Nexalin Technology Inc.
11/12/2026 | Press release | Distributed by Public on 11/12/2026 16:01
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
You should read the following discussion and analysis of financial condition and operating results together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Report and our audited 2025 consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 25, 2026.
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. Our actual results may differ materially from those anticipated in these forward-looking statements. Important factors that could cause such differences include, among others, our ability to continue as a going concern and to obtain additional financing; our ability to regain and maintain compliance with Nasdaq's continued listing requirements, including the minimum stockholders' equity requirement; the timing, cost and outcome of our pivotal insomnia clinical trial, including the effects of the transition to a new clinical research organization; our ability to obtain regulatory authorizations for our product candidates; the development and integration of the Nexalin NeuroCare™ platform; dilution resulting from our financing arrangements; and the other factors described under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 and in Part II, Item 1A of this Report. For convenience of presentation some of the numbers have been rounded in the text below.
Overview
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 FDA's December 2019 reclassification of cranial electrotherapy stimulation devices. The Company has also historically generated revenue from international sales of its clinical devices, boards and related supplies. During the third quarter of 2026, the Company recognized international revenue from the sale of component boards to an unrelated customer in China.
The Company entered into an exclusive distribution agreement intended to support the potential commercialization of its SYNC device in Brazil and certain other Latin American markets, subject to applicable regulatory authorizations and other conditions, See "Recent Developments" below.
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 is intended to support patient engagement, remote monitoring, clinical workflow management, data collection and virtual care capabilities. Management believes that integrating these technologies may strengthen the Company's clinical development programs, regulatory strategy and future commercialization efforts.
During fiscal year 2025 and the first nine months of 2026, the Company continued to advance its product-development and regulatory initiatives. The FDA formally accepted the Company's Q-Submission related to its SYNC system for the potential treatment of Alzheimer's disease and dementia. The Company also initiated a pivotal clinical trial evaluating its HALO device for the treatment of insomnia, and preliminary patient recruitment and enrollment activities are underway. During the third quarter of 2026, the Company transitioned certain clinical research organization responsibilities for the insomnia trial to Curavit Clinical Research, Inc. as part of its ongoing management of the study. The transition and related study-management activities may affect the timing of patient enrollment and completion of the trial.
In addition, during the second quarter of 2026, the Company completed the acquisition of PONM, Inc., and acquired certain software and related intellectual property that management believes will serve as the foundation for the continued development of the 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 applicable regulatory authorizations, including FDA marketing authorization for the HALO device and CE marking for the SYNC system, expanding the capabilities of the Nexalin NeuroCare™ platform, protecting and enhancing its intellectual-property portfolio, and positioning the Company for future commercialization opportunities. There can be no assurance that the Company's clinical trials or regulatory initiatives will be completed within currently anticipated timeframes or result in regulatory authorization.
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. The Company will require additional capital to fund its clinical, regulatory, product-development and operating activities. On September 25, 2026, the Nasdaq Hearings Panel (the "Panel") granted the Company's request for continued listing, subject to specified compliance conditions. On September 30, 2026, Nasdaq confirmed that the Company had regained compliance with the minimum bid price requirement. The Company's continued listing remains subject to demonstrating compliance with Nasdaq's minimum stockholders' equity requirement of $2.5 million on or before January 4, 2027. As of September 30, 2026, the Company's stockholders' equity was approximately $263,000. The Company also 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, its ability to obtain additional financing, successfully execute its clinical and regulatory strategy, protect its intellectual property, continue developing its technology platform and achieve market acceptance of its products.
Recent Developments
Acquisition of PONM, Inc.:
During the second quarter of 2026, the Company acquired PONM, Inc. and certain rights to related technology licensed from GreenLight Ventures, LLC. The acquired software is intended to support the continued development of the Company's Nexalin NeuroCare™ digital health platform. Additional information concerning the acquisition and its accounting treatment is included in Note 4 to the accompanying unaudited condensed consolidated financial statements.
Latin America Distribution Agreement:
On September 28, 2026, the Company entered into an exclusive distribution agreement, effective September 22, 2026, with the founders acting on behalf of Inovanexa Medical Technologies S.A., a Brazilian corporation in formation (the "Distributor"), for the importation, distribution, marketing and sale of our SYNC device and related accessories and consumables in Brazil, Chile, Argentina, Uruguay, Paraguay, Ecuador and Venezuela. The agreement has an initial term of ten years and automatically renews for successive ten-year periods, subject to the Distributor's satisfaction of specified performance requirements and the other terms and conditions of the agreement.
The agreement provides for an initial pilot program in Brazil and requires an initial purchase order for five SYNC devices at $15,000 per device, followed by an additional purchase order for five devices within twelve months after commencement of the pilot program.
To maintain exclusivity, the Distributor must generate aggregate revenue to us of at least $500,000 within 30 months following commencement of the pilot program and at least $500,000 annually thereafter. Failure to satisfy the applicable performance requirements may result in the loss of exclusivity or termination of the agreement in accordance with its terms. These thresholds are performance conditions for maintaining exclusivity and do not represent unconditional minimum purchase commitments or assured future revenue.
Commercial sales are subject to applicable regulatory approvals and other conditions. During an initial 30-month transition period, the existing Brazilian regulatory holder is expected to continue holding the applicable ANVISA authorizations while the parties cooperate regarding their potential transfer or replacement. The Distributor is responsible for obtaining and maintaining required regulatory approvals following the transition period, subject to the agreement.
The agreement also contemplates potential local manufacturing and assembly of SYNC devices and consumables in Brazil. Any such activities require a separate licensing and manufacturing agreement and satisfaction of applicable regulatory and quality requirements. We expect the distribution arrangement to support our international commercialization efforts, although the timing and amount of future revenue will depend on regulatory requirements, market demand and the Distributor's performance.
Insomnia Clinical Study:
During the second quarter of 2026, the Company initiated a pivotal clinical trial evaluating its HALO device for the treatment of insomnia. Preliminary patient recruitment and enrollment activities have commenced. During the third quarter of 2026, the Company transitioned certain clinical research organization responsibilities for the trial to Curavit Clinical Research, Inc. The transition and related study-management activities may affect the timing of patient enrollment and completion of the trial. The trial is intended to support a planned De Novo submission to the FDA; however, there can be no assurance regarding the timing or outcome of the trial or any resulting regulatory submission or authorization.
Recent Financing Transactions:
On August 19, 2026, the Company completed a registered direct offering (the "RDO") pursuant to which it issued 80,645 shares of common stock and in a concurrent private placement, warrants to purchase 40,323 shares of common stock. The securities were issued at a combined offering price of $9.30 per share of common stock and accompanying warrant, resulting in gross proceeds of approximately $750,000 and net proceeds of approximately $656,000, after deducting placement-agent fees and other offering expenses. The warrants are immediately exercisable at an exercise price of $15.00 per share and expire one year following issuance. All share and per-share amounts reflect the Company's one-for-thirty reverse stock split.
Also on August 19, 2026, the Company entered into an Any Market Purchase Agreement (the "AMPA") with Alumni Capital LP, pursuant to which the Company may, subject to the satisfaction of specified conditions, direct the investor to purchase up to an aggregate of $15.0 million of the Company's common stock from time to time through December 31, 2027. The amount and timing of any sales under the AMPA are subject to various conditions and limitations, including the effectiveness of an applicable resale registration statement, market-price and trading-volume limitations, Nasdaq requirements and other contractual conditions. As of September 30, 2026, the Company had received no proceeds from sales under the AMPA. There can be no assurance as to the amount or timing of any proceeds that may become available under the AMPA.
On August 21, 2026, the Company issued an unsecured promissory note to Streeterville Capital, LLC (the "Promissory Note") with an original principal amount of $1.17 million. The Company received cash proceeds of $1.0 million. The difference between the principal amount and the cash proceeds consists of a $150,000 original issue discount and $20,000 of lender transaction costs.
The Promissory Note does not bear stated interest before an event of default and matures six months after its funding date. The Company may voluntarily prepay the Promissory Note without penalty or premium. The Promissory Note also requires the Company to apply 20% of the proceeds received from certain financing transactions toward repayment of the outstanding balance within three trading days. Subject to the lender's written consent, the maturity date may be extended for up to two additional three-month periods, with the outstanding balance increasing by 7.5% at the beginning of each extension period. Upon certain events of default, the outstanding balance may increase and default interest may accrue at the lesser of 18% per annum or the maximum rate permitted by applicable law.
The Company recorded the $170,000 difference between the principal amount and the cash proceeds, along with an additional approximate $100,000 of financing fees, as a debt discount, which is being amortized to interest expense over the contractual term of the Promissory Note using the effective-interest method. Additional information regarding the Promissory Note is included in Note 7 to the accompanying unaudited condensed consolidated financial statements.
Subsequent to September 30, 2026, the Company sold 219,593 shares of common stock under its at-the-market offering program (the "ATM Program"), generating gross proceeds of approximately $1,900,000 and net proceeds of approximately $1,644,000, after deducting sales-agent commissions and other issuance costs, including the fee payable to Alumni Capital LP in connection with its waiver of restrictions on ATM sales. In connection with these sales, the Company made a mandatory prepayment of approximately $378,000 under its unsecured promissory note, reducing the outstanding principal balance to approximately $792,000.
