10-Q: NEXT-ChemX Corporation Reports Deficient Q3 Results Amidst Auditor Issues and Legal Challenges

NEXT-ChemX Corporation's Q3 2024 report is deemed deficient due to the inability of their new auditor to complete a review, while the company also faces legal challenges and going concern doubts.

Summary

• NEXT-ChemX Corporation's Q3 2024 report is unaudited and considered deficient because the new auditor, Fruci & Associates, could not complete the review due to a heavy workload and the need to re-audit the 2023 annual report.
• The company's previous auditor, BF Borgers CPA PC, was barred from practicing before the SEC.
• The company is reviewing its amortization policy for its intangible asset, which could lead to a restatement and a significant reduction in the asset's value.
• The company reported a net loss of $1,219,391 for the nine months ended September 30, 2024, compared to a loss of $1,778,554 for the same period in 2023.
• Operating activities used $1,033,072 in cash for the nine months ended September 30, 2024, compared to $366,458 for the same period in 2023.
• The company has an accumulated deficit of $7,273,354 as of September 30, 2024, and faces substantial doubt about its ability to continue as a going concern.
• The company needs to raise an estimated $3 million to manage its business needs and expansion, assuming certain debt deferral and conversion agreements are met.
• The company is involved in a legal dispute where a court ordered the transfer of 15,866,096 of its common shares, a decision the company is appealing.
• The company's primary focus is on the commercialization of its iTDE Technology, with two pilot plants under development.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the deficient financial report, auditor issues, legal challenges, going concern doubts, and the need for a significant capital raise. While there is some progress on the technology development, the financial and legal risks outweigh the positives.

Positives

• The company is actively working with a new auditor to complete the re-audit of the 2023 annual report and the reviews of the previous and current quarterly reports.
• The company's net loss decreased to $1,219,391 for the nine months ended September 30, 2024, compared to $1,778,554 for the same period in 2023.
• The company is making progress on the construction of two pilot plant systems for its iTDE Technology.
• The company has received small brine samples from Clontarf Energy for testing.
• The company is working with Indian partners to test a nano-filtration system to remove divalent ions.

Negatives

• The Q3 2024 report is unaudited and considered deficient.
• The company's previous auditor was barred from practicing before the SEC.
• The company is facing a potential restatement of its intangible asset value due to a review of its amortization policy.
• The company has a significant accumulated deficit of $7,273,354.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company is involved in a legal dispute that could result in the loss of 15,866,096 common shares.
• The company needs to raise an estimated $3 million to manage its business needs and expansion.
• Operating activities used $1,033,072 in cash during the first nine months of 2024, a significant increase from the $366,458 used in the same period in 2023.

Risks

• The company's financial statements may be unreliable due to the lack of an auditor's review.
• The potential restatement of the intangible asset could significantly reduce its balance sheet value.
• The company's ability to continue as a going concern is uncertain due to its accumulated deficit and ongoing losses.
• The company may not be able to raise the necessary $3 million in financing.
• The legal dispute could result in the loss of a significant number of common shares.
• The company's reliance on related party advances and deferred payments may not be sustainable.
• The company's intellectual property protection strategy has been scaled back due to a lack of funding.
• The company's pilot plant trials may not be successful, impacting the commercialization of its technology.

Future Outlook

The company anticipates further losses until the pilot plant is completed and commercialization of its technology begins. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors, and/or the private placement of common stock. The company plans to open new corporate offices and commence the organization of its initial production facility based on the results of the pilot plant trials.

Management Comments

• Company management considers this asset to be intangible and indefinite since the value of the intellectual property is not based on a patent with a finite life but rather on the technical knowhow supported by certain patents.
• The present deficiency is entirely due to circumstances beyond the control of the Company.
• The Company has been working diligently with Fruci & Associates to complete first 2023 10-K reaudit and has received initial notice that the audit is nearing completion.
• Notwithstanding the above possible restatement of the value of the technology of the Company due to the application of amortization, the Company has no reason to believe that either this present 2024 10-Q or any of the previously issued financial statements cannot be relied upon because of an error in the statements.
• Management believes that the Companys capital requirements will depend on many factors including the continuing and expanding success of the Companys development efforts.
• Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and, or the private placement of common stock.

Industry Context

The company's focus on lithium extraction and other metal recovery aligns with the growing demand for these resources in the battery and renewable energy sectors. The development of a more environmentally friendly and cost-effective extraction technology could provide a competitive advantage in the market. The company's technology also has potential applications in water treatment and other industries, which could diversify its revenue streams.

Comparison to Industry Standards

• The company's lack of revenue and significant losses are not uncommon for early-stage technology companies, particularly those in the resource extraction sector.
• The company's reliance on debt financing and related party transactions is also typical for companies at this stage, but it increases the risk of financial instability.
• The company's intangible asset valuation and amortization policy are unusual, as most companies amortize such assets over their useful life. This could be a point of concern for investors.
• The legal challenges faced by the company are a significant risk and could impact its ability to operate and raise capital.
• Compared to established lithium producers like Albemarle or SQM, NEXT-ChemX is in a very early stage of development and faces significant challenges in scaling up its technology and achieving commercial viability.
• The company's technology is similar to other direct lithium extraction (DLE) technologies being developed by companies like Lilac Solutions and EnergyX, but it is unclear how competitive its technology will be in the long run.

Legal Proceedings

• The company is involved in a legal dispute where a court ordered the transfer of 15,866,096 of its common shares.
• The company is appealing this ruling to the Texas Court of Appeals.
• The company has engaged a securities attorney to file a formal complaint with the SEC regarding the unlawful attempt to transfer the shares.
• The company's Nevada counsel intends to file a complaint in the U.S. District Court for Nevada seeking damages and an immediate recission of the Turnover Order.

Related Party Transactions

• The company relies on advances from related parties in support of its operations.
• As of September 30, 2024, Directors, Officers and employees, including full time consultants, were owed a total of $2,163,254 for salaries, remuneration and expenses.
• The company issued 20,000 shares of preferred stock to John Michael Johnson, a director of the company holding the senior management positions of President and CFO.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability, legal challenges, and going concern doubts.
• Employees and consultants are owed significant amounts in deferred salaries and may face uncertainty about future payments.
• Customers may be hesitant to engage with the company due to the delays in the pilot plant development and the company's financial situation.
• Suppliers and creditors may be concerned about the company's ability to meet its obligations.

Next Steps

• The company will continue working with Fruci & Associates to complete the re-audit of the 2023 annual report and the reviews of the previous and current quarterly reports.
• The company will continue the construction and testing of its two pilot plant systems.
• The company will begin testing customer brines in the pilot plant in the first quarter of 2025.
• The company will appeal the court order requiring the transfer of 15,866,096 common shares.
• The company will seek to raise an estimated $3 million in financing.
• The company plans to open new corporate offices and commence the organization of its initial production facility based on the results of the pilot plant trials.

Key Dates

Keywords

iTDE Technology, Lithium Extraction, Financial Statements, Auditor, Going Concern, Intangible Asset, Legal Proceedings, Pilot Plant, Amortization, Brine, Mining, Water Treatment