Western Acquisition Ventures Corp.(WAVSU) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This part contains Cycurion, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the period ended June 30, 2025 Item 1. Financial Statements - (Unaudited) This section presents Cycurion, Inc.'s unaudited consolidated financial statements and comprehensive notes for the period ended June 30, 2025 Consolidated Balance Sheets This section presents the company's consolidated financial position, including assets, liabilities, and stockholders' equity Consolidated Balance Sheets | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Total Assets | $30,736,435 | $25,562,849 | | Total Liabilities | $20,287,582 | $20,177,782 | | Total Stockholders' Equity | $10,448,853 | $3,467,758 | Key Asset Changes (December 31, 2024 vs. June 30, 2025) | Asset Category | December 31, 2024 | June 30, 2025 | | :-------------------------- | :---------------- | :-------------- | | Cash and cash equivalents | $38,742 | $1,013,836 | | Accounts receivable, net | $10,353,708 | $4,118,888 | | Goodwill | $6,592,304 | $20,788,299 | Key Liability Changes (December 31, 2024 vs. June 30, 2025) | Liability Category | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :---------------- | :-------------- | | Factoring liability | $0 | $2,309,160 | | Subordinated convertible promissory notes | $3,333,335 | $0 | | Accounts payable | $3,578,374 | $5,088,223 | Consolidated Statements of Operations and Comprehensive (Loss)/Income This section details the company's revenues, expenses, and net loss or income for the specified periods Consolidated Statements of Operations and Comprehensive (Loss)/Income | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net revenues | $3,887,915 | $5,001,312 | $7,757,965 | $9,244,167 | | Gross profit | $235,937 | $1,024,162 | $913,700 | $1,370,876 | | Operating (loss)/income | $(3,766,077) | $729,372 | $(13,863,581) | $697,109 | | Net (loss)/income attributable to Cycurion | $(5,188,755) | $306,094 | $(15,437,241) | $(6,381) | | Basic EPS | $(0.15) | $0.02 | $(0.58) | $(0.00) | Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Six Months Ended) | Activity | June 30, 2025 | June 30, 2024 | | :---------------------------------------- | :-------------- | :-------------- | | Net cash used in operating activities | $(6,303,122) | $(850,413) | | Net cash provided by/(used in) investing activities | $1,695,523 | $(592,000) | | Net cash provided by financing activities | $5,580,645 | $1,032,678 | | Net increase/(decrease) in cash and cash equivalents | $973,046 | $(409,735) | | Cash and cash equivalents, end of period | $1,013,836 | $198,134 | Consolidated Statements of Changes in Stockholders' Equity This section presents changes in the company's equity accounts, including common stock, preferred stock, and accumulated deficit - Total Stockholders' Equity increased from $3,467,758 as of December 31, 2024, to $10,448,853 as of June 30, 2025[11] - Significant changes in equity include common stock redeemed ($1,001,216), release of common stock subject to redemption ($916,093), Series A preferred stock in exchange of Series A Preferred Stock categorized as liability ($1,391,176), Series D preferred stock in exchange of convertible notes ($3,333,335), common stock issued for exercise of warrants ($3,309,921), and common stock issued for business combination costs ($9,000,000)[11] - The company reported a net loss of $(10,248,486) for the period ending March 31, 2025, and $(5,188,755) for the period ending June 30, 2025[11] Notes to the Unaudited Consolidated Financial Statements This section provides detailed explanations of accounting policies, financial accounts, equity, commitments, and going concern risks 1. Organization and Description of Business This note describes Cycurion's corporate structure, business operations, recent business combination, and going concern status - Cycurion, Inc. was incorporated on October 12, 2017, in Delaware and provides information technology security solutions through its subsidiaries[13] - The company operates through Cycurion Sub, Inc., Axxum Technologies LLC, Cloudburst Security LLC, and Cycurion Innovation, Inc[14] - On February 14, 2025, Cycurion completed a business combination with Western Acquisition Ventures Corp., accounted for as a reverse recapitalization where Cycurion is the accounting acquirer[15][16] - As of June 30, 2025, the company had a net working capital deficit of $14.4 million and an accumulated deficit of $18.7 million, with a net cash outflow of $6.3 million from operating activities, raising substantial doubt about its ability to continue as a going concern[20] - Cycurion received multiple notices from Nasdaq in April and May 2025 regarding non-compliance with listing rules, including minimum bid price, market value of listed securities, market value of publicly held shares, and timely filing of its Form 10-Q (which was subsequently filed)[22][23][24][25] 2. Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the consolidated financial statements - The unaudited consolidated condensed financial statements are presented in conformity with GAAP and SEC rules, reflecting normal recurring adjustments[28] - The company operates in a single reporting segment and consolidates the accounts of Cycurion, Inc. and its wholly-owned subsidiaries: Axxum, Cloudburst, Cycurion Innovation, and SLG Innovation Inc[30][31] - Cycurion is an emerging growth company and has elected not to opt out of the extended transition period for new accounting standards, allowing it to adopt standards at the same time as private companies[34] - Revenue from contracts with customers is recognized using a five-step model, with services segregated into Advisory Consulting, Managed Security Service Practice (MSSP), Managed Service Provider (MSP), and Software as a Service (SaaS), each with specific recognition methodologies[50][52] Disaggregated Revenue | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Advisory consulting | $3,848,688 | $4,979,292 | $7,684,102 | $9,199,854 | | Managed security service practice (MSSP) | $35,555 | $18,348 | $67,068 | $36,969 | | Software as a service (SaaS) | $3,672 | $3,672 | $6,795 | $7,344 | | Total Revenue | $3,887,915 | $5,001,312 | $7,757,965 | $9,244,167 | - The company is currently evaluating the impact of ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2026, and December 31, 2025, respectively. ASU 2024-02 (Codification Improvements) is not expected to have a material impact[70][71][72] 3. Accounts Receivable, Net This note details the composition of accounts receivable and the allowance for credit losses Accounts Receivable, Net | Metric | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Accounts receivable | $4,118,888 | $10,353,708 | | Allowance for credit losses | $0 | $0 | | Accounts receivable, net | $4,118,888 | $10,353,708 | - No write-offs of outstanding receivables occurred during the three and six months ended June 30, 2025 and 2024[74] 4. Property and Equipment, Net This note provides a breakdown of the company's property and equipment, net of accumulated depreciation Property and Equipment, Net | Category | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :-------------------- | :----------------------------------- | :----------------------------------- | | Equipment | $996 | $3,677 | | Furniture and fixtures | $6,715 | $6,943 | | Leasehold improvements | $0 | $0 | | Capital lease | $3,107 | $3,107 | | Software | $6,014 | $6,594 | | Total | $16,832 | $20,321 | - Immaterial depreciation expense was recorded in cost of revenue and selling, general and administrative expenses during the periods[75] 5. Software Development Costs This note details the company's capitalized software development costs and their current development status Capitalized Software Development Costs | Period | June 30, 2025 | June 30, 2024 | | :------------------------------- | :-------------- | :-------------- | | Three Months Ended | $104,000 | $132,999 | | Six Months Ended | $174,000 | $238,000 | - The SaaS platform is still undergoing development and not ready for external sales; no amortization has been recorded during the three and six months ended June 30, 2025 and 2024[76] 6. Intangible Assets This note presents the company's intangible assets, including software, and related amortization expenses Intangible Assets, Net | Category | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :----------------------- | :----------------------------------- | :----------------------------------- | | Contractual relationship | $0 | $0 | | Implementation | $0 | $0 | | Software | $7,917 | $25,000 | | Total | $7,917 | $25,000 | - Amortization expense for intangible assets, presented in SG&A, was $8,750 for the three months ended June 30, 2025, and $17,083 for the six months ended June 30, 2025. No amortization was recorded in 2024[79] 7. Business Combination This note describes the acquisition of SLG Innovation, Inc., including purchase consideration and goodwill recognition - On March 31, 2025, Cycurion acquired a 51% equity interest in SLG Innovation, Inc., a technology services firm[84] - The total purchase consideration for the SLG