10-Q: Nexalin Reports Increased Losses Amid R&D Push

Nexalin Technology, Inc. reported a significant increase in net loss for Q2 2025 and the first half of 2025, driven by higher operating expenses, despite revenue growth and a successful capital raise.

Summary

• Net loss for the three months ended June 30, 2025, increased by 23% to $1,580,987, compared to $1,284,493 for the same period in 2024.
• Net loss for the six months ended June 30, 2025, increased by 53% to $3,569,324, compared to $2,325,650 for the same period in 2024.
• Revenue for the three months ended June 30, 2025, increased by 163% to $70,588, primarily due to a large shipment of boards to China.
• Revenue for the six months ended June 30, 2025, increased by 6% to $111,603, driven by equipment sales, offset by a decrease in device sales.
• Operating expenses for the six months ended June 30, 2025, rose by 51% to $3,707,290, largely due to increased stock-based compensation and R&D costs.
• Research and development expenses for the six months ended June 30, 2025, increased by 130% to $632,062, primarily for Clinical Trials, App development, and the HALO project.
• The company successfully completed a public offering in May and June 2025, raising aggregate gross proceeds of approximately $5,317,000.
• Cash and cash equivalents stood at $431,320 as of June 30, 2025, with short-term investments totaling $5,361,465.
• The company has an accumulated deficit of approximately $88.2 million as of June 30, 2025.
• Management has identified substantial doubt about the company's ability to continue as a going concern for at least the next twelve months.
• The Gen-2 device received regulatory approval in Brazil on June 13, 2024, and conditional approval in Oman became effective in February/March 2024.
• The company is developing Gen-2 SYNC and Gen-3 HALO devices with a new 15 milliamp waveform, currently in the FDA Q-submission process, with plans for clinical trials in the U.S., Brazil, and China throughout 2025.
• A new Chief Financial Officer, Justin Van Fleet, was appointed effective August 1, 2025.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including a substantial accumulated deficit, increasing net losses, and negative cash flow from operations, leading to a going concern warning. While a recent capital raise provides some liquidity and there's progress in international approvals and product development, the fundamental financial health remains precarious, indicating high risk.

Positives

• Revenue for the three months ended June 30, 2025, increased significantly by 163% to $70,588, driven by international equipment sales.
• Successfully raised approximately $5.3 million in gross proceeds from a public offering of common stock in May and June 2025, improving liquidity.
• Short-term investments increased to $5,361,465 as of June 30, 2025, from $2,905,438 at December 31, 2024.
• The Gen-2 device received regulatory approval in Brazil on June 13, 2024, expanding international market access.
• Conditional approval for the Gen-2 device in Oman became effective in February/March 2024, with devices shipped and clinics operational.
• Progress continues with the FDA Q-submission process for Gen-2 SYNC and Gen-3 HALO devices, with consensus reached on Anxiety and Insomnia Clinical research protocols.
• The company regained compliance with Nasdaq's minimum bid price requirement on April 23, 2024.
• A lawsuit (Sarah Veltz v. Nexalin Technology, Inc. et al.) was confidentially settled and dismissed in May 2025, resolving a legal contingency.

Negatives

• Net loss increased by 23% for the three months ended June 30, 2025, and by 53% for the six months ended June 30, 2025, indicating worsening profitability.
• Gross profit margin decreased to 68% for Q2 2025 (from 73% in Q2 2024) and to 67% for H1 2025 (from 84% in H1 2024) due to a less favorable revenue mix.
• Total operating expenses increased substantially by 51% for the six months ended June 30, 2025, primarily due to higher stock-based compensation and R&D costs.
• Cash used in operating activities increased to $2,343,379 for the six months ended June 30, 2025, from $2,009,704 in the prior year, indicating increased cash burn.
• The company has a significant accumulated deficit of approximately $88.2 million as of June 30, 2025.
• Management does not believe the company has sufficient cash for the next twelve months from the issuance of the financial statements, raising substantial doubt about its ability to continue as a going concern.
• Marketing efforts for new sales of Gen-1 devices in the United States remain paused due to FDA reclassification, limiting domestic revenue streams for this product line.

Risks

• Substantial doubt exists 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.
• Future operations are dependent on the ability to generate revenue from the joint venture and obtain U.S. FDA approval for new devices, as well as the ability to raise additional capital.
• The successful development and regulatory approval of future products (Gen-2 SYNC, Gen-3 HALO) are highly uncertain, with no guarantee of when net cash inflows will enable positive cash flow.
• The company faces risks related to successful enrollment and completion of clinical trials, compliance with regulatory requirements, and scaling commercial sales.
• Acceptance of new therapies by healthcare providers, physicians, patients, and third-party payors is uncertain.
• The company must compete effectively with existing and future therapies in the mental health treatment market.
• Potential adverse effects from recently announced changes to U.S. trade policy, including tariffs, could harm business, particularly for imported components or exported products.
• Material weaknesses in internal control over financial reporting were identified, including lack of sufficient resources for segregation of duties and insufficient IT controls, which could affect financial reporting reliability.

Future Outlook

The company plans to conduct decentralized clinical trials for its Gen-2 SYNC and Gen-3 HALO devices in the U.S. and will continue pre-submission consultations with the FDA. A new PMA application for depression treatment utilizing both Gen-2 SYNC and Gen-3 HALO is in strategic development. Additional pilot and/or pivotal trials for the Gen-3 HALO device for anxiety and insomnia are planned for the United States, Brazil, and China throughout 2025. The company intends to use clinical trial data to support an application for the CE-mark in the European Union. Strategic plans are in development to disrupt the traditional mental health treatment model through advanced waveform technology, technological upgrades, and a new virtual clinic platform for the Gen-3 HALO headset.

Management Comments

• The Nexalin research team believes that the new 15 milliamp SYNC and 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.
• The Nexalin regulatory team is developing strategies for pilot trials and/or pivotal trials for various mental health disease states.
• Our focus is on the continued development of our innovative bioelectronic medical technologies and rapid regulatory approval. We intend to help reverse these losses, and hardships of these losses, by safely and effectively treating various mental health disorders associated with post Covid and long Covid mental disease states.
• 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.
• Overall, we believe that our advanced waveform, technological upgrades and the development of a modern headset monitored with our IT management platform will position us with the opportunity to disrupt the traditional mental health treatment model.

Industry Context

The company operates in the neurostimulation and mental health technology sector, aiming to provide non-pharmacological and non-psychotherapy treatments for anxiety, insomnia, and depression. The global rise in mental health and cognitive disorders, exacerbated by the COVID-19 pandemic, creates a significant unmet demand. The company's focus on non-invasive, undetectable, and more powerful waveform technology (15 milliamps) positions it against conventional treatments like ECT and pharmaceuticals, which carry side effects and stigma. The development of a virtual clinic model for home-use devices aligns with the growing telehealth trend and aims to address patient embarrassment stigmas associated with traditional mental health care.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks. It mentions preliminary data from The University of California, San Diego (UCSD) and recent published data from Asia supporting the safety of its 15 milliamp waveform technology, but no direct comparative financial or operational metrics against industry peers are disclosed.

Management Changes

Corporate Governance

Legal Proceedings

• A lawsuit filed by Sarah Veltz against the company and others (Case No. 30-2021-01180164-CU-WT-CJC) was confidentially settled and dismissed in May 2025, resolving claims related to unpaid wages, benefits, and sexual harassment.
• The company is engaged in settlement discussions with the Employment Development Department (EDD) of the State of California regarding approximately $300,000 in alleged employment tax liability, which has been adjusted down to approximately $40,000 and is accrued on the balance sheet.

Related Party Transactions

• The company has a consulting agreement with U.S. Asian Consulting Group, LLC, whose two members are shareholders in the company, and one member (Marilyn Elson) is the company's Controller. The amended agreement calls for a monthly fee of $16,667, a one-time stock grant (100,000 shares in Q3 2024), and a semi-annual share award equal to $100,000 (201,136 shares earned but not issued as of June 30, 2025).
• Revenues for Q2 2025 included $8,275 from a related party (Customer B), and for H1 2025 included $11,859 from related parties (Customer B and Customer C).
• Accounts payable as of June 30, 2025, included $7,770 to a related party.
• Accrued expenses as of June 30, 2025, included $228,000 for accrued bonuses to related parties.
• The company has sub-leases for its principal executive office through IIcom Strategic Inc., an entity controlled and owned by the Chief Executive Officer, Mark White. The company pays the third-party landlord directly, with no additional payments to the CEO or his entity.

Stakeholder Impact

• Shareholders: Face significant risk due to the going concern warning, accumulated deficit, and continued operating losses, but also potential upside from product development and market expansion. Recent capital raise caused dilution but provided necessary funds.
• Employees: Impacted by management changes (new CFO, Controller retirement) and potential for stock-based compensation under the expanded 2023 Equity Incentive Plan.
• Customers: Continued support for Gen-1 devices, with potential for new Gen-2 SYNC and Gen-3 HALO devices if FDA clearance is obtained, offering new treatment options.
• Creditors: The going concern warning indicates increased risk for creditors, though the recent capital raise provides some short-term liquidity.
• Regulatory Authorities: Ongoing engagement with the FDA for new device approvals and compliance, which is critical for market access in the U.S.

Next Steps

• Conduct decentralized clinical trials for Gen-2 SYNC and Gen-3 HALO devices in the U.S.
• Continue consultations with the FDA as part of the pre-submission process for new devices.
• Develop a new PMA application in the United States for the treatment of depression utilizing both Gen-2 SYNC and 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.
• Use data from clinical trials to support an application for the CE-mark of Gen-2 and Gen-3 headset devices in the European Union.
• Continue to take steps to remediate identified material weaknesses in internal control over financial reporting, including engaging an outside firm and implementing new controls.
• Further negotiate with the Employment Development Department (EDD) of the State of California regarding the outstanding employment tax liability.

Key Dates

Recommendation

While the company faces significant financial headwinds, including a going concern warning, increasing losses, and negative cash flow from operations, it has successfully raised capital, which provides a temporary lifeline. The company is actively pursuing regulatory approvals for its next-generation devices in key markets (U.S., Brazil, China) and has a clear strategy for commercialization, including a virtual clinic model. For an investor already holding shares, the current stage represents a high-risk, high-reward scenario. Selling now would crystallize losses, while holding offers exposure to potential upside from future regulatory clearances and market adoption, assuming the company can manage its cash burn and secure further funding. New investors should approach with extreme caution due to the going concern risk.

Keywords

Neurostimulation, Mental Health, FDA Approval, Medical Devices, Bioelectronic Technology, Anxiety Treatment, Insomnia Treatment, Depression Treatment, Clinical Trials, SEC Filing, 10-Q, Going Concern, Capital Raise, Nasdaq