10-Q/A: FOXO Technologies Restates Q1 Results, Cites Going Concern

FOXO Technologies Inc. has restated its first-quarter 2025 financial statements due to an accounting error related to a recent acquisition, revealing a significantly increased working capital deficit and continued substantial doubt about its ability to continue as a going concern.

Summary

• FOXO Technologies Inc. (FOXO) filed an amended Quarterly Report on Form 10-Q/A for the three months ended March 31, 2025, restating its financial statements due to an error in accounting for measurement-period purchase price consideration related to the September 10, 2024 acquisition of Rennova Community Health, Inc. (RCHI).
• The restatement resulted in a $5.1 million increase in goodwill and a corresponding increase in related parties payables and accrued expenses, leading to a worsened working capital deficit of $(30,595,902) as of March 31, 2025.
• The correction did not impact the statement of operations, stockholders' equity, total cash flows, net loss, or comprehensive loss.
• The company reported net revenues of $3,169,920 for the three months ended March 31, 2025, a substantial increase from $7,180 in the prior year period, primarily driven by the acquisitions of Myrtle Recovery Centers, Inc. (June 2024) and RCHI (September 2024).
• Net loss attributable to FOXO improved to $(616,458) for the three months ended March 31, 2025, compared to $(1,503,990) for the same period in 2024, largely due to a non-cash gain of $1.9 million from the extinguishment of Senior PIK Notes.
• Cash and cash equivalents decreased to $16,907 as of March 31, 2025, from $68,268 as of December 31, 2024.
• Cash used in operating activities increased to $(1,337,591) for the three months ended March 31, 2025, from $(406,302) in the prior year period.
• The company effected two reverse stock splits: a 1-for-10 split on April 28, 2025, and a 1-for-1.99 split on July 27, 2025, with all share information updated to reflect the latter.
• Management identified material weaknesses in internal control over financial reporting as of December 31, 2024, which continued to exist as of March 31, 2025, citing insufficient staffing and accounting processes.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to the restatement of financials, a significantly worsened working capital deficit, a substantial decline in cash, increased cash burn from operations, and an explicit 'going concern' warning. While revenue increased due to acquisitions, the underlying financial instability and persistent internal control weaknesses overshadow this.

Positives

• Net revenues significantly increased to $3.2 million for the three months ended March 31, 2025, from $7,180 in the prior year, primarily due to the acquisitions of Myrtle Recovery Centers and Rennova Community Health.
• A non-cash gain of $1.9 million was recognized from the extinguishment of Senior PIK Notes, which were exchanged for Series B Preferred Stock, improving the reported net loss.
• Legal actions filed by two holders of Senior PIK Notes were dismissed by the court following the debt-to-equity exchange.

Negatives

• The company's working capital deficit worsened to $(30,595,902) as of March 31, 2025, from $(29,846,195) as of December 31, 2024.
• Cash and cash equivalents significantly declined to $16,907 as of March 31, 2025, from $68,268 at the end of 2024.
• Cash used in operating activities increased to $(1.3) million for the three months ended March 31, 2025, indicating a higher cash burn rate.
• Interest expense more than doubled to $(889,792) for the three months ended March 31, 2025, compared to $(301,912) in the prior year period.
• The company continues to incur net losses, with a net loss to common stockholders of $(1.1) million for the three months ended March 31, 2025.
• Material weaknesses in internal control over financial reporting persist as of March 31, 2025, due to insufficient staffing and accounting process issues.
• The note payable to RHI for the acquisition of Myrtle is in default as of March 31, 2025, and discussions are ongoing for maturity date extension.
• Several other assumed loans under accounts receivable sales agreements are in payment default as of March 31, 2025.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern for the next twelve months, dependent on generating revenue, raising additional capital, and reducing losses.
• The company's ability to fund operations relies on securing additional equity or debt financing, which may not be available on favorable terms or at all.
• Failure to raise capital could negatively impact financial condition and the ability to pursue business strategy.
• Issuing additional equity or convertible debt could dilute existing stockholders' ownership interests and introduce adverse liquidation or other preferences.
• Raising additional debt financing may subject the company to restrictive covenants.
• The company is currently in default of a legal settlement agreement with Smithline Family Trust II, although parties have mutually agreed to continue under its terms without a written amendment.
• A judgment of $0.8 million was granted against the company by Illumina, Inc., and discussions for settlement are ongoing with no guarantee of agreement.
• Disputes exist regarding former CEO severance and a proposed severance policy, which could lead to further claims and litigation.

Future Outlook

The company expects to incur additional losses in future periods and states that its current revenue and operating cash flow are not adequate to fund operations for the next twelve months, necessitating additional external financing. While the Myrtle and RCHI businesses are expected to produce a small cash flow surplus through 2025, significant capital expenditures are not anticipated unless additional capital is secured for expansion. The company plans to address liquidity needs through equity or debt financing and strategic acquisitions that contribute positive cash flow. The Labs and Life segment is concentrating efforts on Bioinformatics Services and R&D in health and wellness testing, leveraging epigenetic data and building strategic alliances.

Management Comments

• Management has assessed the company's ability to continue as a going concern and critically assesses its ability to continue operating.
• The company will continue ongoing capital-raising initiatives and has demonstrated previous success in raising capital to support its operations.
• The company believes that its available net operating loss carryforwards would offset future taxable income, if any, for the year ended December 31, 2025.
• The company continues to believe that its Epigenetic APP asset will play a valuable part in its Epigenetic business but needs to make further investment for this asset to generate sales.
• The company does not believe the demand received on November 20, 2024, from former CEO Jon Sabes's counsel has any merit and will vigorously dispute any claim for payment.
• The company believes that all obligations related to employees' separation have been paid and/or fully satisfied and will vigorously defend any claim for payment that might arise.

Industry Context

FOXO Technologies operates in two distinct yet synergistically intended segments: Healthcare and Labs & Life. The Healthcare segment, bolstered by recent acquisitions of Myrtle Recovery Centers (behavioral health) and RCHI (rural hospital), aligns with the growing demand for accessible healthcare services, particularly in rural areas and for substance use disorder treatment. The Labs & Life segment, focused on epigenetic biomarker technology, AI, and bioinformatics, positions the company within the burgeoning longevity and personalized health diagnostics market. The strategy to expand the healthcare business through acquisitions and investment in new operations, while concentrating Labs & Life efforts on bioinformatics and R&D, reflects an attempt to diversify revenue streams and capitalize on both established healthcare needs and emerging health technology trends. However, the significant financial challenges, including a substantial working capital deficit and going concern warning, indicate that the company faces considerable hurdles in executing its strategy and competing effectively in these capital-intensive sectors.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct assessment against industry standards. It mentions that an independent valuation firm used 'comparable, guideline companies' to calculate the cost of equity capital for acquisition valuations, but no details on these companies or their performance metrics are disclosed for a direct comparison of FOXO's results.

Management Changes

Corporate Governance

Legal Proceedings

• Smithline Family Trust II vs. FOXO Technologies Inc. and Jon Sabes: A legal action filed in November 2022 was subject to a settlement agreement in November 2023. The company is currently in default of the settlement agreement (which terminated February 23, 2025), but parties have mutually agreed to continue operating under its terms without a written amendment. A balance of $526,332 remained outstanding to Smithline as of May 16, 2025.
• Former CEO Severance (Jon Sabes): The Board determined that the former CEO was terminated for cause on November 14, 2022, meaning no further obligation exists. However, a demand for payment was received on November 20, 2024, which the company intends to vigorously dispute.
• Disputed Severance Policy: Demands have been received from former employees for severance payments under a proposed policy that was never formally approved by the Board or remuneration committee. The company believes all obligations have been satisfied and will vigorously defend any claims.
• Illumina Judgment: Hennepin County District Court granted Illumina, Inc.'s Motion for Summary Judgment for $0.8 million against the company on June 21, 2024. The company is exploring a judgment settlement agreement.
• Senior PIK Notes Legal Actions: John Nash and Mitchell Kersch filed legal actions for approximately $0.8 million and $0.4 million, respectively. These complaints were dismissed by the court after the Senior PIK Notes were exchanged for Series B Preferred Stock on January 22, 2025.

Related Party Transactions

• Payable to RHI for the purchase of RCHI: $5,132,928 as of March 31, 2025, recorded as additional purchase price consideration.
• Accounts payable to Andrew Poole: $204,774 as of March 31, 2025.
• Accounts payable to InnovaQor, Inc.: $208,557 as of March 31, 2025, for health information technology services (RHI holds preferred stock in InnovaQor, and Mr. Lagan is the controlling shareholder).
• Rent payable to a subsidiary of RHI: $338,458 as of March 31, 2025, for facility leases for Myrtle and RCHI operations.
• Accounts payable to RHI: $52,226 as of March 31, 2025.
• Accrued interest on related parties notes payable: $952,868 as of March 31, 2025.
• Director fees payable: $85,000 as of March 31, 2025.
• Poole Note: $247,233 non-interest bearing loan from Andrew J. Poole, due on demand or one year from issuance (September 19, 2023).
• Additional Poole Note: $42,500 loan from Andrew J. Poole, accruing 13.25% interest, due on demand or one year from issuance (October 2, 2023).
• Sponsor loan: $500,000 loan from a sponsor or affiliate of the sponsor for working capital.
• Note payable to RHI for the acquisition of Myrtle: $264,565 non-interest bearing note, due on demand.
• Note payable to RHI in connection with Myrtle acquisition: Original principal of $1,610,671, with a balance of $891,652 as of March 31, 2025. This note is in default as of March 31, 2025.
• New RCHI Note: $1.0 million principal note payable to RHI, maturing June 5, 2025, accruing 8% interest (20% default rate), with principal repayments tied to RCHI free cash flow and 25% of equity capital raised by the company.

Stakeholder Impact

• Shareholders: Face significant dilution risk from ongoing equity and convertible debt financings, as well as potential adverse impacts from liquidation preferences of preferred stock. The reverse stock splits aim to maintain listing compliance but do not fundamentally change underlying value. The restatement and going concern warning indicate high investment risk.
• Employees: Potential uncertainty due to the company's going concern issues and disputes over severance payments, which could affect morale and retention.
• Creditors: Some related party notes and other loans are in default, indicating collection risk. The exchange of Senior PIK Notes for preferred stock reduced immediate debt obligations but shifted some creditors to equity holders.
• Customers (Healthcare Segment): Continued operation of Myrtle and RCHI provides behavioral health and hospital services, maintaining access to care in their respective communities.
• Suppliers: May face payment delays or increased scrutiny of credit terms due to the company's liquidity challenges and accounts payable balances.

Next Steps

• Generate revenue and raise additional equity or debt capital to address the going concern issue.
• Reduce losses and improve future cash flows.
• Continue ongoing capital-raising initiatives, including private placements and promissory notes.
• Resolve remaining contingent liabilities related to the RCHI acquisition that are still open past the one-year timeframe.
• Continue discussions with RHI to extend the maturity date of the defaulted note payable for the Myrtle acquisition.
• Address payment defaults on other assumed loans under accounts receivable sales agreements.
• Continue efforts to settle the $0.8 million judgment with Illumina, Inc.
• Vigorously dispute claims for payment from the former CEO and related to the disputed severance policy.
• Make further investment in the Epigenetic APP asset to generate sales.
• Continue developing and operating the epigenetics business through FOXO Labs, Inc.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a substantial and worsening working capital deficit, critically low cash reserves, and a significant increase in cash used for operations. The explicit 'going concern' warning indicates a high probability of bankruptcy or inability to meet obligations without substantial, uncertain future financing. Persistent material weaknesses in internal controls further undermine confidence in financial reporting. While recent acquisitions have boosted revenue, the underlying profitability and liquidity remain deeply concerning. The ongoing need for capital raises, coupled with the risk of significant shareholder dilution and potential adverse terms, makes the stock a highly speculative and risky investment. Seasoned investors would likely divest to avoid further capital erosion.

Keywords

Healthcare, Epigenetics, Biomarkers, Hospital, Behavioral Health, Substance Use Disorder Treatment, SEC Filing, 10-Q/A, Restatement, Going Concern, Financial Reporting, Debt, Preferred Stock, Reverse Stock Split, Acquisition, Rennova Health, Myrtle Recovery Centers, Scott County Community Hospital, Internal Controls