Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, 2025 and 2024 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

Gaxos.AI is a technology company focused on reshaping the way people interact with artificial intelligence across everyday life and high-impact industries. More than a developer of applications, Gaxos.AI is building a portfolio of AI-powered solutions designed to make advanced technology more practical, accessible, and transformative. The company's growing portfolio spans defense, health and wellness, entertainment, and productivity-bringing intelligent tools to markets where innovation can drive meaningful real-world outcomes.

Gaxos Labs

Gaxos Labs, launched in September 2024, is the Gaxos.AI product studio developing and launching AI applications across fast-moving sectors.

In May 2025, we launched UnGPT.ai, a new tool designed to enhance text generated by artificial intelligence, making it sound more natural and human-like. UnGPT features a real-time rewriting engine that transforms machine-generated content while preserving meaning and context. The tool employs a proprietary multi-pass transformation model that surpasses existing AI detection tools, addressing the growing demand for high-quality, undetectable output, especially in sensitive industries.

In August 2025, we launched Art-Gen.AI, an AI image and video creation platform that makes pro-grade content effortless for anyone, anywhere. Art-Gen combines state-of-the-art AI models from industry leaders including Google, Stability AI, and PixVerse with Gaxos' proprietary enhancements to deliver unmatched creative speed, detail, and flexibility. With just a simple text prompt or reference image, users can instantly produce cinematic visuals, hyper-realistic imagery, or animated video content at a fraction of traditional production time and cost.,

In December 2025, we launched Bible Pray AI, a personalized, AI-powered spiritual growth platform designed to help users deepen faith, strengthen daily devotion, and apply scripture for greater peace, clarity, and purpose. Bible Pray AI represents our strategic expansion into the rapidly growing digital faith, mental wellness, and personal development economy, a sector supported by hundreds of millions of engaged global users seeking guided spiritual content, daily motivation, and community-based worship experiences.

Gaxos Health

Gaxos Health is dedicated to transforming personal health and wellness by developing a suite of innovative AI-powered health optimization solutions. Gaxos Health integrates AI-driven insights with individual biometric data and health goals to create web and application based personalized wellness strategies for users. 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.

RNK Health

On September 23, 2024, we formed a subsidiary, RNK Health LLC ("RNK Health"), to form a partnership and relationship with Nekwellness, LLC ("Nekwellness") to engage in the business of marketing certain health-related products including peptides and supplements. 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.

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 allows users to have unique experiences and more control over in-game assets.

In 2023, we launched our own proprietary games that were simple and fun to play, and that offered 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 could be utilized across the network of games and platform that we were building. As of December 31, 2025, we had launched five games, Space Striker AI, Brawl Bots, BattleFleet AI, Jigsaw Puzzle AI and Gaxos AI Puzzle.

On June 18, 2026, we entered into and simultaneously consummated the closing of an Asset Purchase Agreement, by and among the Company and Game Foundry AI (the "Buyer") for the sale and divestiture of substantially all of our gaming assets, including our portfolio of mobile games and Gaxos Gaming Labs in exchange for the issuance of 2,200,000 shares of the Buyer's common stock, for an estimated consideration of $1,760,000.

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.

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 generates revenues from the following sources:

	●	Through June 2026, the Company generated 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, was recognized at a point in time, which was upon delivery of the in-game items to the customer, which is when the Company completed its sole performance obligation. Fees incurred by the Company, such as commissions to the app stores, were recognized in operating expenses.
	●	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 at a point in time, which is 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 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.

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Gaxos Labs sells subscriptions to its customers for the use of its software under a software as a service subscription model ("SaaS"), which allows game developers and publishers to create content using AI which reduce creative asset development time. The Company's SaaS offerings are 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 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 over a period of time, which is based upon estimated historical 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 over a period of time 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. Fees incurred by the Company, such as the merchant fees are recognized in operating expenses.

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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 net basis as an agent since Medical Partner is primarily responsible for fulfilling the contract with the customer, the Company does not have inventory risk before or after the goods have been ordered by a customer, during shipping, or on return, the Company's consideration is in the form of a commission for its Administrative Services, and the Company is not exposed to credit risk for the amount receivable from a customer in exchange for the Medical Partner's goods or services. The Medical Partner performs all medical management and patient support care services and the Medical Partner pays the Company its share of revenue. The Medical Partner has the right to refuse services to the Patient. The Company is obligated to fulfill the non-clinical Administrative Services and is reliant on the Medical Partner to accept the Patient, deliver all medication management and patient support services, and the collect and remit the Company's commission to the Company. Revenues from non-clinical Administrative Services are recognized at a point of time, upon satisfaction of the performance obligation, which occurs when the non-clinical Administrative Services have been completed and collection of the fee is probable. RNK Health pays a monthly fee to the Medical Partner for access to the Medical Partners telehealth optimized technology platform, which is included in operating expenses on the accompanying consolidated statements of operations and comprehensive loss.

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.

Results of Operations

Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2026 and 2025.

Revenues

During the three months ended September 30, 2026, we generated revenues of $2,814,527, primarily from revenues generated through RNK Health for providing non-clinical services to support patient care of $1,958,620. Additionally, during the three months ended September 30, 2026, we generated revenues of $855,907 from subscription services from our Art-Gen.ai, unGPT,ai and Bible.ai applications. During the three months ended September 30, 2025, we generated revenues of $498,271 primarily from revenues generated, through RNK Health, for providing non-clinical services to support patient care of $441,227. Additionally, during the three months ended September 30, 2025, we generated revenues of $0 from the sale of health coaching packages to our customers, revenue of $57,042 from subscription services, and revenue of $2 from in-app games items.

During the nine months ended September 30, 2026, we generated revenues of $7,081,251, primarily from revenues generated through RNK Health for providing non-clinical services to support patient care of $4,941,581. Additionally, during the nine months ended September 30, 2026, we generated revenues of $2,139,670 from subscription services from our Art-Gen.ai, unGPT,ai and Bible.ai applications. During the nine months ended September 30, 2025, we generated revenues of $692,974 primarily from revenues generated, through RNK Health, for providing non-clinical services to support patient care of $634,177. Additionally, during the nine months ended September 30, 2025, we generated revenues of $1,124 from the sale of health coaching packages to our customers, revenue of $57,648 from subscription services, and revenue of $25 from in-app games items.

We plan to offer new features and to charge fees in order to generate additional revenues from added features.

During the three and nine months ended September 30, 2026 and 2025, revenues consisted of the following:

		For the Three Months ended September 30, 2026				For the Three Months ended September 30, 2025				For the Nine Months ended September 30, 2026				For the Nine Months ended September 30, 2025
Revenue from administrative services		$	1,958,620			$	441,227			$	4,941,581			$	634,177
Revenue from the sale of health coaching packages			-				-				-				1,124
Revenue from the sale of subscriptions			855,907				57,042				2,139,670				57,648
Revenue from sale of in-game items			-				2				-				25
Total revenues		$	2,814,527			$	498,271			$	7,081,251			$	692,974

Operating Expenses

During the three months ended September 30, 2026 and 2025, we incurred operating expenses of $3,928,949 and $1,813,026, respectively, an increase of $2,115,923, or 116.7%. During the nine months ended September 30, 2026 and 2025, we incurred operating expenses of $12,607,550 and $4,382,118, respectively, an increase of $8,225,432 or 187.7%. 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 software development services upon reaching the application development stage. In exchange for our payments, we receive the exclusive publishing and distribution rights to AI 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 September 30, 2026 and 2025, we reported research and development fees of $502,826 and $274,021, respectively, an increase of $228,805, or 83.5%. During the nine months ended September 30, 2026 and 2025, we reported research and development fees of $1,456,219 and $738,030, respectively, an increase of $718,189, or 97.3%. The increases are primarily due to an increase in outside development costs incurred in connection with the development of Gaxos Labs, Gaxos Health and RNK Health platforms. We expect research and development expenses to increase in the future as development of Gaxos Labs, Gaxos Health and RNK Health accelerates.

General and administrative expenses

For the three and nine months ended September 30, 2026 and 2025, general and administrative expenses consisted of the following:

		For the Three Months ended September 30, 2026				For the Three Months ended September 30, 2025				For the Nine Months ended September 30, 2026				For the Nine Months ended September 30, 2025
Compensation and related benefit		$	156,819			$	188,360			$	913,678			$	962,098
Professional fees			303,285				192,769				745,052				551,616
Advertising and marketing			2,615,679				903,258				8,523,776				1,552,215
Other general and administrative expenses			350,340				254,618				968,825				578,159
Total general and administrative expenses		$	3,426,123			$	1,539,005			$	11,151,331			$	3,644,088

Compensation and related benefits

During the three months ended September 30, 2026 and 2025, compensation and related benefits amounted to $156,819 and $188,360, respectively, a decrease of $31,541, or 16.7%. The decrease during the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was primarily attributable to the decrease in stock-based compensation of $10,873 from accretion of stock option expense and a decrease in other employee compensation and related benefits of $20,668.

During the nine months ended September 30, 2026 and 2025, compensation and related benefits amounted to $913,678 and $962,098, respectively, a decrease of $48,420, or 5.0%. The decrease during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was primarily attributable to a decrease in other employee compensation and related benefits of $47,393 and a decrease in stock-based compensation of $1,027 from accretion of stock option expense.

Professional fees

During the three months ended September 30, 2026 and 2025, we incurred professional fees of $303,285 and $192,769, respectively, an increase of $110,516, or 57.3%, primarily attributable to an increase in investor relations fees of $46,250, 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 $15,397, an increase in accounting fees of $17, and an increase in legal fees of $66,120, offset by a decrease in advisory and recruiting fees of $17,268.

During the nine months ended September 30, 2026 and 2025, we incurred professional fees of $745,052 and $551,616, respectively, an increase of $193,436, or 35.1%, primarily attributable to an increase in investor relations fees of $98,750, 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 $41,265, an increase in legal fees of $43,472, and an increase in accounting fees of $16,649, offset by a decrease in advisory and recruiting fees of $6,700.

Advertising and marketing

During the three months ended September 30, 2026 and 2025, advertising and marketing amounted to $2,615,679 and $903,258, respectively, an increase of $1,712,421, or 189.6%. The increase during the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was primarily attributable to an increase in advertising and marketing fees incurred in connection with the marketing of our RNK Health services and Gaxos Labs subscription services.

During the nine months ended September 30, 2026 and 2025, advertising and marketing amounted to $8,523,776 and $1,552,215, respectively, an increase of $6,971,561, or 449.1%. The increase during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was attributable to an increase in advertising and marketing fees of incurred in connection with the marketing of our RNK Health services and Gaxos Labs subscription services.

Other general and administrative expenses

Other general and administrative expenses consist of office expenses, insurance, listing fees, computer and interest expenses, travel expenses, amortization expense, lab service fees, and other general business expenses.

During the three months ended September 30, 2026 and 2025, we incurred other general and administrative expenses of $350,340 and $254,618, respectively, an increase of $95,722, or 37.6%. This increase was primarily attributable to an increase in merchant fees incurred of $52,602, and an increase in software and application fees of $60,473, offset by a decrease in other general and administrative expenses of $17,353.

During the nine months ended September 30, 2026 and 2025, we incurred other general and administrative expenses of $968,825 and $578,159, respectively, an increase of $390,666, or 67.6%. This increase was primarily attributable to an increase in amortization expense of $29,359, an increase in merchant fees incurred of $226,713, and an increase in software and application fees of $165,381, offset by a decrease in other general and administrative expenses of $30,787.

Loss from operations

During the three months ended September 30, 2026 and 2025, we reported a loss from operations of $1,114,422 and $1,314,755, respectively, a decrease of $200,333, or 15.2%. The decrease in loss from operations was due to an increase in revenues and a decrease in compensation and related benefits, offset by an increase in advertising and marketing expense, an increase in general and administrative expenses, and an increase in professional fees, as discussed above.

During the nine months ended September 30, 2026 and 2025, we reported a loss from operations of $5,526,299 and $3,689,144, respectively, an increase of $1,837,155, or 49.8%. The increase in loss from operations was due to an increase in advertising and marketing expense, an increase in general and administrative expenses, and an increase in professional fees, offset by an increase in revenues and a decrease in compensation and related benefits, as discussed above.

