Nexalin Technology Inc

Previous wording

We have designed and developed a new advanced waveform technology to be emitted at 15 milliamps through new and improved medical devices referred to as “Generation 2” or “Gen-2” and “Generation 3” or “Gen-3.” Gen-2 is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. Gen-3 is a new patient headset that is designed 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 and Gen-3 devices can penetrate deeper into the brain and stimulate associated structures of 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 is in development for the treatment of depression utilizing both Gen-2 and Gen-3. The new Gen-3 device is also scheduled for additional pilot trials and/or pivotal trials for anxiety and insomnia in the United States and China beginning in the late second or early third quarter of 2024. Preliminary data provided by The University of California, San Diego and recent published data from China 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.

Current wording

We have designed and developed a new advanced waveform technology to be emitted at 15 milliamps through new and improved medical devices referred to as “Generation 2” or “Gen-2” and “Generation 3” or “Gen-3.” Gen-2 is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. Gen-3 is a new patient headset that is designed 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 and Gen-3 devices can penetrate deeper into the brain and stimulate associated structures of 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 is in development for the treatment of depression utilizing both Gen-2 and Gen-3. The new Gen-3 device is also scheduled for additional pilot trials and/or pivotal trials for anxiety and insomnia in the United States and China beginning in the fourth quarter of 2024. Preliminary data provided by The University of California, San Diego and recent published data from China 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.

Previous wording

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 accordingly. Our focus is on the continued development of our innovative bioelectronic medical technologies and rapid regulatory approval. We intend to help reverse these losses, and hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.

Current wording

In part due to the 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 accordingly. Our focus is on the continued development of our innovative bioelectronic medical technologies and rapid regulatory approval. We intend to help reverse these losses, and hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.

Previous wording

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

Current wording

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 second generation transcranial Alternating Current Stimulation (“tACS”) devices (“Gen-2 devices”) in China and other countries in the region. The Joint Venture is registered in Hong Kong.

Previous wording

The Joint Venture is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions. Wider and Nexalin own 52% and 48% of the Joint Venture, respectively. In accordance with ASC 323 and ASC 810, the Company recognized $(1,291) and $0 for the three months ended June 30, 2024 and 2023 and $4,492 and $0 of equity method investment income from the Joint Venture on a one-quarter reporting lag for the six months ended June 30, 2024 and 2023, respectively, on the condensed consolidated statements of operations and comprehensive loss.

Current wording

The Joint Venture is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions. Wider and Nexalin own 52% and 48% of the Joint Venture, respectively. In accordance with ASC 323 and ASC 810, the Company recognized $159 and $0 for the three months ended September 30, 2024 and 2023 and $4,651 and $0 of equity method investment income from the Joint Venture on a one-quarter reporting lag for the nine months ended September 30, 2024 and 2023, respectively, on the condensed consolidated statements of operations and comprehensive loss.

Previous wording

The investment in the Joint Venture is accounted for using the equity method of accounting. As of June 30, 2024 and December 31, 2023 the Company had an Equity Method Investment of $100,492 and $96,000, respectively, recorded on the condensed consolidated balance sheets. The Company invested $96,000 in the joint venture in September 2023 and Wider invested $104,000. In accordance with ASC 323, Investments - Equity Method and Joint Ventures (“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 condensed 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.

Current wording

The investment in the Joint Venture is accounted for using the equity method of accounting. As of September 30, 2024 and December 31, 2023 the Company had an Equity Method Investment of $100,651 and $96,000, respectively, recorded on the condensed consolidated balance sheets. The Company invested $96,000 in the joint venture in September 2023 and Wider invested $104,000. In accordance with ASC 323, the Company uses the equity method of accounting for its investment in the Joint Venture, an unconsolidated entity over which it does not have a controlling interest. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the unconsolidated entity’s earnings or losses. The Company evaluates the carrying amount of this investment in the Joint Venture for impairment in accordance with ASC 323. If the Company determines that a loss in the value of the investment is other than temporary, the Company writes down the investment to its estimated fair value. Any such losses are recorded to equity in income of unconsolidated entities in the Company’s condensed 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.

Previous wording

For the three months ended June, 2024 and 2023, we generated $26,840 and $35,540 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs. In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device. The decrease in revenue for the three months ended June 2024 compared to 2023 was primarily due to a device related sale in 2023. There were no device sales in during the three months ended June 30, 2024.

Current wording

For the three months ended September 30, 2024 and 2023, we generated $36,031 and $24,113 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs. In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device. The increase in revenue for the three months ended September 30 2024 compared to 2023 was primarily due to sales of supplies and parts.

Previous wording

For the three months ended June 30, 2024 and 2023, cost of revenues was $7,427 and $9,374, respectively, yielding a gross profit of $19,593 and $26,166, respectively, or 73.0% and 73.6%, respectively. Such decrease in gross margin was negligible.

Current wording

For the three months ended September 30, 2024 and 2023, cost of revenues was $12,694 and $3,973, respectively, yielding a gross profit of $23,337 and $20,140, respectively, or 64.77% and 83.52%, respectively. Such decrease in gross margin was due to the lower margins on supplies and parts.

Previous wording

Total operating expenses for the six months ended June 30, 2024 and 2023 were $2,459,841 and $1,705,902, respectively. The increase in selling, general and administrative expenses was due primarily to an increase in travel of approximately $81,000, an increase in research and development costs of approximately $63,000 and an increase in stock compensation of approximately $381,000. The increase in professional fees is primarily related to costs associated with investor relations. The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff visits to our Houston office and travel related to investor relations. The increases in research and development costs are attributable to the development of our Gen-2 and Gen-3 devices. The increase in stock compensation is primarily related to compensating consultants with stock

Current wording

The increase in shareholder related expenses was due to costs associated with investor relations. The increase in professional fees is due to an increase in legal fees and an executive search professional fee of $60,000. The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff visits to our Houston office and travel related to investor relations. The increase in stock compensation is primarily related to compensating consultants with stock compensation upon shareholder approval of amending the Company Equity Plan. The decrease in salaries is primary due to a bonus recorded in 2023. The decrease in research and development costs are primarily related to costs associated with clinical trials not incurred in 2024. The decrease in insurance is due to a reduction in our insurance premiums.

Previous wording

Other income (expense), net for the three months ended June 30, 2024 and 2023 was $13,819 and $54,423, respectively, consisting of interest and dividend income, gain on the sale of short-term investments offset by interest expense.

Current wording

Other income (expense), net for the three months ended September 30, 2024 and 2023 was $60,101 and $118,348, respectively, consisting of interest and dividend income, gain on the sale of short-term investments offset by interest expense. The decrease in other income was due to a decrease in the amount available for investment.

Previous wording

Our financial results for the six months ended June 30, 2024 and 2023 are summarized as follows:

Current wording

Our financial results for the nine months ended September 30, 2024 and 2023 are summarized as follows:

Previous wording

For the six months ended June, 2024 and 2023, we generated $105,511 and $66,100 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs. In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device. The increase in revenue for the six months ended June 2024 compared to 2023 was primarily due to the sales of devices to a new overseas customer.

Current wording

For the nine months ended September 30, 2024 and 2023, we generated $141,542 and $90,212 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs. In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device. The increase in revenue for the nine months ended September 30, 2024 compared to 2023 was primarily due to the sales of devices to a new overseas customer.

Previous wording

For the six months ended June 30, 2024 and 2023, cost of revenues was $16,403 and 16,484, respectively, yielding a gross profit of $89,108 and $49,616, respectively, or 84.5% and 75.1%, respectively. Such increase in gross margin was primarily due to device revenue having a higher gross profit margin than that of other sources of revenue.

Current wording

For the nine months ended September 30, 2024 and 2023, cost of revenues was $29,097 and $20,457, respectively, yielding a gross profit of $112,455 and $69,755, respectively, or 79.44% and 77.32%, respectively. Such increase in gross margin was primarily due to device revenue having a higher gross profit margin than that of other sources of revenue.

Previous wording

Total operating expenses for the three months ended June 30, 2024 and 2023 were $1,316,614 and $903,026, respectively. The increase in selling, general and administrative expenses was due primarily to an increase in travel of approximately $43,000, an increase in research and development costs of approximately $23,000 and an increase in stock compensation of approximately $220,000. The increase in professional fees is primarily related to costs associated with investor relations. Salaries and benefits remained consistent. The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff visits to our Houston office and travel related to investor relations. The increases in research and development costs are attributable to the development of our Gen-2 and Gen-3 devices. The increase in stock compensation is primarily related to compensating consultants with stock.

Current wording

The increase in shareholder related expenses was due to costs associated with investor relations. The increase in stock compensation is primarily related to compensating consultants with stock compensation upon shareholder approval of amending the Company Equity Plan. The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff visits to our Houston office and travel related to investor relations. The decrease in research and development costs are primarily related to costs associated with clinical trials not incurred in 2024. The decrease in taxes is due to a reduction in our Delaware Franchise tax. The decrease in insurance is due to a reduction in our insurance premiums.

Previous wording

Other income (expense), net for the three months ended June 30, 2024 and 2023 was $40,591 and $85,435, respectively, consisting of interest and dividend income, gain on the sale of short-term investments offset by interest expense. The decrease is primarily due to a decrease in gain on short term investments resulting from decreased short term investments.

Current wording

Other income (expense), net for the nine months ended September 30, 2024 and 2023 was $100,692 and $203,753, respectively, consisting of interest and dividend income, gain on the sale of short-term investments offset by interest expense. The decrease is primarily due to a decrease in gain on short term investments resulting from decreased short term investments.

Previous wording

The following table summarizes our consolidated cash flows for the six months ended June 30, 2024 and 2023:

Current wording

The following table summarizes our consolidated cash flows for the nine months ended September 30, 2024 and 2023:

Previous wording

Net cash used in operating activities was $2,009,704 for the six months ended June 30, 2024, as compared to $2,130,260 for the respective period in 2023, was primarily due to the net loss of $2,325,650, as well as a combined decrease in accounts payable and accounts payable-related party of approximately $537,000 and accrued expenses of approximately $200,000, offset by increases in stock compensation of approximately $381,000.

Current wording

Net cash used in operating activities was $(2,809,914) for the nine months ended September 30, 2024, as compared to $(2,831,554) for the respective period in 2023, was primarily due to the net loss of $4,773,907, as well as a combined decrease in accrued expenses of approximately $196,000, offset by increases in stock compensation of approximately $347,000 and accounts payable and accounts payable-related party of approximately $593,000.

Previous wording

Net cash provided by investing activities during the six months ended June 30, 2024, and 2023 was $2,278,270 and $2,399,239, respectively, which was due to short-term investment sales approximately $9.2 million offset by purchases of approximately $6.8 million of short-term investments and the purchase of patents and trademarks of approximately $127,000 for the six months ended June 30, 2024.

Current wording

Net cash provided by (used in) investing activities during the nine months ended September 30, 2024, and 2023 was $(2,205,079) and $3,230,008, respectively, which was due to short-term investment sales approximately $22.3 million offset by purchases of approximately $24.4 million of short-term investments for the nine months ended September 30, 2024. Compared to short-term investment sales of approximately $32.7 million offset by purchases of $29.3 million of short-term investments during the nine months ended September 30, 2023.

Previous wording

Net Cash Used In Financing Activities

Current wording

Net Cash Provided By (Used In) Financing Activities

Previous wording

Net cash used in financing activities during the six months ended June 30, 2024 and 2023 was $0 and $200,000, respectively, which was due to payment of note payable to an officer of the Company in the prior period.

Current wording

Net cash provided by (used in) financing activities during the nine months ended September 30, 2024 and 2023 was $4,516,184 and $(200,000), respectively, which was due to the issuance of common stock for approximately $4.5 million from the July 1, 2024 offering. The September 30, 2023 use of cash was for a payment of note payable to an officer of the Company.

Previous wording

As of June 30, 2024, the Company had a significant accumulated deficit of $79.4 million. For the six months ended June 30, 2024, the Company had a loss from operations of $2.4 million and negative cash flows from operations of $2.0 million. The Company’s operating activities consume the majority of its cash resources. The Company will continue to service existing customers in the United States. The Company sold devices overseas. The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2024, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity. As of June 30, 2024, the Company had cash and cash equivalents on hand of approximately $0.8 million.

Current wording

As of September 30, 2024, the Company had a significant accumulated deficit of $81.8 million. For the nine months ended September 30, 2024, the Company had a loss from operations of $4.9 million and negative cash flows from operations of $2.8 million. The Company’s operating activities consume the majority of its cash resources. The Company will continue to service existing customers in the United States. The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2024, 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, 2024, the Company had cash and cash equivalents on hand of approximately $4.6 million.

Previous wording

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 obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital. On July 1, 2024, the Company consummated the public offering of an aggregate of 3,000,000 shares of the Company’s common stock resulting in aggregate gross proceeds of approximately $5.25 million. The proceeds from the offering increased the Company’s stockholders’ equity by approximately $4.55 million, making the Company’s stockholders’ equity approximately $6.9 million as of July 1, 2024. Although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of June 30, 2024 and have concluded that we have sufficient cash and short-term investments in the amount of approximately $5.2 million on hand on August 6, 2024 to satisfy our anticipated cash requirements for the next twelve months from the issuance of these financial statements.

Current wording

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 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, 2024 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.

Previous wording

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.

Current wording

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).