Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

You should read the following discussion and analysis of financial condition and operating results together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Report and our audited 2025 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 25, 2026.

References in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "us," "we," "our," and similar terms refer to Nexalin Technology, Inc. and its subsidiaries. This discussion contains forward-looking statements as that term is defined within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. The events described in forward-looking statements contained in this discussion may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions that may be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.

Overview

Nexalin Technology, Inc. is a medical device company focused on developing innovative neurostimulation products to address the global mental health epidemic. The Company generates limited domestic revenue primarily from legacy Gen-1 device licensing fees and electrode sales, as U.S. marketing of new Gen-1 devices has been paused following the FDA's December 2019 reclassification of cranial electrotherapy stimulation devices and international sales of our Gen-2 device and supplies. During fiscal year 2025 and the first quarter of 2026, the Company advanced its next-generation product development, with the FDA formally accepting the Company's Q-Submission for its Gen-2 SYNC system targeting Alzheimer's disease and dementia, and clinical trials for the Gen-3 HALO device for insomnia in the United States. Management's priorities include obtaining FDA clearance for its Gen-2 and Gen-3 devices and executing U.S. clinical trials. The Company faces significant challenges, including substantial doubt about its ability to continue as a going concern due to recurring losses and negative cash flows, a requirement to regain compliance with Nasdaq's minimum bid price requirement, and material weaknesses in internal control over financial reporting related to segregation of duties and IT access controls. The neurostimulation industry remains competitive and subject to rapid technological change, and the Company's success depends on its ability to obtain regulatory approvals, protect its intellectual property, and achieve market acceptance for its products.

Recent Developments

Insomnia FDA Study:

On April,17, 2026, the Company entered into a Scope of Work (the "SOW") with Lindus Health Limited ("Lindus Health"), a clinical research organization based in the United Kingdom. The SOW is governed by a Master Services Agreement ("MSA") previously entered into between the parties and sets forth the terms under which Lindus Health will conduct the Company's pivotal clinical trial for its HALO Clarity device (the "Pivotal Study").

Under the SOW, the Company will pay Lindus Health direct fees in an aggregate amount of approximately $944,820, plus certain pass-through expenses. Payments of direct fees are structured on a milestone basis, and pass-through expenses are invoiced on a monthly basis.

The term of the SOW continues until completion of all services described therein, unless terminated earlier in accordance with the MSA. The SOW provides that certain changes to the Pivotal Study, such as addition of new clinical sites, increases in enrolled participants, protocol amendments after study start-up, amendments to critical analyses, extension of study duration, and requests for additional platform features or integrations, will require a change order, which may result in adjustments to the scope, budget, or timeline.

Results of Operations

Comparison of the three months ended March 31, 2026 and 2025

Our financial results for the three months ended March 31, 2026 and 2025 are summarized as follows:

		Three Months Ended March 31,
		2026				2025				Change				Change(1)
										$				%
Revenues, net		$	14,950			$	41,015			$	(26,065	)			(64	%)
Cost of revenues			1,817				13,558				(11,741	)			(87	%)
Gross profit			13,133				27,457				(14,324	)			(52	%)
Operating expenses:
Professional fees			495,296				367,816				127,480				35	%
Salaries and benefits			498,560				335,358				163,202				49	%
Selling, general and administrative			792,797				929,220				(136,423	)			(15	%)
Research and development			346,382				406,288				(59,906	)			(15	%)
Total operating expenses			2,133,035				2,038,682				94,353				5	%
Loss from operations			(2,119,902	)			(2,011,225	)			(108,677	)			5	%
Other income, net:
Interest income, net			34				1,103				(1,069	)			(97	%)
Gain on sale of short-term investments			21,025				20,119				906				5	%
Other income			2,006				2,714				(708	)			(26	%)
Total other income, net			23,065				23,936				(871	)			(4	%)
Loss before provision for income taxes		$	(2,096,837	)		$	(1,987,289	)		$	(109,548	)			6	%
Provision for income taxes			-				-				-				0	%
Loss before net loss of affiliate			(2,096,837	)			(1,987,289	)			(109,548	)			6	%
Net loss of affiliate			-				(1,048	)			1,048				(100	%)
Net loss		$	(2,096,837	)		$	(1,988,337	)		$	(108,500	)			5	%
Other comprehensive income:
Unrealized gain from short-term investments			88				830				(742	)			(89	%)
Comprehensive loss		$	(2,096,749	)		$	(1,987,507	)		$	(109,242	)			5	%

(1)

Percentages may not foot due to rounding.