Results of Operations
Comparison of the three months ended September 30, 2026 and 2025
Our financial results for the three months ended September 30, 2026 and 2025 are summarized as follows:
|
Three Months Ended September 30, |
||||||||||||||||
| 2026 | 2025 | Change | Change(1) | |||||||||||||
| $ | % | |||||||||||||||
| Revenues, net | $ | 78,301 | $ | 18,149 | $ | 60,152 | 331 | % | ||||||||
| Cost of revenues | 22,620 | 3,948 | 18,672 | 473 | % | |||||||||||
| Gross profit | 55,681 | 14,201 | 41,480 | 292 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 517,576 | 265,149 | 252,427 | 95 | % | |||||||||||
| Salaries and benefits | 496,836 | 448,084 | 48,752 | 11 | % | |||||||||||
| Selling, general and administrative | 1,430,732 | 1,420,079 | 10,653 | 1 | % | |||||||||||
| Research and development | 219,834 | 226,520 | (6,686 | ) | (3 | %) | ||||||||||
| Total operating expenses | 2,664,978 | 2,359,832 | 305,146 | 13 | % | |||||||||||
| Loss from operations | (2,609,297 | ) | (2,345,631 | ) | (263,666 | ) | 11 | % | ||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest income (expense), net | (52,771 | ) | 2,288 | (55,059 | ) | (2406 | %) | |||||||||
| Gain on sale of short-term investments | - | 46,774 | (46,774 | ) | (100 | %) | ||||||||||
| Other income | - | 20,258 | (20,258 | ) | (100 | %) | ||||||||||
| Total other income (expense), net | (52,771 | ) | 69,320 | (122,091 | ) | (176 | %) | |||||||||
| Loss before provision for income taxes | $ | (2,662,068 | ) | $ | (2,276,311 | ) | $ | (385,757 | ) | 17 | % | |||||
| Provision for income taxes | - | - | - | 0 | % | |||||||||||
| Loss before equity in net loss of affiliate | (2,662,068 | ) | (2,276,311 | ) | (385,757 | ) | 17 | % | ||||||||
| Equity in net loss of affiliate | - | - | - | 0 | % | |||||||||||
| Net loss | $ | (2,662,068 | ) | $ | (2,276,311 | ) | $ | (385,757 | ) | 17 | % | |||||
| Other comprehensive loss: | ||||||||||||||||
| Other comprehensive loss on short-term investments, net of reclassification adjustments | - | (1,461 | ) | 1,461 | (100 | %) | ||||||||||
| Comprehensive loss | $ | (2,662,068 | ) | $ | (2,277,772 | ) | $ | (384,296 | ) | 17 | % | |||||
| (1) | Percentages may not foot due to rounding. |
Revenues
For the three months ended September 30, 2026, revenue increased by approximately $60,000, or 331%, to approximately $78,000, compared to approximately $18,000 for the same period in 2025. The increase was primarily attributable to sales of component boards to an unrelated international customer.
Revenue was derived primarily from licensing and treatment fee agreements and sales of equipment, replacement components and related accessories. Under our licensing arrangements, customers are generally charged a monthly licensing fee and, in certain cases, additional fees based on the number of treatments performed. Replacement components and accessories include boards, electrodes and patient cables. We also charge customers for related shipping costs.
Revenue from equipment and component 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 three months ended September 30, 2026 and 2025, cost of revenues was approximately $23,000 and $4,000, respectively, resulting in gross profit of approximately $56,000 and $14,000, respectively. Gross margin decreased to 71% from 78%, primarily due to changes in revenue mix. Component board sales represented a greater proportion of total revenue during the current period and generally carry lower margins than licensing revenue and other equipment sales.
Gross margins may continue to fluctuate from period to period based on the relative mix of licensing revenue, equipment and component board sales, as well as the timing and volume of customer orders.
Operating Expenses
Total operating expenses increased by approximately $305,000, or 13%, to approximately $2,665,000 for the three months ended September 30, 2026, compared to approximately $2,360,000 for the same period in 2025. The increase was primarily driven by higher professional fees and salaries and benefits.
Operating expenses reflect the Company's continued execution of its clinical, regulatory and commercialization initiatives, including the pivotal insomnia clinical trial.
Professional fees increased by approximately $252,000, or 95%, compared to the prior-year period. The increase primarily consisted of approximately $75,000 in higher accounting, legal and related professional fees associated with SEC reporting, corporate governance and strategic initiatives, and approximately $170,000 in higher marketing and investor relations expenses. The remaining increase of approximately $7,000 reflected changes in other individually immaterial expense categories.
Salaries and benefits increased by approximately $49,000, or 11%, compared to the prior-year period. The increase was primarily attributable to bonuses earned and accrued during the third quarter of 2026, and increases in salaries, payroll taxes and employee benefit costs.
Selling, general and administrative expenses increased by approximately $11,000, or 1%, compared to the prior-year period. Higher regulatory and compliance expenses of approximately $195,000, primarily related to the CE marking application and audits, were substantially offset by approximately $160,000 in lower stock-based compensation expense and approximately $24,000 in decreases across other individually immaterial expense categories.
Research and development expenses decreased by approximately $7,000, or 3%, compared to the prior-year period. The decrease primarily reflected approximately $117,000 in lower HALO™ device development expenditures and approximately $26,000 in lower spending on other research and development projects. These decreases were offset by approximately $136,000 in higher clinical trial-related expenses, including costs associated with the pivotal insomnia clinical trial and manufacturing HALO™ devices for use in the trial.
We expect research and development expenses to fluctuate in future periods based on the timing and scope of clinical trials and continued investment in our digital health software platform.
Other Income (Expense), Net
Other expense, net, was approximately $53,000 for the three months ended September 30, 2026, compared to other income, net, of approximately $69,000 for the same period in 2025, an unfavorable change of approximately $122,000. The change primarily reflected approximately $53,000 of amortization of debt discount and debt issuance costs associated with the unsecured promissory note issued in August 2026, approximately $47,000 in lower gains on sales of short-term investments, approximately $20,000 in lower other income and approximately $2,000 in lower interest income.
We expect other income (expense), net, to fluctuate in future periods based on outstanding indebtedness and related financing costs, cash and investment balances, investment activity and prevailing interest rates.
Comparison of the nine months ended September 30, 2026 and 2025
Our financial results for the nine months ended September 30, 2026 and 2025 are summarized as follows:
|
Nine Months Ended September 30, |
||||||||||||||||
| 2026 | 2025 | Change | Change(1) | |||||||||||||
| $ | % | |||||||||||||||
| Revenues, net | $ | 105,412 | $ | 129,752 | $ | (24,340 | ) | (19 | %) | |||||||
| Cost of revenues | 27,701 | 40,344 | (12,643 | ) | (31 | %) | ||||||||||
| Gross profit | 77,711 | 89,408 | (11,697 | ) | (13 | %) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 1,420,316 | 811,562 | 608,754 | 75 | % | |||||||||||
| Salaries and benefits | 1,497,113 | 1,153,843 | 343,270 | 30 | % | |||||||||||
| Selling, general and administrative | 3,006,100 | 3,243,135 | (237,035 | ) | (7 | %) | ||||||||||
| Research and development | 1,130,696 | 858,582 | 272,114 | 32 | % | |||||||||||
| Total operating expenses | 7,054,225 | 6,067,122 | 987,103 | 16 | % | |||||||||||
| Loss from operations | (6,976,514 | ) | (5,977,714 | ) | (998,800 | ) | 17 | % | ||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest income (expense), net | (52,608 | ) | 8,081 | (60,689 | ) | (751 | %) | |||||||||
| Gain on sale of short-term investments | 29,041 | 99,331 | (70,290 | ) | (71 | %) | ||||||||||
| Other income | 2,006 | 25,715 | (23,709 | ) | (92 | %) | ||||||||||
| Total other income (expense), net | (21,561 | ) | 133,127 | (154,688 | ) | (116 | %) | |||||||||
| Loss before provision for income taxes | $ | (6,998,075 | ) | $ | (5,844,587 | ) | $ | (1,153,488 | ) | 20 | % | |||||
| Provision for income taxes | - | - | - | 0 | % | |||||||||||
| Loss before equity in net earnings (loss) of affiliate | (6,998,075 | ) | (5,844,587 | ) | (1,153,488 | ) | 20 | % | ||||||||
| Equity in net earnings (loss) of affiliate | - | (1,048 | ) | 1,048 | (100 | %) | ||||||||||
| Net loss | $ | (6,998,075 | ) | $ | (5,845,635 | ) | $ | (1,152,440 | ) | 20 | % | |||||
| Other comprehensive loss: | ||||||||||||||||
| Other comprehensive loss on short-term investments, net of reclassification adjustments | (406 | ) | (119 | ) | (287 | ) | 241 | % | ||||||||
| Comprehensive loss | $ | (6,998,481 | ) | $ | (5,845,754 | ) | $ | (1,152,727 | ) | 20 | % | |||||
| (1) | Percentages may not foot due to rounding. |
Revenues
For the nine months ended September 30, 2026, revenue decreased by approximately $24,000, or 19%, to approximately $105,000, compared to approximately $130,000 for the same period in 2025. The decrease primarily reflected approximately $12,000 in lower shipping revenue, approximately $7,000 in lower licensing fees and a net decrease of approximately $5,000 in equipment, accessory and component board sales.
Revenue was derived primarily from licensing and treatment fee agreements and sales of equipment, replacement components and related accessories. Under our licensing arrangements, customers are generally charged a monthly licensing fee and, in certain cases, additional fees based on the number of treatments performed. Replacement components and accessories include boards, electrodes and patient cables. We also charge customers for related shipping costs.
Revenue from equipment and component 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 nine months ended September 30, 2026 and 2025, cost of revenues was approximately $28,000 and $40,000, respectively, resulting in gross profit of approximately $78,000 and $89,000, respectively. Gross margin increased to 74% from 69%, primarily due to changes in the mix of licensing revenue, equipment, accessories and component board sales.
Gross margins may continue to fluctuate from period to period based on revenue mix and the timing and volume of customer orders.
Operating Expenses
Total operating expenses increased by approximately $987,000, or 16%, to approximately $7,054,000 for the nine months ended September 30, 2026, compared to approximately $6,067,000 for the same period in 2025. The increase was primarily driven by higher professional fees, salaries and benefits, and research and development expenses, partially offset by lower selling, general and administrative expenses.
Operating expenses reflect the Company's continued execution of its clinical and strategic initiatives, including the pivotal insomnia clinical trial, the acquisition of PONM, Inc., and ongoing regulatory and commercialization efforts.
Professional fees increased by approximately $609,000, or 75%, compared to the prior-year period. The increase primarily consisted of approximately $203,000 in higher accounting and legal fees associated with the acquisition of PONM, Inc., SEC reporting, corporate governance and other strategic initiatives, and approximately $364,000 in higher marketing and investor relations expenses. The remaining increase of approximately $42,000 reflected changes in other individually immaterial professional fee categories.
Salaries and benefits increased by approximately $343,000, or 30%, compared to the prior-year period. The increase was primarily attributable to personnel hired during the latter half of 2025, bonuses earned and accrued during the nine months ended September 30, 2026, and increases in salaries, payroll taxes and employee benefit costs.
Research and development expenses increased by approximately $272,000, or 32%, compared to the prior-year period. The increase primarily reflected a net increase of approximately $671,000 in clinical trial expenses, consisting of approximately $424,000 in additional costs associated with initiating and executing the pivotal insomnia clinical trial and approximately $316,000 in costs to manufacture HALO™ devices for use in the trial, partially offset by approximately $69,000 in lower UCSD and Brazil clinical trial expenses.
The net increase in clinical trial expenses was partially offset by approximately $396,000 in lower HALO™ development expenditures as the program transitioned from product development to clinical production and approximately $3,000 in other net decreases in research and development expenses.
We expect research and development expenses to fluctuate in future periods based on the timing and scope of clinical trials and continued investment in our digital health software platform. We also expect to continue investing in the integration and development of the Nexalin NeuroCare™ digital health platform, which management believes complements our neuromodulation technologies and supports future commercialization efforts.
Selling, general and administrative expenses decreased by approximately $237,000, or 7%, compared to the prior-year period. The decrease primarily reflected approximately $481,000 in lower stock-based compensation expense, approximately $55,000 in lower consulting expenses associated with reduced international consulting activity, approximately $25,000 in lower insurance expenses and approximately $30,000 in lower supplies expenses.
These decreases were partially offset by approximately $334,000 in higher regulatory and compliance costs associated with compliance audits, regulatory consulting, clinical and regulatory programs, and CE marking initiatives. Depreciation and amortization expense also increased by approximately $55,000, primarily due to the acquisition of licensed technology during the second quarter of 2026. The remaining net decrease of approximately $35,000 reflected changes in other individually immaterial expense categories.
Other Income (Expense), Net
Other expense, net, was approximately $22,000 for the nine months ended September 30, 2026, compared to other income, net, of approximately $133,000 for the same period in 2025, an unfavorable change of approximately $155,000. The change primarily reflected approximately $70,000 in lower gains on sales of short-term investments, an unfavorable change of approximately $61,000 in interest income (expense), net, and approximately $24,000 in lower other income. The change in interest income (expense), net, primarily reflected approximately $53,000 of amortization of debt discount and debt issuance costs associated with the unsecured promissory note issued in August 2026, together with lower interest income.
We expect other income (expense), net, to fluctuate in future periods based on outstanding indebtedness and related financing costs, cash and investment balances, investment activity and prevailing interest rates.
Liquidity and Capital Resources
Working Capital
|
September 30, 2026 |
December 31, 2025 |
|||||||
| Current assets | $ | 1,891,638 | $ | 4,299,270 | ||||
| Current liabilities | 2,760,791 | 887,333 | ||||||
| Working capital | $ | (869,153 | ) | $ | 3,411,937 | |||
As of September 30, 2026, we had a working capital deficit of approximately $869,000, compared to working capital of approximately $3,412,000 at December 31, 2025, a decrease of approximately $4,281,000.
Current assets decreased by approximately $2,407,000 during the nine months ended September 30, 2026, primarily due to the use of cash and short-term investments to fund operating activities, including clinical trial, product development and professional service expenditures. These decreases were partially offset by proceeds from sales of common stock under the Company's ATM Program, the registered direct offering and the issuance of the unsecured promissory note, as well as increases in prepaid expenses and other current assets, inventory and accounts receivable.
Current liabilities increased by approximately $1,873,000 during the nine months ended September 30, 2026, primarily due to the recognition of approximately $953,000 of note payable, net of debt discount and issuance costs, a $300,000 commitment-fee liability, approximately $209,000 of deferred share liability associated with the acquisition of PONM, Inc., and an increase of approximately $396,000 in accounts payable. The remaining increase primarily reflected approximately $11,000 of current operating lease liabilities and approximately $4,000 of additional accrued expenses.
The Company expects its working capital to continue to fluctuate based on the timing and level of clinical, regulatory, product development and other operating expenditures; the timing of vendor invoices and payments; and its ability to obtain additional financing. Potential sources of financing include sales under the ATM Program and the AMPA, to the extent available. The amount and timing of financing under these arrangements are subject to applicable offering limits, contractual restrictions, market conditions, trading volume, the market price of the Company's common stock, regulatory requirements and other applicable conditions. Accordingly, there can be no assurance that the Company will obtain sufficient proceeds under these arrangements or from other financing sources.
"At-the-Market" Offering
On April 29, 2025, we entered into an equity distribution agreement with Maxim Group LLC ("Maxim"), as amended on May 5, 2025 and October 15, 2025, pursuant to which we are authorized to offer and sell shares of our common stock from time to time through Maxim for an aggregate offering amount of up to approximately $4,273,000, subject to applicable securities laws and stock exchange requirements.
During the nine months ended September 30, 2026, we sold 63,035 shares of our common stock under the ATM Program, generating net proceeds of approximately $876,000.
As of September 30, 2026, we have sold 86,082 shares of our common stock under the ATM Program for gross proceeds of approximately $1,634,000. After giving effect to the sales subsequent to September 30, 2026 described below, the Company currently has no availability under the ATM Program because of the limitations of General Instructions I.B.6. of Form S-3; any future sales would require availability to be restored and satisfaction of applicable conditions.
