Nexalin Technology(NXL) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited Q2 2025 financials reveal a net loss and negative cash flow, offset by increased equity from a recent stock offering Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2025 ($) | December 31, 2024 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $431,320 | $574,485 | | Short-term investments | $5,361,465 | $2,905,438 | | Total Current Assets | $6,269,111 | $3,961,141 | | Total Assets | $6,563,982 | $4,222,732 | | Liabilities & Equity | | | | Total Current Liabilities | $600,584 | $546,694 | | Total Liabilities | $600,584 | $546,694 | | Total Stockholders' Equity | $5,963,398 | $3,676,038 | - Total assets increased significantly to $6.56 million from $4.22 million, primarily driven by a rise in short-term investments following a stock offering[11] - Total stockholders' equity grew to $5.96 million from $3.68 million, reflecting the net proceeds from the recent equity issuance, partially offset by the accumulated deficit[11] Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $70,588 | $26,840 | $111,603 | $105,511 | | Gross profit | $47,750 | $19,593 | $75,207 | $89,108 | | Total operating expenses | $1,668,608 | $1,316,614 | $3,707,290 | $2,459,841 | | Loss from operations | $(1,620,858) | $(1,297,021) | $(3,632,083) | $(2,370,733) | | Net loss | $(1,580,987) | $(1,284,493) | $(3,569,324) | $(2,325,650) | | Net loss per share (Basic & Diluted) | $(0.10) | $(0.17) | $(0.25) | $(0.31) | - Revenues for Q2 2025 more than doubled year-over-year, reaching $70.6 thousand, while revenues for the six-month period showed modest growth[13] - Operating expenses increased significantly for both the three and six-month periods, leading to wider net losses compared to the prior year[13] Condensed Consolidated Statements of Changes in Stockholders' Equity - Stockholders' equity increased from $3.68 million on January 1, 2025, to $5.96 million on June 30, 2025[15] - The primary driver for the increase in equity was the issuance of 4,090,000 shares as part of an offering, which contributed approximately $4.65 million in additional paid-in capital[15] - The increase from the stock issuance was partially offset by a net loss of $3.57 million for the six-month period[15] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,343,379) | $(2,009,704) | | Net cash provided by (used in) investing activities | $(2,446,183) | $2,278,270 | | Net cash provided by financing activities | $4,646,397 | $0 | | Net (decrease) increase in cash | $(143,165) | $268,566 | - Financing activities provided $4.65 million in cash during the first six months of 2025, entirely from the sale of common stock, compared to zero in the same period of 2024[18] - Cash used in operations increased to $2.34 million, reflecting the larger net loss during the period[18] Notes to Unaudited Condensed Consolidated Financial Statements The notes provide critical context to the financial statements, covering business operations, liquidity, accounting policies, and key financial items Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights new device development, Q2 2025 revenue growth, increased losses from R&D, and expresses substantial doubt about the company's going concern - The company's strategy is focused on developing its new Gen-2 SYNC and Gen-3 HALO neurostimulation devices, which use a more powerful 15 milliamp waveform, and navigating the FDA regulatory process for U.S. market entry[118][119] - Sales of the older Gen-1 device remain paused in the U.S. following an FDA reclassification in 2019, though the company continues to derive some revenue from legacy units[117] - The company is developing a virtual clinic platform to allow physicians to prescribe and monitor the Gen-3 HALO headset for at-home patient use, aiming to address the stigma associated with traditional mental health treatments[131] - Recent international progress includes regulatory approval for the Gen-2 device in Brazil and operational use in Oman[138][139] Results of Operations Comparison of Three Months Ended June 30, 2025 and 2024 | Metric | 2025 ($) | 2024 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $70,588 | $26,840 | $43,748 | 163% | | Gross profit | $47,750 | $19,593 | $28,157 | 144% | | Total operating expenses | $1,668,608 | $1,316,614 | $351,994 | 27% | | Net loss | $(1,580,987) | $(1,284,493) | $(296,494) | 23% | - The 163% increase in Q2 2025 revenue was primarily due to a large shipment of boards to China[141] - The 27% increase in Q2 2025 operating expenses was driven by higher stock-based compensation (~$260 thousand), increased consulting expenses (~$50 thousand), and higher R&D costs for clinical trials[143][145][146] - For the six months ended June 30, 2025, the net loss widened by 53% to $3.6 million, largely due to a $740.0 thousand increase in stock-based compensation and a $357.0 thousand increase in R&D expenses[149][153][154] Liquidity and Capital Resources - As of June 30, 2025, the company had approximately $431.0 thousand in cash and cash equivalents and $5.4 million in short-term investments[162] - The company has a significant accumulated deficit of $88.2 million and negative operating cash flows of $2.3 million for the first six months of 2025[162] - Management has concluded that the company will not have sufficient cash to satisfy its anticipated cash requirements for the next twelve months, which raises substantial doubt about its ability to continue as a going concern[163] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Nexalin is not required to provide the information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[178] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal control over financial reporting - Management identified material weaknesses in internal control over financial reporting[179] - The identified weaknesses include: (i) lack of sufficient resources for adequate segregation of duties in financial reporting, and (ii) insufficient IT controls related to user access to the financial reporting system[179] - Due to these weaknesses, management concluded that disclosure controls and procedures were not effective as of the end of the period[180] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material pending legal proceedings - There are no material pending legal proceedings involving the company[184] Item 1A. Risk Factors The company reports a new risk factor related to U.S. trade policy changes and tariffs, which could adversely affect business with China - A new risk factor has been added regarding recent changes to U.S. trade policy, including tariffs, which could adversely affect the business[186] - Ongoing trade tensions between the U.S. and China could harm sales and operations by impacting the importation of products or subjecting the company's exports to retaliatory tariffs[188][189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds from registered securities for the period - None reported for the period[190] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including material contracts and corporate governance documents - The report lists numerous exhibits, including the Underwriting Agreement from the May 2025 offering, the Joint Venture Agreement with Wider Come Limited, and various employment and consulting agreements[195]