Revenues

For the three months ended March 31, 2026 and 2025, we generated approximately $15,000 and $41,000, respectively, primarily derived from licensing and treatment fee agreements with our customers. Under these arrangements, we charge a monthly licensing fee for the duration of the agreement and may also collect fees based on the number of treatments performed each month. In addition, we generate revenue from equipment sales, including boards, electrodes, and patient cables used with our devices, as well as related shipping income.

The decrease in revenue for the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to lower equipment sales to an international customer during the current period. We expect device and equipment-related revenue to continue to fluctuate period to period based on customer purchasing patterns, particularly with respect to international customers.

Cost of Revenues and Gross Profit

For the three months ended March 31, 2026 and 2025, cost of revenues was approximately $2,000 and $14,000, respectively, resulting in gross profit of approximately $13,000 and $27,000, respectively, and gross margins of 88% and 66%, respectively. The increase in gross margin was primarily attributable to changes in revenue mix, as licensing fees comprised a larger portion of total revenue in the current period and carry higher margins.

We expect gross margins to continue to be influenced by the relative proportion of licensing revenue versus device and equipment-related sales in future periods.

Operating Expenses

Total operating expenses for the three months ended March 31, 2026 and 2025 were approximately $2,133,000 and $2,039,000, respectively, an increase of approximately $94,000. The increase was primarily attributable to higher professional fees and increased salaries and benefits, partially offset by decreases in selling, general and administrative expenses and research and development costs.

Professional fees increased by approximately $127,000, primarily due to higher marketing and investor relations expenses of approximately $145,000, partially offset by a decrease in accounting and legal fees of approximately $38,000. The remaining increase relates to changes in other immaterial expense categories.

Salaries and benefits increased by approximately $163,000, primarily attributable to headcount additions in the latter half of 2025, accrued bonuses recognized in the first quarter of 2026, and routine increases in wages, payroll taxes, and employee benefits.

Selling, general and administrative expenses decreased by approximately $136,000, primarily due to a decrease of approximately $158,000 in stock-based compensation recognized during the three months ended March 31, 2026 compared to the same period in the prior year. Consulting expenses also decreased by approximately $53,000, reflecting reduced international consulting activity. These decreases were partially offset by increases in regulatory and compliance costs of approximately $57,000, related to compliance audits and regulatory consulting, and an increase of approximately $18,000 in travel expenses.

Research and development expenses decreased by approximately $60,000, primarily due to a reduction of approximately $209,000 in costs associated with the Halo development project, as the units have transitioned from development into production for an upcoming clinical trial, as well as a reduction of approximately $24,000 related to the SYNC Desktop project. These decreases were partially offset by an increase of approximately $137,000 in clinical trial expenses and approximately $36,000 in software development costs, including continued development of the app and EDC platform.

We expect research and development expenses to fluctuate in future periods based on the timing and scope of clinical trials, as well as continued investment in software and platform development.

Other Income, Net

Other income, net, for the three months ended March 31, 2026 and 2025 was approximately $23,000 and $24,000, respectively, and remained consistent between periods. Other income primarily consists of interest and dividend income, as well as gains on the sale of short-term investments.

Liquidity and Capital Resources

Working Capital

		March 31, 2026				December 31, 2025
Current assets		$	3,290,154			$	4,299,270
Current liabilities			808,364				887,333
Working capital		$	2,481,790			$	3,411,937

Current assets decreased for the three months ended March 31, primarily due to decreases in short-term investments and cash and cash equivalents resulting from cash used in operating activities, partially offset by proceeds from drawdowns under our at-the-market ("ATM") program.

Current liabilities decreased for the three months ended March 31, 2026, primarily due to a decrease in accounts payable resulting from the timing of vendor payments.

We expect fluctuations in working capital in future periods to be driven by the timing of operating expenditures, vendor payments, and capital raising activities, including potential continued use of the ATM program.

"At-the-Market" Offering

On October 15, 2025, we entered into the Second Amendment to the Original Agreement with Maxim, under which we currently have the ability to issue and sell shares of our common stock, from time to time, through Maxim, up to an aggregate offering price of approximately $4,273,000.

For the three months ended March 31, 2026 we have sold 1,395,300 shares of our common stock under the ATM program for net proceeds of approximately $756,000.