Subsequent to September 30, 2026, the Company sold 219,593 shares of common stock under its at-the-market offering program, generating gross proceeds of approximately $1,900,000 and net proceeds of approximately $1,644,000, after deducting sales-agent commissions and other issuance costs. These issuance costs included a fee of approximately $189,000 payable to Alumni Capital LP under a side letter waiving restrictions on sales under the ATM Program. See Note 12, Subsequent Events, to the accompanying condensed consolidated financial statements.
Cash Flows
The following table summarizes our consolidated cash flows for the nine months ended September 30, 2026 and 2025:
|
September 30, 2026 |
September 30, 2025 |
|||||||
| Net cash used in operating activities | $ | (5,102,420 | ) | $ | (3,809,636 | ) | ||
| Net cash provided by (used in) investing activities | $ | 2,925,832 | $ | (821,171 | ) | |||
| Net cash provided by financing activities | $ | 2,314,944 | $ | 4,646,397 | ||||
Net Cash Used In Operating Activities
Net cash used in operating activities was approximately $5,102,000 for the nine months ended September 30, 2026, compared to approximately $3,810,000 for the corresponding period in 2025, an increase of approximately $1,292,000. The increase primarily reflected a higher net loss of approximately $1,152,000 and approximately $297,000 in lower net noncash adjustments, principally due to lower stock-based compensation expense. These changes were partially offset by approximately $157,000 in lower cash used for changes in operating assets and liabilities.
During the 2026 period, changes in operating assets and liabilities primarily included cash used for increases in prepaid expenses and other current assets of approximately $297,000, inventory of approximately $76,000 and accounts receivable of approximately $37,000. These uses of cash were partially offset by an increase in accounts payable of approximately $396,000. The increase in prepaid expenses and other current assets primarily reflected advance payments for the Company's pivotal insomnia clinical trial and other research and development activities.
Net Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities was approximately $2,926,000 for the nine months ended September 30, 2026, compared to net cash used in investing activities of approximately $821,000 for the corresponding period in 2025, a favorable change of approximately $3,747,000. The change primarily reflected approximately $27,004,000 in lower purchases of short-term investments, partially offset by approximately $23,149,000 in lower proceeds from sales and maturities of short-term investments.
Investing activities during the 2026 period also included approximately $49,000 in equipment purchases and approximately $122,000 in purchases of patents and trademarks, compared to no equipment purchases and approximately $63,000 in purchases of patents and trademarks during the corresponding period in 2025.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was approximately $2,315,000 for the nine months ended September 30, 2026, compared to approximately $4,646,000 for the corresponding period in 2025, a decrease of approximately $2,331,000. Financing activities during the 2026 period included approximately $876,000 in net proceeds from sales of common stock under the ATM Program, approximately $656,000 in net proceeds from the registered direct offering and $1,000,000 in proceeds from issuance of the unsecured promissory note. These inflows were partially offset by approximately $100,000 in payments of debt issuance costs, $113,000 in payments of deferred offering costs and $3,000 paid in lieu of fractional shares in connection with the reverse stock split. Financing activities during the 2025 period consisted of approximately $4,646,000 in net proceeds from an equity offering.
Uses and Availability of Additional Funds
Our primary uses of capital are, and we expect will continue to be, employee compensation and related expenses; clinical research and development, including our pivotal insomnia clinical trial; development and integration of the Nexalin NeuroCare™ digital health platform; manufacturing and product development; regulatory and quality assurance initiatives; commercialization activities; legal and other professional fees; and general corporate and administrative expenses. We also expect to use capital to satisfy obligations under our outstanding unsecured promissory note, including required repayments from financing proceeds.
Material Cash Requirements
Our material cash requirements as of September 30, 2026 and through the date of this Report primarily consist of the following:
| (i) | estimated direct service fees and pass-through expenses totaling approximately $1,131,000 under the Scope of Work for our pivotal clinical trial evaluating the HALO device for the treatment of insomnia, of which approximately $414,000 had been incurred through September 30, 2026. During the third quarter of 2026, Curavit Clinical Research, Inc. assumed the prior clinical research organization's rights and obligations under the applicable Master Services Agreement and Scope of Work. The remaining estimated costs are generally payable as specified project milestones are achieved and pass-through expenses are incurred; |
| (ii) | development-service fees of $10,000 per month under the Collaboration Agreement with GreenLight Ventures, LLC, which has an initial term of 24 months beginning May 14, 2026, together with approved excess development services and infrastructure-support services billed at the rates specified in the agreement; |
| (iii) | base rent under our office lease, as amended on July 28, 2026, over the remaining lease term, ranging from approximately $5,400 to $6,400 per month and subject to periodic increases, together with our proportionate share of operating expenses and real-property taxes. The amended lease provides for a conditional five-month abatement of base rent following commencement of the expansion space; and |
| (iv) | monthly consulting fees of $16,667 under our consulting agreement with U.S. Asian Consulting Group, LLC, which expires in September 2030. |
The semiannual share awards valued at $100,000 under the consulting agreement and the remaining tranches of consideration shares issuable under the Stock Purchase Agreement 180 and 270 days after the acquisition date are payable in shares of our common stock and therefore do not represent cash requirements. On November 10, 2026, the Company issued 87,301 shares in settlement of the third tranche of acquisition consideration. See Note 12-Subsequent Events.
