10-Q: Cycurion Faces Nasdaq Delisting Amidst Deepening Losses
Sentiment:
Quarterly Report
Cycurion, Inc. reported a significant net loss of $15.5 million for the first six months of 2025 and faces multiple Nasdaq compliance issues, raising substantial doubt about its ability to continue as a going concern.
Delay expectedRevenues for the six months ended June 30, 2025, decreased due to 'delayed start dates of new federal, state and local contracts'.
Capital raiseEntered into an Equity Purchase Agreement on April 7, 2025, with an Investor, providing the right to sell up to $60 million in common stock.Issued a Pre-Funded Warrant to the Investor for up to 4,500,000 shares of common stock as a commitment fee, with an exercise price of $0.0001 per share.2,500,000 shares from the Pre-Funded Warrant were exercised by June 30, 2025, and the remaining 2,000,000 were exercised in July 2025 for $200 in proceeds.In July 2025, the company sold an additional 3,072,054 shares through the equity line for net proceeds of $919,527.Management plans to undertake a public offering to raise additional capital to address going concern issues and reduce leverage.
Worse than expectedNet revenues decreased by 16% for the six months ended June 30, 2025, compared to the prior year.Gross profit percentage declined from 14.8% to 11.8% for the six months ended June 30, 2025.Selling, general and administrative expenses increased dramatically, leading to a substantial operating loss of $13.8 million compared to an operating income of $0.7 million in the prior year.The net loss for the six months ended June 30, 2025, was $15.5 million, a significant increase from a minimal loss in the prior year.Net cash used in operating activities worsened significantly, indicating increased cash burn from core operations.The company faces multiple Nasdaq non-compliance issues, including minimum bid price and market value requirements, which were not present in the prior year.
Summary
- Cycurion, Inc. completed a business combination with Western Acquisition Ventures Corp. on February 14, 2025, accounted for as a reverse recapitalization.
- The company acquired a 51% equity interest in SLG Innovation, Inc. on March 31, 2025, for a total consideration of $13.5 million, recognizing $14.2 million in goodwill.
- Net revenues for the six months ended June 30, 2025, decreased by 16% to $7,757,965 compared to $9,244,167 in the prior year period.
- Gross profit declined to $913,700 (11.8% gross margin) for the six months ended June 30, 2025, from $1,370,876 (14.8% gross margin) in the same period of 2024.
- Selling, general and administrative (SG&A) expenses surged to $14,777,281 for the six months ended June 30, 2025, a substantial increase from $673,767 in the prior year, primarily due to merger and acquisition efforts.
- The company reported a net loss of $15,538,900 for the six months ended June 30, 2025, a significant deterioration from a net loss of $6,381 in the same period of 2024.
- As of June 30, 2025, Cycurion had an accumulated deficit of $18.7 million and a working capital deficit of $14.4 million.
- Net cash used in operating activities for the six months ended June 30, 2025, was $6,303,122, compared to $850,413 in the prior year period.
- Cycurion received multiple Nasdaq notices for non-compliance, including failing to maintain a minimum bid price of $1, a minimum Market Value of Listed Securities (MVLS) of $50 million, and a minimum Market Value of Publicly Held Shares (MVPHS) of $15 million.
- The company also received a notice for failing to timely file its Q1 2025 Form 10-Q, which was subsequently filed on June 6, 2025.
- All outstanding convertible notes were converted to Series F preferred stock on June 30, 2025.
- An excise tax liability of $1,167,173 was recorded as of June 30, 2025, related to common stock redemptions under the Inflation Reduction Act of 2022.
Sentiment
Score: 2
Explanation: The company faces severe financial distress, evidenced by substantial net losses, a significant working capital deficit, and negative operating cash flow. Multiple Nasdaq non-compliance notices indicate a high risk of delisting. While there are efforts to raise capital and strategic acquisitions, the current financial performance and going concern warning overshadow these positives, pointing to a highly unfavorable situation.
Positives
- Completed the business combination with Western Acquisition Ventures Corp., which is expected to provide valuation and liquidity for future conversions of convertible securities.
- Successfully acquired a 51% equity interest in SLG Innovation, Inc., a strategically complementary technology services firm that represents a majority of Cycurion's revenues.
- Net cash provided by financing activities significantly increased to $5,580,645 for the six months ended June 30, 2025, driven by warrant exercises, convertible notes, and an equity line of credit.
- Cash and cash equivalents increased to $1,013,836 as of June 30, 2025, from $38,742 at December 31, 2024, improving immediate liquidity.
- The arbitration proceeding with Object3, LLC against Cloudburst Security, LLC for approximately $228,000 has been settled, resolving a legal contingency.
Negatives
- Reported a substantial net loss of $15,538,900 for the six months ended June 30, 2025, a significant increase from $6,381 in the prior year period.
- Experienced a 16% decrease in net revenues for the six months ended June 30, 2025, attributed to delayed start dates of new contracts and a focus on more profitable business.
- Gross profit percentage declined from 14.8% to 11.8% for the six months ended June 30, 2025, indicating reduced profitability on services.
- Selling, general and administrative expenses increased dramatically due to merger and acquisition efforts, contributing heavily to the operating loss.
- The company has an accumulated deficit of $18.7 million and a working capital deficit of $14.4 million as of June 30, 2025, raising substantial doubt about its going concern ability.
- Received multiple Nasdaq non-compliance notices for minimum bid price, Market Value of Listed Securities (MVLS), and Market Value of Publicly Held Shares (MVPHS), risking delisting.
- Several loans payable, including the RPA Loan and Private Loan payable, are currently in default.
- Net cash used in operating activities significantly increased to $6,303,122 for the six months ended June 30, 2025, indicating a worsening operational cash burn.
Risks
- Substantial doubt exists regarding the company's ability to continue as a going concern due to significant accumulated deficit, working capital deficit, and negative operating cash flows.
- Risk of delisting from The Nasdaq Capital Market due to failure to maintain minimum bid price, Market Value of Listed Securities (MVLS), and Market Value of Publicly Held Shares (MVPHS).
- Dependence on government contracts, which are subject to legislative and budgetary changes, potential early termination, and unilateral modification or price reductions.
- Exposure to credit risk from customer accounts receivable, although an allowance for credit losses was zero as of June 30, 2025.
- Interest rate risk due to adjustable interest rates on bank loans and the need for refinancing.
- Inflation risk, particularly if increases in labor costs cannot be passed on to customers.
- Concentration risk with a few major customers accounting for a significant portion of revenues and accounts receivable.
- The company's ability to raise additional capital through public offerings or other debt/equity financing is crucial for continued operations, and there is no assurance of availability or favorable terms.
- Issuance of additional equity securities could result in significant dilution for current stockholders.
- Potential impact of the U.S. federal 1% excise tax on stock repurchases under the Inflation Reduction Act of 2022, which could reduce cash available for business combinations.
Future Outlook
Management plans to continue improving operations to generate positive cash flows and register shares of its common stock to undertake a public offering to raise additional capital. They believe a public offering will provide valuation and liquidity, allowing convertible note and preferred stockholders to convert securities into common stock, thereby reducing overall leverage and debt service requirements. The company expects continued, significant operating losses for the next few years. The RCR acquisition is still expected to close in the second half of the current fiscal year.
Management Comments
- Management's plan is to continue improving operations to generate positive cash flows and register shares of its common stock in order to undertake a public offering to raise additional capital.
- Management believes that the valuation and liquidity brought by a public offering of its securities will allow holders of convertible notes, and convertible preferred stockholders the mechanism to convert their securities into common stock that will reduce the Company's overall leverage and debt service requirement.
- We attribute this decrease in the revenues in 2025 compared to 2024 to delayed start dates of new federal, state and local contracts and the company's focus on more profitable business.
- While costs associated with the Western merger are considered one-time costs, there will be continued SG&A costs greater than the 2024 amounts as the company expands.
Industry Context
Cycurion operates in the cybersecurity and IT services industry, serving federal government and commercial clients. The acquisition of SLG Innovation, which focuses on government and healthcare organizations, aligns with the company's strategy to leverage past performance qualifications in government contracting. The company's emphasis on its Cycurion Security Platforms, including MDP SaaS, WAF, and Bot Mitigation, reflects a broader industry trend towards integrated, AI-driven cybersecurity solutions. However, the significant losses and liquidity challenges indicate a struggle to capitalize on these trends or manage growth effectively in a competitive market.
Comparison to Industry Standards
- NA The filing does not provide specific industry benchmarks or comparable company performance data to assess results against global standards. The company's significant net losses and negative operating cash flow suggest underperformance relative to profitable industry peers, but no direct comparisons are provided.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Executive Officer | NA | L. Kevin Kelly | 2024-12-01 | New employment agreement, includes annual base salary of $325,000 and $500,000 in equity compensation for the first year, plus a targeted performance bonus of $325,000. |
| Chief Financial Officer | NA | Alvin McCoy III | 2025-01-01 | New employment agreement, includes annual base salary of $325,000 and $500,000 in equity compensation for the first year, plus a targeted performance bonus of $325,000. |
| Chief Executive Officer | NA | L. Kevin Kelly | 2025-06-16 | Approved retention package, issued 3,000,000 shares of Common Stock under the 2025 Equity Incentive Plan. |
| Chief Financial Officer | NA | Alvin McCoy III | 2025-06-16 | Approved retention package, issued 3,000,000 shares of Common Stock under the 2025 Equity Incentive Plan. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Certificate of Incorporation Amendment | The Second Amended and Restated Certificate of Incorporation authorizes the board of directors to establish one or more series of preferred stock, determining their designations, powers, preferences, and rights. | NA | Potentially allows for flexible capital raising but could also dilute common stockholders' voting power or subordinate their rights. |
Legal Proceedings
- An arbitration proceeding initiated by Object3, LLC against Cloudburst Security, LLC for approximately $228,000 for unpaid consulting services has been settled.
Related Party Transactions
- A promissory note with the Sponsor for $230,000 was entered into on September 20, 2024, with the full amount borrowed as of June 30, 2025.
- Loans to two directors totaling $130,900 (issued in 2023) and a loan to one director for $20,250 (issued in 2024) are outstanding, with a weighted average interest rate of 24.0%.
- Personal guarantees were made by Emmit McHenry, Kurt McHenry, and Alvin McCoy III (officers and stockholders) in support of the Main Street Bank loan.
- Axxum purchased an AT&T contract relationship from Archura, LLC, a company owned by Emmit McHenry and Kurt McHenry, with total sales of $83,790 for the six months ended June 30, 2025.
Stakeholder Impact
- **Shareholders**: Face significant dilution risk from ongoing and planned equity raises, including the Equity Purchase Agreement and executive compensation packages. The substantial net losses and Nasdaq non-compliance issues pose a high risk of share price depreciation and potential delisting, impacting liquidity and investment value.
- **Employees**: Retention packages for key executives (CEO, CFO) aim to stabilize leadership, but the company's going concern doubt could create uncertainty for other employees regarding job security and future prospects.
- **Customers**: Delayed start dates for new contracts indicate potential challenges in service delivery or contract acquisition, which could affect customer relationships and future revenue streams. The acquisition of SLG Innovation aims to enhance service offerings and customer base, particularly in government sectors.
- **Creditors**: Several loans payable are in default, indicating increased credit risk. The conversion of convertible notes to preferred stock and the plan to reduce overall leverage through public offerings could eventually benefit creditors, but current defaults are a concern.
- **Regulatory Bodies (Nasdaq, SEC)**: The company is under scrutiny for multiple Nasdaq listing rule violations, requiring active efforts to regain compliance. Failure to do so could lead to delisting, impacting market integrity.
Next Steps
- Regain compliance with Nasdaq listing rules, including minimum bid price, Market Value of Listed Securities (MVLS), and Market Value of Publicly Held Shares (MVPHS) by October 6 and October 8, 2025, respectively.
- Continue efforts to improve operations and generate positive operating cash flows.
