GAXOSAI INC

Previous wording

We expect to launch the AI-powered health optimization product in the second half of 2024.

Current wording

We launched the AI-powered health optimization product in the third quarter of 2024.

Previous wording

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.

Current wording

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 investments, 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.

Previous wording

Intangible assets, consisting of software licenses and technology licenses, are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life of 5 years, less any impairment charges.

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

During the three months ended June 30, 2024 and 2023, we incurred operating expenses of $854,503 and $768,601, respectively, an increase of $85,902, or 11.2%. During the six months ended June 30, 2024 and 2023, we incurred operating expenses of $1,898,361 and $2,310,933, respectively, a decrease of $412,572. For the three and six months ended June 30, 2024 and 2023, operating expenses consisted of the following:

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We capitalize all development and production service payments to third-party developers as internal-use software development costs and licenses once we reach the application development stage. Prior to this stage, we expense all research and development fees. During the three months ended June 30, 2024 and 2023, we reported research and development expense of $249,341 and $267,618, respectively, a decrease of $18,277, or 6.8%. The decrease is primarily due to a decrease in outside development costs incurred in connection with the development of Gaxos Games offset by an increase in development of the Gaxos Health platforms. During the six months ended June 30, 2024 and 2023, we reported research and development expense of $431,670 and $372,169, respectively, an increase of $59,501, or 16.0%. The increase is primarily due to an increase in outside development costs incurred in connection with the development of Gaxos Health platforms offset by a decrease in outside development costs incurred in connection with the development of Gaxos Games. We expect research and development expenses to increase in the future as development of Gaxos Games and Gaxos Health accelerates.

Current wording

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

Previous wording

During the three months ended June 30, 2024 and 2023, compensation and related benefits amounted to $153,578 and $207,597, respectively, a decrease of $54,019, or 2.6%. The decrease during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily attributable to a decrease in executive officer and employee compensation.

Current wording

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

Previous wording

During the six months ended June 30, 2024 and 2023, compensation and related benefits amounted to $517,062 and $993,833, respectively, a decrease of $476,771, or 48.0%. The decrease during the six months ended June 30, 2024 compared to the six months ended June 30, 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 $640,514, offset by an increase in executive officer and employee compensation of $163,743.

Current wording

During the nine months ended September 30, 2024 and 2023, compensation and related benefits amounted to $689,565 and $1,202,199, respectively, a decrease of $512,634, or 42.6%. The decrease during the nine months ended September 30, 2024 compared to the nine months ended September 30, 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 $640,537, offset by an increase in executive officer and employee compensation of $127,903.

Previous wording

During the three months ended June 30, 2024 and 2023, we incurred professional fees of $285,673 and $109,016, respectively, an increase of $176,657, or 162.0%, attributable to an increase in advisory fees of $147,500, and an increase in other professional fees of $29,157.

Current wording

During the three months ended September 30, 2024 and 2023, we incurred professional fees of $259,167 and $254,553, respectively, an increase of $4,614, or 1.8%, attributable to an increase in advisory fees of $129,500, offset by a decrease in other professional fees of $124,886.

Previous wording

During the six months ended June 30, 2024 and 2023, we incurred professional fees of $560,361 and $697,878, respectively, a decrease of $137,517, or 19.7%, attributable to a decrease in stock-based consulting fees due to the accretion of stock options expense to consultants of $202,744, and a decrease in investor relations fees of $176,550, offset by an increase in advisory fees of $177,195, and an increase in other professional fees of $64,582.

Current wording

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

Previous wording

General and administrative expenses consist of advertising and marketing expenses, office expenses, insurance, listing fees, computer and interest expenses, travel expenses, amortization expense, and other general business expenses. During the three months ended June 30, 2024 and 2023, we incurred general and administrative expenses of $165,911 and $132,007, respectively, an increase of $33,904, or 25.7%. During the six months ended June 30, 2024 and 2023, we incurred general and administrative expenses of $389,258 and $194,690, respectively, an increase of $194,568, or 100.0%. Generally, the increase in other general and administrative expenses during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was attributable to an increase in advertising and marketing expenses and a ramp up of operations which began in February 2023 following the Company’s IPO.

Current wording

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

Previous wording

On August 9, 2023 and effective August 1, 2023, the Company and Columbia University agreed to the termination of the Software and Patent License Agreement between the Company and The Trustees of Columbia University in the City of New York, dated August 29, 2022. Accordingly, as of June 30, 2023, we wrote of the remaining unamortized book value of the intangible asset of $52,363, and during the six months ended June 30, 2023, recorded an impairment loss of $52,363, which is included in operating expenses on the accompany statement of operations and comprehensive loss.

Current wording

On August 9, 2023 and effective August 1, 2023, the Company and Columbia University agreed to the termination of the Software and Patent License Agreement between the Company and The Trustees of Columbia University in the City of New York, dated August 29, 2022. Accordingly, as of September 30, 2023, we wrote off the remaining unamortized book value of the intangible asset of $52,363, and during the nine months ended September 30, 2023, recorded an impairment loss of $52,363, which is included in operating expenses on the accompany statement of operations and comprehensive loss.

Previous wording

During the three months ended June 30, 2024 and 2023, we reported a loss from operations of $854,503 and $768,601, respectively, an increase of $85,902, or 11.2%. During the six months ended June 30, 2024 and 2023, we reported a loss from operations of $1,898,342 and $2,310,933, respectively, a decrease of $412,591, or 17.8%. The change in loss from operations was due to changes in general and administrative expenses, research and impairment loss as discussed above.

Current wording

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

Previous wording

During the three months ended June 30, 2024 and 2023, we reported other income of $45,265 and $14,557, respectively, an increase of $30,708, or 210.9%. This increase is attributable to an increase in interest income. During the six months ended June 30, 2024 and 2023, we reported other income of $176,959 and $20,858, respectively, an increase of $156,101, or 748.4%. This increase is attributable to an increase in interest income of $36,386. Additionally, we recorded a realized gain on short-term investments during the six months ended June 30, 2024 and 2023 of $119,715 and $0, respectively.

Current wording

During the three months ended September 30, 2024 and 2023, we reported other income of $41,459 and $16,557, respectively, an increase of $24,902, or 150.4%. This increase is attributable to an increase in interest income. During the nine months ended September 30, 2024 and 2023, we reported other income of $218,418 and $37,415, respectively, an increase of $181,003, or 483.8%. This increase is attributable to an increase in interest income of $59,238. Additionally, we recorded a realized gain on short-term investments during the nine months ended September 30, 2024 and 2023 of $121,765 and $0, respectively.

Previous wording

During the three months ended June 30, 2024 and 2023, our net loss amounted to $809,238, or a net loss per common share of $0.72 (basic and diluted) and $754,044, or a net loss per common share of $0.75 (basic and diluted), respectively, an increase of $55,194, or 7.3%. During the three months ended June 30, 2024 and 2023, our total comprehensive loss amounted to $802,193 and $734,395, respectively, an increase of $67,798, or 9.2%.

Current wording

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

Previous wording

During the six months ended June 30, 2024 and 2023, our net loss amounted to $1,721,383, or a net loss per common share of $1.60 (basic and diluted) and $2,290,075, or a net loss per common share of $2.35 (basic and diluted), respectively, a decrease of $568,692, or 24.8%. During the six months ended June 30, 2024 and 2023, our total comprehensive loss amounted to $1,813,753 and $2,252,270, respectively, a decrease of $438,517, or 19.5%.

Current wording

During the nine months ended September 30, 2024 and 2023, our net loss amounted to $2,585,793, or a net loss per common share of $1.95 (basic and diluted) and $3,147,134, or a net loss per common share of $3.20 (basic and diluted), respectively, a decrease of $561,341, or 17.8%. During the nine months ended September 30, 2024 and 2023, our total comprehensive loss amounted to $2,668,279 and $3,067,488, respectively, a decrease of $389,325, or 12.7%.

Previous wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On June 30, 2024, we had a cash balance of $2,371,933, had short-term investments of $2,099,122, and had working capital of $4,495,777.

Current wording

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

Previous wording

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.

Current wording

On March 13, 2024, we 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) 108,000 shares of the Company’s common stock, (ii) series A warrants to purchase up to 628,367 shares of the Company’s common stock (the “Series A Warrants”), and (iii) series B warrants to purchase up to 628,367 shares of the Company’s common stock (the “Series B Warrants” and together with the Series A Warrants, the “March 2024 Common Warrants”). The purchase price of each Unit consisted of one share of the Company’s common stock and associated March 2024 Common Warrants, was $5.57 per Unit for aggregate gross proceeds of $601,560. Additionally, we sold pre-funded warrants to purchase up to 520,367 shares of the Company’s common stock (the “Pre-Funded Warrants”). Pre-funded Warrants are a type of warrant that allows the warrant holder to purchase a specified number of a company’s securities at a nominal exercise price. The purchase price of each Pre-Funded Warrant was $5.569 for aggregate gross proceeds of $2,897,924. In connection with this March 2024 Private Placement, we raised aggregate gross proceeds of $3,499,484 consisting of $601,560 from the sales of common stock units and $2,897,924 from the sale of pre-funded warrants, and we received net proceeds of $3,056,984, net of offering costs paid to the placement agent of $382,500 and legal fees of $60,000, which were netted against the $601,560 of gross proceeds from the sale of common stock units for net proceeds allocated to the sale of common stock units of $159,060. We are using the net proceeds received from the March 2024 Private Placement for general corporate purposes and working capital.

Previous wording

For the six months ended June 30, 2024, net cash used in operations was $1,837,867, which primarily resulted from our net loss of $1,721,383, adjusted for the add back of amortization expense of $22,846, stock-based compensation to employees of $49,241, 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 $191,699, an increase in accounts payable of $81,779, and an increase in accrued expenses of $40,292.

Current wording

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

Previous wording

For the six months ended June 30, 2023, net cash used in operations was $1,433,858, which primarily resulted from our net loss of $2,290,075, adjusted for the add back of amortization expense of $6,284, stock-based compensation to employees and consultants of $892,499, and impairment loss of $52,363, and changes in operating asset and liabilities such as an increase in prepaid expenses and other current assets of $116,212, a decrease in accounts payable of $62,583, and an increase in accrued expenses of $83,866.

Current wording

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

Previous wording

For the six months ended June 30, 2024, net cash provided by investing activities was $147,604, which resulted from proceeds received from the sale of short-term investments of $2,617,205, offset by cash used for the purchase of short-term investments of $2,096,293, the purchase of equity securities of $199,998, an increase in capitalized internal-use software development costs of $23,310, and the purchase of an intangible asset of $150,000.

Current wording

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

Previous wording

For the six months ended June 30, 2023, net cash used in investing activities was $3,491,242, which resulted from the purchase of short-term investments of $3,491,242.

Current wording

For the nine months ended September 30, 2023, net cash used in investing activities was $3,515,867, which resulted from the purchase of short-term investments of $3,491,242 and an increase in capitalized software development costs of $24,625. For the nine months ended September 30, 2022, there was no net cash used in investing activities.

Previous wording

For the six months ended June 30, 2023, net cash provided by financing activities was $5,934,229. On February 17, 2023, we closed an IPO pursuant to which we issued 1,686,755 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. Additionally, during the six months ended June 30, 2023, we purchased and cancelled treasury shares for $24,241 and pre-funded warrants were exercised for proceeds of $104..

Current wording

For the nine months ended September 30, 2023, net cash provided by financing activities was $5,908,760. On February 17, 2023, we closed an IPO pursuant to which we issued 1,686,755 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. Additionally, during the nine months ended September 30, 2023, we purchased and cancelled 105,931 treasury shares for $49,710, or at an average price of $0.469 per share.