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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission file number: 001-41507

NEXALIN TECHNOLOGY, INC.

(Exact name of Registrant as specified in its charter)

Delaware |  | 27-5566468
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
1776 Yorktown, Suite 550 Houston, TX 77056 |  | 77056
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (832) 260-0222

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, par value $0.001 per share |  | NXL |  | The Nasdaq Capital Market
Warrants, exercisable for one share of Common Stock |  | NXLIW |  | The Nasdaq Capital Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☐ | Accelerated Filer | ☐
Non-Accelerated Filer | ☒ | Smaller Reporting Company | ☒
|  | Emerging Growth Company | ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of May 8, 2023, there were 7,286,562 shares of the Registrant’s common stock outstanding.

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

FORM 10-Q

For the Quarter Ended March 31, 2023

|  | Page
PART I. FINANCIAL INFORMATION |  | 1
ITEM 1. |  | Financial Statements |  | 1
|  | Condensed Consolidated Balance Sheets at March 31,2023 (unaudited) and December 31, 2022 |  | 1
|  | Condensed Consolidated Statements of Operations and Comprehensive Gain (Loss) (unaudited) for the three months ended March 31,2023 and 2022 |  | 2
|  | Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three months ended March 31,2023 and 2022 |  | 3
|  | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31,2023 and 2022 |  | 4
|  | Notes to Unaudited Condensed Consolidated Financial Statements |  | 5
ITEM 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 21
ITEM 3. |  | Quantitative and Qualitative Disclosures about Market Risk |  | 31
ITEM 4. |  | Controls and Procedures |  | 31
PART II. OTHER INFORMATION |  | 33
ITEM 1. |  | Legal Proceedings |  | 33
ITEM 1A. |  | Risk Factors |  | 33
ITEM 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 33
ITEM 3. |  | Defaults Upon Senior Securities |  | 33
ITEM 4. |  | Mine Safety Disclosures |  | 33
ITEM 5. |  | Other Information |  | 33
ITEM 6. |  | Exhibits |  | 33
SIGNATURES |  | 35

i

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

|  | March, 31 |  |  | December, 31 |
|  | 2023 |  |  | 2022 |
|  | (Unaudited) |  |  |  |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 174,961 |  |  | $ | 162,743 |
Short-term investments |  |  | 5,297,658 |  |  |  | 6,831,192 |
Accounts receivable |  |  | 3,550 |  |  |  | 4,875 |
Inventory |  |  | 158,270 |  |  |  | 154,370 |
Prepaid expenses and other current assets |  |  | 241,330 |  |  |  | 272,282 |
Total Current Assets |  |  | 5,875,769 |  |  |  | 7,425,462 |
ROU Asset |  |  | 4,800 |  |  |  | 6,171 |
Equipment, net of accumulated depreciation of $2,315 and $2,181, respectively |  |  | 368 |  |  |  | 503 |
Patent, net of amortization |  |  | 49,536 |  |  |  | - |
Total Assets |  | $ | 5,930,473 |  |  | $ | 7,432,136 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable (Includes related party of $10,000 and $260,000, respectively) |  | $ | 54,758 |  |  | $ | 658,367 |
Accrued expenses |  |  | 597,660 |  |  |  | 539,822 |
Lease liability, current portion |  |  | 43,026 |  |  |  | 50,797 |
Loan payable - officer |  |  | - |  |  |  | 200,000 |
Note payable |  |  | 500,000 |  |  |  | 500,000 |
Total Current Liabilities |  |  | 1,195,444 |  |  |  | 1,948,986 |
Long-term Liabilities: |  |  |  |  |  |  |  |
Lease liability, net of current portion |  |  | - |  |  |  | 4,463 |
Total Liabilities |  |  | 1,195,444 |  |  |  | 1,953,449 |
Commitments and Contingencies (Note 8) |  |  |  |  |  |  |  |
Stockholders’ Equity (Deficit): |  |  |  |  |  |  |  |
Common stock, $0.001 par value; 100,000,000 shares authorized; 7,286,562 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively |  |  | 7,287 |  |  |  | 7,287 |
Accumulated other comprehensive income |  |  | 41,069 |  |  |  | 36,313 |
Additional paid in capital |  |  | 77,824,427 |  |  |  | 77,824,427 |
Accumulated deficit |  |  | (73,137,754 | ) |  |  | (72,389,340 | )
Total Stockholders’ Equity (Deficit) |  |  | 4,735,029 |  |  |  | 5,478,687 |
Total Liabilities and Stockholders’ Equity (Deficit) |  | $ | 5,930,473 |  |  | $ | 7,432,136 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

1

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE GAIN (LOSS)
(Unaudited)

|  | Three Months Ended March 31, |
|  | 2023 |  |  | 2022 |
Revenues, net (Includes related party of $0 and $300,499 for the three months ended March 31, 2023 and March 31, 2022, respectively) |  | $ | 30,560 |  |  | $ | 323,322 |
Cost of revenues |  |  | 7,110 |  |  |  | 46,015 |
Gross profit |  |  | 23,450 |  |  |  | 277,307 |
Operating expenses |  |  |  |  |  |  |  |
Professional fees |  |  | 158,600 |  |  |  | 295,456 |
Salaries and benefits |  |  | 299,323 |  |  |  | 138,594 |
Selling, general and administrative |  |  | 344,953 |  |  |  | 218,374 |
Total operating expenses |  |  | 802,876 |  |  |  | 652,424 |
Loss from operations |  |  | (779,426 | ) |  |  | (375,117 | )
Other income (expense), net: |  |  |  |  |  |  |  |
Interest income (expense), net |  |  | (8,837 | ) |  |  | (18,132 | )
Gain on sale of short-term investments |  |  | 38,772 |  |  |  | - |
Other income |  |  | 1,077 |  |  |  | - |
Total other income (expense), net |  |  | 31,012 |  |  |  | (18,132 | )
Net loss |  |  | (748,414 | ) |  |  | (393,249 | )
Other comprehensive income: |  |  |  |  |  |  |  |
Unrealized gain from short-term investments |  |  | 41,069 |  |  |  | - |
Comprehensive loss |  | $ | (707,345 | ) |  | $ | (393,249 | )
Net loss per share attributable to common stockholders - Basic and Diluted |  | $ | (0.10 | ) |  | $ | (0.08 | )
Weighted Average Shares Outstanding - Basic and Diluted |  |  | 7,286,562 |  |  |  | 4,888,080 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

2

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

|  |  |  |  |  |  |  | Accumulated Other Comprehensive Gain |  |  | Additional |  |  |  |  |  | Total Stockholders’ |
|  | Common Stock |  |  | (Loss) on ST |  |  | Paid-in |  |  | Accumulated |  |  | Equity |
|  | Shares |  |  | Amount |  |  | Investments |  |  | Capital |  |  | Deficit |  |  | (Deficit) |
Balance as January 1, 2022 |  |  | 4,879,923 |  |  | $ | 40,880 |  |  | $ | - |  |  | $ | 69,004,703 |  |  | $ | (70,691,524 | ) |  | $ | (1,681,941 | )
Stock issued for cash |  |  | 850 |  |  |  | 1 |  |  |  | - |  |  |  | 5,099 |  |  |  | - |  |  |  | 5,100 |
Stock compensation |  |  | 24,390 |  |  |  | 24 |  |  |  | - |  |  |  | 97,476 |  |  |  | - |  |  |  | 97,500 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (393,249 | ) |  |  | (393,249 | )
Balance as of March 31, 2022 |  |  | 4,905,163 |  |  | $ | 40,905 |  |  | $ | - |  |  | $ | 69,107,278 |  |  | $ | (71,084,773 | ) |  | $ | (1,972,590 | )

|  |  |  |  |  |  |  | Accumulated Other Comprehensive Gain |  |  | Additional |  |  |  |  |  | Total Stockholders’ |
|  | Common Stock |  |  | (Loss) on ST |  |  | Paid-in |  |  | Accumulated |  |  | Equity |
|  | Shares |  |  | Amount |  |  | Investments |  |  | Capital |  |  | Deficit |  |  | (Deficit) |
Balance as of January 1, 2023 |  |  | 7,286,562 |  |  | $ | 7,287 |  |  | $ | 36,313 |  |  | $ | 77,824,427 |  |  | $ | (72,389,340 | ) |  | $ | 5,478,687 |
Other comprehensive gain |  |  | - |  |  |  | - |  |  |  | 4,756 |  |  |  | - |  |  |  | - |  |  |  | 4,756 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (748,414 | ) |  |  | (748,414 | )
Balance as of March 31, 2023 |  |  | 7,286,562 |  |  | $ | 7,287 |  |  | $ | 41,069 |  |  | $ | 77,824,427 |  |  | $ | (73,137,754 | ) |  | $ | 4,735,029 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

3

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|  | Three Months Ended March 31, |
|  | 2023 |  |  | 2022 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net Loss |  | $ | (748,414 | ) |  | $ | (393,249 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Stock compensation |  |  | - |  |  |  | 97,500 |
Depreciation |  |  | 134 |  |  |  | 134 |
Amortization |  |  | 660 |  |  |  |  |
Non-cash lease expense |  |  | 1,371 |  |  |  | 1,254 |
Gain on sale of short-term investments |  |  | (38,772 | ) |  |  | - |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 1,325 |  |  |  | (53,540 | )
Prepaid assets |  |  | 30,952 |  |  |  | (1,671 | )
Inventory |  |  | (3,900 | ) |  |  | (47,323 | )
Accounts payable - related party |  |  | (250,000 | ) |  |  | - |
Accounts payable |  |  | (353,609 | ) |  |  | 179,386 |
Accrued expenses |  |  | 57,838 |  |  |  | (26,675 | )
Deferred revenue |  |  | - |  |  |  | 52,000 |
Lease liability |  |  | (12,234 | ) |  |  | (11,087 | )
Net cash used in operating activities |  |  | (1,314,649 | ) |  |  | (203,271 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Sale of short-term investments |  |  | 11,599,356 |  |  |  | - |
Purchase of short-term investments |  |  | (10,022,293 | ) |  |  | - |
Purchase of patents |  |  | (50,196 | ) |  |  | - |
Net cash provided by investing activities |  |  | 1,526,867 |  |  |  | - |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Sale of common stock for cash, net of financing fees |  |  | - |  |  |  | 5,100 |
Payments on loan payable - shareholder |  |  | - |  |  |  | (5,000 | )
Payments on notes payable - officer |  |  | (200,000 | ) |  |  | - |
Net cash provided by (used in) financing activities |  |  | (200,000 | ) |  |  | 100 |
Net decrease in cash and cash equivalents |  |  | 12,218 |  |  |  | (203,171 | )
Cash and cash equivalents - beginning of period |  |  | 162,743 |  |  |  | 661,778 |
Cash and cash equivalents - end of period |  |  | 174,961 |  |  |  | 458,607 |
Non-cash investing and financing activities: |  |  |  |  |  |  |  |
Unrealized gain on short-term investments |  |  | 41,069 |  |  |  | - |
ROU asset and lease liability recorded |  |  | - |  |  |  | 11,359 |

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

4

NEXALIN TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF THE ORGANIZATION AND BUSINESS

Corporate History

Nexalin Technology, Inc. (“NV Nexalin”) was formed on October 19, 2010 as a Nevada corporation. The Company’s principal offices are located at 1776 Yorktown, Suite 550, Houston, Texas 77056.

On September 6, 2019, Neuro-Health International, Inc. (“Neuro-Health”), a Nevada corporation, a wholly owned subsidiary of NV Nexalin, was formed. Neuro-Health had no activity from December 6, 2019 (Inception) through March 31, 2023.

On November 22, 2021, NV Nexalin entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Nexalin Technology, Inc., a Delaware corporation (“Nexalin”, or the “Company”). Pursuant to the Merger Agreement, NV Nexalin merged with and into Nexalin with all shareholders of NV Nexalin receiving one common share of Nexalin in exchange for twenty shares of NV Nexalin held at the time of the Merger Agreement. NV Nexalin treated the transaction as a corporate reorganization with the historical consolidated financial statements of NV Nexalin becoming the historical consolidated financial statements of Nexalin. Nexalin had nominal assets and liabilities and did not conduct any operations prior to the reorganization other than its incorporation. NV Nexalin has retroactively applied the 20-for-1 exchange, effective on November 22, 2021, to share and per share amounts on the unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022. NV Nexalin’s authorized shares of common stock were not affected as a result of the Merger Agreement. As a result of the Merger Agreement, NV Nexalin was dissolved, and Neuro-Health became a subsidiary of Nexalin. The Company completed its initial public offering on September 16, 2022.

The initial public offering consisted of 2,315,000 units consisting of 2,315,000 shares of Common Stock and 2,315,000 accompanying warrants to purchase up to 2,315,000 shares of common stock. Each share of common stock was sold together with one Warrant, each to purchase one share of common stock with an exercise price of $4.15 per share at a combined offering price of $4.15, for gross proceeds of $9,607,250, before deducting underwriting discounts and offering expenses. In addition, the underwriters purchased 347,250 warrants for net proceeds of $3,473.

Our shares and warrants began trading on the Nasdaq Capital Market tier of the Nasdaq Stock Market (“Nasdaq”) on September 16, 2022, under the symbols “NXL” and “NXLIW”, respectively.

Throughout this report, the terms “Nexalin,” “our,” “we,” “us,” and the “Company” refer to Nexalin Technology, Inc.

Business Overview

We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device — referred to as Generation 1 or Gen-1 — that utilizes bioelectronic medical technology to treat anxiety and insomnia, without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit waveform at 4 milliamps during treatment and are presently classified by the U.S. Food and Drug Administration (“FDA”) as a Class II device.

While we continue providing services to medical professionals to support patients’ use of the Gen-1 devices which were in operation prior to December 2019, we are not making new sales or new marketing efforts of Gen-1 devices. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcements. This revenue consists of monthly licensing fees and payments for the sale of electrodes. We have suspended marketing efforts for new sales of devices related to the Gen-1 device for treatment of anxiety and insomnia in the United States until the Nexalin regulatory team makes a decision on amending our existing 510(k) application at 4 milliamps. A new pre-sub document in preparation of a new 510(k) for our Gen-3 Halo headset at 15 milliamps was filed with the FDA in January of 2023. Formal comments to our pre-sub document filing were received in March of 2023. A formal meeting to address FDA comments is scheduled for May of 2023.

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We have designed and developed a new advanced wave form technology to be emitted at 15 milliamps through new and improved medical devices referred to as Generation 2 or Gen-2 and Generation 3 or Gen-3. Gen-2 is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. Gen-3 is a new patient headset that will be prescribed by licensed medical professionals in a virtual clinic setting similar to existing Tele-health platforms. Preliminary data provided by the University of California San Diego supports the safety of utilizing our 15 milliamp waveform technology, however the determination of safety and efficacy of medical devices in the United States is subject to clearance by the FDA.

Additionally, we are currently designing clinical trial strategies for the use of Gen-3 for the treatment of substance use disorders including opiate, cocaine, and alcohol abuse. Recently the Gen-2 device was tested in pilot trials in China for the treatment of Alzheimer’s disease, and dementia. Continued pilot testing for Alzheimer’s and dementia, cognition and memory, and neurotransmitter changes is planned in China in 2023.

Emerging Growth Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company, nor an emerging growth company which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

Risks and Uncertainties

Management continues to evaluate the impact of the economy and the capital markets and has concluded that, while it is reasonably possible that events could have negative effects on the Company’s financial position and results of its operations, the specific impacts are not readily determinable as of the date of these consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of uncertainties.

The current challenging economic climate may lead to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on the Company’s operating results and financial position in the future. The ultimate duration and magnitude of the impact and the efficacy of government interventions on the economy has and may continue to indirectly impact the Company because of its current dependence upon its distributor relationship with Wider Come Limited. Wider Come Limited acts as a distributor for the Company’s devices in China and Asia. Because of significant restrictions imposed by the Chinese government during the COVID-19 pandemic through calendar year 2022 and into 2023, Wider’s ability to market and sell the Company’s devices has been negatively impacted, resulting in decreased revenue to the Company. Patients and salespeople have been restricted in their movements resulting in a significant slowdown in the medical and other sectors. Significant efforts and funds expended by our Chinese distributor has led to regulatory approval in China in both depression and insomnia thus far which has allowed for sales of our devices in China in 2022, and into 2023. The extent of future impact is dependent on future developments, including future activities by the Chinese government and other possible events which are highly uncertain and not in the Company’s control, including new information which may emerge concerning the spread and severity of COVID-19, or any of its variants, and actions taken to address its impact, among others. The repercussions of this health crisis could have a material adverse effect on the Company’s business, financial condition, liquidity and operating results.

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NOTE 2 — LIQUIDITY

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2023, we had a significant accumulated deficit of approximately $73.173,137,754 million. For the three months ended March 31, 2023, we had a loss from operations of approximately $779779,426 thousand and negative cash flows used in operations of approximately $1.31,314,649 million. While we had a working capital surplus as of March 31, 2023 of approximately $4.7 million, our operating activities consume most of our cash resources.

We expect to continue to incur operating losses as we execute our development plans, as well as undertaking other potential strategic and business development initiatives through 2023 and through the twelve months from the date of this report. In addition, we have had and expect to have negative cash flows from operations, at least into the near future. We have previously funded these losses primarily through the sale of equity and issuance of convertible notes. The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

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 proposed 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. Although no assurances can be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of March 31, 2023 and has concluded that due to the receipt of the net proceeds from the completion of the Initial Public Offering, we have sufficient cash and short-term investments on hand to satisfy its anticipated cash requirements for the next twelve months from the issuance of these financial statements.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

Basis of Presentation

The accompanying unaudited condensed consolidated financial information has been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) for interim financial information. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position and the operating results and cash flows. Operating results for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022.

Principles of Consolidation

The consolidated financial statements include the accounts of Nexalin and its wholly owned subsidiary Neuro-Health. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.

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Revenue

The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

The Company has existing licensing and treatment fee agreements with its customers for the use of the Nexalin Device in their practices. These agreements generally have terms of one year with automatic renewal if certain requirements are met and amounts due per these agreements are billed monthly. The Company also sells products related to the provision of services. The Company sells its Devices in China to its acting distributor and sells products relating to the use of the Devices. The Company has a Royalty Agreement whereby the manufacturer of the Company’s electrodes will pay a royalty to the Company for a three-year period beginning January 1, 2022. The amount of the Royalty is equal to 20% of the amount that the manufacturer invoices to the acting distributor for the sale of the electrodes.

Revenue Streams

The Company derives revenues from its license agreements by charging a monthly licensing fee for the duration of the agreement. The Company derives revenues from equipment by selling additional individual electrodes to customers for use with the Nexalin Device. The Company receives revenue from the sale in China of its Devices to its acting distributor and from the sale of products relating to the use of those Devices. The Company derives revenue as a royalty fee from the China-based manufacturer for electrodes ordered in connection with the Company’s China sales.

Performance Obligations

Management identified that subsequent licensing revenue has one performance obligation. That performance obligation is satisfied as long as the licensing contract remains valid and is not terminated. The licensing revenue is invoiced monthly and is recognized at a point in time in which the invoice is sent to the customer.

Management identified that the Company’s equipment and Device revenue has one performance obligation. That performance obligation is satisfied when the equipment and Devices are shipped. The Company recognizes revenue at a point in time in which the electrodes and Devices are shipped to the customer. The Company does not offer a warranty on the electrodes and Devices.

Management identified that treatment fee revenue has one performance obligation. The performance obligation is satisfied upon the completion of individual treatments on patients by customers.

Management identified that royalty revenue has one performance obligation. The performance obligation is satisfied at the time the Electrode manufacturer invoices the acting distributor for the sale to the acting distributor.

Practical Expedients

As part of ASC 606, the Company has adopted several practical expedients including:

| ● | Significant Financing Component — the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised goods or services to the customer and when the customer pays for that service will be one year or less.

| ● | Unsatisfied Performance Obligations — all performance obligations related to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

| ● | Shipping and Handling Activities — the Company elected to account for shipping and handling activities as a fulfilment cost rather than as a separate performance obligation.

| ● | Right to Invoice — the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date the Company may recognize revenue in the amount to which the entity has a right to invoice.

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Disaggregated Revenues

Major Revenue Streams

Revenue consists of the following by service offering:

Schedule of disaggregation of revenue |  |  |  |  |  |  |  |
|  | Three Months Ended |
|  | March 31, 2023 |  |  | March 31, 2022 |
Device Sales |  | $ | - |  |  | $ | 264,500 |
Licensing Fee |  |  | 23,870 |  |  |  | 20,143 |
Equipment |  |  | 6,400 |  |  |  | 8,000 |
Other |  |  | 290 |  |  |  | 30,679 |
Total |  | $ | 30,560 |  |  | $ | 323,322 |

Major Geographic Locations

|  | Three Months Ended |
|  | March 31, 2023 |  |  | March 31, 2022 |
U.S. Sales |  | $ | 30,560 |  |  | $ | 22,823 |
China Sales |  |  | - |  |  |  | 300,499 |
Total |  | $ | 30,560 |  |  | $ | 323,322 |

Contract Modifications

There were no contract modifications during the three months ended March 31, 2023 and 2022. Contract modifications are not routine in the performance of the Company’s contracts.

Deferred Revenue

The Company receives payment for equipment and devices in advance of shipping. The Company recognizes the revenue as being earned upon shipment. No deferred revenue was recognized as of March 31, 2023 and December 31, 2022.

Cash and Cash Equivalents

Cash held at financial institutions may at times exceed insured amounts. The Company believes it mitigates such risk by investing in or through, as well as maintaining cash balances, with major financial institutions.

Short-Term Investments

The appropriate classification of marketable securities is determined at the time of purchase and evaluated as of each reporting balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Changes in fair value that are considered temporary are reported net of tax in accumulated other comprehensive income. Realized gains and losses, amortization of premiums and discounts and interest and dividends earned are included in other income (expense), net. For declines in the fair values of equity securities that are considered other-than-temporary, impairment losses are charged to other income (expense), net. The Company considers available evidence in evaluating potential impairments of its investments, including the duration and extent to which fair value is less than cost. There were no deemed permanent impairments on March 31, 2023 and December 31, 2022, respectively.

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Accounts Receivable

Accounts receivables are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. During the three months ended March 31, 2023 and 2022, the Company did not write off accounts receivable. The Company did not record an allowance for doubtful accounts on March 31, 2023 and December 31, 2022, respectively.

Inventory

Inventory consists of finished goods and components stated at the lower of cost or net realizable value with cost determined on a first-in first-out basis. The Company reviews the composition of inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of demand, or otherwise non-saleable items.

Equipment

Equipment is recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related assets, generally five years.

Maintenance and repairs are charged to expense as incurred. The Company capitalizes costs attributable to the betterment of property and equipment when such betterment enhances the functionality of the asset or extends the useful life of the asset. Should an asset be disposed of before the end of its useful life, the cost and accumulated depreciation at that date is removed from the consolidated balance sheets, with the resulting gain or loss, if any, reflected in operations in that period.

Patents

Patents are amortized over their useful lives and are reviewed for impairment when warranted by economic conditions. Amortization expense was $660 and $0 for the three months ended March 31, 2023 and 2022, respectively.

Income Taxes

The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.

The Company records valuation allowances against deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. At March 31, 2023 and December 31, 2022, the Company had a full valuation allowance applied against its net tax assets.

Fair Value Measurements

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

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| ● | Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

| ● | Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

| ● | Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques.

Fair Value of Financial Instruments

The carrying value of cash, short-term investments, accounts receivable, inventory, prepaids, accounts payable and accrued expenses, and other current liabilities approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the loans payable approximates the estimated fair value for this financial instrument as management believes that such debt and interest payable on the note approximates the Company’s incremental borrowing rate.

The following table summarizes the amortized cost, unrealized gains and the fair value at March 31, 2023 and December 31, 2022.

Schedule of amortized cost, unrealized gains |  |  |  |  |  |  |  |  |  |  |  |
|  | Amortized Cost |  |  | Unrealized Gain |  |  | Fair Value |
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 5,256,589 |  |  | $ | 41,069 |  |  | $ | 5,297,658 |
Total March 31, 2022 |  | $ | 5,256,589 |  |  | $ | 41,069 |  |  | $ | 5,297,658 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 6,794,879 |  |  | $ | 36,313 |  |  | $ | 6,831,192 |
Total December 31, 2022 |  | $ | 6,794,879 |  |  | $ | 36,313 |  |  | $ | 6,831,192 |

The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of March 31, 2023 and December 31, 2022.

Schedule of fair value, assets measured on recurring basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Notes |  | $ | 5,297,658 |  |  | $ | 5,297,658 |  |  | $ | - |  |  | $ | - |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Notes |  | $ | 6,831,192 |  |  | $ | 6,831,192 |  |  | $ | - |  |  | $ | - |

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Net Loss per Common Share

Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The dilutive effect, if any, of warrants is calculated using the treasury stock method. These shares were included in the basic and diluted net loss per common share on the unaudited condensed consolidated statements of operations.

The following table summarizes the securities that would be excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the most recent fair value of the common shares:

Schedule of antidilutive shares |  |  |  |  |  |  |  |
|  | Three Months Ended March 31, |
|  | 2023 |  |  | 2022 |
Warrants |  |  | 2,662,250 |  |  |  | 21,600 |
Total |  |  | 2,662,250 |  |  |  | 21,600 |

Stock-Based Compensation

The Company applies the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.

For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

Pursuant to ASU 2018-07 Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.

Warrant Accounting

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all its financial instruments, including issued private and public warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed as part of this evaluation. During the reporting periods the Public Warrants were outstanding, they were precluded from liability classification, being equity-classified.

Research and Development

All research and development costs are charged to operations as incurred. For the three months ended March 31, 2023 and 2022, the Company recorded $65,833 and $11,565, respectively, in selling, general and administrative expenses on the unaudited condensed consolidated statements of operations.

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Leases

A lease is defined as an agreement that conveys the right to control the use of identified property, plant or equipment (right of use asset or “ROU asset”) for a period of time in exchange for consideration. The Company accounts for its leases in accordance with ASC 842, Leases, which requires that an ROU asset identified in a lease to be recorded as a noncurrent asset with a related liability. The Company does not record ROU assets for those agreements of a twelve-month duration or less. The Company recognized a ROU asset and corresponding lease liability on its balance sheets related to its office lease agreement. See Note 9, Leases, for further discussion, including the impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

ROU assets include any initial direct costs and prepaid lease payments and exclude any lease incentives. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Recent Accounting Pronouncements

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments are in effect for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The adoption on January 1, 2023 modified the way the Company analyzes financial instruments, but it did not have a material impact on our consolidated financial statements.

All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

NOTE 4 — ACCRUED EXPENSES

Accrued expenses consist of the following amounts:

Schedule of accrued expenses |  |  |  |  |  |  |  |
|  | March 31, 2023 |  |  | December 31, 2022 |
Accrued interest |  | $ | 134,501 |  |  | $ | 111,501 |
Accrued – other |  |  | 37,159 |  |  |  | 2,321 |
Accrued settlement liabilities |  |  | 336,000 |  |  |  | 336,000 |
Accrued research and development expense |  |  | 90,000 |  |  |  | 90,000 |
Total |  | $ | 597,660 |  |  | $ | 539,822 |

NOTE 5 — NON-CONSOLIDATED JOINT VENTURE AND RELATED PARTY TRANSACTIONS

Potential Joint Venture

On December 21, 2018, the Company entered into the first of a series of agreements providing for the establishment of a joint venture (“JV”) agreement (the “JV Agreement”) with Wider Come Limited, a China company (“Wider”) for the purpose of marketing, sale and distribution of the Company’s proprietary devices for the treatment of (i) anxiety, depression and insomnia (“ADI”) and (ii) Alzheimer’s and dementia (“AD”) in the applicable territories. Wider has an experienced medical technology team in China and when formed, the JV will design and implement a comprehensive business model and distribution plan for our devices in China, Hong Kong, Macau and Taiwan. The JV will be formed following the completion of certain funding, clinical study, and publication milestones, which Wider has agreed to undertake but not yet completed, as well as resolution of potential regulatory concerns in China. Following its formation, the JV will design and implement a comprehensive business model and distribution plan for our devices in China, Hong Kong, Macau and Taiwan.

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As originally contemplated, each of the parties to the JV would hold a 50% interest in the equity, profits and losses, shareholder voting, management control and rights to use production capacity of the facility. The Company will provide an Asian territory exclusive distribution license for ADI treatment to the JV and Wider. As originally contemplated the JV, if completed, will be controlled by an equally represented Board of Directors in which neither entity has sole decision-making ability over day-to-day or significant operational decisions. The parties may determine to alter the equity interest or board composition of the Joint Venture or other economic terms as they move closer to its implementation. As of March 31, 2023, the JV has not been established.

On May 22, 2019, the Company entered into a supplementary agreement to the JV Agreement (the “Supplementary Agreement”). At the time of the May 2019 Supplementary Agreement, the parties desired to expand the scope of the JV to include and address the pain management opportunities for our devices and technology. Pursuant to the Supplementary Agreement, Wider was to fund the JV within thirty days of execution of the JV Agreement with $600,000 in cash to be used for clinical trials and other activities related to pain management utilization of our devices and technology in China. Within thirty days of the funding, the Company was to issue 5% of the Company in common stock to Wider’s shareholders. As of the date of this report the JV has yet to be formally established and therefore the $600,000 has not been funded. Further, the parties have determined not to proceed with the pain management scope of the JV and have decided to terminate the May 2019 Supplementary Agreement. The parties may elect to proceed with a similar arrangement in the future.

On April 6, 2020, the Company entered into a three-year service agreement with Wider, pursuant to which Wider agreed to perform clinical trials associated with the possible formation of the future JV. In consideration, the Company and certain designated Wider shareholders entered into stock issuance agreements for the issuance of 450,000 shares of the Company’s common stock, and simultaneously with the execution of this service agreement, Wider contributed $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. The fair value of the 150,000 shares issued (less the contributed $200,000 in cash) resulted in a charge to stock-based compensation of $550,000 and was recorded in selling, general and administrative expenses on the statement of operations. The remaining 300,000 shares will be issued in accordance with the following schedule upon Wider’s successful completion of the following milestones (i) 50% upon successful completion of the fourth of four clinical trials pursuant to the terms and conditions of the Service Agreements and (ii) 50% upon all four trials being submitted for publication in international medical journals satisfactory to the Company. As of March 31, 2023, these milestones have not been met.

In March 2022, we entered into a second supplement to the JV Agreement with Wider, whereby the parties confirmed that the JV had not yet been established and is subject to further review and analysis of regulatory issues in China and the United States, trade and political issues between the two countries and potential changes in the use and market for the Company’s products and technology. Pursuant to the second supplement, the parties agreed to use their commercial efforts to complete documentation by September 30, 2022. Wider has continued its work with respect to undertaking and establishing clinical trials. In light of general economic conditions in China and the United States and the continued impact of regulatory issues in China and the United States and trade and political issues between the two counties, the parties determined to further extend the time frame to complete establishment of the JV to September 30, 2023 and entered into a supplement 3 to the JV Agreement to memorialize such extension. The parties intend to continue to work together to complete the establishment prior to such extended time, however, the ramifications of the continued COVID pandemic, especially in China, and the Chinese government’s regulatory approach to the pandemic have adversely affected Wider’s ability to distribute our current products. As a result, the JV may be further delayed or we and Wider may determine to re-structure the business terms (which changes may include timing and the scope of the intended operations and trial studies) of the proposed JV.

During the three months ended March 31, 2023 and 2022, the Company recorded $0 and $300,499 in revenue, respectively, from Wider on the unaudited condensed consolidated statements of operations.

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U.S. Asian Consulting Group, LLC

On May 9, 2018, the Company entered into a five-year consulting agreement with U.S. Asian Consulting Group, LLC (“U.S. Asian”). The two members of U.S. Asian are shareholders in the Company and include Marilyn Elson who is the Chief Financial Officer of the Company. Pursuant to the consulting agreement, U.S. Asian will provide consulting services to the Company with regard to, among other things, corporate development and financing arrangements. The Company is to pay U.S. Asian $10,000 per month for services rendered and, on October 24, 2018, the Company issued 249,750 shares of the Company’s common stock to U.S. Asian. The Company recorded consulting expenses related to the consulting agreement of $30,000 for each of the three months ended March 31, 2023 and 2022 on the Company’s unaudited consolidated statements of operations. At December 31, 2022, U.S. Asian was owed $260,000 for accrued and unpaid services. A payment of $250,000 was made to U.S. Asian on March 17, 2023.

On December 22, 2021, the Company entered into a one-year agreement with Leonard Osser to serve on the Company’s Board of Advisors. The agreement may be, but has not yet been, extended for an additional one-year term upon agreement of both parties. As consideration Mr. Osser was entitled to $80,000 in shares of the Company’s common stock which was waived by Mr. Osser.

On January 11, 2022, the Company entered into an employment agreement with Marilyn Elson to serve as Chief Financial Officer of the Company for a three-year term with an option for the Company and Ms. Elson to extend the term for an additional two years. Ms. Elson is the spouse of Leonard Osser.

Loan Payable – Officer

On November 1, 2021, the Company received $200,000 as a loan from the Company’s Chief Executive Officer. The loan had a principal of $200,000, an interest rate of 9%, and a maturity date of the earlier of (i) October 31, 2022 or (ii) the date of the consummation of the initial public offering. The note was amended as of January 1, 2023 to extend the due date to March 17, 2023 and to provide that interest payable on the maturity date will be $39,000 less any interest payments previously made. Total interest expense on this note was $18,000 and $4,500 for the three months ended March 31, 2023 and 2022, respectively. The December 31, 2022 outstanding principal balance of $200,000 was satisfied by a payment on March 17, 2023. The March 31, 2023 outstanding interest balance of $34,500 was satisfied by a payment on April 26, 2023.

Leases

Our principle executive office is located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “Leases”, we have two separate sub-leases (through IIcom Strategic Inc. controlled and owned by our Chief Executive Officer) totalling approximately 4,000 square feet of office space under operating leases. Management and supporting staff are hosted at this location. Our lease payments for fiscal year 2022 were $54,000. Our lease costs for each of the three months ended March 31, 2023 and 2022 were $13,500. The sub-leases are due to expire in 2024. Pursuant to the sublease, we pay the third-party landlord (not the sub landlord) all direct and indirect rent costs under the primary lease directly for the leased premises. No additional payments are made to the Chief Executive Officer or the entity controlled by him.

NOTE 6 — LOANS PAYABLE

Legacy Ventures International, Inc.

On September 11, 2017, the Company issued a promissory note (the “Promissory Note”) in favor of Legacy Ventures International, Inc. (“Legacy”) as part of a commercial transaction with Legacy that was never consummated. The Promissory Note was issued in the original principal amount of $500,000, with interest at 4% per annum and a maturity date of December 31, 2017. As of March 31, 2023, this promissory note is in default. The Company recorded $5,000 and $5,000 of interest expense for the three months ended March 31, 2023 and 2022, respectively. The amount outstanding at March 31, 2023 and December 31, 2022 was $500,000.

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NOTE 7 — STOCKHOLDERS’ EQUITY (Deficit)

Issuance of Common Stock

During the three months ended March 31, 2022, the Company issued 850 shares of common stock to an investor for cash proceeds of $5,100 with a fair value of $6.00 per share.

During the three months ended March 31, 2022, the Company issued 24,390 shares of common stock to a consultant for services rendered in lieu of cash for an aggregate compensation charge of $150,000, of which $37,500 was expensed during the three months ended March 31, 2022, in the unaudited condensed consolidated statement of operations. In addition, $60,000 was expensed as stock compensation related to shares to be issued to advisors.

During the three months ended March 31, 2023, the Company issued no shares of common stock.

Warrants

The issuance of warrants to purchase shares of the Company’s common stock are summarized as follows:

Schedule of warrants |  |  |  |  |  |  |  |
|  | Number of warrants |  |  | Weighted Average Exercise Price |
Outstanding December 31, 2022 |  |  | 2,662,250 |  |  | $ | 4.15 |
Issued |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |
Expired or cancelled |  |  | - |  |  |  | - |
Outstanding March 31, 2023 |  |  | 2,662,250 |  |  | $ | 4.15 |

The following table summarizes information about warrants to purchase shares of the Company’s common stock outstanding and exercisable at March 31, 2023:

Summary information about warrants to purchase |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise Price |  |  | Outstanding Number of Warrants |  |  | Weighted Average Remaining Life In Years |  |  | Weighted Average Exercise Price |  |  | Exercisable Number of Warrants |
$ | 4.15 |  |  |  | 2,315,000 |  |  |  | 2.5 |  |  | $ | 4.15 |  |  |  | 2,135,000 |
$ | 4.15 |  |  |  | 347,250 |  |  |  | 2.5 |  |  |  | 4.15 |  |  |  | 347,250 |
|  |  |  |  | 2,662,250 |  |  |  | 2.75 |  |  | $ | 4.15 |  |  |  | 2,662,250 |

The compensation expense attributed to the issuance of the warrants, if required to be recognized on the nature of the transaction, was recognized as they vested/earned. These warrants are exercisable up to three years from the date of grant. All are currently exercisable.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Legal Claims

There are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company other than the following:

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Sarah Veltz v. Nexalin Technology, Inc. et al.

