S-1/A: Nexalin Technology Eyes $7 Million Capital Raise Through Common Stock Offering

Nexalin Technology is seeking to raise up to $7 million through a best-efforts offering of its common stock, aiming to fund general corporate purposes and advance its neurostimulation technology.

Summary

• Nexalin Technology, Inc. is planning a best-efforts offering to sell up to $7 million of its common stock at an assumed price of $[] per share.
• The offering is expected to close within two business days following the commencement of sales, with proceeds intended for general corporate purposes.
• Maxim Group LLC is acting as the exclusive placement agent but is not obligated to purchase any specific number of securities.
• The company's stock is currently listed on the Nasdaq Capital Market under the symbol NXL, with a last reported sale price of $1.64 on June 21, 2024.
• Nexalin is an emerging growth company and a smaller reporting company, allowing it to comply with reduced public company reporting requirements.
• The company is developing neurostimulation products to treat mental health conditions, including anxiety and insomnia, and is working towards FDA clearance for its Gen-3 device.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While it highlights the company's innovative technology and potential market opportunities, it also acknowledges significant financial losses, regulatory hurdles, and risks associated with product development and commercialization. The going concern warning from the auditors further tempers the overall sentiment.

Positives

• The company is developing innovative neurostimulation products to combat the global mental health epidemic.
• The company is working towards FDA clearance for its Gen-3 device, which could open up new market opportunities.
• The company has a joint venture in China to develop, market, and distribute its Gen-2 devices.
• The company has a Military & Government Advisory Board to foster relationships within the U.S. federal government and public sector organizations.
• The Centers for Medicare & Medicaid Services (CMS) has issued a code for Cranial Electrotherapy Stimulators (CES), which could lead to insurance reimbursement for Nexalin's products.

Negatives

• The company has incurred significant losses since its inception and expects to continue incurring losses.
• The company's independent accountants' audit report included in the 2023 Form 10-K states that there is substantial doubt about the company's ability to continue as a going concern.
• The company had to suspend marketing of its Gen-1 medical device for the treatment of anxiety and insomnia due to an FDA reclassification ruling in December 2019.
• The company depends on the success of its future products, some of which are in clinical development but have not completed advanced clinical trials.
• The company relies on third parties to conduct the clinical trials for its products, and those third parties may not perform satisfactorily.

Risks

• The company may not be able to continue as a going concern if it does not execute its business plan or obtain additional financing.
• The company may require additional funding to meet its financial needs and to pursue its business objectives.
• The company depends on the success of its future products, some of which are in clinical development but have not completed advanced clinical trials.
• The company relies on third parties to conduct the clinical trials for its products, and those third parties may not perform satisfactorily.
• Even if any of the company's products receives marketing approval, it may fail to achieve the degree of market acceptance necessary for commercial success.
• The company may eventually compete for product sales with other companies, many of which will have greater resources or capabilities.
• The company is subject to the risks of conducting business internationally, including regulatory, liquidity, and enforcement risks in China.
• The company may be subject to PRC laws relating to, among others, data security and restrictions over foreign investments.
• If the company is unable to obtain and maintain patent protection for its technologies and products, its competitors could develop and commercialize similar products.
• The company may become involved in lawsuits to protect or enforce its patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.
• Even if the company completes the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain.
• The company's business activities may be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries.

Future Outlook

The company plans to conduct decentralized clinical trials for the Gen-3 device in the U.S. and continue consulting with the FDA. If and when the company obtains FDA clearance for the Gen-3 device, it intends to extend the development and commercialization of its devices for sale in the U.S. and other localities.

Management Comments

• 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.
• 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 document highlights the shift towards non-pharmacological therapies for mental health disorders due to the side effects and limited efficacy of traditional treatments. It positions Nexalin's technology as a cost-effective and accessible alternative to expensive psychotherapy and pharmaceuticals.

Comparison to Industry Standards

• The document mentions competitors in the neurostimulation market, including those offering traditional pharmaceutical therapies, high-end and low-end neurostimulators, and implanted devices.
• It positions Nexalin's products as a cost-effective option compared to current reimbursed treatments, with a focus on non-invasive and comfortable treatment.
• The document references repetitive trans-cranial magnetic stimulation (rTMS) as a competitor, noting its side effects, high cost, and moderate efficacy.
• The document mentions electroconvulsive therapy (ECT) as a treatment with safety concerns, efficacy concerns, and side effects.

Related Party Transactions

• 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 Ventures operating expenses in accordance with their pro rata ownership.
• As part of the consideration for Widers performance of its obligations to the Company prior to the 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 Companys common stock, and simultaneously with the execution of this service agreement, Wider invested $200,000 to the Company.
• During the year ended December 31, 2020, the Company issued 150,000 shares to affiliates of Wider in satisfaction of the obligation.
• 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.
• On May 24, 2024, the Company issued the final 150,000 shares to affiliates of Wider, satisfying the Companys obligations under the collaborative agreement.

Stakeholder Impact

• The offering may cause dilution to existing stockholders.
• The company's ability to continue as a going concern is dependent upon executing its business plan and obtaining additional financing.
• The success of the company's products will depend on acceptance by healthcare providers, physicians, clinicians, patients and third-party payors.

Next Steps

• The company plans to conduct decentralized clinical trials for the Gen-3 device in the U.S.
• The company plans to schedule additional pilot trials and/or pivotal trials for the new Gen-3 device for anxiety and insomnia in the United States and China beginning in the late third quarter or early fourth quarter of 2024.
• The company plans to continue preparing clinical data and durability data to pursue long term clinical reimbursement.
• The company plans to continue preparing clinical data and durability data to pursue long term clinical reimbursement.

Key Dates

Keywords

common stock, offering, neurostimulation, FDA, mental health, Nexalin Technology, Maxim Group, Gen-3 device, clinical trials, anxiety, insomnia