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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2023-11-14 · 46 added, 57 removed, 86 unchanged (54% of the section changed)

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References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Western Acquisition Ventures Sponsor LLC.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the notes related thereto contained elsewhere in this Report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated condensed financial statements and the notes related thereto contained elsewhere in this Report.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

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Proposed Business Combination

Business Combination Agreement

On November 21, 2022, the Company., WAV Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Registrant (“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 Agreement and Plan of Merger (“Merger Agreement”) pursuant to which, among other things, Cycurion will be merged with the Merger Sub (the “Merger,” and together with the other transactions related thereto, the “Proposed Transactions”), with Cycurion surviving the Merger as a wholly-owned subsidiary of Registrant (the “Surviving Corporation”).

In October 2023, the Company agreed to amend the Merger Agreement principally to reflect the issuance by Cycurion of additional securities after the date of the Merger Agreement and to extend the termination date of the Merger Agreement from July 11, 2023 to December 31, 2023.

Business Combination

There is no guarantee that a merger will take place.

On April 26, 2024, the Parties amended and restated the Business Combination Agreement (the “Amended and Restated Business Combination Agreement”) to amend, among other things, certain economic terms at the closing of the Business Combination and the Termination Date to complete the Business Combination, from December 31, 2023 to December 31, 2024.

Sponsor Support Agreement

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Stockholder Support Agreement

Contemporaneously with the execution of the Merger Agreement, certain officers and directors of the Company delivered Support Agreements, pursuant to which, among other things, the Company stockholders agreed to vote in favor of the Merger and the transactions

contemplated by the Merger Agreement.

In addition, the Company agreed to use its best efforts to obtain additional Support Agreements from certain of its stockholders.

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Pursuant to the Registration Rights Agreement, the Combined Company will be required to file a registration statement covering the resale of registrable securities held by the stockholder’s party thereto.

The Merger Agreement may be terminated at any time prior to the consummation of the Merger by mutual written consent of Cycurion, as applicable, and Company and in certain other limited circumstances, including if the Merger has not been consummated by December 31, 2023.

Either the Company or Cycurion may also terminate the Merger Agreement if certain Proposals fail to receive the requisite vote for approval and other conditions, as defined in the Merger Agreement are not met.

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We have neither engaged in any operations nor generated any operating revenues to date.

Our only activities for the three months ended September 30, 2023 were organizational activities and the search for a prospective Business Combination.

Our only activities for the three months ended March 31, 2024 were organizational activities and the search for a prospective Business Combination.

We do not expect to generate any operating revenues until after the completion of our Business Combination at the earliest.

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We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, a Business Combination.

For the three months ended September 30, 2023, we had a net loss of $253,633.

This consisted of $256,970 in professional fees, general and administrative expenses, income tax expense and franchise taxes and $48,576 of interest income on marketable securities in the Trust Account and $45,239 of change in fair value of the forward purchase agreement.

For the three months ended September 30, 2022, we had a net income of $237,150.

This consisted of $279,148 in professional fees, general and administrative expenses, franchise taxes and income tax expense and $516,298 of interest income on marketable securities in the Trust Account.

For the nine months ended September 30, 2023, we had a net loss of $757,781.

This consisted of $876,968 in professional fees, general and administrative expenses, income tax expense and franchise taxes and $331,690 of interest income on marketable securities in the Trust Account and $212,503 of change in fair value of the forward purchase agreement.

For the nine months ended September 30, 2022, we had a net loss of $1,075,657.

This consisted of $1,691,594 in professional fees, general and administrative expenses, income tax expense and franchise taxes and $615,937 of net gain on marketable securities in the Trust Account.

For the three months ended March 31, 2024, we had a net income of $408,380.

This consisted of $665,116 of change in fair value of the forward purchase agreement, offset by $256,736 in professional fees, general and administrative expenses and franchise taxes.

For the three months ended March 31, 2023, we had a net loss of $171,611.

This consisted of $366,469 in professional fees, general and administrative expenses, income tax expense and franchise taxes offset by $189,160 of net gain on marketable securities in the Trust Account and $43,101 of change in fair value of the forward purchase agreement.

Liquidity and Capital Resources

As of September 30, 2023, we had $302,582 in cash held outside of the Trust Account.

