FOXO TECHNOLOGIES INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

References to "FOXO" the "Company," "us," "our" or "we" refer to FOXO
Technologies Inc. and its consolidated subsidiaries. The following discussion
and analysis summarizes the significant factors affecting the consolidated
operating results, financial condition, liquidity, capital resources and cash
flows of our Company as of and for the periods presented below. The following
discussion should be read in conjunction with our consolidated financial
statements and related notes included under "Item 8. Financial Statements" in
this Annual Report on Form 10-K (the "Report"). Dollar amounts are in thousands,
unless otherwise noted.



Overview

FOXO seeks to modernize the life insurance industry through the application of
longevity and epigenetic science. With our insurance partners, we will endeavor
to improve and optimize human health span and lifespan through unique and
dynamic product offerings tailored to insurance underwriters and consumers.



The convergence of two cutting-edge technologies: DNA sequencing and automated
machine learning, has created what we believe is an unprecedented opportunity to
reinvent the life insurance industry through modern molecular biotechnology. DNA
sequencing advances now allow for the cost-effective collection of genomic and
epigenomic data, while automated machine learning can identify sophisticated
patterns within this data, as well as phenotypic data. These patterns are known
as epigenetic signatures and will provide valuable insights to insurers that
will inform their underwriting and product development.



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By harnessing the power of epigenetic science, we believe we can revolutionize
how life insurance companies sell and underwrite 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 client's future financial needs.



We have 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 and wellness. It can also be sold separately. We believe the
combination of these two reports provides a valuable win for our insurance
carrier partners as well as their customers.



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 FOXO MGA, 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 2021 Insurance Barometer Study, there

are significant increases in consumer interest and demand for life insurance,

with nearly one-third (31%) of consumers surveyed reporting COVID-19 has made

them more likely to purchase life insurance in the next 12 months. In

addition, the study reported the first sales gains in life insurance since

1983 and described that 22% of Americans (29 million consumers) owning life

insurance believe they need more coverage and 59% of Americans (73 million

consumers) without life insurance say they would like to acquire coverage.

That means 102 million Americans say they either need life insurance coverage

or want more of it. The study identified Millennials (ages 22-40) as the

demographic most influenced by the pandemic, with 48% surveyed saying they

plan to purchase coverage in the next year. Thus, despite the record-low

household ownership of life insurance, the 2021 Insurance Barometer Study

indicated Americans' intent to purchase life insurance is at an all-time high.

? 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 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 the Underwriting
Report and Longevity Report.



                                       35





FOXO Labs currently recognizes revenue from providing epigenetic testing
services and collecting a royalty from Illumina, Inc. related to the sales of
the Infinium Mouse Methylation Array. The Company's saliva-based health and
wellness testing solutions for underwriting and risk classification are expected
to be its largest source of revenue. FOXO Labs conducts research and development
and such costs are recorded within research and development expenses on the
consolidated statements of operations.



 (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.

Acquisition of Insurance Entity

We completed our acquisition of Memorial Insurance Company of America ("MICOA")
on August 20, 2021. Purchase consideration for the acquisition of MICOA totaled
$1,155, which included an indefinite-lived insurance license intangible asset
recorded at a fair value of $63 and cash of $1,092. We fair valued reinsurance
recoverables and policy reserves as part of the acquisition. The existing
statutory capital and surplus remains with us post-acquisition. The approval by
the Arkansas Insurance Department requires us to maintain statutory capital and
surplus of no less than $5,000 and a risk-based capital ratio of 301% or greater
in the regulated insurance entity. MICOA has been renamed FOXO Life Insurance
Company.



As part of the transaction and while our subsidiary, the former owners of MICOA
administer and 100% reinsure all policies outstanding as of the acquisition
date. FOXO Life Insurance Company has not issued any new insurance policies
since the acquisition and all premiums, reinsurance recoverables, and policy
reserves relate to the 100% reinsured business. Additionally, as part of the
transaction and while our subsidiary FOXO Life Insurance Company remains liable
only in the event the reinsuring company is unable to meet its obligations

under
the reinsurance agreement.

FOXO Life Insurance Company is required to prepare statutory financial
statements in accordance with statutory accounting practices prescribed or
permitted by the Arkansas Insurance Department. The activity of FOXO Life
Insurance Company post-acquisition is included in the consolidated financial
statements in accordance with generally accepted accounting principles.

On February 3, 2023, 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. For
additional information concerning FOXO Life Insurance Company operations, see
"Recent Developments - FOXO Life Insurance Company" below.

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.



                                       36

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 holders of 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



FOXO Life Insurance Company



In connection with the Business Combination, we submitted various filings with
the Arkansas Insurance Department (the "Department") to ensure compliance with
Arkansas insurance laws. After review and analysis of the relevant documentation
and meetings with us, on September 9, 2022, the Department advised us that it
concluded that the Business Combination did not require approval from the
Department given that there was no change in the ultimate controlling party. Due
to market conditions, our capitalization following the Business Combination did
not materialize in the way the Company anticipated, and we do not currently
possess the funding that we believe would be required to satisfy state
regulations and regulatory bodies to issue new life insurance policies through
FOXO Life Insurance Company. As such, we have not moved forward with the launch
of FOXO Life Insurance Company. The outstanding policies issued by FOXO Life
Insurance Company prior to our acquisition of the entity will continue to be
administered and reinsured by the former owners of MICOA (as defined below). We
intend to focus on selling products issued by third-party carriers through

our
MGA Model.



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").



                                       37





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.



The Company maintains both the FOXO Life and FOXO Labs segments after the sale
of FOXO Life Insurance. The Company previously indicated in its quarterly report
on Form10-Q for the quarterly period ended September 30, 2022, that due to
market conditions, our capitalization following the Business Combination did not
materialize in the way the Company anticipated, and we did not currently possess
the funding that we believe would be required to satisfy state regulations and
regulatory bodies to issue new life insurance policies through FOXO Life
Insurance Company. As such, we did not move forward with the launch of FOXO Life
Insurance Company and sold the entity to enhance stockholder value. The
outstanding policies issued by FOXO Life Insurance Company were previously
administered and reinsured by the former owners who once again own the entity
and will continue to administer the policies. We intend to focus on selling
products issued by third-party carriers through our MGA Model and FOXO Life
segment. Accordingly, the sale formalizes that we will not issue any policies
through FOXO Life Insurance Company. Our FOXO Labs segment continues to work on
commercializing our epigenetic biomarker technology for underwriting risk
classification.

Memorandum Regarding Assumed Warrants and PIK Note

The Company distributed a memorandum (the "Memorandum") on March 10, 2023 to (i)
the holders of the Company's Assumed Warrants and (ii) the holders of certain
15% Senior Promissory Notes issued by the Company (the "PIK Notes"). The
Memorandum explains that the Company is contemplating an exchange offer (the
"Exchange Offer") that would give the holders of the Assumed Warrants the
opportunity to exchange such Assumed Warrants for shares of our Class A Common
Stock at a rate of 4.83 shares for each Assumed Warrant (the "Exchange Ratio").
In addition, in connection with the proposed Exchange Offer, the Company will
also seek to solicit consents from the holders of the Assumed Warrants to amend
the Assumed Warrants in accordance with their terms to, among other things,
ensure that the issuance of shares of Common Stock in connection with the PIK
Note Amendments (as defined below) do not trigger an anti-dilution adjustment
(collectively, the "Warrant Amendments").



The Memorandum also explains that the Company will seek to solicit consents from
the holders of the PIK Notes to amend the PIK Notes (the "Offer to Amend") to
permit the Company to raise up to $5,000 in a private placement of debt or
equity without being required to repay in full the PIK Notes and raise up to
$20,000, subject to certain requirements (collectively, the "PIK Note
Amendments"). In exchange for the PIK Note Amendments, the Company would issue
to each holder 1.25 shares of Class A Common Stock for every $1.00 of the
original principal amount of their respective PIK Note. The Memorandum adds that
the Company will register for resale with the SEC any shares of Class A Common
Stock issued in exchange for the Assumed Warrants or in connection with the
approval of the PIK Note Amendments promptly following the issuance of such

shares of Common Stock.



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, investment
impairment, non-cash change in fair value of convertible debentures, 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.



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Results of Operations



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

Years Ended December 31, 2022 and 2021

                                                                       Change in       Change in
(Dollars in thousands)                       2022          2021            $               %
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 .



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.



                                       39





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.

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 annual report.



FOXO Labs



                                                               Change in       Change
(Dollars in thousands)                2022         2021            $            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.



                                       40





FOXO Life



                                                                            Change in       Change in

(Dollars in thousands)                           2022          2021             $               %
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.



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.




                                       41

Liquidity and Capital Resources

Sources of Liquidity and Capital

We had cash and cash equivalents of $5,515 and $6,856 as of December 31, 2022
and December 31, 2021, respectively. We have incurred net losses since our
inception. For the year ended December 31, 2022 and 2021, we incurred net losses
of $95,255 and $38,488, respectively. We had an accumulated deficit of $147,231
and $51,976, respectively, as of December 31, 2022, and December 31, 2021. We
have generated limited revenue to date and expect to incur additional losses in
future periods.



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 our 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 "Recent Developments - 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.



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 2022 Bridge 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.



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 Senior PIK Notes in the aggregate
principal of $3,458. We received net proceeds of $2,918, after deducting fees
and expenses of $540.



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 2022 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 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 for at least 12 months from the date hereof.



                                       42

We expect proceeds from the FOXO Life Insurance Company sale to contribute in
funding our operations until June 2023. 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 - Memorandum Regarding
Assumed Warrants and PIK Note" the Company is pursuing amendments to existing
agreements to help it raise additional capital.



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, which included projected revenues
for fiscal year 2022 of $2,000. 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. Based on the $511 of revenue recognized during the
year ended December 31, 2022, we had substantially less revenue than previously
anticipated. The significant reduction in revenue is due to several factors
including but not limited to (i) the Business Combination taking longer than
expected to consummate, which was not considered when the forecast was
originally prepared, (ii) the updates to the business strategy to focus on the
MGA Model as opposed to starting to sell policies through FOXO Life Insurance
Company requiring us to adjust our operations and resulting in zero revenue from
the sale of policies through FOXO Life Insurance Company, (iii) the royalties
earned from our mouse methylation biomarker royalties being lower than forecast
as a result of lower sales than expected and as a result of a reduced royalty
rate in exchange for releasing us from a purchase commitment and (iv) the
Company's continued focus on capital raising initiatives. As previously
discussed, the sale of FOXO Life Insurance Company improved our liquidity by
giving us access to $4,751 that was previously subject to statutory capital

and
surplus requirements.



Cash Flows

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




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.

                                       43





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 Senior 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 December 31, 2022 include:

                                                               Amounts Due by Period
                                   Less than                                            More than
(Dollars in thousands)             1 Year (d)       1 - 3 years       3 - 5 years        5 years        Total (e)
License agreements (a)            $         25                80                80               -     $       185
Research agreements (b)                     13                 -                 -               -              13
Senior PIK Notes (c)                         -             3,588                 -               -           3,588
Vendor commitments (d)                     146                 -                 -               -             146
Total                             $        184             3,668                80               -     $     3,932

(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 December 31, 2022.

(b) Amounts relate to completing CHOP in the upcoming year. See Note 16 of the

     consolidated financial statements.

(c) Represents the principal balance as of December 31, 2022. The Senior PIK

Notes are subject to prepayment penalties and interest is paid through the

issuance of additional Senior PIK Notes. The ultimate amount required to

settle the Senior PIK Note will vary depending on when it is settled. See

     Note 5 of the consolidated financial statements.

(d) The Company has two vendor commitments comprising the balance shown. See Note

15 of the consolidated financial statements.

(e) Does not include $425 of potential milestone payments related to the VECTOR

study. The milestone payments are within the control of the Company and as of

     December 31, 2022 the milestones have not been met. See Note 16 of the
     consolidated financial statements.




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.



                                       44





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.

? 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;

                                       45

? 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.



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.



                                       46

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.

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.

? 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.




                                       47





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.

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.