10-Q: Nexalin Q3 Loss Narrows, FDA Accepts Alzheimer's Q-Sub

Nexalin Technology reports a narrower net loss in Q3 2025, driven by reduced operating expenses, while securing a significant FDA Q-Submission acceptance for its Gen-2 SYNC system targeting Alzheimer's and dementia.

Summary

• Net loss for the three months ended September 30, 2025, improved to $(2,276,311) from $(2,448,257) in Q3 2024.
• Net loss for the nine months ended September 30, 2025, worsened to $(5,845,635) from $(4,773,907) in the prior year.
• Revenue for Q3 2025 decreased by 50% to $18,149, primarily due to lower licensing fees and equipment sales.
• Revenue for the nine months ended September 30, 2025, decreased by 8% to $129,752.
• Operating expenses for Q3 2025 decreased by 7% to $2,359,832, mainly due to reduced stock-based compensation.
• Operating expenses for the nine months ended September 30, 2025, increased by 22% to $6,067,122, driven by higher salaries, R&D, and professional fees.
• Cash and cash equivalents increased to $590,075 at September 30, 2025, from $574,485 at December 31, 2024.
• Short-term investments increased to $3,762,602 at September 30, 2025, from $2,905,438 at December 31, 2024.
• The company raised $4,646,397 from the sale of common stock in the nine months ended September 30, 2025.
• FDA formally accepted the Q-Submission for the Gen-2 SYNC system for Alzheimer's disease and dementia in October 2025.
• Warrants expired and were delisted in September 2025.
• Management identified material weaknesses in internal control over financial reporting and does not believe the company has sufficient cash for the next twelve months, raising substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: While there are positive developments in product pipeline and regulatory progress (FDA Q-Sub for Alzheimer's), the significant and worsening net losses, increased cash burn from operations, and explicit 'going concern' warning from management indicate a highly precarious financial situation. The capital raises provide some liquidity but are offset by the ongoing operational cash consumption and internal control weaknesses. The overall sentiment is negative due to the fundamental financial instability despite product potential.

Positives

• Net loss for the three months ended September 30, 2025, improved by 7% compared to the same period in 2024, reaching $(2,276,311).
• Net loss per share for Q3 2025 improved to $(0.13) from $(0.23) in Q3 2024.
• FDA formally accepted the Q-Submission for the Gen-2 SYNC system for Alzheimer's disease and dementia in October 2025, a significant step towards U.S. clinical studies.
• Cash and cash equivalents increased to $590,075 at September 30, 2025, from $574,485 at December 31, 2024.
• Short-term investments increased to $3,762,602 at September 30, 2025, from $2,905,438 at December 31, 2024.
• Total current assets increased to $4,817,378 at September 30, 2025, from $3,961,141 at December 31, 2024.
• Total current liabilities decreased to $357,524 at September 30, 2025, from $546,694 at December 31, 2024.
• Working capital surplus of approximately $4.5 million as of September 30, 2025.
• Operating expenses for Q3 2025 decreased by 7% due to reduced selling, general, and administrative costs.
• Gross profit margin for Q3 2025 increased to 78% from 65% in Q3 2024 due to a favorable mix of revenue types.
• Gen-2 device received regulatory approval in Brazil on June 13, 2024.
• Conditional approval for Gen-2 device in Oman granted June 16, 2022, with clinic operational in March 2024.
• The 2023 Equity Incentive Plan was amended to increase the number of shares available to 9,000,000.

Negatives

• Net loss for the nine months ended September 30, 2025, worsened by 22% to $(5,845,635) compared to $(4,773,907) in the prior year.
• Revenue for the three months ended September 30, 2025, decreased by 50% to $18,149 compared to $36,031 in the prior year.
• Revenue for the nine months ended September 30, 2025, decreased by 8% to $129,752 compared to $141,542 in the prior year.
• Gross profit for the three months ended September 30, 2025, decreased by 39% to $14,201.
• Gross profit for the nine months ended September 30, 2025, decreased by 20% to $89,408.
• Operating expenses for the nine months ended September 30, 2025, increased by 22% to $6,067,122.
• Net cash used in operating activities increased to $(3,809,636) for the nine months ended September 30, 2025, from $(2,809,914) in the prior year, indicating increased cash burn.
• Accumulated deficit reached approximately $90.5 million at September 30, 2025.
• Management does not believe the company has sufficient cash for the next twelve months from the issuance of the financial statements.
• Substantial doubt exists about the company's ability to continue as a going concern for at least twelve months.
• Material weaknesses in internal control over financial reporting were identified and continued to exist as of September 30, 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern for at least twelve months due to ongoing operating losses and negative cash flows.
• Reliance on generating revenue from the joint venture and obtaining U.S. regulatory approval for devices, which are uncertain.
• Inability to raise additional capital if necessary to fund operations.
• Uncertainty regarding the nature, timing, and estimated costs to complete clinical development and obtain regulatory approvals for future products (Gen-3).
• Risks associated with successful enrollment in, and completion of clinical trials.
• Challenges in performing preclinical studies and clinical trials in compliance with FDA or any comparable regulatory authority requirements.
• Difficulties in outsourcing the manufacture of products for development, clinical trials, and/or potential commercialization.
• Risks related to obtaining and maintaining patent, trademark, and trade secret protection for products.
• Uncertainty in scaling commercial sales of products, if and when approved, whether alone or in collaboration with others.
• Potential lack of acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients, and third-party payors.
• Competition from other therapies.
• Challenges in obtaining and maintaining healthcare coverage and adequate reimbursement.
• Risks to intellectual property portfolio.
• Maintaining a continued acceptable safety profile of products following approval.
• Adverse effects on business from recently announced changes to U.S. trade policy, including tariffs, particularly concerning imports/exports with China.
• Material weaknesses in internal control over financial reporting, including lack of sufficient resources for segregation of duties and insufficient IT controls, which could lead to material misstatements.

Future Outlook

The company expects to continue incurring operating losses and negative cash flow as it executes development plans and strategic initiatives through 2025 and beyond. Future success is dependent on generating revenue from its joint venture, obtaining U.S. regulatory approval for its devices, and potentially raising additional capital. The company plans to conduct clinical trials for Gen-2 SYNC and Gen-3 HALO devices in the U.S., Brazil, and China, and is developing strategies for CE-mark approval in the European Union. A new virtual clinic platform is in the design stage to provide remote treatment for mental health issues.

Management Comments

• "We expect to continue to incur operating losses and negative cash flow as it executes its development plans, as well as undertaking other potential strategic and business development initiatives through 2025 and beyond."
• "Management does not believe we have sufficient cash for the next twelve months from the issuance of the financial statements."
• "Our ability to continue as a going concern will be dependent upon our ability to execute on our business plan, including the ability to generate revenue from the joint venture and obtain U.S. approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional capital."
• "The Nexalin research team believes that the new 15 milliamp Gen-2 SYNC and Gen-3 HALO devices can penetrate deeper into the brain and stimulate deep brain structures that contribute to or cause mental illness, which we believe will generate enhanced patient response without any risk or unpleasant side effects."
• "Our mission is to remove the stigma of expensive psychotherapy or pharmaceuticals with the attendant side effects and dependency issues and replace such stigma with clinically proven and cost-effective technology that is easily accessible in the privacy of the patients home and monitored by licensed healthcare providers."

Industry Context

The company operates in the growing bioelectronic medical technology and neurostimulation market, targeting the global mental health epidemic and neurodegenerative conditions like Alzheimer's and dementia. Its focus on non-invasive, drug-free treatments positions it within a trend towards alternative therapies. The development of a virtual clinic aligns with the broader telehealth and remote patient monitoring trends, aiming to reduce the stigma and increase accessibility of mental health care. Regulatory approvals in China, Oman, and Brazil indicate an international expansion strategy, while the FDA Q-Submission for Alzheimer's highlights a move into high-unmet-need areas within the U.S. market.

Comparison to Industry Standards

• The company's Gen-1 device was reclassified by the FDA, requiring new applications (510(k) for anxiety/insomnia, PMA/De Novo for depression), indicating a higher regulatory hurdle compared to its initial clearance.
• The development of a 15 milliamp waveform for Gen-2 SYNC and Gen-3 HALO, described as a "400% increase" in power from previous devices, aims to offer deeper brain penetration and potentially higher efficacy compared to other stimulation devices on the market, though specific comparative data is not provided in the filing.
• The company's strategy to develop a virtual clinic with physician oversight and proprietary RFID-enabled single-use electrodes for recurring revenue streams is a common model in the medical device and digital health industry, similar to how other at-home medical devices or subscription-based health services operate.
• The pursuit of CE-mark for SYNC and HALO devices in the European Union indicates an ambition to meet international regulatory standards, comparable to other global medical device companies.
• The company's accumulated deficit of over $90 million and ongoing operating losses are typical for a development-stage medical device company heavily invested in R&D and clinical trials, but the "going concern" warning highlights a more precarious financial position compared to established, profitable industry players.

Management Changes

Corporate Governance

Legal Proceedings

• Sarah Veltz v. Nexalin Technology, Inc. et al.: A lawsuit filed on January 20, 2021, alleging unpaid wages, benefits, and sexual harassment by the former CEO. A confidential settlement agreement was reached on May 12, 2025, and the confidential settlement amount was paid in May 2025, leading to the case dismissal.
• Employment Development Department (EDD) of the State of California: Settlement discussions regarding classification of contract labor vs. employee labor. The outstanding employment tax liability was significantly adjusted downward to approximately $30,000. The company has accrued $30,000 as of September 30, 2025, and is awaiting final EDD approval.

Related Party Transactions

• U.S. Asian Consulting Group, LLC: Consulting agreement extended to September 2030. Monthly fee increased to $16,667. A semi-annual share award of $100,000 is provided, with 201,136 shares earned but not issued as of September 30, 2025. Two members of U.S. Asian are company shareholders, and one (Marilyn Elson) is the former Controller.
• Justin Van Fleet (CFO): Employment agreement includes an annual base salary of $250,000, a one-time grant of 25,000 unregistered shares, and a stock option for 130,435 shares.
• Marilyn Elson (former Controller): Transition and Consulting Agreement includes a stock option exercisable into 300,000 shares.
• Lease Agreement: The company has a sub-lease for its principal executive office through IIcom Strategic Inc., an entity controlled and owned by the Chief Executive Officer. The company pays direct and indirect rent costs under the primary lease directly to the third-party landlord.
• Stock Compensation: 494,583 of the 746,677 shares of restricted stock issued to various employees, directors, and consultants during Q3 2025 were considered related parties.

Stakeholder Impact

• Shareholders: Experience dilution from recent and ongoing equity offerings (public offering, ATM program) and stock-based compensation. The "going concern" warning poses a significant risk to investment value. Potential upside from FDA approvals for new devices (Alzheimer's, dementia) could increase share price.
• Employees: Benefit from stock-based compensation and new employment agreements (e.g., CFO). The company's financial instability and going concern risk could create job insecurity.
• Customers (Medical Professionals/Patients): Potential for new, non-invasive treatment options for mental health and neurodegenerative conditions (Gen-2 SYNC, Gen-3 HALO). Continued support for existing Gen-1 devices. The virtual clinic model aims to improve access and reduce stigma.
• Suppliers/Creditors: Face increased risk due to the company's "going concern" warning and ongoing operating losses, potentially impacting payment timeliness or ability to fulfill obligations.
• Regulatory Authorities (FDA, NMPA, Brazilian Health Regulatory Agency): Ongoing engagement with the company for device approvals and clinical trial oversight. The company's compliance with regulatory pathways is critical for its business model.

Next Steps

• Conduct a regulatory meeting with the FDA regarding the Gen-2 SYNC system for Alzheimer's disease and dementia (scheduled for later this year).
• Begin U.S. clinical studies for the Gen-2 SYNC system targeting Alzheimer's and dementia, pending FDA authorization.
• Conduct clinical trials for the Gen-3 HALO device in the U.S.
• Continue consulting with the FDA as part of the pre-submission process for Gen-3 HALO.
• Extend development and commercialization of devices for sale in the U.S. and other territories upon FDA clearance for Gen-3 HALO.
• Execute additional pilot trials and/or pivotal trials for the new Gen-3 HALO device for anxiety and insomnia in the United States, Brazil, and China throughout 2025 and 2026.
• Develop strategic plans for a new PMA application in the United States for the treatment of depression utilizing both Gen-2 SYNC and Gen-3 HALO.
• Develop strategic plans to use clinical trial data to support an application for the CE-mark of SYNC and HALO devices in the European Union.
• Continue the development of a new virtual clinic platform for remote diagnosis and treatment using the Gen-3 HALO headset.
• Implement firmware upgrades for early adopters of the Gen-1 device to enhance them to the new symmetric 15-milliamp waveform.
• Engage an outside firm to advise on financial reporting processes and implement new financial accounting controls and processes to remediate material weaknesses in internal control.
• Continue to sell shares under the ATM Program, with approximately $4,273,859 available as of October 15, 2025.

Key Dates

Recommendation

The company faces severe financial distress, explicitly stating "substantial doubt about the ability of the Company to continue as a going concern for at least twelve months" and that management "does not believe we have sufficient cash for the next twelve months." This fundamental instability, coupled with worsening year-to-date net losses, increased cash burn from operations, and identified material weaknesses in internal controls, overshadows any positive product development news, such as the FDA Q-Submission acceptance for Alzheimer's. While the ATM program provides some capital, it is insufficient to overcome the going concern risk without significant, sustained revenue generation or further substantial capital raises, which are highly uncertain. The current financial position indicates a high probability of further dilution or potential insolvency, making the stock a strong sell for risk-averse investors.

Keywords

Neurostimulation, Medical Device, Mental Health, Anxiety, Insomnia, Depression, Alzheimer's Disease, Dementia, FDA Approval, Clinical Trials, Bioelectronic Technology, Going Concern, SEC Filing, 10-Q, NXL, Nasdaq, Corporate Governance, Financial Reporting, Research and Development, Capital Raise, Intellectual Property, Trade Policy