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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-10 · 247 added, 104 removed, 195 unchanged (64% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission, or SEC on March 27, 2024.

References in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “us,” “we,” “our,” and similar terms refer to Nexalin Technology, Inc.

This discussion contains forward-looking statements as that term is defined within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections.

The events described in forward-looking statements contained in this discussion may not occur.

Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions that may be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results.

The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements.

We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.

Reference is made to “Risk Factors “in this quarterly report on Form 10-Q as well as the risk factors set forth in the section titled “Risk Factors” included in our Registration Statement for our initial public offering as filed with the Securities and Exchange Commission (SEC File number 333-26198), Our actual results may differ materially from those anticipated in these forward-looking statements.

For convenience of presentation some of the numbers have been rounded in the text below.

You should read the following

discussion and analysis of our financial condition and results of operations together with our financial statements and related notes

appearing in this Quarterly Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly

Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve

risks and uncertainties.

As a result of many factors, our actual results could differ materially from the results described in or implied

by the forward-looking statements contained in the following discussion and analysis.

Forward-looking statements represent our management’s

beliefs and assumptions only as of the date of this Quarterly Report.

Actual future results may be materially different from what we expect.

We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which

they are made, except as required by applicable law.

The management’s

discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which

have been prepared in accordance with GAAP.

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

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China Related Activities;

Approvals in Oman and Brazil

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.

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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.

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 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.

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.

In accordance with ASC 323

and ASC 810, the Company recognized $(1,291) and $0 for the three months ended June 30, 2024 and 2023 and $4,492 and $0 of equity method

investment income from the Joint Venture on a one-quarter reporting lag for the six months ended June 30, 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 June 30, 2024 and December 31, 2023 the Company had an Equity Method Investment

of $100,492 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.

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.

In September of 2021, the China National Medical Products Administration (the “NMPA”), the equivalent of the FDA, approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression.

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Our ability to monetize the Joint Venture in China may also be limited.

The Sultanate of Oman’s Ministry of Health

granted conditional approval for use of our Gen-2 device on June 16, 2022, effective upon the end user of our device opening and operating

a mental health care clinic being constructed in Oman.

The Company’s first shipment of a device to Oman was made on January 30,

2024 and received in Oman on February 5, 2024 in connection with the opening of the end user’s clinic, rendering the approval effective.

Two additional devices were shipped to Oman on February 29, 2024 and were received by the end user on March 6, 2024.

Upon receipt of the

two additional devices, the end user’s clinic was operational, and the use of the device to treat patients commenced pursuant to

the approval.

On June 13, 2024, the “Company announced that

our Gen-2 device had been granted regulatory approval by the Brazilian Health Regulatory Agency, a regulatory body of the Brazilian government

responsible for approving new drugs and medical devices.

Results of Operations

Comparison of the three months ended March 31, 2024 and 2023

Our financial results for the three months ended March 31, 2024 and 2023 are summarized as follows:

Comparison of the three months ended June 30,

2024 and 2023

Our financial results for the three months ended

June 30, 2024 and 2023 are summarized as follows:

Three Months Ended

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Equity in net earnings of affiliate

Other comprehensive income:

$ (1,284,493 )

Other comprehensive income (loss):

Unrealized gain (loss) from short-term investments

Comprehensive loss

$ (1,284,248 )

Percentages may not foot due to rounding.

For the three months ended March 31, 2024 and 2023, we generated $78,671 and $30,560 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement.

We also generated revenue from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs.

In addition, we derived revenue from equipment by selling electrodes and patient cables to customers for use with our device.

The increase in revenue for 2024 compared to 2023 was primarily due to the sale of devices to a new overseas customer.

Cost of Revenues and Gross Profit

For the three months ended March 31, 2024 and 2023, cost of revenues was $9,156 and $7,110, respectively, yielding a gross profit of $69,515 and $23,450, respectively, or 88% and 77%, respectively.

Such increase in gross margin was due to the change in our sources of revenue.

Our revenue for the quarter ended March 31, 2024 was primarily device sales which have a greater gross margin than electrode and cable sales.

For the three months ended June, 2024 and 2023,

we generated $26,840 and $35,540 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment

fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement.

We also generated revenue

from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs.

In addition, we derived

revenue from equipment by selling electrodes and patient cables to customers for use with our device.

The decrease in revenue for the

three months ended June 2024 compared to 2023 was primarily due to a device related sale in 2023.

There were no device sales in during

the three months ended June 30, 2024.

of Revenues and Gross Profit

For the three months ended June 30, 2024 and 2023,

cost of revenues was $7,427 and $9,374, respectively, yielding a gross profit of $19,593 and $26,166, respectively, or 73.0% and 73.6%,

respectively.

Such decrease in gross margin was negligible.

Total operating expenses for the three months

ended June 30, 2024 and 2023 were $1,316,614 and $903,026, respectively.

The increase in selling, general and administrative expenses

was due primarily to an increase in travel of approximately $43,000, an increase in research and development costs of approximately $23,000

and an increase in stock compensation of approximately $220,000.

The increase in professional fees is primarily related to costs associated

with investor relations.

Salaries and benefits remained consistent.

The increase in travel is primarily due to costs associated with meetings

with our joint venture partners, staff visits to our Houston office and travel related to investor relations.

The increases in research

and development costs are attributable to the development of our Gen-2 and Gen-3 devices.

The increase in stock compensation is primarily

related to compensating consultants with stock.

Income (Expense), Net

Other income (expense), net for the three months

ended June 30, 2024 and 2023 was $13,819 and $54,423, respectively, consisting of interest and dividend income, gain on the sale of short-term

investments offset by interest expense.

Comparison of the six months ended June 30,

2024 and 2023

Our financial results for the six months ended

June 30, 2024 and 2023 are summarized as follows:

Six Months Ended

Revenues, net

Cost of revenues

Operating expenses:

Total operating expenses for the three months ended March 31, 2024 and 2023 were $1,143,227 and $802,876, respectively.

The increase in selling, general and administrative expenses was due primarily to an increase in professional fees of approximately $69,000, an increase in salaries and benefits of approximately $27,000, an increase in travel of approximately $37,000, an increase in consulting of approximately $26,000, an increase in research and development costs of approximately $40,000 and an increase in stock compensation of approximately $161,000.

The increase in professional fees is primarily related to costs associated with investor relations.

The increase in salaries and benefits is primarily due to the implementation of a company health insurance plan and an increase in staff salaries.

The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff visits to our Houston office and travel related to investor relations.

The increase in consulting is primarily due to retaining a new consultant to assist with marketing.

The increases in research and development costs are attributable to the development of our Gen-2 and Gen-3 devices.

The increase in stock compensation is primarily related to compensating consultants with stock.

These amounts were offset by a decrease in insurance of approximately $20,000 resulting from a decrease in premiums.

Professional fees

Salaries and benefits

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense), net:

Other income (expense), net for the three months ended March 31, 2024 and 2023 was $26,772 and $31,012, respectively, consisting of interest and dividend income, gain on the sale of short-term investments offset by interest expense.

The following table summarizes our consolidated cash flows for the three months ended March 31, 2024 and 2023:

Net cash used in operating activities

Net cash provided by investing activities

Net cash used in financing activities

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

$ (2,325,650 )

$ (1,570,851 )

Other comprehensive income (loss):

Unrealized gain

(loss) from short-term investments

Comprehensive loss

$ (2,325,245 )

$ (1,574,075 )

(1) Percentages may not foot due to rounding.

For the six months ended June, 2024 and 2023,

we generated $105,511 and $66,100 respectively, of revenue primarily from the sale of devices, supplies and from licensing and treatment

fee agreements with our customers for which we charge a monthly licensing fee for the duration of the agreement.

We also generated revenue

from treatment fee agreements by collecting fees based on the number of treatments per month the customer performs.

In addition, we derived

revenue from equipment by selling electrodes and patient cables to customers for use with our device.

