employed during the period for which such payments are made (e.g., quarter), and any options or other equity incentives which have been granted to Mr. Potashnick shall fully vest on the date of termination.

 

The CFO employment agreement includes provisions governing Company confidential information, assignment of employee inventions, non-solicitation of employees for 12 months following employment termination, non-competition for one year following any employment termination for cause or without good reason (as defined in the employment agreement) and indemnification rights.

 

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Agreement with Brian Chen

 

Our predecessor, GWG Holdings, Inc., entered into an employment agreement with Mr. Brian Chen, its Chief Science Officer, as of August 20, 2017, for a five-year initial term that automatically renews for additional one-year terms thereafter. For the years ended December 31, 2022 and 2021, the annual base salary for Mr. Brian Chen was $236,000. By letter agreement, dated October 17, 2019, the CSO employment agreement was amended and provided that Mr. Brian Chen will be eligible to participate in a discretionary incentive compensation plan and receive annual incentive compensation in the form of cash and/or stock options based on individual performance and the company’s achievement of certain milestones, with a payment expected to equate to up to 20% of annual base salary. The CSO employment agreement provides that Mr. Brian Chen is eligible for standard benefit plans made available to management-level employees. If the CSO’s employment ends on account of death or disability, the Company will pay his estate continued salary for one month and continue welfare benefits including paying all premiums for coverage of the CSO’s dependent family members.

 

The CSO employment agreement includes provisions governing Company confidential information, assignment of employee inventions, non-solicitation of employees for 12 months following employment termination, non-competition for one year following any employment termination for cause or without good reason (as defined in the CSO employment agreement) and indemnification rights.

 

Agreement with Jon Sabes, our former Chief Executive Officer

 

Our predecessor, FOXO BioScience LLC, entered into an employment agreement with Mr. Jon Sabes, its Chief Executive Officer (“CEO”), as of April 22, 2020, for a five-year term that was to automatically renew for additional five-year periods unless terminated prior to such renewal by the Company’s board or Mr. Sabes. Pursuant to the terms of the employment agreement, the annual base salary for Mr. Jon Sabes was $480,000. The CEO employment agreement provided that Mr. Sabes will receive an annual cash bonus of up to 50% of his base salary, with such amount determined by the Company’s compensation committee. The CEO employment agreement also made a 10% profits interest grant, although this grant was later terminated when the Company converted to a C corporation and the profits interest grant replaced by stock options. Mr. Sabes was entitled to participate in (i) all human resource benefit programs made available to management-level employees of the Company and its subsidiaries, and (ii) all employee benefit plans and programs made available by the Company. The CEO agreement provided reimbursement for private travel including the family members of Mr. Sabes for both business and personal use, and social club memberships.

  

In the event Mr. Sabes’ employment was terminated as a result of his death or incapacity, the Company was to pay to the estate of Mr. Sabes an amount equal to his then current base salary through the balance of the agreement, including any earned but unpaid annual compensation and the Company would continue the welfare benefit programs provided under the agreement, including paying all premiums for coverage for Mr. Sabes’ dependent family members. In the event Mr. Sabes’ employment was terminated by the board without a renewal term or without Cause (as defined in the CEO employment agreement), then all equity awards immediately vest as specified in the related agreements and Mr. Sabes would receive a severance payment equal to 36 months of his base salary. In the event Mr. Sabes’ employment was terminated by the Company with Cause (as defined in the CEO employment agreement) or Mr. Sabes resigns, then he would not be entitled to any severance or continued benefits.

 

Under the CEO employment agreement, Mr. Sabes agreed to customary confidentiality provisions and to refrain from soliciting employees of the Company and its affiliates for a period of 12 months following any termination of employment and to a non-competition restriction during the term of the agreement.

 

Jon Sabes was terminated as the Company’s CEO on November 14 2022. The Company is continuing to review its obligations, if any, to Jon Sabes pursuant to the CEO employment agreement. 

