Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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.

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 and 2026.

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.

In October 2025, the FDA formally accepted our Q-Submission ("Q-Sub") related to the Company's Gen-2 Console ("SYNC") system for the treatment of Alzheimer's disease and dementia, with a regulatory meeting scheduled for later this year. This acceptance of the Company's request for interaction with the FDA with respect to its Gen-2 SYNC system represents a significant step toward Nexalin's goal of achieving FDA authorization to begin U.S. clinical studies targeting Alzheimer's and dementia - two of the most urgent unmet needs in healthcare. The Q-Submission process enables structured dialogue with and feedback from the FDA to discuss proposed clinical trial design, study endpoints, and regulatory pathway for evaluating the Gen-2 SYNC system as a potential non-invasive therapy for these debilitating neurodegenerative conditions, as well as for mild to moderate cognitive impairment (MCI) associated with Alzheimer's disease.

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.

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.

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.

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.

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 Widerto market and sell the Gen-2 device in China for the treatment of insomnia and depression.

Military & Government

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.

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.

Results of Operations

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

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

		Three Months Ended September 30,
		2025				2024				Change				Change(1)
										$				%
Revenues, net		$	18,149			$	36,031			$	(17,882	)			(50	)%
Cost of revenues			3,948				12,694				(8,746	)			(69	)%
Gross profit			14,201				23,337				(9,136	)			(39	)%
Operating expenses:
Professional fees			265,149				262,303				2,846				1	%
Salaries and benefits			448,084				294,175				153,909				52	%
Selling, general and administrative			1,420,079				1,796,811				(376,732	)			(21	)%
Research and development			226,520				178,565				47,955				27	%
Total operating expenses			2,359,832				2,531,854				(172,022	)			(7	)%
Loss from operations			(2,345,631	)			(2,508,517	)			162,886				(6	)%
Other income, net:
Interest income, net			2,288				1,000				1,288				129	%
Gain on sale of short-term investments			46,774				56,250				(9,476	)			(17	)%
Other income			20,258				2,851				17,407				611	%
Total other income, net			69,320				60,101				9,219				15	%
Loss before provision for income taxes		$	(2,276,311	)		$	(2,448,416	)		$	172,105				(7	)%
Provision for income taxes			-				-				-				0	%
Loss before equity in net earnings (loss) of affiliate			(2,276,311	)			(2,448,416	)			172,105				(7	)%
Equity in net earnings (loss) of affiliate			-				159				(159	)			(100	)%
Net loss		$	(2,276,311	)		$	(2,448,257	)		$	171,946				(7	)%
Other comprehensive income:
Unrealized gain (loss) from short-term investments			(1,461	)			(325	)			(1,136	)			350	%
Comprehensive loss		$	(2,277,772	)		$	(2,448,582	)		$	170,810				(7	)%

(1)

Percentages may not foot due to rounding.

Revenues

For the three months ended September 30, 2025 and 2024, we generated approximately $18,000and $36,000respectively, of revenue primarily 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 devices. The decrease in revenue for the three months ended September 30, 2025 compared to the same period in 2024 was primarily due to less License fee revenue derived in 2025 compared to 2024, along with decreased Equipment sales in 2025 compared to 2024due to timing of needs of customers of electrodes and other supplies.

Cost of Revenues and Gross Profit

For the three months ended September 30, 2025 and 2024, cost of revenues was approximately $4,000 and $13,000, respectively, yielding a gross profit of approximately $14,000and $23,000, respectively, or 78% and65%, respectively. Such increase 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 current periodand contributed a higher margin.

Operating Expenses

Total operating expenses for the three months ended September 30, 2025 and 2024 were approximately $2,360,000and $2,532,000, respectively, resulting in a decrease of approximately $172,000. The overall decrease was a result of a decrease in selling, general and administrative expenses of approximately $377,000offset by an increasein professional fees of approximately $3,000, increase in salaries and benefits of approximately $154,000and an increase in research and development costs of approximately $48,000.

The salaries and benefits increase of approximately $154,000was primarily attributable to additional compensation related to three new employeesin 2025and normal pay, taxesand benefit increases throughout the organization.

