Nexalin Technology, Inc. 10-Q

Item 1. Financial Statements NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 622,029 $ 574,485 Short-term investments 1,429,050 2,905,438 Accounts receivable (Includes related party of $ 3,403 and $ 3,007 , respectively) 14,479 13,043 Inventory 175,253 174,578 Prepaid expenses and other current assets 379,780 293,597 Total Current Assets 2,620,591 3,961,141 Intangible assets, net 279,520 260,727 Equity Method Investment - 864 Total Assets $ 2,900,111 $ 4,222,732 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 181,394 $ 155,949 Accrued expenses (Includes related party of $ 240,000 and $ 240,000 , respectively) 393,342 390,745 Total Current Liabilities 574,736 546,694 Total Liabilities 574,736 546,694 Commitments and Contingencies (Note 7) Stockholders’ Equity: Common stock, $ 0.001 par value; 100,000,000 shares authorized; 13,327,929 and 13,303,523 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively 13,328 13,304 Accumulated other comprehensive gain (loss) 317 ( 513 ) Additional paid in capital 88,945,298 88,308,478 Accumulated deficit ( 86,633,568 ) ( 84,645,231 ) Total Stockholders’ Equity 2,325,375 3,676,038 Total Liabilities and Stockholders’ Equity $ 2,900,111 $ 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 March 31, 2025 2024 Revenues, net (Includes related party of $ 3,583 and $ 300 , respectively) $ 41,015 $ 78,671 Cost of revenues 13,558 9,156 Gross profit 27,457 69,515 Operating expenses: Professional fees 367,816 227,829 Salaries and benefits 335,358 326,417 Selling, general and administrative 929,220 483,313 Research and development 406,288 105,668 Total operating expenses 2,038,682 1,143,227 Loss from operations ( 2,011,225 ) ( 1,073,712 ) Other income, net: Interest income, net 1,103 304 Gain on sale of short-term investments 20,119 24,946 Other income 2,714 1,522 Total other income, net 23,936 26,772 Loss before provision for income taxes ( 1,987,289 ) ( 1,046,940 ) Provision for income taxes - - Loss before equity in net earnings of affiliate ( 1,987,289 ) ( 1,046,940 ) Equity in net earnings (loss) of affiliate ( 1,048 ) 5,783 Net loss ( 1,988,337 ) ( 1,041,157 ) Other comprehensive income: Unrealized gain from short-term investments 830 160 Comprehensive loss $ ( 1,987,507 ) $ ( 1,040,997 ) Net loss per share attributable to common stockholders - Basic and Diluted $ ( 0.15 ) $ ( 0.14 ) Weighted Average Shares Outstanding - Basic and Diluted 13,307,319 7,436,562 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 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 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) Three Months Ended March 31, 2025 2024 Cash flows from operating activities: Net loss $ ( 1,988,337 ) $ ( 1,041,157 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation 636,844 161,349 Amortization 4,786 2,662 Non-cash lease expense - 496 Gain on sale of short-term investments ( 20,119 ) ( 24,946 ) Return on investment in Joint Venture 864 ( 5,783 ) Changes in operating assets and liabilities: Accounts receivable ( 1,040 ) 100 Accounts receivable - related party ( 396 ) 5,603 Prepaid assets ( 86,183 ) 53,693 Inventory ( 675 ) 2,752 Accounts payable 25,445 ( 8,024 ) Accrued expenses 2,597 94,429 Lease liability - ( 4,463 ) Net cash used in operating activities ( 1,426,214 ) ( 763,289 ) Cash flows from investing activities: Sale of short-term investments 6,496,000 6,235,053 Purchase of short-term investments ( 4,998,663 ) ( 5,439,431 ) Purchase of patents ( 20,540 ) ( 47,593 ) Purchase of trademarks ( 3,039 ) ( 18,715 ) Net cash provided by investing activities 1,473,758 729,314 Net increase (decrease) in cash and cash equivalents 47,544 ( 33,975 ) Cash and cash equivalents - beginning of period 574,485 580,230 Cash and cash equivalents - end of period $ 622,029 $ 546,255 Non-cash investing and financing activities: Unrealized gain on short-term investments $ 830 $ 160 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 from December 6, 2019 (Inception) through March 31, 2025. 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. Our shares and warrants began trading 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 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 FDA as a Class II device. 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 to have discussions with the FDA regarding the suspension of the marketing and sale of the Gen-1 products to new providers. 5 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. Determinations of the safety and efficacy of our devices in the United States are solely within the authority of the FDA. We plan to conduct decentralized 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. 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 has made a strategic decision to develop strategies for pilot trials and/or pivotal trials in 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 develop a strategic schedule 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 beginning in the third or fourth quarter of 2025. 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. Additionally, a new pre-submission document in preparation of a new 510(k) and/or de novo 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 30, 2024. The Nexalin regulatory team and the FDA came to a consensus on the Anxiety and Insomnia Clinical research protocols. 