The increase in revenue for the

six months ended June 2024 compared to 2023 was primarily due to the sales of devices to a new overseas customer.

of Revenues and Gross Profit

For the six months ended June 30, 2024 and 2023,

cost of revenues was $16,403 and 16,484, respectively, yielding a gross profit of $89,108 and $49,616, respectively, or 84.5% and 75.1%,

respectively.

Such increase in gross margin was primarily due to device revenue having a higher gross profit margin than that of other

sources of revenue.

Total operating expenses for the six months ended

June 30, 2024 and 2023 were $2,459,841 and $1,705,902, respectively.

The increase in selling, general and administrative expenses was

due primarily to an increase in travel of approximately $81,000, an increase in research and development costs of approximately $63,000

and an increase in stock compensation of approximately $381,000.

The increase in professional fees is primarily related to costs associated

with investor relations.

The increase in travel is primarily due to costs associated with meetings with our joint venture partners, staff

visits to our Houston office and travel related to investor relations.

The increases in research and development costs are attributable

to the development of our Gen-2 and Gen-3 devices.

The increase in stock compensation is primarily related to compensating consultants

Income (Expense), Net

Other income (expense), net for the three months

ended June 30, 2024 and 2023 was $40,591 and $85,435, respectively, consisting of interest and dividend income, gain on the sale of short-term

investments offset by interest expense.

The decrease is primarily due to a decrease in gain on short term investments resulting from decreased

short term investments.

The following table summarizes our consolidated

cash flows for the six months ended June 30, 2024 and 2023:

Net cash used in operating activities

Net cash used in operating activities was $763,289 for the three months ended March 31, 2024, as compared to $1,314,649 for the respective period in 2023, primarily due to the net loss of $1,041,157, as well as a combined decrease in accounts payable and accounts payable-related party of approximately $595,585.

Offset by increases in stock compensation of approximately $161,349.

$ (2,009,704 )

$ (2,130,260 )

Net cash provided by investing activities

Net cash provided by investing activities during the three months ended March 31, 2024, and 2023 was $729,314 and $1,526,867, respectively, which was due to short-term investment sales of approximately $6.2 million offset by purchases of $5.4 million of short-term investments and the purchase of patents of approximately $19,000.

Net cash provided by investing activities as of March 31, 2023 of $1,526,867 was due to the purchase of short term investments.

Net cash used in financing activities

Net cash used in financing activities during the three months ended March 31, 2024 and 2023 was $0 and $200,000, respectively, which was due to payment of note payable to an officer of the Company in the prior period.

Used In Operating Activities

Net cash used in operating activities was $2,009,704

for the six months ended June 30, 2024, as compared to $2,130,260 for the respective period in 2023, was primarily due to the net loss

of $2,325,650, as well as a combined decrease in accounts payable and accounts payable-related party of approximately $537,000 and accrued

expenses of approximately $200,000, offset by increases in stock compensation of approximately $381,000.

Provided By Investing Activities

Net cash provided by investing activities during

the six months ended June 30, 2024, and 2023 was $2,278,270 and $2,399,239, respectively, which was due to short-term investment sales

approximately $9.2 million offset by purchases of approximately $6.8 million of short-term investments and the purchase of patents and

trademarks of approximately $127,000 for the six months ended June 30, 2024.

Net cash provided by investing activities as during

the six months ended June 30, 2023 was due to the short-term investment sales of approximately $21.2 million offset by short-term investment

purchases of approximately $18.7 million and the purchase of patents of approximately $61,000.

Used In Financing Activities

Net cash used in financing activities during the

six months ended June 30, 2024 and 2023 was $0 and $200,000, respectively, which was due to payment of note payable to an officer of the

Company in the prior period.

Uses and Availability of Additional Funds

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Liquidity and Capital Resources

As of March 31, 2024, the Company had a significant accumulated deficit of $78.1 million.

For the three months ended March 31, 2024, the Company had a loss from operations of $1.1 million and negative cash flows from operations of $0.8 million.

As of June 30, 2024, the Company had a significant

accumulated deficit of $79.4 million.

For the six months ended June 30, 2024, the Company had a loss from operations of $2.4 million and

negative cash flows from operations of $2.0 million.

The Company’s operating activities consume the majority of its cash resources.

The Company will continue to service existing customers in the United States.

The Company sold devices in China to its acting distributor.

The Company anticipates that it will continue to incur operating losses as it executes its development plans through 2023, as well as other potential strategic and business development initiatives.

In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future.

The Company previously funded these losses primarily through the sale of equity and issuance of convertible notes.

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

As of March 31, 2024, the Company had cash and cash equivalents on hand of approximately $546,000 and short-term investments of approximately $1.6 million.

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 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 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 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 accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The Company sold devices overseas.

The Company anticipates

that it will continue to incur operating losses as it executes its development plans through 2024, as well as other potential strategic

and business development initiatives.

In addition, the Company has had and expects to have negative cash flows from operations, at least

into the near future.

The Company previously funded these losses primarily through the sale of equity.

As of June 30, 2024, the Company

had cash and cash equivalents on hand of approximately $0.8 million.

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 obtain U.S.

approval for the sale of our devices in the United States, and, if necessary, our ability to raise additional

On July 1, 2024, the Company consummated the public offering of an aggregate of 3,000,000 shares of the Company’s

common stock resulting in aggregate gross proceeds of approximately $5.25 million.

The proceeds from the offering increased the

Company’s stockholders’ equity by approximately $4.55 million, making the Company’s stockholders’ equity

approximately $6.9 million as of July 1, 2024.

Although no assurances can be given as to our ability to deliver on our revenue plans

or that unforeseen expenses may arise, management has evaluated the significance of the conditions as of June 30, 2024 and have

concluded that we have sufficient cash and short-term investments in the amount of approximately $5.2 million on hand on August 6,

2024 to satisfy our anticipated cash requirements for the next twelve months from the issuance of these financial statements.

Critical Accounting Estimates

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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:

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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 November 2023, the FASB issued ASU 2023-07, Segment

Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The ASU expands public entities’ segment disclosures

by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included

within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim

disclosures of a reportable segment’s profit or loss and assets.

All disclosure requirements under ASU 2023-07 are also required

for public entities with a single reportable segment.

The ASU is effective on a retrospective basis for fiscal years beginning after

December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the

impact of adopting this ASU on its consolidated financial statements and disclosures.

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

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See Note 7 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a summary of our contractual obligations.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.

We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the completion of this offering.

However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Exchange Act), we will cease to be an emerging growth company prior to the end of such five-year period.

We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least twelve months and (c) have filed at least one annual report pursuant to the Exchange Act.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are emerging growth companies.

As a result, changes in rules of U.S.

generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

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.

Minimum Bid Price Requirement

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,

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 stockholder 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).

The Company requested a second 180-day period

in order to regain compliance with Nasdaq Rule 5550(a)(2).

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, which date was further extended

by the Panel until April 25, 2024.

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).

Minimum Stockholder Equity

Under the Nasdaq listing rules, we are also required

to maintain stockholders’ equity of at least $2,500,000 (the “Minimum Stockholder Equity Rule”).

In our Form 10-Q for

the period ending March 31, 2024, we reported stockholders’ equity of $2,326,987.

On May 16, 2024, we received a letter from the

Listing Qualifications Department of Nasdaq notifying the Company that its stockholders’ equity as reported in such Quarterly Report

did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market.

Pursuant to the Notice, the Company had 45 calendar

days from the date of the Notice to submit a plan to regain compliance.

On July 1, 2024, the Company submitted a plan to Nasdaq.

in the Company’s submission to Nasdaq, and as set forth in the Current Report on Form

8-K filed by the Company on July 3, 2024 , the Company consummated the public offering of 3 million shares of the Company’s

Common Stock for total aggregate gross proceeds of approximately $5,250,000.

On July 23, 2024, the Company received written notification

from the Listing Qualifications Department of NASDAQ, confirming that, based on the information contained in the Company’s Form

8-K, filed with the SEC on July 16, 2024, the Company is now in compliance with the Minimum Stockholder Equity Rule.

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 2. Management’s Discussion and Analysis