What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-13 · 544 added, 869 removed, 60 unchanged (96% of the section changed)

Financial Statements

TECHNOLOGY, INC.

NEXALIN TECHNOLOGY, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

September 30,

and cash equivalents

receivable (Includes related party of $ 10,207 and $ 0 , respectively)

expenses and other current assets

CONDENSED CONSOLIDATED BALANCE SHEETS

Current Assets:

net of accumulated depreciation of $ 2,583 and $ 2,181 , respectively

net of amortization

Method Investment

AND STOCKHOLDERS’ EQUITY

payable (Includes related party of $0 and $260,000, respectively)

liability, current portion

payable - officer

Cash and cash equivalents

Short-term investments

Accounts receivable (Includes related party of $ 100 and $ 3,614 , respectively)

Prepaid expenses and other current assets

Total Current Assets

Intangible assets, net

Equity method investment

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

liability, net of current portion

and Contingencies (Note 8)

Stockholders’

stock, $ 0.001 par value;

100,000,000 shares authorized;

7,436,562 and 7,286,562 shares issued and outstanding at September 30, 2023

and December 31, 2022, respectively

other comprehensive income

paid in capital

( 76,257,380 )

( 72,389,340 )

Accounts payable

Accrued expenses

Lease liability, current portion

Total Current Liabilities

Total Liabilities

Commitments and Contingencies (Note 7)

Stockholders’ Equity:

Liabilities and Stockholders’ Equity

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

TECHNOLOGY, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

September 30,

net (Includes related party of $ 0 and $ 520,000 for the three months ended and $ 10,207 and $ 1,183,367 for the nine months ended respectively)

general and administrative

Common stock, $ 0.001 par value;

100,000,000 shares authorized ;

7,436,562 shares issued and outstanding at March 31, 2024 and December 31, 2023

Accumulated other comprehensive income (loss)

Additional paid in capital

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

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

NEXALIN TECHNOLOGY, INC.

AND SUBSIDIARY CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

Three Months Ended

Revenues, net (Includes related party of $ 300 and $ 0 for the three months ended March 31, 2024 and March 31, 2023, respectively)

Cost of revenues

Operating expenses:

from operations

( 2,415,537 )

( 4,071,823 )

( 1,113,414 )

income (expense), net:

income (expense), net

on sale of short-term investments

income - PPP loan forgiveness

Professional fees

Salaries and benefits

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense), net:

( 2,297,189 )

( 3,868,040 )

comprehensive income (loss):

loss from short-term investments

Comprehensive

$ ( 2,329,478 )

$ ( 135,401 )

$ ( 3,903,553 )

$ ( 968,139 )

loss per share attributable to common stockholders - Basic and Diluted

Average Shares Outstanding - Basic and Diluted

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

TECHNOLOGY, INC.

Interest income (expense), net

Gain on sale of short-term investments

Total other income (expense), net

Loss before equity in net earnings of affiliate

Equity in net earnings of affiliate

Other comprehensive income (loss):

Unrealized gain from short-term investments

Comprehensive loss

Net loss per share attributable to common stockholders - Basic and Diluted

Weighted Average Shares Outstanding - Basic and Diluted

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

NEXALIN TECHNOLOGY, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

Comprehensive Gain

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

Comprehensive

Stockholders’

as January 1, 2022

$ ( 70,691,524 )

$ ( 1,681,941 )

issued for cash

as of March 31, 2022

$ ( 71,084,773 )

$ ( 1,972,590 )

as of June 30, 2022

$ ( 71,524,262 )

$ ( 2,240,479 )

Issued for cash

party foregone interest

issued for cash

as of September 30, 2022

$ ( 71,659,663 )

Balance as January 1, 2023

Other comprehensive gain

Balance as of March 31, 2023

Comprehensive

Stockholders’

as of January 1, 2023

$ ( 72,389,340 )

comprehensive gain

as of March 31, 2023

$ ( 73,137,754 )

comprehensive loss

as of June 30, 2023

$ ( 73,960,191 )

comprehensive loss

( 2,297,189 )

as of September 30, 2023

$ ( 76,257,380 )

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

TECHNOLOGY, INC.

Balance as of January 1, 2024

Other comprehensive gain

Stock compensation

Balance as of March 31, 2024

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

NEXALIN TECHNOLOGY, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

September 30,

flows from operating activities:

$ ( 3,868,040 )

$ ( 968,139 )

to reconcile net loss to net cash used in operating activities:

of interest expense

lease expense

on sale of short-term investments

in operating assets and liabilities:

payable - related party

cash (used) provided in operating activities

( 2,831,354 )

( 1,309,242 )

flows from investing activities:

of short-term investments

( 29,270,926 )

in Equity Method Investment

cash provided by investing activities

flows from financing activities:

of common stock for cash, net of financing fees

from exercise of warrants

on loan payable - shareholder

on notes payable - officer

cash (used) provided in financing activities

increase in cash and cash equivalents

and cash equivalents - beginning of period

and cash equivalents - end of period

investing and financing activities:

loss on short-term investments

asset and lease liability recorded

of interest expense

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

TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock compensation

Non-cash lease expense

Gain on sale of short-term investments

Share of net income from equity method investment

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable - related party

Prepaid assets

Accounts payable - related party

Accounts payable

Accrued expenses

Lease liability

Net cash used in operating activities

Cash flows from investing activities:

Sale of short-term investments

Purchase of short-term investments

Purchase of patents

Purchase of trademarks

Net cash provided by investing activities

Cash flows from financing activities:

Payments on notes payable - officer

Net cash used in financing activities

(decrease) increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

Non-cash investing and financing activities:

Unrealized gain on short-term investments

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

NEXALIN TECHNOLOGY, INC.

AND SUBSIDIARY

TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 — NATURE OF THE ORGANIZATION AND BUSINESS

Technology, Inc.

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.

September 6, 2019, Neuro-Health International, Inc.

(“Neuro-Health”), a Nevada corporation and wholly owned subsidiary

of NV Nexalin, was formed.

Neuro-Health had no activity from December 6, 2019 (Inception) through September 30, 2023.

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 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 nine months ended September 30, 2023 and

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, 2024.

