GAXOS.AI INC.

Previous wording

You should read the following discussion and analysis of our financial condition and plan of operations together with “Summary Financial Data” and our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K as filed with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

Current wording

You should read the following discussion and analysis of our financial condition and plan of operations together with “Summary Financial Data” and our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the years ended December 31, 2024 and 2023 included in our Annual Report on Form 10-K filed with the Securities Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K as filed with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

Previous wording

In addition to launching our own proprietary games, Gaxos Gaming is developing an artificial intelligence solution for game developers and studios. The solution is intended to offer a transformative generative AI service that empowers the gaming industry to create without limits through dynamic content generation, seamless integration, and personalized solutions. Key features of the product will be:

Current wording

Gaxos Labs, launched in September 2024, is a transformative generative AI service that empowers game developers and publishers. Key features of the product include:

Previous wording

Our flagship product is our gaming platform called “Gaxos” (the “Platform” or “Gaxos Gaming”), created with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, or “NFTs,” that will allow users to have unique experiences and more control over in-game assets.

Current wording

Gaxos Gaming (the “Platform”), created with a vision to develop, design, acquire, and manage conventional games and to combine these games with unconventional game mechanisms, such as the ability for gamers and developers to utilize artificial intelligence to create and design in-game features, as well as to mint unique in-game features, such as skins, characters, weapons, gear, levels, and virtual lands, in the form of non-fungible tokens, or “NFTs,” that will allow users to have unique experiences and more control over in-game assets.

Previous wording

Intangible assets, consisting of software licenses and technology licenses, are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life of 5 years, less any impairment charges. We test intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which could materially adversely impact the statements of operations.

Current wording

Intangible assets, consisting of software licenses, technology licenses, and software, are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life of 5 years, less any impairment charges. We test intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which could materially adversely impact the consolidated statements of operations.

Previous wording

Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023.**

Current wording

Comparison of Our Results of Operations for the Three Months Ended March 31, 2025 and 2024.**

Previous wording

During the three and nine months ended September 30, 2024, we generated revenues of $2,704 and $2,723, respectively, primarily from the sale of health coaching packages to its customers. Health coaching packages consist of a series of lab tests and personal health coaching sessions. We did not generate during the 2023 periods.

Current wording

During the three months ended March 31, 2025, we generated revenues of $23,732 primarily from revenues generated, through RNK Health, for providing non-clinical services to support patient care of $22,552. Additionally, during the three months ended March 31, 2025, we generated revenues of $1,124 from the sale of health coaching packages to our customers, revenue of $51 from subscription services, and revenue of $5 from in-app games items. Health coaching packages consist of a series of lab tests and personal health coaching sessions. During the three months ended March 31, 2024, we generated revenue of $19. Once we achieve a critical mass of users, we plan to offer new features and to charge fees in order to generate revenues from these added features.

Previous wording

During the three months ended September 30, 2024 and 2023, we incurred operating expenses of $908,573 and $873,616, respectively, an increase of $34,957, or 4.0%. During the nine months ended September 30, 2024 and 2023, we incurred operating expenses of $2,806,934 and $3,184,549, respectively, a decrease of $377,615, or 11.9%. For the three and nine months ended September 30, 2024 and 2023, operating expenses consisted of the following:

Current wording

During the three months ended March 31, 2025 and 2024, we incurred operating expenses of $1,415,427 and $1,043,858, respectively, an increase of $371,569, or 35.6%. Operating expenses consisted of the following:

Previous wording

We enter into agreements with third-party developers that require us to make payments for game and software development services. In exchange for our payments, we receive the exclusive publishing and distribution rights to the finished game title and software. During the preliminary project stage and prior to the application development stage of the product, we record any costs incurred by third-party developers as research and development expenses.

Current wording

We enter into agreements with third-party developers that require us to make payments for game and software development services upon reaching the application development stage. In exchange for our payments, we receive the exclusive publishing and distribution rights to the finished game title and software. During the preliminary project stage and prior to the application development stage of the product, we record any costs incurred by third-party developers as research and development expenses.

Previous wording

We capitalize all development and production service payments to third-party developers as internal-use software development costs and licenses once we reach the application development stage. Prior to this stage, we expense all research and development fees. During the three months ended September 30, 2024 and 2023, we reported research and development expense of $252,657 and $258,405, respectively, a decrease of $5,748, or 2.2%. The decrease is primarily due to a decrease in outside development costs incurred in connection with the development of Gaxos Games offset by an increase in development of the Gaxos Health platforms. During the nine months ended September 30, 2024 and 2023, we reported research and development expense of $684,327 and $630,574, respectively, an increase of $53,753, or 8.5%. The increase is primarily due to an increase in outside development costs incurred in connection with the development of Gaxos Health platforms offset by a decrease in outside development costs incurred in connection with the development of Gaxos Games. We expect research and development expenses to increase in the future as development of Gaxos Games and Gaxos Health accelerates.

Current wording

We capitalize all development and production service payments to third-party developers as internal-use software development costs and licenses once we reach the application development stage. During the three months ended March 31, 2025 and 2024, we reported research and development fees of $220,989 and $182,329, respectively, an increase of $38,660, or 21.2%. The increase is primarily due to an increase in outside development costs incurred in connection with the development of Gaxos Health platforms offset by a decrease in outside development costs incurred in connection with the development of Gaxos Games. We expect research and development expenses to increase in the future as development of Gaxos Games, Gaxos Health and RNK Health accelerates.

Previous wording

During the three months ended September 30, 2024 and 2023, compensation and related benefits amounted to $172,502 and $208,365, respectively, a decrease of $35,863, or 17.2%. The decrease during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily attributable to a decrease in executive officer and employee compensation.

Current wording

During the three months ended March 31, 2025 and 2024, compensation and related benefits amounted to $588,985 and $363,484, respectively, an increase of $225,501, or 62.0%. The increase during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily attributable to the increase in executive officer bonuses paid of $250,000, offset by a decrease in employee compensation and related benefits of $24,499.

Previous wording

During the nine months ended September 30, 2024 and 2023, we incurred professional fees of $819,528 and $952,431, respectively, a decrease of $132,903, or 13.9%, attributable to a decrease in stock-based consulting fees due to the accretion of stock options expense to consultants of $189,699, and a decrease in investor relations fees of $328,050, offset by an increase in advisory fees of $306,695 and an increase in other professional fees of $78,151.

Current wording

During the three months ended March 31, 2025 and 2024, we incurred professional fees of $232,890 and $274,688, respectively, a decrease of $41,798, or 15.2%, primarily attributable to a decrease in advisory fees of $79,945 and a decrease in investor relations fees of $30,000, offset by an increase in legal fees of $32,679, an increase in accounting fees of $22,122, and an increase in stock-based consulting fees attributable to the accretion of stock-based consulting fees related to issuance of stock options to consultants of $13,348

Previous wording

General and administrative expenses consist of advertising and marketing expenses, office expenses, insurance, listing fees, computer and interest expenses, travel expenses, amortization expense, and other general business expenses. During the three months ended September 30, 2024 and 2023, we incurred general and administrative expenses of $224,247 and $152,293, respectively, an increase of $71,954, or 47.2%. During the nine months ended September 30, 2024 and 2023, we incurred general and administrative expenses of $613,514 and $346,982, respectively, an increase of $266,532, or 76.8%. Generally, the increase in other general and administrative expenses during the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 was primarily attributable to an increase in advertising and marketing expenses and a ramp up of operations which began in February 2023 following the Company’s IPO.

Current wording

Other general and administrative expenses consist of advertising and marketing expenses, office expenses, insurance, listing fees, computer and interest expenses, travel expenses, amortization expense, and other general business expenses. During the three months ended March 31, 2025 and 2024, we incurred other general and administrative expenses of $372,563 and $223,357, respectively, an increase of $149,206, or 66.8%. This increase was primarily attributable to an increase in advertising and marketing fees of $142,295 in connection with the marketing of our RNK Health services.

Previous wording

During the three months ended September 30, 2024 and 2023, we reported a loss from operations of $905,869 and $873,616, respectively, an increase of $32,253, or 3.7%. During the nine months ended September 30, 2024 and 2023, we reported a loss from operations of $2,804,211 and $3,184,549, respectively, a decrease of $380,338, or 11.9%. The change in loss from operations was due to changes in general and administrative expenses, research and development, and impairment loss as discussed above.

Current wording

During the three months ended March 31, 2025 and 2024, we reported a loss from operations of $1,391,695 and $1,043,839, respectively, an increase of $347,856, or 33.3%. The increase in loss from operations was due to an increase in general and administrative expenses and an increase in research and development expenses as discussed above.

Previous wording

During the three months ended September 30, 2024 and 2023, our net loss amounted to $864,410, or a net loss per common share of $0.61 (basic and diluted) and $857,059, or a net loss per common share of $0.85 (basic and diluted), respectively, an increase of $7,351, or 0.86%. During the three months ended September 30, 2024 and 2023, our total comprehensive loss amounted to $864,410 and $815,218, respectively, an increase of $49,192, or 6.0%.

Current wording

During the three months ended March 31, 2025 and 2024, our net loss amounted to $1,232,062 and $912,145, respectively, an increase of $319,917, or 35.1%. During the three months ended March 31, 2025 and 2024, we adjusted net loss for the net loss of subsidiary attributable to noncontrolling interest by $40,262 and $0, respectively Accordingly, during the three months ended March 31, 2025 and 2024, our net loss attributable to common shareholders was $1,191,800, or $0.17 per common share (basic and diluted) and $912,145, or $0.91 per common share (basic and diluted), respectively, a decrease of $279,655, or 30.7%.

Previous wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On September 30, 2024, we had a cash balance of $5,227,894, had short-term investments of $1,416,056, and had working capital of $6,525,650.

Current wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On March 31, 2025, we had a cash balance of $2,571,340, had short-term investments of $12,116,298, and had working capital of $14,666,345. During the three months ended March 31, 2025, we used net cash in operations of $1,297,485.

Previous wording

For the nine months ended September 30, 2023, net cash used in operations was $2,307,697, which primarily resulted from our net loss of $3,147,134, adjusted for the add back of amortization expense of $6,968, stock-based compensation to employees and consultants of $914,426, and impairment loss of $52,363, and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $79,319, a decrease in accounts payable of $65,967, and an increase in accrued expenses of $10,966.

Current wording

For the three months ended March 31, 2025, net cash used in operations was $1,297,485, which primarily resulted from our net loss of $1,232,062, adjusted for the add back of amortization expense of $29,749, stock-based compensation to employees and consultants of $32,880, and a realized gain on short-term investments of $(11,445), and changes in operating asset and liabilities such as an increase in accounts receivable of $4,871, an increase in prepaid expenses and other current assets of $210,977, a decrease in accounts payable of $17,118, an increase in accrued expenses of $117,481, and a decrease in deferred revenues of $1,122.

Previous wording

For the nine months ended September 30, 2024, net cash used in operations was $2,512,166, which primarily resulted from our net loss of $2,585,793, adjusted for the add back of amortization expense of $37,036, stock-based compensation to employees of $84,190, and a realized gain on short-term investments of $121,765, and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $61,477, an increase in accounts payable of $113,406, and an increase in accrued expenses of $19,089.

Current wording

For the three months ended March 31, 2024, net cash used in operations was $1,099,417, which primarily resulted from our net loss of $912,145, adjusted for the add back of amortization expense of $8,683, stock-based compensation to employees of $15,806, and a realized gain on short-term investments of $119,715, and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $335,781, an increase in accounts payable of $177,268, and an increase in accrued expenses of $66,469.

Previous wording

For the nine months ended September 30, 2024, net cash provided by investing activities was $842,604, which resulted from proceeds received from the sale of short-term investments of $3,312,205, offset by cash used for the purchase of short-term investments of $2,096,293, the purchase of equity securities of $199,998, an increase in capitalized internal-use software development costs of $23,310, and the purchase of an intangible asset of $150,000.

Current wording

For the three months ended March 31, 2024, net cash provided by investing activities was $349,602, which resulted from proceeds received from the sale of short-term investments of $2,616,619, offset by cash used for the purchase of short-term investments of $2,095,707, an increase in capitalized internal-use software development costs of $21,310, and the purchase of an intangible asset of $150,000.

Previous wording

Our ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis. We will require significant amounts of capital to sustain operations, and we will need to make the investments we need to execute our longer-term business plan to support new technologies and help advance innovation. Absent generation of sufficient revenue from the execution of our long-term business plan, we will need to obtain debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or from operations. Such additional debt or equity financing may not be available to us on favorable terms, if at all. We plan to pursue our plans with respect to the research and development of our products which will require resources beyond those that we currently have, ultimately requiring additional capital from third party sources. However, we believe the net proceeds received in the IPO that closed in February 2023 will be sufficient to meet our financial obligations for at least the next 12 months.

Current wording

Our ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis. We will require significant amounts of capital to sustain operations, and we will need to make the investments we need to execute our longer-term business plan to support new technologies and help advance innovation. Absent generation of sufficient revenue from the execution of our long-term business plan, we will need to obtain debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or from operations. Such additional debt or equity financing may not be available to us on favorable terms, if at all. We plan to pursue our plans with respect to the research and development of our products which will require resources beyond those that we currently have, ultimately requiring additional capital from third party sources. However, we believe the net proceeds received from the December 2024 securities purchase agreements as discussed above will be sufficient to meet our financial obligations for at least the next 12 months.

Previous wording

We did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

Current wording

For the three months ended March 31, 2025 and 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

Previous wording

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying unaudited condensed consolidated financial statements.

Current wording

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements.