10-Q/A: NEXT-ChemX Restates Q3, Faces Legal Battles & Funding Woes

NEXT-ChemX Corporation filed an amended quarterly report, restating financials due to auditor issues and reclassifying its core technology, while grappling with significant legal challenges and a substantial accumulated deficit.

Summary

• Financial statements for the quarter ended September 30, 2024, and prior periods were restated following the former auditor's (BF Borgers CPA PC) denial of practice before the SEC, with Fruci & Associates II PLLC appointed as the new auditor.
• The company's iTDE Technology, previously an indefinite intangible asset, was reclassified as a finite intangible asset, resulting in a $570,484 adjustment to asset value and a $262,119 amortization charge as of September 30, 2024.
• The balance sheet was readjusted to include $308,365 of retained earnings.
• Issuances of 20,000 Class A and 20,000 Class F Preferred Stock were restated and subsequently cancelled because the subscriptions were never paid.
• Additional disclosure was provided regarding a loan to ETD Co, a third-party company previously owned by a former officer and senior employee, and the repayment of a high-interest short-term loan with a Series F convertible note.
• Net loss for the three months ended September 30, 2024, was $380,482, a significant reduction from $922,857 for the same period in 2023.
• Net loss for the nine months ended September 30, 2024, was $1,320,269, compared to $1,778,554 for the same period in 2023.
• Operating expenses decreased by 18% for the three-month period and by $137,614 for the nine-month period, primarily due to shifting operations to India and reorganizing human resources.
• The company faces substantial doubt about its ability to continue as a going concern, with an accumulated deficit of $7,832,379 as of September 30, 2024.
• An estimated $3 million in additional capital is required to manage business needs.
• The company initiated multiple lawsuits against Sparkie Properties LLC, Glenn A. Little, and Empire Stock Transfer Inc. concerning the alleged unlawful seizure of 15,866,096 common shares.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, explicitly stating "substantial doubt" about its ability to continue as a going concern. It has a significant accumulated deficit, a substantial increase in cash used in operations, and a critical need for $3 million in capital with no assurance of securing it. The ongoing legal battles over a large block of shares, the restatement of financials due to auditor issues, and the acknowledged ineffectiveness of internal controls create an extremely high-risk investment profile. The reliance on deferred payments to employees and related party loans further highlights its precarious financial position. Despite some cost reductions and reduced net losses, these are overshadowed by the fundamental financial health and operational risks.

Positives

• Net loss for the three months ended September 30, 2024, significantly reduced to $380,482 from $922,857 in the prior year, representing a $542,375 improvement.
• Net loss for the nine months ended September 30, 2024, reduced to $1,320,269 from $1,778,554 in the prior year, a $458,285 improvement.
• Operating expenses decreased by 18% for the three-month period and by $137,614 for the nine-month period, reflecting cost reduction efforts and a strategic shift of operations to India.
• The company successfully extinguished a high-interest short-term loan by issuing a Series F convertible note, improving debt terms.
• Progress is being made on the construction of the first of two pilot plant systems in India, crucial for the commercialization of the iTDE Technology.
• Received brine samples from Clontarf Energy plc for testing, indicating ongoing commercial partnership activities and potential future revenue streams.
• Exploring alternative feedstock sources in the US, particularly in areas with high environmental considerations, which could expand market opportunities.

Negatives

• The company has an accumulated deficit of $7,832,379 as of September 30, 2024, and has incurred losses since inception.
• There is substantial doubt regarding the company's ability to continue as a going concern.
• Cash used in operating activities significantly increased to $1,033,072 for the nine months ended September 30, 2024, compared to $366,458 for the same period in 2023.
• The company requires an estimated $3 million in additional capital to manage its business needs, with no assurance that such financing will be available.
• The reclassification of the iTDE Technology from an indefinite to a finite intangible asset resulted in a $570,484 adjustment to asset value and a $262,119 amortization charge.
• Preferred stock subscriptions for 40,000 shares (Class A and Class F) were cancelled due to non-payment, highlighting funding difficulties.
• Multiple legal proceedings have been initiated against the company and its officers, including a dispute over the alleged unlawful seizure of 15,866,096 common shares.
• Internal control over financial reporting was still not effective as of September 30, 2024.
• Shareholders supporting the company are becoming impatient with the pace of pilot plant completion, which may affect future funding levels.
• Interest expense significantly increased to $49,455 for the three months and $128,351 for the nine months ended September 30, 2024, compared to prior periods.
• A total of $2,544,967 in salaries, remuneration, and expenses is owed to directors, officers, employees, and full-time consultants as of September 30, 2024.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to accumulated losses and a working capital deficit.
• Inability to raise the estimated $3 million in additional capital needed to meet obligations and fund operations, with no assurance of future financing availability.
• Delays in completing the pilot plant systems could hinder the commercialization of the iTDE Technology and delay revenue generation.
• Uncertainty in achieving commercial viability and profitability from the iTDE Technology, as further losses are anticipated before break-even or profit.
• Ongoing legal proceedings related to alleged unlawful share seizure and a class action settlement against the former auditor could result in significant financial and reputational damage.
• The company has scaled back its intellectual property protection strategy in the near term due to a lack of funding, potentially exposing its core asset.
• Internal control over financial reporting was still not effective as of September 30, 2024, increasing the risk of financial misstatements.
• Reliance on existing shareholders and deferred payments to employees and consultants for funding is unsustainable and poses a risk to operations.
• Potential significant dilution of common stock from the conversion of outstanding debt (including to employees and consultants) at a discount.
• Exposure to international, national, and local general economic and market conditions, demographic changes, and competition.
• Risks associated with existing government regulations and changes in, or failure to comply with, government regulations.
• Challenges in attracting and retaining qualified personnel, especially given deferred payments.
• A high inflationary environment could make debt funding more expensive and less readily available.

