NXL US Equity☆

Item 1A. Risk Factors 15

Item 1B. Unresolved Staff Comments 47

Item 2. Properties 47

Item 3. Legal Proceedings 47

Item 4. Mine Safety Disclosure 47

PART II

Item 6. [Reserved] 48

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 59

Item 8. Financial Statements and Supplemental Data 59

Item 9A. Controls and Procedures 60

Item 9B. Other Information 61

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 61

PART III

Item 10. Directors, Executive Officers and Corporate Governance 62

Item 11. Executive Compensation 70

Item 14. Principal Accountant Fees and Services 80

PART IV

Item 15. Exhibits and Financial Statement Schedules 82

i

SPECIAL

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain

information included or incorporated by reference in this document may not address historical facts and, therefore, could be interpreted

to be “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 and other

federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking

statements, including projections of financial performance; statements of plans, strategies and objectives of management for future operations;

any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future

economic conditions or performance; any statements of assumptions underlying any of the foregoing; and any other statements that address

activities, events or developments that Nexalin technology, Inc. and its subsidiaries (“Nexalin” or the “Company”

and also referred to as “we,” “us” and “our”) intends, expects, projects, believes or anticipates

will or may occur in the future. Forward-looking statements may be characterized by terminology such as “believe,” “anticipate,”

“expect,” “should,” “intend,” “plan,” “will,” “estimates,” “projects,”

“strategy” and similar expressions. These statements are based on assumptions and assessments made by the Company’s

management in light of its experience and its perception of historical trends, current conditions, expected future developments and other

factors it believes to be appropriate. Any such forward-looking statements are not guarantees of future performance (financial or operating),

and actual results, developments and business decisions may differ materially from those envisioned by such forward-looking statements.

These forward-looking statements are subject to a number of risks and uncertainties that include but are not limited to the following:

the outbreak and continued impact of the novel coronavirus (“COVID-19”) and its variants in the United States and China, including the measures to reduce its spread, and its

impact on the economy and demand for our services and products, are uncertain, cannot be predicted, and may precipitate or exacerbate

other risks and uncertainties.

● our plans to develop and commercialize our products;

● our planned clinical trials for our products;

● the timing of the availability of data from our clinical trials;

● the timing of our selection of an initial clinical candidate from our program;

● the timing of our planned FDA related regulatory filings;

● our commercialization, marketing and distribution capabilities and strategy;

● our estimates regarding the market opportunities for our products;

● our intellectual property position and the duration of our patent rights;

the

other risk factors set forth under Item 1A, Risk Factors, in this Annual Report on Form 10-K and in our other SEC filings. The forward-looking

statements included herein apply only as of the date of this Annual Report on Form 10-K. The Company disclaims any duty to update such

forward-looking statements, all of which are expressly qualified by the foregoing, except as may be required by law.

ii

PART

I

Item

1. 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.

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. We continue to derive revenue from devices which we sold or leased prior to the FDA’s December 2019 reclassification

announcements. This revenue consists of monthly licensing fees and payments for the sale of electrodes. We have suspended marketing efforts

for new sales of devices related to the Gen-1 device for treatment of anxiety and insomnia in the United States until the Nexalin regulatory

team makes a decision on whether to proceed with a new 510(k) application at 4 milliamps, which determination will be based on FDA comments

expected to be received in mid or late spring 2023. Our regulatory team continues to inform the FDA of the suspension of the marketing

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

Our

Technology

We

have designed and developed a new advanced waveform technology to be emitted at 15 milliamps through new and improved medical devices

referred to as Generation 2 or Gen-2 and Generation 3 or Gen-3. Gen-2 is a clinical use device with a modern enclosure to emit the new

15 milliamp advanced waveform. Gen-3 is a new patient headset that will be prescribed by licensed medical professionals in a virtual

clinic setting similar to existing tele-health platforms. The Nexalin research team believes that the new 15 milliamp Gen-2 and Gen-3

devices can penetrate deeper into the brain and stimulate associated structures of mental illness, which we believe will generate enhanced

patient response without any risk or unpleasant side effects. The Nexalin regulatory team has made a strategic decision to develop strategies

for pilot trials in various mental health disease states. In addition, a new PMA application in the United States is in development for

the treatment of depression utilizing both Gen-2 and Gen-3. The new Gen-3 device is also scheduled for additional pilot trials for anxiety

and insomnia in the United States and China beginning in the late second quarter or early third quarter of 2023. Preliminary data provided by the University of California San Diego

supports the safety of utilizing our 15 milliamp waveform technology. However, the determination of safety and efficacy of medical devices

in the United States is subject to clearance by the FDA.

Additionally,

we are currently designing clinical trial strategies for the use of Gen-3 for the treatment of substance use disorders including opiate,

cocaine, and alcohol abuse. Recently the Gen-2 device was tested in pilot trials in China for the treatment of Alzheimer’s disease,

and dementia. Continued pilot testing for Alzheimer’s and dementia is planned in China in 2023.

In

part due to increased incidence attributed to the devastating impacts of the COVID-19 pandemic, mental health and cognitive disorders

are widespread across the globe and causing substantial health, social and economic losses, and hardships accordingly. Our focus is on

the continued development of our innovative bioelectronic medical technologies and rapid regulatory approval.