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.

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.

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 .

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.

this report, the terms “Nexalin,” “our,” “we,” “us,” and the “Company”

refer to Nexalin Technology, Inc.

design and develop innovative neurostimulation products to uniquely and effectively help combat the ongoing global mental health

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.

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.

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 final 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.

formal meeting to address FDA comments took place on May 9, 2023.

Minutes of the meeting with the FDA were filed with the FDA on

May 16, 2023.

No additional comments have been received from the FDA at this time.

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 is intended to 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.

May 31, 2023, the Company formalized an agreement related to the formation of a joint venture established to engage in the

clinical development, marketing, sale and distribution of Nexalin’s second generation transcranial Alternating Current

Stimulation (“tACS”) devices (“Gen-2 devices”) in China and the greater Asia Pacific region.

In connection

with the formation of the joint venture, to be conducted through a company formed under the laws of Hong Kong (the

“JV”), the Company entered into a Joint Venture Agreement (“JV Agreement”) with Wider Come Limited

Under the JV Agreement, the Company was issued a 48% minority interest in the JV.

The investment in the JV is

accounted for using the equity method of accounting.

There has been no activity in the joint venture through September 30,

The Incorporation Form (Company Limited by Shares) filed with the Companies Registry in Hong Kong originally reflected a

50%-50% ownership interest in the JV, but has been amended to properly reflect the 52%-48% ownership formalized in the JV agreement.

The Company invested $ 96,000

in the joint venture in September 2023, while Wider contributed $104,000 bringing the Company’s ownership percentage to 48 % .

There has been no operating activity in the joint venture through September 30, 2023.

Growth Company

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.

and Uncertainties

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 unaudited condensed consolidated financial statements.

The unaudited condensed

consolidated financial statements do not include any adjustments that might result from the outcome of uncertainties.

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 joint venture relationship with Wider Come Limited.

Wider Come Limited,

as part of its obligations under the JV Agreement, acts as a distributor for the Company’s devices in China and Asia.

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.

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.

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 decides on a new 510(k) application at 4

milliamps based on FDA comments expected to be received in 2024.

Our regulatory team continues to inform the FDA of the suspension

of the marketing and sale of the Gen-1 products to new providers.

We are currently analyzing whether to proceed with an amended

application with the FDA for Gen-1 devices for the treatment of insomnia and anxiety.

The waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States.

Determinations of the safety and efficacy of our devices in the United States are solely within the authority of the FDA.

We plan to conduct decentralized clinical trials for the Gen-3 device in the U.S.

and we have consulted with the FDA as part of the pre-submission meetings.

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 and/or pivotal 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 and/or pivotal trials for anxiety and insomnia in the United States beginning in the late second quarter or early third quarter of 2024.

Preliminary data provided by The University of California, San Diego and recent published data from China 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 and/or pivotal 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 2024.

On May 31, 2023, the Company formalized an agreement related to the formation of a joint venture established to engage in the clinical development, marketing, sale and distribution of Nexalin’s second generation transcranial Alternating Current Stimulation (“tACS”) devices (“Gen-2 devices”) in China and other countries in the region.

The Joint Venture is registered in Hong Kong.

As of the date of this Quarterly Report on Form 10-Q, (i) our operations are carried on outside of China;

and (ii) the Joint Venture does not maintain any variable interest entity structure or operate any data center in China.

Under the Joint Venture Agreement, Wider is obligated to fund all operations for the initial 12-month period of the Joint Venture, after which Nexalin and Wider plan to jointly fund the Joint Venture’s operating expenses in accordance with their pro rata ownership.

The Joint Venture is controlled by a Board of

Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over

day-to-day or significant operational decisions.

Wider and Nexalin own 52 %

of the Joint Venture, respectively.

In accordance with ASC 323 and ASC 810, the Company recognized $ 5,783

of equity method investment income from the Joint Venture on a one-quarter reporting lag for the three months ended March 31,

2024 and 2023, respectively, on the condensed consolidated statements of operations and comprehensive loss.

The investment in the Joint Venture is accounted for using the equity method of accounting.

As of March 31, 2024 and December 31, 2023 the Company had an Equity Method Investment of $ 101,783 and $ 96,000 , respectively, recorded on the condensed consolidated balance sheets.

The Company invested $ 96,000 in the joint venture in September 2023 and Wider invested $ 104,000 .

In accordance with ASC 323, Investments - Equity Method and Joint Ventures (“ASC 323”), the Company uses the equity method of accounting for its investment in the Joint Venture, an unconsolidated entity over which it does not have a controlling interest.

The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the unconsolidated entity’s earnings or losses.

The Company evaluates the carrying amount of this investment in the Joint Venture for impairment in accordance with ASC 323.

If the Company determines that a loss in the value of the investment is other than temporary, the Company writes down the investment to its estimated fair value.

Any such losses are recorded to equity in income of unconsolidated entities in the Company’s condensed consolidated statements of operations and comprehensive loss.

The Company has made an election to classify distributions received from the Joint Venture using the nature of the distribution approach.

Distributions received are classified as cash inflows from operating activities based on the nature of the activities of the unconsolidated entity.

Emerging Growth Company

The Company is 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 condensed 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 joint venture relationship with Wider Come Limited.

Wider Come Limited, as part of its obligations under the Joint Venture Agreement, 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 years 2022 and 2023, and other issues, 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 had 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.

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.

Continued Nasdaq Listing

On May 10, 2023,

the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no

longer in compliance with the minimum bid price requirement for continued listing on Nasdaq, as the closing bid price for the

Company’s common stock was below $1.00 per share as set forth in the Nasdaq listing rules.

The Company was afforded 180

calendar days, or until November 6, 2023, to regain compliance with the Nasdaq listing rules.

The Company was unable to regain

compliance with the bid price requirement by November 6, 2023.

On November 7, 2023,

the Company submitted a letter to NASDAQ requesting a second 180-day period in order to regain compliance with NASDAQ Rule 5550(a)(2).

The Company stated in that letter that it believed it will be able to cure the deficiency and increase its stock price to above $1.00

per share pursuant to its plan to do so.

