Cycurion, Inc. 10-K

ITEM 1. BUSINESS ​ Introduction ​ Western Acquisition Ventures Corp. (the “Company,” “WAV,” “us,” “we,” or “our”) was incorporated in Delaware on April 28, 2021 for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more businesses or entities (a “business combination”). We have neither engaged in any operations nor generated any revenues to date. Based on our business activities, we are a “shell company” as defined under the Exchange Act, because we have no operations and nominal assets consisting almost entirely of cash. Our Initial Public Offering (“IPO”) sold 11,500,000 units for $10.00 per unit pursuant to a Registration Statement on Form S-1 (File No. 333-260384) filed on October 20, 2021, as amended, which the U.S. Securities and Exchange Commission (the “Commission” or “SEC”) declared effective on January 11, 2022 (the “Registration Statement”). Each unit consisted of one share of common stock, par value $0.0001 (“common stock”), and one warrant (the “warrants” or the “public warrants”). We issued a press release on May 2, 2022, which was attached as Exhibit 99.1 to a Current Report on Form 8-K filed on the same date, announcing that the holders of our units issued in the IPO may elect to separately trade the shares of common stock and the public warrants. Each of the public warrants entitles the holder thereof to purchase one share of common stock at a price of $11.50 per share, subject to adjustment as described in the prospectus relating to our IPO. Each of the public warrants becomes exercisable on the later of one year after the January 14, 2022 closing of the IPO, or 30 days after the consummation of our initial business combination, and expires five years after the completion of our initial business combination, or earlier upon redemption. We will provide the holders of our outstanding shares of common stock that were sold as part of the units in the IPO (“public shares”) with the opportunity to redeem their shares of common stock upon the consummation of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account described below, including interest (net of taxes payable and up to $100,000 of interest to pay dissolution costs and expenses if needed), divided by the number of then-outstanding public shares. Our sponsor is Western Acquisition Ventures Sponsor LLC (“Sponsor”), and A.G.P./Alliance Global Partners (“A.G.P.”) was the sole book-running manager and representative of the underwriters in our IPO. Together, our Sponsor and A.G.P own an aggregate of 2,875,000 shares of our common stock. As of the fiscal year ended December 31, 2023, our certificate of incorporation provided that we had up to January 11, 2024 to consummate an initial business combination, unless such deadline was extended in accordance with the provisions of our certificate of incorporation. Pursuant to Charter Amendments, we are permitted to extend such deadline to consummate an initial business combination up to six times, for one month at a time, at a cost of $10,000 per extension (i.e., $60,000 for all six extensions). The Fourth Charter Amendment was filed with the Delaware Secretary of State on April 10, 2024, extending the time to consummate the initial business combination to July 11, 2024, which is a total of 30 months from the closing of the IPO. In connection with the approval of the Charter Amendments, our stockholders collectively redeemed 11,225,733 of our 11,500,000 public shares in exchange for approximately $114.7 million from our Trust Account, which left a remaining balance of approximately $3.0 million as of the date this annual report was filed. If we fail to complete our initial business combination by July 11, 2024, we will distribute to our remaining public stockholders the aggregate amount then on deposit in the Trust Account on a pro rata basis. In such event, we will thereafter cease all operations except for winding up of our affairs and our warrants will expire and become worthless. Simultaneously with the closing of the IPO, the Company also completed a private sale of 376,000 units (the “Private Placement Units”) to Western Acquisition Ventures Sponsor LLC (our “Sponsor”) for $10.00 per Private Placement Unit. This generated gross proceeds to the Company of $3,760,000. The Private Placement Units are identical to the units sold in the IPO, except as otherwise disclosed in the Registration Statement. No underwriting discounts or commissions were paid with respect to such sale. The shares forming part of each Private Placement Unit, along with our Founder Shares, do not participate in any distribution from our Trust Account in the event we do not consummate a business combination. Additionally, in such event, the warrants forming part of the Private Placement Units would also expire and become worthless. The Private Placement Units were issued pursuant to the exemption from registration for transactions not involving any public offering under Section 4(a)(2) of the Securities Act. 1 Table of Contents Our SEC filings, including reports, proxy and information statements, and other information regarding the Company are available at http://www.sec.gov. They are also available on our website at https://www.westernacquisitionventures.com. The information on our website, however, is not, and should not be deemed to be a part of this annual report. For additional information on the Company’s business, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 