As of September 30, 2023, we had a working capital deficit of $2,870,709.

The Company’s liquidity needs to be satisfied through the proceeds from loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties held outside of the Trust Account.

As of March 31, 2024, we had $1,008 in restricted cash available exclusively for payment of current tax liabilities.

As of March 31, 2024, we had a working capital deficit of $2,782,776.

The Company’s liquidity is to be satisfied through the proceeds from loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties held outside of the Trust Account.

The Company’s officers, directors, and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.

Accordingly, the Company may not be able to obtain additional financing.

For the nine months ended September 30, 2023, net cash used in operating activities was $646,799, which is primarily due to a net loss of $757,781, change in fair value of forward purchase agreement of $212,503, interest income on marketable securities of $331,690, and changes in operating assets and liabilities of $230,169.

Net cash provided by investing activities was $114,269,494 which was due to the withdrawal from the Trust Account to pay redeeming shareholders of $114,329,594 and $60,100 deposited into the Trust Account.

Net cash used in financing activities was $114,129,594 which was due to the payment made for the redemption of shares of $114,329,594 and $200,000 in loan proceeds received from Cycurion.

For the nine months ended September 30, 2022, net cash used in operating activities was $1,127,104, which is primarily due to a net loss of $1,075,657, changes in working capital of $564,490 and gain on marketable securities of $615,937.

Net cash used in investing activities was $116,150,000, which was due to the proceeds of the IPO deposited into the trust account.

Net cash provided by financing activities was $117,749,000 which was primarily due to the IPO proceeds and the proceeds from private placement.

For the three months ended March 31, 2024, net cash used in operating activities was $107,643, which is primarily due to a net income of $408,380, change in fair value of forward purchase agreement of $665,116 and changes in operating assets and liabilities of $149,093.

Net cash provided by investing activities was $227,375 which was due to the withdrawal from the Trust Account in connection with redemption.

Net cash used in financing activities was $327,375 which was due to the payment made for the redemption of shares and proceeds from loan payable of $100,000.

For the three months ended March 31, 2023, net cash used in operating activities was $393,175, which is primarily due to a net loss of $171,611, change in fair value of derivative liabilities of $43,101, gain on marketable securities of $189,160, and changes in operating assets and liabilities of $10,697.

Net cash provided by investing activities was $109,406,586, which was due to the withdrawal from the Trust Account to pay redeeming shareholders of $109,436,586 offset by $30,000 deposited into the trust account.

Net cash used in financing activities was $109,436,586 which was primarily due to the payment made for the redemption of shares.

We have incurred, and expect to continue to incur, significant costs in pursuit of our acquisition plans.

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Going Concern

In connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance in Financial Accounting Standard Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution described in Note 1 to the unaudited condensed financial statements included in this quarterly report on Form 10-Q, should the Company be unable to complete a Business Combination, raises substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of these financial statements.

In connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance in Financial Accounting Standard Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution described in Note 1 to the unaudited consolidated condensed financial statements included in this quarterly report on Form 10-Q, should the Company be unable to complete a Business Combination, raises substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of these financial statements.

The Jumpstart Our Business Startup Act (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies.

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These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier.

Off - Balance Sheet Financing Arrangements

Contractual Obligations

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The Promissory Note, with an interest rate of 5% per annum is payable upon the sooner of the consummation of the Business Combination with Cycurion, or January 11, 2024.

As of September 30, 2023, the Company has borrowed $200,000 and accrued approximately $1,694 in interest.

No amounts were borrowed as of December 31, 2022.

If the Company defaults on the loan, or the business combination does not occur, the Company will owe all principal and accrued interest thereto to Cycurion.

Cycurion may not seek recourse against any money held in the Trust Account established pursuant the Borrower’s investment management trust agreement, dated as of January 11, 2022, as amended, by and between the Company and American Stock Transfer & Trust Company, nor any of the Company’s directors, officers, and any affiliate.

Cycurion may not seek recourse against any money held in the Trust Account established pursuant the Borrower’s investment management trust agreement, dated as of January 11, 2022, as amended, by and between the Company and Equiniti Trust Company, nor any of the Company’s directors, officers, and any affiliate.

As of March 31, 2024, the Company has borrowed $300,000 and accrued approximately $7,972 in interest.

