UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended
or
For the transition period from ___________ to ___________
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Securities registered pursuant to Section 12(b) of the Exchange Act:
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Indicate by check mark whether the registrant
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| ☒ | Smaller reporting company | ||
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As of May 13, 2025, there were
GAXOS.AI INC.
FORM 10-Q
MARCH 31, 2025
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.
Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Quarterly Report on Form 10-Q. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to:
| ● | our ability to obtain additional funds for our operations; | |
| ● | our financial performance, including our revenues, cost of revenues, operating expenses, and our ability to attain and sustain profitability; | |
| ● | our ability to attract and retain users; | |
| ● | our ability to attract and retain advertisers; | |
| ● | our ability to compete effectively with existing competitors and new market entrants; | |
| ● | our ability to successfully expand in our existing markets and penetrate new markets; | |
| ● | our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or JOBS Act; | |
| ● | our ability to effectively manage our growth, and future expenses; | |
| ● | our ability to maintain, protect, and enhance our intellectual property; | |
| ● | our ability to comply with modified or new laws and regulations applying to our business, competitors and industry; | |
| ● | our ability to attract and retain qualified key management and technical personnel; | |
| ● | other risks and uncertainties, including those listed under the caption “Risk Factors.” |
The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to the Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors referred to on page 5 of our Annual Report on Form 10-K for the year ended December 31, 2024 could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GAXOS.AI INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments, at fair value | ||||||||
| Investment in equity securities, at fair value | ||||||||
| Accounts receivable | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| LONG-TERM ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Digital currencies | ||||||||
| Total Long-Term Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See Note 7) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock; par value $ | ||||||||
| Common stock; par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Gaxos.AI Stockholders’ Equity | ||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
1
GAXOS.AI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| REVENUES | $ | $ | ||||||
| OPERATING EXPENSES: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME: | ||||||||
| Interest income | ||||||||
| Realized gain on short-term investments | ||||||||
| Total other income | ||||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Net loss of subsidiary attributable to noncontrolling interest | ||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
| COMPREHENSIVE LOSS: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income: | ||||||||
| Unrealized loss on short-term investments | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARE OUTSTANDING: | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to unaudited consolidated financial statements.
2
GAXOS.AI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
(Unaudited)
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||||||||||||
| # of Shares | Amount | # of Shares | Amount | Capital | Income | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Common shares issued for intangible asset | - | |||||||||||||||||||||||||||||||||||
| Accretion of stock option expense | - | - | ||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss - short-term investments | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||||||||||||
| # of Shares | Amount | # of Shares | Amount | Capital | Income | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Common shares and warrants issued for cash, net | ||||||||||||||||||||||||||||||||||||
| Sale of pre-funded warrants for cash | - | - | ||||||||||||||||||||||||||||||||||
| Purchase and cancellation of treasury stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Accretion of stock option expense | - | - | ||||||||||||||||||||||||||||||||||
| Rounding shares from reverse split | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss - short-term investments | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
3
GAXOS.AI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization expense | ||||||||
| Stock-based compensation | ||||||||
| Realized gain on short-term investments | ( | ) | ( | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of short-term investments | ( | ) | ( | ) | ||||
| Proceeds from sale of short-term investments | ||||||||
| Increase in capitalized internal-use software development costs | ( | ) | ( | ) | ||||
| Purchase of intangible asset | ( | ) | ( | ) | ||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the sale of common stock units | ||||||||
| Proceeds from sale of pre-funded warrants | ||||||||
| Purchase and cancellation of treasury shares | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Unrealized loss on short-term investments | $ | $ | ||||||
| Common stock issued for intangible asset | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
4
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS
Gaxos.ai Inc. (the “Company”) was
incorporated in the state of Wyoming on
On September 23, 2024, the Company formed a subsidiary, RNK Health, LLC (“RNK Health”), a company incorporated under the laws of the State of Delaware as a limited liability
company. RNK Health was formed in order to form a partnership and potential relationship with Nekwellness to engage in the proposed business
of marketing certain products. On October 10, 2024, the Company, RNK Health, and Nekwellness entered into a one-year RNK Health operating
agreement (the “Operating Agreement”), which automatically renews annually, for the regulation and management of the affairs
of RNK Health. On October 10, 2024, the Company, the sole member of RNK Health, admitted Nekwellness as a member of RNK Health and accordingly,
Nekwellness was granted a
At the Company annual meeting on December 27, 2024, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation for the reincorporation of the Company from The State of Delaware to the State of Nevada, which occurred on March 3, 2025.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On February 28, 2024, a majority of the Company shareholders granted discretionary authority to the Company’s Board of Directors to amend the Company’s Certificate of Incorporation to effect one or more consolidations of the Company’s issued and outstanding shares of common stock, pursuant to which the shares of common stock would be combined and reclassified into on the basis of one share of common stock for each 12 shares of the Company’s common stock then issued and outstanding (the “Reverse Stock Split”). On March 7, 2024, the Company filed a Certificate of Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-12 reverse stock split with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment and the reverse stock split became effective on March 7, 2024. All share and per share data in the accompanying unaudited consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split.
This summary of significant account policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles (“US GAAP”) and have been consistently applied in the preparation of the consolidated financial statements.
The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.
The Company’s consolidated financial statements include the accounts of the parent entity, Gaxos. AI, Inc. and RNK Health, which is a majority-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
5
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
The Company accounts for its noncontrolling interest in RNK Health in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring and non-recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements. These unaudited consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements for the year ended December 31, 2024 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 28, 2025.
Liquidity
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, the Company had a cash balance of $
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the valuation of investments, valuation of intangible assets and other long-lived assets, the valuation of common shares issued to purchase intangible assets, estimates of deferred tax valuation allowances and the fair value of stock options issued for services.
Fair Value Measurements and Fair Value of Financial Instruments
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company identified the following assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820.
The three levels of the fair value hierarchy are as follows:
| ● | Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| ● | Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| ● | Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
6
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
The following table represents the Company’s fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024.
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Short-term investments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Equity securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company’s short-term investments are level 1 measurements and are based on the quoted fair value on each date.
Investment in Equity Securities, at Fair Value
The following table summarizes activity in the Company’s investment in equity securities, at fair value for the periods presented:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| 2025 | 2024 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Balance, end of period | $ | $ | ||||||
On March 31, 2025, equity securities, at fair
value, consisted of
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. The Company has no cash equivalents as of March 31, 2025 and December 31, 2024.
The Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced any losses on its invested cash. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
On March 31, 2025, the Company had approximately
$
7
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
Accounts receivable
The Company adopted ASC 326, “Financial
Instruments - Credit Losses” on January 1, 2023 and recognizes an allowance for losses on accounts receivable in an amount equal
to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis
of historical credit loss experience, current receivables aging, and expected future write-offs, as well as an assessment of specific
identifiable customer accounts considered at risk or uncollectible. The credit loss expense associated with the allowance for doubtful
accounts related to accounts receivable is recognized in general and administrative expenses. As of March 31, 2025 and December 31, 2024,
accounts receivable amounted to $
Short-Term Investments
The Company’s portfolio of short-term investments consists of marketable debt securities which are comprised of rated U.S. government securities, and corporate bonds with maturities of more than three months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the unaudited consolidated balance sheets and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss) on the consolidated balance sheets and as a component of the consolidated statements of comprehensive loss. Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income (expense), net in the unaudited consolidated statements of operations and comprehensive loss.
An impairment loss may be recognized when the decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary declines in fair value below the cost-basis each quarter, or whenever events or changes in circumstances indicate that the cost basis of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis.
The Company recorded $
Investment in Equity Securities, at Fair Value
Equity investments are carried at fair value with unrealized gains or losses which are recorded as net unrealized gain (loss) on equity investments in the accompanying unaudited consolidated statement of operations and comprehensive loss. Realized gains and losses are determined on a specific identification basis which is recorded in earnings or loss as a net realized gain (loss) on equity investments in the consolidated statement of operations and comprehensive loss. The Company reviews investments in equity securities, at fair value, for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.
Accounting for Digital Currencies and Other Digital Assets
The Company accounts for digital currencies and
other digital assets as indefinite-lived intangible assets and accounts for them at historical cost in accordance with ASC 350,
Intangibles - Goodwill and Other Indefinite-lived intangible assets are not subject to amortization but rather evaluated for
impairment annually and more frequently, if events or circumstances change that indicate that it is more likely than not that the asset
is impaired (i.e., if an impairment indicator exists). As a result, the Company only recognizes decreases in the value of its digital
currencies and other digital assets, and any increase in value will be recognized only upon disposition. The Company plans to dispose
of cryptocurrency received as a form of payment into fiat currency and anticipates ownership of cryptocurrency to be minimal. As of March
31, 2025 and December 31, 2024, the Company’s digital currencies consisted of
8
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Property and equipment includes capitalized internal-use software development costs. Costs incurred to develop internal-use software, including game development, are expensed as incurred during the preliminary project stage. Internal-use software development costs are capitalized during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements, which currently is three years. When existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use.
Intangible Assets
Intangible assets, consisting of acquired software
licenses, technology licenses and acquired software, are carried at cost less accumulated amortization, computed using the straight-line
method over the estimated useful life of
Stock-based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to account for forfeitures as they occur.
Income Taxes
Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
When tax returns are filed, it is highly certain
that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about
the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized
in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions
taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured
as the largest amount of tax benefit that is more than
9
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
Revenue Recognition
The Company follows Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and requires certain additional disclosures.
In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company plans to generate revenue from the following sources:
| ● | The Company generates revenue from the sale of our in-game items to our customers. Revenue generated from such sales, primarily through the app stores, such as Google Play Store or Apple App Store, is recognized upon delivery of the in-game items to the customer, which is when the Company completes its sole performance obligation. Fees incurred by the Company, such as commissions to the app stores, are recognized in operating expenses. During the three months ended March 31, 2025 and 2024, revenues from the sale of our in-game items amounted to $ | |
| ● | The Company generates revenue 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. Revenues generated from such sales are recognized upon the completion of lab testing and the utilization of health coaching sessions, which is when the Company completes its performance obligation. Any fees paid in advance by the customer are reflected as a contract liabilities until such time as the performance obligation is completed. Fees incurred by the Company, such as the lab testing charges, are recognized in operating expenses. During the three months ended March 31, 2025 and 2024, revenue from the sale of health coaching packages amounted to $ |
| ● | Gaxos Labs sells subscriptions to its customers for the use of its software under a software as a service subscription model (“SaaS”), which will allow game developers and publishers to create content using AI which reduce creative asset development time. The Company’s SaaS offerings shall be sold under a prepaid or postpaid, usage-based pricing system pursuant to a tiers model, allowing customers to choose the subscription level to be charged based upon their intended usage. The subscription tiers will utilize declining prices as the volume grows. Under prepaid pay-as-you-go plans, revenues related to contracts that do not include a specified contract period are recognized upon usage by the customer and satisfaction of the Company’s performance obligation. These usage-based revenues are constrained to the amount the Company expects to be entitled to and receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized as services are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct. During the three months ended March 31, 2025 and 2024, revenue from the sale of subscriptions amounted to $ |
| ● | In connection with RNK Health, the Company is generating revenues from providing non-clinical administrative services to support patient health. RNK Health has partnered with a third-party medical management company (the “Medical Partner”) that provides medication management and patient support care services via telehealth to patients located in all 50 states. The Medical Partner provides and makes available health care professionals to perform telehealth services within their respective scope of practice, provides and maintains applicable professional licensure, provides medication management services and provides RNK Health and patients access to the Medical Partner’s telehealth optimized technology platform. RNK Health provides services to patients to support the delivery of various medical services, including virtual rooming of patients, patient pathway advisory services, patient scheduling and interface connected to the Medical Partners central calendar, patient pathway monitoring and service, nonclinical patient customer service, care navigation service, software-based care optimization services, patient education services, patient intake system and data collection (the “Administrative Services”). The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. The Company records these revenues on a gross basis since the Company is obligated to fulfill the non-clinical administrative services and has the risk associated with service delivery. Revenues from these fees is recognized upon satisfaction of the performance obligation. During the three months ended March 31, 2025 and 2024, revenues from Administrative Services amounted to $ |