Plaintiff, Sarah Veltz, filed a lawsuit in this matter on January 20, 2021 in Orange County Superior Court (Case No. 30-2021-01180164-CU-WT-CJC) (the “Complaint”) naming the Company and others as defendants. In her Complaint, Plaintiff contends that she was employed by defendants, including Nexalin, and has not been paid all wages, including overtime wages and other benefits allegedly due her. Plaintiff also contends that, during her employment, she was subjected to sexual harassment by the Company’s then Chief Executive Officer. Plaintiff seeks both compensatory and punitive damages. On March 12, 2021, the Company filed its answer to the Complaint. Although the parties are seeking mediation, the court has set a trial in this matter for March 18, 2024. Management’s intent is to contest the allegations vigorously and, as of the date of this report, is unable to provide an evaluation of the potential outcome of the litigation within the probable or remote range or to provide an estimate of the amount of or a range of potential loss that might be incurred by the Company.

Employment Development Department

The Company is currently engaged in settlement discussions with the Employment Development Department (EDD) of the state of California. This matter involves issues related to our previous management’s classification of certain work provided to or on behalf of the Company’s business as contract labor instead of employee labor. The total amount involved is approximately $300,000. Management has petitioned for reassessment and believes the hired workers at issue were indeed actual contractors and not employees. We have no business in California other than one part time and one full time worker residing in California. An initial hearing before an EDD magistrate was held on April 15, 2022. A second hearing was held in June of 2022. We are now in negotiations with the EDD for a final settlement. The Company believes its potential exposure to be approximately $300,000 and, as such, has accrued this amount on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 and believes it has adequately accrued for this matter.

Demand Letter from The University of Arizona

On December 8, 2022, the Company received a demand letter from the University of Arizona seeking payment of $111,094 purportedly due on an Investigator Initiated Cooperative Study Agreement, dated as of September 25, 2017 (the “2017 Study”). The Company believes that the 2017 Study was not completed and no payment was due. In fact, for a number of months prior to receipt of the demand letter, the Company had had discussions with the person at the University of Arizona who was to conduct the 2017 Study concerning updating the 2017 Study and completing an updated study and related work. After receipt of the demand letter, the Company has had discussions with the University of Arizona concerning resuming an updated study and receipt of credit for some or all the monies claimed to be due for the 2017 Study. Such discussions are ongoing, and no resolution has been reached but the Company hopes to achieve a consensual resolution.

NOTE 9 — LEASES

With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as ROU assets and corresponding lease liabilities.

On January 1, 2022, the Company exercised its right to lease an additional 400 square feet of office space and an increase of monthly rent of $500. In accordance with ASC 842 management accounted for this as a separate lease and, as a result, recorded an ROU asset and lease liability of $11,359.

When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated incremental borrowing rate at January 1, 2022. The weighted average incremental borrowing rate applied was 9%.

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Operating leases are included in the consolidated balance sheets as follows:

Schedule of Operating leases |  |  |  |  |  |  |  |  |  |
|  | Classification |  | March 31, 2023 |  |  | December 31, 2022 |
Lease assets |  |  |  |  |  |  |  |  |  |
Operating lease cost ROU assets |  | Assets |  | $ | 4,800 |  |  | $ | 6,171 |
Total lease assets |  |  |  | $ | 4,800 |  |  | $ | 6,171 |
Lease liabilities |  |  |  |  |  |  |  |  |  |
Operating lease liabilities, current |  | Current liabilities |  | $ | 43,026 |  |  | $ | 50,797 |
Operating lease liabilities, non-current |  | Liabilities |  |  | - |  |  |  | 4,463 |
Total lease liabilities |  |  |  | $ | 43,026 |  |  | $ | 55,260 |

The components of lease costs, which are included in income from operations in our unaudited condensed consolidated statements of operations, were as follows:

Schedule of lease cost |  |  |  |  |  |  |  |
|  | Three Months Ended March 31, |
|  | 2023 |  |  | 2022 |
Leases costs |  |  |  |  |  |  |  |
Operating lease costs |  | $ | 13,500 |  |  | $ | 13,500 |
Total lease costs |  | $ | 13,500 |  |  | $ | 13,500 |

Future minimum payments under non-cancellable leases for operating leases for the remaining terms of the leases following the three months ended March 31, 2023:

Future minimum payments under non-cancelable leases for operating leases |  |  |  |
Fiscal Year |  | Operating Leases |
Remainder of 2023 |  | $ | 40,304 |
2024 |  |  | 4,496 |
Total future minimum lease payments |  |  | 44,800 |
Amount representing interest |  |  | 1,774 |
Present value of net future minimum lease payments |  | $ | 43,026 |

Additional information related to leases is presented as follows:

Schedule of additional information related to leases |  |  |  |  |  |  |  |
|  | March 31, 2023 |  |  | December 31, 2022 |
Leases |  |  |  |  |  |  |  |
Weighted average remaining lease term |  |  | 0.75 |  |  |  | 1.00 |
Weighted average discount rate |  |  | 9.9 | % |  |  | 9.9 | %

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NOTE 10 — CONCENTRATION OF CREDIT RISK

Revenues

Six customers accounted for 94% of revenues for the three months ended March 31, 2023, as set forth below:

Concentration of credit risk |  |  |  |
|  | Three Months Ended March 31, 2023 |
Customer A |  |  | 25 | %
Customer B |  |  | 17 | %
Customer C |  |  | 16 | %
Customer D |  |  | 14 | %
Customer E |  |  | 12 | %
Customer F |  |  | 10 | %

One customer, a related party, accounted for 93% of revenue for the three months ended March 31, 2022.

Accounts Receivable

Three customers accounted for 91% of accounts receivable at March 31, 2023, as set forth below:

|  | Three Months Ended March 31, 2023 |
Customer A |  |  | 32 | %
Customer B |  |  | 28 | %
Customer C |  |  | 31 | %

Four customers accounted for 84% of accounts receivable at December 31, 2022, as set forth below:

|  | For the Year Ended December 31, 2022 |
Customer A |  |  | 29 | %
Customer B |  |  | 20 | %
Customer C |  |  | 20 | %
Customer D |  |  | 15 | %

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NOTE 11 — SUBSEQUENT EVENTS

Management evaluated subsequent events and transactions that occurred after the balance sheet date, up to the date that the unaudited financial statements were issued. Based upon this review management did not identify any subsequent events that would have required adjustment or disclosure in the unaudited consolidated condensed financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission, or SEC on March 27, 2023. References in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “us,” “we,” “our,” and similar terms refer to Nexalin Technology, Inc. This discussion contains forward-looking statements as that term is defined within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. The events described in forward-looking statements contained in this discussion may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions that may be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors “in this quarterly report on Form 10-Q as well as the risk factors set forth in the section titled “Risk Factors” included in our Registration Statement for our initial public offering as filed with the Securities and Exchange Commission (SEC File number 333-26198), Our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.

Overview

We design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health epidemic. We developed an easy-to-administer medical device — referred to as Generation 1 or Gen-1 — that utilizes bioelectronic medical technology to treat anxiety and insomnia, without the need for drugs or psychotherapy. Our original Gen-1 devices are cranial electrotherapy stimulation (CES) devices that emit waveform at 4 milliamps during treatment and are presently classified by the U.S. Food and Drug Administration (“FDA”) as a Class II device.

Medical professionals in the United States have utilized the Gen-1 device to administer to patients in clinical settings. While the Gen-1 device had been cleared by the FDA to treat depression, anxiety, and insomnia, three prevalent and serious diseases, because of the FDA’s December 2019 reclassification of CES devices, the Gen-1 device was reclassified as a Class II device for the treatment of anxiety and insomnia. We are required to file a new application under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“510(k) Application”) to be approved by the FDA for the sales and marketing of our devices for the treatment of anxiety and insomnia. In the FDA’s December 2019 reclassification ruling, the treatment of depression with our device will require a Class III certification and require a new PMA (premarket approval) application to demonstrate safety and effectiveness.

While we continue providing services to medical professionals to support patients’ use of the Gen-1 devices which were in operation prior to December 2019, we are not making new sales or new marketing efforts of Gen-1 devices in the United States. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification announcements. This revenue consists of monthly licensing fees and payments for the sale of electrodes and patient cables. We have suspended marketing efforts for new sales of devices related to the Gen-1 device for treatment of anxiety and insomnia in the United States until the Nexalin regulatory team makes a decision on amending our existing 510(k) application at 4 milliamps. A new pre-sub document in preparation of a new 510K for our Gen-3 Halo headset at 15 mAmps was filed with the FDA in January of 2023. Formal comments to our pre-sub document filing were received in March of 2023. A formal meeting to address FDA comments is scheduled for May of 2023.