As of December 31, 2023, the Company has borrowed $200,000 and accrued approximately $4,222 in interest.

On January 26, 2024, the Company and Cycurion amended the Promissory Note to increase its amount to $300,000 and extend the maturity date to the earlier of the consummation of the Business Combination or April 11, 2024.

On April 4, 2024, the Company and Cycurion amended the Promissory Note to extend the maturity date to the earlier of the consummation of the Business Combination or July 11, 2024.

On May 3, 2024, the Company and Cycurion amended the Promissory Note to increase its principal amount to $554,269.

On July 2, 2024 the Company and Cycurion amended the Promissory Note to extend the maturity date of this note to the earlier of the consummation of the Business Combination or October 11, 2024.

Forward Purchase Agreement

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For purposes of this Agreement, the “VWAP Price” per Share shall be determined for any trading day or any specified trading period using the Rule 10b-18 volume weighted average price per share of Common Stock as reported via a Bloomberg Terminal.

The FPA also provides that WAV shall reimburse Alpha for all reasonable and

necessary brokerage commissions incurred in connection with the Alpha’s acquisition of Shares, in an amount not to exceed $0.05 per Share and $0.02 per disposition of each Share (see Note 6 to the financial statements).

Critical Accounting Policies

The preparation of unaudited condensed financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those estimates.

Net Income/Loss per Common Share

Net loss per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture by the Sponsor.

The 11,876,000 potential shares of common stock for outstanding Public Warrants and Private Placement Warrants to purchase the Company’s stock were excluded from diluted earnings per share for the periods ended September 30, 2023 and 2022 because they are contingently exercisable, and the contingencies have not yet been met.

Therefore, as of September 30, 2023 and 2022, the Company did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the Company.

As a result, diluted income or loss per share is the same as basic loss per share for the periods presented.

Accounting for Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the instruments are free standing financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent period end date while the instruments are outstanding.

Management has concluded that the Public Warrants and Private Placement Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.

The FPA also provides that WAV shall reimburse Alpha for all reasonable and necessary brokerage commissions incurred in connection with the Alpha’s acquisition of Shares, in an amount not to exceed $0.05 per Share and $0.02 per disposition of each Share (see Note 6 to the unaudited consolidated condensed financial statements).

On January 22, 2024, the Company terminated this Forward Purchase Agreement.

Employment Agreements

On December 27, 2023, we entered into an employment agreement with James P.

McCormick whereby the Company agreed to pay a total of $125,000 of total compensation annually, including $40,000 in cash and $85,000 in stock payment.

Critical Accounting Estimates

Derivative liabilities - Forward Purchase Agreement

The Company accounts for its Forward Purchase Agreement (“FPA”) (see Note 6 to the financial statements) in accordance with the guidance contained in ASC 815-40, “Derivatives and Hedging”, under which the FPA does not meet the criteria for equity treatment and must be recorded as a liability.

The Company accounts for its Forward Purchase Agreement (“FPA”) (see Note 6 to the unaudited consolidated condensed financial statements) in accordance with the guidance contained in ASC 815-40, “Derivatives and Hedging”, under which the FPA does not meet the criteria for equity treatment and must be recorded as a liability.

Accordingly, the Company classified the FPA as a liability at its fair value and adjusts the FPA to fair value at each reporting period.

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The FPA is valued using PWERM and certain components of the FPA are valued under the Monte Carlo model.

Common Stock subject to Possible Redemption

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480.

Shares of common stock subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity.

At all other times, common stock is classified as stockholders’ equity.

The Company’s Public Shares sold in the IPO feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.

Accordingly, on January 14, 2022, 11,500,000 shares of common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.

Recent Accounting Pronouncements

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Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

This update requires financial assets measured at amortized

cost basis to be presented at the net amount expected to be collected.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.

This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies.

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The Company adopted ASU 2016-13 on January 1, 2023.

The adoption of ASU 2016-13 did not have a material impact on its financial statements.

The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.

The adoption of ASU 2016-13 did not have a material impact on its unaudited consolidated condensed financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions.

ASU 2023-09 will become effective for annual periods beginning after December 15, 2024.

The Company is still reviewing the impact of ASU 2023-09.

The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited consolidated condensed financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis