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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2025

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission file number: 001-41507

NEXALIN TECHNOLOGY, INC.

(Exact name of Registrant as specified in its charter)

Delaware |  | 27-5566468
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1776 Yorktown, Suite 550 Houston, TX 77056 |  | 77056
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (832) 260-0222

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, par value $0.001 per share |  | NXL |  | The Nasdaq Capital Market
Warrants, exercisable for one share of Common Stock |  | NXLIW |  | The Nasdaq Capital Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☐ | Accelerated Filer | ☐
Non-Accelerated Filer | ☒ | Smaller Reporting Company | ☒
|  | Emerging Growth Company | ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 5, 2025, there were 17,417,929 shares of the Registrant’s common stock outstanding.

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

FORM 10-Q

For the Quarter Ended June 30, 2025

|  | Page
PART I. FINANCIAL INFORMATION |  |
ITEM 1. |  | Unaudited Condensed Consolidated Financial Statements |  | 1
|  | Condensed Consolidated Balance Sheets at June 30, 2025 and December 31, 2024 |  | 1
|  | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2025 and 2024 |  | 2
|  | Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024 |  | 3
|  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 |  | 4
|  | Notes to Unaudited Condensed Consolidated Financial Statements |  | 5
ITEM 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 24
ITEM 3. |  | Quantitative and Qualitative Disclosures about Market Risk |  | 35
ITEM 4. |  | Controls and Procedures |  | 35
PART II. OTHER INFORMATION |  |
ITEM 1. |  | Legal Proceedings |  | 37
ITEM 1A. |  | Risk Factors |  | 37
ITEM 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 37
ITEM 3. |  | Defaults Upon Senior Securities |  | 37
ITEM 4. |  | Mine Safety Disclosures |  | 37
ITEM 5. |  | Other Information |  | 37
ITEM 6. |  | Exhibits |  | 38
SIGNATURES |  | 40

i

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|  | June 30, 2025 |  |  | December 31, 2024 |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 431,320 |  |  | $ | 574,485 |
Short-term investments |  |  | 5,361,465 |  |  |  | 2,905,438 |
Accounts receivable (Includes related party of $0 and $3,007, respectively) |  |  | 59,841 |  |  |  | 13,043 |
Inventory |  |  | 172,974 |  |  |  | 174,578 |
Prepaid expenses and other current assets |  |  | 243,511 |  |  |  | 293,597 |
Total Current Assets |  |  | 6,269,111 |  |  |  | 3,961,141 |
Intangible assets, net |  |  | 294,871 |  |  |  | 260,727 |
Other assets |  |  | - |  |  |  | 864 |
Total Assets |  | $ | 6,563,982 |  |  | $ | 4,222,732 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable (Includes related party of $7,770 and $0, respectively) |  | $ | 240,580 |  |  | $ | 155,949 |
Accrued expenses (Includes related party of $228,000 and $240,000, respectively) |  |  | 360,004 |  |  |  | 390,745 |
Total Current Liabilities |  |  | 600,584 |  |  |  | 546,694 |
Total Liabilities |  |  | 600,584 |  |  |  | 546,694 |
Commitments and Contingencies (Note 7) |  |  |  |  |  |  |  |
Stockholders’ Equity: |  |  |  |  |  |  |  |
Common stock, $0.001 par value; 100,000,000 shares authorized; 17,417,929 and 13,303,523 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively |  |  | 17,418 |  |  |  | 13,304 |
Accumulated other comprehensive gain (loss) |  |  | 830 |  |  |  | (513 | )
Additional paid in capital |  |  | 94,159,705 |  |  |  | 88,308,478 |
Accumulated deficit |  |  | (88,214,555 | ) |  |  | (84,645,231 | )
Total Stockholders’ Equity |  |  | 5,963,398 |  |  |  | 3,676,038 |
Total Liabilities and Stockholders’ Equity |  | $ | 6,563,982 |  |  | $ | 4,222,732 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

1

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Revenues, net (Includes related party of $8,275 and $500 for the three months ended and $11,859 and $800 for the six months ended, respectively) |  | $ | 70,588 |  |  | $ | 26,840 |  |  | $ | 111,603 |  |  | $ | 105,511 |
Cost of revenues |  |  | 22,838 |  |  |  | 7,247 |  |  |  | 36,396 |  |  |  | 16,403 |
Gross profit |  |  | 47,750 |  |  |  | 19,593 |  |  |  | 75,207 |  |  |  | 89,108 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional fees |  |  | 178,597 |  |  |  | 240,967 |  |  |  | 546,413 |  |  |  | 468,796 |
Salaries and benefits |  |  | 370,401 |  |  |  | 307,480 |  |  |  | 705,759 |  |  |  | 633,897 |
Selling, general and administrative |  |  | 893,836 |  |  |  | 598,757 |  |  |  | 1,823,056 |  |  |  | 1,082,071 |
Research and development |  |  | 225,774 |  |  |  | 169,410 |  |  |  | 632,062 |  |  |  | 275,077 |
Total operating expenses |  |  | 1,668,608 |  |  |  | 1,316,614 |  |  |  | 3,707,290 |  |  |  | 2,459,841 |
Loss from operations |  |  | (1,620,858 | ) |  |  | (1,297,021 | ) |  |  | (3,632,083 | ) |  |  | (2,370,733 | )
Other income, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income, net |  |  | 4,690 |  |  |  | 66 |  |  |  | 5,793 |  |  |  | 370 |
Gain on sale of short-term investments |  |  | 32,438 |  |  |  | 11,719 |  |  |  | 52,557 |  |  |  | 36,665 |
Other income |  |  | 2,743 |  |  |  | 2,034 |  |  |  | 5,457 |  |  |  | 3,556 |
Total other income, net |  |  | 39,871 |  |  |  | 13,819 |  |  |  | 63,807 |  |  |  | 40,591 |
Loss before provision for income taxes |  |  | (1,580,987 | ) |  |  | (1,283,202 | ) |  |  | (3,568,276 | ) |  |  | (2,330,142 | )
Provision for income taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Loss before equity in net earnings (loss) of affiliate |  |  | (1,580,987 | ) |  |  | (1,283,202 | ) |  |  | (3,568,276 | ) |  |  | (2,330,142 | )
Equity in net earnings (loss) of affiliate |  |  | - |  |  |  | (1,291 | ) |  |  | (1,048 | ) |  |  | 4,492 |
Net loss |  |  | (1,580,987 | ) |  |  | (1,284,493 | ) |  |  | (3,569,324 | ) |  |  | (2,325,650 | )
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain from short-term investments |  |  | 513 |  |  |  | 245 |  |  |  | 1,343 |  |  |  | 405 |
Comprehensive loss |  | $ | (1,580,474 | ) |  | $ | (1,284,248 | ) |  | $ | (3,567,981 | ) |  | $ | (2,325,245 | )
Net loss per share attributable to common stockholders - Basic and Diluted |  | $ | (0.10 | ) |  | $ | (0.17 | ) |  | $ | (0.25 | ) |  | $ | (0.31 | )
Weighted Average Shares Outstanding - Basic and Diluted |  |  | 15,718,149 |  |  |  | 7,497,551 |  |  |  | 14,526,149 |  |  |  | 7,467,225 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

2

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

|  | Common Stock |  |  | Accumulated Other Comprehensive |  |  | Additional Paid-in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Gain (Loss) |  |  | Capital |  |  | Deficit |  |  | Equity |
Balance as January 1, 2024 |  |  | 7,436,562 |  |  | $ | 7,437 |  |  | $ | (405 | ) |  | $ | 80,237,652 |  |  | $ | (77,038,049 | ) |  | $ | 3,206,635 |
Other comprehensive gain |  |  | - |  |  |  | - |  |  |  | 160 |  |  |  | - |  |  |  | - |  |  |  | 160 |
Stock compensation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 161,349 |  |  |  | - |  |  |  | 161,349 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,041,157 | ) |  |  | (1,041,157 | )
Balance as of March 31, 2024 |  |  | 7,436,562 |  |  | $ | 7,437 |  |  | $ | (245 | ) |  | $ | 80,399,001 |  |  | $ | (78,079,206 | ) |  | $ | 2,326,987 |
Other comprehensive gain |  |  | - |  |  |  | - |  |  |  | 245 |  |  |  | - |  |  |  | - |  |  |  | 245 |
Stock compensation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 308,283 |  |  |  | - |  |  |  | 308,283 |
Shared issued |  |  | 150,000 |  |  |  | 150 |  |  |  | - |  |  |  | (150 | ) |  |  | - |  |  |  | - |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,284,493 | ) |  |  | (1,284,493 | )
Balance as of June 30, 2024 |  |  | 7,586,562 |  |  | $ | 7,587 |  |  | $ | - |  |  | $ | 80,707,134 |  |  | $ | (79,363,699 | ) |  | $ | 1,351,022 |

|  | Common Stock |  |  | Accumulated Other Comprehensive |  |  | Additional Paid-in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Gain (Loss) |  |  | Capital |  |  | Deficit |  |  | Equity |
Balance as of January 1, 2025 |  |  | 13,303,523 |  |  | $ | 13,304 |  |  | $ | (513 | ) |  | $ | 88,308,478 |  |  | $ | (84,645,231 | ) |  | $ | 3,676,038 |
Other comprehensive gain |  |  | - |  |  |  | - |  |  |  | 830 |  |  |  | - |  |  |  | - |  |  |  | 830 |
Stock compensation |  |  | 24,406 |  |  |  | 24 |  |  |  | - |  |  |  | 636,820 |  |  |  | - |  |  |  | 636,844 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,988,337 | ) |  |  | (1,988,337 | )
Balance as of March 31, 2025 |  |  | 13,327,929 |  |  | $ | 13,328 |  |  | $ | 317 |  |  | $ | 88,945,298 |  |  | $ | (86,633,568 | ) |  | $ | 2,325,375 |
Other comprehensive gain |  |  | - |  |  |  | - |  |  |  | 513 |  |  |  | - |  |  |  | - |  |  |  | 513 |
Stock compensation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 572,100 |  |  |  | - |  |  |  | 572,100 |
Shares issued as part of offering |  |  | 4,090,000 |  |  |  | 4,090 |  |  |  | - |  |  |  | 4,642,307 |  |  |  | - |  |  |  | 4,646,397 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,580,987 | ) |  |  | (1,580,987 | )
Balance as of June 30, 2025 |  |  | 17,417,929 |  |  | $ | 17,418 |  |  | $ | 830 |  |  | $ | 94,159,705 |  |  | $ | (88,214,555 | ) |  | $ | 5,963,398 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