 

Agreement with Steven Sabes, our former Chief Operating Officer 

 

Our predecessor, GWG Holdings, Inc., entered into an employment agreement with Mr. Steven Sabes, its Chief Operating Officer, as of August 20, 2017, for a five-year initial term that automatically renewed for additional one-year terms thereafter. For the years ended December 31, 2022 and 2021, the annual base salary for Mr. Steven Sabes was $200,000. By letter agreement, dated October 17, 2019, the COO employment agreement was amended and provided that Mr. Steven Sabes would be eligible to participate in a discretionary incentive compensation plan and receive annual incentive compensation in the form of cash and/or stock options based on individual performance and the Company’s achievement of certain milestones, with a payment expected to equate to up to 20% of annual base salary. The COO employment agreement provided that Mr. Steven Sabes was eligible for standard benefit plans made available to management-level employees. If the COO’s employment ended on account of death or disability, the Company would pay his estate continued salary for one month and continue welfare benefits including paying all premiums for coverage of the COO’s dependent family members.

 

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The Company had the right to terminate Mr. Steven Sabes’ employment without cause during the employment period upon notice to Mr. Steven Sabes. In the event of a termination without “good cause,” or if Mr. Steven Sabes voluntarily resigned with “good reason,” the Company would pay Mr. Steven Sabes severance compensation in an amount equal to Mr. Steven Sabes’ base salary in effect on the date on which Mr. Steven Sabes’ employment was terminated, payable in a period of twelve (12) months after the date of termination. If Mr. Steven Sabes was eligible for and elects to continue group health coverage under COBRA, he would be allowed to do so.

 

The COO employment agreement included provisions governing Company confidential information, assignment of employee inventions, non-solicitation of employees for 12 months following employment termination, non-competition for one year following any employment termination for cause or without good reason (as defined in the COO employment agreement) and indemnification rights.

 

Steven Sabes was terminated as the Company’s Chief Operating Officer on November 14, 2022.

 

Outstanding Equity Awards

 

The following table sets forth information concerning outstanding equity awards held by each of our named executive officers or former named executive officers as of December 31, 2022, on a post-Business Combination basis. The table reflects both vested and unvested stock option awards, bifurcated by grant date.

 

          Option Awards
Name  Grant
Date
  Restricted
Stock (1)
   Vesting
Commencement
Date
   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
   Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
   Option
Exercise
Price ($)
   Option
Expiration
Date
Tyler Danielson  9/15/2022   760,000                        
   1/27/2022        (2)   2    -    15.75   1/27/2027
   8/9/2021        (3)   1,664    2,065    6.51   8/9/2026
   5/11/2021   17,425                        
   4/2/2021        (4)   37,755    14,520    6.51   4/2/2026
Brian Chen, PhD  9/15/2022   760,000                        
   1/27/2022        (2)   2    -    15.75   1/27/2027
   8/9/2021        (3)   2,000    2,480    6.51   8/9/2026
   4/13/2021        (5)   670,026    2,238    6.51   4/13/2026
Robert Potashnick  9/15/2022   510,000                        
   1/27/2022        (2)   2    -    15.75   1/27/2027
   8/9/2021        (3)   1,591    1,980    6.51   8/9/2026
   4/2/2021        (6)   52,277    26,136    6.51   4/2/2026
Jon Sabes (9)  9/15/2022   1,169,000                        
   1/27/2022        (2)   2    -    15.75   1/27/2027
   4/2/2021        (7)   832,805    26,764    6.51   4/2/2026
Steven Sabes  1/27/2022        (8)   2    N/A    15.75   1/12/2023
   Various        (8)   390,085    N/A    6.51   1/12/2023

 

(1)Restricted stock was issued in 2022 as part of the Company’s Management Contingent Share Plan and is subject to time, performance, and service conditions. The shares held by Mr. Jon Sabes that are subject to forfeiture pursuant to the Management Contingent Share Plan are pending a review of the Company’s obligations to vest these shares in connection with Mr. Sabes’ termination. The amount shown reflects shares associated with a performance obligation that was met at the time of Mr. Sabes’ termination. The restricted stock issued to Tyler Danielson is fully vested.

 

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(2)Stock granted on January 27, 2022 began vesting at grant date and are fully vested as of December 31, 2022

 

(3)The option award vests monthly over a three-year period from the grant date.

 

(4)On April 2, 2021, Mr. Tyler Danielson was granted a total of 52,275 stock option awards. The 14,520 stock option awards granted to Mr. Danielson that are unvested as of December 31, 2022 will vest in equal monthly installments through December 31, 2023.