As of March 31, 2026 we have sold a total of 2,086,707 shares of our common stock under the ATM program for gross proceeds of approximately $1,423,000.

Cash Flows

The following table summarizes our consolidated cash flows for the three months ended March 31, 2026 and 2025:

		March 31, 2026				March 31, 2025
Net cash used in operating activities		$	(1,712,988	)		$	(1,426,214	)
Net cash provided by investing activities		$	1,509,679			$	1,473,758
Net cash provided by financing activities		$	756,421			$	-

Net Cash Used In Operating Activities

Net cash used in operating activities was approximately $1,713,000 for the three months ended March 31, 2026, as compared to approximately $1,426,000 for the respective period in 2025, an increase of approximately $287,000, which was primarily due to an increase in net loss of approximately $109,000, or approximately $262,000 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 $102,000, an increase in prepaid expenses and other current assets of approximately $90,000, decrease in inventory of approximately $47,000, a decrease in accrued expenses of approximately $5,000 and increase in accounts receivable of approximately $40,000.

Net Cash Provided by Investing Activities

Net cash provided by investing activities during the three months ended March 31, 2026 and 2025 was approximately $1,510,000 and $1,474,000, respectively. For the three months ended March 31, 2026 this was due to sales of short-term investments of approximately $5,590,000 offset by purchases of approximately $4,001,000 of short-term investments and the purchase of equipment, patents and trademarks of approximately $79,000. Net cash provided by investing activities during the three months ended March 31, 2025 of approximately $1,474,000 was due to sales of short-term investments of approximately $6,496,000 offset by purchases of approximately $4,999,000 of short-term investments and the purchase of patents and trademarks of approximately $24,000.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2026 and 2025 was approximately $756,000 and $0, respectively, which was due to sales under our ATM program in the three months ended March 31, 2026 period. No such financing occurred during the three months ended March 31, 2025.

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 devices, which are selling internationally where it is approved for certain utilizations by medical practitioners, the successful development of our future products is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of Gen-3 and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive. This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of:

●

successful enrolment in, and completion of clinical trials;

●

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

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

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competing effectively with other therapies;

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obtaining and maintaining healthcare coverage and adequate reimbursement;

●

protecting our rights in our intellectual property portfolio; and

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

Liquidity

As of March 31, 2026, the Company had a significant accumulated deficit of approximately $94,964,000. For the three months ended March 31, 2026, the Company had a net loss from operations of approximately $2,120,000 and negative cash flows from operations of approximately $1,713,000. The Company will continue to service existing customers in the United States as well as sell devices and equipment overseas. The Company's operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans including clinical trials through 2026 and beyond, as well as other potential strategic and business development initiatives. Management believes that additional capital may be required to fund the Company's planned clinical and operating activities, including the pivotal insomnia study, beyond its current cash resources. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity and utilization of our ATM program. As of March 31, 2026, the Company had cash and cash equivalents on hand of approximately $1,208,000 and short-term investments of approximately $1,501,000. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for at least twelve months after the date of this Report.

The Company believes that the acquisition of the licensed technology noted in the recent developments above, together with the related collaboration arrangement, will support its long-term strategic objectives by enhancing its technology platform and enabling potential new product offerings. However, these initiatives may require additional capital resources to fully develop and commercialize, and there can be no assurance that the Company will achieve the anticipated benefits within the expected timeframes.

Our ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from overseas opportunities and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. Although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of March 31, 2026 and have concluded that we will not have sufficient cash and cash equivalents and short-term investments to satisfy our anticipated cash requirements for the next twelve months from the issuance of these unaudited condensed consolidated financial statements. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company's ability to continue as a going concern within twelve months from the issuance of these unaudited condensed consolidated financial statements. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Commitments and Contingencies

As of March 31, 2026, the Company had no material commitments or contingencies. See Note 7 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

We prepare our unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our unaudited condensed consolidated financial statements that require estimation but are not deemed critical, as defined above.

Recent Accounting Pronouncements

Refer to Note 3 to the unaudited condensed consolidated financial statements for a description of recently issued accounting pronouncements. Management does not anticipate a material impact on the Company's financial position or results of operations from these pronouncements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Minimum Bid Price Requirement

We are required to maintain a minimum bid price of $1.00 per share. On January 21, 2026, the Company received a deficiency letter (the "Notice") from the Listing Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that, based upon the closing bid price of the Company's common stock, for the last 30 consecutive business days, the Company is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Requirement").

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