1. Description of Organization and Business Operations and Liquidity.” Our Management Team Prior Management Team Each of Stephen Christoffersen, William Lischak, Ade Okunabi, Robin Smith and Adam Stern, constituting the entire prior board of directors, resigned effective December 28, 2023, as reported on Current Report on Form 8-K dated January 3, 2024. Each of the resignations was precipitated by the potential excise tax payable under the Inflation Reduction Act and their potential liability if the Company were unable to pay it at the time the tax is due, and not as a result of any disagreements with the Company or any matter relating to the Company’s operations, policies, or practices. For a description of our management team until the effective date of the above resignations, please see “Item 1. Business – Our Management Team” in our Form 10-K filed on March 31, 2023 with the SEC for the year ended December 31, 2022. Current Management Team Our current directors and executive officers are as follows. James Patrick McCormick James P. McCormick was appointed to serve as the Chief Executive Officer, Chief Financial Officer, Treasurer, and Secretary of Western, effective as of December 27, 2023. He also was appointed to serve as a Director of Western, effective as of December 28, 2023. Mr. McCormick previously held numerous international general management and CFO roles as a member of British American Tobacco where he worked from March 1992 to January 2009. More recently he has served as Chief Operating Officer and Chief Financial Officer of KushCo Holdings Inc. from August 2017 to January 2019 and CEO of Ignite International Inc. from February 2019 to December 2019. He also served as a management consultant for UMBRLA, Inc. from December 2019 to September 2020, Redbird Bioscience from April 2021 to August 2021, Cars & Credit Master from November 2021 to December 2022, Abstrax Tech Inc. from January 2023 to April 2023, and Thought Leaders, Inc. since April 2023. Mr. McCormick graduated from Eastern Illinois University with a B.S. in Finance and Accounting in 1988 and from Southern Illinois University Edwardsville, an MBA in 1992. He also is a Certified Public Accountant (CPA), Certified Management Accountant (CMA), and Certified Internal Auditor (CIA), all of which are currently inactive as he is no longer in private practice. We believe Mr. McCormick is well qualified to serve as a member of our board of directors because of his experience as an executive officer of various public companies, as well as his deep financial reporting and management experience and his broad industry experience. Ryan Selewicz Ryan Selewicz was appointed to serve as a Director of Western, effective as of January 18, 2024. Mr. Selewicz currently serves as the Vice President of E-Commerce at Greenlane Holdings, Inc., a seller of vaporizers and other products to businesses and consumers, where he oversees the company’s direct-to-consumer online businesses and the technology platforms that support those businesses. Prior to taking this role, Mr. Selewicz served as Greenlane’s Vice President of Technology Transformation following their merger with KushCo Holdings. In this role, Mr. Selewicz was responsible for the company’s enterprise systems and played a key role in the integration of the IT systems post-merger. Prior to their merger with Greenlane, Mr. Selewicz served as Executive Vice President of Technology at KushCo Holdings, Inc., where he was responsible for the company’s overall technology vision and strategy. Proposed Business Combination On November 21, 2022, the Company, WAV Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), which will be formed at, or prior to, closing,Cycurion, Inc., a corporation organized under the laws of Ontario (“Cycurion”), and Emmit McHenry as Cycurion stockholders’ representation (the “Stockholders Representative”), entered into an 2 Table of Contents Agreement and Plan of Merger (“Merger Agreement”), pursuant to which, among other things, Cycurion will be merged with the Merger Sub (the “Merger” or “Business Combination”, and together with the other transactions related thereto, the “Proposed Transactions”)with Cycurion surviving the Merger as a wholly-owned subsidiary of the Company. There is no guarantee that the Merger will take place. As disclosed in the Company’s prospectus dated January 11, 2022, pursuant to the Trust Agreement, and the Company’s certificate of incorporation, the Company had until January 11, 2023 to complete the Merger. This date was subsequently extended to July 11, 2023, January 11, 2024, April 11, 2024 and July 11, 2024 pursuant to the Charter Amendments. In evaluating the Merger, our board of directors considered the foregoing criteria and guidelines and believe that Cycurion meets many of these criteria and guidelines. Acquisition Strategy ​ Our acquisition strategy has been guided by several key factors, including our significant industry and operational expertise, and our plan to target merger candidates where conditions allow us to sufficiently influence the outcome to produce attractive economic rewards for our stockholders and stakeholders. Prior to entering into the Merger Agreement with Cycurion, our target sectors have included, but were not limited to, infrastructure and environmental services, health, wellness and food sustainability, financial technology and financial services, enterprise software and SaaS, and leisure