 

(5)On April 13, 2021, Mr. Brian Chen was granted a total of 672,264 stock option awards, a portion of which reflect compensation awards for services rendered prior to the adoption of the 2020 Plan. Of the 2,238 stock option awards granted to Mr. Chen that are unvested as of December 31, 2022, (i) 834 will vest in equal monthly installments from January 1, 2023 to June 30, 2023; and (iii) 1,404 will vest in equal monthly installments from January 1, 2023 to December 31, 2023.

 

(6)On April 2, 2021, Mr. Robert Potashnick was granted a total of 78,413 stock option awards. The 26,136 stock option awards granted to Mr. Potashnick that are unvested as of December 31, 2022 will vest in equal monthly installments through December 31, 2023.

 

(7)On April 2, 2021, Mr. Jon Sabes was granted a total of 859,569 stock option awards, a portion of which reflect compensation awards issued as replacement for prior profits interests cancelled in 2020 and for services rendered prior to the adoption of the 2020 Plan. Of the 26,764 stock option awards granted to Mr. Jon Sabes that are unvested as of December 31, 2022, (i) 22,426 will vest in January 2023; (ii) 1,446 will vest in equal monthly installments from January 1, 2023 to June 30, 2023; and (iii) 2,892 will vest in equal monthly installments from January 1, 2023 to December 31, 2023.

 

(8)Mr. Steven Sabes had three months from his termination of continuous service to exercise his options in accordance with our 2020 Plan. The options were not exercised within the allotted time and have since been forfeited.

 

(9)The shares held by Mr. Jon Sabes that are subject to forfeiture pursuant to the Management Contingent Share Plan are pending a review of the Company’s obligations to vest these shares in connection with Mr. Sabes termination. The amount shown reflects shares associated with a performance obligation that was met at the time of his termination. The Company is additionally reviewing its obligations to Mr. Sabes related to the immediate vesting of options. The amount shown reflects options vested based on his continuous service as a director as of December 31, 2022. Mr. Sabes no longer provides continuous service upon his resignation from the Board and had three months from his resignation on January 29, 2023 to exercise any of his remaining options. Given that the Company is still reviewing its obligations to Mr. Sabes in connection with his termination, the Company has extended the period over which he has to exercise his options as it continues the review.

 

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Executive Compensation Arrangements – Post-Closing Arrangements

 

Post-Closing Employment Agreements

 

We are in the process of negotiating, approving and implementing new employment arrangements with each of our executive officers, which will govern the terms of their continuing employment with us. Although the terms of these agreements are still being finalized, we expect that the agreements will have a fixed term of years, with annual renewals thereafter, subject to termination in accordance with each agreement’s terms and conditions. We expect that each executive will be entitled to an annual salary, to be reviewed each year, an annual target bonus opportunity (calculated as a percentage of salary) paid in cash, and an equity incentive grant. We anticipate the agreements will contain severance provisions whereby, if the executive is terminated other than for cause or resigns for good reason, then the executive will be paid a lump sum payment calculated based on his or her salary and bonus. If the executive is terminated for cause, we anticipate the agreements will provide that the executive would receive no amounts other than amounts accrued at the date of termination and any vested benefits under Company benefit plans. We expect that all unvested equity awards would become fully vested in connection with a change of control.

  

Simultaneously with the execution and delivery of the Merger Agreement, certain Legacy FOXO executive officers entered into Non-Competition Agreements in favor of Legacy FOXO and Delwinds and their respective present and future successors and direct and indirect subsidiaries. Under the Non-Competition Agreements, the Legacy FOXO executive officers signatory thereto agreed not to compete with Delwinds, Legacy FOXO and their respective affiliates during the two-year period following the Closing and, during such two-year restricted period, to not solicit employees or customers of such entities. The Non-Competition Agreements also contain customary confidentiality and non-disparagement provisions.

 

2022 Equity Incentive Plan

 

Following the consummation of the Business Combination, the Company adopted the FOXO Technologies Inc. 2022 Equity Incentive Plan, as amended and restated on May 26, 2023 (the “2022 Plan”) in order to facilitate the grant of equity awards to attract, retain and incentivize employees (including officers), independent contractors and directors of the Company and its affiliates, which is essential to the Company’s long term success.

