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What changed in Nexalin Technology, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Nexalin Technology, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+384 added−378 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-27)

Top changes in Nexalin Technology, Inc.'s 2024 10-K

384 paragraphs added · 378 removed · 253 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

175 edited+100 added−90 removed415 unchanged
Biggest changeIn addition to the factors discussed in these “Risk Factors” sections, these factors include: ● the commencement, enrollment or results of our planned and future clinical trials; ● the loss of any of our key scientific or management personnel; ● regulatory or legal developments in the United States, China and other countries; ● the success of competitive products or technologies; ● adverse actions taken by regulatory agencies with respect to our clinical trials or manufacturers; ● changes or developments in laws or regulations applicable to our products and preclinical program; ● changes to our relationships with collaborators, manufacturers or suppliers; ● the results of our testing and clinical trials; ● unanticipated safety concerns; ● announcements concerning our competitors or our industry in general; ● actual or anticipated fluctuations in our operating results; ● changes in financial estimates or recommendations by securities analysts; ● potential acquisitions; ● the results of our efforts to discover, develop, acquire or in-license additional products; ● the trading volume of our securities on Nasdaq; ● sales of our common stock by us, our executive officers and directors or our stockholders or the anticipation that such sales may occur in the future; ● general economic, political and market conditions and overall fluctuations in the financial markets in the United States or China; ● stock market price and volume fluctuations of comparable companies and, in particular, those that operate in our industry; and ● investors’ general perception of us and our business. 44 These and other market and industry factors may cause the market price and demand for our common stock and warrants to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their shares of our common stock and warrants at or above the price paid for the units or the exercise price of the warrants and may otherwise negatively affect the liquidity of our common stock.
Biggest changeIn addition to the factors discussed in these “Risk Factors” sections, these factors include: ● the commencement, enrollment or results of our planned and future testing and clinical trials; ● the loss of any of our key scientific or management personnel; ● regulatory or legal developments in the United States, China and other countries; ● the success of competitive products or technologies; ● adverse actions taken by regulatory agencies with respect to our clinical trials or manufacturers; ● changes or developments in laws or regulations applicable to our products and preclinical program; ● changes to our relationships with collaborators, manufacturers or suppliers; ● unanticipated safety concerns; ● announcements concerning our competitors or our industry in general; ● actual or anticipated fluctuations in our operating results; ● changes in financial estimates or recommendations by securities analysts; ● potential acquisitions; ● the results of our efforts to discover, develop, acquire or in-license additional products; ● the trading volume of our securities on Nasdaq; ● sales of our common stock by us, our executive officers and directors or our stockholders or the anticipation that such sales may occur in the future; ● general economic, political and market conditions and overall fluctuations in the financial markets in the United States, China and other countries; ● stock market price and volume fluctuations of comparable companies and, in particular, those that operate in our industry; ● investors’ general perception of us and our business; and ● unexpected changes in tariffs, including tariffs that have been or may in the future be imposed by the U.S. or other countries, trade barriers and regulatory requirements, including the loss of normal trade status between China and the U.S. or actions taken by U.S. or China governmental authorities on companies with significant operations in the U.S. and China, such as us, and protectionist or retaliatory measures taken by the U.S. or China.
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 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 strategic development for the treatment of depression utilizing both Gen-2 and Gen-3.
Also, according to Article 19, the operator(s) will be assumed to have a dominant market position if it has following situation: a) an operator has 50% or higher market share in a relevant market; b) two operators have 66% or higher market share in a relevant market; c) three operators have 75% or higher market share in a relevant market.
Also, according to Article 19, the operator(s) will be assumed to have a dominant market position if it has following situation: a) an operator has 50% or higher market share in a relevant market; b) two operators have 66% or higher market share in a relevant market; c) three operators have 75% or higher market share in a relevant market.
The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid; ● federal civil and criminal false claims laws, including the federal False Claims Act, which impose criminal and civil penalties, including through civil whistle blower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; ● the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent; ● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; ● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; 38 ● the federal Physician Payments Sunshine Act, created under Section 6002 of Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the “ACA,” and its implementing regulations, created annual reporting requirements for manufacturers of products, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and ● analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require companies to comply with voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following: ● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid; ● federal civil and criminal false claims laws, including the federal False Claims Act, which impose criminal and civil penalties, including through civil whistle blower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; ● the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent; ● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; ● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; ● the federal Physician Payments Sunshine Act, created under Section 6002 of Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the “ACA,” and its implementing regulations, created annual reporting requirements for manufacturers of products, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and 42 ● analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require companies to comply with voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
Any potential acquisition or strategic collaboration may entail numerous risks, including: ● increased operating expenses and cash requirements; ● the assumption of additional indebtedness or contingent liabilities; ● assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel; ● the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic partnership, merger or acquisition; ● retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships; ● risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or products and regulatory approvals; and ● our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
Any potential acquisition or strategic collaboration may entail numerous risks, including: ● increased operating expenses and cash requirements; ● the assumption of additional indebtedness or contingent liabilities; ● assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel; ● the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic partnership, merger or acquisition; ● retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships; 28 ● risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or products and regulatory approvals; and ● our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
Our future capital requirements will depend on many factors, including: ● the timing, progress and results of our ongoing clinical trials of our products; ● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other products that we may pursue; ● our ability to establish collaborations on favorable terms, if at all; ● the costs, timing and outcome of regulatory review of our products; ● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our products for which we receive marketing approval; ● the revenue, if any, received from commercial sales of our products for which we receive marketing approval; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and ● the costs of operating as a public company.
Our future capital requirements will depend on many factors, including: ● the timing, progress and results of our ongoing clinical trials of our products; 19 ● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other products that we may pursue; ● our ability to establish collaborations on favorable terms, if at all; ● the costs, timing and outcome of regulatory review of our products; ● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our products for which we receive marketing approval; ● the revenue, if any, received from commercial sales of our products for which we receive marketing approval; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and ● the costs of operating as a public company.
Regardless of merit or eventual outcome, liability claims may result in: ● reduced resources of our management to pursue our business strategy; ● decreased demand for any products or products that we may develop; ● injury to our reputation and significant negative media attention; ● withdrawal of clinical trial participants; ● initiation of investigations by regulators; ● product recalls, withdrawals or labelling, marketing or promotional restrictions; ● significant costs to defend the resulting litigation; ● substantial monetary awards paid to clinical trial participants or patients; ● loss of revenue; and ● the inability to commercialize any products that we may develop.
Regardless of merit or eventual outcome, liability claims may result in: ● reduced resources of our management to pursue our business strategy; ● decreased demand for any products or products that we may develop; 25 ● injury to our reputation and significant negative media attention; ● withdrawal of clinical trial participants; ● initiation of investigations by regulators; ● product recalls, withdrawals or labelling, marketing or promotional restrictions; ● significant costs to defend the resulting litigation; ● substantial monetary awards paid to clinical trial participants or patients; ● loss of revenue; and ● the inability to commercialize any products that we may develop.
If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate. 37 Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to penalties.
If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate. 41 Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to penalties.
Wider will be responsible for obtaining future NMPA registrations and approvals related to the marketing and sales of our devices in China. Recent statements and regulatory actions by the Chinese government have targeted those companies whose operations involve cross-border data security or anti-monopoly concerns. Regarding data security, China has promulgated several important laws recently.
Wider will be responsible for obtaining future NMPA registrations and approvals related to the marketing and sales of our devices in China. 6 Recent statements and regulatory actions by the Chinese government have targeted those companies whose operations involve cross-border data security or anti-monopoly concerns. Regarding data security, China has promulgated several important laws recently.
Additionally, new strategies are in research and development for FDA treatment indications of depression, substance use disorder, TBI (traumatic brain injury), PTSD, opioid addiction, alcoholism and chronic pain. Additional research and treatment efficacy are being investigated for the Alzheimer’s community for patient care and management. 9 Our plan is designed to triangulate and stimulate the physician, consumer, and manufacturer relationship.
Additionally, new strategies are in research and development for FDA treatment indications of depression, substance use disorder, TBI (traumatic brain injury), PTSD, opioid addiction, alcoholism and chronic pain. Additional research and treatment efficacy are being investigated for the Alzheimer’s community for patient care and management. Our plan is designed to triangulate and stimulate the physician, consumer, and manufacturer relationship.
