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Nexalin Technology, Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Nexalin Technology, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

Nexalin, a company making devices to help with mental health, made more money this year, but they spent even more, so they lost more money overall. They’re trying to get their new devices approved by the FDA and want to offer treatment directly to people at home.

Accession #:

0001829126-25-001794

Published on

Analyst Summary

  • Revenue increased by 52% from $110,748 in 2023 to $168,721 in 2024, driven by device sales, licensing fees, and equipment revenue.
  • Operating expenses rose by 36% from $5,781,356 to $7,886,774, primarily due to increased professional fees, salaries, and selling, general, and administrative expenses.
  • Net loss widened by 64% from $(4,648,709) to $(7,607,182), indicating ongoing challenges in achieving profitability.
  • Gross margin remained relatively stable at 78% in 2024 compared to 77% in 2023.
  • Cash and cash equivalents decreased slightly by 1% to $574,485, while short-term investments increased by 23% to $2,905,438.
  • Management is focused on developing Gen-2 and Gen-3 devices and pursuing FDA approvals, with a key component of their growth strategy being a joint venture in China.
  • The auditor’s report includes a going concern paragraph, indicating significant financial risk.
  • Stock compensation increased by 47.53% from $2,413,375 to $3,560,509, suggesting a greater reliance on stock-based compensation.

Opportunities and Risks

  • Risk: The auditor’s report includes a going concern paragraph, indicating significant financial risk.
  • Risk: The company has a history of losses and expects to continue incurring losses in the near future.
  • Risk: FDA approvals are uncertain and can be delayed or denied.
  • Risk: Reliance on Wider Come Limited and other third parties for manufacturing and clinical trials poses risks.
  • Risk: The joint venture in China is subject to regulatory, liquidity, and enforcement risks.
  • Risk: Identified material weaknesses in internal controls.
  • Opportunity: Large and growing market for mental health treatments.
  • Opportunity: Gen-2 and Gen-3 devices with a 15 milliamp waveform offer a potential competitive advantage.
  • Opportunity: Direct-to-patient treatment model could improve accessibility and reduce stigma.
  • Opportunity: Approvals in Brazil and Oman, and potential approvals in the US and other territories, could drive revenue growth.

Potential Implications

Company Performance

  • Continued losses and high operating expenses may strain the company’s financial resources, requiring additional funding.
  • Successful FDA approvals for Gen-2 and Gen-3 devices are critical for future revenue generation and profitability.
  • The virtual clinic model could improve accessibility and reduce stigma, potentially driving revenue growth.
  • The joint venture in China could provide access to a large market, but also poses regulatory and operational risks.

Stock Price

  • Uncertainty surrounding FDA approvals and the company’s financial stability could negatively impact the stock price.
  • Positive clinical trial results and regulatory approvals could drive investor confidence and increase the stock price.
  • Continued losses and a high cash burn rate may lead to stock dilution through additional equity offerings.
  • The high Price-to-Sales ratio of 12.09 suggests investors are optimistic about the company’s future revenue growth, but this also makes the stock vulnerable to negative news.

Nexalin Technology, Inc. (NXL) – 10-K Report Analysis (FY 2024)

Executive Summary

Nexalin Technology, Inc. (NXL) is a neurostimulation company focused on addressing mental health issues. This 10-K report reveals a company in transition, navigating regulatory hurdles and striving for commercialization. While revenue increased, significant operating losses persist. The company’s future hinges on successful FDA approvals for its Gen-2 and Gen-3 devices and effective market penetration. Given the current financial situation and regulatory uncertainties, a HOLD rating is recommended. Further monitoring of clinical trial results, regulatory progress, and cash burn rate is crucial.

Company Overview

Nexalin Technology, Inc. designs and develops neurostimulation devices for treating anxiety, insomnia, and depression. The company’s Gen-1 device faces regulatory challenges due to FDA reclassification. The focus is now on Gen-2 and Gen-3 devices, utilizing a 15 milliamp waveform. A joint venture in China aims to commercialize Gen-2 devices. The company is pursuing regulatory approvals in the US, Brazil, and other territories. The company is also developing a virtual clinic model to deliver treatment directly to patients’ homes.

Financial Statement Analysis

Key Financial Data

Metric 2024 2023 Change
Revenue $168,721 $110,748 52% Increase
Gross Profit $132,128 $85,060 55% Increase
Operating Expenses $7,886,774 $5,781,356 36% Increase
Net Loss $(7,607,182) $(4,648,709) 64% Increase in Loss
Cash and Cash Equivalents $574,485 $580,230 -1% Decrease
Short-Term Investments $2,905,438 $2,368,203 23% Increase
Working Capital $3,414,447 $3,004,611 14% Increase

Key Ratios

  • Gross Margin: 78% (2024), 77% (2023) – Relatively stable gross margin.
  • Operating Loss Margin: Significantly negative, indicating high operating expenses relative to revenue.
  • Cash Burn Rate: High, requiring continuous funding.

Trends

  • Revenue is increasing, but not enough to offset rising operating expenses.
  • Operating expenses are increasing significantly, driven by professional fees, salaries, and selling, general, and administrative expenses.
  • Net loss is widening, indicating a need for improved cost management and revenue generation.

Management’s Discussion and Analysis (MD&A) Insights

  • Management emphasizes the development of Gen-2 and Gen-3 devices and the pursuit of FDA approvals.
  • The company is focusing on a virtual clinic model for direct-to-patient treatment.
  • The joint venture in China is a key component of the company’s growth strategy.
  • Management acknowledges the need for additional funding and the uncertainty surrounding future profitability.

Risk & Opportunity Assessment

Red Flags

  • Going Concern: The auditor’s report includes a going concern paragraph, indicating significant financial risk.
  • Significant Losses: The company has a history of losses and expects to continue incurring losses in the near future.
  • Regulatory Risk: FDA approvals are uncertain and can be delayed or denied.
  • Dependence on Third Parties: Reliance on Wider Come Limited and other third parties for manufacturing and clinical trials poses risks.
  • China Risk: The joint venture in China is subject to regulatory, liquidity, and enforcement risks.
  • Material Weaknesses: Identified material weaknesses in internal controls.

Opportunities

  • Market Potential: Large and growing market for mental health treatments.
  • Innovative Technology: Gen-2 and Gen-3 devices with a 15 milliamp waveform offer a potential competitive advantage.
  • Virtual Clinic Model: Direct-to-patient treatment model could improve accessibility and reduce stigma.
  • Regulatory Approvals: Approvals in Brazil and Oman, and potential approvals in the US and other territories, could drive revenue growth.

Conclusion & Actionable Insights

Nexalin Technology is a high-risk, high-reward investment. The company’s innovative technology and market opportunity are promising, but significant financial and regulatory challenges remain. The company needs to demonstrate progress in obtaining FDA approvals, managing costs, and generating revenue. Investors should closely monitor the company’s progress in these areas before considering a long-term investment. A HOLD rating is recommended at this time.

1. Commentary

Nexalin Technology, Inc. experienced a year of increased revenue but continued net losses. Revenue grew significantly from 2023 to 2024, driven by device sales, licensing fees, and equipment revenue. However, operating expenses also increased substantially, leading to a larger loss from operations. While other income decreased significantly, the net loss still widened, indicating ongoing challenges in achieving profitability.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: 78.31% (2024), 76.81% (2023)
    • Trend: Increased from 76.81% to 78.31%, a 1.95% increase.
    • Industry: The medical device industry typically has gross profit margins ranging from 60% to 80%. Nexalin’s gross profit margin is within this range, suggesting competitive pricing and cost management.
  • Operating Profit Margin

    • Metric: -459.61% (2024), -514.35% (2023)
    • Trend: Improved from -514.35% to -459.61%, a 10.64% increase.
    • Industry: Given the company’s stage and focus on R&D, negative operating margins are expected. The improvement suggests better expense management relative to revenue.
  • Net Profit Margin

    • Metric: -450.81% (2024), -419.75% (2023)
    • Trend: Decreased from -419.75% to -450.81%, a -7.40% decrease.
    • Industry: Negative net profit margins are typical for companies in the development phase. The decrease indicates that the company’s net losses are growing faster than its revenue.
  • Return on Assets (ROA)

    • Metric: -179.91% (2024), -128.00% (2023)
    • Trend: Decreased from -128.00% to -179.91%, a -40.55% decrease.
    • Industry: A negative ROA is not uncommon for early-stage companies. The decrease suggests the company is not efficiently using its assets to generate profit.
  • Return on Equity (ROE)

    • Metric: -206.94% (2024), -145.03% (2023)
    • Trend: Decreased from -145.03% to -206.94%, a -42.69% decrease.
    • Industry: A negative ROE reflects net losses and indicates the company is not generating returns for its shareholders. The decrease suggests the company’s losses are outpacing equity growth.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: $(0.83) (2024), $(0.63) (2023)
    • Trend: Decreased from $(0.63) to $(0.83), a -31.75% decrease.
    • Industry: Negative EPS is expected for a company in its growth phase. The decrease indicates a larger loss per share.

Liquidity

  • Current Ratio

    • Metric: 7.25 (2024), 8.07 (2023)
    • Trend: Decreased from 8.07 to 7.25, a -10.16% decrease.
    • Industry: A current ratio above 1 indicates the company has more current assets than current liabilities. The decrease suggests a slight weakening in short-term liquidity.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: 6.93 (2024), 7.69 (2023)
    • Trend: Decreased from 7.69 to 6.93, a -9.88% decrease.
    • Industry: A quick ratio significantly above 1 indicates strong short-term liquidity. The decrease suggests a slight weakening in immediate liquidity.
  • Cash Ratio

    • Metric: 1.05 (2024), 1.36 (2023)
    • Trend: Decreased from 1.36 to 1.05, a -22.79% decrease.
    • Industry: A cash ratio above 1 indicates the company can cover its current liabilities with its cash and cash equivalents. The decrease suggests a reduction in immediate liquidity.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: 0.15 (2024), 0.13 (2023)
    • Trend: Increased from 0.13 to 0.15, a 15.38% increase.
    • Industry: A low debt-to-equity ratio indicates the company relies more on equity than debt financing. The increase suggests a slight increase in leverage.
  • Debt-to-Assets Ratio

    • Metric: 0.13 (2024), 0.12 (2023)
    • Trend: Increased from 0.12 to 0.13, a 8.33% increase.
    • Industry: A low debt-to-assets ratio indicates a small portion of the company’s assets are financed by debt. The increase suggests a slight increase in leverage.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: N/A (Interest income exceeded interest expense in 2024), N/A (Negative interest expense in 2023)
    • Trend: N/A
    • Industry: N/A

Activity/Efficiency

  • Inventory Turnover

    • Metric: 0.21 (2024), 0.16 (2023)
    • Trend: Increased from 0.16 to 0.21, a 31.25% increase.
    • Industry: A low inventory turnover suggests slow-moving inventory. The increase indicates a slight improvement in inventory management.
  • Days Sales Outstanding (DSO)

    • Metric: 28.17 days (2024), 30.85 days (2023)
    • Trend: Decreased from 30.85 days to 28.17 days, a -8.69% decrease.
    • Industry: A lower DSO indicates the company is collecting receivables more quickly. The decrease suggests improved efficiency in collecting revenue.
  • Days Payable Outstanding (DPO)

    • Metric: 232.14 days (2024), 226.68 days (2023)
    • Trend: Increased from 226.68 days to 232.14 days, a 2.41% increase.
    • Industry: A high DPO indicates the company is taking longer to pay its suppliers. The increase suggests a slight delay in payments.
  • Asset Turnover

    • Metric: 0.04 (2024), 0.03 (2023)
    • Trend: Increased from 0.03 to 0.04, a 33.33% increase.
    • Industry: A low asset turnover suggests the company is not efficiently using its assets to generate revenue. The increase indicates a slight improvement in asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: N/A (Negative Earnings)
    • Trend: N/A
    • Industry: N/A
  • Price-to-Book Ratio (P/B)

    • Metric: 1.58 (2024), 2.15 (2023)
    • Trend: Decreased from 2.15 to 1.58, a -26.51% decrease.
    • Industry: The decrease suggests the market values the company’s equity less favorably relative to its book value.
  • Price-to-Sales Ratio (P/S)

    • Metric: 12.09 (2024), 6.91 (2023)
    • Trend: Increased from 6.91 to 12.09, a 75% increase.
    • Industry: A high P/S ratio suggests investors are optimistic about the company’s future revenue growth. The increase indicates growing investor confidence in revenue potential.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: N/A (Negative EBITDA)
    • Trend: N/A
    • Industry: N/A

Growth Rates

  • Revenue Growth

    • Metric: 52.35%
    • Trend: Increased from $110,748 to $168,721, a 52.35% increase.
    • Industry: This indicates strong growth in the company’s top line.
  • Net Income Growth

    • Metric: 63.64%
    • Trend: Increased from $(4,648,709) to $(7,607,182), a 63.64% increase in net loss.
    • Industry: This indicates the company’s losses are growing.
  • EPS Growth

    • Metric: -31.75%
    • Trend: Decreased from $(0.63) to $(0.83), a -31.75% decrease.
    • Industry: This indicates a larger loss per share.

Other Relevant Metrics

  • Stock Compensation

    • Metric: $3,560,509 (2024), $2,413,375 (2023)
    • Trend: Increased from $2,413,375 to $3,560,509, a 47.53% increase.
    • Significance: Stock compensation is a non-cash expense that can dilute existing shareholders’ equity. The increase suggests a greater reliance on stock-based compensation.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️