 

Summary of the 2022 Equity Incentive Plan

 

Eligibility

 

Employees (including officers), non-employee directors and consultants who render services to the Company or an affiliate thereof (whether now existing or subsequently established) are eligible to receive awards under the 2022 Plan. Incentive stock options may only be granted to employees of the Company or a parent or subsidiary thereof. As of the date of this registration statement, after taking into account layoffs effective as of July 21, 2023, we have approximately 18 employees and consultants, including four executive officers, and three non-employee directors, eligible to participate in the 2022 Plan. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Layoffs” for more information regarding the layoffs.

 

Administration

 

The compensation committee of our Board, or such other committee as may be designated by the Board, or in the absence of any such committee, the Board (the “compensation committee” or “Administrator”) administers the 2022 Plan. Subject to the terms of the 2022 Plan, the compensation committee has complete authority and discretion to determine the terms of awards under the 2022 Plan.

 

Types of Awards

 

The 2022 Plan provides for the grant of stock options, which may be incentive stock options (“ISOs”) or non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted shares, restricted stock units (“RSUs”) and other equity-based awards, or collectively, awards.

 

Share Reserve

 

6,518,620 shares of Class A Common Stock may be issued under the 2022 Plan. All of the shares available under the 2022 Plan may be issued upon the exercise of ISOs.

 

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Awards granted under the 2022 Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction do not reduce the shares available for grant under the 2022 Plan but will count against the maximum number of shares that may be issued upon the exercise of ISOs.

 

If options, SARs, restricted stock, RSUs or any other awards are forfeited, cancelled or expire before being exercised or settled in full, the shares subject to such awards will again be available for issuance under the 2022 Plan. Notwithstanding anything to the contrary contained herein: shares subject to an award under the 2022 Plan shall not again be made available for issuance or delivery under the 2022 Plan if such shares are (a) shares tendered in payment of an option, (b) shares delivered or withheld by the company to satisfy any tax withholding obligation, or (c) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award. Shares issued under the 2022 Plan may be authorized but unissued shares or treasury shares. As of the date hereof, no awards have been granted under the 2022 Plan.

  

Annual Limitation on Awards to Non-Employee Directors

 

The grant date fair value of 2022 Plan awards granted to each non-employee director during any calendar year may not exceed $500,000 (on a per-director basis).

 

Stock Options

 

The 2022 Plan authorizes the grant of ISOs and NQSOs (each an “Option”). Options granted under 2022 Plan entitle the grantee, upon exercise, to purchase a specified number of shares of Class A Common Stock from us at a specified exercise price per share. The Administrator of the 2022 Plan determines the period during which an Option may be exercised, as well as any Option vesting schedule, except that no Option may be exercised more than 10 years after the date of grant and will generally expire sooner if the option holder’s service terminates. The exercise price for shares of Class A Common Stock covered by an Option cannot be less than the fair market value of the common stock on the date of grant unless pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

 

An Option’s exercise price may be paid in cash or by certified check at the time the Option is exercised, or, at the discretion of the Administrator, (1) a stock-for-stock exchange whereby the exercise price is paid by exchange of other common stock with a fair market value equal to the Option exercise price; (2) a “cashless” exchange established with a broker; (3) by reducing the number of shares of common stock otherwise deliverable upon exercise with the fair market value equal to the aggregate Option exercise price; (4) any combination of the previous methods; or (5) in any other form of legal consideration that may be acceptable by the Administrator.

 

Tax Limitations on Incentive Stock Options

 

The aggregate fair market value, determined on the date of grant, of shares for which ISOs granted under the 2022 Plan first become exercisable by a participant during any calendar year shall not exceed $100,000, and any amount in excess of $100,000 shall be treated as NQSOs. If an ISO is granted to any employee who owns more than 10% of the total combined voting securities of the Company, the exercise price of such ISO shall be at least 110% of the fair market value of the Class A Common Stock on the date of grant, and such ISO shall not be exercisable more than five years after the date of grant.

 

Stock Appreciation Rights

 

Stock appreciation rights may be granted under the 2022 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company Class A Common Stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding ten years. The grant price for a stock appreciation right may not be less than 100% of the fair market value per share on the date of grant. Subject to the provisions of the 2022 Plan, the Administrator determines the other terms of stock appreciation rights, including when such rights become exercisable.