On November 7, 2023,

the Company received written notice from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company was not

eligible for an additional 180 calendar day compliance period because the Company no longer

complied with Nasdaq’s $5 million minimum stockholders equity initial listing requirement.

As of the filing

date of this Quarterly Report, the Company has requested an appeal of the Staff’s determination and submitted a hearing

request to the Nasdaq Hearings Panel (“Panel”).

As a result of the request for the appeal to the Panel, and while the

appeal process is pending, the suspension of trading of the Company’s common stock is stayed, and the Company’s common

stock and warrants will continue to trade on Nasdaq until the hearing process concludes and the Panel issues a written decision.

part of the appeal process, the Company will be asked to provide the Panel with a plan to regain compliance with the minimum bid

price and stockholder equity requirements.

The Company’s plan will need to include a discussion of the events that the Company

believes will enable it to timely regain compliance with such requirements.

The Company intends to submit a plan that it believes

will be sufficient to permit the Company to regain compliance with the minimum bid price requirement and stockholder equity

requirements.

There can be no assurance

that the Panel will grant the Company a 180-day extension to regain compliance, or that Company will be able to regain compliance with

such applicable Nasdaq listing requirements.

If the Company’s common stock and warrants are delisted by Nasdaq, it could adversely

affect the Company’s ability to attract new investors, decrease the liquidity of the outstanding shares of common stock, reduce

the Company’s flexibility to raise additional capital, reduce the price at which the Company’s common stock and warrants trade,

and increase the transaction costs inherent in trading such shares and warrants with overall negative effects for the stockholders.

addition, delisting of the Company’s common stock and warrants could deter broker-dealers from making a market in or otherwise seeking

or generating interest in the Company’s common stock.

Furthermore, the delisting of the Company’s common stock and warrants

from The Nasdaq Stock Market could adversely affect the business, financial condition and results of operations of the Company.

2 — LIQUIDITY AND GOING CONCERN

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.

September 30, 2023, we had a significant accumulated deficit of $76.3 76,257,380

For the three and nine months ended September 30, 2023, we had a loss from operations of $2.4 2,415,537

million and $4.1 4,071,823

million, respectively and negative cash flows used in operations of approximately $2.8 2,831,354 million for the nine months ended

September 30, 2023.

While we had a working capital surplus as of September 30, 2023 of approximately $ 3.1 million our

operating activities consume most of our cash resources.

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.

Our common stock is currently listed on The Nasdaq Stock Market.

In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including the Minimum Bid Price Rule (as discussed below) and those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements.

There can be no assurances that we will be able to comply with the applicable listing standards.

We are required to maintain a minimum bid price of $1.00 per share.

On May 10, 2023, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no longer in compliance with the minimum bid price requirement for continued listing on Nasdaq, as the closing bid price for the Company’s common stock was below $1.00 per share as set forth in the Nasdaq listing rules.

The Company was afforded 180 calendar days, or until November 6, 2023, to regain compliance with the Nasdaq listing rules.

The Company was unable to regain compliance with the bid price requirement by November 6, 2023.

On November 7, 2023, the Company submitted a letter to NASDAQ requesting a second 180-day period in order to regain compliance with NASDAQ Rule 5550(a)(2).

The Company stated in that letter that it believed it will be able to cure the deficiency and increase its stock price to above $1.00 per share pursuant to its plan to do so.

On November 7, 2023, the Company received written notice from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company was not eligible for an additional 180 calendar day compliance period because the Company no longer complied with Nasdaq’s $5 million minimum stockholders’ equity initial listing requirement.

On January 18, 2024, the Nasdaq Hearing Panel granted the Company a temporary exception to regain compliance with the Minimum Bid Price Rule until March 27, 2024.

On March 6, 2024, the Nasdaq Hearing Panel granted the Company a temporary exception to regain compliance with the Minimum Bid Price Rule until April 25, 2024.

On March 7, 2024, The Company’s

stockholders approved a proposed amendment to Nexalin’s Certificate of Incorporation (the “Amendment”), pursuant

to which Nexalin’s Board of Directors is authorized, in its discretion, to proceed with a reverse stock split.

The exact ratio

of the reverse stock split would be within the 1-for-4 to 1-for-14 range, and, if enacted, will be determined by our Board and

publicly announced by the Company prior to the effective time of the reverse stock split.

The sole purpose for the proposed reverse

stock split was to increase the per share market price of the Company’s Common Stock to meet the Nasdaq Minimum Bid Price Rule

for continued listing on The Nasdaq Capital Market.

The filing of the Amendment and the reverse stock split was only to be

implemented if Nexalin’s Board determined they were necessary to regain and maintain compliance with the Nasdaq Minimum Bid

The Company regained compliance with Nasdaq’s Minimum Bid Price Rule without the necessity of a reverse stock split and the Board

did not exercise the authority given to it to file the proposed Amendment.

On April 23, 2024, the Company received notice from Nasdaq notifying the Company that it has regained compliance with Nasdaq’s minimum bid price requirement under Nasdaq Rule 5550(a)(2).

NOTE 2 — LIQUIDITY AND GOING CONCERN

The accompanying unaudited condensed

consolidated financial statements have been prepared on the basis that the Company 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, 2024, the

Company had a significant accumulated deficit of approximately ( 78,079,206 )

$78.1 million.

For the three months ended March 31, 2024, the Company had a loss from operations of approximately ( 1,073,712 )

$1.1 million and negative cash flows from operations of approximately ( 763,289 ) $0.8

While the Company had a working capital surplus as of March 31, 2024 of approximately $ 2.1

million, the Company’s operating activities consume most of its cash resources.

The Company expects to continue to incur operating losses as it executes its development plans, as well as undertaking other potential strategic and business development initiatives through 2024 and through the twelve months from the date of this report.

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.

These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.

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 joint venture and

The Company’s 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 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.

These plans require the Company to place reliance on several factors including, favourable market conditions, to access additional

capital in the future.

These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt

about the Company’s ability to continue as a going concern within one year after the date that the financial statements are

Additionally, management does not believe we have sufficient cash for the next twelve months from the issuance of the

financial statements.

The unaudited condensed consolidated financial statements do not include any adjustments that might result

from the outcome of this uncertainty.