3

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net loss |  | $ | (3,569,324 | ) |  | $ | (2,325,650 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Stock compensation |  |  | 1,208,944 |  |  |  | 469,632 |
Amortization |  |  | 9,912 |  |  |  | 6,454 |
Non-cash lease expense |  |  | - |  |  |  | 496 |
Gain on sale of short-term investments |  |  | (52,557 | ) |  |  | (36,665 | )
(Loss) / Return on investment in Joint Venture |  |  | 864 |  |  |  | (4,492 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (49,805 | ) |  |  | (418 | )
Accounts receivable - related party |  |  | 3,007 |  |  |  | (1,933 | )
Prepaid assets |  |  | 50,086 |  |  |  | 139,184 |
Inventory |  |  | 1,604 |  |  |  | 11,279 |
Other assets |  |  | - |  |  |  | (54,414 | )
Accounts payable - related party |  |  | 7,770 |  |  |  | - |
Accounts payable |  |  | 76,861 |  |  |  | (72,396 | )
Accrued expenses |  |  | (18,741 | ) |  |  | (136,318 | )
Accrued expenses - related party |  |  | (12,000 | ) |  |  | - |
Lease liability |  |  | - |  |  |  | (4,463 | )
Net cash used in operating activities |  |  | (2,343,379 | ) |  |  | (2,009,704 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Sale of short-term investments |  |  | 17,701,000 |  |  |  | 9,169,596 |
Purchase of short-term investments |  |  | (20,103,127 | ) |  |  | (6,764,323 | )
Purchase of patents |  |  | (35,215 | ) |  |  | (80,120 | )
Purchase of trademarks |  |  | (8,841 | ) |  |  | (46,883 | )
Net cash provided by (used in) investing activities |  |  | (2,446,183 | ) |  |  | 2,278,270 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Sale of common stock for cash, net of financing fees |  |  | 4,646,397 |  |  |  | - |
Net cash provided by financing activities |  |  | 4,646,397 |  |  |  | - |
Net increase (decrease) in cash and cash equivalents |  |  | (143,165 | ) |  |  | 268,566 |
Cash and cash equivalents - beginning of period |  |  | 574,485 |  |  |  | 580,230 |
Cash and cash equivalents - end of period |  | $ | 431,320 |  |  | $ | 848,796 |
Non-cash investing and financing activities: |  |  |  |  |  |  |  |
Unrealized gain on short-term investments |  | $ | 1,343 |  |  | $ | 405 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

4

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF THE ORGANIZATION AND BUSINESS

Corporate History

Nexalin Technology, Inc. (“NV Nexalin”) was formed on October 19, 2010 as a Nevada corporation. The Company’s principal offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056.

On September 6, 2019, Neuro-Health International, Inc. (“Neuro-Health”), a Nevada corporation, a wholly owned subsidiary of NV Nexalin, was formed. Neuro-Health had no activity since formation.

On November 22, 2021, NV Nexalin entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Nexalin Technology, Inc., a Delaware corporation (“Nexalin”, or the “Company”). Pursuant to the Merger Agreement, NV Nexalin merged with and into Nexalin with all shareholders of NV Nexalin receiving one common share of Nexalin in exchange for twenty shares of NV Nexalin held at the time of the Merger Agreement. NV Nexalin treated the transaction as a corporate reorganization with the historical consolidated financial statements of NV Nexalin becoming the historical consolidated financial statements of Nexalin. Nexalin had nominal assets and liabilities and did not conduct any operations prior to the reorganization other than its incorporation. NV Nexalin has retroactively applied the 20-for-1 exchange, effective on November 22, 2021, to share and per share amounts. NV Nexalin’s authorized shares of common stock were not affected as a result of the Merger Agreement. As a result of the Merger Agreement, NV Nexalin was dissolved, and Neuro-Health became a subsidiary of Nexalin. Nexalin is headquartered, and maintains its base of management and operations, in Houston, Texas.

Our shares and warrants began and continues to be traded on the Nasdaq Capital Market tier of the Nasdaq Stock Market (“Nasdaq”) on September 16, 2022, under the symbols “NXL” and “NXLIW”, respectively.

Throughout this report, the terms “Nexalin,” “our,” “we,” “us,” and the “Company” refer to Nexalin Technology, Inc.

Business Overview

Gen-1:

We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device — referred to as “Generation 1” or “Gen-1” — that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit a waveform at 4 milliamps during treatment and are presently classified by the U.S. Food and Drug Administration (the “FDA”) as a Class II device for anxiety and insomnia and Class III for depression.

Medical professionals in the United States have utilized the Gen-1 device to administer treatment to patients in clinical settings. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, three prevalent and serious diseases, because of the FDA’s December 2019 reclassification of CES devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia. We are required to file a new application under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“510(k) Application”) to be approved by the FDA for the sales and marketing of our devices for the treatment of anxiety and insomnia. In the FDA’s December 2019 reclassification ruling, the treatment of depression with our device will require a Class III certification and require a new PMA (premarket approval) and/or a new De Novo application to demonstrate safety and effectiveness.

5

While we continue providing services to medical professionals to support patients’ use of the Gen-1 devices which were in operation prior to December 2019, we are not making new sales or new marketing efforts of Gen-1 devices in the United States. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcement. This revenue consists of monthly licensing fees and payments for the sale of electrodes and patient cables. We have paused marketing efforts for new sales of our Gen-1 device for treatment of anxiety and insomnia in the United States. Our regulatory team continues to have discussions with the FDA regarding the suspension of the marketing and sale of the Gen-1 products to new providers.

Gen-2 SYNC and Gen-3 HALO:

Beginning in 2019, Nexalin engineers began the testing and design of a new advanced 15 milliamp waveform that became the basis of our new “Generation 2” or “Gen-2” and new “Generation 3” or “Gen-3” medical devices. Today the Gen-2 is branded under a new trademark name known as “SYNC”, the Gen-3 is branded under a new trademark name known as “HALO”. The Gen-2 Sync and Gen-3 Halo are in the Q-submission process for review by the FDA. This process allows Nexalin to get clear, specific, written feedback from the FDA on indications, device classification and clarity on the regulatory pathway and improves the efficiency and predictability of the regulatory pathway.

We plan to conduct decentralized clinical trials for the Gen-2 Sync and Gen-3 Halo device in the U.S. and we will continue to consult with the FDA as part of the pre-submission process. If and when we obtain FDA clearance for the Gen-2 SYNC and/or the Gen-3 HALO devices, we will begin the commercialization of our devices for sale in the U.S. and other territories, given the potential unmet demand for the treatment of mental health conditions.

All determinations of the safety and efficacy of our devices in the United States are solely within the purview of the FDA.

Nexalin’s new advanced waveform technology will be emitted at 15 milliamps through our new and improved medical devices referred to as Gen-2 SYNC and Gen-3 HALO. The new Gen-2 SYNC is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. The Gen-3 HALO is a new patient headset we intend to be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms. The Nexalin research team believes that the new 15 milliamp SYNC and HALO devices can penetrate deeper into the brain and stimulate deep brain structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects. The Nexalin regulatory team is developing strategies for pilot trials and/or pivotal trials for various mental health disease states. In addition, a new PMA application in the United States will be in development for the treatment of depression utilizing both Gen-2 SYNC and Gen-3 HALO. We plan to execute additional pilot trials and/or pivotal trials for the new Gen-3 HALO device for anxiety and insomnia in the United States, Brazil and China throughout 2025. Preliminary data provided by The University of California, San Diego (“UCSD”) and recent published data from Asia supports the safety of utilizing our 15 milliamp waveform technology. However, the determination of safety and efficacy of medical devices in the United States is subject to review by the FDA.

Additionally, a new pre-submission document in preparation of a new 510(k) and/or De Novo application for our Gen-3 HALO headset at 15 milliamps was filed with the FDA in January of 2023. Formal comments to our pre-submission document filing were received in March of 2023. A formal meeting to address FDA comments took place on May 9, 2023. Minutes of the meeting with the FDA were filed with the FDA on May 16, 2023.

A second FDA pre-submission document was submitted on February 13, 2024. FDA comments to this second pre-submission document were received on April 26, 2024. A formal teleconference was held with the FDA on April 26, 2024. The Nexalin regulatory team and the FDA came to a consensus on the Anxiety and Insomnia Clinical research protocols.

Data from these clinical trials will also be used to support an application for the CE-mark of our Gen-2 and new Gen-3 headset devices in the European Union.

6

Joint Venture:

On May 31, 2023, the Company formalized an agreement related to the formation of a joint venture established to engage in the clinical development, marketing, sale and distribution of Nexalin’s second generation transcranial Alternating Current Stimulation (“tACS”) devices (“Gen-2 devices”) in China and other countries in the region.

The joint venture entity formed under the laws of Hong Kong, Nexalin Neurohealth Company Limited (“Joint Venture”), with Wider Come Limited (“Wider”). We own 48% of the equity of the Joint Venture entity, and Wider owns 52% of such equity.

Significant aspects of our ongoing clinical trials programs are conducted in Asia, with Wider. In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.

As of the date of this Report, (i) we have no employees or offices in China and none of our operations are conducted in China; and (ii) the Joint Venture does not maintain any variable interest entity structure or operate any data center in China.

Under the Joint Venture Agreement, Wider, is obligated to fund all operations for the initial 12-month period of the Joint Venture, after which Nexalin and Wider plan to jointly fund the Joint Venture’s operating expenses in accordance with their pro rata ownership. The Company has not been required to contribute any additional funds subsequent to the initial 12-month period to date.

The Joint Venture is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions. Wider and Nexalin own 52% and 48% of the Joint Venture, respectively. In accordance with ASC 323 Investments - Equity Method and Joint Ventures (“ASC 323”) and ASC 810 - Consolidations (“ASC 810”), the Company recognized $0 and ($1,048) for the three and six months ended June 30, 2025 and ($1,291) and $4,492 for the three and six months ended June 30, 2024, respectively, on the consolidated statements of operations and comprehensive loss.

The investment in the Joint Venture is accounted for using the equity method of accounting. As of June 30, 2025 and December 31, 2024, the Company had an Equity Method Investment of $0 and $864, respectively, recorded on the unaudited condensed consolidated balance sheets, included in Other Assets. The Company invested $96,000 in the joint venture in September 2023 and Wider invested $104,000. In accordance with ASC 323, the Company uses the equity method of accounting for its investment in the Joint Venture, an unconsolidated entity over which it does not have a controlling interest. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the unconsolidated entity’s earnings or losses. The Company evaluates the carrying amount of this investment in the Joint Venture for impairment in accordance with ASC 323. If the Company determines that a loss in the value of the investment is other than temporary, the Company writes down the investment to its estimated fair value. Any such losses are recorded to equity in income of unconsolidated entities in the Company’s consolidated statements of operations and comprehensive loss. The Company has made an election to classify distributions received from the Joint Venture using the nature of the distribution approach. Distributions received are classified as cash inflows from operating activities based on the nature of the activities of the unconsolidated entity.

7

NOTE 2 — LIQUIDITY AND GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2025, the Company had a significant accumulated deficit of approximately $88.2 (88,214,555) million. For the six months ended June 30, 2025, the Company had a loss from operations of approximately $3.6 million (3,632,083) and negative cash flows from operations of approximately $2.3 (2,343,379) million. While the Company had a working capital surplus as of June 30, 2025, of approximately $5.7 million, the Company’s operating activities consume most of its cash resources.

The Company expects to continue to incur operating losses as it executes its development plans, as well as undertaking other potential strategic and business development initiatives through 2025 and beyond. 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 issuance of convertible notes. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for at least twelve months after the date of this Report.

The Company’s ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from the joint venture and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. These plans require the Company to place reliance on several factors, including favorable market conditions, and to access additional capital in the future. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the unaudited condensed consolidated financial statements are issued. Additionally, management does not believe we have sufficient cash for the next twelve months from the issuance of the financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles in the United States (“GAAP”), for interim financial information and with the instruction for Quarterly Reports on Form 10-Q and Article 8 of Regulations S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial information includes all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position and the operating results and cash flows. Operating results for the six and three months ended June 30, 2025 and 2024 are not necessarily indicative of the results that may be expected for any other subsequent interim periods. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024 filed on March 14, 2025. The accompanying consolidated balance sheet as of December 31, 2024 has been derived from the audited financial statements included in our previously filed Annual Report on Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Nexalin and its wholly owned subsidiary Neuro-Health. Intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications were made to the prior year’s amounts to conform to the 2025 presentation. Specifically, Research and Development is now stated separately on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

8

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, which may cause the Company’s future results to be affected.

Revenue

The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

The Company has existing licensing and treatment fee agreements with its customers for the use of the Nexalin Device in their practices. These agreements generally have terms of one year with automatic renewal if certain requirements are met and amounts due per these agreements are billed monthly. The Company also sells products related to the provision of services. The Company sells its Devices in China to its acting distributor and sells products relating to the use of the Devices. The Company has a royalty agreement whereby the manufacturer of the Company’s electrodes will pay a royalty to the Company for a three-year period beginning January 1, 2022. The amount of the Royalty is equal to 20% of the amount that the manufacturer invoices to the acting distributor for the sale of the electrodes.

Revenue Streams

The Company derives revenues from our license agreements by charging a monthly licensing fee for the duration of the agreement. The Company derives revenues from equipment by selling additional individual electrodes to customers for use with the Nexalin Device. We receive revenue from the sale in China and Oman of our Devices to our distributor and from the sale of products relating to the use of those Devices. We derive revenue as a royalty fee from the China-based manufacturer for electrodes ordered in connection with our China sales.

Performance Obligations

Management identified that licensing revenue has one performance obligation. That performance obligation is satisfied if the licensing contract remains valid and is not terminated. The licensing revenue is invoiced monthly and is recognized at a point in time in which the invoice is sent to the customer.

Management identified that the Company’s Equipment and Device revenue has one performance obligation. That performance obligation is satisfied when the Equipment and Devices are shipped. The Company recognizes revenue at a point in time in which the equipment and Devices are shipped to the customer. The Company does not offer a warranty on the equipment or Devices.

Management identified that treatment fee revenue has one performance obligation. The performance obligation is satisfied upon the completion of individual treatments on patients by customers. This revenue is included in “Licensing Fee” below.

Management identified that royalty revenue has one performance obligation. The performance obligation is satisfied at the time the Electrode manufacturer notifies the Company that it has invoiced the distributor for the sale to the distributor.

9

Practical Expedients

As part of ASC 606, the Company has adopted several practical expedients including:

| ● | Significant Financing Component — the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers promised goods or services to the customer and when the customer pays for that service will be one year or less.

| ● | Unsatisfied Performance Obligations — all performance obligations related to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

| ● | Shipping and Handling Activities — the Company elected to account for shipping and handling activities as a fulfilment cost rather than as a separate performance obligation.

| ● | Right to Invoice — the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date the Company may recognize revenue in the amount to which the entity has a right to invoice.

Disaggregated Revenues

Major Revenue Streams

Revenue consists of the following by service offering:

Schedule of disaggregation of revenue |  |  |  |  |  |  |  |
|  | Three Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Licensing fee |  | $ | 10,355 |  |  | $ | 16,064 |
Equipment |  |  | 52,526 |  |  |  | 10,108 |
Other |  |  | 7,707 |  |  |  | 668 |
Total |  | $ | 70,588 |  |  | $ | 26,840 |

|  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Device sales |  | $ | - |  |  | $ | 55,500 |
Licensing fee |  |  | 27,668 |  |  |  | 37,621 |
Equipment |  |  | 72,338 |  |  |  | 11,621 |
Other |  |  | 11,597 |  |  |  | 769 |
Total |  | $ | 111,603 |  |  | $ | 105,511 |

10

Major Geographic Locations

|  | Three Months Ended June 30, |
|  | 2025 |  |  | 2024 |
U.S. sales |  | $ | 11,112 |  |  | $ | 21,688 |
International sales |  |  | 59,476 |  |  |  | 5,152 |
Total |  | $ | 70,588 |  |  | $ | 26,840 |

|  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |
U.S. sales |  | $ | 31,555 |  |  | $ | 44,858 |
International sales |  |  | 80,048 |  |  |  | 60,653 |
Total |  | $ | 111,603 |  |  | $ | 105,511 |

Contract Modifications

There were no contract modifications during the six months ended June 30, 2025 and 2024. Contract modifications are not routine in the performance of the Company’s contracts.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents held at financial institutions may at times exceed insured amounts. The Company believes it mitigates such risk by investing in or through, as well as maintaining cash balances with, with major financial institutions.

Short-Term Investments

The appropriate classification of marketable securities is determined at the time of purchase and evaluated as of each reporting balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Unrealized holding gains and losses for equity securities are recognized in earnings. Unrealized holding gains and losses for available for sale debt securities are recognized in other comprehensive income. Realized gains and losses and interest and dividends earned are included in other income, net. For individual debt securities classified as available-for-sale securities, the Company determines whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. If the decline below amortized cost is a result of credit loss or the Company will more likely than not be required to sell the security before recovery of its amortized cost basis, the Company will recognize an impairment relating to the decline through an allowance for credit losses. There were no deemed permanent impairments at June 30, 2025 and December 31, 2024, respectively.

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Accounts Receivable

Accounts receivables are reported at their outstanding unpaid principal balances, net of allowances for credit loss. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides an allowance for credit loss based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company did not record an allowance for credit loss on June 30, 2025 and December 31, 2025, respectively.

Inventory

Inventory consists of finished goods (approximately $105,000) and components (approximately $68,000) stated at the lower of cost or net realizable value (NRV) with cost determined on a first-in first-out basis. The Company reviews the composition of inventory at each reporting period in order to identify obsolete quantities in excess of demand, or otherwise non-saleable items. At June 30, 2025 and 2024, the Company did not write down inventory.

Patents and Trademarks

Patents and trademarks are amortized over their useful lives and are reviewed for impairment when warranted by economic conditions. Amortization expense was $5,125 and $9,912 and $3,792 and $6,454 for the three and six months ended June 30, 2025 and 2024, respectively.

The following table summarizes the gross carrying amount, amortization and the net carrying value at June 30, 2025 and December 31, 2024.

Schedule of patents |  |  |  |  |  |  |  |  |  |  |  |
|  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net Carrying Value |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |
Patents |  | $ | 250,997 |  |  | $ | (19,931 | ) |  | $ | 231,066 |
Trademarks |  |  | 72,908 |  |  |  | (9,103 | ) |  |  | 63,805 |
Total June 30, 2025 |  | $ | 323,905 |  |  | $ | (29,034 | ) |  | $ | 294,871 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Patents |  | $ | 215,782 |  |  | $ | (13,519 | ) |  | $ | 202,263 |
Trademarks |  |  | 64,067 |  |  |  | (5,603 | ) |  |  | 58,464 |
Total December 31, 2024 |  | $ | 279,849 |  |  | $ | (19,122 | ) |  | $ | 260,727 |

Income Taxes

The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.

The Company records valuation allowances against deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. At June 30, 2025 and December 31, 2024, the Company had a full valuation allowance applied against its net tax assets.

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Fair Value Measurements

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

| ● | Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

| ● | Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

| ● | Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques.

Fair Value of Financial Instruments

The carrying value of cash, short-term investments, accounts receivable, inventory, prepaids, accounts payable and accrued expenses, and other current liabilities approximate their fair values based on the short-term maturity of these instruments.

The following table summarizes the amortized cost, unrealized gain (loss) and the fair value at June 30, 2025 and December 31, 2024.

Schedule of unrealized loss on investments |  |  |  |  |  |  |  |  |  |  |  |
|  | Amortized Cost |  |  | Unrealized Gain (Loss) |  |  | Fair Value |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 5,360,635 |  |  | $ | 830 |  |  | $ | 5,361,465 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 2,905,951 |  |  | $ | (513 | ) |  | $ | 2,905,438 |

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The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of June 30, 2025 and December 31, 2024.

Schedule of fair value, assets measured on recurring basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Bill |  | $ | 5,000,795 |  |  | $ | 5,000,795 |  |  | $ | - |  |  | $ | - |
Mutual Funds |  |  | 360,670 |  |  |  | 360,670 |  |  |  | - |  |  |  | - |
Total June 30, 2025 |  | $ | 5,361,465 |  |  | $ | 5,361,465 |  |  | $ | - |  |  | $ | - |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Bill |  | $ | 2,650,225 |  |  | $ | 2,650,225 |  |  | $ | - |  |  | $ | - |
Mutual Funds |  |  | 255,213 |  |  |  | 255,213 |  |  |  | - |  |  |  | - |
Total December 31, 2024 |  | $ | 2,905,438 |  |  | $ | 2,905,438 |  |  | $ | - |  |  | $ | - |

Net Loss per Common Share

Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

Potentially dilutive securities are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive, and therefore basic and diluted loss per share are the same for all periods presented. The shares outstanding at the end of the respective periods presented below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

Schedule of anti-dilutive shares |  |  |  |  |  |  |  |
|  | Three Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Warrants |  |  | 2,662,250 |  |  |  | 2,662,250 |
Options |  |  | 3,038,078 |  |  |  | 2,281,879 |
Shares to be issued |  |  | 201,136 |  |  |  | - |
Total |  |  | 5,901,464 |  |  |  | 4,944,129 |

|  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Warrants |  |  | 2,662,250 |  |  |  | 2,662,250 |
Options |  |  | 3,038,078 |  |  |  | 2,281,879 |
Shares to be issued |  |  | 201,136 |  |  |  | - |
Total |  |  | 5,901,464 |  |  |  | 4,944,129 |

Stock-Based Compensation

The Company applies the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the condensed consolidated statements of operations and comprehensive loss.

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For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

Pursuant to ASU 2018-07 Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, the Company accounts for stock options and restricted shares issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.

Research and Development

Research and development costs are charged to operations as incurred. For the three and six months ended June 30, 2025 and 2024, the Company recorded $225,774 and $632,062 and $169,410 and $275,077, respectively.

