10-Q: NEXT-ChemX Faces Going Concern Doubt Amid Audit Issues

NEXT-ChemX Corporation's latest 10-Q filing reveals significant financial deficiencies, auditor issues, and legal challenges, raising substantial doubt about its ability to continue as a going concern.

Summary

• The company's financial statements for the quarter ended June 30, 2025, have not been reviewed by a registered public accounting firm, rendering the report 'substantially deficient'.
• An accumulated deficit of $9,248,001 was reported as of June 30, 2025, an increase from $8,326,436 at December 31, 2024.
• Net loss for the three months ended June 30, 2025, was $455,639, an increase from $383,379 for the same period in 2024.
• Net loss for the six months ended June 30, 2025, was $921,565, compared to $939,787 for the same period in 2024.
• Cash on hand decreased to $22,041 as of June 30, 2025, from $62,547 at December 31, 2024.
• Total liabilities increased to $6,993,455 as of June 30, 2025, from $6,156,770 at December 31, 2024.
• The company used $535,506 in cash from operating activities for the six months ended June 30, 2025, an improvement from $861,765 used in the prior year period.
• The company issued $495,000 in new convertible notes during the six months ended June 30, 2025, bringing the total outstanding convertible debt to $2,080,004.
• A legal 'Turnover Order' was issued on April 26, 2024, requiring the company to turn over 15,866,096 common shares, which the company is appealing.
• The company terminated its transfer agent, Empire Stock Transfer Inc., on May 23, 2024, due to their intent to act on the Turnover Order.
• The first of two pilot plant systems for iTDE Technology is expected to be completed during the third quarter of 2025.
• The company estimates it will need to raise approximately $3 million during the remaining quarter of fiscal 2025 to manage its business needs, contingent on shareholder debt conversion and employee agreements.
• Internal control over financial reporting was still not effective as of June 30, 2025, due to identified material weaknesses.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to the 'substantially deficient' financial statements (unreviewed by auditors), explicit doubt about the company's ability to continue as a going concern, persistent accumulated and working capital deficits, and significant legal challenges regarding share ownership. While the technology has potential, the severe financial and governance issues overshadow any positive developments.

Positives

• Net cash used in operating activities decreased to $535,506 for the six months ended June 30, 2025, from $861,765 in the prior year period, indicating improved cash management.
• Overall operating expenses for the six months ended June 30, 2025, declined to $814,645 from $939,932 in the same period of 2024, reflecting cost reduction efforts.
• The company refiled its 2023 Annual Report on Form 10-K/A with fully audited financial statements and its Q1 2024 quarterly report (10-Q/A) reviewed by its new auditors, Fruci & Associates II PLLC.
• Progress is being made on the construction of the first pilot plant system in India, which is crucial for commercialization efforts.
• The company is exploring complementary technologies, such as nano-filtration systems, to enhance its iTDE Technology and potentially reduce costs.

Negatives

• The financial statements for the current reporting period (Q2 2025) and several prior periods (2024 annual, Q2 2024, Q4 2024, Q1 2025) have not been reviewed or audited by the company's auditors, making the report 'substantially deficient'.
• The company has incurred continuous losses since inception, resulting in an accumulated deficit of $9,248,001 as of June 30, 2025.
• A working capital deficit has persisted since April 2021, indicating severe liquidity issues.
• The company has found it difficult to raise money on capital markets and relies extensively on existing shareholders and deferred payments to employees and contractors for funding.
• Net loss for the three months ended June 30, 2025, increased by $72,260 (19%) compared to the same period in 2024, primarily due to increased interest expense and legal fees.
• The company's internal control over financial reporting was still not effective as of June 30, 2025, due to identified material weaknesses.
• Preferred stock subscriptions (Class A and Class F) totaling 40,000 shares were cancelled due to non-payment by subscribers, including a director.
• Debt Extension Agreements with senior employees and consultants, which would defer significant salary payments, have not yet entered into force due to unmet conditions.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses and a persistent working capital deficit.
• The company's ability to meet its obligations and repay liabilities is dependent on generating profitable operations or obtaining additional financing, which is uncertain.
• There is no assurance that the estimated $3 million in required financing will be available in the necessary timeframe or that commercialization plans will be fulfilled without additional funding.
• The company relies heavily on advances from principal shareholders and the forbearance of employees and consultants to forgo salaries, with no guarantee of continued support.
• Ongoing litigation related to a 'Turnover Order' for 15,866,096 common shares could prevent the company from raising funding by issuing equity and has led to the termination of its transfer agent.
• The ineffectiveness of disclosure controls and procedures and material weaknesses in internal control over financial reporting pose significant financial reporting risks.
• Potential significant dilution of existing shareholders if outstanding debt to employees, consultants, and shareholders is converted into common stock at a discount.
• Scaling back of intellectual property protection strategy in the near term due to lack of funding could expose the company's core technology.