As of September 30, 2026, we were also obligated under the Streeterville Promissory Note, which had an outstanding principal amount of $1,170,000 and matures on February 21, 2027. The note requires mandatory prepayments equal to 20% of proceeds from qualifying financings. Subsequent to September 30, 2026, we repaid approximately $378,000 using proceeds from sales under the ATM Program. See Note 12-Subsequent Events to the accompanying unaudited condensed consolidated financial statements.
We expect to fund our cash requirements using cash and cash equivalents on hand, and additional financing, including, to the extent available, sales of common stock under our ATM Program and the AMPA. Our ability to access these arrangements is subject to applicable offering limits, contractual restrictions, market conditions, the market price and trading volume of our common stock, regulatory requirements and satisfaction of other applicable conditions. Accordingly, the stated capacity of these arrangements does not represent committed funding or amounts necessarily available for immediate use. There can be no assurance that additional financing will be available when needed or on acceptable terms.
Changes to the scope, timing or requirements of the Pivotal Study-including protocol amendments, modifications to planned analyses or extensions of the study duration-may require change orders and could increase the estimated costs or extend the timing of payments. We are also evaluating amendments to the existing Scope of Work with Curavit; however, no amendment had been executed as of the date of this Report. Accordingly, the ultimate costs and timing of the Pivotal Study may differ from our current estimates.
We currently generate limited revenue from legacy Gen-1 licensing fees and electrode sales in the United States, as well as international equipment, boards and component sales. During the third quarter of 2026, international revenue primarily consisted of component board sales to an unrelated customer in China. We expect to continue to incur significant operating losses and negative operating cash flows as we advance our product development, clinical, regulatory and commercialization initiatives. The successful development and commercialization of our products remain subject to significant uncertainty, and we cannot reasonably estimate the total costs or timing necessary to complete clinical development, obtain required regulatory authorizations or achieve commercial acceptance. Accordingly, we cannot predict when, if ever, our operations will generate sufficient revenue to produce positive cash flows.
Our future capital requirements will depend on numerous factors, including, but not limited to:
| ● | the timing, scope, rate of enrollment, cost and results of our current and future clinical trials; |
| ● | performing preclinical studies and clinical trials in compliance with the FDA or any comparable regulatory authority requirements; |
| ● | the ability to outsource the manufacture of our products for development, clinical trials and/or potential commercialization; |
| ● | obtaining and maintaining patent, trademark and trade secret protection for our products; |
| ● | scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others; |
| ● | acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors; |
| ● | competing effectively with other therapies; |
| ● | obtaining and maintaining healthcare coverage and adequate reimbursement; |
| ● | protecting our rights in our intellectual property portfolio; and |
| ● | maintaining a continued acceptable safety profile of our products following approval. |
Liquidity
As of September 30, 2026, the Company had cash and cash equivalents of approximately $793,000, a working capital deficit of approximately $869,000 and an accumulated deficit of approximately $99,865,000. For the nine months ended September 30, 2026, the Company incurred a loss from operations of approximately $6,977,000 and used approximately $5,102,000 of cash in operating activities.
The Company generates limited revenue from legacy Gen-1 licensing fees and electrode sales in the United States, as well as international equipment and component sales. During the third quarter of 2026, international revenue primarily consisted of component board sales to an unrelated customer in China. Operating activities continue to consume a substantial portion of the Company's cash resources. Management expects continued operating losses and negative operating cash flows as the Company advances its clinical, regulatory, product development and commercialization initiatives, including its pivotal insomnia clinical trial evaluating the HALO™ device, development of the Nexalin NeuroCare™ platform, manufacturing activities and other strategic initiatives.
The Company has historically funded its operations primarily through equity and debt financings. During the nine months ended September 30, 2026, the Company received net proceeds of approximately $876,000 from sales under its ATM Program and approximately $656,000 from its August 2026 registered direct offering. The Company also received $1,000,000 upon issuance of the Streeterville Promissory Note, or approximately $900,000 after payment of additional debt issuance costs. The Company entered into the AMPA, under which it may, subject to applicable conditions and limitations, sell up to an aggregate of $15,000,000 of common stock through December 31, 2027. As of September 30, 2026, the Company had not received any proceeds from sales under the AMPA.
Subsequent to September 30, 2026, the Company sold 219,593 shares of common stock under the ATM Program, generating gross proceeds of approximately $1,900,000 and net proceeds of approximately $1,644,000 after deducting sales-agent commissions and other issuance costs, including the fee payable to Alumni Capital LP in connection with its waiver of restrictions on ATM sales. The Company used approximately $378,000 of these proceeds to make a mandatory principal prepayment under the Streeterville Promissory Note, reducing its outstanding principal balance to approximately $792,000.
The Company expects to require additional capital to support its planned operations and strategic initiatives. Its ability to obtain additional capital, including through the ATM Program and the AMPA, depends on capital-market conditions, the market price and trading volume of its common stock, applicable offering limits, regulatory requirements, the effectiveness and availability of registration statements, Nasdaq requirements and contractual restrictions and conditions. The stated capacities of the ATM Program and the AMPA do not represent committed funding or amounts necessarily available for immediate use. There can be no assurance that additional financing will be available when needed or on acceptable terms.
