10-Q: Cycurion Reports Q3 Loss Amid Business Combination, Nasdaq Compliance Challenges, and Reverse Stock Split

Cycurion, Inc. reported a significant net loss for Q3 2025, driven by business combination expenses, while navigating Nasdaq delisting threats and executing a reverse stock split.

Summary

• Cycurion, Inc. reported a net loss of $3.12 million for the three months ended September 30, 2025, compared to a net income of $0.12 million for the same period in 2024.
• For the nine months ended September 30, 2025, the company incurred a net loss of $18.56 million, a substantial increase from the $0.11 million net income in the prior year.
• Revenues decreased by 13.9% to $3.83 million for the three months ended September 30, 2025, and by 15.4% to $11.59 million for the nine months ended September 30, 2025, attributed to delayed contract start dates and a focus on more profitable business.
• Gross profit declined significantly to $0.27 million (7.1% gross profit percentage) for Q3 2025 from $0.72 million (16.1%) in Q3 2024.
• Operating expenses surged to $4.80 million in Q3 2025 and $19.58 million for the nine months, primarily due to $11.24 million in business combination expenses and $3.09 million in stock compensation expenses.
• The company completed a business combination with Western Acquisition Ventures Corp. on February 14, 2025, and accounted for the SLG Innovation Inc. transaction as a business combination on March 31, 2025, recognizing $14.3 million in goodwill.
• Cycurion faced Nasdaq delisting proceedings due to its common stock trading below the $1.00 minimum bid price rule, which was resolved by a one-for-thirty reverse stock split effective October 27, 2025, and subsequent regaining of compliance on November 11, 2025.
• The company's cash and cash equivalents increased to $3.65 million as of September 30, 2025, from $38,742 at December 31, 2024, largely due to $10.78 million in financing activities, including proceeds from an equity line of credit and warrant exercises.
• An accumulated deficit of $21.77 million and a working capital deficit of $9.6 million as of September 30, 2025, raise substantial doubt about the company's ability to continue as a going concern.
• The term bank loan with Main Street Bank, with a principal balance of $276,012 as of September 30, 2025, was fully paid off on October 1, 2025.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including substantial losses, declining revenues, and a going concern doubt. While Nasdaq compliance issues were resolved and cash increased due to financing, the underlying operational performance and liquidity position remain weak, with several loans in default. The high operating expenses and accumulated deficit indicate a challenging path to profitability.

Positives

• Cash and cash equivalents significantly increased to $3.65 million as of September 30, 2025, from $38,742 at December 31, 2024.
• Regained compliance with Nasdaq's Equity Rule ($10 million stockholders' equity) on August 19, 2025.
• Regained compliance with Nasdaq's Market Value of Publicly Held Shares (MVPHS) Rule ($5 million) on August 20, 2025.
• Successfully executed a one-for-thirty reverse stock split on October 27, 2025, to address Nasdaq's minimum bid price requirement.
• Regained compliance with Nasdaq's Bid Price Rule on November 11, 2025, leading to the cancellation of delisting proceedings.
• The term bank loan with Main Street Bank was fully paid off on October 1, 2025, reducing debt obligations.

Negatives

• Reported a net loss of $3.12 million for Q3 2025 and $18.56 million for the nine months ended September 30, 2025, a significant deterioration from prior year's net income.
• Revenues decreased by 13.9% in Q3 2025 and 15.4% for the nine months ended September 30, 2025, compared to the respective prior periods.
• Gross profit percentage declined from 16.1% in Q3 2024 to 7.1% in Q3 2025, and from 15.3% to 10.2% for the nine-month period.
• Operating expenses increased substantially due to $11.24 million in business combination expenses and $3.09 million in stock compensation expenses for the nine months ended September 30, 2025.
• Accumulated deficit grew to $21.77 million as of September 30, 2025, from $3.20 million at December 31, 2024.
• Working capital deficit of $9.6 million as of September 30, 2025, indicates liquidity challenges.
• Net cash used in operating activities increased to $8.77 million for the nine months ended September 30, 2025, from $1.17 million in the prior year.
• Several loans, including the RPA Loan, Loan Payable-SLG, and Private Loan payable, are currently in default.
• The company's ability to continue as a going concern is in substantial doubt, dependent on generating positive cash flows and raising additional capital.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to accumulated deficit, working capital deficit, and negative operating cash flows.
• Dependence on generating positive operating cash flows and raising additional capital to sustain operations and reduce leverage.
• Risk of insolvency if unable to generate positive operating cash flows and raise additional capital.
• Potential for future delisting from Nasdaq if common stock price falls below $1.00 again, despite the recent reverse stock split.
• The reverse stock split may decrease the liquidity of common stock and may not result in a sustained increase in share price.
• Adverse effects on business from legislative or government budgetary and spending changes, including early contract termination or price reductions.
• Changes in federal regulations (e.g., diversity, equity, and inclusion initiatives, return to office mandates) may require changes in business practices, cause disruption, or create uncertainty.
• Increased competition in the private sector due to government efforts to lower barriers to entry.
• Credit risk from primary bank deposits exceeding FDIC insurance limits and credit extended to customers.
• Interest rate risk from adjustable rate loans and refinancing needs.
• Inflation risk if significant increases in labor costs cannot be passed on to customers.

Future Outlook

Management plans to continue improving operations to generate positive cash flows and register shares of common stock for 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 to finalize the accounting for the SLG business combination by March 31, 2026, and intends to close the RCR Term Sheet transactions in the second half of the current fiscal year.

Management Comments

• Management attributes the decrease in 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.
• 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.
• Management believes that current cash position, access to capital markets, and cash flow from operations should be sufficient for operating requirements through the next several fiscal years.
• Management conferred with the bank regarding loan covenants and determined that the company was in compliance after giving effect to clarification in definitions and formulas.

Industry Context

The company operates in the cybersecurity industry, providing solutions to federal government civilian, defense, judiciary agencies, and commercial clients. Its growth strategy involves organic business solutions and strategic acquisitions of cyber/infrastructure service providers. The acquisition of SLG Innovation Inc. and technology assets from Sabres Security Ltd. (now Cycurion Security Platforms) aims to enhance service offerings and expand commercial business, particularly with its MDP SaaS platform leveraging AI. The industry is subject to government budgetary changes and increased competition, which could impact future revenues and profitability.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• An arbitration proceeding initiated by Object3, LLC against Cloudburst Security, LLC for approximately $228,000 for unpaid consulting services was settled.

Related Party Transactions

• A promissory note for $230,000 was entered into with Western Acquisition Ventures Sponsor, LLC, bearing 10% interest per annum.
• Loans to two directors totaling $103,400 and a loan to one director for $20,250, both at 24.0% weighted average interest rate, were outstanding as of September 30, 2025.
• Axxum Technologies LLC purchased an AT&T contract relationship from Archura, LLC, a company owned by Emmit McHenry and Kurt McHenry (officers and stockholders of Cycurion).

Stakeholder Impact

• Shareholders: Experienced significant dilution from capital raises and a reverse stock split. Face substantial risk due to the company's going concern doubt and continued losses. Nasdaq compliance regained, but long-term share price stability is uncertain.
• Employees: Retention packages approved for CEO and CFO, indicating efforts to retain key talent amidst financial challenges. However, overall company performance could impact employee morale and job security.
• Customers: Delayed start dates for new federal, state, and local contracts impacted revenue. The company's focus on more profitable business might affect service offerings or relationships with certain customer segments.
• Creditors: Several loans are in default, indicating increased risk for lenders. The full payoff of the Main Street Bank term loan is positive for that specific creditor but overall debt situation remains complex.
• Regulatory Authorities: The company successfully navigated Nasdaq compliance issues, including delisting threats, demonstrating adherence to listing rules after corrective actions.

Next Steps

• Continue improving operations to generate positive cash flows.
• Register shares of common stock to undertake a public offering to raise additional capital.
• Finalize the accounting for the SLG business combination no later than March 31, 2026.
• Close the transactions contemplated by the RCR Term Sheet in the second half of the current fiscal year.

Key Dates

Recommendation

The company's financial performance is severely distressed, marked by a substantial net loss of $18.56 million for the nine months ended September 30, 2025, and a significant accumulated deficit of $21.77 million. Revenues are declining, gross profit margins are compressing, and operating expenses have surged due to business combination costs and stock compensation. The explicit 'going concern' doubt, coupled with a $9.6 million working capital deficit and negative operating cash flow, signals severe liquidity issues. While the company successfully addressed Nasdaq delisting threats through a reverse stock split and capital raises, these actions are often temporary fixes for underlying operational problems. Multiple loans are in default, indicating poor debt management. The high level of uncertainty, coupled with a lack of clear path to sustained profitability, makes this a high-risk investment. A seasoned investor would likely recommend selling to avoid further capital erosion, as the fundamental business performance does not support a 'hold' or 'buy' recommendation despite recent financing activities.

Keywords

Cybersecurity, SEC Filing, 10-Q, Financial Results, Net Loss, Revenue Decline, Nasdaq Compliance, Reverse Stock Split, Going Concern, Business Combination, Capital Raise, Debt Default, Risk Management, Information Technology, Government Contracts