We prioritize the safety and well-being of our employees even after they have faced both mental and physical challenges related to the COVID-19 pandemic. 14 Implications of Being an Emerging Growth Company and a Smaller Reporting Company We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Start-ups Act of 2012, as amended, or the JOBS Act.
We prioritize the safety and well-being of our employees even after they have faced both mental and physical challenges related to the COVID-19 pandemic. Implications of Being an Emerging Growth Company and a Smaller Reporting Company We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Start-ups Act of 2012, as amended, or the JOBS Act.
In light of the recent statements by the Chinese government indicating its intention to exert more oversight and control over overseas offerings of China-based companies and the proposed CAC review for certain data processing operators in China, we may adjust our business operations in the future, to comply with PRC laws regulating our industry and our business operations through the Joint Venture.
In light of the recent statements by the Chinese government indicating its intention to exert more oversight and control over overseas offerings of China-based companies and the proposed CAC review for certain data processing operators in China, the Joint Venture may adjust its business operations in the future, to comply with PRC laws regulating our industry and our business operations through the Joint Venture.
Further, we are a United States’ company with no physical presence in China, and we do not believe that the formation of the Joint Venture in Hong Kong and any resultant exposure to China regulatory actions will adversely impact our ability to accept foreign investments or list our securities on a United States or other foreign exchange.
Further, we are a United States’ company with no physical presence in China, and we do not believe that the formation of the Joint Venture in Hong Kong and any resultant exposure to China regulatory actions will adversely impact our operations or ability to accept foreign investments or list our securities on a United States or other foreign exchange.
For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. 24 There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered.
For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered.
The vision is to implement a virtual clinic model that will enable providers and clinics to integrate remote outpatients into an overall treatment process. Our IT platform goes well beyond telehealth and is designed to support all aspects of the treatment model in conjunction with various data sets to support marketing, data collection and patient monitoring.
The vision is to implement a virtual clinic model that will enable providers and clinics to integrate remote outpatients into an overall treatment process. Our IT platform goes well beyond telehealth and is designed to support all aspects of the treatment and business model in conjunction with various data sets to support marketing, data collection and patient monitoring.
We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business. It is uncertain the extent to which any such changes may impact our business or financial condition. In addition to the ACA, other federal health reform measures have been proposed and adopted in the United States.
We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business. It is uncertain the extent to which any such changes may impact our business or financial condition. 43 In addition to the ACA, other federal health reform measures have been proposed and adopted in the United States.
However, for Class II and Class III medical devices, the manufacturing company must meet all the requirements in the latest regulation, guidelines, and standards. The NMPA approved the new Gen-2 15 milliamp device for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed us to market and sell the Gen-2 device in China.
However, for Class II and Class III medical devices, the manufacturing company must meet all the requirements in the latest regulation, guidelines, and standards. The NMPA approved the Gen-2 15 milliamp device for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed us to market and sell the Gen-2 device in China.
Anxiety disorders include generalized anxiety disorder, social anxiety disorder, panic disorder, obsessive-compulsive disorder, post-traumatic stress disorder (PTSD) and phobias. Insomnia Market Insomnia is a common sleep disorder considered to be responsible for at least $63 billion in direct and indirect healthcare costs each year, according to the Harvard American Insomnia Study.
Anxiety disorders include generalized anxiety disorder, social anxiety disorder, panic disorder, obsessive-compulsive disorder, post-traumatic stress disorder (PTSD) and phobias. 8 Insomnia Market Insomnia is a common sleep disorder considered to be responsible for at least $63 billion in direct and indirect healthcare costs each year, according to the Harvard American Insomnia Study.
Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of $4.15 per share prior to three (3) years from the date of issuance, after which date any unexercised warrants will expire and have no further value. The warrants may not have any value.
Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of $4.15 per share prior to three (3) years from the date of issuance, after which date any unexercised warrants will expire and have no further value. 47 The warrants may not have any value.
We compete or may eventually compete with other companies and organizations that are marketing or developing therapies for our targeted disease indications, based on traditional pharmaceutical, medical device, or other neurostimulation therapy and technologies. We also face competition in the neurostimulation field from academic institutions and governmental agencies.
We compete or may eventually compete with other companies and organizations that are marketing or developing therapies for our targeted disease indications, based on traditional pharmaceutical, medical device, or other neurostimulation therapy and technologies. 24 We also face competition in the neurostimulation field from academic institutions and governmental agencies.
In the event that the stock price of our shares of common stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value. 42 We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to holders, thereby making such warrants worthless.
In the event that the stock price of our shares of common stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value. We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to holders, thereby making such warrants worthless.
The Gen-2 and Gen-3 device at 15 milliamps will offer patients a cost effective and efficient treatment model for day-to-day mental health challenges. We believe those devices, with their advanced waveform, can treat existing mental health disorders associated with anxiety and insomnia.
The Gen-2 and Gen-3 devices at 15 milliamps will offer patients a cost effective and efficient treatment model for day-to-day mental health challenges. We believe those devices, with their advanced waveform, can treat existing mental health disorders associated with anxiety and insomnia.
We file patent applications directed to our key products to establish intellectual property positions. These patent applications are intended to protect these products as well as their uses in the treatment of diseases. We are the owner and inventor of three existing patents and four pending patents related to the electro-stimulation techniques related to our products and services.
We file patent applications directed to our key products to establish intellectual property positions. These patent applications are intended to protect these products as well as their uses in the treatment of diseases. We are the owner of three existing patents and four pending patents related to the electro-stimulation techniques related to our products and services.
Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all.
Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. 38 However, we may not be able to obtain any required license on commercially reasonable terms or at all.
Such uncertainties, including uncertainty over the scope and effect of our contractual property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. 27 Restrictions on foreign currency may limit our ability to receive and use our revenue effectively.
Such uncertainties, including uncertainty over the scope and effect of our contractual property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. Restrictions on foreign currency may limit our ability to receive and use our revenue effectively.
For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares were sold in our public offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders. 46 Provisions in our corporate charter documents and under Delaware law could make an acquisition of our Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares were sold in our public offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders. 49 Provisions in our corporate charter documents and under Delaware law could make an acquisition of our Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Additionally, the Company does not currently believe any of the Company’s scientific data resulting from activities in China to be conducted by the Joint Venture would fall within the Measures for the Management of Scientific Data promulgated by the General Office of the PRC State Council.
The Company does not currently believe any of the Company’s scientific data resulting from activities in China to be conducted by the Joint Venture would fall within the Measures for the Management of Scientific Data promulgated by the General Office of the PRC State Council.
For example, the ACA, which was enacted in the United States in March 2010, includes measures to change health care delivery, decrease the number of individuals without insurance, ensure access 39 to certain basic health care services and contain the rising cost of care.
For example, the ACA, which was enacted in the United States in March 2010, includes measures to change health care delivery, decrease the number of individuals without insurance, ensure access to certain basic health care services and contain the rising cost of care.
Intellectual Property Our commercial success depends in part on our ability to: obtain and maintain proprietary or intellectual property protection for our products, our core technologies and other know-how; operate without infringing on the proprietary rights of others; and prevent others from infringing on our proprietary or intellectual property rights.
Competition Our commercial success depends in part on our ability to: obtain and maintain proprietary or intellectual property protection for our products, our core technologies and other know-how; operate without infringing on the proprietary rights of others; and prevent others from infringing on our proprietary or intellectual property rights.
Our independent accountant’s audit report included on this Form 10-K filed states that there is substantial doubt about our ability to continue as a going concern. We have incurred only losses since our inception, raising substantial doubt about our ability to continue as a going concern.
Our independent accountant’s audit report included on this Form 10-K states that there is substantial doubt about our ability to continue as a going concern. We have incurred only losses since our inception, raising substantial doubt about our ability to continue as a going concern.
Although, to date, there has been minimal effect upon our business, supply disruptions could make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products. 25 Risks Related to Doing Business in China The medical industry in China is highly regulated and such regulations are subject to change which may affect approval and commercialization of our products.
Although, to date, there has been minimal effect upon our business, supply disruptions could make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products. 29 Risks Related to Doing Business in China The medical industry in China is highly regulated and such regulations are subject to change which may affect approval and commercialization of our products.
While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. 26 The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, and our ability to operate our business, maintain our liquidity and keep our access to capital.
While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. 30 The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, and our ability to operate our business, maintain our liquidity and keep our access to capital.
If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. 34 We may not be able to protect our intellectual property rights throughout the world.
If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. We may not be able to protect our intellectual property rights throughout the world.
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to a third party to develop and market products that we would otherwise prefer to develop and market ourselves. 18 Risks Related to the Development of Our Products and Preclinical Program We depend on the success of our future products, some of which are in clinical development but have not completed advanced clinical trials.
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to a third party to develop and market products that we would otherwise prefer to develop and market ourselves. 20 Risks Related to the Development of Our Products and Preclinical Program We depend on the success of our future products, some of which are in clinical development but have not completed advanced clinical trials.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. 35 Risks Related to Regulatory Approval of Our Products and Other Legal Compliance Matters Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our products.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. 39 Risks Related to Regulatory Approval of Our Products and Other Legal Compliance Matters Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our products.
We additionally may be compelled to split revenue with our collaborators, which could have a material adverse effect on our business, financial condition, and results of operations. 21 Risks Related to the Commercialization of Our Products Even if any of our products receives marketing approval, it may fail to achieve the degree of market acceptance by healthcare providers, physicians, clinicians, patients, third-party payors and others in the medical community necessary for commercial success.
We additionally may be compelled to split revenue with our collaborators, which could have a material adverse effect on our business, financial condition, and results of operations. 23 Risks Related to the Commercialization of Our Products Even if any of our products receives marketing approval, it may fail to achieve the degree of market acceptance by healthcare providers, physicians, clinicians, patients, third-party payors and others in the medical community necessary for commercial success.
After diagnosis, the physician can prescribe the Nexalin Gen-3 headset to the patient for treatment. Next, the Gen-3 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.
After diagnosis, the physician will prescribe the Nexalin Gen-3 headset to the patient for treatment. Next, the Gen-3 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.
However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.07 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period.
However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period.
There can be no assurances that we will be able to comply with the applicable listing standards. We are required to maintain a minimum bid price of $1.00 per share.
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.
We have decided not to pursue a depression indication for our Gen-1 device at such time. 19 Any further such reclassification by the FDA of an indication from a certain class of device to another during our development or post-commercialization for that indication could have a significant adverse impact due to the more rigorous and lengthy approval process required for a higher risk class medical device.
We have decided not to pursue a depression indication for our Gen-1 device at such time. 21 Any further such reclassification by the FDA of an indication from a certain class of device to another during our development or post-commercialization for that indication could have a significant adverse impact due to the more rigorous and lengthy approval process required for a higher risk class medical device.
We have limited experience enrolling patients in our clinical trials and cannot predict how successful we will be in enrolling patients in future clinical trials. 20 Risks Related to Our Dependence on Third Parties We rely on third parties to conduct the clinical trials for our products, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with applicable regulatory requirements.
We have limited experience enrolling patients in our clinical trials and cannot predict how successful we will be in enrolling patients in future clinical trials. 22 Risks Related to Our Dependence on Third Parties We rely on third parties to conduct the clinical trials for our products, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with applicable regulatory requirements.
Our hypothesis is that the current pilot study design at The University California, San Diego (see below) will provide a source of validation for this treatment modality in addiction treatment. Chronic Pain Market Originally, our waveform was designed as an electro-analgesic for pain. This refers to the ability to electrically interrupt the pain signaling process in the brain.
Our hypothesis is that the current pilot study design at The University California, San Diego will provide a source of validation for this treatment modality in addiction treatment. Chronic Pain Market Originally, our waveform was designed as an electro-analgesic for pain. This refers to the ability to electrically interrupt the pain signaling process in the brain.
Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. 23 Risks Related to Our Business and Managing Our Growth Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. 26 Risks Related to Our Business and Managing Our Growth Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
Formalized Joint Venture; China Related Activities 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.
Formalized Joint Venture; China Related Activities On May 31, 2023, the Company formalized an agreement related to the formation of a joint venture (the “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.
We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. 36 The U.S. FDA, Chinese National Medical Products Administration and other comparable foreign regulatory authorities may not accept data from trials conducted in locations outside of their jurisdiction.
We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. 40 The U.S. FDA, Chinese National Medical Products Administration and other comparable foreign regulatory authorities may not accept data from trials conducted in locations outside of their jurisdiction.
We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act.
We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed fiscal year, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act.
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.
The features of this proprietary waveform and the electrodes allow the application of the waveform to the entire brain rather than a small, targeted area of the brain.
We believe that to preserve product safety and integrity for home use, the headset device will require physician oversight that includes 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.
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.
Therefore, our ability to continue as a going concern is highly dependent upon us executing our business plan in the planned amount of time allotted or obtaining additional financing for our planned operations if necessary.
Therefore, our ability to continue as a going concern is highly dependent upon us executing our business plan in the planned amount of time allotted and obtaining additional financing for our planned operations, if necessary.
We will be deemed to be a “large accelerated filer” at such time that we 48 (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act.
We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed fiscal year, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act.
As of the fiscal year ended December 31, 2023, our management evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures, pursuant to Rule 13a-15(b) under the Exchange Act.
As of the fiscal year ended December 31, 2024, our management evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures, pursuant to Rule 13a-15(b) under the Exchange Act.
The Gen-2 15 milliamp version of our device when introduced into the United States will be subject to approximately eighteen months of clinical study before our PMA application for depression will be accepted.
The Gen-2 15 milliamp version of our device when introduced into the United States will be subject to approximately eighteen to twenty-four months of clinical study before our PMA application for depression will be accepted.
In addition to clinical trials in China and current studies in the United States required by the FDA, an additional study is planned with the 15 milliamp Gen-2 and Gen-3 devices to evaluate a large cohort of patients with depression. This trial will include a double-blind study design with active and sham groups.
In addition to clinical trials in China and current studies in the United States required by the FDA, an additional study will be designed and planned with the 15 milliamp Gen-2 and Gen-3 devices to evaluate a large cohort of patients with depression. This trial will include a double-blind study design with active and sham groups.
On May 10, 2023, the Company received written notice from The Nasdaq Stock Market LLC (“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.
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.
Properties Our principal executive offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Our phone number is (832) 260-0222. Our website address is www.nexalin.com . We do not incorporate the information on or accessible through our website into this Report on Form 10-K.
Properties Our principal executive offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Our phone number is (832) 260-0222. Our website address is www.nexalin.com . We do not incorporate the information on or accessible through our website into this Report.
Gen-3 is a new patient headset that will be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms.
Gen-3 is a new patient headset that is intended to be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms.
However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), we will cease to be an emerging growth company prior to the end of such five-year period.
However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period.
Industry reports and feedback indicate 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 of medication prescribed by psychiatrists.
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 of medication prescribed by psychiatrists.
Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new 15-milliamp waveform. Our Gen-2 device is expected to be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device.
Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new symmetric15-milliamp waveform. Our Gen-2 device will be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device.
In our current sales plan, we intend to launch with a physician provider in each state. These physicians will lead the Nexalin campaign in each state as that state’s primary provider. These preferred state providers will begin with the virtual clinic.
In our current sales plan, we intend to launch with a physician provider in each state. These physicians are intended to lead the Nexalin campaign in each state as that state’s primary provider. These preferred state providers are intended to begin with the virtual clinic.
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 research team believes that the new 15 milliamp Gen-2 and Gen-3 devices can penetrate deeper into the brain and stimulate associated structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects.
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) application to demonstrate safety and effectiveness.
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.
Our digital marketing team will drive consumers with quality-of-life struggles related to mental health issues into the virtual clinic and then to the provider in the consumer’s state of residence. These initial state physicians providing mental health services in the virtual clinic, will also have the ability to offer treatment in their clinic.
Our digital marketing team will work towards driving consumers with quality-of-life struggles related to mental health issues into the virtual clinic and then to the provider in the consumer’s state of residence. These initial state physicians providing mental health services in the virtual clinic, will also have the ability to offer treatment in their clinic.
We have chosen, and may continue to choose, to conduct international clinical trials. The acceptance of study data by the FDA, NMPA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions.
In addition to clinical trials conducted in the United States, we have chosen, and may continue to choose, to conduct international clinical trials. The acceptance of study data by the FDA, NMPA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions.
Our products are non-invasive 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 design that eliminates stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as waveform - particularly our proprietary, 15 milliamp patented symmetrical waveform.
All our products are non-invasive, undetectable to the human body and are designed to provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary design that stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as a waveform - particularly our proprietary, 15 milliamp patented waveform.
China The NMPA is the governmental authority principally responsible for the supervision and administration of medical devices in the Peoples Republic of China (the “PRC”). Medical devices in the PRC (including manufacturing, marketing, and sale) are subject to a mandatory filing/registration regime regulated by the NMPA.
The NMPA is the governmental authority principally responsible for the supervision and administration of medical devices in the PRC. Medical devices in the PRC (including manufacturing, marketing, and sale) are subject to a mandatory filing/registration regime regulated by the NMPA.
We anticipate that our expenses will increase significantly as we: ● continue our ongoing and planned preclinical and clinical development of our existing and next Generation devices; ● initiate preclinical studies and clinical trials for any additional products that we may pursue in the future; ● seek to discover and develop additional treatment indications; ● seek regulatory approvals for any products that successfully complete clinical trials; ● ultimately establish sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product for which we may obtain regulatory approval and intend to commercialize on our own; ● maintain, expand and protect our intellectual property portfolio; ● engage additional clinical, scientific, manufacturing and controls personnel; ● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and ● incur additional legal, accounting and other expenses associated with operating as a public company. 16 To become and remain profitable, we and our collaborators must succeed in developing and eventually commercializing future and existing products that generate significant revenue.
We anticipate that our expenses will increase significantly as we: ● continue our ongoing and planned preclinical and clinical development of our existing and next Generation devices; ● initiate preclinical studies and clinical trials for any additional products that we may pursue in the future; ● seek to discover and develop additional treatment indications; ● seek regulatory approvals for any products that successfully complete clinical trials; ● ultimately establish sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product for which we may obtain regulatory approval and intend to commercialize on our own; ● maintain, expand and protect our intellectual property portfolio; ● engage additional clinical, scientific, manufacturing and controls personnel; ● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and ● incur additional legal, accounting and other expenses associated with operating as a public company.
See “Risk Factors — Risks Related to Doing Business in China.” As a result of the formation of the Joint Venture, we are conducting our clinical research and implementing a business distribution plan for our devices in China and elsewhere through the Joint Venture, which we believe confers clinical, commercial, and regulatory advantages, but may subject us to significant regulatory, liquidity, and enforcement risks.
As a result of the formation of the Joint Venture, we are conducting our clinical research and implementing a business distribution plan for our devices in China and elsewhere through the Joint Venture, which we believe confers clinical, commercial, and regulatory advantages, but may subject us to significant regulatory, liquidity, and enforcement risks.
We have funded our operations to date primarily with proceeds from private investors and the sale of our stock, including the proceeds from our initial public offering completed in September 2022. We have had only limited sales of our products and services to date.
We have funded our operations to date primarily with proceeds from private investors and the sale of our stock, including the proceeds from our initial public offering completed in September 2022 and a follow-on offering completed in July 2024. We have had only limited sales of our products and services to date.
Although we have developed a second-Generation medical device, it has not as yet been approved by the FDA for marketing or sales in the United States. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
Although we have developed second- and third-Generation versions of our medical device, these have not as yet been approved by the FDA for marketing or sales in the United States. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
Significant disruptions of our third-party vendors’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation and unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us.
In addition, the prevalent use of mobile devices increases the risk of data security incidents. 27 Significant disruptions of our third-party vendors’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation and unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us.
Additionally, there will be an app that the patients will install on their phones that will communicate with the outpatient headset. The app will upload user information that is HIPAA compliant to the IT management platform. Modules will be designed and implemented in the platform to collect biometric data. Biometric data will be utilized to evaluate patient response.
Additionally, there will be an app that the patients will install on their phones that will communicate with the outpatient headset. The app will upload user information that is HIPAA compliant to the IT management platform in the cloud. Modules will eventually be designed and implemented in the platform to collect biometric data.
Based upon that evaluation, our management concluded that our disclosure controls and procedures were not effective due to the following material weaknesses: ● Lack of sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of financial information used in financial reporting and review of controls over the financial reporting process, including the review of reconciliations and the accounting for the Company’s stock options that were granted in the current year; and ● Insufficient IT controls which are effectively designed and implemented, specifically related to user/superuser access to the Company’s financial reporting system.
Based upon that evaluation, our management concluded that our disclosure controls and procedures were not effective due to the following material weaknesses: ● Lack of sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of financial information used in financial reporting and review of controls over the financial reporting process; and ● Insufficient IT controls which are effectively designed and implemented, specifically related to user/superuser access to the Company’s financial reporting system.
If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market, Nasdaq could delist our common stock. Our common stock is currently listed on The Nasdaq Stock Market.
If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market, Nasdaq could delist our common stock.
Alzheimer’s Disease and Dementia Market Alzheimer’s disease is a degenerative brain disease and the most common form of dementia. Dementia is not a specific disease, but rather an overall term that describes a group of symptoms. According to the WHO, there are around 50 million people living with Alzheimer’s disease and other dementias worldwide.
Dementia is not a specific disease, but rather an overall term that describes a group of symptoms. According to the WHO, there are around 50 million people living with Alzheimer’s disease and other dementias worldwide.
Other areas of research that will be designed and funded relate to the treatment of substance use disorders, TBI, PTSD, Alzheimer’s disease, and dementia. Additional research in China is being performed with the goal of publishing the findings in a peer reviewed journal.
Other areas of research and strategy development that will be designed and funded relate to the treatment of SUD, TBI, PTSD, Alzheimer’s disease, and dementia. Additional research in China is being performed with the goal of publishing the findings in a peer reviewed journal.
A summary of our risk factors is as follows: Risks Related to Our Financial Position and Capital Needs We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability. We are a Delaware corporation with a limited operating history.
Risks Related to Our Financial Position and Capital Needs We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability. We are a Delaware corporation with a limited operating history.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The Nexalin virtual clinic will be provided in a proprietary virtual platform which is currently in the design stage. 2 Our China Gen-2 15 milliamp device was approved in China by the China National Medical Products Administration (the “NMPA,” the equivalent of the FDA) for the treatment of insomnia and depression in China.
The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage. Our 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 a single use electrode for long term revenue streams. Our USA Gen-2 device will have a fresh and modern appearance that meets the technology standards of the digital tech world of 2024.
This device and all other clinical devices will include single use electrodes for long term revenue streams. The USA Gen-2 device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2025.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed4 unchanged
Biggest changeAlthough we have not, as of the date of this Report on Form 10-K, experienced a cybersecurity incident that materially affected our business, financial condition and results of operations, we can provide no assurance that we will not experience a material cybersecurity incident in the future.
Biggest changeAlthough we have not , as of the date of this Report, experienced a cybersecurity incident that materially affected our business, financial condition and results of operations, we can provide no assurance that we will not experience a material cybersecurity incident in the future. 52
We rely upon in-house and cybersecurity vendors to monitor our IT systems and assets and have a governance structure and processes to assess, identify, manage, and report cybersecurity risks.
We rely upon in-house and third- party cybersecurity vendors to monitor our IT systems and assets and have a governance structure and processes to assess, identify, manage, and report cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−1 removed0 unchanged
Biggest changeOur lease payments for each of fiscal years 2023 and 2022 were $54,000. The sub-leases are due to expire in 2024. We have entered into a new one year sublease for 4,000 square feet of office space under an operating lease.
Biggest changeOur lease costs for each of the fiscal years 2023 and 2024 were $54,000. The initial sub-leases expired in January of 2025. The Company has entered into a new one year sublease for 4,000 square feet of office space as a short-term lease.
We do not own or operate manufacturing facilities for the production of any of our products, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We believe our current premises are sufficient for our needs at this time and for the foreseeable future. 51
We do not own or operate manufacturing facilities for the production of any of our products, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We believe our current premises are sufficient for our needs at this time and for the foreseeable future.
ITEM 2. PROPERTIES Our principle executive office is located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “ Leases ”, we have two separate sub-leases totaling approximately 4,000 square feet of office space under operating leases. Management and supporting staff are housed at this location.