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 the 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 devices 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 are solely within the authority of the FDA. 6 Currently, the waveform that comprises the basis of Gen-2 SYNC clinical and HALO 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 authority 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. 7 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. 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 Nexilin’s Gen-2 SYNC device in China and other countries in the region. The Joint Venture is registered in Hong Kong. Under the Joint Venture Agreement, Wider Come Limited (“Wider”), a related party, 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 Joint Venture conducts research, development and clinical studies of our devices, which supplements similar activities being conducted by Nexalin in the United States. The Joint Venture is responsible for funding all clinical trial and development costs incurred in China. We share associated economic responsibility for these expenses under the terms of the Joint Venture Agreement. The Joint Venture may provide clinical safety and efficacy data to support study designs of trials conducted in the U.S. This data will serve as an important regulatory precursor towards the advancement of our efforts in securing 510(k) and/or De Novo clearance from the FDA for our devices. As of the date of this Quarterly Report on Form 10-Q, we have no employees or an office in China and none of our operations are conducted in China. The Joint Venture does not maintain any variable interest entity structure or operate any data center in China. The Joint Venture is controlled by a Board of Directors in which Wider has 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 $ ( 1,048 ) and $ 5,783 for the three months ended March 31, 2025 and 2024 of equity method investment income (loss) from the Joint Venture on a one-quarter reporting lag, on the condensed consolidated statements of operations and comprehensive loss. The investment in the Joint Venture is accounted for using the equity method of accounting. As of March 31, 2025 and December 31, 2024 the Company had an Equity Method Investment of $ 0 and $ 864 , respectively, recorded on the condensed consolidated balance sheets. 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. 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. 8 Continued Nasdaq Listing Our shares of our common stock are listed on the Capital Market tier of the Nasdaq Stock Market, or Nasdaq, under the symbol “NXL.” Nasdaq has rules for continued listing, including, without limitation, minimum market capitalization, minimum stockholders’ equity and other requirements. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including the Minimum Bid Price Rule (as discussed below) and those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards. Minimum Bid Price Requirement We are required to maintain a minimum bid price of $1.00 per share. On May 10, 2023, the Company received written notice from 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. The Company requested a second 180-day period in order to regain compliance with Nasdaq Rule 5550(a)(2). 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, which date was further extended by the Panel until April 25, 2024. 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). On September 23, 2024, we received a notice from Nasdaq notifying us that we were not in compliance with the Minimum Bid Price Rule. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until March 24, 2025, to regain compliance with Nasdaq Listing Rule 5450(a)(1). To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days. On October 31, 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). Minimum Stockholder Equity Requirement Under the Nasdaq listing rules, we are also required to maintain stockholders’ equity of at least $2,500,000 (the “Minimum Stockholder Equity Rule”). In our Form 10-Q for the period ending March 31, 2024, we reported stockholders’ equity of $2,326,987. On May 16, 2024, we received a letter from the Listing Qualifications Department of Nasdaq notifying the Company that its stockholders’ equity as reported in such Quarterly Report did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market. Pursuant to the Notice, the Company had 45 calendar days from the date of the Notice to submit a plan to regain compliance. On July 1, 2024, the Company submitted a plan to Nasdaq. As described in the Company’s submission to Nasdaq, and as set forth in the Current Report on Form 8-K filed by the Company on July 3, 2024, the Company consummated the public offering of 3 million shares of the Company’s common stock for total aggregate gross proceeds of approximately $ 5,250,000 . On July 23, 2024, the Company received written notification from the Listing Qualifications Department of Nasdaq, confirming that, based on the information contained in the Company’s Form 8-K, filed with the SEC on July 16, 2024, the Company is now in compliance with the Minimum Stockholder Equity Rule. If the Company’s common stock and warrants are delisted by Nasdaq, it could adversely affect the Company’s ability to attract new investors, decrease the liquidity of the outstanding shares of common stock, reduce the Company’s flexibility to raise additional capital, reduce the price at which the Company’s common stock and warrants trade, and increase the transaction costs inherent in trading such shares and warrants with overall negative effects for the stockholders. In addition, delisting of the Company’s common stock and warrants could deter broker-dealers from making a market in or otherwise seeking or generating interest in the Company’s common stock. Furthermore, the delisting of the Company’s common stock and warrants from The Nasdaq Stock Market could adversely affect the business, financial condition and results of operations of the Company. 9 NOTE 2 — LIQUIDITY 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 March 31, 2025, the Company had a significant accumulated deficit of approximately $86.7 ( 86,633,568 ) million. For the three months ended March 31, 2025, the Company had a loss from operations of approximately $2.0 million ( 2,011,225 ) and negative cash flows from operations of approximately $1.4 ( 1,426,214 ) million. While the Company had a working capital surplus as of March 31, 2025 of approximately $ 2.0 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 through the twelve months from the date of this report. 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. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period. 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 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, 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 one year after the date that the unaudited condensed consolidated financial statements are issued. However, based primarily on the completion of the public offering referred to in Note 10 hereof on May 6, 2025, Management believes we have sufficient cash and short term investments to satisfy our anticipated cash requirements for the next twelve months from the issuance of the financial statements, although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, or that we will have sufficient liquidity. 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 one year after the date that the unaudited condensed consolidated financial statements are issued. 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 Generally Accepted Accounting Principles in the United States (“GAAP”). In the opinion of management, such financial information includes all adjustments (consisting only 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 three months ended March 31, 2025 and 2024 are not necessarily indicative of the results that may be expected for any other subsequent interim period. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the SEC. 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. Reclassification Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. 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. 10 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 condensed 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 pays 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 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 subsequent 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. 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. 11 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 — for 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 March 31, 2025 2024 Device sales $ - $ 55,500 Licensing fee 17,313 21,558 Equipment 19,812 1,513 Other 3,890 100 Total $ 41,015 $ 78,671 Major Geographic Locations Three Months Ended March 31, 2025 2024 U.S. sales $ 20,443 $ 23,171 International sales 20,572 55,500 Total $ 41,015 $ 78,671 12 Contract Modifications There were no contract modifications during the three months ended March 31, 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 March 31, 2025 and December 31, 2024, respectively. 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 for 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 writes off accounts receivable against the allowance for credit loss when a balance is determined to be uncollectible. During the three months ended March 31, 2025 and 2024 the Company did no t write off accounts receivable. The Company did no t record an allowance for credit loss on March 31, 2025 and December 31, 2024, respectively. Inventory Inventory consists of finished goods and components 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 March 31, 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 $ 4,786 and $ 2,662 for the three months ended March 31, 2025 and 2024, respectively. 13 The following table summarizes the gross carrying amount, amortization and the net carrying value at March 31, 2025 and December 31, 2024. Schedule of patents Gross Carrying Amount Accumulated Amortization Net Carrying Value March 31, 2025 Patents $ 236,322 $ ( 16,628 ) $ 219,694 Trademarks 67,106 ( 7,280 ) 59,826 Total March 31, 2025 $ 303,428 $ ( 23,908 ) $ 279,520 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 March 31, 2025 and December 31, 2024, the Company had a full valuation allowance applied against its net tax assets. 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. 14 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 carrying amount of the loans payable approximates the estimated fair value for this financial instrument as management believes that such debt and interest payable on the note approximates the Company’s incremental borrowing rate. The following table summarizes the amortized cost, unrealized gain (loss) and the fair value at March 31, 2025 and December 31, 2024. Schedule of unrealized loss on investments Amortized Cost Unrealized Gain (Loss) Fair Value March 31, 2025 Short-term investments $ 1,428,733 $ 317 $ 1,429,050 December 31, 2024 Short-term investments $ 2,905,951 $ ( 513 ) $ 2,905,438 The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of March 31, 2025 and December 31, 2024. Schedule of fair value, assets measured on recurring basis Carrying Value Level 1 Level 2 Level 3 March 31, 2025 U.S. Treasury Bill $ 1,171,123 $ 1,171,123 $ - $ - Mutual Funds 257,927 257,927 - - Total March 31, 2025 $ 1,429,050 $ 1,429,050 $ - $ - 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 $ - $ - 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 for the three months ended March 31, 2025 and 2024. 15 Net Loss per Common Share The following table summarizes the securities that would be excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the most recent fair value of the common shares: Schedule of anti-dilutive shares Three Months Ended March 31, 2025 2024 Warrants 2,662,250 2,662,250 Stock options 3,071,635 2,281,879 Total 5,733,885 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. 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. Warrant Accounting The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all its financial instruments, including issued private and public warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed as part of this evaluation. During the reporting periods the public warrants were outstanding, they were precluded from liability classification, being equity-classified. Research and Development Research and development costs are charged to operations as incurred. For the three months ended March 31, 2025 and 2024, the Company recorded $ 406,288 and $ 105,668 respectively on the unaudited condensed consolidated statements of operations and comprehensive loss. 16 Equity Method Investments The Company accounts for its investments in common stock or in-substance common stock that give it the ability to exercise significant influence over as an equity method investment in accordance with the guidance in ASC 323, Equity Method and Joint Ventures . Specifically, the company initially recognizes its investment in investees as an asset at cost. Further, the company subsequently measures its investment by recognizing its share of earnings or losses of the investee in the period in which they are reported. Segment Information Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating and reporting segment, which is the business of designing and developing innovative neurostimulation products. Recent 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 Company adopted this update and will apply during the formation of future joint ventures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this update effective December 31, 2024, on a retrospective basis. Refer to Note 9 for the disclosures related to our single operating segment. 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 is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this standard on our disclosures. 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 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. 17 NOTE 4 — ACCRUED EXPENSES Accrued expenses consist of the following amounts: Schedule of accrued expenses March 31, 2025 December 31, 2024 Accrued – other $ 64,012 $ 61,415 Accrued settlement liabilities 89,330 89,330 Accrued bonuses 240,000 240,000 Total $ 393,342 $ 390,745 NOTE 5 — NON-CONSOLIDATED JOINT VENTURE AND 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. The agreement was amended effective as of July 1, 2024 to expand the services. The two members of U.S. Asian are shareholders in the Company, including Marilyn Elson who is Nexalin’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 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. The company recorded $ 50,000 and $ 0 for the three months ended March 31, 2025 and 2024, respectively, of stock compensation related to the stock grant on the Company’s unaudited condensed consolidated statements of operations and comprehensive loss. The Company recorded consulting expenses related to the consulting agreement of $ 50,001 and $ 30,000 for the three months ended March 31, 2025 and 2024, respectively, on the Company's unaudited condensed consolidated statements of operations and comprehensive loss. In 2024 Leonard Osser was issued 200,000 shares of Company stock as compensation for his 2024 services on the Advisory Board. The Company recorded $ 20,000 of stock compensation expense for each of the three months ended March 31, 2025 and 2024 respectively. 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. 18 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. 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 have been 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 have been met for 2024, and he was awarded 271,454 nonqualified stock options with a vesting date of July 1, 2025. Dr. Owens was awarded an additional 125,000 vested options exercisable at $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. White’s incentive compensation have been 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. 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 with a vesting date of July 1, 2024. 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 months ended March 31, 2025 and 2024 were $ 14,050 and $ 13,500 . 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, the Company pays 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 Issuance 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. The Company did not issue any shares of common stock during the three months ended March 31, 2024. 