Quarterly Report for Quarter Ending June 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 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. 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 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.

Recent Developments

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.

Insomnia FDA Study:

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.

Results of Operations

Comparison of the three months ended June 30, 2026 and 2025

Our financial results for the three months ended June 30, 2026 and 2025 are summarized as follows:

		Three Months Ended June 30,								Change				Change(1)
		2026				2025
										$				%
Revenues, net		$	12,161			$	70,588			$	(58,427	)			(83	%)
Cost of revenues			3,264				22,838				(19,574	)			(86	%)
Gross profit			8,897				47,750				(38,853	)			(81	%)
Operating expenses:
Professional fees			407,444				178,597				228,847				128	%
Salaries and benefits			501,717				370,401				131,316				35	%
Selling, general and administrative			782,571				893,836				(111,265	)			(12	%)
Research and development			564,480				225,774				338,706				150	%
Total operating expenses			2,256,212				1,668,608				587,604				35	%
Loss from operations			(2,247,315	)			(1,620,858	)			(626,457	)			39	%
Other income, net:
Interest income, net			129				4,690				(4,561	)			(97	%)
Gain on sale of short-term investments			8,016				32,438				(24,422	)			(75	%)
Other income			-				2,743				(2,743	)			(100	%)
Total other income, net			8,145				39,871				(31,726	)			(80	%)
Loss before provision for income taxes		$	(2,239,170	)		$	(1,580,987	)		$	(658,183	)			42	%
Provision for income taxes			-				-				-				0	%
Loss before net loss of affiliate			(2,239,170	)			(1,580,987	)			(658,183	)			42	%
Net loss of affiliate			-				-				-				0	%
Net loss		$	(2,239,170	)		$	(1,580,987	)		$	(658,183	)			42	%
Other comprehensive income (loss):
Unrealized gain (loss) from short-term investments			(406	)			513				(919	)			(179	%)
Comprehensive loss		$	(2,239,576	)		$	(1,580,474	)		$	(659,102	)			42	%

(1)	Percentages may not foot due to rounding.

Revenues

For the three months ended June 30, 2026 and 2025, we generated approximately $12,000 and $71,000 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 and replacement components, including boards, electrodes and patient cables, as well as related shipping charges.

The decrease in revenue for the three months ended June 30, 2026, compared to the same period in 2025, was primarily attributable to lower equipment sales to an international customer during the current period. Revenue from equipment 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 June 30, 2026 and 2025, cost of revenues was approximately $3,000 and $23,000, respectively, resulting in gross profit of approximately $9,000 and $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 revenue represented a greater proportion of total revenue during the current period and generally carries higher margins than equipment sales.

Gross margins may 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 three months ended June 30, 2026 and 2025 were approximately $2,256,000 and $1,669,000, respectively, an increase of approximately $587,000. 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 $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.

These increases were partially offset by a decrease of approximately $70,000 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 $50,000 in costs related to our UCSD clinical trial. The remaining increase of approximately $13,000 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 clinical trials, as well as continued investment in our digital health software 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

Other income, net, for the three months ended June 30, 2026 and 2025 was approximately $8,000 and $40,000, respectively, a decrease of approximately $32,000. 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.

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:

		Six Months Ended June 30,								Change				Change(1)
		2026				2025
										$				%
Revenues, net		$	27,111			$	111,603			$	(84,492	)			(76	%)
Cost of revenues			5,081				36,396				(31,315	)			(86	%)
Gross profit			22,030				75,207				(53,177	)			(71	%)
Operating expenses:
Professional fees			902,740				546,413				356,327				65	%
Salaries and benefits			1,000,277				705,759				294,518				42	%
Selling, general and administrative			1,575,368				1,823,056				(247,688	)			(14	%)
Research and development			910,862				632,062				278,800				44	%
Total operating expenses			4,389,247				3,707,290				681,957				18	%
Loss from operations			(4,367,217	)			(3,632,083	)			(735,134	)			20	%
Other income, net:
Interest income, net			163				5,793				(5,630	)			(97	%)
Gain on sale of short-term investments			29,041				52,557				(23,516	)			(45	%)
Other income			2,006				5,457				(3,451	)			(63	%)
Total other income, net			31,210				63,807				(32,597	)			(51	%)
Loss before provision for income taxes		$	(4,336,007	)		$	(3,568,276	)		$	(767,731	)			22	%
Provision for income taxes			-				-				-				0	%
Loss before net loss of affiliate			(4,336,007	)			(3,568,276	)			(767,731	)			22	%
Net loss of affiliate			-				(1,048	)			1,048				(100	%)
Net loss		$	(4,336,007	)		$	(3,569,324	)		$	(766,683	)			21	%
Other comprehensive income (loss):
Unrealized gain (loss) from short-term investments			(494	)			1,343				(1,837	)			(137	%)
Comprehensive loss		$	(4,336,501	)		$	(3,567,981	)		$	(768,520	)			22	%

(1)	Percentages may not foot due to rounding.

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.

Liquidity and Capital Resources

Working Capital

		June 30, 2026				December 31, 2025
Current assets		$	1,862,106			$	4,299,270
Current liabilities			1,484,756				887,333
Working capital		$	377,350			$	3,411,937

Current assets decreased during the six months ended June 30, 2026, primarily due to decreases in short-term investments resulting from short-term investments used in operating activities, partially offset by proceeds received from sales of common stock under our at-the-market ("ATM") program.

Current liabilities increased during the six months ended June 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 working capital to continue to fluctuate in future periods based on the timing of operating expenditures, vendor payments, and capital-raising activities, including potential future sales under our ATM program.

"At-the-Market" Offering

On October 15, 2025, we entered into the Second Amendment to the Original Agreement with Maxim, pursuant to which we were 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 six months ended June 30, 2026, we sold 1,858,344 shares of our common stock under the ATM program, generating net proceeds of approximately $895,000.

As of June 30, 2026, we have sold 2,549,751 shares of our common stock under the ATM program for gross proceeds of approximately $1,619,000.

Subsequent to June 30, 2026, we have sold 32,696 shares of our common stock under the ATM program for gross proceeds of approximately $15,000.

Cash Flows

The following table summarizes our consolidated cash flows for the six months ended June 30, 2026 and 2025:

		June 30, 2026				June 30, 2025
Net cash used in operating activities		$	(3,514,616	)		$	(2,343,379	)
Net cash provided (used in) investing activities		$	2,970,005			$	(2,446,183	)
Net cash provided by financing activities		$	894,786			$	4,646,397

Net Cash Used In Operating Activities

Net cash used in operating activities was approximately $3,515,000 for the six months ended June 30, 2026, compared to approximately $2,343,000 for the corresponding period in 2025, representing an increase in cash used of approximately $1,171,000. The increase was primarily attributable to a higher net loss of approximately $767,000, partially offset by non-cash adjustments, which decreased by approximately $275,000 from the prior-year period, primarily due to lower stock-based compensation expense. The remaining increase in cash used was primarily due to changes in working capital, including cash used by an increase in prepaid expenses and other current assets of approximately $258,000, primarily related to advance payments for the Company's pivotal insomnia clinical trial and other research and development activities, an increase in inventory of approximately $104,000, and a decrease in accounts payable of approximately $90,000. These uses of cash were partially offset by cash provided by an increase in accrued expenses of approximately $247,000 and a decrease in accounts receivable of approximately $76,000.

Net Cash Provided by (used in) Investing Activities

Net cash provided by investing activities was approximately $2,970,000 for the six months ended June 30, 2026, compared to net cash used in investing activities of approximately $2,446,000 for the corresponding period in 2025. The change was primarily attributable to reduced purchases of short-term investments of approximately $15,102,000 compared to the prior-year period, partially offset by lower proceeds from the sale and maturity of short-term investments of approximately $9,603,000. Investing activities during the 2026 period also included purchases of equipment and continued investments in patents and trademarks in support of the Company's intellectual property portfolio.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was approximately $895,000 for the six months ended June 30, 2026, compared to approximately $4,646,000 for the corresponding period in 2025. The decrease of approximately $3,751,000 was primarily attributable to the absence of a registered direct offering completed during the prior-year period, partially offset by net proceeds of approximately $895,000 received from sales of common stock under the Company's at-the-market ("ATM") offering program during the 2026 period.

Uses and Availability of Additional Funds

Our primary uses of capital are, and we expect will continue to be, compensation and related employee expenses, clinical research and development activities, including our ongoing FDA-cleared insomnia clinical trial, software development associated with our Nexalin NeuroCare™ platform, manufacturing and product development activities, regulatory and quality assurance initiatives, legal and professional fees, and general corporate and administrative expenses.

Material Cash Requirements

Our material cash requirements as of June 30, 2026, and through the date of this Report, consist of the following: (i) direct fees of approximately $945,000 under the Scope of Work with our clinical research organization for the Pivotal Study, exclusive of reimbursable pass-through expenses, of which approximately $374,000 had been incurred through June 30, 2026, with the remainder payable as specified project milestones are achieved and reimbursable pass-through expenses are incurred; (ii) development services fees of $10,000 per month under the Collaboration Agreement with GreenLight Ventures, LLC, which has an initial term of 24 months from May 14, 2026, together with any approved excess development services and approved infrastructure support services billed at the rates set forth in that agreement; (iii) base rent under our office lease, as amended on July 28, 2026 for a term of 65 months, ranging from approximately $5,000 to $6,000 per month subject to annual increases, together with our proportionate share of operating expenses and real property taxes and subject to a five-month conditional 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 semi-annual share awards valued at $100,000 under that consulting agreement, and the remaining tranches of consideration shares issuable under the Stock Purchase Agreement 90, 180 and 270 days after the closing date, are satisfied in shares of our common stock and do not represent cash requirements.

We expect to fund these requirements from cash and cash equivalents on hand and from sales of common stock under our ATM program, under which approximately $2,654,000 of the aggregate offering amount remained available as of the date of this Report. Certain changes to the Pivotal Study, including the addition of new clinical sites, increases in enrolled participants, protocol amendments after study start-up, amendments to critical analyses and extensions of study duration, would require a change order and could increase the amounts payable under the Scope of Work.

Although we currently generate limited revenue from legacy Gen-1 licensing fees and electrode sales in the United States, and recorded no international revenue in the three or six months ended June 30, 2026, 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 remains highly uncertain, and we cannot reasonably estimate the nature, timing or costs necessary to complete the clinical development of our product candidates, obtain the required regulatory authorizations, or achieve commercial acceptance. Accordingly, we are unable to predict when, if ever, our operations will generate sufficient revenues to achieve positive cash flows.

Our future capital requirements will depend on numerous factors, including, but not limited to:

●

successful enrollment in, and completion of clinical trials;

●

performing preclinical studies and clinical trials in compliance with the FDA or any comparable regulatory authority requirements;

●

the ability to outsource the manufacture of our products for development, clinical trials and/ or potential commercialization;

●

obtaining and maintaining patent, trademark and trade secret protection for our products;

●

scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others;

●

acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors;

●

competing effectively with other therapies;

●

obtaining and maintaining healthcare coverage and adequate reimbursement;

●

protecting our rights in our intellectual property portfolio; and

●

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

Liquidity

As of June 30, 2026, the Company had an accumulated deficit of approximately $97,203,000, a loss from operations of approximately $4,367,000 for the six months then ended, and negative cash flows from operating activities of approximately $3,515,000. As of June 30, 2026, the Company had cash and cash equivalents of approximately $1,005,000.

The Company recorded no international revenue in the three or six months ended June 30, 2026. The Company's limited revenue in these periods was derived from legacy Gen-1 licensing fees and electrode sales in the United States. Operating activities continue to consume the majority of the Company's cash resources. Management expects to continue incurring operating losses and negative operating cash flows as the Company advances its clinical development, regulatory, and product development initiatives, including its FDA-cleared clinical trial evaluating the Gen-3 HALO device for the treatment of insomnia, continued development of the Nexalin NeuroCare™ platform, manufacturing and product development activities, and other strategic initiatives.

The Company has historically funded its operations primarily through equity financings, including sales under its at-the-market offering program, and expects to require additional capital to support its planned operations and strategic initiatives. While the Company intends to pursue additional financing opportunities as needed, there can be no assurance that such financing will be available on acceptable terms, or at all.

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. 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. Accordingly, if our common stock were delisted, we expect that our ability to sell shares under the ATM program would be materially impaired or eliminated, and that any alternative financing would likely be available only on less favorable terms, if at all. Because sales under the ATM program provided all of our net cash from financing activities during the six months ended June 30, 2026, a delisting would be reasonably likely to have a material adverse effect on our liquidity.

The acquisition of PONM, Inc. and the related licensed software and intellectual property expands the Company's technology portfolio and supports the continued development of the Nexalin NeuroCare™ platform. The related collaboration arrangement is intended to support the integration and continued enhancement of these capabilities. These initiatives are expected to require continued investment before contributing to future operating results.

Management has evaluated these conditions and concluded that the Company does not currently have sufficient cash and cash equivalents to fund its anticipated operating requirements for at least twelve months from the date of issuance of these unaudited condensed consolidated financial statements. Accordingly, substantial doubt exists about the Company's ability to continue as a going 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 might result from the outcome of this uncertainty.

Commitments and Contingencies

As of June 30, 2026, the Company was party to a clinical research organization agreement with its CRO related to its ongoing FDA pivotal insomnia clinical trial. Payments under the agreement are generally based on specified project milestones, services performed, and reimbursable third-party costs. The Company recognizes the related costs as services are performed. The Company is also party to the Collaboration Agreement with GreenLight Ventures, LLC, its office lease as amended on July 28, 2026, and its consulting agreement with U.S. Asian Consulting Group, LLC. See "Material Cash Requirements" above and Notes 4, 9 and 10 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

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

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 was 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 had no immediate effect on the continued listing of the Company's common stock on The Nasdaq Capital Market. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a 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 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.

The Company continues to evaluate alternatives to regain compliance with the Nasdaq continued listing requirements, including, if determined appropriate by the Board of Directors, implementing the reverse stock split authorized by the Company's stockholders at the 2026 Annual Meeting. As of the date of issuance of these unaudited consolidated financial statements, the Board has approved a 30 to 1 reverse stock split, but it has not gone into effect as of yet. There can be no assurance that the Hearings Panel will grant the Company's request for continued listing or that the Company will ultimately regain compliance with the applicable Nasdaq continued listing requirements.