The selling, general and administrative cost decrease of approximately $377,000 was due to approximately $450,000of decreased stock-based compensation recognized during this three-month period ended compared to the same period in the prior year. This was offset by increases inconsulting expenses by approximately $36,000 during this period for additional international distribution servicesand other advisory services, approximately $30,000 increased supplies expensed during this current periodand anetincrease of approximately $7,000 for various other expense categories.

The research and development cost increase of approximately $48,000was due to the increased cost of approximately $35,000 on the Halo Development project,$53,000 on general R&D activities, including software and board developmentsand additional development expenses of approximately $30,000 related to the App. This was offset by a decreases in Clinical Trials of approximately $50,000 due to timing of trial expensesand a decrease of approximately $20,000 on our SYNC Desktop project

Professional fees increased by approximately $3,000 which was consistent comparing each period.

Other Income, Net

Other income, net for the three months ended September 30, 2025 and 2024 was consistenteach periodof approximately $69,000 and $60,000, respectively, primarily consisting of interest and dividend income and gain on the sale of short-term investments.

Comparison of the nine months ended September 30, 2025 and 2024

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

		Nine Months Ended September 30,
		2025				2024				Change				Change(1)
										$				%
Revenues, net		$	129,752			$	141,542			$	(11,790	)			(8	)%
Cost of revenues			40,344				29,097				11,247				39	%
Gross profit			89,408				112,445				(23,037	)			(20	)%
Operating expenses:
Professional fees			811,562				731,099				80,463				11	%
Salaries and benefits			1,153,843				928,072				225,771				24	%
Selling, general and administrative			3,243,135				2,878,882				364,253				13	%
Research and development			858,582				453,642				404,940				89	%
Total operating expenses			6,067,122				4,991,695				1,075,427				22	%
Loss from operations			(5,977,714	)			(4,879,250	)			(1,098,464	)			23	%
Other income, net:
Interest income, net			8,081				1,370				6,711				490	%
Gain on sale of short-term investments			99,331				92,915				6,416				7	%
Other income			25,715				6,407				19,308				301	%
Total other income, net			133,127				100,692				32,435				32	%
Loss before provision for income taxes		$	(5,844,587	)		$	(4,778,558	)		$	(1,066,029	)			22	%
Provision for income taxes			-				-				-				0	%
Loss before equity in net earnings (loss) of affiliate			(5,844,587	)			(4,778,558	)			(1,066,029	)			22	%
Equity in net earnings (loss) of affiliate			(1,048	)			4,651				(5,699	)			(123	)%
Net loss		$	(5,845,635	)		$	(4,773,907	)		$	(1,071,728	)			22	%
Other comprehensive income:
Unrealized gain (loss) from short-term investments			(119	)			80				(199	)			(249	)%
Comprehensive loss		$	(5,845,754	)		$	(4,773,827	)		$	(1,071,927	)			22	%

(1)

Percentages may not foot due to rounding.

Revenues

For the nine months ended September 30, 2025 and 2024, we generated approximately $130,000 and $142,00 respectively, of revenue primarily from the sale of devices and licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month to customers. In addition, we derived revenue from equipment by selling boards, electrodes and patient cables to customers for use with our device. The decrease in revenue for the nine months ended September 2025 compared to 2024 was primarily due to an decrease in Device sales of approximately $56,000 from a large Device sale to Oman during 2024 and a decrease in Licensing fees of approximately $17,000. This was offset by an increase in Equipment sales of approximately $49,000 from a large sale of boards to China during the nine months ended September 30, 2025 and an increase of approximately $12,000 of other revenue from increased shipping charges.

Cost of Revenues and Gross Profit

For the nine months ended September30, 2025 and 2024, cost of revenues was approximately $40,000and $30,000, respectively, yielding a gross profit of approximately $90,000and $112,000, respectively, or 68% and 79%, respectively. Such decrease in gross profit was a result of the mix of revenue types during the nine 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 nine months ended September 30, 2025 and 2024 were approximately $6,067,000and $4,992,000, respectively, consisting of increases in;salaries and benefits expenses of approximately $226,000, selling, general and administrative expenses of approximately $364,000, research and development expenses of approximately $405,000and in professional fees expenses of approximately $80,000.