19 Options Nexalin’s 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders on November 10, 2023 and an amendment thereto, increasing the number of shares reserved for issuance under the 2023 Plan, was approved by our stockholders on August 26, 2024. The 2023 Plan provides that maximum number of shares of Common Stock available for the grant of awards thereunder shall be 6,000,000, subject to adjustment for stock dividends, stock splits or similar events. The 2023 Plan is administered by 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. On July 1, 2023, the Company entered into amended employment agreements with the three executives. In addition to the cash compensation included in their employment contracts, the three executives were granted one-time bonus stock options (that were immediately vested) and performance-based stock options that would be triggered based on certain performance criteria being achieved. The amount expensed during the three months ended March 31, 2025 and 2024 in the unaudited condensed consolidated statements of operations and comprehensive loss was $ 208,012 and $ 40,060 respectively. Certain employees and certain members of the Board of Directors were issued options to purchase an aggregate of 581,250 shares of common stock. The options vested immediately upon grant. The amount expensed during the three months ended March 31, 2025 and 2024 in the unaudited condensed consolidated statements of operations and comprehensive loss was $ 0 for each period. The following table presents a summary of stock option award activity during the three months ended March 31, 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 - - - Outstanding March 31, 2025 3,071,635 $ 1.02 7.01 The following table provides additional information about stock options that are outstanding and exercisable at March 31, 2025: Schedule of additional information about stock options Exercise Price Outstanding Number of Options Weighted Average Remaining Life In Years Exercisable Number of Options $ 0.89 2,214,765 $ 8.25 1,152,125 0.94 581,250 3.75 581,250 0.66 90,620 3.92 - 2.95 185,000 4.75 125,000 3,071,635 $ 7.01 1,858,375 20 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. The following table discloses the assumptions utilized for stock options awarded during each period as follows: Schedule of assumptions March 31, 2025 December 31, 2024 Volatility - % 103.8 - 129.2 % Expected dividends $ - $ - Risk-free interest rate - % 3.66 - 4.45 % Expected term (years) - 5 - 10 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 March 31, 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 March 31, 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 0.5 $ 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: 21 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. 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 Company expects the settlement Agreement to be paid and the case dismissed, with prejudice, in the next two months. The amount to be paid by the Company pursuant to the Settlement Agreement will not have a material effect on the unaudited condensed consolidated financial statements or on the Company’s business and operations. 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 are in negotiations with the EDD and have presented a settlement offer. The Company accrued $40,000 and $40,000 on the consolidated balance sheets as of March 31, 2025 and December 31, 2024, respectively. The Company believes it has adequately accrued for this matter. NOTE 8 — CONCENTRATION OF CREDIT RISK Revenues One customer accounted for 71 % of revenues for the three months ended March 31, 2024. Two customers accounted for 50 % of revenues for the three months ended March 31, 2025. Concentration of credit risk Customer A 37 % Customer B 13 % Accounts Receivable Three customers accounted for 90 % of the accounts receivable as of March 31, 2025, as set forth below: Customer A 53 % Customer B – related party 24 % Customer C 13 % Three customers accounted for 88 % of accounts receivable at December 31, 2024. Customer A 50 % Customer B – related party 23 % Customer C 15 % 22 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 March 31, 2025 2024 Total revenues $ 41,015 $ 78,671 Less: Cost of revenues (excluding amortization and depreciation) 13,558 9,156 Research and development expense (excluding share-based compensation expense): Clinical trials 79,402 1,238 Halo Project 298,037 103,477 Desktop project 23,713 - Other research and development 5,136 953 General and administrative expense (excluding stock based compensation and amortization expense) 622,948 645,719 Amortization 4,786 2,662 Stock-based compensation 636,844 161,349 Professional fees 367,816 227,829 Interest income, net ( 1,103 ) ( 304 ) Equity in net (income) loss from equity method investees 1,048 ( 5,783 ) Other income ( 22,833 ) ( 26,468 ) Segment net loss ( 1,988,337 ) ( 1,041,157 ) Reconciliation of net loss Adjustments and reconciling items - - Consolidated net loss $ ( 1,988,337 ) $ ( 1,041,157 ) 23 NOTE 10 — SUBSEQUENT EVENTS Management evaluated subsequent events and transactions that occurred after the balance sheet date, up to the date that the unaudited condensed consolidated financial statements were issued. On April 23, 2025, the Company filed a “shelf” registration statement on Form S-3 (the “Registration Statement”) with the SEC, relating to an offering of up to $50,000,000 of our common stock from time to time in one or more offerings (File No. 333-286711) The Registration Statement 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. Management did not identify any additional subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements. 24