Nexalin Technology, Inc.

NOTE 1 —NATURE OF THE ORGANIZATION AND BUSINESS

Corporate History

Nexalin Technology, Inc. (the “Company” or “Nexalin”) was formed on November 17, 2021 as a Delaware corporation.

We were originally formed as a Nevada corporation on October 19, 2010 as Nexalin Technology, Inc. (“Nexalin Nevada”). On December 1, 2021, we completed a corporate reorganization pursuant to which Nexalin Nevada merged with and into a newly incorporated Delaware company of the same name, Nexalin and, as a result, Nexalin succeeded Nexalin Nevada and each of the shareholders of Nexalin Nevada exchanged each of their shares in Nexalin Nevada for one twentieth (1/20th) of a common share of the newly formed Delaware corporation. Nexalin had nominal assets and liabilities and did not conduct any operations prior to the reorganization other than its incorporation. As a result, Nexalin Nevada became a wholly owned subsidiary of Nexalin.

The Company’s principal offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056.

Our shares and warrants began trading on September 16, 2022, and continues to be traded on the Nasdaq Capital Market tier of the Nasdaq Stock Market (“Nasdaq”), under the symbols “NXL” and “NXLIW”, respectively. In September 2025, the warrants expired, and were delisted. The common stock of the Company will continue to trade on the Nasdaq Capital Market under the symbol NXL.

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

Business Overview

We are a medical device company engaged in the designs and development of 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” or “Gen-1” – that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, because of the FDA’s December 2019 reclassification of cranial electrotherapy stimulation (CES) devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia, and as a Class III device for the treatment of depression.

The waveform that comprises the basis of our “Generation 2” or “Gen-2” or “SYNC” and new “Generation 3” or “Gen-3” or “HALO” headset devices has been in Q-submission process for review by the FDA. In October 2025, the FDA formally accepted our Q-Submission (“Q-Sub”) related to the Company’s Gen-2 Console (“SYNC”) system for the treatment of Alzheimer’s disease and dementia, with a regulatory meeting scheduled for later this year. This acceptance of the Company’s request for interaction with the FDA with respect to its Gen-2 SYNC system represents a significant step toward Nexalin’s goal of achieving FDA authorization to begin U.S. clinical studies targeting Alzheimer’s and dementia — two of the most urgent unmet needs in healthcare. The Q-Submission process enables structured dialogue with and feedback from the FDA to discuss proposed clinical trial design, study endpoints, and regulatory pathway for evaluating the Gen-2 SYNC system as a potential non-invasive therapy for these debilitating neurodegenerative conditions, as well as for mild to moderate cognitive impairment (MCI) associated with Alzheimer’s disease.

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 clinical trials for the Gen-3 HALO device in the U.S. and we continue to consult with the FDA as part of the pre-submission process. If and when we obtain FDA clearance for the Gen-3 HALO device, we intend to extend the development and commercialization of our devices for sale in the U.S. and other territories, given the potential unmet demand for the treatment of mental health conditions.

All of our products are designed to be easy to administer, physically non-invasive and undetectable to the human body. They have been developed to provide relief to those afflicted with mental health issues, including anxiety, insomnia, depression and mild traumatic brain injury (mTBI). We utilize bioelectronic medical technology to treat these mental health issues. The determination of safety and efficacy of medical devices in the United States are subject to clearance by the FDA.

NOTE 2 —LIQUIDITY AND GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2025, the Company had a significant accumulated deficit of approximately $90.5 million. For the nine months ended September 30, 2025, the Company had a loss from operations of approximately $5.8 million and negative cash flows from operations of approximately $3.8 million. While the Company had a working capital surplus as of September 30, 2025, of approximately $4.5 million, the Company’s operating activities consume most of its cash resources.

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

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

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

Basis of Presentation

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

Principles of Consolidation

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

Joint Venture

On May 31, 2023, the Company entered into a joint venture entity under the law of Hong Kong, Nexalin Neurohealth Company Limited (the “Joint Venture”) with Wider Come Limited (“Wider”)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 Company owns 48% of the equity of the Joint Venture entity, and Wider owns 52% of such equity.

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

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

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

The Joint Venture is managed by a Board of Directors in which Wider is to have sole representation. However, neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions.

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

Reclassifications

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

Use of Estimates

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

Revenue

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

The Company has existing licensing and treatment fee agreements with its customers for the use of the Nexalin device in their practices. These agreements generally have terms of one year with automatic renewal if certain requirements are met and amounts due per these agreements are billed monthly. The Company also sells products related to the provision of services. The Company sells its Gen-2 devices in China to its acting distributor and sells products relating to the use of the devices.

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 September 30, 2025 and December 31, 2024, respectively.

Patents and Trademarks

Patents and trademarks are amortized over their useful lives and are reviewed for impairment when warranted by economic conditions. Amortization expense was $5,473 and $15,385 and $4,211 and $10,666 for the three and nine months ended September 30, 2025 and 2024, respectively.

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

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 September 30, 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.

Fair Value of Financial Instruments

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

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

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

Net Loss per Common Share

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

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

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.

Recently Adopted Accounting Pronouncements

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

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

Future Adoption of New Accounting Pronouncement

In September 2025, the FASB issued ASU No. 2025-06,Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which removes all references to software development project stages so that the guidance is neutral to different software development methods. Therefore, under the ASU, software capitalization will begin when management has authorized and committed to funding the software project and when it is probable that the project will be completed and the software will be used to perform the function intended. ASU No. 2025-06 is effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The guidance is to be applied on a prospective basis, or on a modified transition approach or a retrospective transition approach; this ASU allows for early adoption. The adoption of this ASU is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

In July 2025, the FASB issued ASU No. 2025-05,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows entities to elect a practical expedient that assumes that the current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU No. 2025-05 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The guidance is to be applied on a prospective basis; this ASU allows for early adoption. The adoption of this ASU is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

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

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

NOTE 4 —ACCRUED EXPENSES

Accrued expenses consist of the following amounts:

NOTE 5 — RELATED PARTY TRANSACTIONS

U.S. Asian Consulting Group, LLC

On May 9, 2018, the Company entered into a five-year consulting agreement with U.S. Asian Consulting Group, LLC (“U.S. Asian”). The consulting agreement was extended for an additional period of eight years upon the closing of our initial public offering and then subsequently again on July 1, 2024 (expiring in September 2030). The two members of U.S. Asian are shareholders in the Company. One of the members, Marilyn Elson is the Company’s former Controller.

Pursuant to the consulting agreement, U.S. Asian provides consulting services to the Company with regard to, among other things, corporate development, financing arrangements and international operations. The Company was paying U.S. Asian $10,000 per month for services rendered pursuant to the consulting agreement. The amended agreement calls for a monthly fee of $16,667, a onetime stock grant (of 100,000 shares value at $96,000 issued in Q3 of 2024) and a semi-annual share award equal to $100,000 with the issuance and delivery of shares to take place following the termination of the consulting agreement. Current shares earned and not issued as of September 30, 2025 are 201,136. The company recorded approximately $50,000 and $144,000 and $50,000 and $50,000 for the three and nine months ended September 30, 2025 and 2024, respectively, of stock compensation related to the semi-annual stock grants earned and approximately $50,000 and $150,000 and $50,000 and $110,000 for the three and nine months ended September 30, 2025 and 2024, respectively, related to the monthly cash portion of the consulting agreement.

Officers

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

Leases

Our principal executive office is located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “Leases”, we have a sub-leases (through IIcom Strategic Inc. controlled and owned by our Chief Executive Officer) totaling approximately 4,000 square feet of office space under an operating lease. Management and supporting staff are hosted at this location. Our lease costs for each of the three and nine months ended September 30, 2025 and 2024 were approximately $23,000 and $51,000 and $14,000 and $41,000, respectively. The initial sub-lease expired in January of 2024. The Company entered into a new sublease for the same parties for additional space, which expires in February 2026. Pursuant to the sublease, we pay and will pay the third party landlord (not the sub landlord) all direct and indirect rent costs under the primary lease directly for the leased premises. No additional payments are made to the Chief Executive Officer or the entity controlled by him.

NOTE 6 —STOCKHOLDERS’ EQUITY

Recent Issuances of Common Stock

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

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

In the first quarter of 2025 the Company issued 24,406 shares of restricted stock to a consultant as compensation.

In addition to the 25,000 shares of restricted stock issued to the new CFO, as noted in footnote 5, during the third quarter of 2025 the Company issued an additional 746,677 shares of restricted stock (494,583 of which would be considered related parties) to various employees, directors and consultants as stock compensation.

See Note 9 with respect to amendment to Equity Distribution Agreement.

Options

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

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

On July 17, 2025, the Company entered into an employment agreement with its Chief Financial Officer and issued a stock option exercisable into 130,435 shares of unregistered shares of the Company’s common stock on the grant date and are subject to the terms of the Company’s 2023 Equity Incentive Plan, as amended. Fifty (50%) of the option vests on February 1, 2026 and the remaining 50% on August 1, 2026.

In addition, during the third quarter of 2025 the Company also issued stock options exercisable into 445,104 shares of common stock to various employees, consultants and board members.

The amount expensed during the three and nine months ended September 30, 2025 and 2024 in the unaudited condensed consolidated statements of operations and comprehensive loss related to stock options issued under the 2023 Plan was $1,082,790 and $2,291,734 and $1,539,169 and $2,008,801, respectively.

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

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

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 award during the nine-months ended September 30, 2025

Warrants

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

NOTE 7 —COMMITMENTS AND CONTINGENCIES

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

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

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

Employment Development Department

The Company is currently engaged in settlement discussions with the Employment Development Department (EDD) of the State of California. This matter involved 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 petitioned for reassessment and believed the 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 and later to approximately $30,000. The Company has agreed to the final settlement and is waiting for the EDD’s final approval. The Company has accrued approximately $30,000 and $40,000 on the consolidated balance sheets as of September 30, 2025 and December 31, 2024, respectively. The Company believes it has adequately accrued for this matter as of September 30, 2025.

NOTE 8 —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.

NOTE 9 —SUBSEQUENT EVENTS

In October 2025, the Company entered into multiple consulting agreements, pursuant to which an aggregate of 305,333 restricted shares of the Company’s common stock were issued as consideration for services. Additionally, the Company granted stock options to two advisors to acquire 200,000 shares of common stock at an exercise price of $1.50 per share. The options have a term of five years and were fully vested upon issuance.

On October 15, 2025, the Company entered into an Amendment No. 2 (the “EDA Amendment”) to a equity distribution agreement, dated April 29, 2025 (the “Equity Distribution Agreement”) with Maxim Group LLC, as exclusive sales agent (“Agent”). The Equity Distribution Agreement has established an “at-the-market” offering through which the Company may sell, from time to time to the Agent, shares of the Company’s common stock (the “ATM Program”). The EDA Amendment was entered into by and between the Company and the Agent in order to increase the maximum amount of shares of the Company’s common stock that may be issued and sold through the Agent, from an aggregate offering price $3,100,000 to an aggregate offering price of up to $10,000,000. As of October 15, 2025, up to approximately $4,273,859 in aggregate amount of the Shares are available for sale under the ATM Program based on the respective baby shelf rules. As of this date, 157,000 shares have been sold under the ATM program.