 

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Restricted Stock Awards

 

Restricted stock may be granted under the 2022 Plan. Restricted stock awards are grants of shares of Company Class A Common Stock that vest in accordance with terms and conditions established by the compensation committee. The Administrator determines the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2022 Plan, determines the terms and conditions of such awards. The compensation committee may impose whatever conditions to vesting it determines to be appropriate. The compensation committee, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

Recipients of restricted stock awards generally have voting rights with respect to such shares upon grant unless the Administrator provides otherwise. Unless the Administrator determines otherwise, during the restricted period, all dividends or other distributions paid upon any restricted stock awards will be retained by the Company for the account of the recipient. Such dividends or other distributions will revert to the Company if for any reason the restricted stock award upon which such dividends or other distributions were paid reverts to the company. Upon the expiration of the restricted period, all such dividends or other distributions made on such restricted share and retained by the Company will be paid to the recipient, with or without interest as determined by the Administrator.

  

Restricted Stock Units

 

RSUs may be granted under the 2022 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of company common stock. Subject to the provisions of the 2022 Plan, the Administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The Administrator may also grant RSUs with a deferral feature, whereby settlement is deferred beyond the vesting date or lapse of the restricted period until the occurrence of a future payment date or event set forth in an award agreement. A holder of RSUs will have only the rights of a general unsecured creditor of the Company, until the delivery of shares, cash or other securities or property. On the delivery date, the holder of each RSU not previously forfeited or terminated will receive one share, cash or other securities or property equal in value to one share or a combination thereof, as specified by the Administrator.

 

Other Equity-Based Awards

 

The 2022 Plan also authorizes the grant of other types of equity-based awards based in whole or in part by reference to the Company’s Class A Common Stock. The Administrator will determine the terms and conditions of any such awards.

 

Change in Control

 

Unless otherwise provided in an award agreement, under the 2022 Plan, if a participant is terminated without cause or for good reason during the 12-month period following a change in control (as defined in the 2022 Plan), all of such participant’s outstanding awards shall vest and be immediately exercisable as of the date of termination. With respect to awards subject to performance goals, in the event of a change in control, all incomplete performance periods in respect of such awards in effect on the date the change in control occurs shall end on the date of such change and the Administrator shall (i) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable participant partial or full awards with respect to performance goals for each such performance period based upon the Administrator’s determination of the degree of attainment of performance goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Administrator. In addition, in the event of a change in control, the Administrator may in its discretion cash out any or all outstanding awards immediately before the change in control.

 

Changes to Capital Structure

 

In the event of certain changes in capitalization, including a stock split, reverse stock split or stock dividend, proportionate adjustments will be made in the number and kind of shares available for issuance under the 2022 Plan, the limit on the number of shares that may be issued under the 2022 Plan as ISOs, the number and kind of shares subject to each outstanding award and/or the exercise price of each outstanding award.

 

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Duration, Amendment and Termination

 

The Administrator of the 2022 Plan may suspend or terminate the 2022 Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2022 Plan will terminate on the tenth anniversary of its effective date. The Administrator may also amend the 2022 Plan at any time, except that no amendment shall be effective unless approved by our stockholders, to the extent stockholder approval is necessary to satisfy any applicable laws. No change may be made that increases the total number of shares of Class A Common Stock reserved for issuance pursuant to awards or reduces the minimum exercise price for options or exchange of options for other awards, unless such change is authorized by our stockholders. No modification may be made to an outstanding award under the 2022 Plan if such modification effects a “repricing” of the award unless such a repricing is approved by our stockholders. A termination or amendment of the 2022 Plan will not, without the consent of the participant, materially impair the rights under a previously granted award.

 

Restrictions on Transfer

 

ISOs may not be transferred or exercised by another person except by will or by the laws of descent and distribution. NQSOs may, in the sole discretion of the Administrator, be transferable to certain permitted transferees as provided in the individual award agreements.

 

International Participation

 

The Administrator has the authority to implement sub-plans (or otherwise modify applicable grant terms) for purposes of satisfying applicable foreign laws, conforming to applicable market practices or for qualifying for favorable tax treatment under applicable foreign laws, and the terms and conditions applicable to awards granted under any such sub-plan or modified award may differ from the terms of the 2022 Plan. Any shares issued in satisfaction of awards granted under a sub-plan will come from the 2022 Plan share reserve.

 

Incentive Stock Options

 

A participant will not recognize income on the grant, vesting, or exercise of an ISO. However, the difference between the exercise price and the fair market value of the Class A Common Stock on the date of exercise is an adjustment item for purposes of the alternative minimum tax. If a participant does not exercise an ISO within certain specified periods after termination of employment, the participant will recognize ordinary income on the exercise of an ISO in the same manner as on the exercise of a NQSO, as described below.

 

Non-Qualified Stock Options and SARs

 

A participant generally is not required to recognize income on the grant or vesting of a NQSO or SAR. Instead, ordinary income generally is required to be recognized on the date the NQSO or SAR is exercised. In general, the amount of ordinary income required to be recognized is (a) in the case of a NQSO, an amount equal to the excess, if any, of the fair market value of the shares on the exercise date over the exercise price and (b) in the case of a SAR, the amount of cash and/or the fair market value of any shares received upon exercise. If the participant is an employee or former employee, the participant will be required to satisfy the tax withholding requirements applicable to such income.

 

A participant who receives an award of restricted stock generally does not recognize taxable income at the time of the award. Instead, the participant recognizes ordinary income when the shares vest, subject to withholding if the participant is an employee or former employee. The amount of taxable income is equal to the fair market value of the shares on the vesting date(s) less the amount, if any, paid for the shares. Alternatively, a participant may make a one-time election to recognize income at the time the participant receives restricted stock in an amount equal to the fair market value of the restricted stock (less any amount paid for the shares) on the date of the award by making an election under Section 83(b) of the Code.

 

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Restricted Stock Unit Awards

 

In general, no taxable income results upon the grant of an RSU. The recipient will generally recognize ordinary income, subject to withholding if the recipient is an employee or former employee, equal to the fair market value of the shares that are delivered to the recipient upon settlement of the RSU.

 

Gain or Loss on Sale or Exchange of Shares

 

In general, gain or loss from the sale or exchange of shares of common stock granted or awarded under the 2022 Plan will be treated as capital gain or loss, provided that the shares are held as capital assets at the time of the sale or exchange. However, if certain holding period requirements are not satisfied at the time of a sale or exchange of shares acquired upon exercise of an ISO, a participant generally will be required to recognize ordinary income upon such disposition.

 

Section 409A

 

The foregoing description assumes that Section 409A of the Code does not apply to an award. In general, options and stock appreciation rights are exempt from Section 409A if the exercise price per share is at least equal to the fair market value per share of the underlying stock at the time the option or stock appreciation right was granted. RSUs are subject to Section 409A unless they are settled within two and one half months after the end of the later of (a) the end of the Company’s fiscal year in which vesting occurs or (b) the end of the calendar year in which vesting occurs. Restricted stock awards are not generally subject to Section 409A. If an award is subject to Section 409A and the provisions for the exercise or settlement of that award do not comply with Section 409A, then the participant would be required to recognize ordinary income whenever a portion of the award vested (regardless of whether it had been exercised or settled). This amount would also be subject to a 20% U.S. federal tax and premium interest in addition to the U.S. federal income tax at the participant’s usual marginal rate for ordinary income.

 

Deductibility by Company

 

The Company will generally be entitled to an income tax deduction at the time and to the extent a participant recognizes ordinary income as a result of an award granted under the 2022 Plan. However, Section 162(m) of the Code may limit the deductibility of certain awards granted under the 2022 Plan. Although the Administrator considers the deductibility of compensation as one factor in determining executive compensation, the Administrator retains the discretion to award and pay compensation that is not deductible as it believes that it is in the stockholders’ best interests to maintain flexibility in the approach to executive compensation and to structure a program that the Administrator considers to be the most effective in attracting, motivating and retaining key employees.

 

Management Contingent Share Plan

 

In connection with the Business Combination, we adopted an earnout incentive plan (the “Management Contingent Share Plan”) to secure and retain the services of certain key employees and service providers and incentivize such key employees and service providers to exert maximum efforts for the success of FOXO and its affiliates. The Management Contingent Share Plan makes available a total of 9,200,000 shares eligible to be issued pursuant to restricted share awards, all of which are eligible to be issued. These restricted share awards will vest and be subject to forfeiture according to time and performance-based criteria established as part of the Business Combination. Certain of these restricted share awards will be granted to our named executive officers and will represent compensation to such individuals in 2022.

 

Summary of the Management Contingent Share Plan

 

Eligibility

 

Employees (including officers), non-employee directors and consultants who render services to the Company or an affiliate thereof (whether now existing or subsequently established) are eligible to receive awards under the Management Contingent Share Plan.

 

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Administration

 

The Management Contingent Share Plan is administered by the compensation committee, or such other committee of the Board, composed of independent directors, as is designated by the Board to administer the Management Contingent Share Plan (the “Committee”).

 

Subject to the terms of the Management Contingent Share Plan, the Committee will have complete authority to construe and interpret the plan and awards granted under it. The Committee shall be solely responsible for monitoring and determining whether or not any performance-based condition (described below) is achieved and any such determination shall be final and conclusive. The Committee may utilize whatever rules and processes it believes are appropriate in this determinative process. All determinations, interpretations, and constructions made by the Committee in good faith and consistent with the terms of the plan shall not be subject to review by any person and shall be final, binding, and conclusive on all persons.

 

Share Reserve

 

The number of shares of Class A Common Stock that may be issued under the Management Contingent Share Plan is 9,200,000 shares, subject to equitable adjustment for share splits, share dividends, combinations and recapitalizations, including to account for any equity securities into which such shares are exchanged or converted. All 9,200,000 shares of Class A Common Stock were issued to members of Company management designated by management.

 

Types of Awards

 

The Management Contingent Share Plan provides for the grant of restricted share awards of Class A Common Stock. All of the shares of Class A Common Stock issued to employees at the Closing were issued pursuant to a “Restricted Share Award,” the terms of which apply to all shares issued to such recipient. For the purposes of the Management Contingent Share Plan, shares of restricted Class A Common Stock issued in accordance with such plan will be considered “vested” when they are no longer subject to forfeiture in accordance with the terms of such plan. Each restricted share award issued under the Management Contingent Share Plan is subject to both a time-based vesting component and a performance-based vesting component.

 

Time-Based Vesting

 

Each restricted share award shall be subject to three service-based vesting conditions:

 

  (a) Sixty percent (60%) of a participant’s restricted share award will become vested on the third anniversary of the Closing if the participant is still employed by the Company on such date (and has been continuously employed by the Company from the date of grant through such vesting date).

 

  (b) An additional twenty percent (20%) of a participant’s restricted share award will become vested on the fourth anniversary of the Closing if the participant is still employed by the Company on such date (and has been continuously employed by the Company from the date of grant through such vesting date).

 

  (c) The final twenty percent (20%) of a participant’s restricted share award will become vested on the fifth anniversary of the Closing if the participant is still employed by the Company on such date (and has been continuously employed by the Company from the date of grant through such vesting date).

 

Performance-Based Vesting

 

In addition, to time-based vesting, one-third of each restricted share award may only become vested upon satisfaction of each of the following three performance-based conditions:

 

  (a) The operational launch of digital online insurance products by FOXO Life Insurance Company (or its functional equivalent under a managing general agency relationship with a life insurance company), with at least 100 policies sold, within one year following the Closing;

 

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  (b) The signing of a commercial research collaboration agreement with an insurance company or reinsurance company for saliva-based epigenetic biomarkers in life insurance underwriting within two years following the Closing; and

 

  (c) The implementation of saliva-based epigenetic biomarkers in life insurance underwriting by the Company, with at least 250 policies sold using such underwriting, within two years following the Closing.

 

Service Based-Conditions

 

The Management Contingent Share Plan provides that in the event of the death, disability, or termination without cause of the CEO at the time of the Closing, service-based conditions will not apply.

 

Forfeiture of Restricted Share Awards

 

If a performance-based condition is not achieved within the specified timeframe then the one-third portion of each restricted share award that is associated to that performance-based condition will be permanently forfeited. The Committee shall be solely responsible for monitoring and determining whether or not any performance-based condition is achieved and any such determination shall be final and conclusive.

 

Any restricted stock awards that fail to vest due to a time-based vesting condition not being satisfied will be forfeited by the participant and the shares associated with that award will be permanently forfeited and cancelled.

 

Change in Control

 

In the event of a change in control (as defined in the plan), all time-based vesting conditions and any performance-based vesting conditions whose time frame for achievement has not expired will be waived. Any restricted share awards that were forfeited due to failure to meet a performance-based vesting condition prior to the change in control will remain permanently forfeited.

 

Duration, Amendment and Termination

 

Unless sooner terminated, the Management Contingent Share Plan will terminate on the first to occur of (a) the date that 100% of the restricted share awards have become vested or (b) the first business day following the fifth (5th) anniversary of the Closing. The Board may suspend or terminate the plan with the written consent of all remaining participants in the Management Contingent Share Plan (at the time of the proposed suspension or termination of the Management Contingent Share Plan). The Board at any time, and from time to time, may amend, supplement, modify or restate the plan or any award provided that any such amendment applicable to a previously outstanding award shall not have an adverse effect on a participant or diminish the value of any previously outstanding award under the plan without participant’s prior written consent.

  

Restrictions on Transfer

 

Except for transfers without consideration to persons or entities related to a participant (family members, family trusts, etc.) restricted share awards may not be transferred to another person except in the sole discretion of the Committee.

 

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Director Compensation

 

Non-Employee Director Compensation Table

 

No directors received compensation for their service on Delwinds’ board of directors in 2021.

 

The following table presents the total compensation earned and paid to non-employee member directors of the Legacy FOXO board during the year ended December 31, 2022. Mr. Jon Sabes, our former Chief Executive Officer, did not receive any compensation for his service as a member of the Legacy FOXO board during any period presented. Mr. Sabes’ compensation for service as an employee is presented above under the heading “Summary Compensation Table” above. In addition to the compensation outlined below, we reimbursed non-employee members of the Legacy FOXO board for reasonable travel expenses, and out-of-pocket costs incurred in attending meetings of the Legacy FOXO board or events attended on behalf of Legacy FOXO.

 

Name  Year   Fees Earned
and Paid in
Cash
($)(4)
   Option
Awards
($) (5)
   Stock
Awards
($) (6)
   Total
($)(7)
 
Bret Barnes(1)   2022    45,000    308,580    390,500    744,080 
Murdoc Khaleghi(2)   2022    45,000    -    390,500    435,500 
Andrew Poole   2022    -    -    -    - 
Laurence Zipkin(3)   2022    45,000    -    -    45,000 
Lyle Berman(3)   2022    45,000    -    -    45,000 

 

(1) Bret Barnes was appointed to the Legacy FOXO board in November of 2021 and given the timing of his appointment to the Legacy FOXO board, and ongoing valuation work, Mr. Barnes was not granted any equity-based compensation awards during the year ended December 31, 2021. The restricted stock grant to Mr. Barnes was part of the Company’s Management Contingent Share Plan. During the year ended December 31, 2022, Mr. Barnes was also granted options valued at $133,200 for serving on the Company’s Scientific Advisory Board.

 

(2) The restricted stock grant to Dr. Khaleghi was part of the Company’s Management Contingent Share Plan. Dr. Khaleghi also received $99,000 in cash and $624,800 worth of shares from the Management Contingent Share Plan during the year ended December 31, 2022 as fees for his services under his Contractor Agreement with Legacy FOXO (see “Certain Relationships and Related Person Transactions — Legacy FOXO — Contractor Agreement”). Dr. Khaleghi was supposed to be issued options as part of his Contractor Agreement but agreed to accept shares under the Management Contingent Share Plan instead. Dr. Khaleghi was also granted options valued at $133,200 for serving on the Company’s Scientific Advisory Board.

 

(3) Lyle Berman and Laurence Zipkin were appointed and no longer serve on the Legacy FOXO board.

 

(4) Amounts represent cash compensation earned and paid during the year ended December 31, 2022 for services rendered by each member of the Legacy FOXO board. Cash compensation amounts are paid in the final month of each calendar quarter for services rendered during that respective quarter.

 

(5) Amounts reflect the aggregate grant date fair value of stock option awards granted under the 2020 Plan to non-employee members of Legacy FOXO board during the year ended December 31, 2022, computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. See Note 8 of the audited consolidated financial statements included elsewhere in this registration statement for a discussion of the relevant assumptions used in c