The salaries and benefits cost increases of approximately $226,000 was primarily attributable to additional compensation related to threenew employeesand normal pay, taxesand benefit increasethroughout the organization.

Selling, general and administrative cost increases of approximately $364,000 was due to approximately $283,000of increased stock-based compensation recognized during this nine-month period ended compared to the same period in the prior year. Additionally, consulting expensesincreased approximately $116,000 for additional international distribution servicesand other advisory services, offset by decreases in insurance of approximately $48,000, in travel expenses of approximately $52,000. The remaining net increase of approximately $65,000 was due to various immaterial changes in various accounts during the period.

The research and development cost increases of approximately $405,000was due to the increased cost of approximately $201,000 associated with the Halo development project, increase of approximately $64,000 for clinical trials(UCSD and Brazil), increase of approximately $113,000 for development cost related to the APP, and approximately $57,000 on general R&D activities, including software and board developments, offset by approximately $30,000 of decreased costs related to the SYNC desktop.

The increase in professional fees of approximately $80,000 wasprimarily due to increases of approximately $75,000 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 nine months ended September 30, 2025 and 2024 were approximately $133,000and $101,000, respectively, consisting of interest and dividend income and gain on the sale of short-term investments. The increase in gain on sale of short-term investments, interest income and reduction in accrued settlement for the EDD matterdrove the increase for the nine-month period.

Cash Flows

The following table summarizes our consolidated cash flows for the nine months ended September30, 2025 and 2024:

		September 30, 2025				September 30, 2024
Net cash used in operating activities		$	(3,809,636	)		$	(2,809,914	)
Net cash used in investing activities		$	(821,171	)		$	(2,205,079	)
Net cash provided by financing activities		$	4,646,397			$	4,516,184

Net Cash Used In Operating Activities

Net cash used in operating activities was approximately $3,810,000for the nine months ended September 30, 2025, as compared to approximately $2,810,000for the respective period in 2024, an increase of approximately $1,000,000, which was primarily due to an increase in net loss of approximately $1,072,000, or approximately $785,000adjusted 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 $95,000, a decrease in prepaid expensesand other current assetsof approximately $179,000, increasein inventoryof approximately $16,000, an increasein lease liability of approximately $4,000, a increasein accrued expenses of approximately $28,000and increase in accounts receivable of approximately $11,000.

Net Cash Used In Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2025, and 2024 was approximately $821,000and $2,205,000, respectively. For the nine months ended September 30, 2025 this was due to short-term investment sales of approximately $31,247,000offset by purchases of approximately $32,005,000of short-term investments and the purchase of patents and trademarks of approximately $63,000. Net cash provided by investing activities during the ninemonths ended September 30, 2024, of approximately $2,205,000was due to short-term investment sales of approximately $22,349,000offset by purchases of approximately $24,400,000 of short-term investments and the purchase of patents and trademarks of approximately $154,000.

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2025 and 2024 was approximately $4,646,000and $4,516,000, respectively, which was due to the sale of common stockin each period.

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.

Liquidity and Capital Resources

As of September 30, 2025, the Company had a significant accumulated deficit of approximately $90,491,000. For theninemonths ended September 30, 2025, the Company had a loss from operations of approximately$5,846,000and negative cash flows from operations of approximately $3,810,000. 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 September 30, 2025, the Company had cash and cash equivalents on hand of approximately $590,000and short-term investments of approximately $3,763,000.These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for at least twelve months after the date of this Report.

Our ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from 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 September 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. 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. 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 unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and, as such, include amounts based on informed estimates and judgments of management. 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 financial statements that require estimation but are not deemed critical, as defined above.

Recently Adopted Accounting Pronouncements

See Note 3 - Summary of significant accounting policies and new accounting standards in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of recently adopted accounting pronouncements.

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.

Nasdaq

InSeptember of2025, the warrants expired, anda Form 25 was filed with the Securities and Exchange Commission to indicate that the warrants had expired and were delisted. The common stock of the Company will continue to trade on the Nasdaq Capital Market under the symbol NXL.