10
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
| ● | The Company plans to generate revenue from advertising fees paid by game advertisers, developers, hardware companies, or other strategic partners to the Company for promotion on our platform. Revenues from these fees will be recognized ratably over the agreed-upon advertising service period and upon delivery of agreed-upon advertising services, which constitutes satisfaction of the performance obligation. During the three months ended March 31, 2025 and 2024, the Company did not generate revenues fees from advertising fees. |
| ● | The Company plans to generate royalty revenues when a third party sells one of our NFTs on a third-party platform. We will recognize royalty revenue when it is probable that we will collect the royalty fee owed which is typically when we receive notification from the third-party platform that an NFT has been sold, which constitutes satisfaction of the performance obligation. In the instance where the Company will receive royalty payments when a customer disposes of an in-game NFT in the secondary market on a third-party platform or any other payment that is not in fiat currency, the Company will recognize the revenue in accordance with ASC 606-10-32-21, “Noncash Consideration”. The fair value of the non-cash consideration received shall be determined by using the quoted price for such non-cash consideration on the date of the transaction. During the three months ended March 31, 2025 and 2024, the Company did not generate revenues fees from royalties. |
Research and Development
Research and development costs incurred in the development of the Company’s products are expensed as incurred and include costs such as labor and outside development costs, software license fees, materials, and other allocated costs incurred.
Net Loss per Share
The Company computes net loss per share in accordance with ASC 260-10, “Earnings Per Share.” The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per share gives effect to all dilutive potential common shares outstanding during the period using the “as if converted” basis.
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period presented. Diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
For the three months ended March 31, 2025 and 2024, the following common stock equivalents were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss.
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Common stock equivalents: | ||||||||
| Warrants | ||||||||
| Stock options | ||||||||
| Total | ||||||||
Noncontrolling Interests
The Company follows ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCI”) in its partially owned consolidated subsidiary. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to noncontrolling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCI shall continue to be attributed to their share of losses even if that attribution results in a deficit NCI balance.
11
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
Segment Reporting
The Company operates as a single operating segment
technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”)
to optimize the user experience. In accordance with ASC 280 – “Segment Reporting”, the Company’s chief
operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating
resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting,
establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products
and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating
units qualify for aggregation under “Segment Reporting” due to their similarities in economic characteristics such as nature
of services; and procurement processes. Since the Company operates in
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial statements.
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.
NOTE 3 – SHORT-TERM INVESTMENTS AND INVESTMENT IN EQUITY SECURITIES
Short-Term Investments
On March 31, 2025, the Company’s short-term investments consisted of the following:
| Cost | Cumulative Unrealized Loss | Fair Value | ||||||||||
| Corporate bonds | $ | $ | ( | ) | $ | |||||||
| Total short-term investments | $ | $ | ( | ) | $ | |||||||
On December 31, 2024, the Company’s short-term investments consisted of the following:
| Cost | Cumulative Unrealized Gain | Fair Value | ||||||||||
| US Treasury bills | $ | $ | $ | |||||||||
| Total short-term investments | $ | $ | $ | |||||||||
12
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
Investment in Equity Securities, at Fair Value
The following table summarizes activity in the Company’s investment in equity securities, at fair value for the periods presented:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| 2025 | 2024 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Balance, end of period | $ | $ | ||||||
On March 31, 2025, investment in equity securities,
at fair value consisted of
NOTE 4 – PROPERTY AND EQUIPMENT
On March 31, 2025 and December 31, 2024, property and equipment consisted of the following:
| Useful life | March 31, 2025 | December 31, 2024 | ||||||||