Recently Adopted Accounting Pronouncements

In August of 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations: Recognition and Initial Measurement. The guidance requires newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations. The new guidance would be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. The adoption of ASU 2023-05 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In December of 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard was effective for fiscal years beginning after December 15, 2024, and required prospective application with the option to apply it retrospectively. Early adoption was permitted. The Company adopted this standard effective January 1, 2025 and has applied it prospectively. The adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Future Adoption of New Accounting Pronouncement

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the face of the income statement. The standard is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect of adopting this guidance on its unaudited condensed consolidated financial statements.

All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

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NOTE 4 — ACCRUED EXPENSES

Accrued expenses consist of the following amounts:

Schedule of accrued expenses |  |  |  |  |  |  |  |
|  | June 30, 2025 |  |  | December 31, 2024 |
Accrued – other |  |  | 87,674 |  |  |  | 61,415 |
Accrued settlement liabilities |  |  | 44,330 |  |  |  | 89,330 |
Accrued bonuses |  |  | 228,000 |  |  |  | 240,000 |
Total |  | $ | 360,004 |  |  | $ | 390,745 |

NOTE 5 — RELATED PARTY TRANSACTIONS

U.S. Asian Consulting Group, LLC

On May 9, 2018, the Company entered into a five-year consulting agreement with U.S. Asian Consulting Group, LLC (“U.S. Asian”). The consulting agreement was extended for an additional period of eight years upon the closing of our initial public offering and then subsequently again on July 1, 2024. The two members of U.S. Asian are shareholders in the Company. One of the members, Marilyn Elson is the Company’s Controller.

Pursuant to the consulting agreement, U.S. Asian provides consulting services to the Company with regard to, among other things, corporate development, financing arrangements and international operations. The Company was paying U.S. Asian $10,000 per month for services rendered pursuant to the consulting agreement. The amended agreement calls for a monthly fee of $16,667, a onetime stock grant (of 100,000 shares value at $96,000 issued in Q3 of 2024) and a semi-annual share award equal to $100,000 with the issuance and delivery of shares to take place following the termination of the consulting agreement. Current shares earned and not issued as of June 30, 2025 are 201,136. The company recorded $44,259 and $94,259 and $0 and $0 for the three and six months ended June 30, 2025 and 2024, respectively, of stock compensation related to the semi-annual stock grants earned and $50,000 and $100,000 and $30,000 and $60,000 for the three and six months ended June 30, 2025 and 2024, respectively, related to the monthly cash portion of the consulting agreement.

Officers

On July 1, 2023, the Company entered into a new employment agreement with Mark White to serve as Chief Executive Officer, a new services agreement with David Owens, M.D. to serve as Chief Medical Officer and a new employment agreement with Michael Nketiah to serve as Senior Vice President, Quality, Regulatory and Clinical Affairs. Each of the foregoing agreements are governed by three-year terms and provide compensation in the form of performance-and service-based stock option awards based on the closing price of the Company’s publicly traded common stock on the applicable date of grant. On July 29, 2024, Michael Nketiah submitted his resignation effective August 16, 2024.

Effective September 16, 2024, the Company entered into an agreement with Ms. Carolyn Shelton to serve as Senior Vice President, Quality, Regulatory and Clinical Affairs. Under the terms of her employment agreement, Ms. Shelton is entitled to nonqualified stock option grants to purchase 90,620 shares of the Company’s common stock with an exercise price of $.6621 per share, subject to certain time and performance-based vesting conditions.

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Under the terms of his employment agreement, Mr. White is entitled to (i) a sign-on/retention bonus consisting of a one-time lump-sum payment of $50,000 and a grant of nonqualified stock options to purchase 1,387,024 shares of the Company’s common stock with an exercise price of $.894 per share subject to certain time and performance-based vesting conditions. The 2023 performance-based milestones regarding Mr. White’s incentive compensation were met for 2023, and he was awarded a cash bonus of $120,000 and 313,199 nonqualified stock options with a vesting date of July 1, 2024. The 2024 performance-based milestones regarding Mr. White’s incentive compensation have been met for 2024, and he was awarded a cash bonus of $220,000 and 313,199 nonqualified stock options with a vesting date of July 1, 2025.

Under the terms of his service agreement, Dr. Owens is entitled to (i) a sign-on/retention bonus consisting of a grant of nonqualified stock options to purchase 654,362 shares of the Company’s common stock with an exercise price of $.894 per share subject to certain time and performance-based vesting conditions. The 2023 performance-based milestones regarding Dr. Owen’s incentive compensation were met for 2023, and he was awarded 271,454 nonqualified stock options with a vesting date of July 1, 2024. The 2024 performance-based milestones regarding Dr. Owen’s incentive compensation were met for 2024, and he was awarded 271,454 nonqualified stock options, which vested as of July 1, 2025. Dr. Owens was awarded an additional 125,000 vested nonqualifed stock options with an exercise price of $2.95.

Under the terms of his employment agreement Mr. Nketiah was entitled to nonqualified stock option grants to purchase 100,671 shares of the Company’s common stock with an exercise price of $.894 subject to certain time and performance-based vesting conditions.

In addition to the retention payments, stock awards and nonqualified option grants described above, Messrs. White and Nketiah are receiving cash compensation and each of Messrs. White and Nketiah are eligible for performance-based cash bonuses. The 2023 performance-based milestones regarding Mr. Nketiah’s incentive compensation were met for 2023, and he was awarded a cash bonus of $50,000 and 33,557 nonqualified stock options which vested as of July 1, 2024, which were later forfeited due to his separation.

The reported amounts are calculated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, “Compensation — Stock Compensation (“ASC 718”). ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as the options issued under our 2023 Plan.

Leases

Our principal executive office is located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “Leases”, we have two separate sub-leases (through IIcom Strategic Inc. controlled and owned by our Chief Executive Officer) totaling approximately 4,000 square feet of office space under operating leases. Management and supporting staff are hosted at this location. Our lease costs for each of the three and six months ended June 30, 2025 and 2024 were $14,050 and $28,099 and $13,500 and $27,000, respectively. The initial sub-leases expired in January of 2024. The Company has entered into a new one year sublease for 4,000 square feet of office space under an operating lease. Pursuant to the sublease, we pay and will pay the third party landlord (not the sub landlord) all direct and indirect rent costs under the primary lease directly for the leased premises. No additional payments are made to the Chief Executive Officer or the entity controlled by him.

NOTE 6 — STOCKHOLDERS’ EQUITY

Recent Issuances of Common Stock

During the three months ended March 31, 2025, the Company issued 24,406 shares of its restricted common stock to a consultant to the Company.

On April 23, 2025, the Company filed a “shelf” registration statement on Form S-3 (the “Registration Statement”) which was declared effective by the SEC on April 29, 2025. On May 6, 2025, pursuant to the Registration Statement and a prospectus supplement and prospectus which are a part thereof, the Company consummated a public offering of 3,850,000 shares of the Company’s common stock, $0.001 par value per share, resulting in aggregate gross proceeds of approximately $5,005,000, before deducting underwriting discounts and commissions and other offering expenses.

On June 5, 2025, Maxim Group LLC (the “Representative”) partially exercised its overallotment option, and pursuant to such exercise on June 6, 2025, the Company closed the offering of 240,000 shares of its common stock to the Representative, at a price of $1.30 per share, for aggregate gross proceeds of $312,000, less applicable underwriter discounts.

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Options

Nexalin’s 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders on November 10, 2023. The Plan provides that the maximum number of shares of Common Stock available for the grant of awards under the Plan shall be 1,500,000, subject to adjustment for stock dividends, stock splits or similar events. The 2023 Plan is administered by the Compensation Committee of the Board of Directors, which may in turn delegate administrative authority to one or more of our executive officers. Under the terms of the 2023 Plan, the Compensation Committee may grant equity awards, including nonqualified stock options and restricted stock to employees, officers, directors, consultants, agents, advisors and independent contractors. The 2023 Plan has been amended, most recently as of July 15, 2025, to increase the number of shares under the Plan to 9,000,000.

The amount expensed during the three and six months ended June 30, 2025 and 2024 in the unaudited condensed consolidated statements of operations and comprehensive loss related to stock options issued under the 2023 Plan was $235,351 and $470,702 and $44,060 and $88,120 respectively.

The following table presents a summary of stock option award activity during the six months ended June 30, 2025:

Schedule of stock option award activity |  |  |  |  |  |  |  |  |  |  |  |
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Life In Years |
Outstanding December 31, 2024 |  |  | 3,071,635 |  |  | $ | 1.02 |  |  |  | 7.26 |
Issued |  |  | - |  |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Expired or cancelled |  |  | (33,557 | ) |  |  | 0.89 |  |  |  | - |
Outstanding June 30, 2025 |  |  | 3,038,078 |  |  | $ | 1.02 |  |  |  | 6.81 |

The following table provides additional information about stock options that are outstanding and exercisable at June 30, 2025:

| Schedule of additional information about stock options |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise Price |  |  | Outstanding Number of Options |  |  | Weighted Average Remaining Life |  |  | Exercisable Number of Options |
$ | 0.66 |  |  |  | 90,620 |  |  | $ | 3.67 |  |  |  | - |
| 0.89 |  |  |  | 2,181,208 |  |  |  | 8.00 |  |  |  | 1,118,568 |
| 0.94 |  |  |  | 581,250 |  |  |  | 3.50 |  |  |  | 581,250 |
| 2.95 |  |  |  | 185,000 |  |  |  | 4.50 |  |  |  | 125,000 |
|  |  |  |  | 3,038,078 |  |  | $ | 6.81 |  |  |  | 1,824,818 |

The fair value of these stock option awards is estimated as of the grant date using a Black-Scholes option pricing model and the following assumptions: A risk-free interest rate based on the U.S. Treasury yield curve at the date of grant; an expected or contractual term; and expected volatility based on an evaluation of comparable public companies’ measures of volatility. The Company does not anticipate declaring dividends on common shares now or in the near future and has therefore assumed no dividend rate. No options were issued during 2025.

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Warrants

The issuance of warrants to purchase shares of the Company’s common stock are summarized as follows:

Schedule of warrants |  |  |  |  |  |  |  |
|  | Number of warrants |  |  | Weighted Average Exercise Price |
Outstanding December 31, 2024 |  |  | 2,662,250 |  |  | $ | 4.15 |
Issued |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |
Expired or cancelled |  |  | - |  |  |  | - |
Outstanding June 30, 2025 |  |  | 2,662,250 |  |  | $ | 4.15 |

The following table summarizes information about warrants to purchase shares of the Company’s common stock outstanding and exercisable at June 30, 2025:

| Summary information about warrants to purchase |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise Price |  |  | Outstanding Number of Warrants |  |  | Weighted Average Remaining Life In Years |  |  | Weighted Average Exercise Price |  |  | Exercisable Number of Warrants |
$ | 4.15 |  |  |  | 2,662,250 |  |  |  | 0.25 |  |  | $ | 4.15 |  |  |  | 2,662,250 |

The compensation expense attributed to the issuance of the warrants, if required to be recognized on the nature of the transaction, was recognized as they vested/earned. These warrants are exercisable up to three years from the date of grant. All are currently exercisable.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

There are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company other than the following:

Sarah Veltz v. Nexalin Technology, Inc. et al.

Plaintiff, Sarah Veltz, filed a lawsuit in this matter on January 20, 2021 in Orange County Superior Court (Case No. 30-2021-01180164-CU-WT-CJC) (the “Complaint”) naming the Company and others as defendants. In her Complaint, Plaintiff contended that she was employed by defendants, including Nexalin, and had not been paid all wages, including overtime wages and other benefits allegedly due her. Plaintiff also contended that, during her employment, she was subjected to sexual harassment by the Company’s then Chief Executive Officer. The plaintiff sought both compensatory and punitive damages. On March 12, 2021, the Company filed its answer to the Complaint. A mediation was held on March 5, 2025. As a result of such mediation on May 12, 2025, all parties to the action have entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”), pursuant to which (i) the defendants (including the Company) have agreed to pay a confidential settlement amount to the plaintiff, and (ii) the Plaintiff has provided a full release to the Company and its officers, shareholders, joint venturers, partners, equity partners, owners, directors, trustees, and current and former employees of any and all claims. Such settlement also includes a mutual release of any and all claims among the Company and the other defendants. The confidential settlement amount has been paid in May 2025, and the case was dismissed.

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Employment Development Department

The Company is currently engaged in settlement discussions with the Employment Development Department (EDD) of the State of California. This matter involves issues related to our previous management’s classification of certain work provided to or on behalf of the Company’s business as contract labor instead of employee labor. The total amount involved was approximately $300,000. Management has petitioned for reassessment and believes the hired workers at issue were indeed actual contractors and not employees. We have no business in California other than one part time and one full time worker residing in California. The EDD approved a significant downward adjustment in our outstanding employment tax liability to approximately $40,000 as reflected on its Statement of Account dated November 30, 2023. We plan to further negotiate with the EDD and proceed with a settlement offer. The Company has accrued $40,000 and $40,000 on the consolidated balance sheets as of June 30, 2025 and December 31, 2024, respectively. The Company believes it has adequately accrued for this matter as of June 30, 2025.

NOTE 8 — CONCENTRATION OF CREDIT RISK

Revenues

Two customers accounted for 85% of revenues for the three months ended June 30, 2025, as set forth below:

Concentration of credit risk |  |  |  |
Customer A |  |  | 73 | %
Customer B - related party |  |  | 12 | %

Six customers accounted for 90% of revenues for the three months ended June 30, 2024, as set forth below:

Customer A |  |  | 25 | %
Customer B |  |  | 15 | %
Customer C |  |  | 14 | %
Customer D |  |  | 14 | %
Customer E |  |  | 11 | %
Customer F |  |  | 11 | %

Three customers accounted for 71% of revenues for the six months ended June 30, 2025, as set forth below:

Customer A |  |  | 46 | %
Customer B |  |  | 14 | %
Customer C - related party |  |  | 11 | %

Two customers accounted for 67% of revenues for the six months ended June 30, 2024, as set forth below:

Customer A |  |  | 56 | %
Customer B |  |  | 11 | %

Accounts Receivable

Two customers accounted for 99% of the accounts receivable as of June 30, 2025, as set forth below:

Customer A |  |  | 86 | %
Customer B |  |  | 13 | %

Three customers accounted for 88% of accounts receivable at December 31, 2024.

Customer A |  |  | 50 | %
Customer B - related party |  |  | 23 | %
Customer C |  |  | 15 | %

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NOTE 9 — SEGMENT INFORMATION

The Company views its operations and manages its business as one operating and reportable segment, which is the business of designing and developing innovative neurostimulation products. The Company’s focus centers around the treatment of various mental health conditions without the need for drugs or psychotherapy. Consistent with the operational structure, the Chief Executive Officer, as the chief operating decision maker (“CODM”), manages and allocates resources on a consolidated basis. This decision-making process reflects the way in which the financial information is regularly reviewed and used by the CODM to evaluate performance, set operational targets, forecast future financial results, and allocate resources.

The Company’s CODM assesses financial performance and allocates resources based on consolidated net loss that also is reported on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. The CODM utilizes consolidated net loss by comparing actual results against budgeted amounts on a quarterly basis. As part of this process, consolidated net loss is a critical performance measure used to evaluate the Company’s operating performance and guide strategic decisions and resource allocations, including additional investments in research and development and commercialization activities.

The following table provides information about the Company’s one reportable segment and includes the reconciliation to consolidated net loss.

Schedule of segment reporting information |  |  |  |  |  |  |  |
|  | Three Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Total revenues |  | $ | 70,588 |  |  | $ | 26,840 |
Less: |  |  |  |  |  |  |  |
Cost of revenues (excluding amortization and depreciation) |  |  | 22,838 |  |  |  | 7,247 |
Research and development expense (excluding share-based compensation expense): |  |  |  |  |  |  |  |
Clinical trials |  |  | 122,176 |  |  |  | 9,587 |
Halo Project |  |  | 90,534 |  |  |  | 118,299 |
Desktop project |  |  | 11,700 |  |  |  | 41,524 |
Other research and development |  |  | 1,364 |  |  |  | - |
Selling, general and administrative and Salaries and Benefits expense (excluding stock based compensation and amortization expense) |  |  | 687,012 |  |  |  | 594,161 |
Amortization |  |  | 5,125 |  |  |  | 3,793 |
Stock based compensation |  |  | 572,100 |  |  |  | 308,283 |
Professional fees |  |  | 178,597 |  |  |  | 240,967 |
Interest income, net |  |  | (4,690 | ) |  |  | (66 | )
Equity in net (income) loss from equity method investees |  |  | - |  |  |  | 1,291 |
Other income |  |  | (35,181 | ) |  |  | (13,753 | )
Segment net loss |  |  | (1,580,987 | ) |  |  | (1,284,493 | )
Reconciliation of net loss |  |  |  |  |  |  |  |
Adjustments and reconciling items |  |  | - |  |  |  | - |
Consolidated net loss |  | $ | (1,580,987 | ) |  | $ | (1,284,493 | )

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|  | Six Months Ended June 30, |
|  | 2025 |  |  | 2024 |
Total revenues |  | $ | 111,603 |  |  | $ | 105,511 |
Less: |  |  |  |  |  |  |  |
Cost of revenues (excluding amortization and depreciation) |  |  | 36,396 |  |  |  | 16,403 |
Research and development expense (excluding share-based compensation expense): |  |  |  |  |  |  |  |
Clinical trials |  |  | 201,578 |  |  |  | 10,825 |
Halo Project |  |  | 388,571 |  |  |  | 221,776 |
Desktop project |  |  | 35,413 |  |  |  | 41,523 |
Other research and development |  |  | 6,500 |  |  |  | 953 |
Selling, general and administrative and Salaries and Benefits expense (excluding stock based compensation and amortization expense) |  |  | 1,309,958 |  |  |  | 1,239,882 |
Amortization |  |  | 9,912 |  |  |  | 6,454 |
Stock based compensation |  |  | 1,208,945 |  |  |  | 469,632 |
Professional fees |  |  | 546,413 |  |  |  | 468,796 |
Interest income, net |  |  | (5,793 | ) |  |  | (370 | )
Equity in net (income) loss from equity method investees |  |  | 1,048 |  |  |  | (4,492 | )
Other income |  |  | (58,014 | ) |  |  | (40,221 | )
Segment net loss |  |  | (3,569,324 | ) |  |  | (2,325,650 | )
Reconciliation of net loss |  |  |  |  |  |  |  |
Adjustments and reconciling items |  |  | - |  |  |  | - |
Consolidated net loss |  | $ | (3,569,324 | ) |  | $ | (2,325,650 | )

NOTE 10 — SUBSEQUENT EVENTS

On July 17, 2025, the Company entered into an employment agreement with Justin Van Fleet (the “Employment Agreement”), pursuant to which Mr. Van Fleet agreed to serve as the Chief Financial Officer of the Company, with the first date of employment to commence on August 1, 2025 (the “Commencement Date”). Under the agreement, Mr. Van Fleet will receive an annual base salary of $250,000. He will also receive a onetime grant of (x) 25,000 of unregistered shares of the Common Stock of the Company and (y) a stock option exercisable into 130,435 shares of the Company’s common stock on the grant date, each of the unregistered shares and stock option are subject to the terms of the Company’s 2023 Equity Incentive Plan, as amended. One half of the stock option will vest on the six-month anniversary of the Commencement Date, and the other one half of the option will vest on the one-year anniversary of such date. The Employment Agreement also provides for Mr. Van Fleet to be eligible to receive certain discretionary cash bonus payments.

In July of 2025, the Company entered into a five-year Transition and Consulting Agreement with Marilyn Elson, the Company’s controller, commencing on her voluntary retirement date of September 30, 2025. Consideration of the above agreement will be the issuance of a stock option exercisable into 300,000 shares of unregistered shares of the Company’s common stock on the grant date and are subject to the terms of the Company’s 2023 Equity Incentive Plan, as amended. Fifty (50%) of the option vests immediately, 10% on October 1, 2025, and the remaining 40% on equal increments on each subsequent October 1.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report and our audited 2024 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 14, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.

The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with GAAP.

Overview

Gen-1:

We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device — referred to as “Generation 1” or “Gen-1” — that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit a waveform at 4 milliamps during treatment and are presently classified by the U.S. Food and Drug Administration (the “FDA”) as a Class II device for anxiety and insomnia and Class III for depression.

Medical professionals in the United States have utilized the Gen-1 device to administer treatment to patients in clinical settings. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, three prevalent and serious diseases, because of the FDA’s December 2019 reclassification of CES devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia. We are required to file a new application under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“510(k) Application”) to be approved by the FDA for the sales and marketing of our devices for the treatment of anxiety and insomnia. In the FDA’s December 2019 reclassification ruling, the treatment of depression with our device will require a Class III certification and require a new PMA (premarket approval) and/or a new De Novo application to demonstrate safety and effectiveness.

While we continue providing services to medical professionals to support patients’ use of the Gen-1 devices which were in operation prior to December 2019, we are not making new sales or new marketing efforts of Gen-1 devices in the United States. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcement. This revenue consists of monthly licensing fees and payments for the sale of electrodes and patient cables. We have paused marketing efforts for new sales of our Gen-1 device for treatment of anxiety and insomnia in the United States. Our regulatory team continues have discussions with the FDA regarding the suspension of the marketing and sale of the Gen-1 products to new providers.

Gen-2 SYNC and Gen-3 HALO:

Beginning in 2019, Nexalin engineers began the testing and design of a new 15 milliamp waveform that became the basis of our new “Generation 2” or “Gen-2” and new “Generation 3” or “Gen-3” medical devices. Today the Gen-2 is branded under a new trademark name known as “SYNC”, the Gen-3 is branded under a new trademark name known as “HALO”. The Gen-2 SYNC and Gen-3 HALO are in the Q-submission process for review by the FDA. This process allows Nexalin to get clear, specific, written feedback from the FDA on indications, device classification and clarity on the regulatory pathway and improves the efficiency and predictability of the regulatory pathway.

We plan to conduct clinical trials for the Gen-2 SYNC and Gen-3 HALO devices in the U.S. and we will continue to consult with the FDA as part of the pre-submission process. If and when we obtain FDA clearance for the Gen-2 SYNC and/or the Gen-3 HALO device, we will begin the commercialization of our devices for sale in the U.S. and other territories, given the potential unmet demand for the treatment of mental health conditions.

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All determinations of the safety and efficacy of our devices in the United States are solely within the purview of the FDA

Nexalin’s new advanced waveform technology will be emitted at 15 milliamps through our new and improved medical devices referred to as Gen-2 SYNC and Gen-3 HALO. The new Gen-2 SYNC is a clinical use device with a modern enclosure emitting the new 15 milliamp advanced waveform. The Gen-3 HALO is a new patient headset that is intended to be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms. The Nexalin research team believes that the new 15 milliamp Gen-2 SYNC and Gen-3 HALO devices can penetrate deeper into the brain and stimulate deep brain structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects. The Nexalin regulatory team is developing strategies for pilot trials and/or pivotal trials for various mental health disease states. In addition, a new PMA application in the United States is in strategic development for the treatment of depression utilizing both Gen-2 SYNC and Gen-3 HALO. We plan to execute additional pilot trials and/or pivotal trials for the new Gen-3 HALO device for anxiety and insomnia in the United States, Brazil and China throughout 2025.

The University of California, San Diego conducted a clinical study evaluating Nexalin’s Gen-2 SYNC device, which provided positive results in reducing pain in veteran patients with Mild Traumatic Brain Injury (mTBI). Preliminary data provided by The University of California, San Diego and recent published data from Asia supports the safety of utilizing our 15 milliamp waveform technology. However, the determination of safety and efficacy of medical devices in the United States is subject to clearance by the FDA.

Currently, the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States and around the world. Determinations of the safety and efficacy of our devices in the United States are solely within the purview of the FDA.

A new pre-submission document in preparation of a new 510(k) and/or De Novo application for our Gen-3 HALO headset at 15 milliamps was filed with the FDA in January of 2023. Formal comments to our pre-submission document filing were received in March of 2023. A formal meeting to address FDA comments took place on May 9, 2023. Minutes of the meeting with the FDA were filed with the FDA on May 16, 2023.

A second FDA pre-submission document was submitted on February 13, 2024. FDA comments to this second pre-submission document were received on April 26, 2024. A formal teleconference was held with the FDA on April 26, 2024. The Nexalin regulatory team and the FDA came to a consensus on the Insomnia Clinical research protocols for insomnia assessment scales and timeline end points and patient population size.

The Nexalin regulatory team plans to use data from these clinical trials will also be used to support an application for the CE-mark of our Gen-2 and new Gen-3 headset devices in the European Union.

In part due to increasing incidence attributed to the devastating impacts of the COVID-19 pandemic, mental health and cognitive disorders are widespread across the globe and cause substantial health, social and economic losses, and hardships. Our focus is on the continued development of our innovative bioelectronic medical technologies and rapid regulatory approval. We intend to help reverse these losses, and hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.

All our products are non-invasive, safe and undetectable to the human body and can provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary and protected design that stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as a waveform - particularly our proprietary, 15 milliamp patented waveform. Additionally, our devices generate a high frequency carrier wave for deeper penetration into the brain. It is applied to the brain with an array of electrodes on the forehead and behind each ear at the mastoid. The features of this proprietary waveform and the array of electrodes allow the application of the waveform to the entire brain rather than a small, targeted area of the brain. To ensure deeper penetration into the brain, our new advanced waveform is undetectable which allows the increased power from < 4 mAmps to 15 mAmps, more than a 400% increase without incurring any patient discomfort, risk, or adverse side effects. By increasing the power, our waveform can penetrate deeper into the brain and stimulate deep mid-brain structures associated with mental illness. Our research and clinical teams believe that a more powerful waveform will create a stronger response in the brain. A stronger response creates a higher level of efficacy. This entire proprietary technique allows Nexalin to provide a non-invasive frequency based waveform that provides a comfortable treatment, that is undetectable to the patient and is more powerful than other stimulation device on the market. Current pilot study protocols and randomized clinical trials have been designed and submitted to the FDA to provide feedback on final reports and data sets for the purpose of safety and efficacy evaluations in the future. Determinations of the safety and efficacy of our devices is solely within the purview of the FDA.

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Strategic plans are in development to use the data from these clinical trials to support an application for the CE-mark of our SYNC clinical and HALO headset devices in the European Union.

The global rise in mental health and cognitive disorders is causing widespread suffering and hardship. These conditions have far-reaching consequences for individuals, families, and communities. Our focus is on the continued development of our innovative bioelectronic medical technologies and regulatory approval. Our intention is to help reverse these losses, and the hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.

Beyond the well-known safety, efficacy, and side-effect concerns surrounding conventional mental health treatments such as Electro-Convulsive Therapy (ECT), drugs, and psychotherapy, the stigma associated with mental illness continues to hinder individuals from seeking the help they need. We have received industry reports and feedback that many patients that struggle with mood disorders have the stigma of embarrassment associated with psychiatrists and psychotherapy (e.g., counselling with a therapist). Additional stigmas and other issues are associated with the side effects and dependance of medication prescribed by psychiatrists.

To address the embarrassment stigma, we are developing a new virtual clinic that will allow the physician to diagnose a mental health issue in the privacy of a tele-psychiatry virtual platform. After diagnosis, the physician can prescribe the Nexalin Gen-3 HALO headset to the patient for treatment. Next, the HALO device will be shipped to the patient’s home. After the patient receives the device, they will pair the headset device with an app in the patient’s smart phone. The app will communicate with the Nexalin cloud servers to authorize the device for treatment according to the protocol designed by the physician. The physician will monitor treatment compliance and other health related issues in a private physician dashboard that connects through the Nexalin app and cloud servers. We believe that to preserve product safety and integrity for home use, the headset device will require physician oversight that will include a prescription for use with a monthly authorization provided by the physician after a monthly virtual visit. All appointments will be in a virtual setting to provide privacy and convenience for the physician and patient. The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage.

Our original China Gen-2 15 milliamp device was approved in China by the China National Medical Products Administration (the "NMPA”) for the treatment of insomnia and depression in China. This device and all other clinical devices will include single use electrodes for long term revenue streams. The USA Gen-2 SYNC device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2025. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased and leased devices to the new symmetric15-milliamp waveform. Our Gen-2 SYNC device will be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device. The purpose of RFID is to track and maintain control of the proprietary single use electrode. Our electrode chip will be programmed to exchange data with the device and allow activation for a single treatment with a new electrode only. This ensures a recurring revenue stream on the device and protects against any generic knockoffs designed to avoid treatment costs. This upgrade in technology also ensures the proprietary nature of the electrodes that support treatment outcomes.

Significant aspects of our ongoing clinical trials are conducted in Asia with Wider Come Limited (“Wider”). In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.

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This device and all other clinical devices will include single use electrodes for long term revenue streams. The USA Gen-2 SYNC device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2025. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased and leased devices to the new symmetric15-milliamp waveform. Our Gen-2 SYNC device will be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device. The purpose of RFID is to track and maintain control of the proprietary single use electrode. Our electrode chip will be programmed to exchange data with the device and allow activation for a single treatment with a new electrode only. This ensures a recurring revenue stream on the device and protects against any generic knockoffs designed to avoid treatment costs. This upgrade in technology also ensures the proprietary nature of the electrodes that support treatment outcomes.

Overall, we believe that our advanced waveform, technological upgrades and the development of a modern headset monitored with our IT management platform will position us with the opportunity to disrupt the traditional mental health treatment model. Our mission is to remove the stigma of expensive psychotherapy or pharmaceuticals with the attendant side effects and dependency issues and replace such stigma with clinically proven and cost-effective technology that is easily accessible in the privacy of the patient’s home and monitored by licensed healthcare providers.

In addition to our core business model, we have also formed a Military & Government Advisory Board aimed at fostering and enhancing relationships within and throughout United States federal government and public sector organizations, including the U.S. Department of Defense, U.S. Department of Veterans Affairs, and U.S. Department of Health and Human Services. In conjunction with our ongoing clinical trials, our goals include the broad deployment of our devices within the U.S. military and government agencies.

Recent Developments

Oman

The Sultanate of Oman’s Ministry of Health granted conditional approval for use of our Gen-2 device on June 16, 2022, effective upon the end user of our device opening and operating a mental health care clinic being constructed in Oman. The Company’s first shipment of a device to Oman was made on January 30, 2024 and received in Oman on February 5, 2024 in connection with the opening of the end user’s clinic, rendering the approval effective. Two additional devices were shipped to Oman on February 29, 2024 and were received by the end user on March 6, 2024. Upon receipt of the two additional devices, the end user’s clinic was operational, and the use of the device to treat patients commenced pursuant to the approval.

Brazil

On June 13, 2024, the Company announced that our Gen-2 device had been granted regulatory approval by the Brazilian Health Regulatory Agency, a regulatory body of the Brazilian government responsible for approving new drugs and medical devices.

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Results of Operations

Comparison of the three months ended June 30, 2025 and 2024

Our financial results for the three months ended June 30, 2025 and 2024 are summarized as follows:

|  | Three Months Ended June 30, |  |  |  |  |  |  |
|  | 2025 |  |  | 2024 |  |  | Change |  |  | Change(1) |
|  |  |  |  |  |  |  | $ |  |  | % |
Revenues, net |  | $ | 70,588 |  |  | $ | 26,840 |  |  | $ | 43,748 |  |  |  | 163 | %
Cost of revenues |  |  | 22,838 |  |  |  | 7,247 |  |  |  | 15,591 |  |  |  | 215 | %
Gross profit |  |  | 47,750 |  |  |  | 19,593 |  |  |  | 28,157 |  |  |  | 144 | %
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional fees |  |  | 178,597 |  |  |  | 240,967 |  |  |  | (62,370 | ) |  |  | (26 | )%
Salaries and benefits |  |  | 370,401 |  |  |  | 307,480 |  |  |  | 62,921 |  |  |  | 20 | %
Selling, general and administrative |  |  | 893,836 |  |  |  | 598,757 |  |  |  | 295,079 |  |  |  | 49 | %
Research and development |  |  | 225,774 |  |  |  | 169,410 |  |  |  | 56,364 |  |  |  | 33 | %
Total operating expenses |  |  | 1,668,608 |  |  |  | 1,316,614 |  |  |  | 351,994 |  |  |  | 27 | %
Loss from operations |  |  | (1,620,858 | ) |  |  | (1,297,021 | ) |  |  | (323,837 | ) |  |  | 25 | %
Other income, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income, net |  |  | 4,690 |  |  |  | 66 |  |  |  | 4,624 |  |  |  | 7006 | %
Gain on sale of short-term investments |  |  | 32,438 |  |  |  | 11,719 |  |  |  | 20,719 |  |  |  | 177 | %
Other income |  |  | 2,743 |  |  |  | 2,034 |  |  |  | 709 |  |  |  | 35 | %
Total other income, net |  |  | 39,871 |  |  |  | 13,819 |  |  |  | 26,052 |  |  |  | 189 | %
Loss before provision for income taxes |  | $ | (1,580,987 | ) |  | $ | (1,283,202 | ) |  | $ | (297,785 | ) |  |  | 23 | %
Provision for income taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 0 | %
Loss before equity in net earnings (loss) of affiliate |  |  | (1,580,987 | ) |  |  | (1,283,202 | ) |  |  | (297,785 | ) |  |  | 23 | %
Equity in net earnings (loss) of affiliate |  |  | - |  |  |  | (1,291 | ) |  |  | 1,291 |  |  |  | (100 | )%
Net loss |  | $ | (1,580,987 | ) |  | $ | (1,284,493 | ) |  | $ | (296,494 | ) |  |  | 23 | %
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain from short-term investments |  |  | 513 |  |  |  | 245 |  |  |  | 268 |  |  |  | 109 | %
Comprehensive loss |  | $ | (1,580,474 | ) |  | $ | (1,284,248 | ) |  | $ | (296,226 | ) |  |  | 23 | %

| (1) | Percentages may not foot due to rounding.

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Revenues

For the three months ended June 30, 2025 and 2024, we generated $70,588 and $26,840 respectively, of revenue primarily from the sale of supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from equipment by selling boards, electrodes and patient cables to customers for use with our device. The increase in revenue for the three months ended June 30, 2025 compared to the same period in 2024 was primarily due to a large shipment of boards to China during the second quarter of 2025.

Cost of Revenues and Gross Profit

For the three months ended June 30, 2025 and 2024, cost of revenues was $22,838 and $7,247, respectively, yielding a gross profit of $47,750 and $19,593, respectively, or 68% and 73%, respectively. Such decrease in gross profit was a result of the mix of revenue types during each quarter as licensing fees comprised a larger portion of total revenue for the prior period and contributed a higher margin.

Operating Expenses

Total operating expenses for the three months ended June 30, 2025 and 2024 were $1,668,608 and $1,316,614, respectively, resulting in an increase of $351,994. The overall increase was a result of an increase in salaries and benefits of $62,921, selling, general and administrative expenses of $295,079 and research and development costs of $56,364, offset by a decrease in professional fees of $62,370.

The salaries and benefits increase of $62,921 was primarily attributable to additional compensation related to one new employee and normal pay and benefit increases throughout the organization.

Selling, general and administrative cost increase of $295,079 were due to approximately $260,000 of increased stock-based compensation recognized during this three-month period ended compared to the same period in the prior year. Additionally, consulting expenses increased by approximately $50,000 during this period for additional international distribution services.

The research and development cost increase of $56,364 was due to the increased cost of Clinical Trials of approximately $112,000 due to UCSD for the initial costs of trial study, of approximately $50,000 and additional development expenses of approximately $62,000 related to the App. This was offset by a decrease of approximately $30,000 on our Desktop project and approximately $27,000 on the Halo development project due to timing.

Professional fees decreased by $62,370 because of a significant decrease in national ad spending during this three-month period ended compared to the prior year.

Other Income, Net

Other income, net for the three months ended June 30, 2025 and 2024 was $39,871 and $13,819, respectively, consisting of interest and dividend income and gain on the sale of short-term investments. An increase in the gain on sale of short-term investments drove the increase for the period.

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Comparison of the six months ended June 30, 2025 and 2024

Our financial results for the six months ended June 30, 2025 and 2024 are summarized as follows:

|  | Six Months Ended June 30, |  |  |  |  |  |  |
|  | 2025 |  |  | 2024 |  |  | Change |  |  | Change(1) |
|  |  |  |  |  |  |  | $ |  |  | % |
Revenues, net |  | $ | 111,603 |  |  | $ | 105,511 |  |  | $ | 6,092 |  |  |  | 6 | %
Cost of revenues |  |  | 36,396 |  |  |  | 16,403 |  |  |  | 19,993 |  |  |  | 122 | %
Gross profit |  |  | 75,207 |  |  |  | 89,108 |  |  |  | (13,901 | ) |  |  | (16 | )%
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional fees |  |  | 546,413 |  |  |  | 468,796 |  |  |  | 77,617 |  |  |  | 17 | %
Salaries and benefits |  |  | 705,759 |  |  |  | 633,897 |  |  |  | 71,862 |  |  |  | 11 | %
Selling, general and administrative |  |  | 1,823,056 |  |  |  | 1,082,071 |  |  |  | 740,985 |  |  |  | 68 | %
Research and development |  |  | 632,062 |  |  |  | 275,077 |  |  |  | 356,985 |  |  |  | 130 | %
Total operating expenses |  |  | 3,707,290 |  |  |  | 2,459,841 |  |  |  | 1,247,449 |  |  |  | 51 | %
Loss from operations |  |  | (3,632,083 | ) |  |  | (2,370,733 | ) |  |  | (1,261,350 | ) |  |  | 53 | %
Other income, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income, net |  |  | 5,793 |  |  |  | 370 |  |  |  | 5,423 |  |  |  | 1466 | %
Gain on sale of short-term investments |  |  | 52,557 |  |  |  | 36,665 |  |  |  | 15,892 |  |  |  | 43 | %
Other income |  |  | 5,457 |  |  |  | 3,556 |  |  |  | 1,901 |  |  |  | 53 | %
Total other income, net |  |  | 63,807 |  |  |  | 40,591 |  |  |  | 23,216 |  |  |  | 57 | %
Loss before provision for income taxes |  | $ | (3,568,276 | ) |  | $ | (2,330,142 | ) |  | $ | (1,238,134 | ) |  |  | 53 | %
Provision for income taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 0 | %
Loss before equity in net earnings (loss) of affiliate |  |  | (3,568,276 | ) |  |  | (2,330,142 | ) |  |  | (1,238,134 | ) |  |  | 53 | %
Equity in net earnings (loss) of affiliate |  |  | (1,048 | ) |  |  | 4,492 |  |  |  | (5,540 | ) |  |  | (123 | )%
Net loss |  | $ | (3,569,324 | ) |  | $ | (2,325,650 | ) |  | $ | (1,243,674 | ) |  |  | 53 | %
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain from short-term investments |  |  | 1,343 |  |  |  | 405 |  |  |  | 938 |  |  |  | 232 | %
Comprehensive loss |  | $ | (3,567,981 | ) |  | $ | (2,325,245 | ) |  | $ | (1,242,736 | ) |  |  | 53 | %

| (1) | Percentages may not foot due to rounding.

Revenues

For the six months ended June 30, 2025 and 2024, we generated $111,603 and $105,511 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from equipment by selling boards, electrodes and patient cables to customers for use with our device. The increase in revenue for the six months ended June 2025 compared to 2024 was primarily due to an increase in equipment sales of approximately $60,000, from a large sale of boards to China during the six months ended June 30, 2025, offset by a decrease in Device sales for the periods due to a large device sale to Oman during 2024.

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Cost of Revenues and Gross Profit

For the six months ended June 30, 2025 and 2024, cost of revenues was $36,396 and $16,403, respectively, yielding a gross profit of $75,207 and $89,108, respectively, or 67% and 84%, respectively. Such decrease in gross profit was a result of the mix of revenue types during the six months periods as licensing fees and devices comprised a larger portion of total revenue for the prior period, and drives a higher margin compared to equipment sales.

Operating Expenses

Total operating expenses for the six months ended June 30, 2025 and 2024 were $3,707,290 and $2,459,841, respectively, consisting of increases in salaries and benefits expenses of $71,862, selling, general and administrative expenses of $740,895, research and development expenses of $356,985 and in professional fees expenses of $77,617.

The Salaries and benefits cost increases of $71,862 were primarily attributable to additional compensation related to one new employee and normal pay and benefit increases throughout the organization.

Selling, general and administrative cost increases of $740,985 were due to approximately $740,000 of increased stock-based compensation recognized during this six-month period ended compared to the same period in the prior year.

The research and development cost increases of $356,985 was due to the increased cost of Clinical Trials of approximately $190,000 due to UCSD for the initial costs of trial study, of approximately $114,000 and additional development expenses of approximately $80,000 related to the App. In addition, the Halo development project had increased costs of approximately $166,000 during the period.

The increase in professional fees of $77,617 were primarily due to increases in accounting, legal and other consulting costs primarily attributable to increased services during the period from the capital raise and other registration statement activity.

Other Income, Net

Other income, net for the six months ended June 30, 2025 and 2024 was $63,807 and $40,591, respectively, consisting of interest and dividend income and gain on the sale of short-term investments. An increase in gain on sale of short-term investments drove the increase for the six-month period.

Cash Flows

The following table summarizes our consolidated cash flows for the six months ended June 30, 2025 and 2024:

|  | June 30, 2025 |  |  | June 30, 2024 |
Net cash used in operating activities |  | $ | (2,343,379 | ) |  | $ | (2,009,704 | )
Net cash provided by (used in) investing activities |  | $ | (2,446,183 | ) |  | $ | 2,278,270 |
Net cash provided by financing activities |  | $ | 4,646,397 |  |  | $ | - |

Net Cash Used In Operating Activities

Net cash used in operating activities was $2,343,379 for the six months ended June 30, 2025, as compared to $2,009,704 for the respective period in 2024, an increase of approximately $334,000, which was primarily due to an increase in net loss of approximately $1.2 million, or approximately $512,000 adjusted for non-cash expenses. The remaining change was due to changes in operating assets and liabilities for the respective periods; a decrease in accounts payable of approximately $149,000 and accrued expenses of approximately $106,000, offset by decreases in prepaid assets of approximately $89,000 and accounts receivable of approximately $46,000.

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Net Cash Provided By (Used In) Investing Activities

Net cash provided by (used in) investing activities during the six months ended June 30, 2025, and 2024 was $(2,466,183) and $2,278,270, respectively, which was due to short-term investment sales of approximately $17.7 million offset by purchases of $20.1 million of short-term investments and the purchase of patents and trademarks of approximately $44,000. Net cash provided by investing activities during the six months ended June 30, 2024, of $2,278,270 was due to short-term investment sales of approximately $9.2 million offset by purchases of $6.8 million of short-term investments and the purchase of patents and trademarks of approximately $127,000.

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2025 and 2024 was $4,646,397 and $0, respectively, which was due to the sale of common stock.

Uses and Availability of Additional Funds

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

| ● | successful enrolment in, and completion of clinical trials;

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

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

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

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

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

| ● | competing effectively with other therapies;

| ● | obtaining and maintaining healthcare coverage and adequate reimbursement;

| ● | protecting our rights in our intellectual property portfolio; and

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

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Liquidity and Capital Resources

As of June 30, 2025, the Company had a significant accumulated deficit of $88.2 million. For the six months ended June 30, 2025, the Company had a loss from operations of $3.6 million and negative cash flows from operations of $2.3 million. The Company’s operating activities consume the majority of its cash resources. The Company will continue to service existing customers in the United States and sell devices and equipment overseas. The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2025 and beyond, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity. As of June 30, 2025, the Company had cash and cash equivalents on hand of approximately $431,000 and short-term investments of $5.4 million.

Our ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from the joint venture and other overseas ventures and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. Although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of June 30, 2025 and have concluded that we will not have sufficient cash and short-term investments to satisfy our anticipated cash requirements for the next twelve months from the issuance of these financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 3, “Summary of Significant Accounting Policies and New Accounting Standards” of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2024 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s unaudited condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2024 Form 10-K.

Recently Adopted Accounting Pronouncements

In August of 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations: Recognition and Initial Measurement. The guidance requires newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations. The new guidance would be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. The adoption of ASU 2023-05 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In December of 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard was effective for fiscal years beginning after December 15, 2024, and required prospective application with the option to apply it retrospectively. Early adoption was permitted. The Company adopted this standard effective January 1, 2025 and has applied it prospectively. Adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

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Future Adoption of New Accounting Pronouncement

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the face of the income statement. The standard is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect of adopting this guidance on its unaudited condensed consolidated financial statements.

All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

Contractual Obligations

See Note 7 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile. We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period. We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

Continued Nasdaq Listing

On May 10, 2023, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no longer in compliance with the minimum bid price requirement for continued listing on Nasdaq, as the closing bid price for the Company’s common stock was below $1.00 per share as set forth in the Nasdaq listing rules. The Company was afforded 180 calendar days, or until November 6, 2023, to regain compliance with the Nasdaq listing rules. The Company was unable to regain compliance with the bid price requirement by November 6, 2023.

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On November 7, 2023, the Company submitted a letter to NASDAQ requesting a second 180-day period in order to regain compliance with NASDAQ Rule 5550(a)(2). The Company stated in that letter that it believed it will be able to cure the deficiency and increase its stock price to above $1.00 per share pursuant to its plan to do so.

On November 7, 2023, the Company received written notice from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company was not eligible for an additional 180 calendar day compliance period because the Company no longer complied with Nasdaq’s $5 million minimum stockholder equity initial listing requirement.

On January 18, 2024, the Nasdaq Hearing Panel granted the Company a temporary exception to regain compliance with the Minimum Bid Price Rule until March 27, 2024.

On March 6, 2024, the Nasdaq Hearing Panel granted the Company a temporary exception to regain compliance with the Minimum Bid Price Rule until April 25, 2024.

On March 7, 2024, The Company’s stockholders approved a proposed amendment to Nexalin’s Certificate of Incorporation (the “Amendment”), pursuant to which Nexalin’s Board of Directors is authorized, in its discretion, to proceed with a reverse stock split. The exact ratio of the reverse stock split would be within the 1-for-4 to 1-for-14 range, and, if enacted, will be determined by our Board and publicly announced by the Company prior to the effective time of the reverse stock split. The sole purpose for the proposed reverse stock split was to increase the per share market price of the Company’s Common Stock to meet the Nasdaq Minimum Bid Price Rule for continued listing on The Nasdaq Capital Market. The filing of the Amendment and the reverse stock split was only to be implemented if Nexalin’s Board determined they were necessary to regain and maintain compliance with the Nasdaq Minimum Bid Price Rule. The Company regained compliance with Nasdaq’s Minimum Bid Price Rule without the necessity of a reverse stock split and the Board did not exercise the authority given to it to file the proposed Amendment.

On April 23, 2024, the Company received notice from Nasdaq notifying the Company that it has regained compliance with Nasdaq’s minimum bid price requirement under Nasdaq Rule 5550(a)(2).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Disclosure Controls and Procedures

We have adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, our management, including our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, management identified material weaknesses in our internal control over financial reporting. The material weaknesses identified to date include: (i) lack of sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of financial information used in financial reporting and review of controls over the financial reporting process, including documentation of review of reconciliations; and (ii) insufficient IT controls which are effectively designed and implemented, specifically related to user/superuser access to the Company’s financial reporting system.

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As of June 30, 2025, based on evaluation of these disclosure controls and procedures, management concluded that our disclosure controls and procedures were not effective. To address our material weakness, we intend to engage an outside firm to advise on our financial reporting processes and intend to implement new financial accounting controls and processes. We intend to continue to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting systems, subject to budget limitations. We will not be able to remediate these control deficiencies until these steps have been completed and have been operating effectively for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. The redesign and implementation of improvements to our accounting and proprietary systems and controls may be costly and time consuming and the cost to remediate may impair our results of operations in the future.

In light of the conclusion that our disclosure controls and procedures were not effective at June 30, 2025, we have applied particular procedures and processes as necessary to ensure the reliability of our financial reporting with respect to this quarterly report. Accordingly, we believe, based on our knowledge that: (i) this quarterly report does not contain any untrue statement of material fact or omit a statement of material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations, and cash flows as of and for the periods presented in this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors.

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Except as set forth below, there have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024. These risks and uncertainties have the potential to materially affect our results of operations and our financial condition. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Recently announced changes to U.S. trade policy, including recently announced tariffs, could adversely affect our business.

Recently, the United States has implemented a range of new tariffs and increases to existing tariffs. In response to the tariffs announced by the United States, other countries have imposed, are considering imposing, and may in the future impose new or increased tariffs on certain exports from the United States. There is currently significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, taxes, government regulations and tarrifs, and the Company cannot predict whether, and to what extent, current tariffs will continue or trade policies will change in the future.

If significant tariffs or other restrictions continue to be placed on foreign imports by the United States, our sales and results of operations may be harmed. For example, ongoing trade tensions between the United States and China have led to a series of significant tariffs on the importation of certain product categories into the United States over recent years. In retaliation for these tarrifs, China has recently placed restrictions on its exports.

Such tariff developments could have a significant impact on our business, particularly the importation of products used in our business that are manufactured outside the United States, or could result in our products exported from the United States being subject to retaliatory tariffs imposed by other countries.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibits and Financial Statement Schedules.

| (a) | Exhibits.

Exhibit Number |  | Description of Document
1.1(2) |  | Underwriting Agreement dated as of September 15, 2022 between the Company and Maxim Group LLC
1.2(11) |  | Equity Distribution Agreement between the Company and Maxim Group LLC
1.3(12) |  | Underwriting Agreement dated May 4, 2025 between the Company and Maxim Group LLC
3.1(1) |  | Certificate of Incorporation, as amended and as currently in effect.
3.2(1) |  | Amended and Restated Bylaws
4.1(1) |  | Form of Specimen stock certificate evidencing shares of common stock
4.2(3) |  | Warrant Agreement between the Company and Continental Stock Transfer and Trust company as warrant agent dated as of September 16, 2022
4.3(3) |  | Form of Warrant Certificate (filed as part of Exhibit 4.2)
10.1(5) |  | Joint Venture Agreement between the Company and Wider Come Limited dated as of May 31, 2023.
10.2(5) |  | Employment Agreement between the Company and Mark White dated as of July 1, 2023.
10.3(5) |  | Services Agreement between the Company and David Owens, M.D. dated as of July 1, 2023.
10.4(1) |  | Quality Assurance Agreement between the Company and Apical Instruments dated December 31, 2020.
10.5(1) |  | Advisor Agreement with Leonard Osser dated as of December 22,2021
10.6(1) |  | Advisor Agreement with Tucker Anderson dated as of December 24, 2021
10.7(1) |  | Advisor Agreement with Gian Domenico Trombetta dated December 24, 2021
10.8(1) |  | Employment Agreement between the Company and Marilyn Elson dated as of January 11, 2022
10.9(1) |  | Amendment and Deferral Agreement dated as of March 30, 2022 to Consulting Agreement between the Company and US Asian Consulting Group LLC
10.10(5) |  | Employment Agreement between the Company and Michael Nketiah dated as of July 1, 2023.
10.11(1) |  | Form of Lock-Up Agreement.
10.12(1) |  | Consulting Agreement dated as of May 9, 2018 between the Company and US Asian Consulting Group, LLC, as amended on January 2, 2019 and March 4, 2021
10.13(4) |  | Amended and Restated Promissory Note in favor Mark White dated as of January 1, 2023
10.14(1) |  | Distribution Authorization Agreement dated as of May 1, 2019 with Wider Come Limited.
10.15(6) |  | Form of Lock-Up Agreement
10.16(6) |  | Form of Securities Purchase Agreement
10.17(7) |  | Placement Agency Agreement
10.18(8) |  | Letter Agreement between the Company and Carolyn Shelton
10.19(9) |  | Supplier Quality Agreement dated as of December 20, 2024 between the Company and Velentium
10.20(14) |  | Employment Agreement between the Company and Justin Van Fleet dated as of July 21, 2025
19.1(10) |  | Nexalin Technology, Inc. Insider Trading Policy

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31.1(13) |  | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2(13) |  | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1(13) |  | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2(13) |  | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
97.1(10) |  | Nexalin Technology, Inc. Compensation Recoupment Policy
99.1(1) |  | Code of Ethics
99.2(1) |  | Audit Committee Charter
99.3(1) |  | Compensation Committee Charter
99.4(1) |  | Nominating and Corporate Governance Committee Charter

(1) | Previously filed as an exhibit to Form S-1 as declared effective by the SEC on September 15, 2022 (SEC File Number 333-261989).
(2) | Previously filed as an exhibit to Form 8-K as filed with the SEC on September 20, 2022.
(3) | Previously filed as an exhibit to Form 8-K/A as filed with the SEC on September 20, 2022.
(4) | Previously filed as an exhibit to Form 10-Q as filed with the SEC on May 10, 2023.
(5) | Previously filed as an exhibit to Form 10-Q as filed with the SEC on August 10, 2023.
(6) | Previously filed as an exhibit to Form S-1/A as declared effective by the SEC on June 27, 2024 (SEC File Number 333-279684).
(7) | Previously filed as an exhibit to Form 8-K as filed with the SEC on July 3, 2024.
(8) | Previously filed as an exhibit to Form 8-K as filed with the SEC on September 19, 2024.
(9) | Previously filed as an exhibit to Form S-1/A as filed with the SEC on January 30, 2025 (SEC File Number 333-283960).
(10) | Previously filed as an exhibit to Form 10-K/A as filed with the SEC on April 15, 2025.
(11) | Filed as an exhibit to Form S-3 as declared effective by the SEC on April 29, 2025 (SEC File No. 333-286711).
(12) | Previously filed as an exhibit to Form 8-K as filed with the SEC on May 6, 2025.
(13) | Filed as an exhibit to this Form 10-Q.
(14) | Previously filed as an exhibit to Form 8-K as filed with the SEC on July 21, 2025.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on the 6th day of August, 2025.

| NEXALIN TECHNOLOGY, INC.
| By: | /s/ Mark White
|  | Mark White
|  | Chief Executive Officer Principal Executive Officer

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