10-Q/A: FOXO Technologies Restates Q3 2023 Financials Due to Warrant Accounting Error

FOXO Technologies Inc. has restated its financial statements for the three and nine months ended September 30, 2023, due to an error in accounting for down round provisions of assumed warrants.

Summary

• FOXO Technologies Inc. has amended its quarterly report for the period ended September 30, 2023, to correct errors in its financial statements.
• The restatement was necessary because the company failed to properly account for the down round provisions of common stock warrants assumed in a prior business combination.
• A triggering event occurred on September 19, 2023, due to the issuance of rights to receive shares under a Shares for Services Agreement, which required a reduction in the exercise price of the assumed warrants and a proportional increase in the number of warrants outstanding.
• The company understated the deemed dividend by approximately $0.9 million in the original filing.
• The number of assumed warrants outstanding was corrected from 25,868 to 2,007,848, and the exercise price was corrected from $62.10 per share to $0.80 per share.
• The correction did not impact assets, liabilities, total stockholders deficit, total cash flows, net loss, or comprehensive loss, but it did increase the net loss available to common stockholders and decreased the net loss per share.

Sentiment

Score: 3

Explanation: The document reveals a material accounting error requiring a restatement, which is a negative signal. The company's ongoing losses, need for additional capital, and going concern uncertainty further contribute to a negative sentiment. However, the company is taking steps to address these issues, which prevents a lower score.

Positives

• The company identified and corrected the accounting error.
• The restatement did not impact assets, liabilities, total stockholders deficit, total cash flows, net loss, or comprehensive loss.

Negatives

• The company made a material error in its financial reporting.
• The deemed dividend was understated by approximately $0.9 million.
• The number of assumed warrants outstanding and their exercise price were incorrectly reported.
• The company's disclosure controls and procedures were deemed ineffective as of September 30, 2023.

Risks

• The company has a history of losses and may not achieve or maintain profitability.
• The company may require additional capital to commercialize its products and grow its business.
• The company's independent auditor has raised concerns about its ability to continue as a going concern.
• The company is subject to the continued listing standards of the NYSE American, and failure to comply may result in delisting.
• The company's disclosure controls and procedures were not effective as of September 30, 2023.
• The company is in default of its Senior PIK Notes and is in discussions with the holders to amend the notes.

Future Outlook

The company is focused on commercializing health and longevity science into products and services, with a focus on research and development and expanding its expertise in epigenetic data processing and analysis. The company anticipates a continued focus on epigenetics and longevity while expanding its focus outside of life insurance and more on health and wellness.

Management Comments

• Management is critically assessing the company's ability to continue operating as a going concern.
• Management is pursuing additional avenues to capitalize the company and commercialize its products to generate revenue.
• Management is in discussions with the holders of the PIK Notes to cure the event of default.

Industry Context

The company operates in the emerging field of epigenetics, which is gaining traction in the health and wellness industry. The company's focus on epigenetic biomarkers for health assessment and life insurance underwriting aligns with the growing interest in personalized medicine and preventative healthcare.

Comparison to Industry Standards

• The restatement of financial statements due to warrant accounting errors is not uncommon in companies with complex financial instruments, but it does highlight the need for robust internal controls.
• The company's focus on epigenetics is a relatively new area, making direct comparisons to established companies difficult. However, companies like Illumina, which provides tools for genomic and epigenetic research, can be considered a benchmark for technology development in this space.
• The company's financial performance, with significant losses and reliance on external funding, is not unusual for early-stage biotech companies. However, the company's ability to secure additional funding and achieve profitability will be critical for its long-term success.

Management Changes

Legal Proceedings

• The company entered into a settlement agreement with Smithline Family Trust II to resolve all disputes and potential claims, including those asserted in the legal action.
• The company agreed to pay Smithline $2,300,000 in cash, with a minimum of 25% of the gross proceeds of each Equity Financing to be applied toward the settlement payment.

Related Party Transactions

• The company obtained a $247 loan from Andrew J. Poole, a former director, to pay for directors and officers insurance.
• The company obtained a $43 loan from Andrew J. Poole, a former director, to pay for legal fees.

Stakeholder Impact

• Shareholders will experience dilution if the company raises additional capital through equity offerings.
• Shareholders may be negatively impacted by the restatement of financial statements and the company's going concern uncertainty.
• Employees have been impacted by layoffs and departures.
• Creditors are impacted by the company's default on its Senior PIK Notes.

Next Steps

• The company will continue ongoing capital raise initiatives.
• The company will continue to pursue additional avenues to capitalize the company and commercialize its products to generate revenue.
• The company is in discussions with the holders of the PIK Notes with respect to certain amendments to the PIK Notes to cure the event of default.
• The company will need to regain compliance with the NYSE American continued listing standards.

Key Dates

Keywords

restatement, warrants, down round, financial statements, accounting error, deemed dividend, share price, dilution, epigenetics, biomarkers