NXL 10-K & 10-Q changes, risk factors and insider trading
Nexalin Technology, Inc. · Nasdaq · Electromedical & Electrotherapeutic Apparatus · CIK 1527352 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “It may be difficult for overseas regulators to conduct investigations or collect evidence within China.”
Removed heading “Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.”
Removed heading “Restrictions on foreign currency may limit our ability to receive and use our revenue effectively.”
Removed heading “Fluctuation in exchange rates could have a negative effect on our results of operations and the value of an investment in the Company.”
Removed heading “Recent regulatory developments in China may subject the Joint Venture to additional regulatory review and disclosure requirement, expose the Joint Venture to government interference, or otherwise restrict our ability to offer securities and raise capital outside China, all of which could materially and adversely affect our business and the value of our securities.”
Removed heading “We may be subject to regulatory and other risks if we were to operate Variable Interest Entities in China”
Removed heading “Minimum Bid Price Requirement”
Removed heading “Minimum Stockholder Equity Requirement”
Removed heading “Warrants are speculative in nature.”
Removed heading “The warrants may not have any value.”
Removed heading “We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to holders, thereby making such warrants worthless.”
Removed heading “Holders of the warrants have no rights as a common stockholder until they acquire our common stock.”
Removed heading “Our Warrant Agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our Company.”
Largest changes
“It may be difficult for you or overseas regulators, such as the Securities and Exchange Commission (SEC), the Department of Justice (DOJ) and other authorities of the United States, to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information, documents and materials needed for regulatory investigations or litigation outside China or otherwise with respect to foreign entities. …”see in full comparison
“The Revised CAC Measures do not provide for a definition of “online platform operator”, “online platform service provider” or “online data processor.” However, we do not expect to become subject to cybersecurity review by the CAC for issuing securities to foreign investors because: (i) the Joint Venture, as opposed to Nexalin, is the entity which hands the clinical and preclinical data as part the research and development in China, (ii) such data, either by its nature or in scale, do not normally trigger significant concerns over PRC national security; …”see in full comparison
“It may be difficult for overseas regulators to conduct investigations or collect evidence within China.”see in full comparison
“In light of the recent statements by the Chinese government indicating its intention to exert more oversight and control over overseas offerings of China-based companies and the proposed CAC review for certain data processing operators in China, the Joint Venture may adjust its business operations in the future, to comply with PRC laws regulating our industry and our business operations through the Joint Venture. However, such efforts may not be completed in a liability-free manner or at all. …”see in full comparison
“Also, the Standing Committee of the National People’s Congress released the Personal Information Protection Law, which became effective in 2021. …”see in full comparison
“On March 17, 2018, the General Office of the PRC State Council promulgated the Measures for the Management of Scientific Data (the Scientific Data Measures), which provide a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. …”see in full comparison
Full comparison: every changed paragraph (97)
We are a Delaware corporation with a limited operating history. We have funded our operations to date primarily with proceeds from private investors and the sale of our stock, including the proceeds from our initial public offering completed in September 2022 and a follow-on offering completed in July 2024.2024 and May 2025. We have had only limited sales of our products and services to date. For the years ended December 31, 20242025 and 2023,2024, we incurred a comprehensivenet loss in the amount of $7,607,290approximately $8,222,000 and $4,685,427,$7,607,000, respectively. Our accumulated deficit as of December 31, 20242025 and 2023,2024, was $84,645,231approximately $92,867,000 and $77,038,049,$84,645,000, respectively.
Our independent accountant’s audit report included on this Form 10-KReport states that there is substantial doubt about our ability to continue as a going concern. We have incurred only losses since our inception, raising substantial doubt about our ability to continue as a going concern. Therefore, our ability to continue as a going concern is highly dependent upon us executing our business plan in the planned amount of time allotted and obtaining additional financing for our planned operations, if necessary. There can be no assurance that we will be able to raise any additional funds, or if we are able to raise additional funds, that such funds will be in the amounts required or on terms favorable to us.
We commenced active operations in 2010, and our operations to date have been largely focused on raising capital, identifying and developing our products and preclinical program, broadening our expertise in the development of our products and undertaking preclinical studies and conducting early-stage clinical trials. As a result of the FDA reclassification ruling in December 2019, we had to suspend marketing of our Gen-1 medical device for the treatment of anxiety and insomnia. We are presently evaluating whether to proceed with amending our prior application with the FDA for the treatment of insomnia and anxiety or filing new applications 510(k) for our next Generation devices.
Although we have developed second- and third-Generation versions of our medical device, these have not as yet been approved by the FDA for marketing or sales in the United States. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
We are currently not cash flow positive and are not certain when and if we will be cash flow positive. We incurred a comprehensivenet loss in the amount of $7,607,290approximately $8,222,000 for the year ended December 31, 2024.2025. We maywill need to obtain substantial additional funding in connection with our continuing operations and planned activities. Our future capital requirements will depend on many factors, including:
We depend on the success of our future products, some of which are in clinical development but have not completed advanced clinical trials. If we losefail our existing or cannotto obtain future regulatory approval for and successfully commercialize one or more of our products or if we experience significant delays in doing so, we may never become profitable.
Any further such reclassification by the FDA of an indication from a certain class of device to another during our development or post-commercialization for that indication could have a significant adverse impact due to the more rigorous and lengthy approval process required for a higher risk class medical device. Such a change in classification can significantly increase development costs and prolong the time for development and approval, thus delaying revenues. A reclassification of an indication after approval from a certain class of device to another could result in a change in classification for reimbursement, and theretherefore could behave a significant negative impact on our revenues relatedly.revenues.
We plan to conduct decentralized clinical trials for the Gen-3 device in the U.S. and have consulted the FDA as part of the pre-submission meetings.
We rely on third parties to conduct the clinical trials for our products, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with applicable regulatory requirements.
Coverage and adequate reimbursement may not be available for our current or any future products, which could make it difficult for us to sell profitably, if approved.
Market acceptance and sales of any products that we commercialize, if approved, will depend in part on the extent to which reimbursement for these products and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any products that we develop will be made on a payor-by-payor basis. One payor’s determination to provide coverage for a product does not assureensure that other payors will also provide coverage and adequate reimbursement for the product. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether it will provide coverage for a therapy, what amount it will pay for the therapy and on what tier of its list of covered products, or formulary, it will be placed. The position on a payor’s formulary generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products, and providers are unlikely to prescribe our products, unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our products and their administration.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and limitedlimiting reimbursement for medications and certain treatments utilizing digital technologies. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage andor reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. If adequate coverage and adequateor reimbursement areis not available, or are available only to limited levels, we may not be able to successfully commercialize our current and any future products that we develop.
As of December 31, 2024,2025, we had 68 full-time employees, 1our part-timeCMO employee,is a consultant and 7we utilize varying levels of other consultants, all located in the United States. As the clinical development of our products progresses, we also expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of research, product development and regulatory affairs, including a sales and marketing team for our existing products. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Significant disruptions of our third-party vendors’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation and unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us. In addition, information technology system disruptions, whether from attacks on our technologytechnological environment or from computer viruses, natural disasters, terrorism, war or telecommunication and electrical failures, could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
The global tensions resulting from the Russia-Ukraine conflict and the conflict in IsraelIsrael, andIran, the Gaza StripStrip, and other parts of the Middle East have increased supply interruptions throughout the world and in the United States and may hinder our ability to find the materials we need to make our products. Although, to date, there has been minimal effect upon our business, supply disruptions could make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products.
A material portion of our research is expected to be conducted in China through the Joint Venture, which weWe believe the Joint Venture will confers clinical, commercial and regulatory advantages, but may subject the Joint Venture (and also potentially us) to significant regulatory, liquidity, and enforcement risks. The medical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. In recent years, the regulatory framework in China regarding the medical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our products in China and reduce the current benefits we believe are available to us from researching our products in China. The PRC authorities have become increasingly vigilant in enforcing laws in the medical industry and any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China. We believe our strategy and approach are aligned with the PRC government’s regulatory policies, but we cannot ensure that our strategy and approach will continue to be aligned. In the event that there are changes, we and the Joint Venture will take any and all actions to remain in compliance with any such laws or regulations or detailed implementations and interpretations thereof.
We are conducting our research in China through the Joint Venture. Also, theThe Joint Venture is physically located in and was formed under the laws of Hong Kong and is physically located in Hong Kong. Our joint venture partner, Wider, is located in China. As a result, it may be difficult to effect service of process upon the Joint Venture inside China. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against the Joint Venture. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against the Joint Venture predicated upon the civil liability provisions of the securities laws of the United States or any state.
It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
It may be difficult for you or overseas regulators, such as the Securities and Exchange Commission (SEC), the Department of Justice (DOJ) and other authorities of the United States, to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information, documents and materials needed for regulatory investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no entity or individual may provide the documents and materials relating to securities business activities to overseas parties. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
We expect that aA portion of our operations will beare conducted in China through the Joint Venture. Accordingly, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth over the past thirty years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall PRC economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are currently applicable to us. In addition, in the past the PRC government implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operation. More generally, if the business environment in China deteriorates from the perspective of domestic or international investment, our business in China may also be adversely affected.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protection afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.
In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
In May 2019, the Cyberspace Administration of China (“CAC”) issued strict guidelines for the collection and use of data by operators in China. At this time, Wider does not share any data from any hospital setting or research setting with Nexalin and Nexalin does not share any data from any hospital setting or research setting with Wider. All clinical data, patient data, provider data associated with China and the U.S. do not affect the design or statistical interpretation of preclinical or clinical studies in either country.
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
Restrictions on foreign currency may limit our ability to receive and use our revenue effectively.
