Executive Summary / Key Takeaways

• Differentiated Technology & Global Opportunity: Nexalin Technology (NXL) is pioneering non-invasive Deep Intracranial Frequency Stimulation (DIFS™) with its 15-milliamp waveform, offering a drug-free alternative for mental health, substance use disorders, and neurodegenerative conditions. This technology is driving a strategic pivot towards international markets and a virtual clinic model, capitalizing on a significant global mental health crisis.
• Strategic International Growth & Digital Ecosystem: Recent Q2 2025 results highlight a dramatic 1054.4% surge in international sales, primarily from equipment shipments to China, and the successful launch of a virtual clinic for its HALO™ headset. These initiatives are crucial for NXL's revenue diversification and future market penetration, particularly as U.S. Gen-1 sales are paused.
• Intensified R&D and Regulatory Pathway: NXL is heavily investing in R&D for its Gen-2 SYNC and Gen-3 HALO devices, pursuing FDA Q-submissions for indications like Alzheimer's and insomnia, and securing new patents for substance use disorders. This aggressive clinical and regulatory push is essential to unlock significant U.S. market potential.
• Financial Headwinds and Capital Needs: Despite a working capital surplus, NXL faces substantial financial challenges, including an accumulated deficit of $88.20 million and ongoing operating losses. The company's ability to continue as a going concern hinges on successful commercialization of its new devices and securing additional capital, as evidenced by its recent $5.0 million public offering.
• Competitive Landscape & Moat Building: NXL operates in a highly competitive medical device sector dominated by giants like Medtronic and Abbott. Its non-invasive DIFS™ technology and virtual care model represent a unique value proposition, aiming to carve out market share by addressing patient stigma and side-effect concerns associated with traditional and invasive treatments.

The Dawn of Deep Intracranial Frequency Stimulation: Nexalin's Vision for Mental Health

Nexalin Technology, Inc. (NXL) stands at the forefront of a paradigm shift in mental healthcare, developing innovative neurostimulation products designed to combat the global mental health epidemic without the reliance on drugs or psychotherapy. The company's core mission is to provide non-invasive, safe, and effective solutions for conditions ranging from anxiety and insomnia to depression, substance use disorders, and even neurodegenerative diseases like Alzheimer's and dementia. This ambitious vision is underpinned by its proprietary Deep Intracranial Frequency Stimulation (DIFS™) technology, a foundational strength that defines its strategic trajectory and competitive positioning.

The company's journey began in 2010 as NV Nexalin, evolving through corporate reorganizations and a Nasdaq listing in 2022. An early product, the Gen-1.00 device, utilized a 4-milliamp waveform for cranial electrotherapy stimulation (CES). However, a pivotal FDA reclassification in December 2019 significantly impacted Gen-1.00's U.S. market access, necessitating new regulatory applications and prompting NXL to pause new sales and marketing efforts for the device domestically. This regulatory hurdle catalyzed NXL's strategic pivot towards developing its next-generation devices, Gen-2.00 SYNC and Gen-3.00 HALO, which are now central to its future.

Technological Edge: The Power of the 15-Milliamp Waveform

At the heart of Nexalin's investment thesis lies its differentiated DIFS™ technology, particularly the advanced 15-milliamp waveform powering its Gen-2 SYNC and Gen-3 HALO devices. This represents a significant leap from the original Gen-1.00's 4-milliamp output, marking a more than 400% increase in power. The research team believes this enhanced power allows the waveform to penetrate deeper into the brain, stimulating mid-brain structures associated with mental illness, thereby generating an enhanced patient response without any risk or unpleasant side effects. Crucially, this advanced waveform is designed to be undetectable to the human body, ensuring patient comfort even at higher power levels.

The tangible benefits of this technological advancement are manifold. For investors, this deeper penetration and enhanced efficacy, if validated through ongoing clinical trials and regulatory approvals, could translate into a stronger competitive moat. It positions NXL to offer a superior non-invasive alternative to both traditional drug therapies (which carry side effects and dependency risks) and more invasive neurostimulation techniques. The Gen-3 HALO headset, designed for virtual clinic settings, further leverages this technology by enabling at-home treatment with physician oversight, significantly improving patient accessibility and convenience while reducing the stigma associated with in-person psychiatric visits. This virtual model, coupled with the HALO's RFID technology for single-use electrodes, also creates a recurring revenue stream, enhancing the company's long-term financial outlook through improved customer loyalty and predictable sales of consumables.