and hospitality. Our selection process leveraged our network of varied industry, investment banker, private equity and venture capital, credit fund, and lending community relationships, as well as our relationships with management teams of public and private companies, restructuring advisers, attorneys, and accountants, which we believe provided us with a number of high-quality initial business combination opportunities. We have deployed a proactive, thematic sourcing strategy to focus on companies where we believe the combination of our operating experience, relationships, capital, and capital markets expertise can be catalysts to change a target company and can help accelerate the target’s growth and performance. Our objectives are to generate attractive returns for our stockholders and enhance value. We plan to do that by: (1) completing our initial business combination with a high-quality merger target at an attractive valuation on favorable terms for our stockholders, and (2) enhancing performance through our team’s experience, expertise, and network. We expect to favor potential target companies with compelling long-term growth prospects that benefit from strong secular tailwinds and are in a highly fragmented market, ripe for consolidation opportunities. We expect our target to possess certain business characteristics such as a leading market position, significant recurring revenue, a diversified customer base, opportunity for operational improvement, and a healthy margin profile with attractive free cash flow characteristics. Our management team and board of directors has experience in: ​ ● sourcing, structuring, acquiring, and selling businesses; ​ ● operating companies, implementing and executing change-driven strategies, and identifying, monitoring, and recruiting industry-leading talent; ​ ● fostering relationships with sellers, capital providers, and target management teams; ​ ● negotiating transactions favorable to investors; ​ ● executing transactions in multiple geographies and under varying economic and financial market conditions; ​ ● improving the strategic, operational, organizational, and financial effectiveness of companies; ​ ● accessing capital markets, including financing businesses, and managing or assisting companies transitioning from private to public ownership; ​ ● acquiring and integrating companies; and ​ 3 Table of Contents ● developing and growing companies, both organically and inorganically, and expanding the product range and geographic footprint of a number of target businesses. ​ We have engaged in an extensive research effort to identify a large number of potential targets and initiated discussions with various initial business combination targets, and after doing so have executed the Merger Agreement with Cycurion, a company operating in the cybersecurity industry. We believe personal relationships built over time has been critical, not just in generating transaction opportunities, but also in consummating an initial business combination. In evaluating a prospective target business, we conducted due diligence reviews that encompassed, among other things, meetings with incumbent management and employees, document reviews, inspection of facilities, as well as a review of financial, operational, legal, and other information made available to us. We were not and are not prohibited from pursuing our initial business combination with a company that is affiliated with our Sponsor, officers, or directors. We were introduced to Cycurion by a member of our Sponsor who had a prior financial relationship with Cycurion and another member of our Sponsor has established a financial relationship with Cycurion since our execution of the Merger Agreement. Although our officers and directors had no prior relationship with Cycurion, our directors engaged an independent valuation firm to render an opinion as to the fairness from a financial point of view of the Business Combination. Our initial stockholders, officers, and directors directly or indirectly own our securities following the closing of our IPO on January 14, 2022, and accordingly, they may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular initial business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination. Investment Criteria and Industry Opportunity ​ We have been using the following investment criteria to screen for and evaluate target businesses, although we may have pursued opportunities outside of this scope. ​ ● Small/Mid-cap Business: Initially, we sought to acquire one or more businesses with an aggregate enterprise value in excess of $500 million although target entities with a smaller or larger enterprise values were also to be considered, determined in the sole discretion of our management team, and according to reasonably acceptable valuation standards and methodologies. ​ ● Public Company Ready: We seek to acquire a company that is well-positioned to be a public company in terms of scale and size, and a company that public equity market investors will understand and value. We intend to avoid companies that have significant deficiencies in financial reporting or general public company readiness. ​ ● Generates Stable Free Cash-Flow or Annual Recurring Revenue: We seek to acquire a business that has historically generated, or has the near-term potential to generate, strong and sustainable free cash flow. We also believe that certain business models such as SaaS businesses, financial technology or enterprise software businesses have sustainable annual recurring revenue and are platforms that can be used to create attractively valued public companies. ​ ● Would Benefit Distinctly from our Capabilities: We seek to acquire a business where we can tangibly improve the operations and create long-term value for our stockholders. In particular, we believe our experience in operating and improving public companies, as well as serving on public company boards, would add value to the management teams and boards of potential target companies. ​ ● Is Sourced Through our Proprietary Channels: We believe the strength of our network will allow us to source differentiated targets, and even in competitive situations, we believe we would be able to leverage our proprietary relationships or insights into potential targets that will create competitive advantages for us. ​ ● Has a Dedicated and Proven Management Team: We seek to acquire a business with a professional management team whose interests are aligned with those of our investors. Where necessary, we may also look to complement and enhance the capabilities of the target business’s management team by recruiting additional talent through our network of contacts. ​ 4 Table of Contents These criteria are not intended to be exhaustive, or to limit the scope of consideration for or the selection of an acquisition target. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as on other considerations, factors, and criteria that our management deem relevant. In the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communications related to our initial business combination, which would be in the form of tender offer documents or proxy solicitation materials that we would file with the SEC. Effecting a Business Combination ​ Sources of Target Businesses ​ While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future. If we do, we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of a finder’s fee is customarily tied to completion of a transaction; in which case any such fee will be paid out of the funds held in the Trust Account. In no event, however, will our Sponsor or any of our existing officers or directors, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation by the company prior to, or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction). As of December 31, 2023, we could not ascertain how much time or cost would be involved in completing our initial business combination. Any costs incurred with respect to identifying or evaluating a prospective target business with which we do not pursue an initial business combination will result in losses and will reduce the funds we can use to complete an initial business combination with another target. We will not pay any finder’s or consulting fees to members of our management team, or any of their respective affiliates, for services rendered to or in connection with our initial business combination. Selection of a Target Business, Structuring of a Business Combination, and Fair Market Value of Target or Business ​ Nasdaq rules require the aggregate fair market value of our initial business combinations to be at least 80% of the value held in the Trust Account (excluding the fee payable to A.G.P. upon an initial business combination as described in “Conflicts of Interest” and taxes payable on the interest earned on the Trust Account) at the time we sign a definitive agreement for our initial business combination, which was executed as of November 21, 2022, when the Trust Account held approximately $117.3 million (after accounting for fees payable to A.G.P.), as further described on the Registration Statement on Form S-4. The fee previously due to A.G.P. for services provided in connection with our IPO was replaced by a letter agreement dated November 7, 2022 that would result in the issuance of 250,000 shares to A.G.P of the company resulting from the Merger. Our board of directors will make the determination as to the fair market value of our initial business combination. If our board of directors is not able to determine independently the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions with respect to the satisfaction of such criteria. Nasdaq rules require any initial business combination to be approved by a majority of our independent directors. 5 Table of Contents We anticipate structuring our initial business combination so that our current shareholders will own shares of the resulting company, which will own or acquire between 50% and 100% of the equity interests or assets of the target business or businesses. The resulting company is expected to not be required to register as an investment company under the Investment Company Act, or the Investment Company Act rules and regulations. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the initial business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the initial business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock, shares, or other equity interests of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our issued and outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value test. If the initial business combination involves more than one target business, the 80% fair market value test will be based on the aggregate value of all of the target businesses and we will treat the target businesses together as our initial business combination for purposes of a tender offer or for seeking stockholder approval, as applicable. To the extent we effect our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors. In evaluating a prospective target business, we expect to conduct a thorough due diligence review that will encompass, among other things, meetings with incumbent management and employees, document reviews, inspection of facilities, as well as a review of financial, operational, legal, and other information that will be made available to us. Competition ​ There is intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or institutions), other blank check companies and other entities competing for the types of businesses we intend to acquire, including affiliates of our Sponsor. Many of these individuals and entities are well established and have extensive experience in identifying and effecting acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human, and other resources or more industry knowledge than we do, and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds from the IPO and the sale of the Private Placement Units, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. The impact of the redemption described in the Explanatory Note at the top of this filing, particularly the resulting depletion of our Trust Account, may put us at a competitive disadvantage in successfully consummating our initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.10 per share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire and become worthless. See “ — If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by stockholders may be less than $10.10 per share ” and other risk factors herein. Management Operating and Investment Experience ​ For information about our management, see the section above under “Our Management Team.” ​ 6 Table of Contents Emerging Growth Company Status and Other Information We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Some of these exemptions include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities, and the prices of our securities may be more volatile. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our IPO on January 14, 2022, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act. Employees We currently have one executive officer. This individual is not obligated to devote any specific number of hours to our matters, but he intends to devote as much of his time as he deems necessary to our affairs until we have completed our initial business combination. The amount of time he will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the initial business combination process. We do not intend to have any full-time employees prior to the consummation of our initial business combination. Nasdaq Deficiencies On February 6, 2024, the Company received a notification letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying the Company that the Company no longer meets the minimum 500,000 publicly held shares requirement for continued listing on The Nasdaq Capital Market set forth in Nasdaq Listing Rule 5550(a)(4) (the “First Letter”). The notification received has no immediate effect on the listing of the Company’s common stock on Nasdaq. Under Nasdaq Listing Rules, the Company had 45 calendar days, or until March 22, 2024, to provide Nasdaq with a specific plan to achieve and sustain compliance with all Nasdaq listing requirements, including the time frame for completion of the plan. On March 22, 2024, the Company submitted its compliance plan with Nasdaq in connection with the First Letter. If Nasdaq does not accept the Company’s plan to achieve compliance, the Company will have the opportunity to appeal the decision to a Nasdaq Hearings Panel. The Company is evaluating various courses of action to achieve compliance with the minimum publicly held shares continued listing standard. On March 11, 2024, the Company received a letter from the Staff stating that due to the resignations of Stephen Christoffersen, William Lischak, Ade Okunabi, Robin Smith and Adam Stern, constituting the entire board of directors of the Company, effective December 27, 2023, which was previously reported in a current report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2024, the Company no longer complies with Nasdaq’s Majority Independent Board rule, its Audit Committee Rule, or its Compensation Committee Rule as set forth in Listing Rule 5605(b)(1) (the “Second Letter”). In accordance with Nasdaq Listing Rule 5605(b)(1)(A), Nasdaq will provide the Company a cure period in order to regain compliance as follows: (i) until the earlier of the Company’s next annual stockholders’ meeting or December 28, 2024; or (ii) if the Company’s next annual stockholders’ meeting is held before June 25, 2024, then the Company must evidence compliance no later than June 25, 2024 (the “Cure Period”). If the Company fails to regain compliance within the Cure Period in connection with the Second Letter, the Nasdaq Listing Rules require the Staff to provide written notification to the Company that its securities will be delisted. The Company is actively engaged in efforts to regain compliance with the requirements set forth in Nasdaq Listing Rule 5605 and plans to regain compliance within the Cure Period provided by Nasdaq. 7 Table of Contents The Company is actively engaged in efforts to regain compliance with the requirements set forth in Nasdaq Listing Rule 5605 and plans to regain compliance within the Cure Period provided by Nasdaq.