- Register shares of common stock to undertake a public offering to raise additional capital.
- Finalize the initial accounting for the SLG Innovation, Inc. business combination by March 31, 2026.
- Close the RCR acquisition transaction in the second half of the current fiscal year.
- Evaluate the impact of adopting new accounting pronouncements ASU 2024-03 and ASU 2023-09.
Key Dates
| Date | Description |
|---|---|
| 2017-10-12 | Cycurion, Inc. (f/k/a KAE Holdings, Inc.) was incorporated in Delaware. |
| 2017-11-17 | Company issued 1,333,336 Series A warrants. |
| 2017-11-22 | Company entered into a share transfer agreement to purchase 100% of Axxum Technologies LLC. |
| 2017-11-22 | Axxum procured a revolving line of credit and a term loan from Main Street Bank. |
| 2019-04-03 | Company entered into a membership interest purchase agreement to purchase 100% of Cloudburst Security, LLC. |
| 2019-04-18 | Axxum, Cloudburst, and the Company collectively renewed the revolving line of credit and amended the Loan and Security Agreement with Main Street Bank. |
| 2020-06-29 | Company amended the revolving line of credit and amended and restated the Loan and Security Agreement. |
| 2020-07-14 | Company changed its corporate name from KAE Holdings, Inc. to Cyber Secure Solutions, Inc. |
| 2020-07-16 | Company executed standard loan documents for the EIDL Loan Cycurion from the U.S. Small Business Administration. |
| 2020-09-30 | Company executed standard loan documents for the EIDL SLG Loan from the U.S. Small Business Administration. |
| 2020-12-31 | Company initiated discussions regarding the potential acquisition of SLG Innovation, Inc. |
| 2021-02-24 | Company changed its corporate name to Cycurion, Inc. |
| 2021-05-13 | Company entered into an agreement to acquire substantially all of SLG's assets and certain liabilities. |
| 2021-08-17 | Company entered into an asset purchase agreement to acquire certain technology assets of Sabres Security Ltd. |
| 2021-09-30 | Transaction to acquire Sabres' technology assets closed. |
| 2022-03-08 | Company issued 529,067 warrants to originators of investor notes. |
| 2022-03-22 | Company issued subordinated convertible promissory notes to six investors. |
| 2022-04-20 | Holders of Cloudburst promissory notes and common stock tendered them for cancellation. |
| 2022-07-12 | Company entered into an agreement with Factor A for a factoring liability. |
| 2022-08-16 | The Inflation Reduction Act of 2022 was signed into federal law. |
| 2022-11-21 | Company entered into an Agreement and Plan of Merger with Western Acquisition Ventures Corp. |
| 2022-11-22 | Company issued promissory notes to three unaffiliated investors. |
| 2023-03-20 | Company entered into a receivable purchase agreement (RPA Loan). |
| 2023-04-25 | Cycurion Sub executed a Term Sheet with SLG Innovation, Inc. for acquisition. |
| 2023-04-25 | Cycurion and RCR Technology Corporation entered into a term sheet for a distinct, but related transaction. |
| 2023-04-29 | Company and SLG executed a unidirectional letter of intent (SLG LOI). |
| 2023-08-01 | Company issued 4,000,000 Series B warrants. |
| 2023-12-27 | Company entered into an employment agreement with James P. McCormick. |
| 2024-04-12 | Company issued 2,000,000 Series B warrants. |
| 2024-08-06 | Company, Sponsor, and RiverNorth SPAC Arbitrage Fund, LP entered into a non-redemption agreement. |
| 2024-09-20 | Company entered into a promissory note with the Sponsor for $230,000. |
| 2024-10-09 | Company, Sponsor, and RiverNorth entered into an extended non-redemption agreement. |
| 2024-10-30 | Company entered into an amendment to the employment agreement with James P. McCormick. |
| 2024-11-27 | Company entered into a revised engagement letter with Seward & Kissel LLP. |
| 2024-12-01 | Cycurion and L. Kevin Kelly, CEO, entered into an employment agreement. |
| 2025-01-01 | Cycurion and Alvin McCoy, III, CFO, entered into an employment agreement. |
| 2025-02-14 | Company completed the business combination with Western Acquisition Ventures Corp. and was renamed Cycurion, Inc. |
| 2025-03-31 | Company entered into a Management Services Agreement and a Release agreement to acquire 51% of equity interest in SLG Innovation, Inc. |
| 2025-04-01 | Results of operations for SLG Innovation, Inc. are included in Cycurion's consolidated results starting this date. |
| 2025-04-07 | Company entered into an Equity Purchase Agreement with an Investor for up to $60 million in common stock. |
| 2025-04-07 | Company entered into a registration rights agreement with the Investor. |
| 2025-04-09 | Cycurion received a written notice from Nasdaq regarding non-compliance with the $1 minimum bid price rule. |
| 2025-04-11 | Company received two letters from Nasdaq regarding non-compliance with minimum Market Value of Listed Securities (MVLS) and Market Value of Publicly Held Shares (MVPHS). |
| 2025-05-07 | A registration statement on Form S-1 covering the resale of Put Stock and Commitment Stock was filed with the SEC. |
| 2025-05-22 | Cycurion received written notice from Nasdaq for failure to timely file its Q1 2025 Form 10-Q. |
| 2025-06-06 | Cycurion filed its Form 10-Q for the period ended March 31, 2025. |
| 2025-06-16 | Board of Directors approved retention packages for CEO L. Kevin Kelly and CFO Alvin McCoy III, issuing each 3,000,000 shares of Common Stock. |
| 2025-06-30 | All outstanding convertible notes were converted to Series F preferred stock. |
| 2025-07-01 | All remaining 2,000,000 pre-funded warrants related to the equity line were exercised. |
| 2025-07-01 | Company utilized the equity line to sell 3,072,054 shares for proceeds of $919,527. |
| 2025-07-01 | Company issued 6,000,000 shares of common stock to executives as part of compensation packages. |
| 2025-08-08 | As of this date, there were 51,426,037 shares of common stock outstanding. |
| 2025-08-13 | Date of issuance of the Quarterly Report on Form 10-Q. |
| 2025-10-06 | Deadline to regain Nasdaq compliance for minimum bid price. |
| 2025-10-08 | Deadline to regain Nasdaq compliance for minimum Market Value of Listed Securities (MVLS) and Market Value of Publicly Held Shares (MVPHS). |
| 2026-03-31 | Deadline to finalize the initial accounting for the SLG Innovation, Inc. business combination. |
| 2026-12-15 | Effective date for ASU 2024-03 (Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures) for fiscal years beginning after this date. |
| 2027-12-15 | Effective date for ASU 2024-03 (Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures) for interim periods beginning after this date. |
| 2030-02-14 | Expiration date for Public Warrants. |
Recommendation
strong sellCycurion, Inc. presents a highly concerning financial picture. The company reported a massive net loss of $15.5 million for the first six months of 2025, a significant deterioration from the prior year. This is coupled with a substantial working capital deficit of $14.4 million and an accumulated deficit of $18.7 million, leading to a 'substantial doubt' about its ability to continue as a going concern. Furthermore, the company is facing multiple Nasdaq non-compliance issues, including minimum bid price and market value requirements, which carry a high risk of delisting. While the acquisition of SLG Innovation and ongoing capital raising efforts provide some strategic direction and liquidity, they are insufficient to offset the severe operational losses and financial instability. The significant increase in SG&A expenses, coupled with declining revenues and gross profit margins, indicates fundamental business challenges. Investors face extreme risk of capital loss due to potential delisting, continued dilution from equity raises, and the company's precarious financial health. A seasoned investor would view this as a high-risk, distressed asset with a strong likelihood of further value erosion.
Keywords
Cybersecurity, SEC Filing, 10-Q, Financial Results, Nasdaq Compliance, Going Concern, Acquisition, SLG Innovation, Revenue Decline, Net Loss, Working Capital Deficit, Equity Line, Convertible Notes, Risk Management, Information Technology, Government Contracts
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