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We have designed and developed a new advanced waveform technology to be emitted at 15 milliamps through new and improved medical devices referred to as Generation 2 or Gen-2 and Generation 3 or Gen-3. Gen-2 is a clinical use device with a modern enclosure to emit the new 15 milliamp advanced waveform. Gen-3 is a new patient headset that will be prescribed by licensed medical professionals in a virtual clinic setting similar to existing Tele-health platforms. 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. The Nexalin regulatory team has made a strategic decision to develop strategies for pilot trials in various mental health disease states. In addition, a new PMA application in the United States is in development for the treatment of depression utilizing both Gen-2 and Gen-3. The new Gen-3 device is also scheduled for additional pilot trials for anxiety and insomnia in the United States and China beginning in the third quarter of 2023. Preliminary data provided by the University of California San Diego supports the safety of utilizing our 15 milliamp waveform technology. However, the determination of safety and efficacy of medical devices in the United States is subject to clearance by the FDA.

Additionally, we are currently designing clinical trial strategies for the use of Gen-3 for the treatment of substance use disorders including opiate, cocaine, and alcohol abuse. Recently the Gen-2 device was tested in pilot trials in China for the treatment of Alzheimer’s disease and dementia. Continued pilot testing for Alzheimer’s and dementia is planned in China in 2023.

In part due to increasing incidence attributed to the devastating impacts of the COVID-19 pandemic, mental health and cognitive disorders are widespread across the globe and cause substantial health, social and economic losses, and hardships accordingly. 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.

All our products are non-invasive, safe, undetectable to the human body and can provide relief to those afflicted with mental health issues without adverse side effects. We have a proprietary design that eliminates voltage while stabilizing currents, electromagnetic fields, and various frequencies — referred to collectively as waveform - particularly our proprietary, 15 milliamp patented symmetrical waveform. Our devices generate a high frequency carrier wave that is charge balanced. It is applied to the brain with an array of electrodes on the forehead and behind each ear at the mastoid. The features of this proprietary waveform and the array of electrodes allow the application of the waveform to the entire brain rather than a small, targeted area of the brain. By increasing the power, our waveform can penetrate deeper into the brain and stimulate deep mid-brain structures associated with mental illness. Our research and clinical teams believe that a more powerful waveform will create a stronger response in the brain. A stronger response creates a higher level of efficacy. This entire proprietary technique allows Nexalin to provide a safe and comfortable treatment that is more powerful than any stimulation device in the market. Current pilot study protocols and randomized clinical trials have been designed and submitted to the FDA to provide feedback on final reports and data sets for the purpose of safety and efficacy evaluations in the future. Determinations of the safety and efficacy of our devices are solely within the authority of the FDA.

Currently, the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States and around the world. Determinations of the safety and efficacy of our devices in the United States are solely within the authority of the FDA.

We recognize that an additional barrier to treatment in today’s mental health treatment landscape -- beyond the concerns about safety, efficacy and side-effects that have been associated with conventional mental health treatments such as ECT (shock therapy), drugs and psychotherapy -- is stigma. We have received industry reports and feedback that many patients that struggle with mood disorders have the stigma of embarrassment associated with psychiatrists and psychotherapy (e.g., counselling with a therapist). Additional stigmas and other issues are associated with the side effects of medication prescribed by psychiatrists. When we researched the current pharmaceuticals model, public information highlighted the many side effects associated with these medications. Frequently, patients would stop taking the medication because of the uncomfortable side effects. Additional public information mentions dependency and withdrawal issues associated with medication for psychiatric disorders.

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To address the embarrassment stigma, we are developing a new virtual clinic that will allow the physician to diagnose a mental health issue in the privacy of a tele-psychiatry virtual platform. After diagnosis, the physician will prescribe the Nexalin Gen-3 headset to the patient for treatment. Next, the Gen-3 device will be shipped to the patient’s home. After patient receives the device, they will pair the headset device with an app in the patient’s smart phone. The app will communicate with the Nexalin cloud servers to authorize the device for treatment according to the protocol designed by the physician. The physician will monitor treatment compliance and other health related issues in a private physician dashboard that connects through the Nexalin app and cloud servers. 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. All appointments will be in a virtual setting to provide privacy and convenience for the physician and patient. The Nexalin virtual clinic will be provided in a proprietary virtual platform currently in the design stage.

Our China Gen-2 15 milliamp device was recently approved in China by the NMPA for the treatment of insomnia and depression in China. This device and all other clinical devices will include a single use electrode for long term revenue streams. The USA Gen-2 device will have a fresh and modern appearance that meets the technology standards of the digital tech world of 2023. Early adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased devices to the new symmetric15-milliamp waveform. Our Gen-2 device will be equipped with RFID technology that exchanges electrode usage data with a reader in the main device. The purpose of RFID is to track and maintain control of the proprietary single use electrode. Our electrode chip will be programmed to exchange data with the device and allow activation for a single treatment with a new electrode only. This ensures a recurring revenue stream on the device and protects against any generic knockoffs designed to avoid treatment costs. This upgrade in technology also ensures the proprietary nature of the electrodes that support treatment outcomes are sustained.

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. 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 patient’s home and monitored by licensed healthcare providers.

Since our inception, we have generated significant losses; we expect to continue to incur significant expenses and increasing operating losses for at least the next two years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures for other research and development activities. We expect our expenses will increase substantially over time as we:

| ● | Continue the ongoing and planned preclinical and clinical development of our products;
| ● | review and analyse the value of amending our previous 510(k) Application for anxiety and insomnia in accordance with the FDA and seek other regulatory approvals for any future products that successfully complete clinical trials;

| ● | arrange for a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidate for which we may obtain regulatory approval and intend to commercialize on our own;

| ● | maintain, expand and protect our intellectual property portfolio;
| ● | engage additional clinical, scientific, manufacturing and controls personnel;

| ● | add additional information systems including personnel to support our product development and planned future commercialization efforts;

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

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Recent Developments

Completion of Initial Public Offering

The Company completed its initial public offering on September 16, 2022. The initial public offering consisted of 2,315,000 units consisting of 2,315,000 shares of its Common Stock and 2,315,000 accompanying warrants to purchase up to 2,315,000 shares of common stock. Each share of common stock was sold together with one warrant, each to purchase one share of common stock with an exercise price of $4.15 per share at a combined offering price of $4.15, for gross proceeds of $9,607,250 before deducting underwriting discounts and offering expenses. In addition, Nexalin granted the underwriters a 45-day option to purchase up to an additional 347,250 shares of common stock and/or warrants to purchase up to 347,250 shares of common stock to cover over-allotments at the initial public offering price, less the underwriting discount. The underwriters exercised their option to purchase 347,250 warrants for net proceeds of $3,473.

The registration statement on Form S-1 (File No. 333-261989) for our initial public offering was filed with the Securities and Exchange Commission (“SEC”) and became effective on September 15, 2022. A final prospectus relating to the offering was filed with the SEC and is available on the SEC’s website at http://www.sec.gov. The offering was being made only by means of a prospectus forming part of the effective registration statement.

The shares and warrants began trading on the Nasdaq Capital Market tier of the Nasdaq Stock Market (“Nasdaq”) in September 2022, under the symbols “NXL” and “NXLIW”, respectively.

Impact of COVID-19 Pandemic

We continue to be indirectly impacted by the Covid-19 pandemic because of our current dependence upon our distributor relationship with Wider Come Limited (“Wider”.) Wider acts as a distributor for the Company’s devices in China and Asia. Because of significant restrictions imposed by the Chinese government during the Covid pandemic, Wider’s ability to market and sell the Company’s devices has been negatively impacted, resulting in decreased revenue to the Company. Patients and salespeople are restricted in their movements resulting in a significant slowdown in the medical and other sectors. Fortunately, our Chinese distributor continues our strategy of multiple clinical studies in the major institution in Beijing in an array of brain related diseases. Very significant efforts and funds expended by our Chinese distributor has led to regulatory approval in China in both depression and insomnia thus far which has allowed for sales of our devices in China the past year. The extent of future impact will depend on future developments, including future activities by the Chinese government and other possible events which are highly uncertain and not in the Company’s control, including new information which may emerge concerning the spread and severity of COVID-19, or any of its variants, and actions taken to address its impact, among others.

In addition, the spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus or treat its impact, among other things.

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Potential Joint Venture; China Related Activities

In September 2018, we entered into an agreement with Wider Come Limited, a company formed under the laws of the People’s Republic of China (“Wider”), pursuant to which we and Wider have agreed to investigate the formation of a joint venture entity to be domiciled in Hong Kong (the “potential Joint Venture”) to conduct additional clinical research and implement a business distribution plan for our devices in China, Macau, Hong Kong, and Taiwan. We do not have any existing operations in China and will not in the future. We do have current distribution in China through Wider, our potential Joint Venture partner. As of the date of this Quarterly Report on Form 10-Q, (i) our operations are carried on outside of China; and (ii) the potential Joint Venture does not maintain any variable interest entity structure or operate any data center in China. However, because of the intended formation of the potential Joint Venture, we may become subject to laws of The People’s Republic of China (PRC or China) relating to, among other topics, data security and restrictions over foreign investments. Further, as a result of the complexity and vagaries of the legal system in the PRC and recent statements and regulatory actions by the PRC government relating to data security, our ability to operate the potential Joint Venture may be adversely affected or subject to change and adversely impact our ability to offer or continue to offer securities to investors, with the result that our securities may significantly decline or be worthless. There can be no assurance that regulators in China will not take a contrary view or will not subsequently require us to undergo the approval procedures and subject us to penalties for non-compliance.