acquisition was $13,538,306, including a $2,000,000 prepaid deposit, 1,008,282 shares of common stock, 51 shares of Series E Preferred Stock, and $10,814,147 of accounts receivable from SLG[86] - The acquisition resulted in the provisional recognition of $14,195,995 in goodwill[86] - The acquisition is accounted for as a business combination under ASC 805, with provisional amounts subject to change within a one-year measurement period ending March 31, 2026[85] 8. Goodwill This note provides a breakdown of goodwill by subsidiary, including the impact of the SLG Innovation acquisition Details of Goodwill | Subsidiary | June 30, 2025 | December 31, 2024 | | :--------- | :-------------- | :---------------- | | Axxum | $5,153,266 | $5,153,266 | | Cloudburst | $1,439,038 | $1,439,038 | | SLG | $14,195,995 | $0 | | Total Goodwill | $20,788,299 | $6,592,304 | - The acquisition of SLG Innovation Inc. on March 31, 2025, contributed $14,195,995 to goodwill, reflecting the strategic value of SLG's operations, expected synergies, and future growth potential[95] - No impairment of goodwill was recognized during the three and six months ended June 30, 2025 and 2024[45] 9. Bank Loans This note details the company's bank loans, including revolving credit lines, term loans, and collateral arrangements - The outstanding balance of the revolving credit line was $3,236,167 as of June 30, 2025, with a stated interest rate of 8.50%[101] - The bank term loan's maturity date was extended to March 22, 2024, with monthly principal repayments of $62,500 and a stated interest rate of 9.5% as of June 30, 2025[104][106] - The current portion of the bank loan was $620,078 as of June 30, 2025, compared to $774,095 as of December 31, 2024[106] - Axxum, Cloudburst, and Cycurion have pledged all equity and assets as collateral for the bank loans[107][108] 10. Loans Payable This note outlines various loans payable, including economic injury disaster loans and private loans, and their default status Details of Loans Payable | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Loan payable | $405,314 | $405,314 | | Loan payable - SLG | $264,379 | $0 | | Economic injury disaster loan - Cycurion | $150,000 | $150,000 | | Economic injury disaster loan - SLG | $157,220 | $0 | | Private loan payable | $203,623 | $0 | | Funded loans Payable | $1,180,536 | $555,314 | | Less: Unamortized debt-issuance costs and discounts | $0 | $0 | | Total loans payable | $1,180,536 | $555,314 | | Less: Current portion of long-term debt | $885,240 | $408,516 | | Long-term debt | $295,296 | $146,798 | - Several loans, including the RPA Loan ($405,314), Loan Payable-SLG ($264,379), and Private Loan payable ($203,623), are currently in default as of June 30, 2025[111][114][115] 11. Convertible Notes This note details the issuance and subsequent conversion of the company's convertible notes into equity Rollforward of Convertible Notes (December 31, 2024 to June 30, 2025) | Metric | Principal Value | Unamortized Discount and Issuance Costs | Carrying Balance | Weighted Average Interest Rate | Maturity | | :-------------------------- | :-------------- | :------------------------------------ | :--------------- | :----------------------------- | :------- | | Balance as of Dec 31, 2024 | $0 | $0 | $0 | - | - | | Issuance (Q1 2025) | $440,217 | $(53,717) | $386,500 | 18.0% | 2026 | | Issuance (Q2 2025) | $2,050,000 | $(60,000) | $1,990,000 | 15.1% | 2026 | | Conversion to equity (Q2 2025) | $(2,490,217) | $82,465 | $(2,407,752) | 18.0% | 2026 | | Balance as of June 30, 2025 | $0 | $0 | $0 | 0.0% | 2026 | - All outstanding convertible notes were converted to Series F preferred stock on June 30, 2025[116] 12. Promissory Notes This note describes the company's promissory notes payable and the gain recognized on debt settlement Details of Promissory Notes Payable | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Funded loans payable | $2,699,094 | $2,498,369 | | Less: Unamortized debt-issuance costs and discounts | $(29,468) | $(11,380) | | Total loans payable | $2,669,626 | $2,486,989 | - During the first quarter of calendar year 2025, the Company issued preferred stocks and warrants in exchange for $3,333,335 in outstanding convertible promissory notes and $299,259 in accrued interest, resulting in a gain on debt settlement of $299,259[123] 13. Factoring Liability This note explains the company's factoring liability arising from agreements to loan against accounts receivable - As of June 30, 2025, the factoring liability was $2,309,160, arising from an agreement to loan proceeds against certain accounts receivable[126] - The maximum factoring facility is $3.0 million, with a factoring cost of 1.5% for days 1-30 and an additional 0.5% fee for each additional 10-day period[125] 14. Series A Convertible Preferred Stock This note details the Series A Convertible Preferred Stock, including issuance, voting rights, dividends, and liquidation preference - 106,816 shares of Series A Convertible Preferred Stock were issued and outstanding as of June 30, 2025, compared to zero as of December 31, 2024, issued as part of the Business Combination with Western during Q1 2025[139][140] - Holders have voting rights on an as-if-converted basis, are entitled to a 12% annual dividend payable quarterly in common stock, and can convert into common stock at a 1-for-1 ratio (subject to blockers). They also have a liquidation preference equal to the stated value plus accrued dividends[134][135][136][137] 15. Equity This note provides a comprehensive overview of the company's equity structure, including common stock, preferred stock, and warrants - The company has authorized 20,000,000 shares of preferred stock and 100,000,000 shares of common stock[129][181] - As of June 30, 2025, there were zero shares of common stock subject to possible redemption (Mezzanine Equity), down from 173,879 shares as of December 31, 2024[132] - Series B Convertible Preferred Stock outstanding shares decreased from 3,000 to 1, with 2,999 shares converted into 5,998,653 shares of common stock during the six months ended June 30, 2025[147][148] - Series C Convertible Preferred Stock had 4,851 shares issued and outstanding as of June 30, 2025, issued in Q1 2025 in exchange for existing common stock and warrants. No conversions occurred in Q2 2025[155][156] - Series D Convertible Preferred Stock outstanding shares increased to 150,000 from 0, with 6,516,666 shares converted into common stock during Q1 2025. No conversions occurred in Q2 2025[163][164] - 51 shares of Series E Convertible Preferred Stock were issued as consideration for the SLG Innovation acquisition in Q1 2025[170] - All outstanding convertible notes were converted to Series F preferred stock on June 30, 2025[116][171] - Common stock issued and outstanding increased from 10,592,607 shares to 40,353,983 shares as of June 30, 2025[182] Rollforward of Warrants (December 31, 2024 to June 30, 2025) | Metric | Number of Warrants | Weighted Average Exercise Price | Weighted Average Life (years) | | :-------------------------------- | :----------------- | :------------------------------ | :---------------------------- | | Outstanding warrants, Dec 31, 2024 | 9,450,840 | $0.69 | 3.0 | | Granted | 26,099,773 | $5.50 | 4.7 | | Replacement of old warrants | (9,450,840) | $0.69 | 2.9 | | Exercised | (7,044,917) | $0.48 | 4.3 | | Issued - Prefunded (equity line) | 4,500,000 | $0.00 | 1.0 | | Exercised - Prefunded (equity line) | (2,500,000) | $0.00 | 1.0 | | Exercised | (709,000) | $0.50 | 5.0 | | Outstanding warrants, June 30, 2025 | 20,345,856 | $7.62 | 4.8 | 16. Concentrations, Risks and Uncertainties This note discusses the company's exposure to credit risk, interest rate risk, labor cost risk, and customer revenue concentration - The company is exposed to credit risk from bank deposits exceeding FDIC insurance limits and credit extended to customers[198][199] - The company faces interest rate risk due to adjustable interest rates on its loans and potential refinancing needs[200] - Significant increases in labor costs that cannot be passed on to customers could adversely impact the company's results of operations[201] Revenue Concentration by Customer (Greater than 10% of Revenue) | Customer | Three Months Ended June 30, 2025 (Amount) | Three Months Ended June 30, 2025 (%) | Six Months Ended June 30, 2025 (Amount) | Six Months Ended June 30, 2025 (%) | | :------- | :---------------------------------------- | :----------------------------------- | :--------------------------------------- | :----------------------------------- | | A | $1,138,481 | 29.3% | $2,251,053 | 29.0% | | B | $594,460 | 15.3% | $1,158,080 | 14.9% | | C | $374,780 | 9.6% | $861,958 | 11.1% | Accounts Receivable Concentration by Customer (Greater than 10% of Accounts Receivable) | Customer | June 30, 2025 (Amount) | June 30, 2025 (%) | | :------- | :----------------------- | :---------------- | | 1 | $1,284,470 | 31% | | 2 | $911,832 | 22% | | 3 | $585,852 | 14% | - Customer concentration disclosures were re-evaluated after the SLG acquisition, breaking out individual SLG customers, making amounts not comparable to Q1 2025[203] 17. Fair Value Disclosures This note provides fair value disclosures for financial instruments, including notes payable, preferred stock, and warrants - The carrying value of the company's notes payable approximated its fair value as of June 30, 2025, and December 31, 2024, estimated using discounted future cash flows (Level 3 inputs)[204] Fair Value Hierarchy - Liabilities (December 31, 2024) | Liabilities | Level 3 | Total | | :-------------------------------- | :-------------- | :-------------- | | Subordinated convertible promissory notes | $5,490,324 | $5,490,324 | | Series A convertible preferred stock | $1,294,117 | $1,294,117 | | Total liabilities | $6,784,441 | $6,784,441 | Fair Value Hierarchy - Equity (December 31, 2024) | Equity | Level 3 | Total | | :------- | :-------------- | :-------------- | | Warrants | $2,687,074 | $2,687,074 | | Total equity | $2,687,074 | $2,687,074 | - No assets or liabilities were recorded at fair value on a recurring basis as of June 30, 2025[205] 18. Related Party Transactions This note details transactions and financial arrangements with related parties, including loans and contract purchases - On September 20, 2024, the company entered into a $230,000 promissory note with the Sponsor, bearing 10% interest, which was fully borrowed as of June 30, 2025[208] - Officers and stockholders Emmit McHenry, Kurt McHenry, and Alvin McCoy III provided personal guarantees for the Main Street Bank loan[209] - Axxum purchased an AT&T contract from Archura, LLC (owned by Emmit McHenry and Kurt McHenry) in late 2018, with total sales of $83,790 as of June 30, 2025[210] Details of Loans Payable - Related Party | Category | June 30, 2025 | December 31, 2024 | Weighted Average Interest Rate | Maturity (Calendar Year) | | :---------------------------------------- | :-------------- | :---------------- | :----------------------------- | :----------------------- | | Loans to two directors issued in 2023 | $130,900 | $130,900 | 24.0% | 2023 | | Loan to a director issued in 2024 | $20,250 | $20,250 | 24.0% | 2025 | | Funded loans payable - related party principal | $151,150 | $151,150 | | | | Less: Unamortized debt-issuance costs and discounts | $(778) | $(3,062) | | | | Loans payable - related party - current | $150,372 | $148,088 | | | 19. Earnings Per Share This note presents the basic and diluted earnings per share calculations, including the impact of common stock equivalents Basic and Diluted (Loss)/Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net (loss)/income attributable to common stockholders - basic | $(5,188,759) | $306,094 | $(15,437,241) | $(6,381) | | Weighted average shares outstanding - basic | 34,791,716 | 14,968,215 | 26,707,978 | 14,968,215 | | Basic net (loss)/income per share | $(0.15) | $0.02 | $(0.58) | $(0.00) | | Net (loss)/income attributable to common stockholders - diluted | $(5,186,259) | $308,594 | $(15,398,908) | $(1,381) | | Weighted average shares outstanding - diluted | 34,891,716 | 32,383,372 | 26,807,978 | 16,704,748 | | Diluted net (loss)/income per share | $(0.15) | $0.01 | $(0.57) | $(0.00) | - Common stock equivalents were excluded from the computation of diluted net loss per share as of June 30, 2025, due to their anti-dilutive effect[66] 20. Commitments and Contingencies This note outlines the company's various commitments and contingencies, including legal fees, equity purchase agreements, and excise tax liability - The Business Combination Marketing Agreement with A.G.P. was terminated upon entry into the Advisory Agreement[215][220] - Upon Business Combination completion, A.G.P. received a cash fee of $500,000, common stock, and warrants. The Transaction Fee was later amended to be payable in preferred shares convertible into 5,000,000 common shares at $0.50 per share, subject to forfeiture and lock-up provisions[216][218][219] - The company agreed to pay approximately $1.3 million in legal fees to Seward & Kissel LLP in common stock and a pre-funded warrant exercisable for up to 2,500,000 common shares[221][222] - On April 7, 2025, Cycurion entered into an Equity Purchase Agreement with an investor, granting the right to sell up to $60 million in common stock. A Pre-Funded Warrant for 4,500,000 shares was issued as a commitment fee[227][229][231] - As of June 30, 2025, the company recognized an excise tax liability of $1,167,174 due to stock redemptions, calculated as 1% of the value of redeemed shares under the Inflation Reduction Act of 2022[240] - On June 16, 2025, the Board of Directors approved retention packages for CEO L. Kevin Kelly and CFO Alvin McCoy III, issuing each officer 3,000,000 shares of Common Stock[237] 21. Subsequent Events This note discloses significant events that occurred after the reporting period, including warrant exercises and equity sales - In July 2025, all remaining 2,000,000 pre-funded warrants were exercised for a total of $200 in proceeds[241] - During July 2025, the company utilized its equity line to sell 3,072,054 shares for net proceeds of $919,527[241] - In July 2025, 6,000,000 shares of common stock were issued to executives as part of compensation packages[242] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Cycurion's financial condition, operating results, liquidity, and capital resources for the period ended June 30, 2025 Forward-Looking Statements This section contains forward-looking statements based on current beliefs, expectations, and assumptions, subject to various risks and uncertainties - This section contains forward-looking statements based on current beliefs, expectations, and assumptions, which are subject to risks and uncertainties[245] - Key risks include maintaining Nasdaq listing, recognizing business combination benefits, managing growth, meeting capital requirements, achieving profitability, attracting talent, executing acquisitions, and complying with regulations[247] - The company does not undertake to update these statements to reflect future events, except as required by applicable securities laws[246] General and Business Overview This section provides an overview of Cycurion's cybersecurity solutions, operating subsidiaries, and strategic acquisitions - Cycurion provides high-quality cybersecurity solutions to federal government civilian, defense, and judiciary agencies, as well as commercial clients, with growth driven by organic solutions and strategic acquisitions[250] - The company's operating subsidiaries include Axxum Technologies LLC (acquired Nov 2017), Cloudburst Security LLC (acquired Apr 2019), Cycurion Innovation, Inc. (formed Sep 2021, operating Cycurion Security Platform with MDP SaaS, WAF, and Bot Mitigation powered by AI), and SLG Innovation, Inc. (51% equity interest acquired Mar 31, 2025)[252][253][254][255][261] - Cycurion intends to acquire SLG's accounts receivable from RCR Technology Corporation, contingent upon the SLG acquisition, with the transaction expected to close in the second half of the current fiscal year[266][267] - The company acquired technology assets from Sabres (Multi-Dimensional Protection, Web Application Firewall, and Bot Mitigation SaaS platforms) on August 17, 2021, integrating them into its Managed Security Services Practice to enhance service offerings and expand commercial business[269][270][272] Financial Overview This section highlights key financial factors influencing the second quarter of fiscal year 2025 results - Key factors contributing to the second quarter of fiscal year 2025 results include the acquisition of SLG Innovation Inc. and the completion of the business combination with Western Acquisition Ventures Corp[273][277] Results of Operations This section analyzes Cycurion's consolidated revenues, costs, gross profit, and operating results for the specified periods Consolidated Results of Operations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net revenues | $3,887,915 | $5,001,312 | $7,757,965 | $9,244,167 | | Cost of revenues | $3,651,978 | $3,977,150 | $6,844,265 | $7,873,291 | | Gross profit | $235,937 | $1,024,162 | $913,700 | $1,370,876 | | Gross profit percentage | 6.1% | 20.5% | 11.8% | 14.8% | | Selling, general and administrative expenses | $4,002,018 | $294,790 | $14,777,281 | $673,767 | | Operating (loss)/income | $(3,766,081) | $729,372 | $(13,863,581) | $697,109 | | Net (loss)/income attributable to Cycurion | $(5,188,759) | $306,094 | $(15,437,241) | $(6,381) | - Net revenues decreased by 22% ($1,113,397) for the three months and 16% ($1,486,202) for the six months ended June 30, 2025, compared to 2024, primarily due to delayed start dates of new federal, state, and local contracts and a focus on more profitable business[275][276] - Selling, general and administrative expenses significantly increased in 2025 compared to 2024 due to additional merger and acquisition-related legal, administrative, and consulting costs[279] - Interest expense rose to $615,392 (three months) and $794,283 (six months) in 2025, up from $482,355 and $713,830 in 2024, driven by changes in underlying debt instruments[280] Liquidity and Capital Resources This section discusses Cycurion's cash position, cash flow activities, and ability to meet its financial obligations - As of June 30, 2025, the company had $1,013,836 in cash and cash equivalents[281] Net Changes in Cash and Cash Equivalents (Six Months Ended) | Activity | June 30, 2025 | June 30, 2024 | | :---------------------------------------- | :-------------- | :-------------- | | Net cash used in operating activities | $(6,303,122) | $(850,413) | | Net cash provided by/(used in) investing activities | $1,695,523 | $(592,000) | | Net cash provided by financing activities | $5,580,645 | $1,032,678 | | Net increase/(decrease) in cash and cash equivalents | $973,046 | $(409,735) | - Net cash used in operating activities increased significantly to $6,303,122 in 2025, primarily due to additional merger expenses[283] - Net cash provided by investing activities was $1,695,523 in 2025, mainly from the Trust Account for redemption and cash released from the Trust Account to the Company[284] - Net cash provided by financing activities was $5,580,645 in 2025, including proceeds from warrant exercises ($3,664,671), convertible notes ($2,376,500), and the equity line of credit ($265,504)[285] - The company has an accumulated deficit of approximately $18.8 million and negative operating cash flow, raising substantial doubt about its ability to continue as a going concern without obtaining additional financing[288][289][290] - The company did not have any off-balance sheet arrangements during the periods presented[292] Critical Accounting Policies and Estimates This section confirms no material changes to critical accounting policies during the six months ended June 30, 2025 - No material changes to critical accounting policies were reported during the six months ended June 30, 2025[293] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a "smaller reporting company," Cycurion is exempt from providing detailed quantitative and qualitative disclosures about market risk Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control - Management, including the CEO and CFO, evaluated the effectiveness of Cycurion's disclosure controls and procedures as of June 30, 2025, and concluded they were effective[296][297] - There were no changes in Cycurion's internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[298] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other corporate information Item 1. Legal Proceedings The company settled a material arbitration proceeding and has no other significant pending or threatened legal actions - An arbitration proceeding initiated by Object3, LLC against Cloudburst Security, LLC for approximately $228,000 in unpaid consulting services has been settled[301] - The company is not aware of any other material pending legal proceedings or any adverse legal activity anticipated or threatened[302] Item 1A. Risk Factors The company's business faces risks from legislative, budgetary, and regulatory changes, potentially impacting contracts, revenues, and competition - The company's business is largely dependent on domestic and international legislative programs and budgetary support, with many contracts relying on future appropriations and subject to unilateral modification or termination[306] - Changes in state or federal government initiatives, spending due to budgetary considerations, procurement rules, or federal regulations (e.g., related to diversity, equity, and inclusion or return-to-office mandates) could adversely affect future revenues, profitability, and business practices, potentially increasing competition[306][307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities for the six months ended June 30, 2025 - There were no unregistered sales of equity securities for the six months ended June 30, 2025[308] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reported no defaults upon senior securities[310] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[311] Item 5. Other Information This section details a pre-funded warrant issuance and confirms no Rule 10b5-1 trading arrangement changes by insiders - On April 7, 2025, the company issued a pre-funded warrant to Yield Point NY LLC for up to 4,500,000 shares of Common Stock as consideration for the Equity Purchase Agreement, in lieu of a $1,800,000 cash payment[315] - No director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[313] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as Inline XBRL Instance Document and Taxonomy Extension files[314] SIGNATURES The report is signed by Cycurion Inc.'s Chief Executive Officer and Chief Financial Officer on August 13, 2025 - The report was signed by L. Kevin Kelly, Chief Executive Officer, and Alvin McCoy III, Chief Financial Officer, on August 13, 2025[316]