The PRC government imposes controls on the conversion of the Renminbi into foreign currencies and, in certain cases, the remittance of foreign currency out of China. To date, the payments we have received from Wider have been in United States dollars, although in the future, payments from Wider or from the Joint Venture may be in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of China’s State Administration of Foreign Exchange (SAFE), by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we would need to obtain approval from SAFE to use cash generated from our operations to pay off any debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may restrict access to foreign currencies for current account transactions in the future. The foreign exchange control system could prevent us from obtaining sufficient foreign currencies to satisfy our foreign currency demands.
Fluctuation in exchange rates could have a negative effect on our results of operations and the value of an investment in the Company.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund, or IMF, completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, the Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound. Since the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress toward interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this Form 10-K, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency or to convert foreign currency into Renminbi.
The approval of the CSRC,China Securities Regulatory Commission, and other compliance procedures may be required in connection with any offering we may make and, if required, we cannot predict whether we will be able to obtain such approval.
On December 24, 2021, the CSRC,China Securities Regulatory Commission (CSRC), issued Provisions
of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies, and the Provisions of the
State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies. On February 17, 2023, the CSRC
promulgated the Trial Measures for Overseas Listing and the Guidelines for Overseas Listing, or the Filing Rules, which became effective
on March 31, 2023.
The new regulations require PRC companies that
are listed or in the process of being listed on foreign exchanges (“PRC Companies”) to make certain filings with the CSRC.
The new regulations authorize the CSRC to review such fillings, penalize relevant PRC Companies or people in charge, or report to overseas
securities regulatory institutions in case of violation of the Trial Measures, in order to ensure PRC Companies are in compliance with
PRC regulations and policies. Failure to file as required could subject us or our controlling stockholders to fines and penalties, which
may be significant. As of the date of this annual report,Report, the CSRC has not published any additional supplemental regulations or guidelines
as to PRC Companies and there remains uncertainty regarding the interpretation and enforcement of those newly enacted PRC laws.
As of the date of this Form 10-K,Report, (i) our business operations are carried on primarily outside of China; and (ii) we do not maintain any variable interest entity structure or operate any data center in China. We do not believe that sales of our devices to Wider to date constitute doing business in China. WeHowever, we may still be subject to PRC laws relating to, among others, data security and restrictions over foreign investments due to the complexity of the regulatory regime in China, and the recent statements and regulatory actions by the PRC government relating to data security may affect only that portion of the Joint Venture’s business operations conducted in China. Our securities are not being offered or sold directly or indirectly in China to or for the benefit of, legal or natural persons of the PRC. Therefore, we have not obtained the approval from either the China Securities Regulatory Commission (the “CSRC”) or the Cyberspace Administration of China (the “CAC”) for any offering we may make in the future, and we do not intend to obtain the approval from either the CSRC or the CAC in connection with any such future offering, since we do not believe that such approval is required under these circumstances. Under the PRC’s current legal system, Chinese citizens have the right to purchase securities publicly issued by overseas companies through legal channels and enjoy corresponding benefits of such ownership. Ownership of such securities does not require approval from the CSRC or the CAC.
Recent regulatory developments in China may subject the Joint Venture to additional regulatory review and disclosure requirement, expose the Joint Venture to government interference, or otherwise restrict our ability to offer securities and raise capital outside China, all of which could materially and adversely affect our business and the value of our securities.
In light of the recent statements by the Chinese government indicating its intention to exert more oversight and control over overseas offerings of China-based companies and the proposed CAC review for certain data processing operators in China, the Joint Venture may adjust its business operations in the future, to comply with PRC laws regulating our industry and our business operations through the Joint Venture. However, such efforts may not be completed in a liability-free manner or at all. We cannot that we will not be subject to PRC regulatory inspection and/or review relating to cybersecurity, especially when there remains significant uncertainty as to the scope and manner of the regulatory enforcement. If the Joint Venture is subject to regulatory inspection and/or review by the CAC or other PRC authorities or are required by them to take any specific actions, it could cause suspension or termination of the future offering of our securities, disruptions to our operations, result in negative publicity regarding our company, and divert our managerial and financial resources. The Joint Venture may also be subject to fines or other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
We may be subject to PRC laws relating to, among others, data security and restrictions over foreign investments in value-added telecommunications services and other industry sectors set out in the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020 Edition). Specifically, we may be subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information, such as personal information and other data. These PRC laws apply not only to third-party transactions, but also to transfers of information between us and our wholly foreign-owned enterprises in China, and other parties with which we have commercial relations. These PRC laws and their interpretations and enforcement continue to develop and are subject to change, and the PRC government may adopt other rules and restrictions in the future. The recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore, and the government-led cybersecurity reviews of certain companies with VIE structure, may lead to additional regulatory review in China over our financing and capital raising activities in the United States. Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to cybersecurity review by the CAC.
The PRC Cybersecurity Law also establishes more stringent requirements applicable to operators of computer networks, especially to operators of networks which involve critical information infrastructure. The PRC Cybersecurity Law contains an overarching framework for regulating Internet security, protection of private and sensitive information, and safeguards for national cyberspace security and provisions for the continued government regulation of the Internet and content available in China. The PRC Cybersecurity Law emphasizes requirements for network products, services, operations and information security, as well as monitoring, early detection, emergency response and reporting. Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear.
On July 10, 2021, the CAC publicly issued the
Cybersecurity Review Measures (the “Draft Measures”) for public comments until July 25, 2021. On January 4, 2022, together
with 12 other Chinese regulatory authorities, the CAC released the final version of the Revised Draft CAC Measures (the “Revised
CAC Measures”), which came into effect on February 15, 2022. Pursuant to the Revised CAC Measures, critical information infrastructure
operators procuring network products and services, and online platform operators (as opposed to “data processors” in the Revised
Draft CAC Measures) carrying out data processing activities which affect or may affect national security, shall conduct a cybersecurity
review pursuant to the provisions therein. In addition, online platform operators possessing personal information of more than one million
users seeking to be listed on foreign stock markets must apply for a cybersecurity review. On November 14, 2021, the CAC further published
the Regulations on Network Data Security Management (Draft for Comment) (the “Draft Management Regulations”) for public comment.
On September 24, 2024, the State Council released the final version of the Draft Management Regulations (the “Management Regulations”),
which came into effect on January 1, 2025. Under the Management Regulations, online data processors refer to individuals and organizations
who determine the data processing activities in terms of the purpose and methods at their discretion. The Management Regulations reiterate
that online data processors shall be subject to national security review pursuant to relevant provisions if they carry out data processing
activities which affect or may affect national security.
The Revised CAC Measures do not provide for a
definition of “online platform operator”, “online platform service provider” or “online data processor.”
However, we do not expect to become subject to cybersecurity review by the CAC for issuing securities to foreign investors because: (i)
the Joint Venture, as opposed to Nexalin, is the entity which hands the clinical and preclinical data as part the research and development
in China, (ii) such data, either by its nature or in scale, do not normally trigger significant concerns over PRC national security; and
(iii) we have not processed, and do not anticipate to process in the foreseeable future, personal information for more than one million
users or persons. However, there remains uncertainty as to how the Revised CAC Measures, and the Management Regulations when it comes
into effect in January 2025, will be interpreted or implemented; for example, neither the Revised CAC Measures nor the Management Regulations
provides further clarification or interpretation on the criteria for determining those activities that “affect or may affect national
security” and relevant Chinese regulatory authorities may interpret it broadly. Furthermore, there remains uncertainty as to whether
the Chinese regulatory authorities may adopt new laws, regulations, rules, or detailed implementation and interpretation in relation, or in addition,
to the Revised CAC Measures and the Management Regulations. If the Joint Venture becomes subject to cybersecurity inspection and/or review
by the CAC or other PRC authorities or are required by them to take any specific actions, it could cause suspension or termination of
the future offering of our securities, disruptions to our operations, result in negative publicity regarding our company, and divert our
managerial and financial resources. We may also be subject to significant fines or other penalties, which could materially and adversely
affect our business, financial condition and results of operations. In the event the Joint Venture becomes subject to cybersecurity inspection
and/or review by the CAC or other PRC authorities or are required by them to take any specific actions, we and the Joint Venture will
take any and all actions to remain in compliance with any such laws or regulations or detailed implementations and interpretations thereof.
Also, the Standing Committee of the National People’s
Congress released the Personal Information Protection Law, which became effective in 2021. The Personal Information Protection Law provided
a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data
protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China,
and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products
and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides
that critical information infrastructure operators and personal information processing entities who process personal information meeting
a volume threshold set by Chinese cyberspace regulators are also required to store in China personal information generated or collected
in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information.
The Personal Information Protection Law also contains proposals for significant fines for serious violations. The State Council of the
PRC issued Regulations on the Administration of Network Data Security, which came into effect on January 1, 2025, and implemented a series
of detailed requirements regarding data protection. With regard to the cross-border transfer of personal information, the Cyberspace Administration
of China released the Regulations on Promoting and Regulating Cross-border Data Flows in 2024. The Regulations on Promoting and Regulating
Cross-border Data Flows establishes the latest regulatory framework for the cross-border transfer of personal information.
On March 17, 2018, the General Office of the PRC
State Council promulgated the Measures for the Management of Scientific Data (the Scientific Data Measures), which provide a broad definition
of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in
China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties.
The Company does not currently believe any of the Company’s scientific data resulting from activities in China to be conducted by
the Joint Venture would fall within the Measures for the Management of Scientific Data promulgated by the General Office of the PRC State
Council. Therefore, we do not believe the PRC would prevent us from seeking foreign approval and commercialization of our product candidates.
In the event the Joint Venture becomes subject to cybersecurity inspection and/or review by the CAC or other PRC authorities or are required
by them to take any specific actions, we and the Joint Venture will take any and all actions to remain in compliance with any such laws
or regulations or detailed implementations and interpretations thereof. If we are unable to obtain the necessary approvals in a timely
manner, or at all, our research and development of product candidates may be hindered, which may materially and adversely affect our business,
results of operations, financial conditions and prospects. If relevant government authorities consider the transmission of our scientific
data to be in violation of the requirements under the Scientific Data Measures, we may be subject to specific administrative penalties
imposed by those government authorities.
The PRC government has significant influence by enforcing existing rules and regulation, adopting new ones, or changing relevant industrial policies in a manner that may materially increase our compliance cost, change the relevant industry landscape in which we operate or otherwise cause significant changes to our business operations in China, which could result in material and adverse changes in our operations and cause the value of our securities to significantly decline or be worthless.
Article 3 of Anti-Monopoly Law of the People’s Republic of China prohibits “monopolistic practices,” which include: a) the conclusion of monopoly agreements between operators; b) the abuse of dominant market position by operators; c) concentration of undertakings which has or may have the effect of eliminating or restricting market competition. Also, accordingAccording to Article 19, the operator(s) will be assumed to have a dominant market position if it has following situation: a) an operator has 50% or higher market share in a relevant market; b) two operators have 66% or higher market share in a relevant market; c) three operators have 75% or higher market share in a relevant market. We believe we have not conducted any monopolistic practices in China, and that recent statements and regulatory actions by the Chinese government do not impact our ability to conduct business, accept foreign investments, create the Joint Venture with WiderWider, establish our WOFE in China or list on a U.S. or other foreign stock exchange. However, there can be no assurance that regulators in China will not promulgate new laws and regulations or adopt new series of regulatory actions which may require us or the Joint Venture to meet new requirements on the issues mentioned above.
We may be subject to regulatory and other risks if we were to operate Variable Interest Entities in China
In July 2021, the Chinese government provided new guidance on China-based companies raising capital outside of China, including through arrangements called variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC. Although we do not have a VIE structure, due to our Joint Venture, any future Chinese, U.S. or other rules and regulations that place restrictions on capital raising or other activities may adversely affect our business and results of operations. If the business environment in China deteriorates from the perspective of domestic or international investment, or if relations between China and the United States or other governments deteriorate, the Chinese government may intervene with our operations and our business in China and United States, as well as the market price of our securities, may also be adversely affected.
Our business does not appear to be within the targeted areas of concern by the Chinese government. However, because of our Joint Venture, there is a risk that the Chinese government may in the future seek to affect operations of any company with any level of operations in Hong Kong or China, including its ability to offer securities to investors, list its securities on a U.S. or other foreign exchange, conduct its business or accept foreign investment. Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition. If any or all of the foregoing were to occur, it could, in turn, result in a material change in the Company’s operations and/or the value of its common stock and/or significantly limit or completely hinder its ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Furthermore, in the event any of the foregoing were to occur or to be interpreted differently, we and the Joint Venture will take any and all actions to remain in compliance with any such laws or regulations or detailed implementations and interpretations thereof.
Changes to policy implemented by the U.S. Congress, the Trump administration or any new administration have impacted and may in the future impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. Because certain of our manufacturers and suppliers are located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies, laws, rules and regulations of the United States or foreign governments, as well as political unrest or unstable economic conditions in foreign countries. TheRecently, U.S.the U.S government has indicatedannounced itssubstantial intentchanges toin adopt a new approach toU.S. trade policy and inU.S. sometrade casesagreements, including the initiation of tariffs and trade restrictions on goods from China. In response to renegotiate,these ormeasures, potentiallyChina terminate,has certainretaliated existing bilateral or multi-lateral trade agreements. For example, on February 1, 2025, President Donald Trump signed executive ordersby imposing a 25% tarifftariffs on certain importsgoods from Mexico and Canada, and a 10% tariff on certain imports from China, which were to take effect on February 4, 2025. A 30-day pause was granted to Canada and Mexico but the tariffs did take effect on March 4, 2025. In March 2025, the administration announced plans to impose an additional 10% tariff on certain imports from China. These newly proposed and imposed tariffs have resulted in threatened and actual retaliatory tariffs against U.S. goods. Our components may in the future be subject to these tariffs, which could increase our manufacturing costs and could make our products, if successfully developed and approved, less competitive than those of our competitors whose inputs are not subject to these tariffs. We may otherwise experience supply disruptions or delays, and our suppliers may not continue to provide us with clinical supply in our required quantities, to our required specifications and quality levels or at attractive prices. In addition, certain Chinese contract manufacturing organizations may become subject to trade restrictions, sanctions, other regulatory requirements, or proposed legislation by the U.S. government, which could restrict or even prohibit our ability to work with such entities, thereby potentially disrupting the supply of material to us. Such disruption could have adverse effects on the development of our product candidates and our business operations.
If we are unable to obtain and maintain patent protection for our technologies and products, or if the scope of the patent protection obtained is not sufficiently broad,insufficient, our competitors could develop and commercialize technologies and products similar or identical to ours, and our ability to successfully commercialize our technologies and products may be impaired.
Our products and the activities associated with their development and commercialization, including their design, research, testing, manufacture, safety, efficacy, quality control, recordkeeping, labelling, packaging, storage, approval, advertising, promotion, sale, distribution, import, export and reporting of safety and other post-market information, are subject to comprehensive regulation by the FDA and other foreign regulatory agencies including the NMPA. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. As a result of the FDA reclassification ruling in December 2019, which impacted the classification of our devices, we had to suspend marketing of our first-Generation medical device for the treatment of anxiety and insomnia. We are presently communicating with the FDA with regard to amending our previous 510(k) Application for the treatment of anxiety and insomnia with our Gen-1 device in accordance with the FDA ruling. Our Gen-2 and Gen-3 devices have completed development and are in the prototype stage of manufacturing and testing. Securing marketing approval from the FDA in the United States requires the submission of extensive testing and clinical data to regulatory authorities for each therapeutic indication to establish the candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.
To market and sell our products in China and any other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain approval from the FDA in the United States. The regulatory approval process outside the United States generally includes all the risks associated with obtaining approval from the FDA. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, failure to obtain approval in one jurisdiction may impact our ability to obtain approval elsewhere. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.
Further, the ACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the ACA provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- KickbackAnti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. For example, the ACA, which was enacted in the United States in March 2010, includes measures to change health care delivery, decrease the number of individuals without insurance, ensure access to certain basic health care services and contain the rising cost of care. The healthcare reform movement, including the enactment of the ACA, has significantly changed health care financing by both governmental and private insurers in the United States. With respect to pharmaceutical manufacturers, the ACA increased the number of individuals with access to health care coverage, but it simultaneously imposed, among other things, increased liability for rebates and discounts owed to certain entities and government health care programs, and new transparency reporting requirements under the Physician Payments Sunshine Act. For a detailed discussion of the ACA’s provisions of importance to the pharmaceutical industry, as well as a description of reform legislation passed subsequent to the ACA, see the section titled “Business — Government Regulation — Healthcare Reform Efforts.”
The COVID-19 pandemic negatively impacted
our business and our financial performance, and future global pandemics could have subsequent negative impacts, including delays or disruptions
with respect to our research and development, manufacturing operations, or clinical trial recruitment and progress. Additionally, the
clinical supply of our medical devices could be negatively impacted due to reduced operations or a shutdown of our third-party manufacturing
facilities, distribution channels and transportation systems, or shortages of raw materials. Additionally, as seen in connection with
the COVID-19 pandemic, public health crises may result in significant governmental measures being implemented to control the spread of
a virus, including quarantines, travel restrictions, social distancing and business shutdowns. These measures may negatively affect our
business by disrupting our operations, increasing the risk of a cybersecurity incident, or other business disruptions outside of our control.
Our business activities may be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries in which we operate, as well as U.S. and certain foreign export controls, trade sanctions and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them.
Risks Related to Ownership of Our Common Stock and Warrants and Our Status as a Public Company
Our stock price has been, and is likely to be, volatile. The stock market in general and the market for companies in our industry in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their shares or warrants at or above the price paid for the units. In addition to the factors discussed in these “Risk Factors” sections, these factors include:
Our stock price has been, and is likely to be, volatile. The stock market in general and the market for companies in our industry in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Volatility in our common stock is also subject to risks and uncertainties, including those discussed in this “Risk Factors” section. These and other market and industry factors may cause the market price and demand for our common stock and warrants to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their shares of our common stock and may otherwise negatively affect the liquidity of our common stock..stock. As a result of this volatility, investors may not be able to sell their shares at or above the price paid.
If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market,Market LLC, Nasdaq could delist our common stock.stock, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
On January 21, 2026, the Company received a deficiency letter (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying the Company that, based upon the closing bid price of the Company’s common stock, par value $0.001 per share, for the last 30 consecutive business days, the Company is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).
Management's Discussion & Analysis (MD&A)
New heading ““At-the-Market” Offering”
New heading “Effects of Inflation”
New heading “Contractual Obligations”
New heading “Off-Balance Sheet Arrangements”
New heading “Minimum Bid Price Requirement”
Removed heading “Recent Developments”
Removed heading “Formalized Joint Venture; China Related Activities”
Largest changes
“Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited domestic revenue primarily from legacy Gen-1 device licensing fees and electrode sales, as U.S. marketing of new Gen-1 devices has been paused following the FDA’s December 2019 reclassification of cranial electrotherapy stimulation devices and international sales of our Gen-2. Revenue continues to be derived from sales of Gen-1 devices and supplies internationally. …”see in full comparison
“Formalized Joint Venture; China Related Activities”see in full comparison
As of December 31,see in full comparison2024,2025, the Company had a significant accumulated deficit of$84,645,231.approximately $92,867,000. For the year ended December 31,2024,2025, the Company had a net lossfromofoperationsapproximately$7,754,646$8,222,000 and negative cash flows from operations of$3,944,390.approximatelyThe Company’s operating activities consume the majority of its cash resources.$4,958,000. The Company will continue to service existing customers in the UnitedStates.States as well as sell devices and equipment overseas. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans including clinical trials through2025,2026 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 ofequity.equity and utilization of our ATM program. As of December 31,2024, the Company had cash and cash equivalents on hand of $574,485 and short-term investments of $2,905,438. As of March 12,2025, the Company had cash and cash equivalents on hand of$592,514approximately $655,000 and short-term investments of$1,926,170.approximately $3,068,000. 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 participation in the Joint Venture with Wider in China is subject to general, as well as industry-specific, economic, political and legal developments and risks in China. The Chinese government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting monetary policy, controlling and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies and issuing necessary licenses to conduct business. …”see in full comparison
“The Joint Venture with Wider is subject to laws and regulations applicable to foreign investment in China. There are uncertainties regarding the interpretation and enforcement of laws, regulations and policies in China. Because many of the laws, regulations and policies applicable to our operations in China are relatively new, the interpretations of such laws, regulations and policies are not always uniform. Moreover, the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. …”see in full comparison
Full comparison: every changed paragraph (79)
You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this Report. References in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “us,” “we,” “our,” and similar terms refer to Nexalin Technology, Inc. and its subsidiaries. This discussion contains forward-looking statements as that term is defined within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. The events described in forward-looking statements contained in this discussion may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions that may be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors” in this Report. Our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited domestic revenue primarily from legacy Gen-1 device licensing fees and electrode sales, as U.S. marketing of new Gen-1 devices has been paused following the FDA’s December 2019 reclassification of cranial electrotherapy stimulation devices and international sales of our Gen-2. Revenue continues to be derived from sales of Gen-1 devices and supplies internationally. During fiscal year 2025, the Company advanced its next-generation product development, with the FDA formally accepting the Company’s Q-Submission for its Gen-2 SYNC system targeting Alzheimer’s disease and dementia, and clinical trials for the Gen-3 HALO device for insomnia in the United States. Management’s priorities include obtaining FDA clearance for its Gen-2 and Gen-3 devices and executing U.S. clinical trials. The Company faces significant challenges, including substantial doubt about its ability to continue as a going concern due to recurring losses and negative cash flows, a requirement to regain compliance with Nasdaq’s minimum bid price requirement, and material weaknesses in internal control over financial reporting related to segregation of duties and IT access controls. As of December 31, 2025, the Company had cash and cash equivalents and investments of approximately $3.7 million and an accumulated deficit of approximately $92.9 million. The Company intends to fund operations through its at-the-market offering facility and other financing activities, though there can be no assurance that sufficient capital will be available on acceptable terms, or at all. The neurostimulation industry remains competitive and subject to rapid technological change, and the Company’s success depends on its ability to obtain regulatory approvals, protect its intellectual property, and achieve market acceptance for its products.
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.
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 to have discussions with the FDA regarding the suspension of the marketing and sale of the Gen-1 products to new providers.
The waveform that comprises the basis of our “Generation 2” or “Gen-2” and new “Generation 3” or “Gen-3” headset devices is in 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. 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 decentralized clinical trials for the Gen-3 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 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 with our device.
We have designed and developed a new advanced waveform technology to be emitted at 15 milliamps through new and improved medical devices referred to as Gen-2 and Gen-3. Gen-2 is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. Gen-3 is a new patient headset that will 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 and Gen-3 devices can penetrate deeper into the brain and stimulate associated 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 has made a strategic decision to develop strategies for pilot trials and/or pivotal trials in 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 and Gen-3. We plan to develop a strategic schedule to execute additional pilot trials and/or pivotal trials for the new Gen-3 device for anxiety and insomnia in the United States, Brazil and China beginning in the first quarter of 2025. 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 authority of the FDA.
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.
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.
Data from these clinical trials will also be used to support an application for the CE-mark of our Gen-2 and new Gen-3 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 rapid regulatory approval. We intend to help reverse these losses, and hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.
All our products are non-invasive, undetectable to the human body and are designed to provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary 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 proprietary 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, we have created a waveform that is undetectable to the brain which allows the increase of the 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 data 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 and comfortable treatment, which we believe is more powerful than any FDA-cleared stimulation device in the market. 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. 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 are solely within the authority of the FDA.
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 of medication prescribed by psychiatrists. When we researched the current pharmaceuticals model, public information highlighted the many side effects associated with such medications. Frequently, patients would stop taking the medication because of the uncomfortable side effects. Additional public information mentions dependency and withdrawal issues associated with medication for psychiatric disorders.
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 will prescribe the Nexalin Gen-3 headset to the patient for treatment. Next, the Gen-3 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 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 device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2024. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new symmetric15-milliamp waveform. Our Gen-2 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 are sustained.
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.
Recent Developments
Formalized Joint Venture; China Related Activities
On May 31, 2023, the Company formalized an agreement related to the formation of a joint venture (the “Joint Venture”) established 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 Joint Venture is registered in Hong Kong.
The Company has no employees or office in China and none of the Company’s operations are conducted in China. The Joint Venture does not maintain any variable interest entity structure or operate any data center in China.
Under the Joint Venture Agreement, Wider Come Limited (“Wider”), a related party, is obligated to fund 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 Joint Venture is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions. Wider and Nexalin own 52% and 48% of the Joint Venture, respectively. In accordance with ASC 323 and ASC 810, the Company recognized $4,851 and $0 of equity method investment income for the twelve months ended December 31, 2024 and 2023, respectively, from the Joint Venture on a one-quarter reporting lag, on the consolidated statements of operations and comprehensive loss.
As of the date of this Annual Report on Form 10-K (this “Report”), the Company issued 331,818 shares of common stock to Wider and affiliates of Wider in 2024, in satisfaction of obligations pursuant to their collaborative agreement and their continuing research and development efforts. A charge to research and development was recorded in 2023 at the time the Company recognized its obligation to issue the shares pursuant to the collaborative agreement. A charge to research and development was recorded in 2024 for the continuing research and development efforts.
The investment in the Joint Venture is accounted for using the equity method of accounting. As of December 31, 2024 and 2023 the Company had an Equity Method Investment of $864 and $96,000, respectively, recorded on the consolidated balance sheets. The Company invested $96,000 in the joint venture in September 2023 and Wider invested $104,000. In accordance with ASC 323, the Company uses the equity method of accounting for its investment in the Joint Venture, an unconsolidated entity over which it does not have a controlling interest. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the unconsolidated entity’s earnings or losses. The Company evaluates the carrying amount of this investment in the Joint Venture for impairment in accordance with ASC 323. If the Company determines that a loss in the value of the investment is other than temporary, the Company writes down the investment to its estimated fair value. Any such losses are recorded to equity in income of unconsolidated entities in the Company’s consolidated statements of operations and comprehensive loss. The Company has made an election to classify distributions received from the Joint Venture using the nature of the distribution approach. Distributions received are classified as cash inflows from operating activities based on the nature of the activities of the unconsolidated entity.
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.
Our participation in the Joint Venture with Wider in China is subject to general, as well as industry-specific, economic, political and legal developments and risks in China. The Chinese government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting monetary policy, controlling and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies and issuing necessary licenses to conduct business. In addition, we could face additional risks resulting from changes in China’s data privacy and cybersecurity requirements. Accordingly, any adverse change in the Chinese economy, the Chinese legal system or Chinese governmental, economic or other policies could have a material adverse effect on our business and operations of the Joint Venture in China and our prospects generally.
We face additional risks in China due to China’s historically limited recognition and enforcement of contractual and intellectual property rights. We may experience difficulty enforcing our intellectual property rights in China. If we cannot adequately monitor the use of our technologies and devices or enforce intellectual property rights related to our devices in China or contractual restrictions relating to use of our intellectual property by Chinese companies, our revenue could be adversely affected.
The Joint Venture with Wider is subject to laws and regulations applicable to foreign investment in China. There are uncertainties regarding the interpretation and enforcement of laws, regulations and policies in China. Because many of the laws, regulations and policies applicable to our operations in China are relatively new, the interpretations of such laws, regulations and policies are not always uniform. Moreover, the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. Enforcement of existing laws or contracts may be uncertain. As a result of the foregoing, it may be difficult for us to obtain timely or equitable enforcement of laws ostensibly designed to protect companies like ours, which could have a material adverse effect on our business and results of operations. Our ability to monetize the Joint Venture in China may also be limited.
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.
For the years ended December 31, 20242025 and 2023,2024, we generated $168,721approximately $302,000 and $110,748,$169,000 respectively, of revenue primarily from the sale of devices, suppliesDevices and from licensingLicensing 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 theto customer performs.customers. In addition, we derived revenue from equipmentEquipment by selling boards, electrodes and patient cables to customers for use with our device.devices. The approximate $133,000 increase in revenue for the year ended December 31, 20242025 compared to 2023the year ended December 31, 2024 was primarily due to an increase in Device sales of suppliesapproximately $81,000 due to increased units sold to international customers in 2025. In addition, Equipment sales increased by approximately $47,000 from increased sales of electrodes and parts.cables. Other revenue also increased by approximately $26,000 from shipping income and other miscellaneous service income during the year. This was offset by a decrease in Licensing fees of approximately $20,000.
For the years ended December 31, 20242025 and 2023,2024, cost of revenues werewas $36,593approximately $61,000 and $25,688,$37,000, respectively, yielding a gross profit of $132,128approximately $240,000 and $85,060,$132,000, respectively, or 78%80% and 77%,78% gross profit, respectively. The change in gross profit was not material based on the revenue levels at this time. The slight increase in gross marginprofit remainedwas consistenta yearresult overof year.the mix of revenue types during the periods.
Total operating expenses for the years ended December 31, 20242025 and 20232024 were $7,886,774approximately $8,631,000 and $5,781,356,$7,887,000, respectively.respectively, Thean increase of approximately $744,000, consisting of increases in; salaries and benefits expenses of approximately $379,000, selling, general and administrative expenses wasof dueapproximately primarily$169,000 to an increaseand in professional fees of approximately $392,000, an increase in salaries and benefitsexpenses of approximately $112,000,$303,000. anThis increase in travel expense of approximately $128,000 and an increase in stock compensation of approximately $2,247,000. These amounts werewas offset by a decrease in research and development costsexpenses of approximately $731,000, and a decrease in insurance of approximately $75,000.$107,000.
The salaries and benefits cost increases of approximately $379,000 were primarily attributable to additional compensation related to three new employees, bonuses and normal pay, taxes and benefit increase throughout the organization.
Selling, general and administrative cost increases of approximately $169,000 were due to increases of approximately $227,000 in consulting expenses for additional international distribution services and other advisory services, approximately $30,000 of increases in rent for additional space in 2025 and approximately $40,000 for the build out of a new website and marketing material, offset by decreases in insurance of approximately $50,000, in travel expenses of approximately $60,000. The remaining net decrease of approximately $17,000 was due to various immaterial changes in various accounts during the year.
The increase in professional fees of approximately $303,000 was primarily due to increases of approximately $45,000 in accounting, $90,000 in legal and $10,000 in printing. These increases are primarily attributable to increased services during the year from the capital raise and other registration statement activity. Additionally, there was an increase of approximately $177,000 for marketing and investor related activity. The remaining net decrease of approximately $19,000 was due to various immaterial changes in various accounts during the year.
Research and development costs decreased by approximately $107,000 from December 31, 2024 to December 31, 2025. The primary decrease was related to a one-time non-cash compensation charge in 2024 for approximately $400,000 for shares of common stock issued to our Joint Venture party, Wider, for research activities and a reduction of approximately $43,000 of decreased costs related to the SYNC desktop project. This was offset by increases to various research and development projects consisting of the following; increase of approximately $170,000 for development cost related to our virtual clinic APP, increase cost of approximately $109,000 associated with the HALO development project, and increase costs of approximately $51,000 for clinical trials (UCSD and Brazil). The remaining net increase of approximately $6,000 was due to various immaterial changes in various accounts during the year.
The increase in professional fees is due to an increase in shareholder related expenses of approximately $283,000 due to costs associated with investor relations, an increase in legal fees of approximately $45,000 and an executive search professional fee of $60,000. The increase in salaries and benefits is due to an increase in health insurance and an increase in employee bonuses. The increase in travel expense is primarily due to an increase in investor relation activities.
The increase in stock compensation is primarily related to compensating consultants with stock compensation upon shareholder approval of amending the Company Equity Plan. The decrease in research and development costs are primarily related to costs associated with clinical trials not incurred in 2024. The decrease in insurance is due to a reduction in our insurance premiums.
Other Income (Expense),Income, net
Other income (expense),income, net as of December 31, 20242025 and 2024 were $142,613approximately $170,000 and $1,047,587,$143,000 respectively, consisting of interest and dividend income,income and gain on the sale of short-term investments offset by interest expense.investments. The decreaseincrease in other income was primarily due to aan decreaseadjustment in thea gainsettlement onliability extinguishmentthat ofwas debtsettled in 2023.2025.
Current assets increased for the year ended December 31, 20242025 primarily as a result of an increase in short-term investments and cash and cash equivalents as a result of salea capital raise and use of equity.our CashATM andprogram. cashAccounts equivalentsreceivable decreased by approximately $6,000. Short-term investmentsalso increased byas approximatelya $537,000.result Prepaidof expensesadditional andrevenue othernear currentyear assets decreased by approximately $22,000.end.
Current liabilities increased for the year ended December 31, 2024.2025 Accountsdue to an accounts payable decreasedincrease approximatelyfrom $4,000,to accruedtiming expensesof payments. Accrued expense increased bydue approximatelyto $129,000additional bonuses earned and leasenot liabilitypaid –out currentat portionyear decreased by approximately $4,000.end.
“At-the-Market” Offering
On October 15, 2025, we entered into an Amendment No. 2 to that certain equity distribution agreement, dated April 29, 2025 (as amended by that certain Amendment No. 1 to the Equity Distribution Agreement, dated May 5, 2025, the “Equity Distribution Agreement”) with Maxim Group LLC (“Maxim”), under which we currently have the ability to issue and sell shares of our common stock, from time to time, through Maxim, up to an aggregate offering price of approximately $4,273,000 (“ATM”). During the year ended December 31, 2025 we sold 691,407 shares of our common stock for approximately $643,000 of gross proceeds. The total commissions and related legal and accounting fees were approximately $119,000 as of December 31, 2025 and we received net proceeds of approximately $524,000.
Subsequent to December 31, 2025, we have sold 1,395,300 shares of our common stock under this program for gross proceeds of approximately $780,000 and net proceeds of approximately $756,000.
As of March 23, 2026, we had remaining capacity to sell up to an additional approximate $2,850,000 worth of common stock under the ATM program.
Net cash used in operating activities was approximately $4,958,000 for the year ended December 31, 2025, as compared to $3,944,000 for the year ended December 31, 2024, an increase of approximately $1,014,000, which was primarily due to an increase in net loss of approximately $615,000, or approximately $1,121,000 adjusted for non-cash expenses. The remaining change was due to changes in operating assets and liabilities for the respective periods; a increase in accounts payable of approximately $92,000, a decrease in prepaid expenses and other current assets of approximately $91,000, increase in inventory of approximately $45,000, an increase in lease liability of approximately $4,000, an increase in accrued expenses of approximately $123,000 and decrease in accounts receivable of approximately $65,000.
Net cash used in operating activities was $3,944,390 for the year ended December 31, 2024, as compared to $3,835,384 for the respective period in 2023, which was primarily due to the net loss of $7,607,182, offset by an increase in accrued expenses and accrued expenses - related party of approximately $293,000, increases in stock compensation of approximately $1,147,000 and accounts payable and accounts payable - related party of approximately $495,000.
Net Cash Provided By (Used In) Investing Activities
Net cash used in investing activities during the year ended December 31, 2025, and 2024 was approximately $132,000 and $578,000, respectively. For the year ended December 31, 2025 this was due to short-term investment sales of approximately $40,725,000 offset by purchases of approximately $40,760,000 of short-term investments and the purchase of patents and trademarks of approximately $97,000. Net cash used in investing activities during the year ended December 31, 2024, of approximately $578,000 was due to short-term investment sales of approximately $33,224,000 offset by purchases of approximately $33,631,000 of short-term investments and the purchase of patents and trademarks of approximately $170,000.
Net cash provided by (used in) investing activities during the year ended December 31, 2024, and 2023 was $(577,539) and $4,452,872, respectively, which was due to short-term investment sales approximately $33.2 million offset by purchases of approximately $33.7 million of short-term investments for the year ended December 31, 2024.
Net Cash Provided by (Used In) Financing Activities
Net cash provided by (used in) financing activities during the year ended December 31, 20242025 and 20232024 was $4,516,184approximately $5,170,000 and $(200,000),$4,516,000, respectively,respectively. whichThe increase in 2025 was primarily due to thea issuancehigher level of common stock forsales, approximately $4.5 million fromincluding the Julyinitial 1, 2024 offering. The December 31, 2023 useutilization of cashour at-the-market (“ATM”) equity program in 2025, which was fornot autilized paymentin of note payable to an officer of the Company.2024.
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 Chinainternationally 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:
As of December 31, 2024,2025, the Company had a significant accumulated deficit of $84,645,231.approximately $92,867,000. For the year ended December 31, 2024,2025, the Company had a net loss fromof operationsapproximately $7,754,646$8,222,000 and negative cash flows from operations of $3,944,390.approximately The Company’s operating activities consume the majority of its cash resources.$4,958,000. The Company will continue to service existing customers in the United States.States as well as sell devices and equipment overseas. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans including clinical trials through 2025,2026 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.equity and utilization of our ATM program. As of December 31, 2024, the Company had cash and cash equivalents on hand of $574,485 and short-term investments of $2,905,438. As of March 12, 2025, the Company had cash and cash equivalents on hand of $592,514approximately $655,000 and short-term investments of $1,926,170.approximately $3,068,000. 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 theoverseas joint ventureopportunities 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 December 31, 20242025 and have concluded that we will not have sufficient cash and cash equivalents and short-term investments to satisfy our anticipated cash requirements for the next twelve months from the issuance of these consolidated 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 from the issuance of these consolidated financial statements. 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.
What changed in the latest 10-Q
Risk Factors
New heading “Our common stock is subject to a pending Nasdaq delisting proceeding, and if it is delisted the trading market for and value of our common stock would likely be materially and adversely affected.”
New heading “A delisting of our common stock would impair our ability to use our at-the-market offering program.”
New heading “We completed the acquisition of PONM, Inc. during the second quarter of 2026, and we may not realize the anticipated benefits of that acquisition or the related licensed technology.”
New heading “Our Board of Directors has approved a 30-to-1 reverse stock split that has not been effected, and a reverse stock split may not achieve its intended purpose and may adversely affect the liquidity and market price of our common stock.”
Largest changes
“Our common stock is subject to a pending Nasdaq delisting proceeding, and if it is delisted the trading market for and value of our common stock would likely be materially and adversely affected.”see in full comparison
“A delisting of our common stock would impair our ability to use our at-the-market offering program.”see in full comparison
“We cannot assure you that a reverse stock split would result in a closing bid price for our common stock at or above $1.00 per share, or that any such increase would be sustained for the minimum period required to regain compliance with the Nasdaq minimum bid price requirement. The market price of our common stock may decline following a reverse stock split, and the aggregate market value of our common stock may be lower than before the split. …”see in full comparison
“Our Board of Directors has approved a 30-to-1 reverse stock split that has not been effected, and a reverse stock split may not achieve its intended purpose and may adversely affect the liquidity and market price of our common stock.”see in full comparison
“On May 14, 2026, we acquired all of the outstanding equity interests of PONM, Inc. from GreenLight Ventures, LLC (“GLV”) for aggregate consideration of approximately $1.3 million payable in shares of our common stock. Substantially all of the value we acquired relates to an exclusive license to certain software and related intellectual property within specified fields of use, which we recorded as a finite-lived intangible asset with a carrying amount of approximately $700,000 that we are amortizing on a straight-line basis over an estimated useful life of seven years. …”see in full comparison
“We have historically funded our operations through equity financings, including sales of common stock under our ATM program. The ATM program is conducted under a registration statement on Form S-3, and our eligibility to use that form depends on the continued listing of our common stock on a national securities exchange. If the Nasdaq Hearings Panel does not grant our request for continued listing, or if we are otherwise unable to regain compliance with the Nasdaq continued listing requirements, we would expect to lose the ability to sell shares under the ATM program. …”see in full comparison
Full comparison: every changed paragraph (17)
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission on March 25, 2026, other than as set forth below. The risk factors described in that Annual Report, together with the additional and updated risk factors set forth below, could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock, and you should carefully consider all of them together with the other information in this Report
Our common stock is subject to a pending Nasdaq delisting proceeding, and if it is delisted the trading market for and value of our common stock would likely be materially and adversely affected.
On January 21, 2026, the Company received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2), which requires a minimum closing bid price of $1.00 per share. The Company was provided with an initial 180-calendar day compliance period, which expired on July 20, 2026.
On July 24, 2026, Nasdaq notified the Company that it had not regained compliance with the minimum bid price requirement and that the Company was not eligible for an additional 180-calendar day compliance period because it did not satisfy the minimum stockholders’ equity requirement for initial listing on The Nasdaq Capital Market. Nasdaq further advised the Company that, unless it timely requests a hearing before a Nasdaq Hearings Panel, trading of the Company’s common stock will be suspended, and Nasdaq will commence delisting proceedings.
The Company timely requested a hearing before the Nasdaq Hearings Panel. A timely hearing request will stay the suspension of the Company’s common stock and the delisting process pending the Panel’s decision. However, there can be no assurance that the Panel will grant the Company’s request for continued listing, that the Company will regain compliance with the applicable Nasdaq Listing Rules, or that the Company’s common stock will continue to be listed on The Nasdaq Capital Market.
If Nasdaq delists our common stock from trading on its exchange and we are not able to list our common stock on another national securities exchange, we expect our common stock could be quoted on an over-the-counter market. If this were to occur, we could face significant adverse consequences, including:
A delisting of our common stock would impair our ability to use our at-the-market offering program.
We have historically funded our operations through equity financings, including sales of common stock under our ATM program. The ATM program is conducted under a registration statement on Form S-3, and our eligibility to use that form depends on the continued listing of our common stock on a national securities exchange. If the Nasdaq Hearings Panel does not grant our request for continued listing, or if we are otherwise unable to regain compliance with the Nasdaq continued listing requirements, we would expect to lose the ability to sell shares under the ATM program. In that event, we would need to seek alternative sources of financing, which may not be available to us on acceptable terms or at all, particularly in light of the substantial doubt about our ability to continue as a going concern. Any resulting inability to raise capital would require us to delay, reduce or eliminate planned clinical, regulatory and product development activities, including our pivotal insomnia clinical trial, or to pursue other strategic alternatives.
We completed the acquisition of PONM, Inc. during the second quarter of 2026, and we may not realize the anticipated benefits of that acquisition or the related licensed technology.
On May 14, 2026, we acquired all of the outstanding equity interests of PONM, Inc. from GreenLight Ventures, LLC (“GLV”) for aggregate consideration of approximately $1.3 million payable in shares of our common stock. Substantially all of the value we acquired relates to an exclusive license to certain software and related intellectual property within specified fields of use, which we recorded as a finite-lived intangible asset with a carrying amount of approximately $700,000 that we are amortizing on a straight-line basis over an estimated useful life of seven years. We acknowledged in the Stock Purchase Agreement that the licensed software, standing alone, does not include all of the features, functionality, integrations or enhancements necessary to operate our business or commercialize our devices at scale, and that additional development and customization will be required, which we expect to obtain in whole or in part from GLV under the Collaboration Agreement. Accordingly, if the acquired technology does not perform as expected, if the license is terminated, narrowed or successfully challenged, or if GLV does not perform its development, maintenance and support obligations, we may be unable to complete the development of our Nexalin NeuroCare™ platform, may be required to recognize an impairment charge against the carrying amount of the intangible asset, and may not realize any of the benefits we expect from the transaction.
We depend on GLV for the continued development, maintenance and support of the acquired technology, and that relationship is a related party transaction. Dr. David Owens, a member of our Board of Directors and our Chief Medical Officer, holds a minority ownership interest in GLV. The Collaboration Agreement has an initial term of only 24 months, and we have no assurance that we will be able to extend it on acceptable terms or that we could replace GLV’s development and support services on a timely or cost-effective basis. Our rights to the acquired software are limited to a specified field of use, and GLV retains rights outside that field, which may limit our ability to expand the platform into other applications or to prevent GLV or its other licensees from developing competing capabilities.
In addition, approximately $387,000 of the purchase consideration remained unpaid as of June 30, 2026 and is payable in three further tranches of our common stock 90, 180 and 270 days after the closing date. The unissued shares are subject to down-round protection for certain issuances below the applicable per share price, equitable adjustment for stock splits, reverse stock splits, recapitalizations and similar capital adjustments, and delisting protection, in each case subject to a floor of $0.61 per share and a ceiling of $1.15 per share, and all remaining unissued shares accelerate upon a change of control. Because the number of shares ultimately issued will depend on our stock price and on these protective provisions, our stockholders may experience additional dilution, which could be substantial if our stock price declines, if we implement the reverse stock split authorized by our stockholders, or if our common stock is delisted.
Our Board of Directors has approved a 30-to-1 reverse stock split that has not been effected, and a reverse stock split may not achieve its intended purpose and may adversely affect the liquidity and market price of our common stock.
At our 2026 Annual Meeting of Stockholders, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation authorizing our Board of Directors, in its discretion, to effect one or more reverse stock splits of our issued and outstanding common stock at a ratio of any whole number between and including 1-for-2 and 1-for-100, provided that the aggregate of all reverse stock splits implemented under that authority does not exceed 1-for-250, and subject to the Board’s authority to abandon any such amendment. As of the date of this Report, the Board has approved a 30-to-1 ratio, but the reverse stock split has not been effected, and the Board may determine to effect the split at a different ratio, at a different time, or not at all.
We cannot assure you that a reverse stock split would result in a closing bid price for our common stock at or above $1.00 per share, or that any such increase would be sustained for the minimum period required to regain compliance with the Nasdaq minimum bid price requirement. The market price of our common stock may decline following a reverse stock split, and the aggregate market value of our common stock may be lower than before the split. In addition, regaining compliance with the minimum bid price requirement would not by itself resolve the pending delisting proceeding, because the Nasdaq Hearings Panel may require us to satisfy other continued or initial listing standards, including the minimum stockholders’ equity requirement that made us ineligible for a second automatic compliance period. A reverse stock split would also reduce the number of outstanding shares of our common stock, which could reduce trading liquidity, increase price volatility, increase the number of stockholders holding odd lots and increase transaction costs for those holders.
A reverse stock split would also require equitable adjustment of the remaining unissued Consideration Shares and the applicable per share price under the Stock Purchase Agreement, and would result in a proportionate adjustment to the shares reserved under our equity compensation plans and to the exercise prices and share amounts of our outstanding stock options. Because the applicable per share price under the Stock Purchase Agreement remains subject to a floor and a ceiling, the adjustment could affect the number of shares we ultimately issue as deferred purchase consideration.
This item is not required for a smaller reporting company.
Management's Discussion & Analysis (MD&A)
New heading “Acquisition of PONM, Inc:”
New heading “Comparison of the six months ended June 30, 2026 and 2025”
New heading “Material Cash Requirements”
Largest changes
“Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited domestic revenue primarily from legacy Gen-1 device licensing fees and electrode sales, as U.S. marketing of new Gen-1 devices has been paused following the FDA’s December 2019 reclassification of cranial electrotherapy stimulation devices and international sales of our Gen-2 device and supplies. …”see in full comparison
“The Company continues to face significant challenges, including recurring operating losses, negative operating cash flows and substantial doubt about its ability to continue as a going concern. In addition, the Company is working to regain compliance with Nasdaq’s continued listing requirements and continues to remediate material weaknesses in its internal control over financial reporting related to segregation of duties and information technology access controls. …”see in full comparison
“Our ability to raise capital, including through sales under the ATM program, depends in significant part on the continued listing of our common stock on The Nasdaq Capital Market. As described under “Minimum Bid Price Requirement” below, on July 24, 2026 we received a Staff Delisting Determination from Nasdaq and timely requested a hearing before the Nasdaq Hearings Panel, which is expected to stay any suspension of trading and delisting action pending the Panel’s decision. …”see in full comparison
“As of March 31, 2026, the Company had a significant accumulated deficit of approximately $94,964,000. For the three months ended March 31, 2026, the Company had a net loss from operations of approximately $2,120,000 and negative cash flows from operations of approximately $1,713,000. The Company will continue to service existing customers in the United States as well as sell devices and equipment overseas. The Company’s operating activities consume the majority of its cash resources. …”see in full comparison
see in full comparisonOur 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 overseas opportunities 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, managementManagement has evaluatedthe significance of thethese conditionsas of March 31, 2026andhaveconcluded thatwethewillCompany does not currently have sufficient cash and cash equivalentsand short-term investmentstosatisfyfundourits anticipatedcashoperating requirements fortheatnextleast twelve months from the date of issuance of these unaudited condensed consolidated financial statements.These plans were therefore determined not to be sufficient to overcome the presumption ofAccordingly, substantial doubt exists about the Company’s ability to continue as a goingconcern within twelve months from the issuance of these unaudited condensed consolidated financial statements.concern. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that mightberesultnecessary shouldfrom theCompanyoutcomebeofunablethisto continue as a going concern.uncertainty.
“The Company did not regain compliance with the minimum bid price requirement during the initial compliance period and does not currently satisfy the requirements for an automatic additional 180-calendar day compliance period. Accordingly, on July 24, 2026, the Company received a Staff Delisting Determination from Nasdaq. Upon receipt of such determination, the Company requested a hearing before the Nasdaq Hearings Panel. The hearing request is expected to stay any suspension of trading and delisting action pending the Panel’s decision.”see in full comparison
Full comparison: every changed paragraph (92)
Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited revenue primarily from legacy Gen-1 device licensing fees and electrode sales in the United States, as U.S. marketing of new Gen-1 devices has been paused following the U.S. Food and Drug Administration’s (“FDA”) December 2019 reclassification of cranial electrotherapy stimulation devices. The Company has also historically generated revenue from international sales of its Gen-2 device and related supplies, although it recorded no international revenue in the three or six months ended June 20, 2026.
The Company’s strategy is centered on an integrated technology platform consisting of three complementary components: (i) its proprietary Deep Intracranial Frequency Stimulation (DIFS™) neuromodulation technology, (ii) its HALO™ Clarity device platform, which is being evaluated for physician-supervised home use, and (iii) its Nexalin NeuroCare™ digital health platform, which supports patient engagement, remote monitoring, clinical workflow management, data collection and virtual care capabilities. Management believes integrating these technologies strengthens the Company’s clinical development programs, regulatory strategy and future commercialization efforts.
During fiscal year 2025 and the first six months of 2026, the Company continued to advance its product development and regulatory initiatives. The FDA formally accepted the Company’s Q-Submission for its Gen-2 SYNC system targeting Alzheimer’s disease and dementia, and the Company initiated its FDA-cleared clinical trial evaluating the Gen-3 HALO device for the treatment of insomnia, with patient recruitment currently underway. In addition, during the second quarter of 2026, the Company completed the acquisition of PONM, Inc., which included the acquisition of licensed software and related intellectual property that management believes will serve as the foundation for the continued development of the Company’s Nexalin NeuroCare™ platform and support future digital health initiatives.
Management’s strategic priorities include advancing the clinical development of its SYNC and HALO product candidates, pursuing FDA marketing authorization and CE marking for the SYNC, expanding the capabilities of its Nexalin NeuroCare™ platform, protecting and enhancing its intellectual property portfolio, and positioning the Company for future commercialization opportunities.
The Company continues to face significant challenges, including recurring operating losses, negative operating cash flows and substantial doubt about its ability to continue as a going concern. In addition, the Company is working to regain compliance with Nasdaq’s continued listing requirements and continues to remediate material weaknesses in its internal control over financial reporting related to segregation of duties and information technology access controls. The neurostimulation industry remains highly competitive and subject to rapid technological change, and the Company’s success will depend on, among other things, the successful execution of its clinical and regulatory strategy, the protection of its intellectual property, the continued development of its technology platform, and market acceptance of its products.
Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited domestic revenue primarily from legacy Gen-1 device licensing fees and electrode sales, as U.S. marketing of new Gen-1 devices has been paused following the FDA’s December 2019 reclassification of cranial electrotherapy stimulation devices and international sales of our Gen-2 device and supplies. During fiscal year 2025 and the first quarter of 2026, the Company advanced its next-generation product development, with the FDA formally accepting the Company’s Q-Submission for its Gen-2 SYNC system targeting Alzheimer’s disease and dementia, and clinical trials for the Gen-3 HALO device for insomnia in the United States. Management’s priorities include obtaining FDA clearance for its Gen-2 and Gen-3 devices and executing U.S. clinical trials. The Company faces significant challenges, including substantial doubt about its ability to continue as a going concern due to recurring losses and negative cash flows, a requirement to regain compliance with Nasdaq’s minimum bid price requirement, and material weaknesses in internal control over financial reporting related to segregation of duties and IT access controls. The neurostimulation industry remains competitive and subject to rapid technological change, and the Company’s success depends on its ability to obtain regulatory approvals, protect its intellectual property, and achieve market acceptance for its products.
Acquisition of PONM, Inc:
During the second quarter of 2026, the Company completed the acquisition of PONM, Inc. (“PONM”) and related licensed technology from GreenLight Ventures, LLC (“GLV”)). Management believes the acquisition expands the Company’s Nexalin NeuroCare™ digital health platform, which complements its proprietary Deep Intracranial Frequency Stimulation (DIFS™) technology and HALO™ Clarity device platform. The acquired software provides remote patient monitoring, clinical workflow management, physician oversight, clinical data collection and virtual care capabilities that management believes will support the Company’s ongoing clinical development programs, including its planned FDA pivotal trial of HALO™ Clarity, regulatory strategy and future commercialization efforts.
Additional information regarding the acquisition and the related accounting treatment is included in Note 4 to the accompanying unaudited condensed consolidated financial statements.
During the second quarter of 2026, the Company initiated its FDA-cleared clinical trial evaluating the Gen-3 HALO device for the treatment of insomnia under its De Novo regulatory pathway. Patient recruitment is currently underway, and the Company continues to work with its contract research organization, to conduct and manage the study.
The Company believes this clinical trial represents an important milestone in the continued development of the Gen-3 HALO device and is intended to support future regulatory submissions to the FDA. While there can be no assurance regarding the outcome or timing of the clinical trial or any future regulatory authorization, management believes the study is an important component of the Company’s strategy to expand the potential clinical applications of its proprietary DIFS™ technology and advance the commercialization of its products.
Management continues to advance development of its integrated technology platform, including DIFS™ neuromodulation technology, the HALO™ Clarity home-use therapy platform and the Nexalin NeuroCare™ digital health platform, in support of the Company’s planned FDA pivotal trial and long-term commercialization strategy.
On April,17, 2026, the Company entered into a Scope of Work (the “SOW”) with Lindus Health Limited (“Lindus Health”), a clinical research organization based in the United Kingdom. The SOW is governed by a Master Services Agreement (“MSA”) previously entered into between the parties and sets forth the terms under which Lindus Health will conduct the Company’s pivotal clinical trial for its HALO Clarity device (the “Pivotal Study”).
Under the SOW, the Company will pay Lindus Health direct fees in an aggregate amount of approximately $944,820, plus certain pass-through expenses. Payments of direct fees are structured on a milestone basis, and pass-through expenses are invoiced on a monthly basis.
The term of the SOW continues until completion of all services described therein, unless terminated earlier in accordance with the MSA. The SOW provides that certain changes to the Pivotal Study, such as addition of new clinical sites, increases in enrolled participants, protocol amendments after study start-up, amendments to critical analyses, extension of study duration, and requests for additional platform features or integrations, will require a change order, which may result in adjustments to the scope, budget, or timeline.
Comparison of the three months ended MarchJune 31,30, 2026 and 2025
Our financial results for the three months ended MarchJune 31,30, 2026 and 2025 are summarized as follows:
For the three months ended MarchJune 31,30, 2026 and 2025, we generated approximately $15,000$12,000 and $41,000,$71,000 respectively,of revenue, respectively. Revenue was derived primarily derived from licensing and treatment fee agreements with ourcustomers customers.and the sale of equipment and related accessories. Under theseour licensing arrangements, wecustomers chargeare generally charged a monthly licensing fee forover the durationterm of the agreement andand, mayin alsocertain collectcases, additional fees based on the number of treatments performedperformed. eachWe month. In addition, wealso generate revenue from the sale of equipment sales,and replacement components, including boards, electrodes,electrodes and patient cables used with our devices,cables, as well as related shipping income.charges.
The decrease in revenue for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, was primarily dueattributable to lower equipment sales to an international customer during the current period. WeRevenue expectfrom deviceequipment andsales, equipment-relatedparticularly revenueinternational tosales, continue tomay fluctuate significantly from period to period based on the timing, size and geographic mix of customer purchasing patterns, particularly with respect to international customers.orders.
For the three months ended MarchJune 31,30, 2026 and 2025, cost of revenues was approximately $2,000$3,000 and $14,000,$23,000, respectively, resulting in gross profit of approximately $13,000$9,000 and $27,000, respectively, and gross margins of 88% and 66%,$48,000, respectively. Gross margin was 75% for the three months ended June 30, 2026, compared to 68% for the same period in 2025. The increase in gross margin was primarily attributable to changes in revenue mix, as licensing feesrevenue comprisedrepresented a largergreater portionproportion of total revenue induring the current period and carrygenerally carries higher margins.margins than equipment sales.
We expect grossGross margins tomay continue to befluctuate influencedfrom byperiod to period based on the relative proportionmix of licensing revenue versusand device and equipment-relatedequipment salessales, inas futurewell periods.as the timing and volume of customer orders.
Total operating expenses for the three months ended MarchJune 31,30, 2026 and 2025 were approximately $2,133,000$2,256,000 and $2,039,000,$1,669,000, respectively, an increase of approximately $94,000.$587,000. The increase was primarily attributabledriven toby higher research and development expenses associated with the initiation and execution of our FDA insomnia clinical trial, increased professional fees related to strategic and increasedregulatory initiatives, and higher salaries and benefits, partially offset by decreases inlower selling, general and administrative expenses and research and development costs.expenses.
The increase in operating expenses reflects the Company’s continued transition from product development activities to execution of its clinical and strategic initiatives, including the FDA insomnia clinical trial, the acquisition of PONM, Inc., and ongoing regulatory and commercialization efforts.
Research and development expenses increased by approximately $339,000 compared to the prior-year period. The increase was primarily attributable to approximately $353,000 of additional clinical trial expenses related to the initiation and ongoing execution of our FDA insomnia clinical trial. In addition, research and development expenses increased by approximately $93,000 due to costs incurred to manufacture HALO™ devices for use in the clinical trial.
Professional fees increased by approximately $127,000, primarily due to higher marketing and investor relations expenses of approximately $145,000, partially offset by a decrease in accounting and legal fees of approximately $38,000. The remaining increase relates to changes in other immaterial expense categories.
Salaries and benefits increased by approximately $163,000, primarily attributable to headcount additions in the latter half of 2025, accrued bonuses recognized in the first quarter of 2026, and routine increases in wages, payroll taxes, and employee benefits.
Selling, general and administrative expenses decreased by approximately $136,000, primarily due to a decrease of approximately $158,000 in stock-based compensation recognized during the three months ended March 31, 2026 compared to the same period in the prior year. Consulting expenses also decreased by approximately $53,000, reflecting reduced international consulting activity. These decreases were partially offset by increases in regulatory and compliance costs of approximately $57,000, related to compliance audits and regulatory consulting, and an increase of approximately $18,000 in travel expenses.
ResearchThese andincreases developmentwere expensespartially decreasedoffset by approximately $60,000, primarily due to a reductiondecrease of approximately $209,000$70,000 in costs associated with the HaloHALO™ development project,project as the units haveprogram transitioned from product development into production for an upcomingto clinical trial,production, as well as a reduction of approximately $24,000$50,000 in costs related to theour SYNCUCSD Desktopclinical project.trial. TheseThe decreases were partially offset by anremaining increase of approximately $137,000$13,000 was attributable to various individually insignificant changes in clinicalother trial expensesresearch and approximately $36,000 in software development costs, including continued development of the app and EDC platform.activities.
We expect research and development expenses to fluctuate in future periods based on the timing and scope of clinical trials, as well as continued investment in our digital health software and platform development.platform.
Professional fees increased by approximately $229,000 compared to the prior-year period. The increase was primarily attributable to approximately $178,000 of higher accounting and legal fees, reflecting costs associated with the acquisition of PONM, Inc., additional SEC reporting and corporate governance activities, and other strategic initiatives. Professional fees also increased by approximately $49,000 due to higher marketing and investor relations expenses. The remaining increase of approximately $2,000 was attributable to changes in other individually immaterial expense categories.
Salaries and benefits expense increased by approximately $131,000 compared to the prior-year period. The increase was primarily attributable to additional personnel hired during the latter half of 2025, bonuses earned and accrued during the second quarter of 2026, and routine increases in salaries, payroll taxes and employee benefit costs.
Selling, general and administrative expenses decreased by approximately $111,000 compared to the prior-year period. The decrease was primarily attributable to approximately $164,000 lower stock-based compensation expense recognized during the three months ended June 30, 2026, compared to the same period in 2025. Consulting expenses also decreased by approximately $25,000, reflecting reduced international consulting activity, and travel expenses decreased by approximately $28,000.
These decreases were partially offset by an increase of approximately $82,000 in regulatory and compliance costs, primarily related to compliance audits, regulatory consulting, and activities supporting our FDA clinical and regulatory programs and CE Mark initiatives. In addition, depreciation and amortization expense increased by approximately $18,000, primarily due to the acquisition of licensed technology during the second quarter of 2026. The remaining net increase of approximately $6,000 was attributable to various individually immaterial changes in other operating expense categories.
Other income, net, for the three months ended MarchJune 31,30, 2026 and 2025 was approximately $23,000$8,000 and $24,000,$40,000, respectively, anda remaineddecrease consistentof betweenapproximately periods.$32,000. The decrease was primarily attributable to lower gains recognized on the sale of short-term investments during the current period. Other incomeincome, net, primarily consists of interest and dividend income, as well as gains recognized on the sale of short-term investments. We expect other income, net, to fluctuate in future periods based primarily on our cash balances, investment activity and prevailing interest rates.
Comparison of the six months ended June 30, 2026 and 2025
Our financial results for the six months ended June 30, 2026 and 2025 are summarized as follows:
Revenues
For the six months ended June 30, 2026 and 2025, we generated approximately $27,000 and $112,000 of revenue, respectively. Revenue was derived primarily from licensing and treatment fee agreements with customers and the sale of equipment and related accessories. Under our licensing arrangements, customers are generally charged a monthly licensing fee over the term of the agreement and, in certain cases, additional fees based on the number of treatments performed. We also generate revenue from the sale of equipment, replacement components, including boards, electrodes and patient cables, and related shipping charges.
The decrease in revenue for the six months ended June 30, 2026, compared to the same period in 2025, was primarily attributable to lower sales of equipment and accessories to an international customer during the current period. Revenue from equipment and accessory sales, particularly international sales, may fluctuate significantly from period to period based on the timing, size and geographic mix of customer orders.
Cost of Revenues and Gross Profit
For the six months ended June 30, 2026 and 2025, cost of revenues was approximately $5,000 and $37,000, respectively, resulting in gross profit of approximately $22,000 and $75,000, respectively. Gross margin was 81% for the six months ended June 30, 2026, compared to 67% for the same period in 2025. The increase in gross margin was primarily attributable to changes in revenue mix, as licensing revenue represented a greater proportion of total revenue during the current period and generally carries higher margins than equipment sales.
Gross margins are expected to continue to fluctuate from period to period based on the relative mix of licensing revenue and device and equipment sales, as well as the timing and volume of customer orders.
Operating Expenses
Total operating expenses for the six months ended June 30, 2026 and 2025 were approximately $4,389,000 and $3,707,000, respectively, an increase of approximately $682,000. The increase was primarily driven by higher research and development expenses associated with the initiation and execution of our FDA insomnia clinical trial, increased professional fees related to strategic and regulatory initiatives, and higher salaries and benefits, partially offset by lower selling, general and administrative expenses.
The increase in operating expenses reflects the Company’s continued transition from product development activities to execution of its clinical and strategic initiatives, including the FDA insomnia clinical trial, the acquisition of PONM, Inc., and ongoing regulatory and commercialization efforts.
Research and development expenses increased by approximately $279,000 compared to the prior-year period. The increase was primarily attributable to approximately $374,000 of additional clinical trial expenses related to the initiation and ongoing execution of our FDA insomnia clinical trial. In addition, research and development expenses increased by approximately $233,000 due to costs incurred to manufacture HALO™ devices for use in the clinical trial.
These increases were partially offset by a decrease of approximately $280,000 in costs associated with the HALO™ development project as the program transitioned from product development to clinical production, as well as a reduction of approximately $74,000 in costs related to our UCSD clinical trial. The remaining net increase of approximately $26,000 was attributable to various individually insignificant changes in other research and development activities.
We expect research and development expenses to fluctuate in future periods based on the timing and scope of our clinical trials and continued investment in our digital health software platform.
The Company also expects to continue investing in the integration and development of its Nexalin NeuroCare™ digital health platform, which management believes complements its neuromodulation technologies and supports future commercialization efforts.
Professional fees increased by approximately $356,000 compared to the prior-year period. The increase was primarily attributable to approximately $141,000 of higher accounting and legal fees, reflecting costs associated with the acquisition of PONM, Inc., additional SEC reporting and corporate governance activities, and other strategic initiatives. Professional fees also increased by approximately $194,000 due to higher marketing and investor relations expenses supporting the Company’s strategic growth and capital markets initiatives. The remaining increase of approximately $21,000 was attributable to various individually immaterial changes in other professional fee categories.
Salaries and benefits expense increased by approximately $295,000 compared to the prior-year period. The increase was primarily attributable to additional personnel hired during the latter half of 2025, bonuses earned and accrued during the six months ended June 30, 2026, and routine increases in salaries, payroll taxes and employee benefit costs.
Selling, general and administrative expenses decreased by approximately $248,000 compared to the prior-year period. The decrease was primarily attributable to approximately $321,000 of lower stock-based compensation expense recognized during the six months ended June 30, 2026, compared to the same period in 2025. Consulting expenses also decreased by approximately $78,000, reflecting reduced international consulting activity.
These decreases were partially offset by an increase of approximately $139,000 in regulatory and compliance costs, primarily related to compliance audits, regulatory consulting, and activities supporting our FDA clinical and regulatory programs and CE Mark initiatives. In addition, depreciation and amortization expense increased by approximately $24,000, primarily due to the acquisition of licensed technology during the second quarter of 2026. The remaining net decrease of approximately $12,000 was attributable to various individually immaterial changes in other operating expense categories.
Other Income, Net
Other income, net, for the six months ended June 30, 2026 and 2025 was approximately $31,000 and $64,000, respectively, a decrease of approximately $33,000. The decrease was primarily attributable to lower gains recognized on the sale of short-term investments during the current period. Other income, net, primarily consists of interest and dividend income, as well as gains recognized on the sale of short-term investments.
We expect other income, net, to fluctuate in future periods based primarily on our cash balances, investment activity, and prevailing interest rates.
Current assets decreased forduring the threesix months ended MarchJune 31,30, 2026, primarily due to decreases in short-term investments and cash and cash equivalents resulting from cashshort-term investments used in operating activities, partially offset by proceeds received from drawdownssales of common stock under our at-the-market (“ATM”) program.
Current liabilities decreasedincreased forduring the threesix months ended MarchJune 31,30, 2026, primarily due to the deferred share obligation recognized in connection with the May 14, 2026 acquisition of PONM, Inc., as well as increases in accrued expenses resulting from higher professional fees and clinical trial activities. These increases were partially offset by a decrease in accounts payable resulting from the timing of vendor payments.
We expect fluctuations in working capital to continue to fluctuate in future periods tobased be driven byon the timing of operating expenditures, vendor payments, and capital raisingcapital-raising activities, including potential continuedfuture usesales ofunder theour ATM program.
On October 15, 2025, we entered into the Second Amendment to the Original Agreement with Maxim, underpursuant to which we currentlywere have the abilityauthorized to issueoffer and sell shares of our common stock,stock from time to time,time through Maxim,Maxim up tofor an aggregate offering priceamount of up to approximately $4,273,000.$4,273,000, subject to applicable securities laws and stock exchange requirements.
NXL insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding NXL (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 75,398 | $24.9K | 0.0% | New position |
| Renaissance Technologies | 2026-06-30 | 10,676 | $3.7K | — | Sold out |