The Company's ability to raise capital also depends, in significant part, on the continued listing of its common stock on the Nasdaq Capital Market. Following receipt of a Staff Delisting Determination on July 24, 2026, the Company timely requested a hearing and appeared before the Panel on September 1, 2026. The Company effected a one-for-thirty reverse stock split on August 28, 2026. On September 25, 2026, the Panel granted the Company's request for continued listing, subject to specified compliance conditions. On September 30, 2026, Nasdaq confirmed that the Company had regained compliance with the minimum bid price requirement. Continued listing remains subject to demonstrating compliance with Nasdaq's minimum stockholders' equity requirement of $2.5 million on or before January 4, 2027. There can be no assurance that the Company will satisfy that requirement within the period granted or maintain compliance with Nasdaq's other continued listing requirements.
A delisting could materially impair the Company's ability to access capital markets, limit financing under its existing arrangements, reduce the liquidity and market price of its common stock, and result in alternative financing being available only on less favorable terms, if at all.
The acquisition of PONM, Inc., through which the Company obtained rights to licensed software and intellectual property, expanded its technology portfolio and supports continued development of the Nexalin NeuroCare™ platform. Related development and collaboration activities are expected to require continued investment before contributing materially to operating results.
After considering the financing activities described above, the related repayments of the Streeterville Promissory Note and management's other plans, the Company concluded that it does not have sufficient liquidity to fund its anticipated operating requirements for at least twelve months from the date these unaudited condensed consolidated financial statements are issued. Management intends to seek additional financing, access the ATM Program and the AMPA to the extent available, manage the timing and level of operating expenditures, and pursue revenue opportunities. These plans are subject to risks and uncertainties and are not entirely within the Company's control. Accordingly, management determined that its plans do not alleviate substantial doubt about the Company's ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Commitments and Contingencies
As of September 30, 2026, the Company was party to a Master Services Agreement and Scope of Work with Curavit Clinical Research, Inc. relating to its ongoing pivotal clinical trial evaluating the HALO device for the treatment of insomnia. The trial is intended to support the Company's planned De Novo submission to the FDA. Payments under the agreement are generally based on specified project milestones, services performed and reimbursable third-party pass-through costs. The Company recognizes research and development expense as the underlying services are performed.
The Company is also party to a Collaboration Agreement with GreenLight Ventures, LLC, an operating lease for its corporate office space, as amended on July 28, 2026, and a consulting agreement with U.S. Asian Consulting Group, LLC. These arrangements require future cash payments and, in certain cases, the issuance of shares of the Company's common stock.
See "Material Cash Requirements" above and Notes 4, 8 and 10 to the accompanying unaudited condensed consolidated financial statements for additional information regarding these arrangements.
Critical Accounting Estimates
During the nine months ended September 30, 2026, management did not identify any accounting estimates that meet the definition of a critical accounting estimate. Although certain accounting policies require the use of estimates and assumptions, management does not believe that reasonably likely changes in those estimates would have a material effect on the Company's financial condition or results of operations.
We prepare our unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our unaudited condensed consolidated financial statements that require estimation but are not deemed critical, as defined above.
Recent Accounting Pronouncements
Refer to Note 3 to the unaudited condensed consolidated financial statements for a description of recently issued accounting pronouncements. Management does not anticipate a material impact on the Company's financial position or results of operations from these pronouncements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Minimum Bid Price Requirement
The Company is required to maintain a minimum closing bid price of $1.00 per share for continued listing on the Nasdaq Capital Market. On January 21, 2026, the Company received a deficiency letter (the "Notice") from the Listing Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that, based on the closing bid price of the Company's common stock for the preceding 30 consecutive business days, the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement").
The Notice had no immediate effect on the continued listing of the Company's common stock. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial 180-calendar-day compliance period, which expired on July 20, 2026, to regain compliance with the Minimum Bid Price Requirement.
The Company did not regain compliance during the initial compliance period and did not 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. The Company timely requested a hearing before the Nasdaq Hearings Panel, which stayed the suspension of trading and delisting of the Company's common stock pending the Panel's decision.
On August 28, 2026, the Company effected a one-for-thirty reverse stock split of its issued and outstanding common stock as part of its efforts to regain compliance with the Minimum Bid Price Requirement. The Company participated in a hearing before the Panel on September 1, 2026. On September 25, 2026, the Company received written notification from the Panel granting its request for continued listing, subject to demonstrating compliance with the Minimum Bid Price Requirement on or before September 28, 2026, and the minimum stockholders' equity requirement of $2,500,000 under Nasdaq Listing Rule 5550(b)(1) on or before January 4, 2027. On September 30, 2026, the Company received formal notification from Nasdaq confirming that it had regained compliance with the Minimum Bid Price Requirement.
The Company's common stock remains listed and eligible for trading on the Nasdaq Capital Market. Although the Company has regained compliance with the Minimum Bid Price Requirement, its continued listing remains subject to demonstrating compliance with the minimum stockholders' equity requirement on or before January 4, 2027. There can be no assurance that the Company will satisfy that requirement within the period granted by the Panel or maintain compliance with the Minimum Bid Price Requirement or Nasdaq's other continued-listing requirements. Failure to regain or maintain compliance could result in the delisting of the Company's common stock.
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