[10-Q] Nexalin Technology, Inc. Quarterly Earnings Report
Nexalin Technology (NXL) filed its Q3 2025 report, highlighting continued operating losses and a going concern warning. Revenue was $18,149 for the quarter, down from $36,031 a year ago, as legacy licensing and equipment sales remained modest. Net loss for Q3 was $2,276,311 versus $2,448,257 in Q3 2024. For the nine months, revenue totaled $129,752 and net loss reached $5,845,635.
Liquidity and capital: Cash and cash equivalents were $590,075 with short‑term investments of $3,762,602, supporting total current assets of $4,817,378 against current liabilities of $357,524. Stockholders’ equity rose to $4,768,416, aided by 2025 equity issuances, including a May/June public offering of 4,090,000 shares with gross proceeds of $5,317,000. The company amended its equity distribution agreement in October to permit ATM sales up to $10,000,000; as of October 15, $4,273,859 remained available under baby shelf limits and 157,000 shares had been sold.
Operations and R&D: Operating expenses were $2,359,832 in Q3, driven by SG&A, salaries, and stock‑based compensation. The company disclosed a substantial accumulated deficit of $90,490,866 and stated there is substantial doubt about its ability to continue as a going concern. On the regulatory front, the FDA accepted a Q‑Submission in October for the Gen‑2 SYNC system targeting Alzheimer’s and dementia, enabling a formal meeting later this year.
- None.
- None.
Insights
FDA accepted Q-Submission for Gen-2 SYNC; meeting planned.
Nexalin reported that in
The update is a procedural milestone rather than market authorization and does not change current U.S. commercialization status. Actual progress depends on FDA feedback, study execution, and subsequent submissions. No efficacy conclusions are implied by acceptance.
Key next step is the FDA meeting noted for later this year; outcomes will guide clinical protocol specifics and subsequent filings.
Losses persist; going concern warning and reliance on equity.
Q3 revenue was
The filing states “substantial doubt” about continuing as a going concern. 2025 financing included public offerings with gross proceeds of
Watch the ATM utilization and the scheduled FDA meeting later this year for updates on funding and regulatory trajectory.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
For the Quarterly Period Ended
OR
For the transition period from _______ to _______.
Commission file number:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller Reporting Company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As
of November 13, 2025, there were
NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
FORM 10-Q
For the Quarter Ended September 30, 2025
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| ITEM 1. | Unaudited Condensed Consolidated Financial Statements | 1 | ||
| Condensed Consolidated Balance Sheets at September 30, 2025 and December 31, 2024 | 1 | |||
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2025 and 2024 | 2 | |||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2025 and 2024 | 3 | |||
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 | 4 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |||
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 | ||
| ITEM 4. | Controls and Procedures | 29 | ||
| PART II. OTHER INFORMATION | ||||
| ITEM 1. | Legal Proceedings | 31 | ||
| ITEM 1A. | Risk Factors | 31 | ||
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31 | ||
| ITEM 3. | Defaults Upon Senior Securities | 31 | ||
| ITEM 4. | Mine Safety Disclosures | 31 | ||
| ITEM 5. | Other Information | 31 | ||
| ITEM 6. | Exhibits | 32 | ||
| SIGNATURES | 33 | |||
i
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2025 |
December 31, 2024 |
|||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable (includes related party of $ |
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| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable (Includes related party of $ |
$ | $ | ||||||
| Accrued expenses (Includes related party of $ |
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| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ |
||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying Notes are an integral part of these unaudited condensed consolidated financial statements.
1
NEXALIN TECHNOLOGY,
INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues, net (Includes related
party of $ |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and benefits | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income, net: | ||||||||||||||||
| Interest income, net | ||||||||||||||||
| Gain on sale of short-term investments | ||||||||||||||||
| Other income | ||||||||||||||||
| Total other income, net | ||||||||||||||||
| Loss before provision for income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Loss before equity in net earnings of affiliate | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Equity in net earnings (loss) of affiliate | ( |
) | ||||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gain (loss) from short-term investments | ( |
) | ( |
) | ( |
) | ||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share attributable to common stockholders - Basic and Diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted Average Shares Outstanding - Basic and Diluted | ||||||||||||||||
The accompanying Notes are an integral part of these unaudited condensed consolidated financial statements.
2
NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in |
Accumulated | Total Stockholders’ |
||||||||||||||||||||
| Shares | Amount |
Gain (Loss) |
Capital | Deficit | Equity | |||||||||||||||||||
| Balance as January 1, 2024 | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Stock compensation | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Stock compensation | - | - | - | - | ||||||||||||||||||||
| Shared issued | - | ( | ) | - | - | |||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | - | $ | $ | ( | ) | $ | ||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||
| Stock compensation | - | - | ||||||||||||||||||||||
| Shared issued as part of offering | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in |
Accumulated | Total Stockholders’ |
||||||||||||||||||||
| Shares | Amount |
Gain (Loss) |
Capital | Deficit | Equity | |||||||||||||||||||
| Balance as of January 1, 2025 | $ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Stock compensation | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Stock compensation | - | - | - | - | ||||||||||||||||||||
| Shares issued as part of offering | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||
| Stock compensation | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of September 30, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
The accompanying Notes are an integral part of these unaudited condensed consolidated financial statements.
3
NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock compensation | ||||||||
| Amortization | ||||||||
| Non-cash lease expense | - | |||||||
| Gain on sale of short-term investments | ( |
) | ( |
) | ||||
| Return (loss) on investment in Joint Venture | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Accounts receivable - related party | ( |
) | ||||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Inventory | ( |
) | ||||||
| Accounts payable - related party | - | |||||||
| Accounts payable | ( |
) | ||||||
| Accrued expenses | ( |
) | ( |
) | ||||
| Accrued expenses - related party | ( |
) | - | |||||
| Lease liability | - | ( |
) | |||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Sale of short-term investments | ||||||||
| Purchase of short-term investments | ( |
) | ( |
) | ||||
| Purchase of patents | ( |
) | ( |
) | ||||
| Purchase of trademarks | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Sale of common stock for cash, net of financing fees | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( |
) | ||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Unrealized gain (loss) on short-term investments | $ | ( |
) | $ | ||||
The accompanying Notes are an integral part of these unaudited condensed consolidated financial statements.
4
NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — NATURE OF THE ORGANIZATION AND BUSINESS
Corporate History
Nexalin Technology, Inc. (the “Company” or “Nexalin”) was formed on November 17, 2021 as a Delaware corporation.
We were originally formed as a Nevada corporation on October 19, 2010 as Nexalin Technology, Inc. (“Nexalin Nevada”). On December 1, 2021, we completed a corporate reorganization pursuant to which Nexalin Nevada merged with and into a newly incorporated Delaware company of the same name, Nexalin and, as a result, Nexalin succeeded Nexalin Nevada and each of the shareholders of Nexalin Nevada exchanged each of their shares in Nexalin Nevada for one twentieth (1/20th) of a common share of the newly formed Delaware corporation. Nexalin had nominal assets and liabilities and did not conduct any operations prior to the reorganization other than its incorporation. As a result, Nexalin Nevada became a wholly owned subsidiary of Nexalin.
The Company’s principal offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056.
Our shares and warrants began trading on September 16, 2022, and continues to be traded on the Nasdaq Capital Market tier of the Nasdaq Stock Market (“Nasdaq”), under the symbols “NXL” and “NXLIW”, respectively. In September 2025, the warrants expired, and were delisted. The common stock of the Company will continue to trade on the Nasdaq Capital Market under the symbol NXL.