Other income, net

During the three months ended September 30, 2026 and 2025, we reported other income, net of $137,418 and $173,882, respectively, a decrease of $36,464. Other income, net consists of interest income and realized and unrealized gains or losses on short-term investments and non-traded equity securities.

During the nine months ended September 30, 2026 and 2025, we reported other income, net of $2,052,816 and $491,637, respectively, an increase of $1,561,179. Other income, net consists of interest income and realized and unrealized gains or losses on short-term investments and equity securities. Additionally, during the nine months ended September 30, 2026, we recorded a gain of $1,749,890 from the sale of our gaming assets.

Net loss and net loss attributable to common shareholders

During the three months ended September 30, 2026 and 2025, our net loss amounted to $977,004 and $1,140,873, respectively, a decrease of $163,869, or 14.4%. During the three months ended September 30, 2026 and 2025, we adjusted net loss for the net loss of subsidiary attributable to noncontrolling interest by $47,365 and $139,399, respectively. Accordingly, during the three months ended September 30, 2026 and 2025, our net loss attributable to common shareholders amounted to $929,639, or net loss per common share of $0.08 (basic and diluted) and $1,001,474, or a net loss per common share of $(0.14) (basic and diluted), respectively, a decrease of $71,835, or 7.2%.

During the nine months ended September 30, 2026 and 2025, our net loss amounted to $3,473,483 and $3,197,507, respectively, an increase of $275,976, or 8.6%. During the nine months ended September 30, 2026 and 2025, we adjusted net loss for the net loss of subsidiary attributable to noncontrolling interest by $612,375 and $254,845, respectively. Accordingly, during the nine months ended September 30, 2026 and 2025, our net loss attributable to common shareholders amounted to $2,861,108, or net loss per common share of $0.27 (basic and diluted) and $2,942,662, or a net loss per common share of $0.42 (basic and diluted), respectively, a decrease of $81,554, or 2.8%.

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 September 30, 2026, we had a cash balance of $1,895,334, had short-term investments of $11,402,526, and had working capital of $12,693,960. During the nine months ended September 30, 2026, we used net cash in operations of $4,538,025.

On January 23, 2026, we entered into the ATM Agreement with H. C. Wainwright and Co., LLC ("Wainwright") under which the Company could offer and sell shares of its common stock having an aggregate sales price of up to $5,600,000 through Wainwright as the sales agent pursuant to the Company's effective shelf registration statement on Form S-3 (File No. 333-283758), including an accompanying base prospectus dated December 18, 2024 and prospectus supplements dated January 23, 2026 and February 4, 2026. Sales of shares of our common stock through Wainwright, if any, will be made by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act. Wainwright will use commercially reasonable efforts to sell shares of the Company's common stock from time to time, based on instructions from us (including any price, time or size limits or other parameters or conditions the Company may impose). We will pay Wainwright a commission equal to 3.0% of the aggregate gross proceeds from the sales of shares of the Company's common stock sold through Wainwright under the ATM Agreement and will also reimburse Wainwright for certain specified expenses in connection with the ATM Agreement. On March 20, 2026, the Company increased the maximum aggregate offering price of the shares of the Company's common stock issuable under the ATM Agreement with Wainwright, dated January 23, 2026, to up to an additional aggregate of $1,065,001.

During the nine months ended September 30, 2026, we issued 3,621,181 shares of our common stock for net proceeds of approximately $6.3 million pursuant to the ATM Agreement.

On August 14, 2026, the Company entered into an inducement offer letter agreement (the "Inducement Letter") with certain holders (the "Holders") of existing warrants (the "Existing Warrants") to purchase shares of common stock of the Company. The Existing Warrants were issued in September 2024 and December 2024 and had exercise prices ranging from $2.33 to 3.32 per share.

Pursuant to the Inducement Letter, the Holders agreed to exercise for cash its Existing Warrants to purchase an aggregate of 3,007,654 shares of the Company's common stock at a reduced exercise price of $1.20 per share in consideration for the Company's issuance of new common stock purchase warrants (the "New Warrants") to purchase an aggregate of up to 6,015,308 shares of the Company's common stock (the "New Warrant Shares") at an exercise price of $0.95 per share. The New Warrants to purchase up to 6,015,308 shares of common stock have a term of three years from the closing date, which occurred on August 17, 2026. On August 17, 2026, in connection with the August 14, 2026 Inducement Letter with the Holder of the Existing Warrants, the Holder exercised the Existing Warrants for cash at a reduced exercise price of $1.20 per share resulting in gross proceeds to the Company of approximately $3,609,185 (net proceeds of $3,174,307, after deducting placement agent fees and other offering expenses of $434,878). In connection with such exercise, on August 17, 2026, the Company issued 3,007,654 shares of common stock upon the exercise of the Existing Warrants. The Company shall use the net proceeds of these transactions for general corporate and working capital purposes.

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 nine months ended September 30, 2026, net cash used in operations was $4,538,025, which primarily resulted from our net loss of $3,473,483, adjusted for the add back of amortization expense of $174,059, stock-based compensation to employees and consultants of $137,108, a net realized and unrealized gain on short-term investments of $11,534, a gain on sale of gaming assets of $1,749,890, accretion of bond discounts of $48,571, and an unrealized loss on equity securities of $155,000, and changes in operating asset and liabilities such as an increase in accounts receivable of $33,645, an increase in prepaid expenses and other current assets of $385,068, an increase in accounts payable of $116,900, an increase in accrued expenses of $189,641, and an increase in deferred revenues of $294,316.

For the nine months ended September 30, 2025, net cash used in operations was $3,120,632, which primarily resulted from our net loss of $3,197,507, adjusted for the add back of amortization expense of $144,701, stock-based compensation to employees and consultants of $96,870, and a realized and unrealized gain on short-term investments of $(40,513), and changes in operating asset and liabilities such as an increase in accounts receivable of $44,873, an increase in prepaid expenses and other current assets of $129,674, a decrease in accounts payable of $125,282, an increase in accrued expenses of $149,815, and an increase in deferred revenues of $25,831.

Cash Flows from Investing Activities

For the nine months ended September 30, 2026, net cash used in investing activities was $3,901,220, which resulted from the purchase of short-term investments of $10,980,546 primarily consisting of corporate bonds, the purchase of an investment in a cost-method investees of $3,115,000, and an increase in capitalized internal-use software development costs of $2,650, offset by proceeds received from the sale of short-term investments of $10,196,976.

For the nine months ended September 30, 2025, net cash used in investing activities was $10,363,284, which resulted from the purchase of short-term investments of $15,160,545 primarily consisting of corporate bonds and other equity securities, the purchase of software intangible assets of $500,000, and an increase in capitalized internal-use software development costs of $66,600, offset by proceeds received from the sale of short-term investments of $5,373,861.

Cash Flows from Financing Activities

For the nine months ended September 30, 2026, net cash flow from financing activities amounted to $9,493,780, which consisted of net proceeds from sale of our common stock pursuant to the ATM agreement of $6,319,473 and proceeds from the exercise of warrants of $3,174,307.

For the nine months ended September 30, 2025, we did not have any cash flows from financing activities.

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 August warrant inducement as discussed above will be sufficient to meet our financial obligations for at least the next 12 months.

Off-Balance Sheet Arrangements

As of September 30, 2026, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

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. We do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, to modernize the accounting for internal-use software costs. The new guidance amends the existing standard that refers to various stages of a software development project to align better with current software development methods. Under the new guidance, entities will start capitalizing eligible costs when management has authorized and committed to funding the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. In evaluating whether it is probable the project will be completed, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. The new guidance will be effective for the Company for interim and annual periods beginning January 1, 2028. The Company is assessing the impacts of this ASU on its consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270), Narrow-Scope Improvements, to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in ASU 2025-11 result in a comprehensive list of interim disclosures that are required by GAAP. The amendments in ASU 2025-11 also include a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments in ASU 2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 and early adoption is permitted. The amendments in ASU 2025-11 can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the disclosure impact that ASU 2025-11 may have on our financial statement presentation and disclosures.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which clarifies various topics in the Accounting Standards Codification to improve consistency and address technical corrections. Key improvements include clarifying the calculation of diluted earnings per share (EPS) when a loss from continuing operations exists. The amendments in this update are effective for the Company beginning January 1, 2027, with early adoption permitted. The Company is assessing the impact of adopting this standard.

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.