# Gaxos.Ai Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Gaxos.Ai Inc.](/companies/gxai.md) (CIK 1895618)
- Form: 10-Q
- Filed: 2024-05-14
- Accepted by EDGAR: May 14, 2024, 20:30 ET
- Period: 2024-03-31
- Accession: 0001213900-24-042974
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1895618/000121390024042974/ea0205164-10q_gaxosai.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1895618/000121390024042974/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $19 | us-gaap:Revenues |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $182.3k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$1.0m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$912.1k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.91 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 1,005,558 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $19.6k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $3.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $5.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $6.0m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $513.8k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $513.8k | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $5.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,646 characters.

*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.*

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 Gaming

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.

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 December 31, 2023, 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.

We expect to launch more games in 2024. We have a pipeline of games in various stages of development. We plan to methodically launch games based on research and market data.

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:

- AI-Powered Creativity: Reduces creative asset development time from hours to minutes, transforming artistic visions into reality with ease.
- Seamless Integration: With plug-and-play functionality for Unity and upcoming support for Unreal Engine, integration is effortless into existing workflows.
- 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 and templates to expert consulting services, offering to include custom solutions to meet unique needs of each developer.

We expect to launch the artificial intelligence solution in Q2 of 2024.

#### Gaxos Health

Recently, we launched 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 to 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 expect to launch the AI-powered health optimization product in the second half of 2024.

### Basis of Presentation

The unaudited financial statements contained herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“US GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”).

### 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 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 financial statements include valuation of intangible assets and other long-lived assets, estimates of deferred tax valuation allowances and the fair value of stock options issued for 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 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.

### 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.

### 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.

### Results of Operations

**Comparison of Our Results of Operations for the Three Months Ended March 31, 2024 and 2023.**

### Revenue

During the three months ended March 31, 2024, we generated revenue of $19. During the three months ended March 31, 2023, we did not generate any revenues from operations. 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, 2024 and 2023, we incurred operating expenses of $1,043,858 and $1,542,332, respectively, a decrease of $498,493, or 32.3%. Operating expenses consisted of the following:

### Research and development expenses

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. Prior to this stage, we expense all research and development fees. During the three months ended March 31, 2024 and 2023, we reported research and development expense of $182,329 and $104,551, respectively, an increase of $77,778, or 74.4%, primarily due to an increase in outside development costs incurred in connection with the development of Gaxos Games and Gaxos Health platforms. We expect research and development expenses to increase in the future as development of Gaxos games and Gaxos Health accelerates.

### General and administrative expenses

For the three months ended March 31, 2024 and 2023, general and administrative expenses consisted of the following:

|  | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| Compensation and related benefit | $363,484 | $786,236 |
| Professional fees | 274,688 | 588,862 |
| Other general and administrative expenses | 223,357 | 62,683 |
| Total general and administrative expenses | $861,529 | $1,437,781 |

### Compensation and related benefits

During the three months ended March 31, 2024 and 2023, compensation and related benefits amounted to $363,484 and $786,236, respectively, a decrease of $422,752, or 53.8%. The decrease during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to a decrease in accretion of stock-based compensation related to issuance of stock options to executive officers, directors and employees of $640,491, offset by an increase in executive officer and employee compensation of $217,739.

### Professional fees

During the three months ended March 31, 2024 and 2023, we incurred professional fees of $274,688 and $588,862, respectively, a decrease of $314,174, or 53.3%, attributable to a decrease in stock-based consulting fees due to the accretion of stock options expense to consultants of $214,275, and a decrease in investor relations fees of $172,000, offset by an increase in advisory fees of $29,695, and an increase in other professional fees of $42,406.

### Other general and administrative expenses

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, 2024 and 2023, we incurred general and administrative expenses of $223,357 and $62,683, respectively, an increase of $160,674, or 256.3%. Generally, the increase in other general and administrative expenses during the three months ended March 31, 2024 as compared to the three months ended March 311, 2023 was attributable to a ramp up of operations which began in February 2023 following the Company’s IPO.

### Loss from operations

During the three months ended March 31, 2024 and 2023, we reported a loss from operations of $1,043,839 and $1,542,332, respectively, a decrease of $498,493, or 32.3%. The decrease in loss from operations was due to the decrease in general and administrative expenses, offset by an increase in research and development as discussed above.

### Other income

During the three months ended March 31, 2024 and 2023, we reported other income of $131,694 and $6,301, respectively, an increase of $125,393. This increase is attributable to an increase in interest income of $5,678. Additionally, we recorded a realized gain on short-term investments during the three months ended March 31, 2024 and 2023 of $119,715 and $0, respectively.

### Net loss

During the three months ended March 31, 2024 and 2023, our net loss amounted to $912,145, or a net loss per common share of $0.91 (basic and diluted) and $1,536,031, or a net loss per common share of $1.64 (basic and diluted), respectively, a decrease of $623,886, or 40.6%. During the three months ended March 31, 2024 and 2023, our total comprehensive loss amounted to $1,011,560 and $1,517,875, respectively, a decrease of $506,315, or 33.4%.

### 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, 2024, we had a cash balance of $3,312,277, had short-term investments of $2,092,078, and had working capital of $5,251,505.

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 estimated offering expenses payable by the Company. The Company intends to use the net proceeds received from the Private Placement for general corporate purposes and working capital.

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, 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.

For the three months ended March 31, 2023, net cash used in operations was $933,858, which primarily resulted from our net loss of $1,536,031, adjusted for the add back of amortization expense of $3,142 and stock-based compensation to employees and consultants of $870,572, and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $165,123, a decrease in accounts payable of $119,399, and an increase in accrued expenses of $12,981.

### Cash Flows from Investing Activities

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.

For the three months ended March 31, 2023, net cash used in investing activities was $3,491,242, which resulted from the purchase of short-term investments of $3,491,242.

### 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.

For the three months ended March 31, 2023, net cash provided by financing activities was $5,958,470. On February 17, 2023, we closed an IPO pursuant to which we issued 1,686,747 of our common stock for gross proceeds of approximately $7 million and net proceeds of $5,958,470, after deducting underwriting discounts and commissions, and offering expenses.

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.

### Off-Balance Sheet Arrangements

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.

### 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.

## Market risk

As filed, 155 characters.

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.

## Controls and procedures

As filed, 1,561 characters.

### 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, 2024, 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.

## Risk factors

As filed, 932 characters.

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, 2023 as filed with the SEC on March 27, 2024 (“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.

Filed May 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-042974. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.