ITEM 2. PROPERTIES 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.
Removed
We sublease our space and will continue to sublease our space from an entity controlled by our Chief Executive Officer. We do not have any increase from the primary lease payments for the sub-lease arrangements.
Added
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

6 edited+2 added−0 removed4 unchanged
Biggest changeEmployment Development Department The Company is currently engaged in settlement discussions with the Employment Development Department (EDD) of the State of California. The total amount involved was approximately $300,000. 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.
Biggest changeThe 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 has accrued $40,000 and $40,000 on the consolidated balance sheets as of December 31, 2023 and 2024, respectively.
The Company and the University of Arizona agreed on the terms of a settlement for the amounts claimed by the University, whereby the Company is to pay an aggregate of approximately $69,000 (in three equal monthly payments) in full satisfaction of amounts the University claims it is owed. The settlement amount was paid in full as of December 31, 2023.
The Company and the University of Arizona agreed on the terms of a settlement for the amounts claimed by the University, whereby the Company was to pay an aggregate of approximately $69,000 (in three equal monthly payments) in full satisfaction of amounts the University claims it is owed. The settlement amount was paid in full as of December 31, 2023.
ITEM 4. MINE SAFETY Not Applicable. 52 PART II
ITEM 4. MINE SAFETY Not Applicable. 53 PART II
The Company believes it has adequately accrued for this matter. The University of Arizona On December 8, 2022, the Company received a demand letter from the University of Arizona seeking payment of $111,094.
Demand Letter from The University of Arizona On December 8, 2022, the Company received a demand letter from the University of Arizona seeking payment of $111,094.
On March 12, 2021, the Company filed its answer to the Complaint. Although the parties are seeking mediation, the court has set a trial in this matter for November 18, 2024.
On March 12, 2021, the Company filed its answer to the Complaint. A Mediation was held on March 5, 2025. A settlement has not yet been reached. The court has set a trial in this matter for June 9, 2025.
We plan to further negotiate with the EDD and proceed with a settlement offer. The Company has accrued $40,000 and $300,000 on the audited consolidated balance sheets as of December 31, 2023 and 2022 respectively. The reduction in the amount accrued was recognized as other income on the consolidated statement of operations and comprehensive loss.
The reduction in the amount accrued was recognized as other income on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2023. The Company believes it has adequately accrued for this matter.
Added
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.
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+3 added−5 removed2 unchanged
Biggest changeThe exercise of these options is subject to vesting. Mr. Nketiah was awarded 100,671 performance based stock option exercisable at $.894 per share. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 33,557 options were approved by the Board.
Biggest changeThe performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 33,557 options were approved by the Board. Upon his resignation from the Company as of August 16, 2024, Mr. Nketiah forfeited any further grants of options.
The Board has granted certain awards in accordance with the 2023 Plan to Mr. White, Dr. Owens and Mr. Michael Nketiah (“Awards”). Mr. White was awarded a sign on/retention bonus of 447,427 vested stock options and 939,597 performance based stock option exercisable at $.894 per share.
The Board has granted certain awards in accordance with the 2023 Plan to Mr. White, Dr. Owens and Mr. Michael Nketiah (“Awards”). Mr. White was awarded a sign on/retention bonus of 447,427 vested stock options and 939,597 performance based stock options exercisable at $.894 per share.
Owens was awarded a sign on/retention bonus of 139,821 vested stock options and 654,362 performance based stock option exercisable at $.894 per share. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 218,121 options were approved by the Board.
Owens was awarded a sign on/retention bonus of 139,821 vested stock options and 654,362 performance based stock options exercisable at $.894 per share. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 218,121 options were awarded.
The Plan provides that 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 Plan provides that maximum number of shares of common stock available for the grant of awards under the Plan shall be 6,000,000, subject to adjustment for stock dividends, stock splits or similar events.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Principal Market Our common stock is currently traded on The Nasdaq Capital Market under the symbol “NXL.” Our common stock warrants are listed for trading on The Nasdaq Capital Market under the symbol “NXLIW” Equity Holders As of March 22, 2024, the number of stockholders of our common stock of record was approximately 878 persons and the last reported closing price per share of our common stock on such date was $0.484.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Principal Market Our common stock is currently traded on The Nasdaq Capital Market under the symbol “NXL.” Our common stock warrants are listed for trading on The Nasdaq Capital Market under the symbol “NXLIW” Equity Holders As of March 12, 2025, the number of stockholders of our common stock of record was approximately 827 persons and the last reported closing price per share of our common stock on such date was $2.25.
The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 313,199 options were approved by the Board. The exercise of these options is subject to vesting. 53 Dr.
The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 313,199 options were awarded. The 2024 performance criteria was met and 313,199 options were awarded as of July 1, 2024. Dr.
We do not intend to pay any cash dividends at this time or in the foreseeable future. Recent Sales of Unregistered Securities None. Repurchase of Equity Securities None. Securities Authorized for Issuance under Equity Compensation Plans Nexalin’s 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders on November 10, 2023.
We do not intend to pay any cash dividends at this time or in the foreseeable future. Recent Sales of Unregistered Securities None. Repurchase of Equity Securities None.
The exercise of these options is subject to vesting. On December 12, 2023, various consultants, Board members and employees were awarded shares of common stock and/or stock options for 2023 services with a value of $642,029.
During the year ended December 31, 2024, various consultants, Board members and employees were awarded shares of common stock and/or stock options for 2024 services with a value of $3,160,512. See Item 11. “Executive Compensation” for a discussion of certain stock related compensation agreements with certain of our executive officers. ITEM 6. [RESERVED] 55
Removed
The December 12, 2023 awards are subject to shareholder approval to amend our 2023 Equity Incentive Plan so as to provide for additional shares to be available for the grant of awards. See Item 11. “Executive Compensation” for a discussion of certain stock related compensation agreements with certain of our executive officers.
Added
Securities Authorized for Issuance under Equity Compensation Plans Nexalin’s 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders on November 10, 2023, and an amendment to the 2023 Plan was approved by our stockholders on August 26, 2024, to provide for additional shares to be available for the grant of awards.
Removed
Reverse Stock Split We have filed a definitive proxy statement requesting stockholders approve a Reverse Stock Split Amendment, pursuant to which the Board will be authorized, in its discretion, to proceed with a Reverse Stock Split.
Added
The 2024 performance criteria was met and 218,121 options were awarded as of July 1, 2024. Dr Owens was awarded an additional 125,000 vested stock options exercisable at $2.95. 54 Under the terms of her employment agreement, Ms.
Removed
The exact ratio of the Reverse Stock Split, within the 1-for-4 to 1-for-14 range, would be determined by our Board and publicly announced by us prior to the effective time of the Reverse Stock Split.
Added
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. The performance criteria has been met. Mr. Nketiah was awarded 100,671 performance based stock option exercisable at $.894 per share.
Removed
The sole purpose for the proposed Reverse Stock Split is to increase the per share market price of our Common Stock to meet the Nasdaq Minimum Bid Price Rule for continued listing on The Nasdaq Capital Market. The proposed Reverse Stock Split was approved by stockholders on March 7, 2024.