Future Outlook

The company anticipates more losses before its iTDE Technology commercialization can break even or turn a profit. The primary focus is on completing the first pilot plant system in Q3 2025 to demonstrate the technology's commercial benefits and extraction economics to potential customers. The company plans to conduct initial extraction tests on synthetic brine solutions, followed by actual brine samples around October 2024. Future plans include exploring alternative feedstock sources in the US, developing additional and complementary technologies, and eventually opening corporate offices and manufacturing facilities in the US. Management intends to finance operating costs over the next twelve months through existing cash, loans from directors, employees, and consultants (with deferred payments), shareholder investments, share sales, loan repayments, and smaller private placements of common stock. The company also anticipates introducing required measures for FASB ASU 2025-04 earlier than the December 15, 2026, deadline.

Management Comments

• The present deficiency in the company's filings is entirely due to circumstances beyond the company's control (referring to auditor issues).
• The company has no reason to believe that this present Quarterly Report filed on Form 10-Q is in any way inaccurate.
• Management anticipates more losses before the commercialization of the system can be expected to break-even or to turn a profit.
• Management believes that it will require a total of $624,048 in payments from any financing received, as well as sufficient operating capital to see its plans to successful conclusion.
• The company estimates it will need to raise an estimated $3 million during the remaining quarter of fiscal 2025 to manage its business needs, provided existing shareholder debt is converted into equity as planned and agreements with employees and consultants go into effect as agreed.
• Management considers it preferable to focus on the pilot plant work, which has led to an overall reduction in expenses prior to reengaging in other activities.
• Management considers the iTDE Technology to be more environmentally friendly and sustainable when compared to alternatives.

Industry Context

The company operates in the critical minerals extraction and water treatment sectors, focusing on its novel Ion-Targeting Continuous-Flow Direct Extraction Technology (iTDE Technology). This technology aims to extract lithium from natural brines and geothermal sources, as well as liquors from leached mined ore solutions. Its potential applications extend to extracting fatty acids, radioactive ions, and other metal ions, and for seawater desalination. The iTDE Technology is positioned as an environmentally friendly and sustainable alternative due to its ability to operate without concentration by evaporation, pressure, or additional heating, and its targeted ion extraction, reducing environmental interference and energy costs. The company's partnership with Clontarf Energy plc for a lithium project in Bolivia and its exploration of US feedstock sources highlight its engagement with global and domestic strategic material initiatives.

Comparison to Industry Standards

• The iTDE Technology is presented as a more environmentally friendly and sustainable alternative to traditional methods for lithium and other ion extraction, by avoiding evaporation ponds, high pressure, or additional heating, which are common in conventional brine processing.
• The modular configuration of the iTDE system is designed for scalability, which is a key advantage for commercial deployment in remote or industrial settings, allowing for increased extraction potential by adding more units.
• The technology's ability to target specific ions reduces the need for further operations and increases the potential for co-product sales, potentially offering better economics compared to less selective extraction processes.
• While specific comparable companies or projects are not detailed, the company's engagement with an Indian engineering firm for nano-filtration systems suggests an effort to integrate advanced pre-treatment solutions, potentially improving efficiency and cost-effectiveness in challenging brine compositions, such as those with high divalent ion concentrations (e.g., magnesium and calcium), which are known challenges for many direct lithium extraction technologies.

Corporate Governance

Legal Proceedings

• A Third Turnover Order was entered on April 26, 2024, by the Midland County District Court in Midland, Texas, requiring the company to turn over 15,866,096 of its common shares to a Texas corporation/receiver, despite the company's assertion that it was not involved in the underlying lawsuit and the order is illegal.
• The Turnover Order is currently on appeal with the Texas Court of Appeals for the 11th District in Eastland, Texas.
• The company terminated Empire Stock Transfer Inc. as its transfer agent on May 23, 2024, after Empire indicated its intent to issue the shares covered by the Turnover Order, leading Empire to subsequently cancel the shares and issue new certificates to the receiver.

