Nexalin Technology Inc

EXECUTIVE AND DIRECTOR COMPENSATION

Our named executive officers for the year ended December 31, 2023, which consist of our principal executive officer and our other most highly compensated executive officers, were:

Mark White, our President, Chief Executive Officer and Chief Financial Officer

Marilyn Elson, former Chief Financial Officer (to November 1, 2023)

David Owens, M.D., our Chief Medical Officer

Michael Nketiah, our Senior Vice President of Quality, Clinical and Regulatory

Summary Compensation Table

The following table presents the compensation awarded to, earned by, or paid to our named executive officers, during the two (2) years ended December 31, 2023 and 2022.

Narrative to Summary Compensation Table

We review compensation annually for all employees, including our executives. In setting executive base salaries and bonuses and granting equity incentive awards, we consider compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders and a long-term commitment to our company.

The compensation committee of our board of directors has historically reviewed and made recommendations to our board of directors regarding our executives’ compensation. Our compensation committee typically reviews and discusses management’s proposed compensation with the chief executive officer for all executives other than the chief executive officer. Based on those discussions and its discretion, the compensation committee then recommends compensation for each executive officer for approval by our board of directors. To date, our compensation committee has not adopted a peer group of companies for purposes of determining executive compensation.

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. Effective November 1, 2023 Ms. Elson has stepped down as Chief Financial Officer. She continues as Controller for Nexalin. 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-and service-based stock option awards based on the closing price of the Company’s publicly traded common stock on the applicable date of grant.

Under the terms of his employment agreement, Mr. White is entitled to a sign on/retention bonus of $50,000 and 447,427 vested stock options. In addition, Mr. White may earn performance based compensation of 939,597 stock options and $120,000 per annum. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 313,199 options and $120,000 were approved by the Board. All options are exercisable at $.894.

Under the terms of his service agreement, Dr. Owens was awarded a sign on/retention bonus of 139,821 vested stock options and 654,363 performance based stock option exercisable at $.894 per share. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. The 2023 performance criteria was met and 218,121 options were approved by the Board. The exercise of these options is subject to vesting.

Under the terms of his employment agreement Mr. Nketiah was awarded 100,671 performance based stock option exercisable at $.894 per share. The performance based options may be awarded over three years based on annual performance based criteria and subject to vesting and continued employment. In addition, Mr. Nketiah may earn $30,000 per annum based on performance. The 2023 performance criteria was met and 33,557 options and $30,000 were approved by the Board. The exercise of these options is subject to vesting.

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

The reported amounts are calculated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, “Compensation — Stock Compensation (“ASC 718”). ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as the options issued under our 2023 Plan.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, the forfeiture rate and expected volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics different from those of our traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus assumes a 0% dividend yield. We calculate the expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees and directors.

The awards are measured at the grant date fair value of the equity instruments to be issued, and the Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant. For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.

It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.

Annual Base Salary

Base salaries for our executives are initially established through arm’s length negotiation at the time the executive is hired, considering such executive’s qualifications, experience, prior salary, the scope of his or her responsibilities and competitive market compensation paid by other companies for similar positions within the industry. Base salaries are to be reviewed annually in January by our compensation committee and approved by our board of directors in connection with our annual performance review process. Salaries may be adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. In making decisions regarding salary increases, we may also confer with a compensation consultant or draw upon the experience of members of our board of directors with other companies. The 2023 and 2022 base salaries of our named executive officers are as follows:

Health and Welfare Benefits

We adopted a company medical benefit plan in fiscal year 2023 and all employees are eligible to participate. The Company believes that the plan is usual and customary in nature to provide health coverage for all employees.

Non-Employee Director Compensation

Non-employee directors Alan Kazden, Ben Hu, M.D. and David Owens, M.D. are each to receive shares of our common stock equal to $35,000 per annum. Leslie Bernhard is to receive $18,000 per annum in cash and $17,000 per annum in our common stock.

Our policy of compensating our non-employee directors is intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’ interests with those of our stockholders. On November 10, 2023, the 2023 Equity Incentive Plan (the “2023 Plan”) was approved by our stockholders.

Each member of the Board has been granted an award for their service during 2023 and upcoming 2024 in the form of an alternative grant to receive either common stock or nonqualified stock options with a value of $35,000.

The 2023 Plan permits the grant of non-statutory and incentive stock options, restricted stock awards, performance awards, stock bonus awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the 2023 Plan is 1,500,000 shares.

On July 1, 2023, the Board granted fully vested nonqualified stock options of 447,427 to Mark White pursuant to his Employment agreement and 139,821 of fully vested nonqualified stock options to Dr. David Owens pursuant to his Services agreement.

In addition, the Board has granted 939,597 and 654,363 nonqualified stock options to Mr. White and Dr. Owens, respectively subject to maximum performance-based and service-based vesting conditions.