| Capitalized internal-use software development costs | $ | $ | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
For the three months ended March 31, 2025 and
2024, amortization of capitalized internal-use software development costs amounted to $
13
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
NOTE 5 – INTANGIBLE ASSETS
On March 31, 2025 and December 31, 2024, intangible assets consisted of the following:
| Useful life | March 31, 2025 | December 31, 2024 | ||||||||
| License | $ | $ | ||||||||
| Acquired internal-use software | ||||||||||
| Subtotal | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||||
On March 4, 2024, the Company entered into a
Purchase Agreement with a third party to acquire certain technology and computer code. The Purchase Agreement grants the Company a perpetual,
worldwide, non-exclusive, non-transferable, royalty free, fully paid license to (a) modify and create derivative works from certain technology
and related codebase including, but not limited to, “Habit-tracking Module,” “Administrative Panel,” and related
computer code. The aggregate purchase price was $
On February 24, 2025, the Company
consummated a Software Purchase Agreement with a third party, whereby the Company purchased software and related technologies for
$
For the three months ended March 31, 2025 and
2024, amortization of intangible assets amounted to $
Amortization of the intangible asset attributable to future periods is as follows:
| Year ending March 31: | Amount | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| $ | ||||
14
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
NOTE 6 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue
Common Stock
2023 Stock Repurchase Plan
On March 20, 2023, the Board of Directors of
the Company approved a stock repurchase program authorizing the purchase of up to $
Common Stock Issued for Intangible Asset
On February 24, 2025, the Company consummated
a Software Purchase Agreement with a third party, whereby the Company purchased software and related technologies for $
Capital Raises
March 2024
On March 13, 2024, the Company entered into a
securities purchase agreement (the “March 2024 Purchase Agreement”) with an institutional investor (“the “Purchaser”)
for the issuance and sale in a private placement (the “March 2024 Private Placement”) of aggregate Units consisting of (i)
The March 2024 Common Warrants are exercisable
immediately upon issuance at an exercise price of $
In connection with the March 2024 Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of March 13, 2024, with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) registering the resale of the securities issued in the March 2024 Private Placement no later than 30 days after the date of the Registration Rights Agreement, and to use its best efforts to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than 60 days following the date of the Registration Rights Agreement (or 90 days following the date of the Registration Rights Agreement in the event of a “full review” by the SEC). The Company filed a registration statement with the SEC on April 4, 2024 which declared effective on April 16, 2024.
15
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
H.C. Wainwright & Co., LLC (the “Placement
Agent”) acted as the Company’s exclusive placement agent in connection with the March 2024 Private Placement, pursuant to
an engagement letter, dated as of March 7, 2024 and as amended on March 13, 2024, between the Company and Wainwright (the “Engagement
Letter”). Pursuant to the Engagement Letter, the Company paid the Placement Agent (i) a total cash fee equal to
The March 2024 Placement Agent Warrants were valued on the date of issuance using Binomial Lattice valuation model with the following assumptions:
| March 15, 2024 | ||||
| Dividend rate | % | |||
| Term (in years) | ||||
| Volatility | % | |||
| Risk—free interest rate | % | |||
The risk-free interest rate is based on the U.S. Treasury rates at the date of issuance with a maturity date approximately equal to the expected life at issuance date. Volatility is based on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any dividends and does not expect to in the future.
Stock Warrants
On March 13, 2024, in connection with the March
2024 Private Placement, the Company issued an aggregate of
Warrant activity for the three months ended March 31, 2025 is summarized as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2024 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Balance Outstanding, March 31, 2025 | $ | $ | ||||||||||||||
| Exercisable, March 31, 2025 | $ | $ | ||||||||||||||
16
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
2022 Equity Incentive Plan
On March 30, 2022, the Company’s Board
of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved an initial
Stock Options
On March 5, 2024, the Company granted stock options
to purchase an aggregate of
On March 7, 2024, the Company entered into Advisory
Board Agreements (the Advisory Agreements”) with three members of the Company’s Medical Advisory Board. In connection with
the Advisory Agreements, each medical Board member shall be paid an annual cash fee of $
17
GAXOS.AI INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
The stock options were valued at the grant date using a Black-Scholes option pricing model with the following assumptions:
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||
| Dividend rate | % | |||||||
| Term (in years) | ||||||||
| Volatility | % | |||||||
| Risk—free interest rate | % | |||||||
The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior using the simplified method. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s common stock. The Company has not historically issued any dividends and does not expect to in the future.
During the three months ended March 31, 2025
and 2024, the Company recognized total stock-based expenses related to stock options of $
Stock option activity during the three months ended March 31, 2025 is summarized as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2024 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Balance Outstanding, March 31, 2025 | $ | $ | - | |||||||||||||
| Exercisable, March 31, 2025 | $ | $ | ||||||||||||||
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On February 17, 2023, the Company entered into
an executive employment agreement with Vadim Mats, the Company’s Chief Executive Officer (CEO) in connection with the Company’s
initial public offering (the “IPO”). The term of the agreement will continue for one (1) year from the date
of execution and automatically renews for successive one (1) year periods at the end of each term until either party delivers written
notice of their intent not to review at least 90 days prior to the expiration of the then effective term. Pursuant to the agreement,
Mr. Mats shall receive a base salary at the annual rate of $
NOTE 8 – SUBSEQUENT EVENTS
On April 14, 2025, the Company granted stock
options to purchase an aggregate of
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Overview
We are a technology-based company that is developing applications aimed at redefining the way we utilize artificial intelligence (“AI”) to optimize the user experience. We are committed to addressing the need for AI solutions in both health and entertainment.
Gaxos Labs
Gaxos Labs, launched in September 2024, is a transformative generative AI service that empowers game developers and publishers. Key features of the product include:
| ● | AI-Powered Creativity: Reduces creative asset development time from hours to minutes, transforming artistic visions into reality with ease. Rapid prototyping abilities allows for experimentation with different designs quickly and easily. |
| ● | Monetization: Publishers have the ability to offer users AI-generated assets for player customization. |
| ● | Seamless Integration: With plug-and-play functionality for Unity and Godot, integration is effortless into existing workflows. |
| ● | API: Connect to any game development engine and build for any platform including mobile and PC. |
| ● | Dynamic Content Generation: User-Generated-Ai-Content (“UGAiC”) feature offers new experiences with each playthrough by letting gamers use AI in real time, fostering a dynamic gaming environment. |
| ● | Customized Solutions: From personalized AI models including images and sound capabilities to expert consulting services, our offering includes customizable solutions to meet the unique needs of any developer. |
Gaxos Gaming
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.
In 2023, we launched our own proprietary games that are simple and fun to play, and that offer gamers the ability to utilize AI to personalize their gaming experience as well as to mint their own affordable NFTs, with unique and exclusive features, that can be utilized across the network of games and platform that we intend to build. As of March 31, 2025, we have launched four games, Space Striker AI, Brawl Bots, BattleFleet AI, and Jigsaw Puzzle AI. Space Striker AI allows players to engage in a captivating storyline and exciting retro shooting space action in the players AI-generated spaceship. Players can fuse crystals to upgrade their ship parts to craft, clash and conquer the galaxy all within a dynamic free-to-play economy. Brawl Bots immerses users in high-octane battles in real time against other players, in solo play or teams. Each player gets to control their own exclusive Bot character, ensuring a personalized gaming experience. BattleFleet AI is a take on the classic Battleship game with AI elements that allow gamers to design their ships. Jigsaw Puzzle AI lets gamers solve preloaded jigsaw puzzles as well as design and solve new jigsaw puzzles using AI.
Gaxos Health
Recently, we began to develop a new initiative, Gaxos Health, which is dedicated to revolutionizing personal health and wellness by developing a suite of innovative AI-powered health optimization solutions. Gaxos Health will integrate AI-driven insights with individual biometric data and health goals to create web and application based personalized wellness strategies for users. We believe that this cutting-edge approach will redefine preventative medicine, offering unparalleled personalization in health and wellness. Gaxos Health solutions will analyze a wide range of health data to provide tailored wellness plans and address the growing demand for personalized health solutions. We believe that this technology is not just a step but a leap forward in empowering individuals to take control of their health and longevity with AI’s precision and intelligence.
We launched the AI-powered health optimization product in the third quarter of 2024.
19
RNK Health
On September 23, 2024, the Company formed a wholly-owned subsidiary, RNK Health LLC (“RNK Health”), to form a partnership and potential relationship with Nekwellness, LLC (“Nekwellness”) to engage in the proposed business of marketing certain health-related products. On October 10, 2024, the Company, RNK Health and Nekwellness entered into an operating agreement with respect to the regulation and management of the affairs of RNK Health and, as of such date, the Company owns a 70% membership interest in RNK Health and Nekwellness owns a 30% membership interest in RNK Health. RNK Health is currently providing access to certain medications, supplements and other wellness products and services.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We consider the following to be critical accounting estimates.
Intangible assets
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.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to account for forfeitures as they occur. We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees, and directors as an expense in the statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option granted is estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility, and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if we use different assumptions on future grants, stock-based compensation expense could be materially affected in future periods.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment and software necessary to conduct our operations on an as needed basis.
20
Results of Operations
Comparison of Our Results of Operations for the Three Months Ended March 31, 2025 and 2024.
Revenues
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.
Operating Expenses
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:
Research and development fees
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.
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.
General and administrative expenses
For the three months ended March 31, 2025 and 2024, general and administrative expenses consisted of the following:
| For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | |||||||
| Compensation and related benefit | $ | 588,985 | $ | 363,484 | ||||
| Professional fees | 232,890 | 274,688 | ||||||
| Other general and administrative expenses | 372,563 | 223,357 | ||||||
| Total general and administrative expenses | $ | 1,194,438 | $ | 861,529 | ||||
21
Compensation and related benefits
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.
Professional fees
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
Other general and administrative expenses
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.
Loss from operations
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.
Other income
During the three months ended March 31, 2025 and 2024, we reported other income of $159,633 and $131,694, respectively, which consisted of interest income and a realized gain on short-term investments in both years.
Net loss and net loss attributable common shareholders
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%.
Liquidity, Capital Resources and Plan of Operations
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.
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On December 18, 2024, we entered into a securities purchase agreement (the “December 18, 2024 Purchase Agreement”) with certain institutional investors, pursuant to which we sold to such investors 1,449,277 common shares of the Company at a purchase price of $3.45 per share for net proceeds from $4,449,055, after deducting Placement Agent fees and offering expenses of $550,950 paid by the Company. Additionally, on December 26, 2024, we entered into a securities purchase agreement (the “December 26, 2024 Purchase Agreement”) with certain institutional and accredited investors, pursuant to which we sold to such investors 1,346,669 shares of the Company’s common stock at a purchase price of $3.00 per share (the “2nd Registered Direct Offering”). The net proceeds from the December 26, 2024 Purchase Agreement amounted to $3,600,656, after deducting Placement Agent fees and offering expenses of $439,351 paid by the Company pursuant to the September 2024 Engagement Letter with the Placement Agent.
Until such time that the Company implements its growth strategy, we expect to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research and development, and costs of being a public company. We believe that our existing working capital and cash on hand will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this report.
Cash Flows from Operating Activities
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.
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.
Cash Flows from Investing Activities
For the three months ended March 31, 2025, net cash used in investing activities was $10,529,274, which resulted from the purchase of short-term investments of $12,171,293 primarily consisting of corporate bonds, the purchase of software intangible assets of $500,000, and an increase in capitalized internal-use software development costs of $22,800, offset by proceeds received from the sale of short-term investments of $2,164,819.
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.
Cash Flows from Financing Activities
For the three months ended March 31, 2025, we did not have any cash flows from financing activities.
For the three months ended March 31, 2024, net cash provided by financing activities was $3,037,382. On March 13, 2024, we entered into a securities purchase agreement with an institutional investor for the issuance and sale in a private placement of (i) 108,000 shares of the Company’s common stock (the “Common Stock”), (ii) pre-funded warrants to purchase 520,367 shares of Common Stock, (iii) series A warrants to purchase up to 628,367 shares of Common Stock, and (iv) series B warrants to purchase up to 628,367 shares Common Stock. The purchase price of each share of Common Stock and associated warrants was $5.57 and the purchase price of each pre-funded warrant and associated warrants was $5.569. The private placement closed on March 15, 2024 and the aggregate net proceeds of $3,056,984, after deducting placement agent fees and expenses and offering expenses payable by the Company. Additionally, during the three months ended March 31, 2024, we purchased and cancelled 6,846 treasury shares for $19,602, or at an average price of $2.86 per share.
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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.
Off-Balance Sheet Arrangements
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.
Recently Issued Accounting Standards Not Yet Effective or Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial statements.
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.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15 and 15d-15(e)) as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our disclosure controls and procedures were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 28, 2025 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report, except discussed below. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
Our Medial Partner’s telehealth business could be adversely affected by ongoing legal challenges to their business model or by new state actions restricting their ability to provide the full range of services in certain states.
Our majority-owned subsidiary, RNK Health LLC (“RNK Health”), is currently providing non-clinical administrative services to support patient health. RNK Health has partnered with a third-party medical management company (the “Medical Partner”) that provides medication management and patient support care services via telehealth to patients located in all 50 states.
The ability of our Medical Partner’ telehealth operations in each state is dependent upon the state’s treatment of medicine under such state’s laws, rules and policies governing the practice of physician supervised services, which are subject to changing political, regulatory and other influences. In the event our contracted parties are unable to provide telehealth services for any reason, it would have a material adverse effect on our ability to sell products and in turn our revenues and operating results.
Our and our Medical Partner’s activities are subject to laws governing the provision of telehealth services, which could be subject to changes that result in additional operational complexity or increased costs.
Out Medical Partner and their providers are subject to laws governing the provision of telehealth services and the delivery of professional healthcare services more broadly. For example, some states limit the modality through which telehealth services are delivered, such as requiring synchronous (i.e. “live”) communication or curtailing asynchronous ( “store-and-forward”) communication for certain telehealth services (e.g. prescribing certain types of medications). Although we believe our contractual arrangement with the Medical Partner is structured to comply with laws governing the provision of telehealth services, these laws are evolving at a rapid pace and are subject to changing political, regulatory, and other influences. Due to the rapidly evolving regulatory climate, we cannot assure that our contractual arrangement, if challenged, will be deemed compliant, nor can we assure that a new or existing law will not be implemented, enforced, or changed, with little or no notice, in a manner that requires us to modify our business model at a material expense.
Evolving government regulations and enforcement activities may require increased costs or adversely affect our results of operations.
Our contractual arrangement with our Medical Partner is structured to comply with all applicable material laws, but, due to the uncertain regulatory environment and enforcement discretion, government regulators or enforcement agencies may determine that we or our Medical Partner are in violation of their laws and regulations. If we must remedy such violations, we or the Medical Partner may be required to modify business operations and services in a manner that undermines our ability to retain or acquire new customers, or we or our Medical Partner, may be subject to fines or other burdensome enforcement actions that may result in our termination of operations in certain jurisdictions. If so, our revenue may decline and our business, financial condition, and results of operations could be adversely affected.
Moreover, the laws applicable to our operations are subject to change or reinterpretation, and continued compliance may require us to change our practices at significant expense. Additional expenses may increase future overhead, which could have a material adverse effect on our results of operations. Additionally, modifications to the services we offer may require us to comply with additional laws and regulations, obtain necessary licenses or certifications, or materially alter our operations—any of which may require incurring significant expenses to ensure compliance. The failure to adequately comply with these future laws and regulations may delay or possibly prevent our services from being offered to customers, which could have a material adverse effect on our business, financial condition, and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 24, 2025, we entered into a Software Purchase Agreement with Abraco LLC (the “Seller”), whereby the Seller sold, conveyed, assigned and transferred to us all of Seller’s right, title, and interest in and to certain software and associated rights, subject to the terms and conditions set forth in such agreement for, among other things, 200,000 shares of our common stock. The shares of common stock were not registered under the Securities Act and were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the fiscal quarter ended March 31, 2025,
none of the Company’s directors or executive officers
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GAXOS.AI INC. | ||
| Dated: May 15, 2025 | By: | /s/ Vadim Mats |
| Name: | Vadim Mats | |
| Title: | Chief
Executive Officer and Director (Principal Executive Officer) | |
| Dated: May 15, 2025 | By: | /s/ Steven Shorr |
| Name: | Steven Shorr | |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) |
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