Removed
The filing of the Reverse Stock Split Amendment and the Reverse Stock Split will only be implemented if our Board determines they are necessary to regain and maintain compliance with the Nasdaq Minimum Bid Price Rule. ITEM 6. [RESERVED]

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. [Reserved] 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 65 Item 8. Financial Statements and Supplemental Data 65 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 65 Item 9A. Controls and Procedures 65
Biggest changeItem 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Financial Statements and Supplemental Data 64 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 65 Item 9A. Controls and Procedures 65

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

57 edited+25 added−29 removed33 unchanged
Biggest changeOur ability to monetize the Joint Venture in China may also be limited. 59 Results of Operations Comparison of the Years ended December 31, 2023 and 2022 Our financial results for the years ended December 31, 2023 and 2022 are summarized as follows: Years Ended December 31, 2023 2022 Change $ Change (1) % Revenues, net $ 110,748 $ 1,321,357 $ (1,210,609 ) (92 %) Cost of revenues 25,688 363,212 (337,524 ) (93 %) Gross profit 85,060 958,145 (873,085 ) (91 %) Operating expenses: Professional fees 574,598 605,329 (30,731 ) (5 %) Salaries and benefits 1,387,916 694,108 693,808 100 % Selling, general and administrative 3,818,842 1,491,739 2,327,103 156 % Total operating expenses 5,781,356 2,791,176 2,990,180 107 % Loss from operations (5,696,296 ) (1,833,031 ) (3,863,265 ) 211 % Other income (expense), net: Interest income (expense), net (38,835 ) (59,382 ) 20,547 (35 %) Gain on sale of short-term investments 231,880 - 231,880 100 % Other income 239,542 171,681 67,861 40 % Gain on extinguishment of debt 615,000 - 615,000 100 % Other income - PPP loan forgiveness - 22,916 (22,916 ) (100 %) Total other income (expense), net 1,047,587 135,215 912,372 675 % Net loss $ (4,648,709 ) $ (1,697,816 ) $ (2,950,893 ) (174 %) Other comprehensive income (loss): Unrealized gain (loss) from short-term investments (36,718 ) 36,313 (73,031 ) (201 %) Comprehensive loss $ (4,685,427 ) $ (1,661,503 ) $ (3,023,924 ) (182 %) (1) Percentages may not foot due to rounding.
Biggest changeResults of Operations Comparison of the Years ended December 31, 2024 and 2023 Our financial results for the years ended December 31, 2024 and 2023 are summarized as follows: Years Ended December 31, Change Change (1) 2024 2023 $ % Revenues, net $ 168,721 $ 110,748 $ 57,973 52 % Cost of revenues 36,593 25,688 10,905 42 % Gross profit 132,128 85,060 47,068 55 % Operating expenses: Professional fees 966,815 574,598 392,217 68 % Salaries and benefits 1,500,089 1,387,916 112,173 8 % Selling, general and administrative 4,228,986 1,897,031 2,331,955 123 % Research and development 1,190,884 1,921,811 (730,927 ) (38 )% Total operating expenses 7,886,774 5,781,356 2,105,418 36 % Loss from operations (7,754,646 ) (5,696,296 ) (2,058,350 ) 36 % Other income (expense), net: Interest income (expense), net 3,193 (38,835 ) 42,028 108 % Gain on sale of short-term investments 130,110 231,880 (101,770 ) (44 )% Other income 9,310 239,542 (230,232 ) (96 )% Gain on extinguishment of debt - 615,000 (615,000 ) (100 )% Total other income (expense), net 142,613 1,047,587 (904,974 ) (86 )% Loss before provision for income taxes $ (7,612,033 ) $ (4,648,709 ) $ (2,963,324 ) 64 % Provision for income taxes - - - 0 % Loss before equity in net earnings of affiliate (7,612,033 ) (4,648,709 ) (2,963,324 ) 64 % Equity in net earnings of affiliate 4,851 - 4,851 100 % Net loss $ (7,607,182 ) $ (4,648,709 ) $ (2,958,473 ) 64 % Other comprehensive loss: Unrealized loss from short-term investments (108 ) (36,718 ) 36,610 (100 )% Comprehensive loss $ (7,607,290 ) $ (4,685,427 ) $ (2,921,863 ) 62 % (1) Percentages may not foot due to rounding. 60 Revenues For the years ended December 31, 2024 and 2023, we generated $168,721 and $110,748, 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.
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 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 strategic development for the treatment of depression utilizing both Gen-2 and Gen-3.
This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of: ● successful enrolment in, and completion of clinical trials; ● performing preclinical studies and clinical trials in compliance with the FDA or any comparable regulatory authority requirements; ● the ability to outsource the manufacture of our products for development, clinical trials and/ or potential commercialization; 62 ● obtaining and maintaining patent, trademark and trade secret protection for our products; ● scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others; ● acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors; ● competing effectively with other therapies; ● obtaining and maintaining healthcare coverage and adequate reimbursement; ● protecting our rights in our intellectual property portfolio; and ● maintaining a continued acceptable safety profile of our products following approval.
This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of: ● successful enrolment in, and completion of clinical trials; ● performing preclinical studies and clinical trials in compliance with the FDA and/or any comparable regulatory authority requirements; 62 ● the ability to outsource the manufacture of our products for development, clinical trials and/ or potential commercialization; ● obtaining and maintaining patent, trademark and trade secret protection for our products; ● scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others; ● acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors; ● competing effectively with other therapies; ● obtaining and maintaining healthcare coverage and adequate reimbursement; ● protecting our rights in our intellectual property portfolio; and ● maintaining a continued acceptable safety profile of our products following approval.
We developed an easy-to-administer medical device — referred to as “Generation 1” or “Gen-1” — that utilizes bioelectronic medical technology to treat anxiety and insomnia, without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit waveform at 4 milliamps during treatment and are presently classified by the U.S.
We developed an easy-to-administer medical device — referred to as “Generation 1” or “Gen-1” — that utilizes bioelectronic medical technology to treat anxiety, insomnia and depression without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit a waveform at 4 milliamps during treatment and are presently classified by the U.S.
Food and Drug Administration (the “FDA”) as a Class II device. Medical professionals in the United States have utilized the Gen-1 device to administer to patients in clinical settings.
Food and Drug Administration (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.
Factors That May Affect Future Results and Financial Condition The information contained under the caption “Risk Factors” beginning on page 16 of this Form 10-K provides examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.
Factors That May Affect Future Results and Financial Condition The information contained under the caption “Risk Factors” beginning on page 18 of this Form 10-K provides examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.
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 derive revenue from equipment by selling electrodes and patient cables to customers for use with our device.
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.
When we researched the current pharmaceuticals model, public information highlighted the many side effects associated with these medications. Frequently, patients would stop taking the medication because of the uncomfortable side effects. Additional public information mentions dependency and withdrawal issues associated with medication for psychiatric disorders.
When we researched the current pharmaceuticals model, public information highlighted the many side effects associated with such medications. Frequently, patients would stop taking the medication because of the uncomfortable side effects. Additional public information mentions dependency and withdrawal issues associated with medication for psychiatric disorders.
All our products are non-invasive 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 design that stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as waveform - particularly our proprietary, 15 milliamp patented symmetrical waveform.
All our products are non-invasive, undetectable to the human body and are designed to provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary design that stabilizes currents, electromagnetic fields, and various frequencies — referred to collectively as a waveform - particularly our proprietary, 15 milliamp patented waveform.
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 income.
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.
We evaluate these estimates on an ongoing basis. 63 We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
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 research team believes that the new 15 milliamp Gen-2 and Gen-3 devices can penetrate deeper into the brain and stimulate associated structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects.
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) application to demonstrate safety and effectiveness.
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.
There are items within our financial statements that require estimation but are not deemed critical, as defined above. For a detailed discussion of our significant accounting policies and related judgments, see Note 3 of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplemental Data” of this report.
There are items within our financial statements that require estimation but are not deemed critical, as defined above. For a detailed discussion of our significant accounting policies and related judgments, see Note 3 of the Notes to Consolidated Financial Statements in “Item 8.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this annual report on Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this Report.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the manufacture, regulatory approvals and market acceptance of the Gen-3 device. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of Gen-3 and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive.
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.
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.
We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors” in this Report.
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.
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.
Although we have produced Gen-2, which had previously sold in China where it is approved for certain utilizations by medical practitioners, the success of our future products is highly uncertain.
Although we have produced Gen-2, which is selling in China where it is approved for certain utilizations by medical practitioners, the successful development of our future products is highly uncertain.
Our devices generate a high frequency carrier wave that is charge balanced. It is applied to the brain with an array of electrodes on the forehead and behind each ear at the mastoid.
Additionally, our devices generate a proprietary 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.
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.
Determinations of the safety and efficacy of our devices in the United States are solely within the authority of the FDA. A new pre-submission document in preparation of a new 510(k) and/or De Novo application for our Gen-3 HALO headset at 15 milliamps was filed with the FDA in January of 2023.
The Company will continue to service existing customers in the United States. The Company sold devices in China to its acting distributor. The Company anticipates that we will continue to incur operating losses as we continue to execute our development plans through 2024, as well as other potential strategic and business development initiatives.
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 2025, as well as other potential strategic and business development initiatives.
In 2023, the Company paid off a note payable to an officer in the amount of $200,000. Uses and Availability of Additional Funds Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing development costs, legal and other regulatory expenses, and general administrative costs.
Uses and Availability of Additional Funds Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing development costs, legal and other regulatory expenses, and general administrative costs.
To ensure deeper penetration into the brain, we have created a waveform that is undetectable to the brain which allows the increase of the power from Currently, the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States and around the world.
Currently, the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States and around the world.
For convenience of presentation some of the numbers have been rounded in the text below. 54 Overview We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic.
Our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below. Overview We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic.
The Company invested $96,000 in the joint venture in September 2023 which is recorded on the consolidated balance sheet at December 31, 2023 as an Equity Method Investment. Wider invested $104,000.
As of December 31, 2024 and 2023 the Company had an Equity Method Investment of $864 and $96,000, respectively, recorded on the consolidated balance sheets. The Company invested $96,000 in the joint venture in September 2023 and Wider invested $104,000.
Liquidity and Capital Resources At December 31, 2023, the Company had a significant accumulated deficit of $77.0 million. For the year ended December 31, 2023, the Company had a loss from operations of $5.7 million and negative cash flows from operations of $3.8 million. The Company’s operating activities consume the majority of its cash resources.
Liquidity and Capital Resources As of December 31, 2024, the Company had a significant accumulated deficit of $84,645,231. For the year ended December 31, 2024, the Company had a loss from operations $7,754,646 and negative cash flows from operations of $3,944,390. The Company’s operating activities consume the majority of its cash resources.
Gen-3 is a new patient headset that will be prescribed by licensed medical professionals in a virtual clinic setting similar to existing Tele-health platforms.
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 will be prescribed by licensed medical professionals in a virtual clinic setting similar to existing tele-health platforms.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. 57 Recent Developments Formalized Joint Venture; China Related Activities 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.
Recent Developments Formalized Joint Venture; China Related Activities On May 31, 2023, the Company formalized an agreement related to the formation of a joint venture (the “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.
Under the Joint Venture Agreement, Wider 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 does not maintain any variable interest entity structure or operate any data center in China. 58 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.
We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcements. This revenue consists of monthly licensing fees and payments for the sale of electrodes and patient cables.
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.
In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity and issuance of convertible notes.
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 December 31, 2024, the Company had cash and cash equivalents on hand of $574,485 and short-term investments of $2,905,438.
Cash and cash equivalents increased by approximately $417,000. Short-term investments decreased by approximately $4,463,000. Prepaid expenses and other current assets increased by approximately $50,000. Current liabilities decreased for the year ended December 31, 2023.
Cash and cash equivalents decreased by approximately $6,000. Short-term investments increased by approximately $537,000. Prepaid expenses and other current assets decreased by approximately $22,000. Current liabilities increased for the year ended December 31, 2024. Accounts payable decreased approximately $4,000, accrued expenses increased by approximately $129,000 and lease liability – current portion decreased by approximately $4,000.
Additionally, management does not believe we have sufficient cash for the next twelve months from the issuance of the financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage. 56 Our China Gen-2 15 milliamp device was approved in China by the NMPA for the treatment of insomnia and depression in China. This device and all other clinical devices will include a single use electrode for long term revenue streams.
The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage. Our 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.
Net Cash Provided By (Used In) Investing Activities Net cash provided by (used in) investing activities during the year ended December 31, 2023 and 2022 was $4,452,872 and ($6,794,879), respectively, which was due to short-term investment sales of approximately $41.3 million offset by purchases of $36.6 million of short-term investments, the purchase of patents of approximately $99,000 and an investment in our equity method investment of $96,000.
Net Cash Provided By (Used In) Investing Activities Net cash provided by (used in) investing activities during the year ended December 31, 2024, and 2023 was $(577,539) and $4,452,872, respectively, which was due to short-term investment sales approximately $33.2 million offset by purchases of approximately $33.7 million of short-term investments for the year ended December 31, 2024.
This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively for all prior periods presented in the consolidated financial statements. The Company is currently evaluating the potential impact of adopting this standard on our disclosures.
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.
Early adoption is permitted. The company is currently evaluating the potential impact of adopting this standard on our disclosures. All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Net Cash Provided by (Used In) Financing Activities Net cash provided by (used in) financing activities during the year ended December 31, 2023 and 2022 was ($200,000) and $8,511,543, respectively, which was primarily due to the sale of common stock in connection with our initial public offering, for cash in 2022.
Net Cash Provided by (Used In) Financing Activities Net cash provided by (used in) financing activities during the year ended December 31, 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.
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 new updated pre-sub filing is planned for filing in January 2024.
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. 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.
Liquidity and Capital Resources Working Capital December 31, 2023 December 31, 2022 Current assets $ 3,429,892 $ 7,425,462 Current liabilities 425,281 1,948,986 Working capital $ 3,004,611 $ 5,476,476 Current assets decreased for the year ended December 31, 2023 primarily as a result of the reduction in short term investments as a result of funding our operations.
Liquidity and Capital Resources Working Capital December 31, 2024 December 31, 2023 Current assets $ 3,961,141 $ 3,429,892 Current liabilities 546,694 425,281 Working capital $ 3,414,447 $ 3,004,611 61 Current assets increased for the year ended December 31, 2024 primarily as a result of an increase in short-term investments as a result of sale of equity.
The USA Gen-2 device will have a fresh and modern appearance that meets the technology standards of the digital tech world of 2023. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new symmetric15-milliamp waveform.
Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new symmetric15-milliamp waveform. Our Gen-2 device will be equipped with Radio Frequency Identification (RFID) technology that exchanges electrode usage data with a reader in the main device.
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.
Refer to Note 11 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.
Operating Expenses Total operating expenses for the years ended December 31, 2023 and 2022 were $5,781,356 and $2,791,176, respectively.
The increase in gross margin remained consistent year over year. Operating Expenses Total operating expenses for the years ended December 31, 2024 and 2023 were $7,886,774 and $5,781,356, respectively.
This resulted in no new device sales in 2023. 60 Cost of Revenues and Gross Profit For the years ended December 31, 2023 and 2022, cost of revenues were $25,688 and $363,212, respectively, yielding a gross profit of $85,060 and $958,145, respectively, or 77% and 73%, respectively.
The increase in revenue for the year ended December 31, 2024 compared to 2023 was primarily due to sales of supplies and parts. Cost of Revenues and Gross Profit For the years ended December 31, 2024 and 2023, cost of revenues were $36,593 and $25,688, respectively, yielding a gross profit of $132,128 and $85,060, respectively, or 78% and 77%, respectively.
Accounts payable decreased approximately $499,000, accrued expenses decreased approximately $279,000, lease liability – current portion decreased by approximately $46,000, loans payable – officer decreased by $200,000 and note payable decreased by $500,000. 61 Cash Flows The following table summarizes our consolidated cash flows for the twelve months ended December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Net cash used in operating activities $ (3,835,384 ) $ (2,215,699 ) Net cash provided by (used in) investing activities $ 4,452,872 $ (6,794,879 ) Net cash provided by (used in) financing activities $ (200,000 ) $ 8,511,543 Net Cash Used In Operating Activities Net cash used in operating activities was $3,835,384 for the year ended December 31, 2023, as compared to $2,215,699 for the respective period in 2022, primarily due to the net loss of $4,648,709 and $1,697,816, respectively, as well as increases in prepaid assets and inventory.
Cash Flows The following table summarizes our consolidated cash flows for the years ended December 31, 2024 and 2023: December 31, 2024 December 31, 2023 Net cash used in operating activities $ (3,944,390 ) $ (3,835,384 ) Net cash provided by (used in) investing activities $ (577,539 ) $ 4,452,872 Net cash provided by (used in) financing activities $ 4,516,184 $ (200,000 ) Net Cash Used In Operating Activities Net cash used in operating activities was $3,944,390 for the year ended December 31, 2024, as compared to $3,835,384 for the respective period in 2023, which was primarily due to the net loss of $7,607,182, offset by an increase in accrued expenses and accrued expenses - related party of approximately $293,000, increases in stock compensation of approximately $1,147,000 and accounts payable and accounts payable - related party of approximately $495,000.
In accordance with ASC 323 and ASC 810, the company plans to recognize the equity method results of the Joint Venture on a one-quarter reporting lag. Therefore, no operating activity in the Joint Venture was recorded through the year ended December 31, 2023. The investment in the Joint Venture is accounted for using the equity method of accounting.
In accordance with ASC 323 and ASC 810, the Company recognized $4,851 and $0 of equity method investment income for the twelve months ended December 31, 2024 and 2023, respectively, from the Joint Venture on a one-quarter reporting lag, on the consolidated statements of operations and comprehensive loss.
The grant date fair value of the 300,000 shares issued and to be issued resulted in a charge to research and development of $1,500,000 and was recorded in selling, general and administrative expenses on the consolidated statement of operations and comprehensive loss. 58 In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression.
In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression.
Determinations of the safety and efficacy of our devices in the United States are solely within the authority of 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.
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 third quarter of 2023. Preliminary data provided by The University of California, San Diego supports the safety of utilizing our 15 milliamp waveform technology.
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.
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.
If and when we obtain FDA clearance for the Gen-3 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 with our device. 56 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 Gen-2 and Gen-3.
In August of 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requires disclosures about significant segment expenses and additional interim disclosure requirements. This standard also requires a single reportable segment to provide all disclosures required by ASC 280.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.
Our regulatory team continues to inform the FDA of the suspension of the marketing and sale of the Gen-1 products to new providers. We are analyzing whether to proceed with an amended application with the FDA for Gen-1 devices for the treatment of insomnia and anxiety.
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. The waveform that comprises the basis of our “Generation 2” or “Gen-2” and new “Generation 3” or “Gen-3” headset devices is in Q-submission process for review by the FDA.
We recognize that an additional barrier to treatment in today’s mental health treatment landscape -- beyond the concerns about safety, efficacy and side-effects that have been associated with conventional mental health treatments such as ECT (shock therapy), drugs and psychotherapy -- is stigma.
To ensure deeper penetration into the brain, we have created a waveform that is undetectable to the brain which allows the increase of the power from 57 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.
ASU 2016-13 and its amendments became effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures. In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations: Recognition and Initial Measurement.
Financial Statements and Supplemental Data” of this Report. 63 Recent Accounting Pronouncements In August of 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations: Recognition and Initial Measurement.
The increase is primarily due to an increase in salaries and benefits of approximately $694,000, an increase in insurance of approximately $193,000, an increase in travel of $122,000, an increase in regulatory and compliance of approximately $33,000 an increase in research and development of approximately $1,411,000, an increase in stock compensation of approximately $680,000 and an increase in taxes of approximately $40,000.
The increase in selling, general and administrative expenses was due primarily to an increase in professional fees of approximately $392,000, an increase in salaries and benefits of approximately $112,000, an increase in travel expense of approximately $128,000 and an increase in stock compensation of approximately $2,247,000.
Removed
Reference is made to “Risk Factors” in this annual report on Form 10-K. Our actual results may differ materially from those anticipated in these forward-looking statements.
Added
We plan to conduct decentralized clinical trials for the Gen-3 device in the U.S. and we continue to consult with the FDA as part of the pre-submission process.
Removed
We have suspended marketing efforts for new sales of devices related to the Gen-1 device for treatment of anxiety and insomnia in the United States until the Nexalin regulatory team decides on a new 510(k) application at 4 milliamps based on FDA comments expected to be received in April 2023.
Added
We plan to develop a strategic schedule to execute additional pilot trials and/or pivotal trials for the new Gen-3 device for anxiety and insomnia in the United States, Brazil and China beginning in the first quarter of 2025.
Removed
This filing will contain final clinical protocol designs and the results of usability testing on our Gen-3 headset. 55 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.
Added
A formal teleconference was held with the FDA on April 26, 2024. The Nexalin regulatory team and the FDA came to a consensus on the Insomnia Clinical research protocols for insomnia assessment scales and timeline end points and patient population size.
Removed
Our Gen-2 device will be equipped with 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.
Added
Data from these clinical trials will also be used to support an application for the CE-mark of our Gen-2 and new Gen-3 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.
Removed
Since our inception, we have generated significant losses; we expect to continue to incur significant expenses and increasing operating losses for at least the next two years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures for other research and development activities.
Added
This device and all other clinical devices will include single use electrodes for long term revenue streams. The USA Gen-2 device bears a fresh and modern appearance that meets the technology standards of the digital tech world of 2024.
Removed
We expect our expenses will increase substantially over time as we: ● Continue the ongoing and planned preclinical and clinical development of our products; ● review and analyze the value of amending our previous 510(k) Application for anxiety and insomnia in accordance with the FDA and seek other regulatory approvals for any future products that successfully complete clinical trials; ● arrange for a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidate for which we may obtain regulatory approval and intend to commercialize on our own; ● maintain, expand and protect our intellectual property portfolio; ● engage additional clinical, scientific, manufacturing and controls personnel; ● add additional operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; ● seek to discover and develop additional products; and ● initiate preclinical studies and clinical trials for any additional products that we may pursue in the future.
Added
The Joint Venture is registered in Hong Kong. The Company has no employees or office in China and none of the Company’s operations are conducted in China.
Removed
The Joint Venture is registered in Hong Kong. As of the date of this Annual Report on Form 10-K, (i) our operations are carried on outside of China; and (ii) the Joint Venture does not maintain any variable interest entity structure or operate any data center in China.
Added
As of the date of this Annual Report on Form 10-K (this “Report”), the Company issued 331,818 shares of common stock to Wider and affiliates of Wider in 2024, in satisfaction of obligations pursuant to their collaborative agreement and their continuing research and development efforts.
Removed
Under the preceding terms of the collaborative arrangement between the Company and Wider, Wider served as an authorized distributor of the Company’s Gen-2 devices in Asia.
Added
A charge to research and development was recorded in 2023 at the time the Company recognized its obligation to issue the shares pursuant to the collaborative agreement. A charge to research and development was recorded in 2024 for the continuing research and development efforts. The investment in the Joint Venture is accounted for using the equity method of accounting.
Removed
As part of the consideration for Wider’s performance of its obligations to the Company prior to the recent formalization of the Joint Venture, the Company and certain designated Wider shareholders entered into stock issuance agreements for the issuance of 450,000 shares of the Company’s common stock, and simultaneously with the execution of this service agreement, Wider invested $200,000 to the Company.
Added
Our ability to monetize the Joint Venture in China may also be limited. 59 Oman The Sultanate of Oman’s Ministry of Health granted conditional approval for use of our Gen-2 device on June 16, 2022, effective upon the end user of our device opening and operating a mental health care clinic being constructed in Oman.
Removed
During the year ended December 31, 2020, the Company issued 150,000 shares to affiliates of Wider in satisfaction of the obligation. Under the terms of the collaborative agreement, designated shareholders of Wider are entitled to an additional 300,000 shares upon Wider’s achievement of certain milestones.
Added
The Company’s first shipment of a device to Oman was made on January 30, 2024 and received in Oman on February 5, 2024 in connection with the opening of the end user’s clinic, rendering the approval effective. Two additional devices were shipped to Oman on February 29, 2024 and were received by the end user on March 6, 2024.
Removed
The fair value of the 150,000 shares issued during the year ended December 31, 2020 (less the invested $200,000 in cash) resulted in a charge to stock-based compensation of $550,000 and was recorded in selling, general and administrative expenses on the consolidated statement of operations and comprehensive loss.
Added
Upon receipt of the two additional devices, the end user’s clinic was operational, and the use of the device to treat patients commenced pursuant to the approval.
Removed
During the twelve months ended December 31, 2023, the Company issued an additional 150,000 shares to affiliates of Wider in satisfaction of obligations pursuant to the collaborative agreement and also recognized its obligation to issue an additional 150,000 shares.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company has no foreign operations and therefore is not materially subject to fluctuations in foreign exchange rates, commodity prices or other market rates or prices from market sensitive instruments. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA See attached Consolidated Financial Statements beginning on page F-1 attached to this Report on Form 10-K.
Biggest changeThe Company has no foreign operations and therefore is not materially subject to fluctuations in foreign exchange rates, commodity prices or other market rates or prices from market sensitive instruments. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA See attached Consolidated Financial Statements beginning on page F-1 attached to this Report. 64

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