Throughout this report, the terms “Nexalin,” “our,” “we,” “us,” and the “Company” refer to Nexalin Technology, Inc.
Business Overview
We are a medical device company engaged in the designs and development of innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device – referred to as “Generation” or “Gen-1” – that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, because of the FDA’s December 2019 reclassification of cranial electrotherapy stimulation (CES) devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia, and as a Class III device for the treatment of depression.
The waveform that comprises the basis of our “Generation 2” or “Gen-2” or “SYNC” and new “Generation 3” or “Gen-3” or “HALO” headset devices has been in Q-submission process for review by the FDA. In October 2025, the FDA formally accepted our Q-Submission (“Q-Sub”) related to the Company’s Gen-2 Console (“SYNC”) system for the treatment of Alzheimer’s disease and dementia, with a regulatory meeting scheduled for later this year. This acceptance of the Company’s request for interaction with the FDA with respect to its Gen-2 SYNC system represents a significant step toward Nexalin’s goal of achieving FDA authorization to begin U.S. clinical studies targeting Alzheimer’s and dementia — two of the most urgent unmet needs in healthcare. The Q-Submission process enables structured dialogue with and feedback from the FDA to discuss proposed clinical trial design, study endpoints, and regulatory pathway for evaluating the Gen-2 SYNC system as a potential non-invasive therapy for these debilitating neurodegenerative conditions, as well as for mild to moderate cognitive impairment (MCI) associated with Alzheimer’s disease.
5
Determinations of the safety and efficacy of our devices in the United States are solely within the authority of the FDA. We plan to conduct clinical trials for the Gen-3 HALO device in the U.S. and we continue to consult with the FDA as part of the pre-submission process. If and when we obtain FDA clearance for the Gen-3 HALO device, we intend to extend the development and commercialization of our devices for sale in the U.S. and other territories, given the potential unmet demand for the treatment of mental health conditions.
All of our products are designed to be easy to administer, physically non-invasive and undetectable to the human body. They have been developed to provide relief to those afflicted with mental health issues, including anxiety, insomnia, depression and mild traumatic brain injury (mTBI). We utilize bioelectronic medical technology to treat these mental health issues. The determination of safety and efficacy of medical devices in the United States are subject to clearance by the FDA.
NOTE 2 — LIQUIDITY AND GOING CONCERN
The accompanying unaudited condensed
consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2025, the
Company had a significant accumulated deficit of approximately $90.5 (
The Company expects to continue to incur operating losses and negative cash flow as it executes its development plans, as well as undertaking other potential strategic and business development initiatives through 2025 and beyond. The Company previously funded these losses primarily through the sale of equity and issuance of convertible notes. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for at least twelve months after the date of this Report.
The Company’s ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from the joint venture and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. These plans require the Company to place reliance on several factors, including favorable market conditions, and to access additional capital in the future. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the unaudited condensed consolidated financial statements are issued. Additionally, management does not believe we have sufficient cash for the next twelve months from the issuance of the financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles in the United States (“GAAP”), for interim financial information and with the instruction for Quarterly Reports on Form 10-Q and Article 8 of Regulations S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial information includes all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position and the operating results and cash flows. Operating results for the nine and three months ended September 30, 2025 and 2024 are not necessarily indicative of the results that may be expected for any other subsequent interim periods. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024 filed on March 14, 2025. The accompanying consolidated balance sheet as of December 31, 2024 has been derived from the audited financial statements included in our previously filed Annual Report on Form 10-K.
6
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Nexalin and its wholly owned subsidiary Neuro-Health. Intercompany accounts and transactions have been eliminated in consolidation.
Joint Venture
On May 31, 2023, the Company entered into a joint venture entity under the law of Hong Kong, Nexalin Neurohealth Company Limited (the “Joint Venture”) with Wider Come Limited (“Wider”)to engage in the clinical development, marketing, sale and distribution of Nexalin’s second generation transcranial Alternating Current Stimulation (“tACS”) devices (“Gen-2 devices”) in China and other countries in the region.
The Company owns
Significant aspects of our ongoing clinical trials programs are conducted in Asia, with Wider. In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA in China, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.
As of the date of this Report, (i) we have no employees or offices in China and none of our operations are conducted in China; and (ii) the Joint Venture does not maintain any variable interest entity structure or operate any data center in China.
Pursuant to the Joint Venture agreement, Wider funded all operations for the initial 12-month period of the Joint Venture, after which Nexalin and Wider plan to jointly fund the Joint Venture’s operating expenses in accordance with their pro rata ownership. The Company has not been required to contribute any additional funds subsequent to the initial 12-month period to date.
The Joint Venture is managed by a Board of Directors in which Wider is to have sole representation. However, neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions.
The investment in the Joint Venture is accounted
for using the equity method of accounting. As of September 30, 2025 and December 31, 2024, the Company had an Equity Method Investment
of $
Reclassifications
Certain reclassifications were made to the prior year’s amounts to conform to the 2025 presentation. Specifically, Research and Development is now stated separately on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
7
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, which may cause the Company’s future results to be affected.
Revenue
The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.
The Company has existing licensing and treatment fee agreements with its customers for the use of the Nexalin device in their practices. These agreements generally have terms of one year with automatic renewal if certain requirements are met and amounts due per these agreements are billed monthly. The Company also sells products related to the provision of services. The Company sells its Gen-2 devices in China to its acting distributor and sells products relating to the use of the devices.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents held at financial institutions may at times exceed insured amounts. The Company believes it mitigates such risk by investing in or through, as well as maintaining cash balances with, with major financial institutions.
Short-Term Investments
The appropriate classification of marketable securities is determined at the time of purchase and evaluated as of each reporting balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Unrealized holding gains and losses for equity securities are recognized in earnings. Unrealized holding gains and losses for available for sale debt securities are recognized in other comprehensive income. Realized gains and losses and interest and dividends earned are included in other income, net. For individual debt securities classified as available-for-sale securities, the Company determines whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. If the decline below amortized cost is a result of credit loss or the Company will more likely than not be required to sell the security before recovery of its amortized cost basis, the Company will recognize an impairment relating to the decline through an allowance for credit losses. There were no deemed permanent impairments at September 30, 2025 and December 31, 2024, respectively.
8
Patents and Trademarks
Patents and trademarks are amortized over their
useful lives and are reviewed for impairment when warranted by economic conditions. Amortization expense was $
The following table summarizes the gross carrying amount, amortization and the net carrying value at September 30, 2025 and December 31, 2024.
| Schedule of patents | ||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Value |
||||||||||
| September 30, 2025 | ||||||||||||
| Patents | $ | $ | ( |
) | $ | |||||||
| Trademarks | ( |
) | ||||||||||
| Total September 30, 2025 | $ | $ | ( |
) | $ | |||||||
| December 31, 2024 | ||||||||||||
| Patents | $ | $ | ( |
) | $ | |||||||
| Trademarks | ( |
) | ||||||||||
| Total December 31, 2024 | $ | $ | ( |
) | $ | |||||||
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.
The Company records valuation allowances against deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. At September 30, 2025 and December 31, 2024, the Company had a full valuation allowance applied against its net tax assets.