1

Our

products are non-invasive, safe, undetectable to the human body and can provide relief to those afflicted with mental health issues without

adverse side effects. We have a proprietary design that eliminates voltage while stabilizing currents, electromagnetic fields, and various

frequencies — referred to collectively as waveform - particularly our proprietary, 15 milliamp patented symmetrical waveform. Our

devices generate a high frequency carrier wave that is charge balanced is applied to the brain with an array of electrodes on the forehead

and behind each ear at the mastoid. The features of this proprietary waveform and the array of electrodes allows the application of the

waveform to the entire brain rather than a small, targeted area of the brain. To ensure deeper penetration in the brain, we have eliminated

the voltage from the waveform which allows the increase of the power from < 4 mAmps to 15 mAmps, more than a 400% increase without

incurring any patient discomfort, risk, or adverse side effects. By increasing the power, our waveform can penetrate deeper into the

brain and stimulate deep mid-brain structures associated with mental illness. Our research and clinical teams believe that a more powerful

waveform will create a stronger response in the brain. A stronger response creates a higher level of efficacy. This entire proprietary

technique allows Nexalin to provide a safe and comfortable treatment that is more powerful than any stimulation device in the market.

Current pilot study protocols and randomized clinical trials have been designed and submitted to the FDA to provide feedback on final

reports and data sets for the purpose of safety and efficacy evaluations in the future. Determinations of the safety and efficacy of

our devices are solely within the authority of the FDA.

Currently,

the waveform that comprises the basis of Gen-2 and new Gen-3 headset devices has been tested in research settings to develop safety data

that has been submitted for review by the FDA for safety evaluation and eventual marketing in the United States. Determinations of the

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

We

recognize that an additional barrier to treatment in today’s mental health treatment landscape — beyond the concerns about

safety, efficacy and side-effects that have been associated with conventional mental health treatments such as ECT (shock therapy), drugs

and psychotherapy is stigma. Industry reports and feedback indicate that many patients that struggle with mood disorders have the stigma

of embarrassment associated with psychiatrists and psychotherapy (e.g., counselling with a therapist). Additional stigmas and other issues

are associated with the side effects of medication prescribed by psychiatrists. When we researched the current pharmaceuticals model,

public information highlighted the many side effects associated with these medications. Frequently, patients would stop taking the medication

because of the uncomfortable side effects. Additional public information mentions dependency and withdrawal issues associated with medication

for psychiatric disorders.

To

address the embarrassment stigma, we are developing a new virtual clinic. After diagnosis, the physician can prescribe the Nexalin Gen-3

headset to the patient for treatment. Next, the Gen-3 device will be shipped to the patient’s home. After patient receives the

device, they will pair the headset device with an app in the patient’s smart phone. The app will communicate with the Nexalin cloud

servers to authorize the device for treatment according to the protocol designed by the physician. The physician will monitor treatment

compliance and other health related issues in a private physician dashboard that connects through the Nexalin app and cloud servers.

We believe that to preserve product safety and integrity for home use, the headset device will require physician oversight that includes

a prescription for use with a monthly authorization provided by the physician after a monthly virtual visit. All appointments will be

in a virtual setting to provide privacy and convenience for the physician and patient. The Nexalin virtual clinic will be provided in

a proprietary virtual platform which is currently in the design stage.

Our

China Gen-2 15 milliamp device was recently approved in China by the NMPA for the treatment of insomnia and depression in China. This

device and all other clinical devices will include a single use electrode for long term revenue streams.

Our

USA Gen-2 device will have a fresh and modern appearance that meets the technology standards of the digital tech world of 2023. Early

adopters of the Gen-1 device will be able to access additional firmware upgrades which are planned to enhance the previously purchased

devices to the new 15-milliamp waveform.

Our

Gen-2 device is expected to be equipped with RFID technology that exchanges electrode usage data with a reader in the main device. The

purpose of RFID is to track and maintain control of the proprietary single use electrode. Our electrode chip will be programmed to exchange

data with the device and allow activation for a single treatment with a new electrode only. We anticipate that this will ensure a recurring

revenue stream on the device and protects against any generic knockoffs designed to avoid treatment costs. This upgrade in technology

also ensures the proprietary nature of the electrodes that support treatment outcomes are sustained.

2

Potential

Joint Venture; China Related Activities

In

September 2018, we entered into an agreement with Wider Come Limited, a company formed under the laws of the People’s Republic

of China (“Wider”), pursuant to which we and Wider have agreed to investigate the formation of a joint venture entity to

be domiciled in Hong Kong (the “potential Joint Venture”) to conduct additional clinical research and implement a business

distribution plan for our devices in China, Macau, Hong Kong, and Taiwan. We do not have any existing operations in

China and will not in the future. We do have current distribution in China through Wider, our potential Joint Venture partner. As of

the date of this Annual Report on Form 10-K, (i) our operations are carried on outside of China; and (ii) the potential Joint

Venture does not maintain any variable interest entity structure or operate any data center in China. However, because of the intended

formation of the potential Joint Venture, we may become subject to laws of The People’s Republic of China (PRC or China) relating

to, among other topics, data security and restrictions over foreign investments. Further, as a result of the complexity and vagaries

of the legal system in the PRC and recent statements and regulatory actions by the PRC government relating to data security, our ability

to operate the potential Joint Venture may be adversely affected or subject to change and adversely impact our ability to offer or continue

to offer securities to investors, with the result that our securities may significantly decline or be worthless. There can be no assurance

that regulators in China will not take a contrary view or will not subsequently require us to undergo the approval procedures and subject

us to penalties for non-compliance.

