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NON-CONSOLIDATED JOINT VENTURE AND RELATED PARTY TRANSACTIONS | 9 Months Ended
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Sep. 30, 2023
Related Party Transactions [Abstract] |
NON-CONSOLIDATED JOINT VENTURE AND RELATED PARTY TRANSACTIONS | NOTE 5 — NON-CONSOLIDATED JOINT VENTURE AND RELATED PARTY TRANSACTIONS Formalized Joint Venture On December 21, 2018, the Company entered into the first of a series of preliminary agreements providing for the establishment of a joint venture (“JV”) agreement (the “JV Agreement”) with Wider Come Limited, a China company (“Wider”) for the purpose of marketing, sale and distribution of the Company’s proprietary devices for the treatment of (i) anxiety, depression and insomnia and (ii) Alzheimer’s and dementia in the applicable territories. Wider has an experienced medical technology team in China. The parties formalized the JV on May 31, 2023. The joint venture is to be conducted through a company formed under the laws of Hong Kong. The JV will design and implement a comprehensive business model and distribution plan for our devices in China, Hong Kong, Macau and Taiwan. The embodiment of the agreed-upon terms and conditions of the JV in the formalized JV Agreement follows Wider’s completion of certain funding, clinical study, and publication milestones, as well as the resolution of certain regulatory concerns in China. The Company granted the JV a license to commercialize and exploit certain of the Company’s products and technologies in specified designated territories., and the JV will design and implement a comprehensive business model and distribution plan for these products and devices in such designated territories. Under the JV Agreement, Wider is obligated to fund all operations for the initial 12-month period of the JV, after which Nexalin and Wider plan to jointly fund the JV’s operating expenses in accordance with their pro rata ownership. The JV entity is controlled by a Board of Directors in which Wider is to have sole representation but neither the Company nor Wider has exclusive decision-making ability over day-to-day or significant operational decisions. Wider and Nexalin will own 52% and 48% of the JV, respectively. There has been no activity in the joint venture through September 30, 2023. The Incorporation Form (Company Limited by Shares) filed with the Companies Registry in Hong Kong currently originally reflected a 50%-50% ownership interest in the JV, but has been amended to properly reflect the 52%- 48% ownership formalized in the JV agreement. During the three months ended September 30, 2023 the company contributed $96,000 to the joint venture, which was recognized as an asset on the Company’s unaudited condensed consolidated balance sheet. As of September 30, 2023, the joint venture has not generated any earnings or losses. Under the preceding terms of the collaborative arrangement between the Company and Wider, Wider served as an authorized distributor of the Company’s Gen-2 devices in Asia. As part of the consideration for Wider’s performance of its obligations to the Company prior to the recent formalization of the JV, the Company and certain designated Wider shareholders entered into stock issuance agreements for the issuance of 450,000 shares of the Company’s common stock, and simultaneously with the execution of this service agreement, Wider contributed $200,000 to the Company. During the year ended December 31, 2020, the Company issued 150,000 shares to affiliates of Wider in satisfaction of the obligation. Under the terms of the collaborative agreement, designated shareholders of Wider are entitled to an additional 300,000 shares upon Wider’s achievement of certain milestones. The fair value of the 150,000 shares issued during the year ended December 31, 2020 (less the contributed $200,000 in cash) resulted in a charge to stock-based compensation of $550,000 and was recorded in selling, general and administrative expenses on the consolidated statement of operations and comprehensive loss. During the three months ended September 30, 2023, the Company issued an additional 150,000 shares to affiliates of Wider in satisfaction of obligations pursuant to the collaborative agreement and also recognized its obligation to issue an additional 150,000 shares. The grant date fair value of the 300,000 shares issued and to be issued resulted in a charge to research and development of $1,500,000 and was recorded in selling, general and administrative expenses on the unaudited condensed consolidated statement of operations and comprehensive loss. During the nine months ended September 30, 2023 and 2022, the Company recorded $10,207 and $1,183,367 in revenue, respectively, from Wider on the unaudited condensed consolidated statements of operations and comprehensive loss. During the three months ended September 30, 2023 and 2022, the Company recorded $0 and $520,000 in revenue, respectively, from Wider on the unaudited condensed consolidated statements of operations and comprehensive loss. U.S. Asian Consulting Group, LLC On May 9, 2018, the Company entered into a five-year consulting agreement with U.S. Asian Consulting Group, LLC (“U.S. Asian”). In March, 2021, the Company agreed to extend the consulting agreement for an additional period of eight years upon the closing of our initial public offering. The two members of U.S. Asian are shareholders in the Company, with Marilyn Elson having been appointed Chief Financial Officer of the Company on January 11, 2022. Effective November 1, 2023 Ms. Elson stepped down from her position as CFO. Please refer to the company’s Form 8-k filed on September 21, 2023 for additional information. Pursuant to the consulting agreement, U.S. Asian provides consulting services to the Company with regard to, among other things, corporate development and financing arrangements. The Company pays U.S. Asian $10,000 per month for services rendered pursuant to the consulting agreement. The Company recorded consulting expenses related to the consulting agreement of $90,000 for each of the nine months ended September 30, 2023 and 2022, respectively, and $30,000 for each of the three months ended September 30, 2023 and 2022, respectively, on the Company’s unaudited condensed consolidated statements of operations and comprehensive loss. At September 30, 2023 and December 31, 2022, U.S. Asian was owed $0 and $260,000, respectively, for accrued and unpaid services. Officers On January 11, 2022, the Company entered into an employment agreement with Marilyn Elson to serve as Chief Financial Officer of the Company for a three-year term with an option for the Company and Ms. Elson to extend the term for an additional two years. On September 21, 2023, Ms. Elson provided the Company notice that she will step down as Chief Financial Officer effective November 1, 2023. After this date, Ms. Elson will continue as Controller for Nexalin Technology. Ms. Elson is the spouse of the other member of U.S. Asian. On July 1, 2023, the Company entered into a new employment agreement with Mark White to serve as Chief Executive Officer, a new services agreement with David Owens, M.D. to serve as Chief Medical Officer and a new employment agreement with Michael Nketiah to serve as Senior Vice President, Quality, Regulatory and Clinical Affairs. Each of the foregoing agreements are governed by three-year terms and provide compensation in the form of performance-based stock option awards, subject to and contingent upon approval and adoption of the Board of Directors, as well as approval of the stockholders and, in all cases, based on the closing price of the Company’s publicly-traded common stock on the applicable date of grant. Under the terms of his employment agreement, Mr. White is entitled to (i) a sign-on/retention bonus consisting of a one-time lump-sum payment of $50,000 and a grant of nonqualified stock options to purchase shares of the Company’s common stock with an exercise price equal to $400,000 (subject to shareholder approval), and (ii) stock option grants to purchase shares of the Company’s common stock with an exercise price equal to $840,000 (subject to shareholder approval.) Under the terms of his service agreement, Mr. Owens is entitled to (i) a sign-on/retention bonus consisting of a grant of nonqualified stock options to purchase shares of the Company’s common stock with an exercise price equal to $125,000 (subject to shareholder approval) and (ii) stock option grants to purchase shares of the Company’s common stock with an exercise price equal to $585,000 (subject to shareholder approval.) Under the terms of his employment agreement Mr. Nketiah is entitled to stock option grants to purchase shares of the Company’s common stock with an exercise price equal to $90,000 (subject to shareholder approval.) In addition to the payments stock and option grants described above, each of Messrs. White, Owens and Nketiah are receiving cash compensation and are eligible for additional cash bonuses. Pursuant to the guidance in ASC 718 a grant date has not been established for the stock option awards “granted” to the senior employees as 1) shareholder approval for the awards, which is not a formality or perfunctory, has not been obtained and 2) the specific performance criteria has not been established. Once a grant date has been established the company plans to recognize and measure the awards in accordance with ASC 718. Loan Payable – Officer On November 1, 2021, the Company received $200,000 as a loan from the Company’s Chief Executive Officer. The loan had a principal of $200,000, an interest rate of 9%, and a maturity date of the earlier of (i) October 31, 2022 or (ii) the date of the consummation of the initial public offering. The note was amended as of January 1, 2023 to extend the due date to March 17, 2023 and to provide that interest payable on the maturity date will be $39,000 less any interest payments previously made. Total interest expense on this note was $18,000 and $13,500 for the nine months ended September 30, 2023 and 2022, respectively. The December 31, 2022 outstanding principal balance of $200,000 was satisfied by a payment on March 17, 2023. The March 31, 2023 outstanding interest balance of $34,500 was satisfied by a payment on April 26, 2023. Leases Our principle executive office is located at 1776 Yorktown, Suite 550, Houston, Texas 77056. Under ASC 842 “Leases”, we have two separate sub-leases (through IIcom Strategic Inc. controlled and owned by our Chief Executive Officer) totaling approximately 4,000 square feet of office space under operating leases. Management and supporting staff are hosted at this location. Our lease payments for fiscal year 2022 were $54,000. Our lease costs for each of the nine months ended September 30, 2023 and 2022 were $40,500. The sub-leases are due to expire in 2024. Pursuant to the sublease, we pay the third-party landlord (not the sub landlord) all direct and indirect rent costs under the primary lease directly for the leased premises. No additional payments are made to the Chief Executive Officer or the entity controlled by him.

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