In March 2022, we entered into a second supplement to the Joint Venture agreement with Wider whereby the parties confirmed that the potential Joint Venture had not yet been established and is subject to further review and analysis of regulatory issues in China and the United States. Pursuant to the second supplement, the parties agreed to use their commercial efforts to complete documentation by September 30, 2022. In light of general economic conditions in China and the United States, the continued impact of regulatory issues within China and the United States and trade and political issues between the two counties, the parties determined to further extend the time frame to complete establishment of the joint venture to September 30, 2023 and entered into a Supplement 3 to the potential Joint Venture Agreement to memorialize such extension. The parties intend to continue to work together to complete the establishment prior to such extended time. Further, the parties agreed that all references within the Joint Venture agreements to funding and formation were amended from December 21, 2018 to be September 30, 2023. We anticipate that the Joint Venture will be formed by the third quarter of 2023. However, that will be dependent on the situation at that time.

When and if the Joint Venture is formed and Wider completes sales of our devices in China on behalf of the potential Joint Venture, we believe that there are no regulatory or other restrictions that would restrict either (i) the transfer from China of any proceeds resulting from such sales by Wider to the potential Joint Venture in Hong Kong, other than standard compliance with China’s State Administration of Foreign Exchange (“SAFE”) policies and approval process, or (ii) our receipt of our share of such proceeds from Hong Kong to us in the United States, which is not subject to SAFE’s policies and approval process. The Company does not currently believe any of the Company’s scientific data resulting from activities in China by the potential Joint Venture would fall within the Measures for the Management of Scientific Data promulgated by the General Office of the PRC State Council. In the event any existing or new laws or regulations or detailed implementations and interpretations are modified or promulgated, we and the potential Joint Venture will take all actions to remain in compliance with any such laws or regulations or detailed implementations and interpretations thereof. Neither we nor our potential Joint Venture Partner can at this point speak to any future changes in rules, regulations or the commercial and potentials situation that lies ahead which could affect the formation of the Joint Venture.

In September of 2021, the China National Medical Products Administration (NMPA), the equivalent of the United States FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.

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Results of Operations

Comparison of the Quarters ended March 31, 2023 and 2022

Our financial results for the quarter ended March 31, 2023 and 2022 are summarized as follows:

|  | Three Months Ended March 31, |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | Change |  |  | Change(1) |
|  |  |  |  |  |  |  | $ |  |  | % |
Revenues, net |  | $ | 30,560 |  |  | $ | 323,322 |  |  | $ | (292,762 | ) |  |  | (91 | )
Cost of revenue |  |  | 7,110 |  |  |  | 46,015 |  |  |  | (38,905 | ) |  |  | (85 | )
Gross profit |  |  | 23,450 |  |  |  | 277,307 |  |  |  | (253,857 | ) |  |  | (92 | )
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional fees |  |  | 158,600 |  |  |  | 295,456 |  |  |  | (136,856 | ) |  |  | (46 | )
Salaries and benefits |  |  | 299,323 |  |  |  | 138,594 |  |  |  | 160,729 |  |  |  | 116 |
Selling, general and administrative |  |  | 344,953 |  |  |  | 218,374 |  |  |  | 126,579 |  |  |  | 58 |
Total operating expenses |  |  | 802,876 |  |  |  | 652,424 |  |  |  | 150,452 |  |  |  | 23 |
Loss from operations |  |  | (779,426 | ) |  |  | (375,117 | ) |  |  | (404,309 | ) |  |  | 108 |
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income (expense), net |  |  | (8,837 | ) |  |  | (18,132 | ) |  |  | 9,295 |  |  |  | (51 | )
Gain on sale of short-term investments |  |  | 38,772 |  |  |  | - |  |  |  | 38,772 |  |  |  | 100 |
Other income |  |  | 1,077 |  |  |  | - |  |  |  | 1,077 |  |  |  | 100 |
Total other (income) expense |  |  | 31,012 |  |  |  | (18,132 | ) |  |  | 49,144 |  |  |  | 271 |
Net loss |  | $ | (748,414 | ) |  | $ | (393,249 | ) |  | $ | (355,165 | ) |  |  | 90 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain from short-term investments |  |  | 41,069 |  |  |  | - |  |  |  | 41,069 |  |  |  | 100 |
Comprehensive loss |  | $ | (707,345 | ) |  | $ | (393,249 | ) |  |  | (314,096 | ) |  |  | 80 |

| (1) | Percentages may not foot due to rounding.

Revenues

For the three months ended March 31, 2023 and 2022, we generated $30,560 and $323,322 respectively, of revenue primarily from the sale of devices, supplies and from the reimbursement of costs. In addition, we generated income from licensing and treatment fee agreements with our customers by charging a monthly licensing fee for the duration of the agreement. We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs. In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device. The decrease in revenue for 2023 compared to 2022 was primarily due to the decrease in Device sales as a result of the difficulties encountered by our distribution network given the Covid restrictions in China.

Cost of Revenues and Gross Profit

For the three months ended March 31, 2023 and 2022, cost of revenues was $7,110 and $46,015, respectively, yielding a gross profit of $23,450 and $277,307 respectively, or 77% and 86%, respectively. Such decrease in gross margin was due to the change in our sources of revenue. Our revenue for the three months ended March 31, 2022 was primarily from the sale of Devices. The cost of that revenue in 2022 was low because a portion of such costs were included in research and developments costs in 2021.

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Operating Expenses

Total operating expenses for the three months ended March 31, 2023 and 2022 were $802,876 and $652,424, respectively. Professional fees decreased by approximately $137,000 primarily due to large fees in 2022 relating to the public offering. The increase of approximately $161,000 in salaries and benefits was due to the hiring of our CFO and other staff. The increase in selling, general and administrative expenses was due primarily to an increase in research and development costs of approximately $54,000, an increase in insurance of approximately $74,000, an increase in taxes of $40,000, and an increase in travel expense of approximately $43,000. These items were offset by a decrease stock based compensation expense of $97,500. The increases in research and development and consulting costs are attributable to the development of our Gen-2 and Gen-3 devices. The increase in insurance is a result of being a public company. The increase in taxes was due to franchise tax as a result of an increase in authorized shares.

Other Income (Expense), net

Other income (expense), net, for the three months ended March 31, 2023 and 2022 were $31,012 and ($18,132), respectively, consisting of interest and dividend income and gain on the sale of short-term investments.

Liquidity and Capital Resources

Working Capital

|  | March 31, 2023 |  |  | December 31, 2022 |
Current assets |  | $ | 5,875,769 |  |  | $ | 7,425,462 |
Current liabilities |  |  | 1,195,444 |  |  |  | 1,948,986 |
Working capital |  | $ | 4,680,325 |  |  | $ | 5,476,476 |

Current assets decreased for the three months ended March 31, 2023 primarily a result of funding operations and the paydown of debt. Cash and cash equivalents increased approximately $12,000. Short-term investments decreased approximately $1,534,000, and prepaid and other current assets decreased approximately $31,000.

Current liabilities decreased for the three months ended March 31, 2023 primarily as a result of the reduction of accounts payable and repayment of a loan payable to an officer of the Company. Accounts payable decreased approximately $604,000, accrued expenses increased approximately $58,000, lease liability – current portion decreased approximately $8,000, and loan payable - officer decreased by $200,000.

Cash Flows

The following table summarizes our consolidated cash flows for the three months ended March 31, 2023 and 2022:

|  | March 31, 2023 |  |  | March 31, 2022 |
Net cash used in operating activities |  |  | (1,314,649 | ) |  |  | (203,271 | )
Net cash provided by investing activities |  |  | 1,526,867 |  |  |  | - |
Net cash provided by (used in) financing activities |  |  | (200,000 | ) |  |  | 100 |

Net Cash Used In Operating Activities

Net cash used in operating activities was $1,314,649 for the three months ended March 31, 2023, as compared to $203,271 for the respective period in 2022, primarily due to the net loss of $748,414 and $393,249, respectively, as well as decreases in accounts payable of approximately $603,000 in 2022.

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Net Cash Provided By Investing Activities

Net cash provided by investing activities during the three months ended March 31, 2023, and 2022 was $1,526,867 and $0 respectively, which was due to the net sales and purchases of short-term investments.

Net Cash Provided by (used In) Financing Activities

Net cash provided by (used in) financing activities during the three months ended March 31, 2023 and 2022 was ($200,000) and $100 respectively, which was primarily due to payment of note payable to an officer of the Company.

Uses and Availability of Additional Funds

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing development costs, legal and other regulatory expenses, and general administrative costs. Although we have produced Gen-2, which is selling in China where it is approved for certain utilizations by medical practitioners, the successful development of our future products is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of Gen-3 and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows from revenues will enable us to be cash flow positive. This is due to the numerous risks and uncertainties associated with developing products, including, among others, the uncertainty of:

| ● | successful enrolment in, and completion of clinical trials;
| ● | performing preclinical studies and clinical trials in compliance with the FDA or any comparable regulatory authority requirements;
| ● | the ability of collaborators to manufacture sufficient quantity of product for development, clinical trials and/ or potential commercialization;
| ● | obtaining and maintaining patent, trademark and trade secret protection for our products;
| ● | making arrangements with third parties for manufacturing;
| ● | scaling the commercial sales of products, if and when approved, whether alone or in collaboration with others;
| ● | acceptance of existing therapies, and future therapies, if and when approved, by healthcare providers, physicians, clinicians, patients and third-party payors;
| ● | competing effectively with other therapies;
| ● | obtaining and maintaining healthcare coverage and adequate reimbursement;
| ● | protecting our rights in our intellectual property portfolio; and
| ● | maintaining a continued acceptable safety profile of our products following approval.

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Liquidity and Capital Resources

At March 31, 2023, the Company had a significant accumulated deficit of $73.1 million. For the three months ended March 31, 2023, the Company had a loss from operations of $779 thousand and negative cash flows from operations of $1.3 million. The Company’s operating activities consume the majority of its cash resources. The Company will continue to service existing customers in the United States. The Company sold devices in China to its acting distributor. The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2023, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company previously funded these losses primarily through the sale of equity and issuance of convertible notes. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As of the March 31, 2023, the Company had cash and cash equivalents on hand of approximately $175 thousand and short-term investments of approximately $5.3 million.

At the closing on September 16, 2022, the Company sold 2,315,000 Units and 347,250 of Warrants in an Initial Public Offering (the “Initial Public Offering”) at a price of $4.15 per Unit and $0.01 per Warrant for a total of $9,610,723. The Company incurred offering costs of $1,067,078, consisting of $878,858 of underwriting fees and expenses and $188,220 of costs related to the Initial Public Offering.

Although no assurances can be given as to the Company’s ability to deliver on its revenue plans or that unforeseen expenses may arise, management has evaluated the significance of the conditions and has concluded that because of the completion of our initial public offering in September 2022, the Company has sufficient cash and investments on hand to satisfy its anticipated cash requirements for the next twelve months from the issuance date of these financial statements.

Critical Accounting Policies and Significant Judgments and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our unaudited condensed consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

The Company has existing licensing and treatment fee agreements with its customers for the use of the Nexalin Device in their practices. These agreements generally have terms of one year with automatic renewal if certain requirements are met and amounts due per these agreements are billed monthly. The Company also sells products related to the provision of services. The Company sells its Devices in China to its acting distributor and sells products relating to the use of the Devices. The Company has a Royalty Agreement whereby the manufacturer of the Company’s electrodes will pay a royalty to the Company for a three-year period beginning January 1, 2022. The amount of the Royalty is equal to 20% of the amount that the manufacturer invoices to the acting distributor for the sale of the electrodes.

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Revenue Streams

The Company derives revenues from its license agreements by charging a monthly licensing fee for the duration of the agreement. The Company derives revenues from equipment by selling additional individual electrodes and patient cables to customers for use with the Nexalin Device. The Company receives revenue from the sale in China of its Devices to its acting distributor and from the sale of products relating to the use of those Devices. The Company derives revenue as a royalty fee from the China-based manufacturer for electrodes ordered in connection with the Company’s China sales.

Performance Obligations

Management identified that subsequent licensing revenue has one performance obligation. That performance obligation is satisfied as long as the licensing contract remains valid and is not terminated. The licensing revenue is invoiced monthly and is recognized at a point in time in which the invoice is sent to the customer.

Management identified that our equipment revenue has one performance obligation. That performance obligation is satisfied when the electrodes and devices are shipped to the customer. We do not offer a warranty on the electrodes or devices.

Management identified that treatment fee revenue has one performance obligation. The performance obligation is satisfied upon the completion of individual treatments on patients by customers.

Management identified that our royalty fee has one performance obligation. The performance obligation is satisfied as long as the royalty agreement remains valid and is not terminated. The royalty revenue is invoiced when the manufacturer advises the Company that the invoice has been sent to the customer.

Practical Expedients

As part of ASC 606, the Company has adopted several practical expedients including:

| ● | Significant Financing Component — we do not adjust the promised amount of consideration for the effects of a significant financing component since we expect, at contract inception, that the period between when we transfer a promised goods or services to the customer and when the customer pays for that service will be one year or less.
| ● | Unsatisfied Performance Obligations — for all performance obligations related to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in ASC Topic 606 and therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
| ● | Shipping and Handling Activities — we elected to account for shipping and handling activities as a fulfilment cost rather than as a separate performance obligation.
| ● | Right to invoice — we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date we may recognize revenue in the amount to which the entity has a right to invoice.

Recent Accounting Pronouncements

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments are in effect for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The adoption on January 1, 2023 modified the way the Company analyzes financial instruments, but it did not have a material impact on our consolidated financial statements.

All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

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Contractual Obligations

See Note 8 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile. We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.07 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period. We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Disclosure Controls and Procedures

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Our management evaluated, with the participation of our chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of March 31, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of the evaluation date, our disclosure controls and procedures were not effective due to the following material weaknesses:

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| ● | Lack of sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of financial information used in financial reporting and review of controls over the financial reporting process, including documentation of review/approval of journal entries and reconciliations; and

| ● | Insufficient IT controls which are effectively designed and implemented, specifically related to user/superuser access to the Company’s financial reporting system.

The deficiencies described above if not remedied, could result in a misstatement of one or more account balances or disclosures in our annual or interim consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute a material weakness.

To address our material weakness, we intend to engage an outside firm to advise on our financial reporting processes and intend to implement new financial accounting controls and processes. We intend to continue to take steps to remediate the material weakness described above through implementing enhancements and controls within our accounting systems, subject to budget limitations. We will not be able to remediate these control deficiencies until these steps have been completed and have been operating effectively for a sufficient period of time and Management has concluded, through testing, that the controls are operating effectively. The redesign and implementation of improvements to our accounting and proprietary systems and controls may be costly and time consuming and the cost to remediate may impair our results of operations in the future.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. | Legal Proceedings

None

Item 1A. | Risk Factors.

Our material risk factors are disclosed in “Risk Factors” in our Registration Statement on Form S-1 (SEC File Number 333-261989) as declared effective by the Securities and Exchange Commission on September 15, 2022 and the Prospectus contained therein, as updated in our Form 10-K filed on March 27, 2023.

There have been no material changes from the risk factors previously disclosed in such filings.

Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

None

Item 3. | Defaults Upon Senior Securities

None.

Item 4. | Mine Safety Disclosures

Not applicable.

Item 5. | Other Information

None.

Item 6. | Exhibits

Exhibits and Financial Statement Schedules.

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| (a) | Exhibits.

Exhibit Number |  | Description of Document
1.1** |  | Underwriting Agreement dated as of September 15, 2022 between the Registrant and maxim Group LLC
3.1* |  | Certificate of Incorporation, as amended and as currently in effect.
3.2* |  | Amended and Restated Bylaws.
4.1* |  | Form of Specimen stock certificate evidencing shares of common stock.
4.2* |  | Warrant Agreement between the Company and Continental Stock Transfer and Trust company as warrant agent dated as of September 16, 2022
4.3* |  | Form of Warrant Certificate (filed as part of Exhibit 4.2)
5.1* |  | Opinion of Warshaw Burstein, LLP as to legality of the shares.
10.1* |  | potential Joint Venture Agreement between the Company and Wider Limited, and Supplement thereto, dated as of September 21, 2018, as supplemented by Supplement Number 1.
10.2* |  | Employment Agreement between the Company and Mark White dated as of February 15, 2021.
10.3* |  | Agreement between the Company and David Owens, M.D. dated as of February 15, 2021
10.4* |  | Quality Assurance Agreement between the Company and Apical Instruments dated December 31, 2020.
10.5* |  | Advisor Agreement with Leonard Osser dated as of December 22,2021.
10.6* |  | Advisor Agreement with Tucker Anderson dated as of December 24, 2021.
10.7* |  | Advisor Agreement with Gian Domenico Trombetta dated December 24, 2021.
10.8* |  | Employment Agreement between the Company and Marilyn Elson dated as of January 11, 2022
10.9* |  | Amendment and Deferral Agreement dated as of March 30, 2022 to Consulting Agreement between the Company and US Asian Consulting Group LLC
10.10* |  | Supplement Number 2 to potential Joint Venture Agreement dated as of March 1, 2022 between the Company and Wider Come Limited.
10.11* |  | Amendment to Employment Agreement with David Owens, M.D.
10.12* |  | Form of Lock-Up Agreement.
10.13* |  | Consulting Agreement dated as of May 9, 2018 as amended between the Company and US Asian Consulting Group, LLC, as amended on January 2, 2019 and March 4, 2021
10.14**** |  | Amended and Restated Promissory Note in favor of Mark White dated as of January 1, 2023.
10.15* |  | Distribution Authorization Agreement dated as of May 1, 2019 with Wider Come Limited.
23.1** |  | Consent of Friedman LLP, independent registered public accounting firm.
23.2* |  | Consent of Warshaw Burstein, LLP (included in Exhibit 5.1).
31.1**** |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2**** |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1**** |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**** |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1* |  | Code of Ethics
99.2* |  | Audit Committee Charter
99.3* |  | Compensation Committee Charter
99.4* |  | Nominating and Corporate Governance Committee Charter

* | Previously filed as an exhibit to Form S-1 as declared effective by the SEC on September 15, 2022 (SEC File Number 333-261989).
** | Previously filed as an exhibit to Form 8-K as filed with the SEC on September 20, 2022
*** | Previously filed as an exhibit to Form 8-K/A as filed with the SEC on September 20, 2022.
**** | filed as an exhibit to this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on the 10th day of May, 2023.

| NEXALIN TECHNOLOGY, INC.
| By: | /s/ Mark White
|  | Mark White
|  | Chief Executive Officer
|  | Principal Executive Officer
| By: | /s/ Marilyn Elson
|  | Marilyn Elson
|  | Chief Financial Officer
|  | Principal Accounting Officer

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