Business Context and Reporting Period
Company: Western Acquisition Ventures Corp. (WAVS), a Special Purpose Acquisition Company (SPAC) formed to merge with Cycurion, Inc.
Reporting Period: Quarter ended June 30, 2024 (Q2 2024).
Status: The Company is in the pre-business combination phase. It has entered into a Merger Agreement with Cycurion, Inc., with a termination date extended to December 31, 2024. The Company has extended its deadline to consummate a business combination to October 11, 2024, via a Fifth Charter Amendment approved on July 2, 2024.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|
| Net Loss | $(703,701) | $(295,321) | $(504,148) |
| Operating Expenses | $(576,477) | $(833,213) | $(565,175) |
| Trust Account Balance | $2,600,504 | $2,600,504 | $3,293,966 (Dec 31, 2023) |
| Working Capital Deficit | $(3,289,361) | $(3,289,361) | N/A |
| Loan Payable (Cycurion) | $569,169 | $569,169 | $204,222 (Dec 31, 2023) |
| Excise Tax Payable | $1,149,502 | $1,149,502 | $1,143,296 (Dec 31, 2023) |
| Restricted Cash | $14,876 | $14,876 | $8,651 (Dec 31, 2023) |
Material Changes vs. Prior Period
- Net Loss Volatility: The Q2 2024 net loss of $(703,701) was significantly higher than Q2 2023 ($(332,537)), driven primarily by a $(127,224) expense related to a Non-Redemption Agreement and increased professional fees. However, the YTD 2024 net loss of $(295,321) was lower than YTD 2023 ($(504,148)) due to a $665,116 gain from the change in fair value of the Forward Purchase Agreement (FPA) upon its termination.
- Trust Account Reduction: The Trust Account balance decreased from $3,293,966 at year-end 2023 to $2,600,504 at June 30, 2024, reflecting share redemptions totaling approximately $620,636 during the six-month period.
- Debt Increase: The loan payable to Cycurion increased from $204,222 at December 31, 2023, to $569,169 at June 30, 2024, following amendments to the promissory note to increase the principal amount.
- Derivative Liability: The derivative liability associated with the Forward Purchase Agreement was fully extinguished (reduced to $0) in Q1 2024 following the agreement's termination on January 22, 2024.
Outlook, Risks, and Contingencies
- Going Concern: Management has raised substantial doubt about the Company's ability to continue as a going concern for twelve months from the issuance of the financial statements due to the mandatory liquidation requirement if a business combination is not completed by October 11, 2024.
- Internal Control Weaknesses: The Company identified material weaknesses in internal controls over financial reporting, specifically regarding the withdrawal of funds from the Trust Account for operating expenses (an error of $108,611 identified in 2023) and the failure to timely file the Q1 2024 Form 10-Q. Disclosure controls and procedures were deemed ineffective as of June 30, 2024.
- Nasdaq Compliance: The Company received notices from Nasdaq regarding delinquency in filing the Q1 2024 10-Q and potential non-compliance with listing rules. The Company filed the Q1 report on July 31, 2024, and the Q2 report on September 30, 2024, to regain compliance.
- Excise Tax Liability: A significant excise tax liability of $1,149,502 is recorded, resulting from the 1% tax on stock repurchases (redemptions) under the Inflation Reduction Act.
- Merger Contingency: The business combination with Cycurion is subject to shareholder approval and other closing conditions. If the merger is not consummated by October 11, 2024, the Company will liquidate and distribute Trust Account funds to shareholders.
Investor Verification Checklist
- Merger Timeline: Verify the status of the Cycurion merger and the likelihood of closing before the October 11, 2024 deadline.
- Internal Controls: Assess the remediation plan for the material weaknesses in internal controls, particularly regarding Trust Account withdrawals and financial reporting timeliness.
- Liquidity Position: Confirm the Company's ability to fund operations and tax obligations given the working capital deficit of $(3.3M) and reliance on Sponsor loans.
- Redemption Risk: Monitor for further shareholder redemptions which could deplete the Trust Account below the threshold required to complete the merger.
- Excise Tax Impact: Understand the cash impact of the $1.15M excise tax liability and how it will be settled upon or prior to the business combination.