NXL's R&D initiatives are aggressively focused on expanding the applications and market reach of its new technology. The company is actively engaged in the FDA Q-submission process for Gen-2 SYNC, targeting debilitating cognitive conditions such as Alzheimer's disease, dementia, and mild cognitive impairment (MCI). For Gen-3 HALO, pilot and pivotal trials are planned throughout 2025 in the U.S., Brazil, and China for anxiety and insomnia, alongside a new PMA application for depression treatment in the U.S. The recent USPTO patent for "Alternating Current Dynamic Frequency Stimulation Method for Opioid Use Disorder (OUD) and Substance Use Disorder (SUD)" further broadens the potential market, offering a non-invasive, drug-free solution to a pressing public health crisis. These developments underscore NXL's commitment to continuous innovation, aiming to translate its technological advantages into robust market positioning and sustained growth.

The Competitive Arena: Niche Innovation Against Industry Giants

Nexalin operates in a highly competitive medical device sector, vying for market share against established giants and emerging innovators. Direct competitors include diversified healthcare powerhouses like Medtronic (MDT), Abbott Laboratories (ABT), and Boston Scientific (BSX), all of whom have significant neurostimulation portfolios. These larger players benefit from extensive R&D budgets, vast distribution networks, and deep-seated relationships within the healthcare ecosystem. Medtronic, for instance, is a leader in implantable neurostimulation devices, while Abbott and Boston Scientific also offer a range of neurological solutions, often involving more invasive procedures.

NXL's competitive strategy centers on its unique non-invasive DIFS™ technology and its focus on mental health and substance use disorders. This approach provides several distinct advantages. Unlike many of its larger rivals, NXL offers a drug-free, non-surgical alternative, which can lead to significantly greater patient accessibility and lower procedural risks. This differentiation is particularly compelling in mental health, where the stigma and side effects of traditional treatments often deter patients. The planned virtual clinic for the HALO™ headset further enhances this competitive edge by offering treatment in the privacy of a patient's home, directly addressing the "embarrassment stigma" associated with traditional psychotherapy.

However, NXL's smaller scale and newer market presence present vulnerabilities. The company's financial resources, while recently bolstered, are modest compared to its multi-billion-dollar competitors. This can lead to higher customer acquisition costs and limit its ability to compete on broad distribution or marketing spend. While NXL demonstrates notable strategic adaptability in mental health innovation, this is offset by lags in key performance indicators like profitability margins and growth efficiency, making it susceptible to competitors' broader resources. Indirect competitors, including pharmaceutical companies and digital therapy apps, also pose a threat by offering potentially cheaper or more accessible alternatives, though NXL's unique waveform technology aims for deeper, more effective brain stimulation.

The stringent regulatory landscape and high R&D costs act as significant barriers to entry, which can protect NXL's specialized position but also favor larger, more resourced competitors. NXL's ability to secure regulatory approvals and demonstrate clinical efficacy for its new devices will be paramount to carving out and defending its market share against both direct and indirect rivals.

Financial Performance and Liquidity: A Growth Story in the Making, with Challenges

Nexalin's recent financial performance reflects a company in a transitional growth phase, heavily investing in its future while managing the legacy of its Gen-1.00 device. For the three months ended June 30, 2025, total revenues surged by 163.0% to $70,588, compared to $26,840 in the prior year. This impressive growth was primarily fueled by a substantial 419.7% increase in equipment sales, reaching $52,526, driven by a large shipment of boards to China. International sales, consequently, exploded by 1054.4% to $59,476 in the same period.

However, this growth was not uniform. U.S. sales declined by 48.7% to $11,112, reflecting the company's paused marketing efforts for new Gen-1.00 devices domestically. Licensing fees, a higher-margin revenue stream, also decreased by 35.5% to $10,355. This shift in revenue mix, from higher-margin licensing to equipment sales, contributed to a slight compression in gross profit margin, which stood at 68% for Q2 2025, down from 73% in Q2 2024. For the six months ended June 30, 2025, total revenues saw a more modest 5.8% increase to $111,603, as a large device sale to Oman in 2024 offset current period equipment sales. Gross profit margin for the six-month period declined significantly from 84% to 67%, further emphasizing the impact of the revenue mix.

Operating expenses increased substantially, rising by 27% to $1.67 million for the three months and 51% to $3.71 million for the six months ended June 30, 2025. This was primarily due to increased salaries and benefits, higher selling, general, and administrative (SG&A) expenses (driven by approximately $260,000 and $740,000 in stock-based compensation for the three and six months, respectively), and a significant ramp-up in research and development (R&D) costs. R&D expenses increased by $56,364 (33%) for the three months and $356,985 (130%) for the six months, reflecting investments in clinical trials (e.g., $190,000 for UCSD studies in H1 2025) and development of the HALO™ app and project. These investments are critical for advancing NXL's next-generation devices but contribute to the current operating losses.