3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

of Presentation

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 and nine months ended September 30,

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.

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.

These plans require the Company to place reliance on several factors, including favorable market conditions, to access additional capital in the future.

These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.

Additionally, management does not believe we have sufficient cash for the next twelve months from the issuance of the financial statements.

The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”).

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, 2024 and 2023 are not necessarily indicative of the results that may be expected for any other subsequent interim period.

Certain information and footnote disclosures normally included in consolidated 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.

of Consolidation

consolidated financial statements include the accounts of Nexalin and its wholly owned subsidiary Neuro-Health.

Intercompany accounts

and transactions have been eliminated in consolidation.

Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control,

using the equity method.

Under the equity method of accounting, the Company recognizes its share of the investee’s net income

Losses are only recognized to the extent the Company has positive carrying value related to the investee.

Carrying values

are only reduced below zero if the Company has an obligation to provide funding to the investee.

The Company’s equity method

investments are required to be reviewed for impairment when it is determined there may be another than-temporary loss in value.

The Company’s equity method investment is its interest in the newly formed joint venture.

The Company invested $ 96,000 in

the joint venture in September 2023.There has been no operating activity in the joint venture through September 30, 2023.

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.

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

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, 2023.

Principles of Consolidation

The unaudited condensed 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 unaudited condensed consolidated 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 consolidated 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.

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 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , and then evaluates the contract using the following five steps:

(1) identify the contract with the customer;

2 unchanged sentences

(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.

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.

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,

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.

Company derives revenues from its license agreements by charging a monthly licensing fee for the duration of the agreement.

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.

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.

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.

identified that treatment fee revenue has one performance obligation.

The performance obligation is satisfied upon the completion

of individual treatments on patients by customers.

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.

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

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.

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.

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.

Disaggregated

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

consists of the following by service offering:

The Company derives revenues from our 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.

We receive revenue from the sale in China of our Devices to our distributor and from the sale of products relating to the use of those Devices.

We derive revenue as a royalty fee from the China-based manufacturer for electrodes ordered in connection with our China sales.

Performance Obligations

Management identified that subsequent licensing revenue has one performance obligation.

That performance obligation is satisfied if 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 equipment and Devices are shipped to the customer.

The Company does not offer a warranty on the equipment 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 royalty revenue has one performance obligation.

The performance obligation is satisfied at the time the Electrode manufacturer notifies the Company that it has invoiced the distributor for the sale to the 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 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.

Disaggregated Revenues

Major Revenue Streams

Revenue consists of the following by service offering:

Schedule of disaggregation of revenue

September 30,

Geographic Locations

September 30,

Modifications

were no contract modifications during the nine months ended September 30, 2023 and 2022.

Contract modifications are not routine

in the performance of the Company’s contracts.

Company receives payment for equipment and devices in advance of shipping.

The Company recognizes the revenue as being earned upon

No deferred revenue was recognized as of September 30, 2023 and December 31, 2022.

and Cash Equivalents

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.

appropriate classification of marketable securities is determined at the time of purchase and evaluated as of each reporting balance

Three Months Ended

Licensing fee

Major Geographic Locations

Three Months Ended

International sales

Contract Modifications

There were no contract modifications during the three months ended March 31, 2024 and 2023.

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, 2024 and December 31, 2023.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

Cash and cash equivalents 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, 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.

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.

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.

Unrealized holding gains and losses for equity securities are recognized in earnings.

holding gains and losses for available for sale debt securities are recognized in other comprehensive income.

Realized gains and

losses and interest and dividends earned are included in other income (expense), net.

For individual debt securities classified

as available-for-sale securities, the company determines whether a decline in fair value below the amortized cost basis has resulted

from a credit loss or other factors.

If the decline below amortized cost is a result of credit loss or the company will more likely

than not be required to sell the security before recovery of its amortized cost basis, the company will recognize an impairment

relating to the decline through an allowance for credit losses.

There were no impairments recognized for the three and nine months

ended September 30, 2023.

receivables are reported at their outstanding unpaid principal balances, net of allowances for credit loss.

The Company periodically

assesses its accounts and other receivables for collectability on a specific identification basis.

The Company provides for an

allowance for credit loss based on management’s estimate of uncollectible amounts considering age, collection history, and

any other factors considered appropriate.

Unrealized holding gains and losses for available for sale debt securities are recognized in other comprehensive income.

Realized gains and losses and interest and dividends earned are included in other income (expense), net.

For individual debt securities classified as available-for-sale securities, the Company determines whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors.

If the decline below amortized cost is a result of credit loss or the Company will more likely than not be required to sell the security before recovery of its amortized cost basis, the Company will recognize an impairment relating to the decline through an allowance for credit losses.

There were no deemed permanent impairments at March 31, 2024 and December 31, 2023, respectively.

Accounts Receivable

Accounts receivables are reported at their outstanding unpaid principal balances, net of allowances for credit loss.

The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis.

The Company provides an allowance for credit loss 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 credit loss when a balance is determined to be uncollectible.

During the nine months ended

September 30, 2023 and 2022, the Company wrote off accounts receivable of $ 0 and $ 11,175 , respectively.

The Company did no t

record an allowance for credit loss on September 30, 2023 and December 31, 2022, respectively.

consists of finished goods and components stated at the lower of cost or net realizable value (NRV) 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 quantities

in excess of demand, or otherwise non-saleable items.

is recorded at cost.

Depreciation is computed using straight-line method over the estimated useful lives of the related assets,

generally five years.

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.

are amortized over their useful lives and are reviewed for impairment when warranted by economic conditions.

Amortization expense

was $ 2,105 and $ 0 for the nine months ended September 30, 2023 and 2022, respectively.

Amortization expense was $ 753 and $ 0

for the three months ended September 30, 2023 and 2022, respectively.

following table summarizes the gross carrying amount, amortization and the net carrying value at September 30, 2023 and December 31,

The Company did no t record an allowance for credit loss on March 31, 2024 and December 31, 2023, respectively.

Inventory consists of finished goods and components stated at the lower of cost or net realizable value (NRV) 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 quantities in excess of demand, or otherwise non-saleable items.

At March 31, 2024 and 2023, the Company did no t write down inventory.

Patents and Trademarks

Patents and trademarks are amortized over their useful lives and are reviewed for impairment when warranted by economic conditions.

Amortization expense was $ 2,662 and $ 660 for the three months ended March 31, 2024 and 2023, respectively.

The following table summarizes the gross carrying amount, amortization and the net carrying value at March 31, 2024 and December 31, 2023.

Schedule of patents

September 30,

September 30, 2023

March 31, 2024

Total March 31, 2024

December 31, 2023

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.

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 September 30, 2023 and December 31, 2022, the Company had a full valuation allowance

applied against its net tax assets.

Value Measurements

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).

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.

Total December 31, 2023

Advertising and Marketing Costs

The Company expenses advertising and marketing costs as they are incurred.

Advertising and marketing expenses were $ 2,304 and $ 2,817 for the three months ended March 31, 2024 and 2023, respectively.

All advertising and marketing expenses are recorded in selling, general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive loss.

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, 2024 and December 31, 2023, 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.

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.

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.

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.

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.

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.

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.

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.

Value of Financial Instruments

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.

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.

following table summarizes the amortized cost, unrealized gains and the fair value at September 30, 2023 and December 31,

September 30,

September 30, 2023

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.

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 gain (loss) and the fair value at March 31, 2024 and December 31, 2023.

Schedule of unrealized loss on investments

March 31, 2024

Short-term investments

Total March 31, 2024

December 31, 2023

unrealized loss of $ 35,513 for the nine months ended September 30, 2023 is included in the table above as a reduction in the

total unrealized gain.

following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of

September 30, 2023 and December 31, 2022.

Short-term investments

Total December 31, 2023

The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value as of March 31, 2024 and December 31, 2023.

Schedule of fair value, assets measured on recurring basis

September 30,

March 31, 2024

Treasury Notes

December 31, 2023

Treasury Notes

Loss per Common Share

loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the

The dilutive effect, if any, of warrants is calculated using the treasury stock method.

All outstanding convertible notes,

if any, are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted

Since the effect of common stock equivalents is anti-dilutive with respect to losses, the warrants have been excluded from

the Company’s computation of net loss per common share for the three and nine months ended September 30, 2023 and 2022.

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:

Net Loss per Common Share

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).

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.

This fair value measurement framework applies at both initial and subsequent measurement for the three months ended March 31, 2024 and 2023.

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

September 30,

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 unaudited condensed consolidated statements of operations and comprehensive loss.

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

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

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:

Three Months Ended

Stock options

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 condensed consolidated statements of operations and comprehensive loss.

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 and restricted shares 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.

and Development

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

Research and development costs are charged to operations as incurred.

For the nine months ended September 30, 2023 and 2022,

the Company recorded $ 1,842,341 and $ 154,722 , respectively, in selling, general and administrative expenses on the unaudited condensed

consolidated statements of operations and comprehensive loss.

For the three months ended September 30, 2023 and 2022, the

Company recorded $ 1,638,508 and $ 113,617 respectively, in selling, general and administrative expenses on the unaudited condensed

consolidated statements of operations and comprehensive loss.

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.

recognized a ROU asset and corresponding lease liability on its balance sheets related to its office lease agreement.

9, Leases, for further discussion, including the impact on the Company’s unaudited condensed consolidated financial statements

and related disclosures.

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.

Method Investments

company accounts for its investments in common stock or in-substance common stock that give it the ability to exercise significant

influence over as an equity method investment in accordance with the guidance in ASC 323, Equity Method and Joint Ventures .

For the three months ended March 31, 2024 and 2023, the Company recorded $ 105,668 and $ 65,833 respectively, in selling, general and administrative expenses on the unaudited condensed consolidated statements of operations and comprehensive loss.

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 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 be recorded as a noncurrent asset with a related liability.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from short-term leases for any class of underlying asset.

Equity Method Investments

The Company accounts for its investments in common stock or in-substance common stock that give it the ability to exercise significant influence over as an equity method investment in accordance with the guidance in ASC 323, Equity Method and Joint Ventures .

Specifically, the Company initially recognizes its investment in investees as an asset at cost.

Further, the company subsequently

measures its investment by recognizing its share of earnings or losses of the investee in the period in which they are reported.

Accounting Pronouncements

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.

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

4 — ACCRUED EXPENSES

expenses consist of the following amounts:

Further, the Company subsequently measures its investment by recognizing its share of earnings or losses of the investee on a one-quarter reporting lag.

Recent Accounting Pronouncements

In August of 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, requires disclosures about significant segment expenses and additional interim disclosure requirements.

This standard also requires a single reportable segment to provide all disclosures required by ASC 280.

ASU 2023-07 became effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2023.

The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In August of 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (“JV”) Formations:

Recognition and Initial Measurement.

The guidance requires newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations.

The new guidance would be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted.

The Company is evaluating the accounting and disclosure requirements of this update and does not expect them to have a material effect on the consolidated financial statements.

In December of 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid.

This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively.

Early adoption is permitted.

The Company is currently evaluating the potential impact of adopting this standard on our disclosures.

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

September 30,

settlement liabilities

research and development expense

5 — NON-CONSOLIDATED JOINT VENTURE AND RELATED PARTY TRANSACTIONS

Joint Venture

December 21, 2018, the Company entered into the first of a series of preliminary 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 and (ii) Alzheimer’s and dementia in the applicable territories.

Wider has an experienced medical technology team in China.

The parties formalized the JV on May 31, 2023.

The joint venture

is to be conducted through a company formed under the laws of Hong Kong.

JV will design and implement a comprehensive business model and distribution plan for our devices in China, Hong Kong, Macau and

The embodiment of the agreed-upon terms and conditions of the JV in the formalized JV Agreement follows Wider’s completion

of certain funding, clinical study, and publication milestones, as well as the resolution of certain regulatory concerns in China.

Company granted the JV a license to commercialize and exploit certain of the Company’s products and technologies in specified

designated territories., and the JV will design and implement a comprehensive business model and distribution plan for these products

and devices in such designated territories.

the JV Agreement, Wider is obligated to fund all operations for the initial 12-month period of the JV, after which Nexalin and

Wider plan to jointly fund the JV’s operating expenses in accordance with their pro rata ownership.

JV entity is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider

has exclusive decision-making ability over day-to-day or significant operational decisions.

Wider and Nexalin will own 52 % and

48 % of the JV, respectively.

There has been no activity in the joint venture through September 30, 2023.

The Incorporation

Form (Company Limited by Shares) filed with the Companies Registry in Hong Kong currently originally reflected a 50%-50% ownership

interest in the JV, but has been amended to properly reflect the 52%- 48% ownership formalized in the JV agreement.

the three months ended September 30, 2023 the company contributed $96,000 to the joint venture, which was recognized as an

asset on the Company’s unaudited condensed consolidated balance sheet.

As of September 30, 2023, the joint venture has

not generated any earnings or losses.

the preceding terms of the collaborative arrangement between the Company and Wider, Wider served as an authorized distributor of

the Company’s Gen-2 devices in Asia.

As part of the consideration for Wider’s performance of its obligations to the

Company prior to the recent formalization of the JV, 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.

Under the terms of the collaborative agreement, designated

shareholders of Wider are entitled to an additional 300,000 shares upon Wider’s achievement of certain milestones.

value of the 150,000 shares issued during the year ended December 31, 2020 (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 consolidated

statement of operations and comprehensive loss.

During the three months ended September 30, 2023, the Company issued an additional

150,000 shares to affiliates of Wider in satisfaction of obligations pursuant to the collaborative agreement and also recognized

its obligation to issue an additional 150,000 shares.

The grant date fair value of the 300,000 shares issued and to be issued

resulted in a charge to research and development of $ 1,500,000 and was recorded in selling, general and administrative expenses

on the unaudited condensed consolidated statement of operations and comprehensive loss.

the nine months ended September 30, 2023 and 2022, the Company recorded $ 10,207 and $ 1,183,367 in revenue, respectively, from

Wider on the unaudited condensed consolidated statements of operations and comprehensive loss.

During the three months ended September 30,

2023 and 2022, the Company recorded $ 0 and $ 520,000 in revenue, respectively, from Wider on the unaudited condensed consolidated

statements of operations and comprehensive loss.

Accrued – other

Accrued settlement liabilities

Accrued bonuses

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

Formalized Joint Venture

The Joint Venture is registered in Hong Kong.

As of the date of this Quarterly Report on Form 10-Q, (i) our operations are carried on outside of China;

and (ii) the Joint Venture does not maintain any variable interest entity structure or operate any data center in China.

The Joint Venture is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions.

Wider and Nexalin own 52% and 48% of the Joint Venture, respectively.

In accordance with ASC 323 and ASC 810, the Company recognizes the equity method results of the Joint Venture on a one-quarter reporting lag;

the Company recognized $ 5,783 and $ 0 of equity method investment income from the Joint Venture on a one-quarter reporting lag for the three months ended March 31, 2024 and 2023, respectively, on the condensed consolidated statements of operations and comprehensive loss.

The investment in the Joint Venture is accounted for using the equity method of accounting.

The Company invested $ 96,000 in the joint venture in September 2023 which is recorded on the consolidated balance sheet at December 31, 2023 as an Equity Method Investment.

Wider invested $ 104,000 .

The Company evaluates the carrying amount of this investment in the Joint Venture for impairment in accordance with ASC 323.

If the Company determines that a loss in the value of the investment is other than temporary, the Company writes down the investment to its estimated fair value.

Any such losses are recorded to equity in income of unconsolidated entities in the Company’s consolidated statements of income.

The Company has made an election to classify distributions received from the Joint Venture using the nature of the distribution approach.

Distributions received are classified as cash inflows from operating activities based on the nature of the activities of the unconsolidated entity.

Asian Consulting Group, LLC

May 9, 2018, the Company entered into a five-year consulting agreement with U.S.

On May 9, 2018, the Company entered into a five-year consulting agreement with U.S.

Asian Consulting Group, LLC (“U.S.

In March, 2021, the Company agreed to extend the consulting agreement for an additional period of eight years upon

the closing of our initial public offering.

The consulting agreement was extended for an additional period of eight years upon the closing of our initial public offering.

The two members of U.S.

Asian are shareholders in the Company, with Marilyn Elson having

been appointed Chief Financial Officer of the Company on January 11, 2022.

Effective November 1, 2023 Ms.

Elson stepped

down from her position as CFO.

Please refer to the company’s Form 8-k filed on September 21, 2023 for additional information.

to the consulting agreement, U.S.

Asian provides consulting services to the Company with regard to, among other things, corporate

development and financing arrangements.

Asian are shareholders in the Company.

Marilyn Elson is the Company’s Controller.

Pursuant to the consulting agreement, U.S.

Asian provides consulting services to the Company with regard to, among other things, corporate development and financing arrangements.

The Company pays U.S.

Asian $ 10,000 per month for services rendered pursuant to the consulting

The Company recorded consulting expenses related to the consulting agreement of $90,000 for each of the nine months

ended September 30, 2023 and 2022, respectively, and $ 30,000 for each of the three months ended September 30, 2023 and

2022, respectively, on the Company’s unaudited condensed consolidated statements of operations and comprehensive loss.

September 30, 2023 and December 31, 2022, U.S.

Asian was owed $ 0 and $ 260,000 , respectively, for accrued and unpaid services.

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.

On September 21, 2023, Ms.

Elson provided the Company notice that she will step down as Chief Financial Officer effective

November 1, 2023.

After this date, Ms.

Elson will continue as Controller for Nexalin Technology.

Elson is the spouse of

the other member of U.S.

July 1, 2023, the Company entered into a new employment agreement with Mark White to serve as Chief Executive Officer, a new

services agreement with David Owens, M.D.

to serve as Chief Medical Officer and a new employment agreement with Michael Nketiah

to serve as Senior Vice President, Quality, Regulatory and Clinical Affairs.

Each of the foregoing agreements are governed by three-year

terms and provide compensation in the form of performance-based stock option awards, subject to and contingent upon approval and

adoption of the Board of Directors, as well as approval of the stockholders and, in all cases, based on the closing price of the

Company’s publicly-traded common stock on the applicable date of grant.

Asian $ 10,000 per month for services rendered pursuant to the consulting agreement.

The Company recorded consulting expenses related to the consulting agreement of $ 30,000 for each of the three months ended March 31, 2024 and 2023 on the Company’s unaudited consolidated statements of operations and comprehensive loss.

On September 22, 2023, Marilyn Elson provided the Company notice that she was stepping down as Chief Financial Officer effective November 1, 2023.

Since such date, Ms.

Elson has continued as Controller for Nexalin Technology.

Elson is the spouse of the other member of U.S.

On July 1, 2023, the Company entered into a new employment agreement with Mark White to serve as Chief Executive Officer, a new services agreement with David Owens, M.D.

to serve as Chief Medical Officer and a new employment agreement with Michael Nketiah to serve as Senior Vice President, Quality, Regulatory and Clinical Affairs.

Each of the foregoing agreements are governed by three-year terms and provide compensation in the form of performance-and service-based stock option awards based on the closing price of the Company’s publicly traded common stock on the applicable date of grant.

Under the terms of his employment agreement, Mr.

is entitled to (i) a sign-on/retention bonus consisting of a one-time lump-sum payment of $50,000 and a grant of nonqualified stock

options to purchase shares of the Company’s common stock with an exercise price equal to $400,000 (subject to shareholder

approval), and (ii) stock option grants to purchase shares of the Company’s common stock with an exercise price equal to

$840,000 (subject to shareholder approval.) Under the terms of his service agreement, Mr.

Owens is entitled to (i) a sign-on/retention

bonus consisting of a grant of nonqualified stock options to purchase shares of the Company’s common stock with an exercise

price equal to $125,000 (subject to shareholder approval) and (ii) stock option grants to purchase shares of the Company’s

common stock with an exercise price equal to $585,000 (subject to shareholder approval.) Under the terms of his employment agreement

Nketiah is entitled to stock option grants to purchase shares of the Company’s common stock with an exercise price

equal to $90,000 (subject to shareholder approval.) In addition to the payments stock and option grants described above, each of

White, Owens and Nketiah are receiving cash compensation and are eligible for additional cash bonuses .

Pursuant to the

guidance in ASC 718 a grant date has not been established for the stock option awards “granted” to the senior employees

as 1) shareholder approval for the awards, which is not a formality or perfunctory, has not been obtained and 2) the specific performance

criteria has not been established.

Once a grant date has been established the company plans to recognize and measure the awards

in accordance with ASC 718.

Payable – Officer

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.

interest expense on this note was $ 18,000 and $ 13,500 for the nine months ended September 30, 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.

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) totaling approximately

4,000 square feet of office space under operating leases.

White is entitled to (i) a sign-on/retention bonus consisting of a one-time lump-sum payment of $50,000 and a grant of nonqualified stock options to purchase 1,387,024 shares of the Company’s common stock with an exercise price of $.894 per share subject to certain time and performance- and time-based vesting conditions.

Under the terms of his service agreement, Dr.

Owens is entitled to (i) a sign-on/retention bonus consisting of a grant of nonqualified stock options to purchase 654,362 shares of the Company’s common stock with an exercise price of $.894 per share subject to certain time- and performance-based vesting conditions.

Under the terms of his employment agreement Mr.

Nketiah is entitled to nonqualified stock option grants to purchase 100,671 shares of the Company’s common stock with an exercise price of $.894 subject to certain time and performance-based vesting conditions.

A portion of the nonqualified stock options granted to Messrs.

White, Owens and Nketiah that are subject to future vesting are contingent upon the approval of the stockholders to increase the 2023 Plan capacity so as to authorize additional shares of common stock reserved for issuance under the 2023 Plan.

In addition to the retention payments, stock awards and nonqualified option grants described above, Messrs.

White and Nketiah are receiving cash compensation and each of Messrs.

White and Nketiah are eligible for performance-based cash bonuses.

The 2023 performance-based milestones regarding Mr.

White’s incentive compensation have been met for 2023, and he was awarded a cash bonus of $120,000 and 313,199 nonqualified stock options with a vesting date of July 1, 2024.

The 2023 performance-based milestones regarding Mr.

Nketiah’s incentive compensation have been met for 2023, and he was awarded a cash bonus of $50,000 and 218,121 nonqualified stock options with a vesting date of July 1, 2024.

The reported amounts are calculated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, “Compensation — Stock Compensation (“ASC 718”).

ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as the options issued under our 2023 Plan.

Our principal 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) totaling approximately 4,000 square feet of office space under operating leases.

Management and supporting staff are hosted at this location.

payments for fiscal year 2022 were $ 54,000 .

Our lease costs for each of the nine months ended September 30, 2023 and 2022

were $ 40,500 .

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.

6 — LOANS PAYABLE

Ventures International, Inc.

September 11, 2017, the Company issued a promissory note (the “Promissory Note”) in favor of Legacy Ventures International,

(“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 September 30, 2023, this promissory note is in default.

The Company recorded $ 15,000 and $ 15,000 of interest expense

for the nine months ended September 30, 2023 and 2022, respectively.

The Company recorded $ 5,000 and $ 5,000 of interest expense

for the three months ended September 30, 2023 and 2022, respectively.

The amount outstanding at September 30, 2023 and

December 31, 2022 was $ 500,000 .

7 — STOCKHOLDERS’ EQUITY (Deficit)

of Common Stock

the three and nine months ended September 30, 2022, the Company issued 2,315,000 and 2,315,850 shares of common stock to investors

for net proceeds of $ 8,540,171 and $ 8,545,171 .

the nine months ended September 30, 2022, the Company issued 84,188 shares of common stock for services in lieu of cash of

which 48,990 was to outside consultants, 17,699 to U.S.

Asian (a related party) and 17,499 shares to the members of the Board of

Directors for their services as Board Members.

The amount expensed during the nine months ended September 30, 2022 in the

unaudited condensed consolidated statement of operations and comprehensive loss was $ 453,391 which included $120,000 related to

shares not yet issued.

the three months ended September 30, 2023, the Company issued 150,000

shares of common stock to Wider pursuant to the service agreement resulting in $750,000 of stock-based compensation expense.

the service agreement the Company has an obligation to issue an additional 150,000 shares to Wider resulting in an additional

$750,000 of stock-based compensation.