Future Outlook

The company anticipates incurring more losses before the commercialization of its iTDE system can achieve break-even or profitability. Management expects to identify further commercialization opportunities once pilot demonstrations are successfully completed, which is projected to ease the working capital deficit. The first line of the smaller pilot plant system is expected to be completed during the fourth quarter of 2025, with actual brine samples anticipated to arrive in India for testing in the first quarter of 2026. Following successful trials, the company plans to launch commercial testing and deployment. While future plans include opening corporate offices and manufacturing facilities in the US, the immediate focus remains on shifting development and engineering work to India to accelerate pilot plant trials. The company estimates a need to raise an additional $3 million in capital and intends to finance operating costs over the next twelve months through existing cash, loans from directors and third parties, or private placement of common stock.

Management Comments

• "Management anticipates more losses before the commercialization of the system can be expected to break-even or to turn a profit."
• "Management believes that the Company's capital requirements will depend on many factors including the continuing and expanding success of the Company's development efforts the Company will require additional capital."
• "Management considers it preferable to focus on this work [pilot plant completion], and this has led to an overall reduction in expenses prior to reengaging in other activities."
• "Management has been aware for some time that the development of the pilot plants necessary would take longer and require considerably more funding if carried out in the US, and with a majority of the critical staff already resident outside the US and the lower costs of operating abroad, this strategy has proven beneficial."
• "The Company continues to improve its control environment with a view to establishing an effective control environment and to satisfying the Company auditors of the same."

Industry Context

NEXT-ChemX Corporation operates in the critical minerals extraction sector, specifically targeting lithium from brines and geothermal sources, and metals from mine leach solutions, utilizing its proprietary Ion-Targeting Continuous-Flow Direct Extraction Technology (iTDE Technology). This technology aims to offer a more environmentally friendly and sustainable extraction method by avoiding high energy consumption and large evaporation ponds. The company's focus on developing pilot plants and securing feedstock, such as through its partnership with Clontarf Energy plc in Bolivia, aligns with broader industry trends in Direct Lithium Extraction (DLE) as companies seek to prove scalability and commercial viability amidst increasing global demand for lithium. The exploration of complementary technologies, like nano-filtration, demonstrates an awareness of the complex challenges in brine pre-treatment. The strategic shift of development operations to India reflects a common approach for early-stage technology companies to manage costs and leverage global expertise.

Management Changes

Corporate Governance

Legal Proceedings

• **Sparkie Properties L.L.C. v. NextMetals Limited and Benton Wilcoxon**: A Third Turnover Order was issued on April 26, 2024, by a Texas court, requiring the company to turn over 15,866,096 common shares to Sparkie Properties L.L.C. The company and its attorneys believe the order is illegal and it is currently on appeal with the Texas Court of Appeals for the 11th District.
• **NEXT-ChemX Corporation (Nevada) v. Empire Stock Transfer Inc. and Glenn A. Little**: Filed on October 23, 2025, in Clark County, Nevada, seeking compensatory and exemplary damages for tortious interference with contract, corporate defamation, and breach of fiduciary duty by the former transfer agent and Glenn A. Little.
• **NEXT-ChemX Corporation (Nevada) v. Sparkie Properties LLC**: Filed on October 23, 2025, in Clark County, Nevada, alleging unlawful conversion of intangible personal property (shares) and violations of federal and state securities laws, seeking declaratory and injunctive relief.
• **NEXT-ChemX Corporation of Delaware v. Sparkie Properties LLC and Glenn A. Little**: Filed on October 22, 2025, in the Chancery Court of Delaware, seeking an order declaring the Texas default judgment null and void due to lack of due process and affirming the Delaware corporation's rightful ownership of the shares.
• **Electronic Servitor Publication Network, Inc. v. B F Borgers CPA PC, et al. (Class Action Settlement)**: A preliminary settlement of $8,000,000 has been reached for claims against the company's former auditor, BF Borgers CPA PC, for failing to perform audits as contracted. A court hearing for approval is set for December 11, 2025.

Related Party Transactions

• The company continues to rely on advances from related parties (directors, officers, consultants, and employees) through non-payment or deferral of salaries and expenses to support operations.
• As of September 30, 2024, $2,544,967 was owed to seven individuals employed by the company as Directors and Officers, employees, and full-time consultants, including $405,934 owed to the two Senior Managers (Benton Wilcoxon and John Michael Johnson).
• Debt Extension Agreements were concluded on February 29, 2024, with seven senior employees and consultants to defer payment of $2,232,636 owed to them, granting rights to convert debt into common stock at a discount. These agreements had not entered into force as of the report date.
• A loan agreement on April 4, 2024, with ETD Co (a third-party engineering and technology development company) is disclosed. ETD Co was previously owned and managed by a former officer and a senior employee of the company, though they had no involvement in the loan agreement after April 1, 2024, when ownership changed.
• John Michael Johnson, a director and senior officer, subscribed for 10,000 Class A Preferred Stock and 10,000 Class F Preferred Stock, both of which were subsequently cancelled due to non-payment.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential debt conversion, substantial uncertainty due to ongoing legal proceedings, explicit going concern doubt, and the need for future capital raises. The financial restatement and auditor issues also impact investor confidence and the reliability of past financial reporting.
• **Employees and Consultants**: A significant amount of deferred salaries and expenses ($2,544,967 owed) indicates financial strain and reliance on their forbearance. While Debt Extension Agreements offer potential equity conversion, their effectiveness is subject to future conditions, creating uncertainty for these key personnel.
• **Creditors**: The company's reliance on debt financing, some with high interest rates, coupled with the explicit going concern risk, directly impacts the likelihood and timing of repayment for existing loans and convertible notes.
• **Customers and Partners**: Commercialization efforts with partners like Clontarf Energy plc are ongoing but are contingent on the successful completion and demonstration of pilot plants. Delays in these critical milestones could impact future partnerships and revenue generation.
• **Regulatory Authorities**: The company's past auditor issues, financial restatements, and ongoing legal disputes highlight areas of concern for regulatory bodies, potentially leading to increased scrutiny.

Next Steps

• Complete the construction of the first of two pilot plant systems in India (expected Q4 2025).
• Receive and test actual brine samples in the pilot plant (expected Q1 2026).
• Conduct research into the extraction of other elements using the flexible pilot system.
• Engage with an Indian engineering company to test nano-filtration systems for pre-treatment of brines.
• Identify complementary technologies to expand the scope of the iTDE System.
• Raise an estimated $3 million in additional capital to fund operations and meet obligations.
• Improve the internal control environment and implement company-issued means of payment to enhance efficiency and transparency.
• Continue legal proceedings against Sparkie Properties LLC, Glenn A. Little, and Empire Stock Transfer Inc. regarding the alleged unlawful share seizure.
• Address the ongoing appeal of the Turnover Order in the Texas Court of Appeals.
• Attend the hearing for the class action settlement against former auditor BF Borgers CPA PC on December 11, 2025.
• Work towards meeting the conditions for the Debt Extension Agreements to enter into force after May 30, 2026, by converting or paying off shareholder debt.

Key Dates

Recommendation

The company faces severe financial instability, explicitly stating "substantial doubt" about its ability to continue as a going concern. It has a significant accumulated deficit, a substantial increase in cash used in operations, and a critical need for $3 million in capital with no assurance of securing it. The ongoing legal battles over a large block of shares, the restatement of financials due to auditor issues, and the acknowledged ineffectiveness of internal controls create an extremely high-risk investment profile. The reliance on deferred payments to employees and related party loans further highlights its precarious financial position. Despite some cost reductions and reduced net losses, these are overshadowed by the fundamental financial health and operational risks, making it a strong sell for any investor.

Keywords

Lithium extraction, iTDE Technology, Direct Lithium Extraction, SEC filing, 10-Q/A, financial restatement, intangible asset, pilot plant, corporate governance, legal proceedings, going concern, capital raise, CHMX, NEXT-ChemX Corporation, Clontarf Energy, convertible notes, related party transactions