In

March 2022, we entered into a second supplement to the Joint Venture agreement with Wider whereby the parties confirmed that the potential

Joint Venture had not yet been established and is subject to further review and analysis of regulatory issues in China and the United

States. Pursuant to the second supplement, the parties agreed to use their commercial efforts to complete documentation by September

30, 2022. In light of general economic conditions in China and the United States, the continued impact of regulatory issues within China

and the United States and trade and political issues between the two countries, the parties determined to further extend the time frame

to complete establishment of the joint venture to September 30, 2023 and entered into a Supplement 3 to the potential Joint Venture Agreement

to memorialize such extension. The parties intend to continue to work together to complete the establishment prior to such extended time.

Further, the parties agreed that all references within the Joint Venture agreements to funding and formation were amended from December

21, 2018 to be September 30, 2023. We anticipate that the Joint Venture will be formed by the third quarter of 2023. However, that will

be dependent on the situation at that time.

When

and if the Joint Venture is formed and Wider completes sales of our devices in China on behalf of the potential Joint Venture, we believe

that there are no regulatory or other restrictions that would restrict either (i) the transfer from China of any proceeds resulting

from such sales by Wider to the potential Joint Venture in Hong Kong, other than standard compliance with China’s State Administration

of Foreign Exchange (“SAFE”) policies and approval process, or (ii) our receipt of our share of such proceeds from Hong Kong

to us in the United States, which is not subject to SAFE’s policies and approval process. The Company does not currently believe

any of the Company’s scientific data resulting from activities in China by the potential Joint Venture would fall within the Measures

for the Management of Scientific Data promulgated by the General Office of the PRC State Council. In the event any existing or new laws

or regulations or detailed implementations and interpretations are modified or promulgated, we and the potential Joint Venture will take

all actions to remain in compliance with any such laws or regulations or detailed implementations and interpretations thereof. Neither

we nor our potential Joint Venture Partner can at this point speak to any future changes in rules, regulations or the commercial and

potentials situation that lies ahead which could affect the formation of the Joint Venture.

In

September of 2021, the China National Medical Products Administration (NMPA), the equivalent of the United States Food and Drug Administration

(FDA), approved the Gen-2 device for marketing and sale in China for the treatment of insomnia and depression. These treatment indications

and clearances from the NMPA have allowed Wider to market and sell the Gen-2 device in China for the treatment of insomnia and depression.

3

Regulatory

Background and Matters Related to our Business

United

States

Medical

devices commercially distributed in the United States require either FDA clearance of a 510(k) premarket notification submission, granting

of a de novo request or Premarket Approval (PMA), unless an exemption exists. Under the FFDCA, as administered by the FDA,

medical devices are classified into one of three classes — Class I, Class II or Class III — depending on the degree of risk

associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness.

Regulatory control increases from Class I to Class III. Prior to December 20, 2019, in the United States, all cranial electrical stimulation

(CES) technology was classified as a Class III medical device (high-risk).

Class

II devices are moderate risk devices and are subject to the FDA’s general controls, and special controls as deemed necessary by

the FDA to ensure the safety and effectiveness of the device. Such special controls can include performance standards, post-market surveillance,

patient registries and FDA guidance documents. Most manufacturers of Class II devices are required to submit to the FDA a premarket notification

under Section 510(k) of the FFDCA requesting permission to commercially distribute the device.

Class

III devices are deemed the highest risk devices by the FDA and generally include life-sustaining, life-supporting or some implantable

devices or devices that have a new intended use or use advanced technology that is not substantially equivalent to that of a legally

marketed device. Class III devices require a PMA. For a device that is Class III by default (because it is a novel device that was not

previously classified and has no predicate), the manufacturer may request that the FDA reclassify the device into Class II or Class I

via a de novo request.

To

obtain 510(k) clearance, a premarket notification submission must be submitted to the FDA demonstrating that the proposed device is substantially

equivalent to a predicate device. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a

device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has

been reclassified from Class III to Class II or I (e.g., via the de novo classification process), or a device that was previously cleared

through the 510(k) process. The FDA’s 510(k) review process usually takes from three to six months but can take longer.

After

a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness or that would

constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification,

a de novo request or PMA approval. The FDA requires each manufacturer to determine whether the proposed change requires submission of

a 510(k), de novo, or a PMA in the first instance. If the FDA disagrees with a manufacturer’s determination, the FDA can require

the manufacturer to cease marketing and/or request the recall of the modified device until FDA has cleared or approved a 510(k), de novo

or PMA for the modification.

The

PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device

is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials.

The PMA must also contain, among other things, a full description of the device and its components, a full description of the methods,

facilities and controls used for manufacturing and proposed labelling. Following receipt of a PMA submission, the FDA determines whether

the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days

under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can

take up to several years.

On

December 20, 2019, the FDA issued new rulings related to CES devices for the treatment of anxiety, depression, and insomnia. As a

result of these rulings, depression treatment with CES devices remained a Class III medical device and will require a full PMA that

provides definitive clinical trial evidence of effectiveness and safety. A PMA is the most extensive application and process at the

FDA. All CES manufacturers had one year to prepare and file intentions for the depression treatment with a PMA. CES devices that

treat anxiety and insomnia were reclassified as Class II devices and required a new application in the form of a special control

trial, a summary version of a PMA, requiring safety data and mild efficacy response. All CES manufacturers had one year to complete

special control trials for anxiety and insomnia. We are presently analyzing our previous 510(k) Application for such treatment of

anxiety and insomnia in accordance with the FDA reclassification ruling in December 2019. Our intent is to move forward with

our new 15 milliamp waveform given its success in the China studies. We have also completed 2 prototypes of a Nexalin headset which

can be used at home or in a clinical setting. The new headset will utilize the new 15 milliamp waveform. Final prototypes and design

for manufacturing is expected in the third quarter of 2023.

4

Due

to the COVID-19 pandemic, special control trials according to the December 2019 ruling were delayed. In January 2023, we filed a new

510k pre-sub with the FDA for treatment of anxiety and insomnia with the new 15 milliamp Gen-3. Responses from the FDA are expected in

the second or third quarter of 2023.

After

comments from the FDA on the January 2023 pre-sub, we will begin pilot and pivotal trials for anxiety and insomnia which will take an

estimated 9-18 months to complete patient recruitment and data collection. After data sets are complete and statisticians have reviewed

and created a reporting matrix, members of the executive team will prepare final reports for submission to the FDA.

We

have made a strategic decision to file a new PMA for the treatment of depression with the Gen-2 and Gen-3 devices that administer the

new advanced Nexalin waveform at 15 milliamps. The Gen-1 device was previously cleared by the FDA at 4 milliamps and the re-classification

does not prevent us from servicing previously sold or leased devices. Providers may continue to use these devices for treatment purposes.

Servicing consists of warranty coverage, electrode sales, and patient cable replacement. This servicing is included in the monthly lease

payment. 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 license fees and payment for the sale of electrodes to clinical providers of our technology. As we are

in the process of evaluating our new Gen-2 15 milliamp waveform for our technology, a strategic decision was made to not pursue a PMA

for the treatment of depression on our existing Gen-1 device. Strategy development has begun for a full PMA for the treatment of depression

for our next generation Gen-2 and Gen-3 devices.

China

The

NMPA is the governmental authority principally responsible for the supervision and administration of medical devices in the PRC. Medical

devices in the PRC (including manufacturing, marketing, and sale) are subject to a mandatory filing/registration regime regulated by

the NMPA. The exact filing pathways are mainly determined by the classification of such devices — like the United States, a three-class

classification system, from Class I (lowest risk) to Class III (highest risk). Local testing and clinical trials are generally required

for Class II and Class III devices. Some imported devices may need to be registered with a higher-level government authority than domestic

devices.

As

determined by the NMPA the three classes for devices are:

Class

I — Medical devices for which routine administration can ensure safety for users and the effectiveness of the device.

Class

II — Medical devices that can only be safe and effective with further control in addition to routine administration.

Class

III — Medical devices that are implanted into the patient’s body, pose a threat to the patient’s health, or provide

sustenance or life support.

All

medical devices must be registered with the NMPA. An overseas device company must submit product samples to test with the NMPA. In addition,

all included product information, packaging, and labels, and related material need to be translated into simplified Chinese. For a Class

I device, simple product filing to NMPA are required. However, for Class II and Class III medical devices, the manufacturing company

must meet all the requirements in the latest regulation, guidelines, and standards.

The

NMPA approved the new Gen-2 15 milliamp device for the treatment of insomnia and depression. These treatment indications and clearances

from the NMPA have allowed us to market and sell the Gen-2 device in China. Wider will be responsible for obtaining future NMPA registrations

and approvals related to the marketing and sales of our devices in China.

Recent

statements and regulatory actions by the Chinese government have targeted those companies whose operations involve cross-border data

security or anti-monopoly concerns. Regarding data security, China has promulgated several important laws recently. Among them, on June

10, 2021, China promulgated the PRC Data Security Law (“DSL”), which became effective on September 1, 2021. The legislative

intent for this law mainly includes regulating data processing activities, ensuring data security, promoting data development and utilization,

protecting the data related legitimate rights and

5

interests of individuals and organizations, and safeguarding national sovereignty,

security and development interests. Article 36 provides that any Chinese entity that provides the data to foreign judicial or law enforcement

agencies (regardless of whether directly or through a foreign entity) without approval from the Chinese authority would likely be deemed

to be in violation of DSL. In addition, pursuant to Article 2 of Measures for Cybersecurity Reviews, the procurement of any network product

or service by an operator of critical information infrastructure that affects or may affect national security shall be subjected to a

cybersecurity review under the Measures. Pursuant to Article 35 of Cybersecurity Law of the People’s Republic of China, where “critical

information infrastructure operators” purchase network products and services, which may influence national security, the operators

are required to be subjected to a cybersecurity review. We do not operate any critical information infrastructure. As a result, we do

not believe that these new legal requirements in China are applicable to us, including sales made to date by Wider as a distributor.

