10-Q: Cyber App Solutions Corp. Reports Q2 2024 Results, Faces Liquidity Challenges

Cyber App Solutions Corp. reports a net loss for Q2 2024 and highlights ongoing operational and financial challenges, including a working capital deficit and substantial debt obligations.

Summary

• Cyber App Solutions Corp. reported a net loss of $1.77 million for the three months ended June 30, 2024, and a net loss of $4.08 million for the six months ended June 30, 2024.
• The company's helium revenue was $195,954 for the three months ended June 30, 2024, and $418,042 for the six months ended June 30, 2024, due to the startup of their first helium plant.
• Operating expenses increased significantly, driven by depreciation, depletion, and gathering and processing costs associated with the new helium plant.
• The company has a working capital deficit of $26.89 million as of June 30, 2024, and faces substantial debt obligations, including $22.86 million owed on convertible notes.
• Cyber App Solutions has idled its sole helium plant due to mechanical issues and design limitations, impacting revenue generation.
• The company has no committed capital to address its material liquidity needs over the next twelve months and there is no assurance that the Company will raise the capital required.
• There is substantial doubt about the company's ability to continue as a going concern for a period of one year after the date that these condensed consolidated financial statements are issued.

Sentiment

Score: 2

Explanation: The document presents a very negative outlook due to significant financial losses, operational challenges, substantial debt, and going concern issues. The company's ability to continue operations is in doubt, and the risks outweigh any potential positives.

Positives

• The company generated helium revenue of $195,954 for the three months ended June 30, 2024, and $418,042 for the six months ended June 30, 2024, after starting production at its first helium plant.
• The company secured $8 million in funding through the issuance of Series A Preferred Stock on August 8, 2024, which was partially used to pay down debt.
• The company is evaluating strategies to restart the helium plant and generate sufficient cash flows to cover operating costs.

Negatives

• The company reported a net loss of $1.77 million for the three months ended June 30, 2024, and $4.08 million for the six months ended June 30, 2024.
• The company has a significant working capital deficit of $26.89 million as of June 30, 2024.
• The company is in default on its convertible notes, owing $22.86 million as of June 30, 2024.
• The company's sole helium plant has been idled due to mechanical issues and design limitations.
• The company has no committed capital to address its material liquidity needs over the next twelve months.
• The company has a history of recurring losses from operations.

Risks

• The company's ability to continue as a going concern is in doubt due to recurring losses and a lack of committed capital.
• The company faces significant financial risks due to its substantial debt obligations and ongoing defaults.
• The company's operational risks include the mechanical issues and design limitations of its helium plant, which have led to inefficient operations and lower helium recovery rates.
• The company is subject to legal risks, including ongoing litigation related to a $30 million debt claim.
• The company's future success depends on its ability to secure additional financing and achieve steady-state production at its helium plant.
• The company's assets are pledged as collateral for the 2023 Convertible Notes.

Future Outlook

The company plans to focus on plant designs that will allow it to continue developing its helium and CO2 reserves. The company expects its next significant capital outlay will be to install a plant capable of producing 100 thousand cubic feet per day of helium and 1,000 tons per day of liquid CO2. The company is evaluating debt and equity financing strategies to fund these capital expenditures.

Management Comments

• Management believes it can negotiate a settlement of the 2023 Convertible Notes at an amount less than owed.
• Management believes the claims asserted in the Alpha Carta Litigation have no merit and intends to vigorously defend them.
• Management is evaluating strategies to restart the helium plant and generate sufficient cash flows to cover operating costs.

Industry Context

The report highlights the growing demand for helium and CO2, with the company positioning itself to capitalize on these markets. The company notes the current helium shortage and the potential for CO2 supply disruptions, which could benefit the company if it can achieve steady-state production. The company also mentions the U.S. Department of Energy grant for a regional Direct Air Capture hub, which could provide additional opportunities.

Comparison to Industry Standards

• The company's financial performance is significantly below industry standards for profitability, with substantial net losses and a large working capital deficit.
• The company's operational challenges, including the idling of its helium plant, are not typical for established producers in the helium and CO2 sectors.
• The company's reliance on debt financing and its current default status are concerning compared to industry peers with more stable financial structures.
• The company's production volumes are low compared to established helium producers, and its ability to scale production remains uncertain.
• The company's legal challenges and contingent liabilities are also a significant concern compared to industry peers with more stable legal positions.
• The company's lack of committed capital and going concern issues are not typical for companies in the resource extraction industry.

Corporate Governance

Legal Proceedings

• The company is involved in a legal action where a potential lender is seeking a $1 million break-up fee related to a commitment letter.
• The company is also involved in a lawsuit filed by Alpha Carta, Ltd., alleging breach of promissory notes and seeking over $30 million in damages.
• The company believes the claims asserted in the Alpha Carta Litigation have no merit and intends to vigorously defend them.

Related Party Transactions

• The company had advisory consulting agreements with TPG Commercial Finance, an entity in which Jim Culver, a principal owner of the company, is the President/Owner.
• The company received human resource services from an immediate family member of a named executive officer.
• The company loaned $25,000 to VVC Resources, an entity in which Jim Culver is the President and CEO.
• The company shares office space with Pantheon Resources, PLC, an entity where the company's Chairman of the Board of Directors serves as Executive Chairman.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and potential inability to continue as a going concern.
• Employees face uncertainty due to the company's financial challenges and potential operational changes.
• Creditors face risk due to the company's default on its convertible notes and potential inability to repay its debts.
• Customers may face uncertainty regarding the company's ability to deliver helium and CO2 due to operational challenges.
• Suppliers may face risk due to the company's financial instability and potential inability to pay for goods and services.

Next Steps

• The company plans to evaluate strategies to restart the helium plant and generate sufficient cash flows to cover operating costs.
• The company plans to negotiate a settlement of the 2023 Convertible Notes at an amount less than owed.
• The company plans to continue developing its helium and CO2 reserves.
• The company plans to install a plant capable of producing 100 thousand cubic feet per day of helium and 1,000 tons per day of liquid CO2.
• The company plans to evaluate debt and equity financing strategies to fund its capital expenditures.

Key Dates

Keywords

helium, carbon dioxide, CO2, liquidity, debt, convertible notes, financial results, operating expenses, net loss, plant operations, going concern, preferred stock, capital raise