The company reported a net loss of $1.58 million for Q2 2025 and $3.57 million for H1 2025. On a trailing twelve-month (TTM) basis, NXL's revenue stands at $168,721, with a net loss of -$7.61 million and negative operating cash flow of -$3.94 million. While the company maintains a healthy current ratio of 10.44 and a debt-to-equity ratio of 0.00, indicating a strong balance sheet in terms of current assets relative to liabilities, its liquidity remains a critical concern. As of June 30, 2025, NXL held $431,320 in cash and cash equivalents and $5.36 million in short-term investments. However, the company explicitly states that its operating activities consume most of its cash resources and expects to continue incurring operating losses and negative cash flows "at least into the near future" through 2025 and beyond.

This financial outlook has led management to express "substantial doubt about the ability of the Company to continue as a going concern for at least twelve months." NXL's ability to overcome this depends on generating revenue from its joint venture and international sales, securing U.S. FDA approval for its new devices, and, if necessary, raising additional capital. The recent $5.0 million public offering in May 2025, which included an additional $312,000 from an overallotment exercise in June 2025, provided a crucial injection of capital, but the long-term financial stability remains tied to successful commercialization.

Outlook and Strategic Imperatives

Nexalin's outlook is defined by its aggressive pursuit of regulatory approvals, international market expansion, and the build-out of its digital health ecosystem. The company plans to execute additional pilot and pivotal trials for the Gen-3 HALO device for anxiety and insomnia in the United States, Brazil, and China throughout 2025. Data from these trials will also support an application for the CE-mark in the European Union, signaling broader international ambitions.

Management is optimistic about the regulatory pathway for its next-generation devices. CEO Mark White noted that preliminary interactions with the FDA "support our view that there may be a viable path forward for our Gen-2 SYNC system as a potential treatment for Alzheimer’s, dementia, and MCI." The Q-submission process is seen as an "important opportunity to align with the FDA on clinical study design and regulatory strategy." The successful completion of the virtual clinic and digital ecosystem for HALO™ clinical research and patient management is a major operational milestone. CEO Mark White highlighted that this "fully integrated AI-powered platform" will "facilitate clinical research on the HALO™ device while preparing for broader patient adoption." CMO David Owens added that this digital ecosystem builds "a strong foundation for the future of clinical research and patient care," enabling remote monitoring and optimized protocols.

The appointment of Justin Van Fleet as Chief Financial Officer in August 2025 and the reconstitution of the Scientific Advisory Board to prioritize Alzheimer's research further underscore NXL's commitment to strengthening its leadership and clinical focus. Support for the Health Tech Investment Act also signals NXL's strategic alignment with broader industry trends towards AI-enabled medical devices and the critical importance of Medicare reimbursement for commercial success.

Risks and Challenges

Despite its innovative technology and strategic initiatives, Nexalin faces significant risks. The "going concern" warning is paramount, highlighting the company's reliance on future revenue generation and capital raises. The successful development and regulatory approval of Gen-3.00, particularly in the U.S., remain highly uncertain, with no clear timeline or cost estimates. Market acceptance and securing adequate reimbursement from third-party payors are also critical unknowns.

Operational risks include material weaknesses in internal control over financial reporting, specifically a lack of sufficient resources for segregation of duties and insufficient IT controls. Remediation efforts are planned but are expected to be costly and time-consuming, potentially impacting future results. Furthermore, changes in U.S. trade policy, including tariffs, could adversely affect NXL's business, particularly given its reliance on international manufacturing and sales. The intense competition from larger, more financially robust players also poses a continuous threat, requiring NXL to consistently demonstrate superior efficacy and market differentiation.

Conclusion

Nexalin Technology is a compelling, albeit speculative, investment opportunity built on the promise of its Deep Intracranial Frequency Stimulation (DIFS™) technology. The company's strategic pivot to its advanced 15-milliamp waveform, coupled with its aggressive pursuit of international markets and a cutting-edge virtual clinic model, positions it as a potential disruptor in the vast and underserved mental health and neurodegenerative treatment landscape. The recent surge in international equipment sales and the successful launch of its digital ecosystem are tangible signs of progress, validating its strategic direction.

However, NXL's journey is not without significant hurdles. The company's financial health, marked by ongoing operating losses and a "going concern" warning, underscores the critical need for successful commercialization and continued access to capital. Its ability to secure U.S. regulatory approvals for its next-generation devices, effectively compete against well-entrenched industry giants, and address internal control weaknesses will dictate its long-term viability. For investors with a high-risk tolerance and a long-term view, NXL represents a bet on innovative, non-invasive brain stimulation technology that could fundamentally transform how mental health conditions are treated globally, provided it can execute its ambitious clinical and commercialization roadmap.