However, the exact scope of the term “critical information infrastructure operator” remains unclear, so there can be no assurance

that the potential Joint Venture when formed will not be subjected to critical information infrastructure operator review in the future.

Furthermore, in the event that the potential Joint Venture becomes an operator of critical information infrastructure in the future it

may be subjected to the above-described regulation.

With

regard to anti-monopoly concerns, Article 3 of Anti-Monopoly Law of the People’s Republic of China prohibits “monopolistic

practices,” which include: a) the conclusion of monopoly agreements between operators; b) the abuse of dominant market position

by operators; c) concentration of undertakings which has or may have the effect of eliminating or restricting market competition. Also,

according to Article 19, the operator(s) will be assumed to have a dominant market position if it has following situation: a) an operator

has 50% or higher market share in a relevant market; b) two operators have 66% or higher market share in a relevant market; c) three

operators have 75% or higher market share in a relevant market. We believe that we have not conducted any monopolistic practices in China,

and that recent statements and regulatory actions by the Chinese government do not impact our ability to conduct business, accept foreign

investments, or list on a U.S. or other foreign stock exchange. However, there can be no assurance that regulators in China will not

promulgate new laws and regulations or adopt new series of interpretations or regulatory actions which may require the potential Joint

Venture to meet new requirements on the issues mentioned above.

Currently,

these statements and regulatory actions of China authorities have had no impact on our daily business operation, including the sales

and marketing efforts made to date of our Gen-2 devices in China through Wider. We do not believe that these statements and regulatory

actions will have any impact on the potential Joint Venture when it is formed. Further, we are a United States’ company with no

physical presence in China, and we do not believe that the formation of the potential Joint Venture in Hong Kong and any resultant exposure

to China regulatory actions will adversely impact our ability to accept foreign investments or list our securities on a United States

or other foreign exchange. However, since these statements and regulatory actions from China authorities are relatively recent, it is

highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations

or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new

laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on

a United States or other foreign exchange. In the event any existing or new laws or regulations or detailed implementations and interpretations

are modified or promulgated, we and the potential Joint Venture will take any and all actions to remain in compliance with any such laws

or regulations or detailed implementations and interpretations thereof. See “Risk Factors — Risks Related to Doing Business

in China.”

Following

the formation of the potential Joint Venture, we intend to conduct a portion of our clinical research and implement a business distribution

plan for our devices in China and elsewhere through the potential Joint Venture, which we believe confers clinical, commercial, and regulatory

advantages, but may subject us to significant regulatory, liquidity, and enforcement risks. Although we do not intend to have any physical

presence in China, Hong Kong, Macau and Taiwan, the potential Joint Venture agreements between us and Wider contemplate that the potential

Joint Venture will have a physical presence for the potential Joint Venture in Hong Kong. Wider, as a China formed entity with its physical

presence in China may be subject to regulatory actions and prohibitions from China regulatory entities and required to obtain certain

approvals.

The

PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil

law system may be cited for reference but have limited precedential value. Uncertainties in the interpretation and enforcement of Chinese

laws and regulations could limit the legal protections available to us.

6

Market

and Industry Background

General

Historically,

pharmaceutical solutions have been the first line of treatment for those who suffer from anxiety, insomnia, depression, and other mental

health disorders. Beginning in 1950, for patients that were not responding to medication, ECT, also called “shock therapy,”

became available. Over time, researchers began to look at alternative ways to inject electricity into the human brain. One such method

was via implantable neurostimulators that required invasive surgery procedures associated with high cost and high risk. Implantable devices

became the potential solution for those who would not take or could no longer take pharmaceuticals. The interest in electricity continued

with the creation of small handheld devices powered by a direct current (DC) battery that the consumer could buy without any medical

supervision. Clinical versions of DC stimulators, known as transcranial direct current stimulation (tDCS), were developed by researchers;

many of these devices are still in research settings without industry support.

In

1992, a new neurostimulation technique emerged called trans-cranial magnetic stimulation (TMS). This technique evolved into repetitive

trans-cranial magnetic stimulation (rTMS), which utilized repetitive magnetic pulse energy to stimulate the brain of patients struggling

with depression. The American pharmaceutical industry embraced and funded this technology. The FDA cleared rTMS only for patients who

had failed to respond to anti-depressants. Side effects, high cost and moderate efficacy continue to burden this technology sector.

Both

insurance companies and healthcare providers are looking for alternative ways to decrease costs while still providing safe and effective

treatments.

We

believe that our new marketing and growth strategy in combination with our advanced 15 milliamp waveform, technological upgrades and

the development of a modern headset monitored with our IT management platform, will position us for the opportunity to disrupt the traditional

mental health treatment model. Our mission is to remove the stigma of expensive psychotherapy or pharmaceuticals with the attendant side

effects and dependency issues and replace it with clinically proven and cost-effective technology that is easily accessible in the privacy

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

Anxiety

Market

Anxiety

disorders are considered the most prevalent of psychiatric disorders. Anxiety disorders include generalized anxiety disorder, social

anxiety disorder, panic disorder, obsessive-compulsive disorder, post-traumatic stress disorder (PTSD) and phobias.

Insomnia

Market

Insomnia

is a common sleep disorder considered to be responsible for at least $63 billion in direct and indirect healthcare costs each year, according

to the Harvard American Insomnia Study. A frightening number of insomnia cases are undiagnosed and untreated, even as the condition becomes

a mounting financial burden on America’s employers and the healthcare system. Data surrounding sleep disorders demonstrate that

insomnia is a growing problem that shows no signs of slowing down. Current market conditions present an opportunity to introduce a technology

that provides a safe, effective and drug-free alternative for those suffering from insomnia. We believe we have the ability to decrease

the number of potentially addictive insomnia prescriptions needed by patients and offer physicians a non-pharmaceutical option to provide

their patients. Additionally, we are developing a solution for home-based treatment for chronic insomnia and to improve sleep hygiene

for its user.

Depression

Market

Depression

continues to be the leading cause of medical disability around the world. Poor efficacy, risk and adverse side effects of current anti-depressants

are driving the preference for non-pharmacological therapies, which will limit growth for the pharmaceutical sector of the depression

treatment market. This limitation will enhance the research and development of novel therapies that treat depression safely and effectively

without adverse side effects. Historically, according to the CDC, only one-third of people with severe depression have taken anti-depressants.

7

Any

decline in the depression medication market should indirectly accelerate the growth of the neurostimulator market. Management believes that, based on the market

data and current trends, the depression market — like the anxiety and insomnia market — creates enormous potential for our products.

Prior

to December 2019, our Gen-1 device was considered a Class III device. Treatment of depression in the United States is limited

to Class III devices only. Prior to 2019, our existing Gen-1 4 milliamp medical device had been used to successfully treat depression

in the U.S. The Gen-2 15 milliamp version of our device when introduced into the United States will be subject to approximately eighteen

months of clinical study before our PMA application for depression will be accepted. Assuming we will be able to obtain successful classification

from the FDA, we expect to market our device in the United States as a treatment for depression.

Substance

Use Disorders (Opioid Addiction) Market

According

to the National Institute on Drug Abuse (NIDA,) substance use, and substance use disorders cost the United States more

than $740 billion a year in healthcare, crime and lost productivity costs; but dollars barely capture the devastating human cost of addiction

to individuals, families and communities. According to the National Survey on Drug Use and Health, 19.7 million adults in the United States

suffered from a substance use disorder in 2017.

The

current success rate of the best drug and alcohol rehabilitation facilities is minimal. We believe that this represents a significant

market opportunity for our company. The disease of addiction is brain-based in its nature. Currently brain-based treatments for the disease

are only available to patients who can afford long-term expensive boutique treatment centers. We intend to demonstrate that a brain-based

approach to addiction treatment will enhance a patient’s success at long-term recovery. Our hypothesis is that the current pilot

study design at the University California San Diego (see below) will provide a source of validation for this treatment modality in addiction

treatment.

Chronic

Pain Market

Originally,

our waveform was designed as an electro-analgesic for pain. This refers to the ability to electrically interrupt the pain signalling

process in the brain. By interrupting the pain signalling process in the brain, our products can reduce symptoms and discomfort associated

with chronic pain. By reducing the symptoms and discomfort associated with chronic pain, physicians can reduce medications and avoid

dependency issues related to opiate-based medications.

According

to Research and Markets, the global chronic pain treatment market is predicted to progress at a CAGR of 6.5% from 2020 to 2030 and generate

revenue of $151.7 billion in 2030.

Currently,

we own an electrostimulation patent for a device that will apply electrodes to the brain, spine, and the place of injury. The placement

of these electrodes in conjunction with our various waveforms creates an opportunity for us to treat chronic pain without medication.

The Nexalin executive team is preparing strategies to develop a prototype of our existing patented design and introduce it into clinical

trials for the treatment of chronic pain. In previous pilot studies, our existing Gen-1 product reduced pain in patients suffering from

injuries originating in industrial accidents. However, we plan to use the new advanced waveform emitted at 15 milliamps into the new

prototype pain device for new clinical trials for the treatment of chronic pain.

Alzheimer’s

Disease and Dementia Market

Alzheimer’s

disease is a degenerative brain disease and the most common form of dementia. Dementia is not a specific disease, but rather an overall

term that describes a group of symptoms. According to the WHO, there are around 50 million people living with Alzheimer’s disease

and other dementias worldwide.

According

to Reports and Data, the global Alzheimer’s therapeutics market is projected to reach $13.57 billion by 2027 from $7.42 billion

in 2019 with a substantial compound annual growth rate (CAGR) of 9.2% through the forecast period.

We

believe our products could be leveraged to extend the quality of life for millions of people who are diagnosed with Alzheimer’s

disease.

8

Marketing

and Sales Efforts

We

believe that our marketing and sales plan provides a long-term scalable business model. Our team is preparing the foundation and marketing

assets necessary to launch the new virtual clinic model that will complement the traditional clinic model. Our sales model is to place

more than 1,000 Gen-2 and Gen-3 devices on the global stage. The momentum and branding strategies of Nexalin providers will be leveraged

to enhance the launch of a global sales plan. The Gen-2 device at 15 milliamps supported by the Gen-3 outpatient headset and our virtual

digital management platform is intended to disrupt the current mental healthcare model. The Gen-2 and Gen-3 device at 15 milliamps will

offer patients a cost effective and efficient treatment model for day-to-day mental health challenges. We believe those devices, with

their advanced waveform, can treat existing mental health disorders associated with anxiety and insomnia. Additionally, new strategies

are in research and development for FDA treatment indications of depression, substance use disorder, opioid addiction, alcoholism and

chronic pain. Additional research and treatment efficacy are being investigated for the Alzheimer’s community for patient care

and management.

Our

plan is designed to triangulate and stimulate the physician, consumer, and manufacturer relationship. Trends in healthcare indicate consumers

are involved in treatment decisions that concern their mental health. Because of the advancement in healthcare technologies, home-based

care with medical supervision provides patients with a cost-effective and efficient treatment option. Home-based care also avoids the

stigma associated with treatment for mental health disorders. In our current sales plan, we intend to launch with a physician provider

in each state. These physicians will lead the Nexalin campaign in each state as that states primary provider. These preferred state providers

will begin with the virtual clinic. Our marketing team will drive consumers with quality-of-life struggles related to mental health issues

into the virtual clinic and then to the provider in the consumer’s state of residence. These initial state physicians providing

mental health services in the virtual clinic, will also have ability to offer treatment in their clinic. The in-clinic model will use

the Gen-2 clinical device while the virtual clinic will use the Gen-3 headset. This initial launch plan with state providers will develop

and support multiple marketing verticals to drive the Nexalin brand and treatment as an alternative to medications and psychotherapy.

We will leverage this physician / patient community to establish a national network of physicians that offer mental health evaluations

and the Nexalin treatment in either a clinical setting or in the privacy of the patient home with medical supervision through the future

Nexalin app.

Most,

if not all, patients treated in the Nexalin virtual clinic would be part of a digital community that supports brand awareness and the

sharing of anonymous treatment outcomes in a social media setting. The Patient Activation Program will include a robust data gathering

system on providers and patients (opt-in) that enhances our marketing strategies.

Insurance

Reimbursement for Our Products

In

January 2020, the Centers for Medicare & Medicaid Services (CMS) in conjunction with the Durable Medical Equipment for Medicare

Administrative Contractors issued a code for Cranial Electrotherapy Stimulators (CES). CMS issues codes that are used by medical

practitioners to obtain Medicare, Medicaid and private insurance reimbursement. The issuance of this code is the first time that a reimbursement

code from CMS has been designated specifically for CES. The code does not guarantee reimbursement and is considered at this time, experimental.

The Nexalin consulting team plans to continue preparing clinical data and durability data to pursue long term clinical reimbursement.

Reimbursement

strategies for this type of technology are complex and vary from one diagnosis to another. We utilize an RFID system that will track

doses delivered. This will simplify comparing our devices to pharmaceutical interventions. Beginning in 2023, a complete reimbursement

assessment is being conducted and evaluated to develop a strategy to acquire reimbursement. We will employ a two-prong approach for eventual

reimbursement. The first prong will evaluate the clinic-based product offered by physicians. The second prong will focus on tracking

usage and response from the outpatient headset model that is tracked through the virtual platform. Frequently therapies that are used

in the home are not classified as durable medical equipment and will fall into a reimbursement gap without coverage. We intend to work

to successfully achieve a Level 2 code under the healthcare common procedure coding system. We will work to seek reimbursement for conditions

in sequence with the home based and the clinic-based unit that will maximize value of treatment from a financial standpoint as well as

monitoring the response by the patient community.

9

Research

Research

is the fundamental core of any pharmaceutical or medical device company. Although small trials, with limited patients, can show promise

for a treatment, they are generally not acceptable to the FDA for product approval. To commercialize a product for widespread use, multiple

large-scale trials are required to demonstrate both efficacy and safety. In the past two decades, the cost of conducting such trials

has more than doubled, with many small start-up companies unable to raise the necessary capital to complete these vital projects. The

increase in cost reflects several variables which are required for successful clinical trial completion.

The

various costs can include patient recruitment and retention expenses, physician, and nurse expenses, as well as the expenses of other

healthcare providers. Various regulations, each more complex than the next, also have added significant cost to the process. Data collection,

as well as data analysis, is also a significant portion of the study cost. Additionally, almost all studies are conducted through either

a large university, with its underlying overhead for administrative costs and institutional review board approval, or through a contract

research organization, which also adds significant overhead costs in addition to the hard cost of the study itself. Latest estimates

for the cost per patient for an average trial is approximately $41,000.

In 2019, we began a research partnership with

the University California San Diego (UCSD). Prior to the pandemic, two pilot clinical studies were undertaken with UCSD, however, these

trials were paused due to the shutdown of college campuses in California. In the summer of 2022, new contract negotiations began to explore

strategies for PTSD and mild traumatic brain injury (mTBI). Timelines, contracts, study design and research strategies are in progress

and are waiting for new pilot data sets.

Currently, a pilot trial at UCSD is focused on

veterans suffering from mild traumatic brain injury (mTBI) and is funded by the United States Department of Defense. One of the primary

symptoms associated with mTBI is PTSD (post-traumatic stress disorder). The primary endpoint associated with this study is the assessment

and reduction of post-concussion symptoms associated with PTSD. A secondary endpoint for the study will be improvement in Magnetoencephalography

(MEG) slow-wave abnormalities.

In

addition to UCSD, we are developing strategies to initiate further trials to address new FDA guidelines. These new strategies and pivotal

trials will support new 510(k)s for anxiety and insomnia at 15 milliamps. These trials are in addition to the special control trials

required by the FDA. Final trial designs are due to be executed after recommendations are reviewed from the FDA pre-sub meetings projected

to take place in Q2 2023. Other areas of research that will be designed and funded relate to the treatment of substance use disorders,

Alzheimer’s disease, and dementia.

Additional

research in China is being performed with the goal of publishing the findings in a peer reviewed journal. All research will be controlled

by our team, with all trial designs requiring written final approval by our Chief Medical Officer. Clinical updates will be required

every 30-days. Frequent in-person WeChat meetings will also be performed to ensure the integrity of the research efforts.

In

addition to clinical trial work in China and current studies in the United States required by the FDA, an additional study is planned

with the 15 milliamp Gen-2 and Gen-3 devices to evaluate a large cohort of patients with depression. This trial will include a double-blind

study design with active and sham groups. Patient selection screening will evaluate 200-250 subjects to acquire the number of patients

needed for a successful trial. Each patient, upon enrollment, will be evaluated extensively prior to initiation of therapy. Patients

will be treated a minimum of 20 separate times, with pre- and post-test screening. Moreover, upon completion of therapy, post-test examination

will be performed not only immediately thereafter but also over the course of one to three months to establish not only efficacy but

durability of the treatment. The results of this study will provide the basis of the PMA with the FDA for the treatment of Depression.

10

At

the start of 2021, an Alzheimer’s specific clinical trial was underway in China: “Transcranial alternating current stimulation

for patients with mild Alzheimer’s disease.” Extensive cognitive pre- and post-evaluations are being performed at the beginning

and conclusion of the study, with less rigorous evaluations before and after each therapy session. Because of issues related to Covid-19

in China, this trial was paused. Additionally, results of this trial will dictate additional testing strategies to determine specific

treatment protocols for complex Alzheimer’s and dementia patients.

A

final area of study includes the evaluation of chemical changes within the brain following transcranial stimulation. Chemicals, which

are naturally formed in the brain, control many of our moods and thoughts, modulating feelings of pain, depression and generalized mood.

These substances also drive cravings in substance use disorders. One of the specific areas of research is to validate changes of serotonin

levels in the brain. Serotonin is a “feel good” chemical which has also been associated with learning. Other chemicals, such

as dopamine, act in a reward center mechanism. Additionally, certain other neurons require specific chemicals to either fire or be inhibited

from firing. These areas can be explored with specific radioactive markers in the brain for evaluation with PET MRI scans.

Virtual

Clinic Digital Management Platform

We

expect to capitalize on the post pandemic digital health model. Our team began researching IT digital development firms at the beginning

of the pandemic. We have now completed our research and bidding process and have begun contract negotiations with a leading IT design

team to begin work on an advanced, proprietary IT management platform that will eventually manage all aspects of the Nexalin virtual

clinic model. The vision is to implement a virtual clinic model that will enable providers and clinics to integrate remote outpatients

into an overall treatment process. Our IT platform goes well beyond telehealth and is designed to support all aspects of the treatment

model in conjunction with various data sets to support marketing, data collection and patient monitoring. Our digital management platform

will manage the entire clinical and outpatient headset business model. The proprietary IT platform will manage all aspects of a new virtual

health center related to treatment for mental health. As the development of the new generations of our devices and the outpatient headset

are developed, the digital platform will eventually manage and triangulate the relationship between the medical professional, the patient,

and the manufacturer. The digital platform will handle logistics, data collection and user experience data for clinical evaluation. Additionally,

there will be an app that the patients will install on their phones that will communicate with the outpatient headset. The app will upload

user information that is HIPAA compliant to the IT management platform. Modules will be designed and implemented in the platform to collect

biometric data. The biometric data will be utilized to evaluate patient response. A symptom exam for additional clinical validation will

also be offered in the app. All data and user information will be stored in a secure, HIPAA compliant cloud computing center and access

to the information will be managed through a secure and compliant dashboard management system. The medical professional will have access

to all data to monitor outpatient experience, client response and general health and wellness information.

We

will leverage our IT investment to create a lead management system for mental health physicians connecting prospective patients with

providers. The medical professional will be able to engage in a telehealth virtual appointment with prospective patients to complete

an evaluation and assess whether the patient is a candidate for the outpatient headset program. After the professional approves the device

for the patient, we will automatically prepare shipment of the device directly to the outpatient consumer from the manufacturer. We will

have an internal department to monitor shipment, and to answer questions through a help desk on how to set up and use the device. The

medical professional can be reimbursed for the virtual appointment via the outpatient’s insurance for telehealth care which is

becoming part of the new normal in the post-pandemic, digital-health world.

Additional

design and implementation of modules related to social media marketing, bio-metric data collection and user experience will eventually

complete the design of the IT management platform.

Manufacturing

In

December 2021, we entered into a quality assurance agreement with Apical Instruments, an FDA-registered manufacturer, to ensure quality