Gaxos.ai (GXAI) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We have a limited operating history and, therefore, cannot accurately project our revenues and operating expenses
2. 02We may encounter numerous difficulties frequently encountered by companies in the early stage of operations
3. 03We may be unable to manage our growth or implement our expansion strategy
4. 04We will need additional debt or equity financing in the future
5. 05If we are unable to obtain additional funding when needed, our business operations will be harmed, and if we do obtain additional financing, our then-existing shareholders may suffer substantial dilution
6. 06We are dependent on the services of certain key management personnel, employees, and advisors. If we are unable to retain or motivate such individuals or hire qualified personnel, we may not be able to grow effectively
7. 07We may continue to incur substantial losses and negative operating cash flows and may not achieve or maintain positive cash flow or profitability in the future
8. 08Our Platform is currently under development and no assurance can be given that our Platform will be accepted by others or generate sufficient interest
9. 09Our business will be intensely competitive. We may not deliver successful and engaging games, or players and consumers may prefer our competitors’ products over our own
10. 10The Platform is based on new and unproven technologies and is subject to the risks of failure inherent in the development of new products and services
11. 11Digital ecosystems, including offerings of digital assets, is evolving, and uncertain, and new regulations or policies may materially adversely affect our development
12. 12We may not be able to adequately evaluate the risks associated with our planned NFT platform
13. 13Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted
14. 14Negative perceptions about our business, products, and services and the communities within our products and services may damage our business, and we may incur costs to address concerns
15. 15We may become involved in legal proceedings that may result in adverse outcomes
16. 16Our business is subject to economic, market and geopolitical conditions
17. 17Catastrophic events may disrupt our business
18. 18We may not meet our product and live service development schedules and live service release schedule may be delayed, cancelled, or poorly received
19. 19Increasing gas fees on Polygon could materially affect our revenues

Risks Related to Information Technology Systems, Intellectual Property and Privacy Laws

1. 20We face the risk of fraud
2. 21We use open-source software in connection with certain of our games and services which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business
3. 22We rely on third-party providers for computing infrastructure, secure network connectivity, and other technology-related services needed to deliver our products. Any disruption in the services provided by such third-party provider could adversely affect our business
4. 23We may not be able to secure all rights to our intellectual property or our rights may be subject to claims of infringement by others and other issues affecting production
5. 24If third parties claim that we infringe their intellectual property, it may result in costly litigation
6. 25We may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services which would harm our competitive position
7. 26The Platform may raise issues regarding third party intellectual property rights
8. 27The Platform may face cybersecurity risks
9. 28The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our business
10. 29We collect, store, process, and use personal data, which subjects us to legal obligations and laws and regulations related to security and privacy, and any actual or perceived failure to meet those obligations could harm our business
11. 30United States federal and state privacy laws, and equivalent laws of other nations, may increase our costs of operation and expose us to civil and criminal sanctions
12. 31Our business will be subject to complex and prescriptive regulations regarding consumer protection and data privacy practices, and could be adversely affected if our consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate
13. 32Digital ecosystems, including offerings of digital assets, are evolving, and uncertain, and new regulations or policies may materially adversely affect our development

Risks Related to Digital Assets

1. 33The sale of NFTs on the Platform could be determined to be the unregistered sale of securities
2. 34We currently plan to accept Bitcoin and Ethereum, as a form of payment for purchases on the Platform, in which case we would be subject to additional regulatory requirements. We do not currently plan to accept any other cryptocurrencies as a form of payment
3. 35We rely on third parties for certain aspects of our business, which creates additional risk
4. 36If our current, or any of our future, custodians file for bankruptcy, crypto assets held in their custody could be determined to be property of a bankruptcy estate and we could be considered a general unsecured creditor thereof
5. 37Malicious actors could manipulate distributed ledger networks and smart contract technology upon which digital assets rely and increase the vulnerability of the distributed ledger networks
6. 38The network contributors for certain Digital Assets could propose amendments to the network protocols and software for Digital Assets that, if accepted and authorized by the network for the Digital Assets, could adversely affect the Platform
7. 39We currently support, and expect to continue to support, certain smart contract-based crypto assets. If the underlying smart contracts for these crypto assets do not operate as expected, they could lose value and our business could be adversely affected
8. 40Currently, there is a relatively small use of digital assets in the retail and commercial marketplace for goods or services. In comparison, there is relatively large use by speculators contributing to price volatility
9. 41Incorrect or fraudulent cryptocurrency transactions may be irreversible
10. 42Because there has been limited precedent set for financial accounting for digital assets, the determinations that we have made for how to account for digital assets transactions may be subject to change
11. 43Banks and financial institutions may not provide banking services, or may cut off services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment
12. 44Regulatory changes or actions may restrict the use of digital assets in a manner that adversely affects an investment in us
13. 45Political or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in values of crypto assets and adversely affect an investment in us
14. 46We may lose our private key to our digital wallet, causing a loss of all of our digital assets
15. 47The SEC and its staff have taken the position that certain digital or “crypto” assets (which includes NFTs) fall within the definition of a “security” under the U.S. federal securities laws

Risks Related to Regulatory Changes

1. 48Changes in our tax rates or exposure to additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely affect our earnings and financial condition
2. 49The Platform may be subject to regulation by financial regulators
3. 50Our facilitation of transactions in cryptocurrencies such as Ether on the Platform exposes us to risks under U.S. and foreign tax laws
4. 51Government regulations applicable to us may negatively impact our business
5. 52We may face significant competition, which may harm our business, results of operations or financial condition
6. 53Gaxos Health would be adversely affected if we cannot obtain, process or distribute data we require to provide our solutions

Risks Related to Our Common Stock

1. 54The market prices and trading volume of our shares of common stock may experience rapid and substantial price volatility which could cause purchasers of our common stock to incur substantial losses
2. 55The price of our securities may fluctuate substantially
3. 56Our ability to have our securities traded on the NASDAQ is subject to us meeting applicable listing criteria
4. 57We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results
5. 58If research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our Common Stock, our securities’ price and trading volume could decline
6. 59Market and economic conditions may negatively impact our business, financial condition and share price
7. 60The ability of a stockholder to recover all or any portion of such stockholder’s investment in the event of a dissolution or termination may be limited
8. 61We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to the increase, if any, of our share price
9. 62We are an “emerging growth company” and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our Common Stock less attractive to investors
10. 63Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time to compliance matters
11. 64If we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult
12. 65Provisions in our articles of incorporation, bylaws and of Nevada law have anti-takeover effects that could prevent a change in control that could be beneficial to our stockholders, which could depress the market price of shares of our common stock
13. 66If our shares become subject to the penny stock rules, it would become more difficult to trade our shares
14. 67FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock
15. 68We may be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our Common Stock less attractive to potential investors