Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 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.

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 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.

Results of Operations

Comparison of the Years ended December 31, 2025 and 2024

Our financial results for the years ended December 31, 2025 and 2024 are summarized as follows:

		For the Year Ended December 31,
		2025				2024				Change				Change(1)
											$				%
Revenues, net		$	301,647			$	168,721			$	132,926				79	%
Cost of revenues			61,373				36,593				24,780				68	%
Gross profit			240,274				132,128				108,146				82	%
Operating expenses:
Professional fees			1,270,109				966,815				303,294				31	%
Salaries and benefits			1,879,283				1,500,089				379,194				25	%
Selling, general and administrative			4,398,241				4,228,986				169,255				4	%
Research and development			1,083,522				1,190,884				(107,362	)			(9	%)
Total operating expenses			8,631,155				7,886,774				744,381				9	%
Loss from operations			(8,390,881	)			(7,754,646	)			(636,235	)			8	%
Other income, net:
Interest income, net			8,240				3,193				5,047				158	%
Gain on sale of short-term investments			126,940				130,110				(3,170	)			(2	%)
Other income			34,568				9,310				25,258				271	%
Total other income, net			169,748				142,613				27,135				19	%
Loss before provision for income taxes		$	(8,221,133	)		$	(7,612,033	)		$	(609,100	)			8	%
Provision for income taxes			-				-				-				0	%
Loss before net (loss)/earnings of affiliate			(8,221,133	)			(7,612,033	)			(609,100	)			8	%
Net (loss)/earnings of affiliate			(1,048	)			4,851				(5,899	)			(122	%)
Net loss		$	(8,222,181	)		$	(7,607,182	)		$	(614,999	)			8	%
Other comprehensive income (loss):
Unrealized gain (loss) from short-term investments			919				(108	)			1,027				(951	%)
Comprehensive loss		$	(8,221,262	)		$	(7,607,290	)		$	(613,972	)			8	%

(1)

Percentages may not foot due to rounding.

Revenues

For the years ended December 31, 2025 and 2024, we generated approximately $302,000 and $169,000 respectively, of revenue primarily from the sale of Devices and Licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from Equipment by selling boards, electrodes and patient cables to customers for use with our devices. The approximate $133,000 increase in revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to an increase in Device sales of approximately $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 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.

Cost of Revenues and Gross Profit

For the years ended December 31, 2025 and 2024, cost of revenues was approximately $61,000 and $37,000, respectively, yielding a gross profit of approximately $240,000 and $132,000, respectively, or 80% and 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 profit was a result of the mix of revenue types during the periods.

Operating Expenses

Total operating expenses for the years ended December 31, 2025 and 2024 were approximately $8,631,000 and $7,887,000, respectively, an increase of approximately $744,000, consisting of increases in; salaries and benefits expenses of approximately $379,000, selling, general and administrative expenses of approximately $169,000 and in professional fees expenses of approximately $303,000. This was offset by a decrease in research and development expenses of approximately $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.

Other Income, net

Other income, net as of December 31, 2025 and 2024 were approximately $170,000 and $143,000 respectively, consisting of interest and dividend income and gain on the sale of short-term investments. The increase in other income was primarily due to an adjustment in a settlement liability that was settled in 2025.

Liquidity and Capital Resources

Working Capital

		December 31, 2025				December 31, 2024
Current assets		$	4,299,270			$	3,961,141
Current liabilities			887,333				546,694
Working capital		$	3,411,937			$	3,414,447

Current assets increased for the year ended December 31, 2025 primarily as a result of an increase in short-term investments and cash and cash equivalents as a result of a capital raise and use of our ATM program. Accounts receivable also increased as a result of additional revenue near year end.

Current liabilities increased for the year ended December 31, 2025 due to an accounts payable increase from to timing of payments. Accrued expense increased due to additional bonuses earned and not paid out at year 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.

Cash Flows

The following table summarizes our consolidated cash flows for the years ended December 31, 2025 and 2024:

		December 31, 2025				December 31, 2024
Net cash used in operating activities		$	(4,957,658	)		$	(3,944,390	)
Net cash used in investing activities		$	(131,991	)		$	(577,539	)
Net cash provided by financing activities		$	5,169,947			$	4,516,184

Net Cash Used In Operating Activities

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 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 Financing Activities

Net cash provided by financing activities during the year ended December 31, 2025 and 2024 was approximately $5,170,000 and $4,516,000, respectively. The increase in 2025 was primarily due to a higher level of common stock sales, including the initial utilization of our at-the-market ("ATM") equity program in 2025, which was not utilized in 2024.

Uses and Availability of Additional Funds

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing development costs, legal and other regulatory expenses, and general administrative costs. Although we have produced Gen-2, which is selling internationally where it is approved for certain utilizations by medical practitioners, the successful development of our future products is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of Gen-3 and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive. This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of:

●

successful enrolment in, and completion of clinical trials;

●

performing preclinical studies and clinical trials in compliance with the FDA and/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;

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competing effectively with other therapies;

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obtaining and maintaining healthcare coverage and adequate reimbursement;

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protecting our rights in our intellectual property portfolio; and

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maintaining a continued acceptable safety profile of our products following approval.

Liquidity and Capital Resources

As of December 31, 2025, the Company had a significant accumulated deficit of approximately $92,867,000. For the year ended December 31, 2025, the Company had a net loss of approximately $8,222,000 and negative cash flows from operations of approximately $4,958,000. 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. The Company anticipates that it will continue to incur operating losses as it executes its development plans including clinical trials through 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 and utilization of our ATM program. As of December 31, 2025, the Company had cash and cash equivalents on hand of approximately $655,000 and short-term investments of 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 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, management has evaluated the significance of the conditions as of December 31, 2025 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.

Effects of Inflation

We do not believe that inflation had a material impact on our business, revenues or operating results during the periods presented.

Critical Accounting Estimates

We prepare our 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 consolidated financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting policies and related judgments, see Note 3 of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplemental Data" of this Report.

Recent Accounting Pronouncements

See Note 3 - Summary of significant accounting policies and new accounting standards in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Report for a summary of recently adopted accounting pronouncements.

Contractual Obligations

See Note 7 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Report for a summary of our contractual obligations.

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.

Factors That May Affect Future Results and Financial Condition

The information contained under the caption "Risk Factors" beginning on page 18 of this Report provides examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Readers should be aware that the occurrence of any of the events described in these risk factors could have a material adverse effect on our business, results of operations and financial condition. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Nasdaq

In September 2025, our IPO warrants expired, and a Form 25 was filed with the SEC to indicate that the warrants had expired and were delisted. The common stock of the Company will continue to trade on the Nasdaq Capital Market under the symbol "NXL".

Minimum Bid Price Requirement

We are required to maintain a minimum bid price of $1.00 per share. 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 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").

The Notice has no immediate effect on the continued listing status of the Common Stock on The Nasdaq Capital Market, and, therefore, the Company's listing remains fully effective. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is provided a compliance period of 180 calendar days from the date of the Notice, or until July 20, 2026, to regain compliance with the Minimum Bid Requirement. To regain compliance, the closing bid price of the Common Stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days prior to July 20, 2026. If the Company is not in compliance with the Minimum Bid Requirement by July 20, 2026, the Company may be afforded a second 180 calendar day compliance period. To qualify for this additional compliance period, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price requirement.