Related Party Transactions

• The company relies on advances from related parties, including principal shareholders, directors, officers, consultants, and employees, to fund its operations and meet cash requirements.
• Nonpayment of all or a portion of salary payments to senior Directors, Officers, consultants, and employees effectively constitutes a deferred debt payment to these persons.
• As of June 30, 2025, $2,229,271 was owed to seven Directors, Officers, and employees for salaries, remuneration, and expenses, including $352,601 owed to the two Senior Managers (Benton Wilcoxon and John Michael Johnson).
• Debt Extension Agreements concluded on February 29, 2024, with senior employees and consultants allow for the conversion of their outstanding debt into common stock at a discounted price (5% lower than the 5-day average trading price or 5% lower than a reported offering price), which could lead to significant dilution.
• A loan agreement with ETD Co ($496,025 principal, $52,016 interest as of June 30, 2025) was with a company previously owned and managed by a former officer and senior employee, although they had no involvement in the loan negotiation or subsequent business after April 1, 2024.

Stakeholder Impact

• **Shareholders:** Face significant risks of dilution from potential debt-to-equity conversions, uncertainty due to the 'substantially deficient' financial statements, ongoing legal challenges impacting share ownership, and the explicit doubt about the company's ability to continue as a going concern.
• **Employees and Consultants:** A substantial amount of remuneration and expenses ($2,229,271) is owed to them, with repayment terms contingent on the Debt Extension Agreements entering into force, creating financial uncertainty for these key personnel.
• **Creditors:** Increased total liabilities ($6,993,455) and the company's going concern doubt raise concerns about the timely repayment of debts, including accounts payable, accrued payroll, and accrued interest.
• **Customers/Potential Customers:** Commercialization of the iTDE Technology is dependent on the completion and successful demonstration of pilot plants; delays or financial instability could impact the company's ability to deliver on potential contracts and partnerships.
• **Regulatory Authorities (SEC):** The report is deemed 'substantially deficient' due to unreviewed financial statements, indicating non-compliance with SEC reporting standards and potentially inviting further regulatory scrutiny.

Next Steps

• Complete the construction of the first pilot plant system in India during the third quarter of 2025.
• Begin running extraction tests on brine solutions, starting with synthetic brines and then actual brine samples (expected around October 2024).
• Launch commercial testing and deployment of the iTDE system following successful completion and trial of the pilot plant.
• Identify further commercial opportunities for feedstock to advance the commercialization process.
• Explore alternative feedstock sources with commercial potential, particularly in the US.
• Focus on developing additional and complementary technologies, such as membrane advances and milling technology.
• Raise an estimated $3 million in capital during the remaining quarter of fiscal 2025.
• Work towards the conversion of existing shareholder debt into equity or its extension beyond fiscal 2026.
• Ensure Debt Extension Agreements with employees and consultants enter into force.
• Issue the company's own means of payment in the future to improve efficiency and transparency in financial controls.
• Continue to improve the control environment to establish effective internal controls and satisfy auditors.
• Continue the appeal of the Turnover Order with the Texas Court of Appeals for the 11th District.
• Anticipate introducing required measures for FASB ASU 2025-04 earlier than the December 15, 2026, deadline.
• Plan to open corporate offices and manufacturing facilities in the US in the future.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a substantial accumulated deficit, persistent working capital deficit, and explicit doubt about its ability to continue as a going concern. The financial statements are 'substantially deficient' due to a lack of auditor review, a critical red flag for investors. Internal controls over financial reporting are ineffective, indicating poor financial oversight. Furthermore, a major legal dispute threatens the ownership of a significant block of common shares, leading to the termination of their transfer agent. While the underlying iTDE technology may hold long-term promise, the immediate and overwhelming financial, governance, and legal risks make the stock highly speculative and unsuitable for investment. The reliance on related party funding and deferred employee payments underscores severe liquidity constraints and an unsustainable operational model in its current state.

Keywords

Lithium extraction, iTDE Technology, Direct Lithium Extraction, SEC filing, 10-Q, Financial reporting, Going concern, Corporate governance, Risk management, Mining technology, Brine, Geothermal, Water treatment