9
Fair Value Measurements
As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
| ● | Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
| ● | Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value of Financial Instruments
The carrying value of cash, short-term investments, accounts receivable, inventory, prepaids, accounts payable and accrued expenses, and other current liabilities approximate their fair values based on the short-term maturity of these instruments.
The following table summarizes the amortized cost, unrealized gain (loss) and the fair value at September 30, 2025 and December 31, 2024.
| Schedule of unrealized loss on investments | ||||||||||||
| Amortized Cost |
Unrealized Loss |
Fair Value |
||||||||||
| September 30, 2025 | ||||||||||||
| Short-term investments | $ | $ | ( |
) | $ | |||||||
| December 31, 2024 | ||||||||||||
| Short-term investments | $ | $ | ( |
) | $ | |||||||
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The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of September 30, 2025 and December 31, 2024.
| Schedule of fair value, assets measured on recurring basis | ||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| September 30, 2025 | ||||||||||||||||
| U.S. Treasury Bill | $ | $ | $ | - | $ | - | ||||||||||
| Mutual Funds | - | - | ||||||||||||||
| Total September 30, 2025 | $ | $ | $ | - | $ | - | ||||||||||
| December 31, 2024 | ||||||||||||||||
| U.S. Treasury Bill | $ | $ | $ | - | $ | - | ||||||||||
| Mutual Funds | - | - | ||||||||||||||
| Total December 31, 2024 | $ | $ | $ | - | $ | - | ||||||||||
Net Loss per Common Share
Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.
Potentially dilutive securities are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive, and therefore basic and diluted loss per share are the same for all periods presented. The shares outstanding at the end of the respective periods presented below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
| Schedule of anti-dilutive shares | ||||||||
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Warrants | - | |||||||
| Options | ||||||||
| Shares to be issued | - | |||||||
| Total | ||||||||
| Nine
Months Ended September 30, |
||||||||
| 2025 | 2024 | |||||||
| Warrants | - | |||||||
| Options | ||||||||
| Shares to be issued | - | |||||||
| Total | ||||||||
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Stock-Based Compensation
The Company applies the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the condensed consolidated statements of operations and comprehensive loss.
For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
Pursuant to ASU 2018-07 Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, the Company accounts for stock options and restricted shares issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.
Recently Adopted Accounting Pronouncements
In August of 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations: Recognition and Initial Measurement. The guidance requires newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations. The new guidance would be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. The adoption of ASU 2023-05 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In December of 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard was effective for fiscal years beginning after December 15, 2024, and required prospective application with the option to apply it retrospectively. Early adoption was permitted. The Company adopted this standard effective January 1, 2025 and has applied it prospectively. The adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
Future Adoption of New Accounting Pronouncement
In September 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which removes all references to software development project stages so that the guidance is neutral to different software development methods. Therefore, under the ASU, software capitalization will begin when management has authorized and committed to funding the software project and when it is probable that the project will be completed and the software will be used to perform the function intended. ASU No. 2025-06 is effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The guidance is to be applied on a prospective basis, or on a modified transition approach or a retrospective transition approach; this ASU allows for early adoption. The adoption of this ASU is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
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In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows entities to elect a practical expedient that assumes that the current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU No. 2025-05 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The guidance is to be applied on a prospective basis; this ASU allows for early adoption. The adoption of this ASU is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the face of the income statement. The standard is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect of adopting this guidance on its unaudited condensed consolidated financial statements.
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 4 — ACCRUED EXPENSES
Accrued expenses consist of the following amounts:
| Schedule of accrued expenses | ||||||||
| September 30, 2025 |
December 31, 2024 |
|||||||
| Accrued – other | $ | $ | ||||||
| Accrued settlement liabilities | ||||||||
| Accrued bonuses | ||||||||
| Total | $ | $ | ||||||
NOTE 5 — RELATED PARTY TRANSACTIONS
U.S. Asian Consulting Group, LLC
On May 9, 2018, the Company entered into a five-year consulting agreement with U.S. Asian Consulting Group, LLC (“U.S. Asian”). The consulting agreement was extended for an additional period of eight years upon the closing of our initial public offering and then subsequently again on July 1, 2024 (expiring in September 2030). The two members of U.S. Asian are shareholders in the Company. One of the members, Marilyn Elson is the Company’s former Controller.
Pursuant to the consulting agreement, U.S. Asian
provides consulting services to the Company with regard to, among other things, corporate development, financing arrangements and international
operations. The Company was paying U.S. Asian $
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Officers
On July 17, 2025, the Company entered into
an employment agreement with Justin Van Fleet (the “Employment Agreement”), pursuant to which Mr. Van Fleet agreed to serve
as the Chief Financial Officer of the Company, with the first date of employment to commence on August 1, 2025 (the “Commencement
Date”). Under the agreement, Mr. Van Fleet will receive an annual base salary of $
Leases
Our principal executive office is located at
1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “Leases”, we have a sub-leases (through IIcom
Strategic Inc. controlled and owned by our Chief Executive Officer) totaling approximately 4,000 square feet of office space under
an operating lease. Management and supporting staff are hosted at this location. Our lease costs for each of the three and nine
months ended September 30, 2025 and 2024 were approximately $
NOTE 6 — STOCKHOLDERS’ EQUITY
Recent Issuances of Common Stock
On April 23, 2025, the Company filed a “shelf”
registration statement on Form S-3 (the “Registration Statement”) which was declared effective by the SEC on April 29, 2025.
On May 6, 2025, pursuant to the Registration Statement and a prospectus supplement and prospectus which are a part thereof, the Company
consummated a public offering of
On June 5, 2025, Maxim Group LLC (the “Representative”)
partially exercised its overallotment option, and pursuant to such exercise on June 6, 2025, the Company closed the offering of
In the first quarter of 2025 the Company issued
In addition to the
See Note 9 with respect to amendment to Equity Distribution Agreement.
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Options
Nexalin’s 2023 Equity Incentive Plan (the “2023
Plan”) was approved by our stockholders on November 10, 2023. The Plan provides that the maximum number of shares of Common
Stock available for the grant of awards under the Plan shall be 1,500,000, subject to adjustment for stock dividends, stock splits or
similar events. The 2023 Plan is administered by the Compensation Committee of the Board of Directors, which may in turn delegate administrative
authority to one or more of our executive officers. Under the terms of the 2023 Plan, the Compensation Committee may grant equity awards,
including nonqualified stock options and restricted stock to employees, officers, directors, consultants, agents, advisors and independent
contractors. The 2023 Plan has been amended, most recently as of July 15, 2025, to increase the number of shares under the Plan to
In July of 2025, the Company entered into a five-year
Transition and Consulting Agreement with Marilyn Elson, the Company’s controller, commencing on her voluntary retirement date of
September 30, 2025. Consideration of the above agreement will be the issuance of a stock option exercisable into
On July 17, 2025, the Company entered into an
employment agreement with its Chief Financial Officer and issued a stock option exercisable into
In addition, during the third quarter of 2025 the
Company also issued stock options exercisable into
The amount expensed during the three and nine months ended September 30, 2025 and 2024 in the unaudited condensed consolidated statements
of operations and comprehensive loss related to stock options issued under the 2023 Plan was $
The following table presents a summary of stock option award activity during the nine months ended September 30, 2025:
| Schedule of stock option award activity | ||||||||||||
| Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Life In Years |
||||||||||
| Outstanding December 31, 2024 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | - | - | - | |||||||||
| Expired or cancelled | ( |
) | - | |||||||||
| Outstanding September 30, 2025 | $ | |||||||||||
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The following table provides additional information about stock options that are outstanding and exercisable at September 30, 2025:
| Schedule of additional information about stock options | ||||||||||||||
| Exercise Price | Outstanding Number of Options |
Weighted Average Remaining Life In Years |
Exercisable Number of Options |
|||||||||||
| $ | $ | |||||||||||||
| - | ||||||||||||||
| $ | ||||||||||||||
The fair value of these stock option awards is estimated as of the grant date using a Black-Scholes option pricing model and the following assumptions: A risk-free interest rate based on the U.S. Treasury yield curve at the date of grant; an expected or contractual term; and expected volatility based on an evaluation of comparable public companies’ measures of volatility. The Company does not anticipate declaring dividends on common shares now or in the near future and has therefore assumed no dividend rate. The following table discloses the assumptions utilized for stock options award during the nine-months ended September 30, 2025
| Schedule of assumptions utilized for stock options award | ||||
| September 30, 2025 | ||||
| Volatility | % | |||
| Expected dividends | $ | - | ||
| Risk-free interest rate | % | |||
| Expected term (years) | ||||
Warrants
The issuance of warrants to purchase shares of the Company’s common stock are summarized as follows:
| Schedule of warrants | ||||||||
| Number of warrants |
Weighted Average Exercise Price |
|||||||
| Outstanding December 31, 2024 | $ | |||||||
| Issued | - | - | ||||||
| Exercised | - | - | ||||||
| Expired or cancelled | ||||||||
| Outstanding September 30, 2025 | - | $ | - | |||||
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NOTE 7 — COMMITMENTS AND CONTINGENCIES
There are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company other than the following:
Sarah Veltz v. Nexalin Technology, Inc. et al.
Plaintiff, Sarah Veltz, filed a lawsuit in this matter on January 20, 2021 in Orange County Superior Court (Case No. 30-2021-01180164-CU-WT-CJC) (the “Complaint”) naming the Company and others as defendants. In her Complaint, Plaintiff contended that she was employed by defendants, including Nexalin, and had not been paid all wages, including overtime wages and other benefits allegedly due her. Plaintiff also contended that, during her employment, she was subjected to sexual harassment by the Company’s then Chief Executive Officer. The plaintiff sought both compensatory and punitive damages. On March 12, 2021, the Company filed its answer to the Complaint. A mediation was held on March 5, 2025. As a result of such mediation on May 12, 2025, all parties to the action have entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”), pursuant to which (i) the defendants (including the Company) have agreed to pay a confidential settlement amount to the plaintiff, and (ii) the Plaintiff has provided a full release to the Company and its officers, shareholders, joint venturers, partners, equity partners, owners, directors, trustees, and current and former employees of any and all claims. Such settlement also includes a mutual release of any and all claims among the Company and the other defendants. The confidential settlement amount has been paid in May 2025, and the case was dismissed.
Employment Development Department
The Company is currently engaged in settlement
discussions with the Employment Development Department (EDD) of the State of California. This matter involved issues related to our
previous management’s classification of certain work provided to or on behalf of the Company’s business as contract
labor instead of employee labor. The total amount involved was approximately $300,000. Management petitioned for reassessment and
believed the workers at issue were indeed actual contractors and not employees. We have no business in California other than one
part time and one full time worker residing in California. The EDD approved a significant downward adjustment in our outstanding
employment tax liability to approximately $40,000 and later to approximately $30,000. The Company has agreed to the final settlement
and is waiting for the EDD’s final approval.
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NOTE 8 — SEGMENT INFORMATION
The Company views its operations and manages its business as one operating and reportable segment, which is the business of designing and developing innovative neurostimulation products. The Company’s focus centers around the treatment of various mental health conditions without the need for drugs or psychotherapy. Consistent with the operational structure, the Chief Executive Officer, as the chief operating decision maker (“CODM”), manages and allocates resources on a consolidated basis. This decision-making process reflects the way in which the financial information is regularly reviewed and used by the CODM to evaluate performance, set operational targets, forecast future financial results, and allocate resources.
The Company’s CODM assesses financial performance and allocates resources based on consolidated net loss that also is reported on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. The CODM utilizes consolidated net loss by comparing actual results against budgeted amounts on a quarterly basis. As part of this process, consolidated net loss is a critical performance measure used to evaluate the Company’s operating performance and guide strategic decisions and resource allocations, including additional investments in research and development and commercialization activities.
The following table provides information about the Company’s one reportable segment and includes the reconciliation to consolidated net loss.
| Schedule of segment reporting information | ||||||||
| Three Months Ended September 30, |
||||||||
| 2025 | 2024 | |||||||
| Total revenues | $ | $ | ||||||
| Less: | ||||||||
| Cost of revenues (excluding amortization and depreciation) | ||||||||
| Research and development expense (excluding share-based compensation expense): | ||||||||
| Clinical trials | ||||||||
| Halo Project | ||||||||
| Desktop project | ||||||||
| Other research and development | - | |||||||
| General and administrative expense and Salaries and benefits (excluding stock based compensation and amortization expense) | ||||||||
| Amortization | ||||||||
| Stock based compensation | ||||||||
| Professional fees | ||||||||
| Interest income, net | ( |
) | ( |
) | ||||
| Equity in net (income) loss from equity method investees | - | ( |
) | |||||
| Other income | ( |
) | ( |
) | ||||
| Segment net loss | ( |
) | ( |
) | ||||
| Reconciliation of net loss | ||||||||
| Adjustments and reconciling items | - | - | ||||||
| Consolidated net loss | $ | ( |
) | $ | ( |
) | ||
18
Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Total revenues | $ | $ | ||||||
| Less: | ||||||||
| Cost of revenues (excluding amortization and depreciation) | ||||||||
| Research and development expense (excluding share-based compensation expense): | ||||||||
| Clinical trials | ||||||||
| Halo Project | ||||||||
| Desktop project | ||||||||
| Other research and development | ||||||||
| General and administrative expense and Salaries and benefits (excluding stock based compensation and amortization expense) | ||||||||
| Amortization | ||||||||
| Stock based compensation | ||||||||
| Professional fees | ||||||||
| Interest income, net | ( | ) | ( | ) | ||||
| Equity in net (income) loss from equity method investees | ( | ) | ||||||
| Other income | ( | ) | ( | ) | ||||
| Segment net loss | ( | ) | ( | ) | ||||
| Reconciliation of net loss | ||||||||
| Adjustments and reconciling items | - | - | ||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
NOTE 9 — SUBSEQUENT EVENTS
In October 2025, the Company entered into multiple
consulting agreements, pursuant to which an aggregate of
On October 15, 2025, the Company entered into
an Amendment No. 2 (the “EDA Amendment”) to a equity distribution agreement, dated April 29, 2025 (the “Equity Distribution
Agreement”) with Maxim Group LLC, as exclusive sales agent (“Agent”). The Equity Distribution Agreement has established
an “at-the-market” offering through which the Company may sell, from time to time to the Agent, shares of the Company’s
common stock (the “ATM Program”).
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report and our audited 2024 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 14, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with GAAP.
Overview
Gen-1:
We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device — referred to as “Generation 1” or “Gen-1” — that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit a waveform at 4 milliamps during treatment and are presently classified by the U.S. Food and Drug Administration (the “FDA”) as a Class II device for anxiety and insomnia and Class III for depression.
Medical professionals in the United States have utilized the Gen-1 device to administer treatment to patients in clinical settings. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, three prevalent and serious diseases, because of the FDA’s December 2019 reclassification of CES devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia. We are required to file a new application under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“510(k) Application”) to be approved by the FDA for the sales and marketing of our devices for the treatment of anxiety and insomnia. In the FDA’s December 2019 reclassification ruling, the treatment of depression with our device will require a Class III certification and require a new PMA (premarket approval) and/or a new De Novo application to demonstrate safety and effectiveness.
While we continue providing services to medical professionals to support patients’ use of the Gen-1 devices which were in operation prior to December 2019, we are not making new sales or new marketing efforts of Gen-1 devices in the United States. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcement. This revenue consists of monthly licensing fees and payments for the sale of electrodes and patient cables. We have paused marketing efforts for new sales of our Gen-1 device for treatment of anxiety and insomnia in the United States. Our regulatory team continues have discussions with the FDA regarding the suspension of the marketing and sale of the Gen-1 products to new providers.
Gen-2 SYNC and Gen-3 HALO:
Beginning in 2019, Nexalin engineers began the testing and design of a new 15 milliamp waveform that became the basis of our new “Generation 2” or “Gen-2” and new “Generation 3” or “Gen-3” medical devices. Today the Gen-2 is branded under a new trademark name known as “SYNC”, the Gen-3 is branded under a new trademark name known as “HALO”. The Gen-2 SYNC and Gen-3 HALO are in the Q-submission process for review by the FDA. This process allows Nexalin to get clear, specific, written feedback from the FDA on indications, device classification and clarity on the regulatory pathway and improves the efficiency and predictability of the regulatory pathway.
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We plan to conduct clinical trials for the Gen-2 SYNC and Gen-3 HALO devices in the U.S. and we will continue to consult with the FDA as part of the pre-submission process. If and when we obtain FDA clearance for the Gen-2 SYNC and/or the Gen-3 HALO device, we will begin the commercialization of our devices for sale in the U.S. and other territories, given the potential unmet demand for the treatment of mental health conditions.
All determinations of the safety and efficacy of our devices in the United States are solely within the purview of the FDA.
Nexalin’s new advanced waveform technology will be emitted at 15 milliamps through our new and improved medical devices referred to as Gen-2 SYNC and Gen-3 HALO. The new Gen-2 SYNC is a clinical use device with a modern enclosure emitting the new 15 milliamp advanced waveform. The Gen-3 HALO is a new patient headset that is intended to be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms. The Nexalin research team believes that the new 15 milliamp Gen-2 SYNC and Gen-3 HALO devices can penetrate deeper into the brain and stimulate deep brain structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects. The Nexalin regulatory team is developing strategies for pilot trials and/or pivotal trials for various mental health disease states. In addition, a new PMA application in the United States is in strategic development for the treatment of depression utilizing both Gen-2 SYNC and Gen-3 HALO. We plan to execute additional pilot trials and/or pivotal trials for the new Gen-3 HALO device for anxiety and insomnia in the United States, Brazil and China throughout 2025 and 2026.
The University of California, San Diego conducted a clinical study evaluating Nexalin’s Gen-2 SYNC device, which provided positive results in reducing pain in veteran patients with Mild Traumatic Brain Injury (mTBI). Preliminary data provided by The University of California, San Diego and recent published data from Asia supports the safety of utilizing our 15 milliamp waveform technology. However, the determination of safety and efficacy of medical devices in the United States is subject to clearance by the FDA.
Currently, the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States and around the world. Determinations of the safety and efficacy of our devices in the United States are solely within the purview of the FDA.
In October 2025, the FDA formally accepted our Q-Submission (“Q-Sub”) related to the Company’s Gen-2 Console (“SYNC”) system for the treatment of Alzheimer’s disease and dementia, with a regulatory meeting scheduled for later this year. This acceptance of the Company’s request for interaction with the FDA with respect to its Gen-2 SYNC system represents a significant step toward Nexalin’s goal of achieving FDA authorization to begin U.S. clinical studies targeting Alzheimer’s and dementia — two of the most urgent unmet needs in healthcare. The Q-Submission process enables structured dialogue with and feedback from the FDA to discuss proposed clinical trial design, study endpoints, and regulatory pathway for evaluating the Gen-2 SYNC system as a potential non-invasive therapy for these debilitating neurodegenerative conditions, as well as for mild to moderate cognitive impairment (MCI) associated with Alzheimer’s disease.
A new pre-submission document in preparation of a new 510(k) and/or De Novo application for our Gen-3 HALO headset at 15 milliamps was filed with the FDA in January of 2023. Formal comments to our pre-submission document filing were received in March of 2023. A formal meeting to address FDA comments took place on May 9, 2023. Minutes of the meeting with the FDA were filed with the FDA on May 16, 2023.
A second FDA pre-submission document was submitted on February 13, 2024. FDA comments to this second pre-submission document were received on April 26, 2024. A formal teleconference was held with the FDA on April 26, 2024. The Nexalin regulatory team and the FDA came to a consensus on the Insomnia Clinical research protocols for insomnia assessment scales and timeline end points and patient population size.
All our products are non-invasive, safe and undetectable to the human body and can provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary and protected design that stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as a waveform - particularly our proprietary, 15 milliamp patented waveform. Additionally, our devices generate a high frequency carrier wave for deeper penetration into the brain. It is applied to the brain with an array of electrodes on the forehead and behind each ear at the mastoid. The features of this proprietary waveform and the array of electrodes allow the application of the waveform to the entire brain rather than a small, targeted area of the brain. To ensure deeper penetration into the brain, our new advanced waveform is undetectable which allows the increased power from < 4 mAmps to 15 mAmps, more than a 400% increase without incurring any patient discomfort, risk, or adverse side effects. By increasing the power, our waveform can penetrate deeper into the brain and stimulate deep mid-brain structures associated with mental illness. Our research and clinical teams believe that a more powerful waveform will create a stronger response in the brain. A stronger response creates a higher level of efficacy. This entire proprietary technique allows Nexalin to provide a non-invasive frequency based waveform that provides a comfortable treatment, that is undetectable to the patient and is more powerful than other stimulation device on the market. Current pilot study protocols and randomized clinical trials have been designed and submitted to the FDA to provide feedback on final reports and data sets for the purpose of safety and efficacy evaluations in the future. Determinations of the safety and efficacy of our devices is solely within the purview of the FDA.
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Strategic plans are in development to use the data from these clinical trials to support an application for the CE-mark of our SYNC clinical and HALO headset devices in the European Union.
The global rise in mental health and cognitive disorders is causing widespread suffering and hardship. These conditions have far-reaching consequences for individuals, families, and communities. Our focus is on the continued development of our innovative bioelectronic medical technologies and regulatory approval. Our intention is to help reverse these losses, and the hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.
Beyond the well-known safety, efficacy, and side-effect concerns surrounding conventional mental health treatments such as Electro-Convulsive Therapy (ECT), drugs, and psychotherapy, the stigma associated with mental illness continues to hinder individuals from seeking the help they need. We have received industry reports and feedback that many patients that struggle with mood disorders have the stigma of embarrassment associated with psychiatrists and psychotherapy (e.g., counselling with a therapist). Additional stigmas and other issues are associated with the side effects and dependance of medication prescribed by psychiatrists.
To address the embarrassment stigma, we are developing a new virtual clinic that will allow the physician to diagnose a mental health issue in the privacy of a tele-psychiatry virtual platform. After diagnosis, the physician can prescribe the Nexalin Gen-3 HALO headset to the patient for treatment. Next, the HALO device will be shipped to the patient’s home. After the patient receives the device, they will pair the headset device with an app in the patient’s smart phone. The app will communicate with the Nexalin cloud servers to authorize the device for treatment according to the protocol designed by the physician. The physician will monitor treatment compliance and other health related issues in a private physician dashboard that connects through the Nexalin app and cloud servers. We believe that to preserve product safety and integrity for home use, the headset device will require physician oversight that will include a prescription for use with a monthly authorization provided by the physician after a monthly virtual visit. All appointments will be in a virtual setting to provide privacy and convenience for the physician and patient. The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage.
Our original China Gen-2 15 milliamp device was approved in China by the China National Medical Products Administration (the “NMPA”) for the treatment of insomnia and depression in China. This device and all other clinical devices will include single use electrodes for long term revenue streams. The USA Gen-2 SYNC device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2025. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased and leased devices to the new symmetric15-milliamp waveform. Our Gen-2 SYNC device will be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device. The purpose of RFID is to track and maintain control of the proprietary single use electrode. Our electrode chip will be programmed to exchange data with the device and allow activation for a single treatment with a new electrode only. This ensures a recurring revenue stream on the device and protects against any generic knockoffs designed to avoid treatment costs. This upgrade in technology also ensures the proprietary nature of the electrodes that support treatment outcomes.
Overall, we believe that our advanced waveform, technological upgrades and the development of a modern headset monitored with our IT management platform will position us with the opportunity to disrupt the traditional mental health treatment model. Our mission is to remove the stigma of expensive psychotherapy or pharmaceuticals with the attendant side effects and dependency issues and replace such stigma with clinically proven and cost-effective technology that is easily accessible in the privacy of the patient’s home and monitored by licensed healthcare providers.
Significant aspects of our ongoing clinical trials are conducted in Asia with Wider Come Limited (“Wider”). In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.
Military & Government
In addition to our core business model, we have also formed a Military & Government Advisory Board aimed at fostering and enhancing relationships within and throughout United States federal government and public sector organizations, including the U.S. Department of Defense, U.S. Department of Veterans Affairs, and U.S. Department of Health and Human Services. In conjunction with our ongoing clinical trials, our goals include the broad deployment of our devices within the U.S. military and government agencies.
22
Oman
The Sultanate of Oman’s Ministry of Health granted conditional approval for use of our Gen-2 device on June 16, 2022, effective upon the end user of our device opening and operating a mental health care clinic being constructed in Oman. The Company’s first shipment of a device to Oman was made on January 30, 2024 and received in Oman on February 5, 2024 in connection with the opening of the end user’s clinic, rendering the approval effective. Two additional devices were shipped to Oman on February 29, 2024 and were received by the end user on March 6, 2024. Upon receipt of the two additional devices, the end user’s clinic was operational, and the use of the device to treat patients commenced pursuant to the approval.
Brazil
On June 13, 2024, the Company announced that our Gen-2 device had been granted regulatory approval by the Brazilian Health Regulatory Agency, a regulatory body of the Brazilian government responsible for approving new drugs and medical devices.
Results of Operations
Comparison of the three months ended September 30, 2025 and 2024
Our financial results for the three months ended September 30, 2025 and 2024 are summarized as follows:
| Three
Months Ended September 30, |
||||||||||||||||
| 2025 | 2024 | Change | Change(1) | |||||||||||||
| $ | % | |||||||||||||||
| Revenues, net | $ | 18,149 | $ | 36,031 | $ | (17,882 | ) | (50 | )% | |||||||
| Cost of revenues | 3,948 | 12,694 | (8,746 | ) | (69 | )% | ||||||||||
| Gross profit | 14,201 | 23,337 | (9,136 | ) | (39 | )% | ||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 265,149 | 262,303 | 2,846 | 1 | % | |||||||||||
| Salaries and benefits | 448,084 | 294,175 | 153,909 | 52 | % | |||||||||||
| Selling, general and administrative | 1,420,079 | 1,796,811 | (376,732 | ) | (21 | )% | ||||||||||
| Research and development | 226,520 | 178,565 | 47,955 | 27 | % | |||||||||||
| Total operating expenses | 2,359,832 | 2,531,854 | (172,022 | ) | (7 | )% | ||||||||||
| Loss from operations | (2,345,631 | ) | (2,508,517 | ) | 162,886 | (6 | )% | |||||||||
| Other income, net: | ||||||||||||||||
| Interest income, net | 2,288 | 1,000 | 1,288 | 129 | % | |||||||||||
| Gain on sale of short-term investments | 46,774 | 56,250 | (9,476 | ) | (17 | )% | ||||||||||
| Other income | 20,258 | 2,851 | 17,407 | 611 | % | |||||||||||
| Total other income, net | 69,320 | 60,101 | 9,219 | 15 | % | |||||||||||
| Loss before provision for income taxes | $ | (2,276,311 | ) | $ | (2,448,416 | ) | $ | 172,105 | (7 | )% | ||||||
| Provision for income taxes | - | - | - | 0 | % | |||||||||||
| Loss before equity in net earnings (loss) of affiliate | (2,276,311 | ) | (2,448,416 | ) | 172,105 | (7 | )% | |||||||||
| Equity in net earnings (loss) of affiliate | - | 159 | (159 | ) | (100 | )% | ||||||||||
| Net loss | $ | (2,276,311 | ) | $ | (2,448,257 | ) | $ | 171,946 | (7 | )% | ||||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gain (loss) from short-term investments | (1,461 | ) | (325 | ) | (1,136 | ) | 350 | % | ||||||||
| Comprehensive loss | $ | (2,277,772 | ) | $ | (2,448,582 | ) | $ | 170,810 | (7 | )% | ||||||
| (1) | Percentages may not foot due to rounding. |
23
Revenues
For the three months ended September 30, 2025 and 2024, we generated approximately $18,000 and $36,000 respectively, of revenue primarily from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from equipment by selling boards, electrodes and patient cables to customers for use with our devices. The decrease in revenue for the three months ended September 30, 2025 compared to the same period in 2024 was primarily due to less License fee revenue derived in 2025 compared to 2024, along with decreased Equipment sales in 2025 compared to 2024 due to timing of needs of customers of electrodes and other supplies.
Cost of Revenues and Gross Profit
For the three months ended September 30, 2025 and 2024, cost of revenues was approximately $4,000 and $13,000, respectively, yielding a gross profit of approximately $14,000 and $23,000, respectively, or 78% and 65%, respectively. Such increase in gross profit was a result of the mix of revenue types during each quarter as licensing fees comprised a larger portion of total revenue for the current period and contributed a higher margin.
Operating Expenses
Total operating expenses for the three months ended September 30, 2025 and 2024 were approximately $2,360,000 and $2,532,000, respectively, resulting in a decrease of approximately $172,000. The overall decrease was a result of a decrease in selling, general and administrative expenses of approximately $377,000 offset by an increase in professional fees of approximately $3,000, increase in salaries and benefits of approximately $154,000 and an increase in research and development costs of approximately $48,000.
The salaries and benefits increase of approximately $154,000 was primarily attributable to additional compensation related to three new employees in 2025 and normal pay, taxes and benefit increases throughout the organization.
The selling, general and administrative cost decrease of approximately $377,000 was due to approximately $450,000 of decreased stock-based compensation recognized during this three-month period ended compared to the same period in the prior year. This was offset by increases in consulting expenses by approximately $36,000 during this period for additional international distribution services and other advisory services, approximately $30,000 increased supplies expensed during this current period and a net increase of approximately $7,000 for various other expense categories.
The research and development cost increase of approximately $48,000 was due to the increased cost of approximately $35,000 on the Halo Development project, $53,000 on general R&D activities, including software and board developments and additional development expenses of approximately $30,000 related to the App. This was offset by a decreases in Clinical Trials of approximately $50,000 due to timing of trial expenses and a decrease of approximately $20,000 on our SYNC Desktop project
Professional fees increased by approximately $3,000 which was consistent comparing each period.
Other Income, Net
Other income, net for the three months ended September 30, 2025 and 2024 was consistent each period of approximately $69,000 and $60,000, respectively, primarily consisting of interest and dividend income and gain on the sale of short-term investments.
24
Comparison of the nine months ended September 30, 2025 and 2024
Our financial results for the nine months ended September 30, 2025 and 2024 are summarized as follows:
| Nine
Months Ended September 30, |
||||||||||||||||
| 2025 | 2024 | Change | Change(1) | |||||||||||||
| $ | % | |||||||||||||||
| Revenues, net | $ | 129,752 | $ | 141,542 | $ | (11,790 | ) | (8 | )% | |||||||
| Cost of revenues | 40,344 | 29,097 | 11,247 | 39 | % | |||||||||||
| Gross profit | 89,408 | 112,445 | (23,037 | ) | (20 | )% | ||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 811,562 | 731,099 | 80,463 | 11 | % | |||||||||||
| Salaries and benefits | 1,153,843 | 928,072 | 225,771 | 24 | % | |||||||||||
| Selling, general and administrative | 3,243,135 | 2,878,882 | 364,253 | 13 | % | |||||||||||
| Research and development | 858,582 | 453,642 | 404,940 | 89 | % | |||||||||||
| Total operating expenses | 6,067,122 | 4,991,695 | 1,075,427 | 22 | % | |||||||||||
| Loss from operations | (5,977,714 | ) | (4,879,250 | ) | (1,098,464 | ) | 23 | % | ||||||||
| Other income, net: | ||||||||||||||||
| Interest income, net | 8,081 | 1,370 | 6,711 | 490 | % | |||||||||||
| Gain on sale of short-term investments | 99,331 | 92,915 | 6,416 | 7 | % | |||||||||||
| Other income | 25,715 | 6,407 | 19,308 | 301 | % | |||||||||||
| Total other income, net | 133,127 | 100,692 | 32,435 | 32 | % | |||||||||||
| Loss before provision for income taxes | $ | (5,844,587 | ) | $ | (4,778,558 | ) | $ | (1,066,029 | ) | 22 | % | |||||
| Provision for income taxes | - | - | - | 0 | % | |||||||||||
| Loss before equity in net earnings (loss) of affiliate | (5,844,587 | ) | (4,778,558 | ) | (1,066,029 | ) | 22 | % | ||||||||
| Equity in net earnings (loss) of affiliate | (1,048 | ) | 4,651 | (5,699 | ) | (123 | )% | |||||||||
| Net loss | $ | (5,845,635 | ) | $ | (4,773,907 | ) | $ | (1,071,728 | ) | 22 | % | |||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gain (loss) from short-term investments | (119 | ) | 80 | (199 | ) | (249 | )% | |||||||||
| Comprehensive loss | $ | (5,845,754 | ) | $ | (4,773,827 | ) | $ | (1,071,927 | ) | 22 | % | |||||
| (1) | Percentages may not foot due to rounding. |
Revenues
For the nine months ended September 30, 2025 and 2024, we generated approximately $130,000 and $142,00 respectively, of revenue primarily from the sale of devices and licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from equipment by selling boards, electrodes and patient cables to customers for use with our device. The decrease in revenue for the nine months ended September 2025 compared to 2024 was primarily due to an decrease in Device sales of approximately $56,000 from a large Device sale to Oman during 2024 and a decrease in Licensing fees of approximately $17,000. This was offset by an increase in Equipment sales of approximately $49,000 from a large sale of boards to China during the nine months ended September 30, 2025 and an increase of approximately $12,000 of other revenue from increased shipping charges.
25
Cost of Revenues and Gross Profit
For the nine months ended September 30, 2025 and 2024, cost of revenues was approximately $40,000 and $30,000, respectively, yielding a gross profit of approximately $90,000 and $112,000, respectively, or 68% and 79%, respectively. Such decrease in gross profit was a result of the mix of revenue types during the nine months periods as licensing fees and devices comprised a larger portion of total revenue for the prior period, and drives a higher margin compared to equipment sales.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2025 and 2024 were approximately $6,067,000 and $4,992,000, respectively, consisting of increases in; salaries and benefits expenses of approximately $226,000, selling, general and administrative expenses of approximately $364,000, research and development expenses of approximately $405,000 and in professional fees expenses of approximately $80,000.
The salaries and benefits cost increases of approximately $226,000 was primarily attributable to additional compensation related to three new employees and normal pay, taxes and benefit increase throughout the organization.
Selling, general and administrative cost increases of approximately $364,000 was due to approximately $283,000 of increased stock-based compensation recognized during this nine-month period ended compared to the same period in the prior year. Additionally, consulting expenses increased approximately $116,000 for additional international distribution services and other advisory services, offset by decreases in insurance of approximately $48,000, in travel expenses of approximately $52,000. The remaining net increase of approximately $65,000 was due to various immaterial changes in various accounts during the period.
The research and development cost increases of approximately $405,000 was due to the increased cost of approximately $201,000 associated with the Halo development project, increase of approximately $64,000 for clinical trials (UCSD and Brazil), increase of approximately $113,000 for development cost related to the APP, and approximately $57,000 on general R&D activities, including software and board developments, offset by approximately $30,000 of decreased costs related to the SYNC desktop.
The increase in professional fees of approximately $80,000 was primarily due to increases of approximately $75,000 in accounting, legal and other consulting costs primarily attributable to increased services during the period from the capital raise and other registration statement activity.
Other Income, Net
Other income, net for the nine months ended September 30, 2025 and 2024 were approximately $133,000 and $101,000, respectively, consisting of interest and dividend income and gain on the sale of short-term investments. The increase in gain on sale of short-term investments, interest income and reduction in accrued settlement for the EDD matter drove the increase for the nine-month period.
Cash Flows
The following table summarizes our consolidated cash flows for the nine months ended September 30, 2025 and 2024:
| September 30, 2025 |
September 30, 2024 |
|||||||
| Net cash used in operating activities | $ | (3,809,636 | ) | $ | (2,809,914 | ) | ||
| Net cash used in investing activities | $ | (821,171 | ) | $ | (2,205,079 | ) | ||
| Net cash provided by financing activities | $ | 4,646,397 | $ | 4,516,184 | ||||
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Net Cash Used In Operating Activities
Net cash used in operating activities was approximately $3,810,000 for the nine months ended September 30, 2025, as compared to approximately $2,810,000 for the respective period in 2024, an increase of approximately $1,000,000, which was primarily due to an increase in net loss of approximately $1,072,000, or approximately $785,000 adjusted for non-cash expenses. The remaining change was due to changes in operating assets and liabilities for the respective periods; a decrease in accounts payable of approximately $95,000, a decrease in prepaid expenses and other current assets of approximately $179,000, increase in inventory of approximately $16,000, an increase in lease liability of approximately $4,000, a increase in accrued expenses of approximately $28,000 and increase in accounts receivable of approximately $11,000.
Net Cash Used In Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2025, and 2024 was approximately $821,000 and $2,205,000, respectively. For the nine months ended September 30, 2025 this was due to short-term investment sales of approximately $31,247,000 offset by purchases of approximately $32,005,000 of short-term investments and the purchase of patents and trademarks of approximately $63,000. Net cash provided by investing activities during the nine months ended September 30, 2024, of approximately $2,205,000 was due to short-term investment sales of approximately $22,349,000 offset by purchases of approximately $24,400,000 of short-term investments and the purchase of patents and trademarks of approximately $154,000.
Net Cash Provided By Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2025 and 2024 was approximately $4,646,000 and $4,516,000, respectively, which was due to the sale of common stock in each period.
Uses and Availability of Additional Funds
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing development costs, legal and other regulatory expenses, and general administrative costs. Although we have produced Gen-2, which is selling in China where it is approved for certain utilizations by medical practitioners, the successful development of our future products is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of Gen-3 and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive. This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of:
| ● | successful enrolment in, and completion of clinical trials; |
| ● | performing preclinical studies and clinical trials in compliance with the FDA or any comparable regulatory authority requirements; |
| ● | the ability to outsource the manufacture of our products for development, clinical trials and/ or potential commercialization; |
| ● | obtaining and maintaining patent, trademark and trade secret protection for our products; |
| ● | scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others; |
| ● | acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors; |
| ● | competing effectively with other therapies; |
| ● | obtaining and maintaining healthcare coverage and adequate reimbursement; |
27
| ● | protecting our rights in our intellectual property portfolio; and |
| ● | maintaining a continued acceptable safety profile of our products following approval. |
Liquidity and Capital Resources
As of September 30, 2025, the Company had a significant accumulated deficit of approximately $90,491,000. For the nine months ended September 30, 2025, the Company had a loss from operations of approximately $5,846,000 and negative cash flows from operations of approximately $3,810,000. The Company’s operating activities consume the majority of its cash resources. The Company will continue to service existing customers in the United States and sell devices and equipment overseas. The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2025 and beyond, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity. As of September 30, 2025, the Company had cash and cash equivalents on hand of approximately $590,000 and short-term investments of approximately $3,763,000. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for at least twelve months after the date of this Report.
Our ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from the joint venture and other overseas ventures and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. Although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of September 30, 2025 and have concluded that we will not have sufficient cash and short-term investments to satisfy our anticipated cash requirements for the next twelve months from the issuance of these financial statements. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the unaudited condensed consolidated financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and, as such, include amounts based on informed estimates and judgments of management. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
Recently Adopted Accounting Pronouncements
See Note 3 – Summary of significant accounting policies and new accounting standards in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of recently adopted accounting pronouncements.
Contractual Obligations
See Note 7 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations.
Nasdaq
In September of 2025, the warrants expired, and a Form 25 was filed with the Securities and Exchange Commission to indicate that the warrants had expired and were delisted. The common stock of the Company will continue to trade on the Nasdaq Capital Market under the symbol NXL.
28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, our management, including our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report.
Management has completed such evaluation and has concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is appropriate to allow timely decisions regarding required disclosures. As a result of the material weaknesses in internal controls over financial reporting described below, we concluded that our disclosure controls and procedures as of September 30, 2025 were not effective.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness, as defined in the standards established by Sarbanes-Oxley, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The following material weaknesses in our internal control over financial reporting were present as of December 31, 2024 and continued to exist as of September 30, 2025:
(i) lack of sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of financial information used in financial reporting and review of controls over the financial reporting process, including documentation of review of reconciliations; and (ii) insufficient IT controls which are effectively designed and implemented, specifically related to user/superuser access to the Company’s financial reporting system.
As a result, management concluded that the Company has not maintained effective internal controls over financial reporting as of September 30, 2025.
Management’s Plan to Remediate the Material Weaknesses
To address our material weakness, we intend to engage an outside firm to advise on our financial reporting processes and intend to implement new financial accounting controls and processes. We intend to continue to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting systems, subject to budget limitations. We will not be able to remediate these control deficiencies until these steps have been completed and have been operating effectively for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. The redesign and implementation of improvements to our accounting and proprietary systems and controls may be costly and time consuming and the cost to remediate may impair our results of operations in the future.
29
In light of the conclusion that our disclosure controls and procedures were not effective at September 30, 2025, we have applied particular procedures and processes as necessary to ensure the reliability of our financial reporting with respect to this quarterly report. Accordingly, we believe, based on our knowledge that: (i) this quarterly report does not contain any untrue statement of material fact or omit a statement of material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations, and cash flows as of and for the periods presented in this quarterly report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Except as set forth below, there have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024. These risks and uncertainties have the potential to materially affect our results of operations and our financial condition. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recently announced changes to U.S. trade policy, including recently announced tariffs, could adversely affect our business.
Recently, the United States has implemented a range of new tariffs and increases to existing tariffs. In response to the tariffs announced by the United States, other countries have imposed, are considering imposing, and may in the future impose new or increased tariffs on certain exports from the United States. There is currently significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, taxes, government regulations and tariffs, and the Company cannot predict whether, and to what extent, current tariffs will continue or trade policies will change in the future.
If significant tariffs or other restrictions continue to be placed on foreign imports by the United States or exports to the United States, our sales and results of operations may be harmed. For example, ongoing trade tensions between the United States and China have led to a series of significant tariffs on the importation of certain product categories into the United States over recent years. In retaliation for these tariffs, China has recently placed restrictions on its selected exports.
Such tariff and trade developments could have a significant impact on our business, particularly the importation of products used in our business that are manufactured outside the United States, or could result in our products exported from the United States being subject to retaliatory tariffs imposed by other countries.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
31
Item 6. Exhibits
Exhibits and Financial Statement Schedules.
| (a) | Exhibits. |
| Exhibit Number | Description of Document | |
| 3.1(1) | Certificate of Incorporation, as amended and as currently in effect. | |
| 3.2(1) | Amended and Restated Bylaws | |
| 4.1(1) | Form of Specimen stock certificate evidencing shares of common stock | |
| 31.1(2) | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
| 31.2(2) | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
| 32.1(3) | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2(3) | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS(2) | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH(2) | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL(2) | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF(2) | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB(2) | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE(2) | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL, and included in exhibit 101). |
| (1) | Previously filed as an exhibit to Form S-1 as declared effective by the SEC on September 15, 2022 (SEC File Number 333-261989). |
| (2) | Filed as an exhibit to this Form 10-Q. |
| (3) | Furnished herewith |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on the 14th day of November 2025.
| NEXALIN TECHNOLOGY, INC. | ||
| By: | /s/ Mark White | |
| Mark White | ||
|
Chief Executive Officer Principal Executive Officer | ||
33
FAQ
What were Nexalin (NXL) Q3 2025 results?
How much cash and investments does NXL report?
Did Nexalin raise capital in 2025?
What is the going concern status for NXL?
How many shares are outstanding?
What regulatory update did Nexalin provide?
What were operating expenses in Q3 2025?