Due to the nature of the payment the amount was classified in research and development

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

Schedule of warrants

Our lease costs for each of the three months ended March 31, 2024 and 2023 were $ 9,500 and $ 13,500 , respectively.

The initial sub-leases expired in January of 2024.

The Company has entered into a new one year sublease for 4,000 square feet of office space under an operating lease.

Pursuant to the sublease, we pay and will 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 — STOCKHOLDERS’ EQUITY

Issuance of Common Stock

The Company did not issue any shares of common

stock during the three months ended March 31, 2024 and March 31, 2023.

Nexalin’s 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders on November 10, 2023.

The Plan provides that maximum number of shares of Common Stock available for the grant of awards under the Plan shall be 1,500,000, subject to adjustment for stock dividends, stock splits or similar events.

The 2023 Plan is administered by the Compensation Committee of the Board of Directors, which may in turn delegate administrative authority to one or more of our executive officers.

Under the terms of the 2023 Plan, the Compensation Committee may grant equity awards, including nonqualified stock options and restricted stock to employees, officers, directors, consultants, agents, advisors and independent contractors.

On July 1, 2023, the Company entered into amended employment agreements with the three executives.

In addition to the cash compensation included in their employment contracts, the three executives were granted one-time bonus stock options (that were immediately vested) and performance-based stock options that would be triggered based on certain performance criteria being achieved.

The amount expensed during the three months ended March 31, 2024 and 2023 in the unaudited condensed consolidated statements of operations and comprehensive loss was $ 40,060 and $ 0 respectively.

The following table presents a summary of stock option award activity during the three months ended March 31, 2024:

Schedule of stock option award activity

December 31, 2023

September 30, 2023

following table summarizes information about warrants to purchase shares of the Company’s common stock outstanding and exercisable

at September 30 2023:

Expired or cancelled

Outstanding March 31, 2024

The following table provides additional information about stock options that are outstanding and exercisable at March 31, 2024:

Schedule of additional information about stock options

Exercise Price

Weighted Average

Remaining Life

The fair value of these stock option awards is estimated as of the grant date using a Black-Scholes option pricing model and the following assumptions:

A risk-free interest rate based on the U.S.

Treasury yield curve at the date of grant;

an expected or contractual term;

and expected volatility based on an evaluation of comparable public companies’ measures of volatility.

The Company does not anticipate declaring dividends on common shares now or in the near future and has therefore assumed no dividend rate.

The following table discloses the assumptions, utilized for stock options as follows:

Schedule of assumptions

Expected dividends

Risk-free interest rate

Expected term (years)

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

Schedule of warrants

Weighted Average

Exercise Price

Outstanding December 31, 2023

Expired or cancelled

Outstanding March 31, 2024

The following table summarizes information about warrants to purchase shares of the Company’s common stock outstanding and exercisable at March 31, 2024:

Summary information about warrants to purchase

Exercise Price

Weighted Average

Remaining Life

Weighted Average

Exercise Price

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.

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

8 — COMMITMENTS AND CONTINGENCIES

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:

All are currently exercisable.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

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:

Sarah Veltz v.

Nexalin Technology, Inc.

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

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.

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.

Development Department

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.

Although the parties are seeking mediation, the court has set a trial in this matter for November 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 was 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 unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31,

2022 and believes it has adequately accrued for this matter.

Letter from The University of Arizona

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.

As of October 13, 2023, the Company and the University of Arizona

agreed on the terms of a settlement for the amounts claimed by the University, whereby the Company will pay an aggregate of approximately

$ 69,000 (in three equal monthly payments) in full satisfaction of amounts the University claims it is owed.

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

lease liabilities.

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 .

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 % .

leases are included in the consolidated balance sheets as follows:

Schedule of operating leases

Classification

September 30,

lease cost ROU assets

lease liabilities, current

Current liabilities

lease liabilities, non-current

lease liabilities

components of lease costs, which are included in income from operations in our unaudited condensed consolidated statements of operations

and comprehensive loss, were as follows:

Schedule of lease cost

September 30,

minimum payments under non-cancellable leases for operating leases for the remaining terms of the leases following the nine months

ended September 30, 2023:

Future minimum payments under non-cancelable leases for operating leases

future minimum lease payments

representing interest

value of net future minimum lease payments

information related to leases is presented as follows:

Schedule of additional information related to leases

September 30,

average remaining lease term

average discount rate

10 — CONCENTRATION OF CREDIT RISK

customers accounted for 70 % and 55 % of revenues for the three and nine months ended September 30, 2023, respectively as set

The EDD approved a significant downward adjustment in our outstanding employment tax liability to approximately $40,000 as reflected on its Statement of Account dated November 30, 2023.

We plan to further negotiate with the EDD and proceed with a settlement offer.

The Company has accrued $40,000 and $40,000 on the consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively.

The reduction in the amount accrued was recognized as other income on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023.

The Company 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.

The Company and the University of Arizona agreed on the terms of a settlement for the amounts claimed by the University, whereby the Company paid an aggregate of approximately $69,000 (in three equal monthly payments) in full satisfaction of amounts the University claims it is owed.

The settlement amount was paid in full as of December 31, 2023.

NOTE 8 — CONCENTRATION OF CREDIT RISK

One customer accounted for 71 % of revenues for the three months ended March 31, 2024.

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

Concentration of credit risk

September 30,

customer, a related party, accounted for 92 % and 95 % of revenue for the three and nine months ended September 30, 2022, respectively.

customer, a related party, accounted for 70 % of accounts receivable at September 30, 2023, as set forth below:

September 30,

A - related party

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

11 — SUBSEQUENT EVENTS

did not identify any additional subsequent events that would have required adjustment or disclosure in the unaudited consolidated

condensed financial statements.

Accounts Receivable

Two customers accounted for 88 % of the accounts receivable as of March 31, 2024, as set forth below:

Five customers accounted for 97 % of accounts receivable at December 31, 2023.

Customer A – related party

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements