Cycurion (NASDAQ: CYCU) adds $5M+ revenue and 800 clients with Kustom deal
Rhea-AI Filing Summary
Cycurion, Inc. completed the August 3, 2026 acquisition of substantially all assets of Kustom Entertainment’s legacy Digital Ally video-solutions business. Consideration consists of $1,250,000 in cash, a $4,250,000 secured promissory note, up to $1,000,000 of contingent earnout, and Series H Preferred Stock with $600,000 aggregate stated value. The preferred shares carry 12.0% annual dividends and are convertible into common stock at $1.45 per share, with related registration rights and leak-out restrictions on resale of conversion shares.
The acquired business provides in-car and body-worn video systems, digital evidence management and related services. Cycurion states the deal is expected to add more than $5 million in annual revenue and over $1.2 million in EBITDA, expand its base by more than 800 largely public-safety customers and add over 50 patents, bringing its gross revenue run rate to approximately $30 million. Pro forma 2026 figures for the video segment present $5,500,000 of revenue, EBITDA of $938,132, net income of $101,658 and operating cash flow of $650,191.
Positive
- Acquisition adds scale and profitability: The Digital Ally video business is expected to contribute more than $5 million in annual revenue and over $1.2 million in EBITDA, lifting Cycurion’s gross revenue run rate to approximately $30 million and adding over 800 customers and 50+ patents.
Negative
- None.
Filing Explained
The acquisition is closed, but Cycurion now has a secured $4.25 million note and preferred stock that can create future common-share dilution.
Form 8-K reports that Cycurion completed the Kustom video-solutions asset acquisition on
The consideration includes a secured
The issued preferred stock carries
The preferred-stock issuance was a private transaction exempt from registration, and the Registration Rights Agreement requires Cycurion to register and maintain an effective resale registration statement; the Leak-Out Agreement separately limits resale based on daily trading volume.
Although the accompanying release describes an immediate financial contribution and an approximately
The Side Letter Agreement permits specified employment, contractor, shared-services, and pro forma deliverables to be finalized after closing, so those items remain post-closing implementation matters rather than conditions to completion.
8-K Event Classification
Key Figures
Key Terms
Secured Promissory Note financial
Registration Rights Agreement regulatory
Earnout and Clawback Agreement financial
Leak-Out Agreement financial
EBITDA financial
ASC 805 financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
What business did Cycurion (CYCU) acquire from Kustom Entertainment?
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What financial impact does Cycurion (CYCU) expect from the Kustom acquisition?
What are the key terms of Cycurion’s Series H Preferred Stock issued in the deal?
What do the pro forma 2026 results show for Cycurion (CYCU)’s acquired video segment?
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 1.01 Entry into a Material Definitive Agreement.
Asset Purchase Agreement
On August 3, 2026 (the “Closing Date”), Cycurion, Inc., a Delaware corporation (the “Company” or “Buyer”), consummated the acquisition of substantially all of the assets relating to the video-solutions division of Kustom Entertainment, Inc., a Nevada corporation (“Kustom” or “Seller”), pursuant to that certain Asset Purchase Agreement dated June 24, 2026 (the “Asset Purchase Agreement”), as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (the “Amendment Agreement” and together with the Asset Purchase Agreement, the “Purchase Agreement”).
The acquired business includes the development, sale, licensing, support and servicing of video hardware, camera products, platforms, software and software solutions (the “Business”). Pursuant to the Purchase Agreement, Seller sold, assigned, transferred, conveyed and delivered to the Company substantially all assets used primarily in or held for use in the Business, and the Company assumed certain specified liabilities relating thereto.
The aggregate consideration payable by the Company under the Purchase Agreement consists of: (i) $1,250,000 in cash, (ii) a secured promissory note in the original principal amount of $4,250,000, (iii) contingent earnout consideration of up to $1,000,000, and (iv) shares of the Company’s Series H Preferred Stock having an aggregate stated value of $600,000. The Series H Preferred Stock replaced the 2,000,000 warrants originally contemplated by the Purchase Agreement pursuant to the Amendment Agreement.
The Series H Preferred Stock accrues dividends at a rate of 12.0% per annum on its stated value, payable quarterly. The Series H Preferred Stock is convertible into shares of the Company’s common stock at a conversion rate equal to the stated value thereof, together with accrued and unpaid dividends, divided by $1.45 per share, subject to the terms of the applicable Certificate of Designation.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Asset Purchase Agreement, which was previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2026, and the Amendment No. 1 and Forbearance / Extension Agreement, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K with the SEC on July 31, 2026, and is incorporated herein by reference.
Ancillary Agreements
In connection with the Closing, the Company and Seller entered into the following ancillary agreements contemplated by the Purchase Agreement:
Assignment and Assumption Agreement
The Company and Seller entered into an Assignment and Assumption Agreement pursuant to which Seller assigned to the Company, and the Company assumed, certain contracts, rights, obligations, and liabilities associated with the acquired Business.
Intellectual Property Assignment Agreement
The Company and Seller entered into an Intellectual Property Assignment Agreement pursuant to which Seller assigned to the Company certain intellectual property assets used in the Business, including associated rights, registrations, applications, goodwill, and rights to pursue infringement claims.
Bill of Sale
The Company and Seller entered into a Bill of Sale pursuant to which Seller conveyed to the Company legal title to certain tangible and intangible assets included in the acquired Business.
Non-Competition and Non-Solicitation Agreement
The Company and Seller entered into a Non-Competition and Non-Solicitation Agreement containing customary restrictions relating to competition with the Business and solicitation of customers, employees, and business relationships.
Secured Promissory Note
The Company issued to Seller a Secured Promissory Note in the original principal amount of $4,250,000 in partial consideration for the acquisition. The note is secured in accordance with the terms of the Security Agreement described below.
Security Agreement
The Company entered into a Security Agreement in favor of Seller pursuant to which Seller was granted a security interest in certain assets of the Company as security for the obligations under the Secured Promissory Note.
Registration Rights Agreement
The Company entered into a Registration Rights Agreement with Seller pursuant to which the Company agreed to register for resale the shares of common stock issuable upon conversion of the Series H Preferred Stock, subject to the terms thereof. The Company agreed to file and maintain an effective registration statement covering such shares in accordance with the requirements set forth in the agreement.
Earnout and Clawback Agreement
The Company and Seller entered into an Earnout and Clawback Agreement establishing Seller’s right to receive contingent earnout payments of up to $1,000,000 based upon the future performance of the Business and providing for certain clawback provisions and adjustment mechanisms.
Leak-Out Agreement
The Company and Seller entered into a Leak-Out Agreement governing the disposition of shares of common stock issued upon conversion of the Series H Preferred Stock or payment of dividends thereon. The agreement generally limits sales by Seller and its affiliates during the applicable leak-out period based on a percentage of daily trading volume.
Conditions Precedent Agreement
The Company and Seller entered into a Conditions Precedent Agreement setting forth certain conditions that were required to be satisfied or waived in connection with the consummation of the acquisition. All such conditions were satisfied or waived prior to Closing.
Side Letter Agreement
In connection with the Closing, the Company and Seller entered into a Side Letter Agreement pursuant to which the parties acknowledged that certain agreements and deliverables require additional coordination with employees, contractors and third parties and therefore may be finalized and delivered following Closing. These deferred deliverables include certain Key Employment Agreements, Essential Employee Agreements, Contractor Agreements, the Shared Services Agreement, and certain pro forma financial information. The parties agreed that the absence of such deferred deliverables as of the Closing Date would not constitute a condition precedent to Closing, a breach of the Purchase Agreement, or a basis for terminating the Purchase Agreement. The parties further agreed to use commercially reasonable efforts to finalize and execute such deferred deliverables by the deadline specified in the Side Letter Agreement.
The foregoing descriptions of the Assignment and Assumption Agreement, Intellectual Property Assignment Agreement, Bill of Sale, Non-Competition and Non-Solicitation Agreement, Secured Promissory Note, Security Agreement, Registration Rights Agreement, Earnout and Clawback Agreement, Leak-Out Agreement, Conditions Precedent Agreement and Side Letter Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, copies of which are filed as Exhibits 10.1 through 10.12 to this Current Report on Form 8-K and are incorporated herein by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On August 3, 2026, the Company completed the acquisition of substantially all of the assets comprising the Business of Seller pursuant to the Purchase Agreement described in Item 1.01 above, which description is incorporated herein by reference.
The Company expects to integrate the acquired Business into its existing operations and believes the acquisition will enhance the Company’s cybersecurity, technology solutions and video-surveillance capabilities.
Item 3.02. Unregistered Sales of Equity Securities.
On August 3, 2026, pursuant to the Purchase Agreement, the Company issued shares of its Series H Preferred Stock having an aggregate stated value of $600,000 to Seller as partial consideration for the acquisition. The Series H Preferred Stock was issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder.
The Series H Preferred Stock accrues dividends at a rate of 12.0% per annum and is convertible into shares of the Company’s common stock at a conversion price of $1.45 per share, subject to adjustment and the terms of the applicable Certificate of Designation.
Item 8.01. Other Events.
On August 4, 2026, the Company issued a press release announcing the completion of its acquisition of substantially all of the assets comprising the video solutions business of Kustom. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(b) Pro Forma Financial Information.
In connection with the acquisition of substantially all of the assets comprising the video solutions business of Kustom Entertainment, Inc., the parties prepared unaudited pro forma financial information reflecting the effects of the acquisition. The pro forma financial information includes operating assets and liabilities as of June 30, 2026, a pro forma income statement for the fiscal year ending December 31, 2026, combining historical results and forecasted operations, and a pro forma operating cash flow statement. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations, financial position, or cash flows that would have been achieved had the acquisition been completed on the dates assumed, nor is it necessarily indicative of future results. The unaudited pro forma financial information is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
(d) Exhibits:
| Exhibit No. | Description | |
| 10.1 | Assignment and Assumption Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.2 | Intellectual Property Assignment Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.3 | Bill of Sale, dated August 3, 2026, executed by Kustom Entertainment, Inc. in favor of Cycurion, Inc. | |
| 10.4 | Non-Competition and Non-Solicitation Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.5 | Secured Promissory Note, dated August 3, 2026, issued by Cycurion, Inc. in favor of Kustom Entertainment, Inc. | |
| 10.6 | Security Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.7 | Registration Rights Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.8 | Earnout and Clawback Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.9 | Leak-Out Agreement, dated August 3, 2026, by and between Cycurion, Inc. and the holders party thereto. | |
| 10.10 | Conditions Precedent Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 10.11 | Side Letter Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. | |
| 99.1 | Press Release, dated August 4, 2026 | |
| 99.2 | Unaudited Pro Forma Financial Information | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CYCURION, INC. | ||
| Date: August 4, 2026 | By: | /s/ L. Kevin Kelly |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
Exhibit 99.1
Cycurion, Inc. Closes Acquisition of Digital Ally Video Solutions Business, Expanding Its Resources While Adding More Than $5 Million in Revenue and Over $1.2 Million in EBITDA — Bringing Annual Revenue Run Rate to Approximately $30 Million
MCLEAN, Va., August 04, 2026 – Cycurion, Inc. (NASDAQ: CYCU) (“Cycurion” or the “Company”), a leading provider of AI-driven cybersecurity, IT security solutions, and managed services, today announced the successful closing of its acquisition of substantially all assets of Kustom Entertainment, Inc.’s (NASDAQ: KUST) (“Kustom”) legacy video solutions segment (the “Business”).
This strategic acquisition brings together Kustom’s established Digital Ally-branded portfolio — including in-car video systems, body-worn cameras, digital evidence management solutions, hardware, software platforms, and related services — with Cycurion’s advanced AI cybersecurity capabilities. The deal is expected to add more than $5 million in annual revenue and over $1.2 million in EBITDA, and provides immediate access to more than 800 new clients, many of which are law enforcement agencies, municipalities, and public safety organizations that align closely with Cycurion’s existing customer base, creating substantial cross-selling opportunities.
The acquired portfolio includes a robust intellectual property portfolio of over 50 patents, strengthening Cycurion’s technology moat in video surveillance, evidence management, and public safety solutions. These patents complement Cycurion’s AI innovations, enabling the development of next-generation integrated platforms that combine real-time video analytics, predictive threat intelligence, and cybersecurity protections.
“We are excited to close this acquisition and take our capabilities to the next level,” said L. Kevin Kelly, Chairman and CEO of Cycurion. “By integrating Kustom’s proven video and evidence management technologies with our AI-powered cybersecurity platform, we will continue, and expand, our comprehensive, predictive solutions that go far beyond traditional tools. Our clients will benefit from AI-enhanced video analytics that detect anomalies in real time, automated evidence workflows, and seamless integration with our predictive cyber intelligence systems — all designed to anticipate and mitigate digital risks before they impact public safety operations. Access to this established base of more than 800 clients accelerates our scale and allows us to offer bundled solutions that enhance data security, officer safety, and operational efficiency.”
Key benefits of the acquisition include:
| ● | Immediate Financial Contribution: Expected addition of more than $5 million in annual revenue and over $1.2 million in EBITDA added at closing. | |
| ● | Expanded AI Product Suite: Enhanced offerings featuring AI-driven video analysis, predictive risk modeling, and integrated cybersecurity for public safety environments. | |
| ● | Intellectual Property Strength: Addition of over 50 patents to bolster innovation in digital evidence management and video technologies. |
| ● | Client Network Growth: Immediate access to more than 800 new public safety customers, driving revenue synergies through cross-selling of Cycurion’s ARx, Cyber Shield, and managed services alongside the acquired video solutions. | |
| ● | Market Leadership: Positions Cycurion as a one-stop provider of AI-powered public safety technology in a large and growing market. | |
| ● | Scale Milestone: With this closing, Cycurion’s pro forma gross revenue run rate now stands at approximately $30 million, reflecting the contribution of the acquired Business with the Company’s existing operations. |
Kelly added, “We now serve more than 800 police departments, municipalities, and public safety agencies that rely on Digital Ally’s video and evidence platforms every single day. Every one of our new clients faces the same escalating cyber threats we defend against for our existing clients. The systems that capture and store their evidence must be protected. By layering Cycurion’s cybersecurity solutions onto this installed base, we can turn each single-product customer into a recipient of full-platform protection — protecting the video, the evidence, and the networks behind them — while opening a substantial new stream of recurring revenue that neither Cycurion nor Kustom Entertainment could have reached alone. Notably, a large portion of Digital Ally’s revenue is recurring revenue — precisely the type of financial model Cycurion is building on.”
With the closing of this transaction, Cycurion’s gross revenue run rate now stands at approximately $30 million. The acquisition at the same time solidifies the footprint from which the Company expects to drive accelerated organic growth: a base of more than 800 public safety customers, a patent-protected product portfolio, and recurring contract relationships that create a durable platform for expansion. Each new customer relationship becomes a channel for additional Cycurion solutions, each integration deepens the Company’s role in its clients’ daily operations, and the combined offering positions Cycurion to win larger engagements across the public safety and government markets it serves — supporting the Company’s broader growth strategy in predictive resilience and public safety technology.
About Cycurion, Inc.
Based in McLean, Virginia, Cycurion (NASDAQ: CYCU) is a forward-thinking provider of AI-enabled IT cybersecurity solutions, committed to delivering secure, reliable, and innovative services to clients worldwide. Specializing in cybersecurity, program management, and business continuity, Cycurion harnesses its AI-enhanced ARx platform and expert team to empower clients and safeguard their operations. Along with its subsidiaries, Axxum Technologies LLC, Cloudburst Security LLC, and Cycurion Innovation, Inc., Cycurion serves government, healthcare, and corporate clients committed to securing the digital future. For more information, visit www.cycurion.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Such statements include, but are not limited to, the expected revenue, EBITDA and other anticipated financial and operational benefits arising from the acquisition of the Business; statements regarding the Company’s execution of its strategic plan; the anticipated benefits, timing, and integration of pending or completed acquisitions; the performance of and revenue expected from government and commercial contracts; the development and commercialization of the Company’s AI-enabled cybersecurity platforms, including ARx; the Company’s expectations regarding its path to profitability; the Company’s ability to regain or maintain compliance with the continued listing standards of the Nasdaq Stock Market; and the conduct, timing, and outcome of the Company’s investigations and any related legal proceedings. Forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” and similar expressions.
Forward-looking statements are based on management’s current expectations and assumptions and involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied, many of which are outside the Company’s control and difficult to predict. These risks include, but are not limited to: the outcome of the Company’s investigations and any legal proceedings the Company may initiate or become subject to, and the costs, time, and resources associated with such matters; the Company’s ability to identify, finance, complete, and integrate acquisitions; the Company’s ability to win, retain, and perform under government and commercial contracts; the Company’s need for additional capital and the terms on which it may be available; the Company’s ability to satisfy Nasdaq’s continued listing requirements; competitive conditions and technological change in the cybersecurity market; and volatility in the trading price and volume of the Company’s common stock, which may occur for reasons unrelated to the Company’s operating performance. Additional risks and uncertainties are described in the Company’s most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission, which are available at www.sec.gov.
The Company anticipates that subsequent events and developments may cause its plans, intentions, and expectations to change. Forward-looking statements speak only as of the date on which they are made, and the Company assumes no obligation, and specifically disclaims any intention or obligation, to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Cycurion Investor Relations:
(888) 341-6680
investors@cycurion.com
Cycurion Media Relations:
(888) 341-6680
media@cycurion.com
Exhibit 99.2
Video Solutions Segment – Pro Forma Operating Financial Statements
The following exhibits present the operating financial statements for the Video Solutions segment. Exhibit 1 presents the segment’s operating assets and liabilities as of June 30, 2026. Exhibit 2 presents the pro forma income statement for fiscal year 2026, combining first-half actual results with the second-half forecast, with detailed assumptions for each line item. Exhibit 3 presents the pro forma operating cash flow derived from projected balance sheet changes, with supporting assumptions for each projected ending balance and its resulting cash impact.
Exhibit 1 — Operating Assets & Liabilities (as of June 30, 2026)
| June 30, 2026 | ||||
| Operating Assets | ||||
| Inventory, net of obsolescence reserve | $ | 1,498,602 | ||
| Accounts Receivable and Subscription Receivable | $ | 5,211,238 | ||
| Allowance for AR doubtful account | $ | (255,000 | ) | |
| Prepaid Expense | $ | 351,188 | ||
| ROU Asset - Building | $ | 109,711 | ||
| Property, Plant & Equipment, net | $ | 63,834 | ||
| Intangible Assets – Patent, net | $ | 168,024 | ||
| Total Operating Assets | $ | 7,147,597 | ||
| Operating Liabilities | ||||
| Deferred Revenue, ST and LT | $ | 6,623,040 | ||
| ROU Obligation - Building | $ | 109,711 | ||
| Accounts Payable | $ | 193,935 | ||
| Accrued Expenses | $ | 199,877 | ||
| Total Operating Liabilities | $ | 7,126,563 | ||
| NET OPERATING ASSETS | $ | 21,034 | ||
14001 Marshall Drive ● Lenexa, KS 66215 ● digitalally.com ● 800.440.4947
Exhibit 2 — Pro Forma Income Statement
| 2026 (H1 Actual + H2 Forecast) | Assumptions | |||||
| Product Revenue | $ | 1,200,000 | H1 actual $475,518 per the June 2026 close; H2 forecast $724,482. Bottom-up H2 pipeline ($4.74M raw / $1.81M conservatively weighted) covers the H2 forecast ~2.5×. | |||
| Service Revenue | $ | 4,300,000 | H1 actual $1,775,102 + H2 forecast $2,524,898. H2 growth over the H1 run rate is supported by $3,009,194 short-term deferred revenue at 6/30 and the Q4 renewal cycle. Existing deferred base recognized per ASC 606. | |||
| Total Revenue | $ | 5,500,000 | FY2026 of $5.5M reflects H1 actuals plus the H2 forecast, consistent with the Year 1 revenue target under the Agreement. FY2027 $5.8M (+5.5%), the Year 2 target. ~78% recurring. | |||
| COGS – Product | $ | 1,416,047 | H1 operating COGS $610,417 (excludes the one-time inventory charge-off presented below EBITDA). H2: materials $776,230 scaled to the $724K H2 product forecast + storage rent $29,400 = $805,630. FY $1,416,047. | |||
| COGS – Service | $ | 1,277,438 | H1 actual $595,041 (AWS, T-Mobile, Particle/Nova/ADCi, deployment & support labor). H2 forecast $682,397; FY $1,277,438. | |||
| Total COGS | $ | 2,693,485 | ||||
| Gross Profit | $ | 2,806,515 | Margin 51.0%. | |||
| R&D Expense | $ | 571,180 | H1 actual $274,838 + H2 forecast $296,342. Fixed headcount. | |||
| Selling & Promotional | $ | 438,166 | Sales salaries $185,369 + travel $45,000 + trade shows $40,000 + commissions $167,797. | |||
| G&A Expense | $ | 859,037 | Salaries $421,837, contractors $83,200, benefits $84,000, rent $90,000, IT $60,000, insurance $28,000, supplies $12,000, other/unallocated $80,000 (per GL). | |||
| Total SG&A | $ | 1,868,383 | R&D $571,180 + S&P $438,166 + G&A $859,037. | |||
| EBITDA | $ | 938,132 | Margin 17.1%. Presented before the one-time non-cash items shown separately below. | |||
| Inventory Reserve | $ | (567,357 | ) | For conservatism, management recorded a one-time, non-recurring charge-off of excess and obsolete inventory in the June 2026 close. Non-cash: fully reflected in the $2,172,575 obsolescence reserve in Exhibit 1, with no impact on operating cash flow; no further write-downs assumed in H2. | ||
| Provision for credit losses | $ | (169,738 | ) | For conservatism, management recorded a one-time credit loss allowance in the June 2026 close (GL 6130-000-00), growing the reserve from $85,262 at 12/31/25 to $255,000 at 6/30/26 per Exhibit 1. Non-cash: added back in Exhibit 3, with no impact on operating cash flow; no further provision assumed in H2. | ||
| Depreciation | $ | (41,371 | ) | Gross PP&E $542,461, net $63,834 at 6/30/26 → $46,482 by 12/31/26. No CapEx planned. | ||
| Patent Amortization | $ | (58,008 | ) | Net $168,024 at 6/30/26 per Exhibit 1 ($381,635 gross less $213,611 accumulated); amortized at $14,502/quarter to $139,020 by year-end. $80K H2 prosecution costs capitalized to the balance sheet (investing), not amortized until grant; 12/31/26 net $219,020. | ||
| Net Income | $ | 101,658 | EBITDA $938,132 less one-time non-cash items of $737,095, depreciation of $41,371, and patent amortization of $58,008. | |||
14001 Marshall Drive ● Lenexa, KS 66215 ● digitalally.com ● 800.440.4947
Exhibit 3 — Pro Forma Operating Cash Flow
| Operating Activities | Amount | Assumptions | ||||
| Net Income | $ | 101,658 | Revenue $5,500,000 less COGS $2,693,485 less SG&A $1,868,383 = EBITDA $938,132, less one-time non-cash items $737,095 (inventory charge-off $567,357; credit loss reserve true-up $169,738), depreciation $41,371, and patent amortization $58,008. Both one-time items are added back below; the inventory balance change is measured on a gross (pre-reserve) basis. | |||
| Non-cash adjustments (add-back to net income): | ||||||
| Depreciation | +$41,371 | PP&E net of $87,853 at 12/31/25, $63,834 at 6/30/26 actual (H1 depreciation $24,019), $46,482 projected at 12/31/26. No CapEx planned. | ||||
| Patent amortization | +$58,008 | Patent net of $197,028 at 12/31/25 (derived), $168,024 at 6/30/26 actual per Exhibit 1; amortized at $14,502/quarter to $139,020 before additions. The $80K H2 prosecution costs are capitalized separately in investing (not amortized until grant); 12/31/26 net $219,020. | ||||
| Provision for credit losses | +$169,738 | For conservatism, management recorded a one-time Q2 true-up of $169,738 (GL 6130-000-00, recorded in the June 2026 close), growing the reserve from $85,262 at 12/31/25 to $255,000 at 6/30/26 per Exhibit 1, held flat through year-end (no H2 provision or write-offs assumed); presented as a one-time item in Exhibit 2. Coverage of 4.89% of gross receivables at 6/30. | ||||
| Inventory Reserve | +$567,357 | Non-cash charge-off establishing the excess and obsolete inventory reserve, recorded for conservatism in the June 2026 close (booked 6/30/26, GL 5000-000-00) and presented as a one-time item in Exhibit 2. The offsetting reserve increase is reflected in the gross inventory balance change below. | ||||
| Total non-cash add-backs | $ | 836,474 | ||||
| Changes in operating assets and liabilities: | ||||||
| Inventory increase | $ | (393,065 | ) | Measured on gross inventory (before the obsolescence reserve), consistent with the charge-off add-back above: H1 gross build of $393,065, held at the 6/30 gross level of $3,671,177 through year-end | ||
| AR & subscription increase | $ | (391,656 | ) | 12/31/25 $6,303,284; 6/30/26 actual $5,211,238; 12/31/26 projected $6,694,940 — the H2 rebuild is driven by Q4 subscription billings consistent with the service forecast. | ||
| Prepaid increase | $ | (200,804 | ) | 12/31/25 $150,384; 6/30/26 actual $351,188 per Exhibit 1; held at the 6/30 level through year-end. Reflects annual insurance and maintenance prepayments. | ||
| Deferred revenue increase | +$759,466 | 12/31/25 $7,594,656; 6/30/26 actual $6,623,040; 12/31/26 projected $8,354,122 (+10% over 12/31/25). H1 decline of $972K reflects recognition seasonality; the $1.73M H2 rebuild depends on the Q4 renewal/booking cycle (roughly one-third annual agency deals, two-thirds multi-year bundles) — the plan’s key balance-sheet dependency. | ||||
| AP increase | $ | (116,421 | ) | 12/31/25 $310,356; 6/30/26 actual $193,935; held at the 6/30 level; no H2 inventory build is forecast. | ||
| Accrued expenses increase | +$54,539 | 12/31/25 $145,338; 6/30/26 actual $199,877; held at the 6/30 level through year-end. | ||||
| Net working capital change | $ | (287,941 | ) | Net operating asset uses of $1,102K (inventory $393K, AR $392K, prepaid $201K, AP $116K), partially offset by the deferred revenue and accrual rebuild, for a net working capital absorption of $290K. | ||
| Operating Cash Flow | $ | 650,191 | NI $101,658 + non-cash add-backs $836,474 less working capital absorption $287,941 = $650,191 | |||
| Investing Activities | Amount | Assumptions | ||||
| Patent prosecution costs capitalized | $ | (80,000 | ) | Patent prosecution costs of $80,000 are capitalized as an intangible asset per company policy and classified as an investing outflow. No other capital expenditures planned for the period | ||
| NET CASH | $ | 570,191 | Operating CF $650,191 less investing $80,000. No financing activities. | |||
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Exhibit 4 — Technology Infrastructure (Unrecorded Intangible Asset)
Asset Summary
Platform: Microsoft Dynamics GP 2018 (Version 18.2, Perpetual License)
License Type: Perpetual, owned outright and no ongoing subscription fee.
Microsoft Account Number: 5271773 (Digital Ally)
First Registered: April 23, 2015
Active Modules: 5
Licensed Users: 21 Full Concurrent User CALs + 144 Self-Serve Named User CALs
Active Users: 24 (as of current Microsoft registration)
Annual Maintenance Stack: $24,532/year (documented; NetStandard Quote #1607-1, 7/21/2025) see breakdown below.
Maintenance Prepaid Status: FY2026 renewal prepaid through 9/26/2026.
Original Investment: $2,000,000
Net Book Value: $0 (fully amortized as of December 31, 2025)
Core Business Functions Supported
| ● | Inventory Management: FIFO costing, receiving, and COGS calculation for body-worn camera hardware and related accessories. | |
| ● | Accounts Receivable: AR aging, allowance tracking, and cash application across 100+ active government agency customers. | |
| ● | Accounts Payable: Vendor management and AP aging | |
| ● | Revenue & Commission Deferral: Native deferral profiles (3-, 5-, 7-year) supporting ASC 340-40 | |
| ● | Subscription Billing & Deferred Revenue: Multi-year contract billing and ASC 606 recognition schedules. | |
| ● | Financial Reporting: Full GL, Smart List reporting, and period-end close procedures supporting monthly, quarterly, and annual SEC reporting. | |
| ● | CRM Integration: GP integrates with external CRM platforms (e.g., Salesforce, Dynamics 365 Sales) via standard APIs and third-party connectors for unified customer and contract data. | |
| ● | Barcode & Field Operations -PanatrackerGP: Native GP plug-in for mobile barcode scanning, inventory tracking, and fixed asset management; plug-and-play on the existing GP instance with no custom integration required (panatrack.com). |
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Estimated Replacement Cost
Management’s estimate of the cost to deploy a comparable ERP environment from scratch, based on publicly available industry benchmarks (see Sources below):
| Cost Component | Low | High | Benchmark Basis | |||||||
| Software licensing — perpetual | $ | 150,000 | $ | 300,000 | Equivalent perpetual ERP license (GP or comparable mid-market platform); GP perpetual license acquired by DA in 2015 included 21 concurrent + 144 named user CALs | |||||
| Implementation & configuration | $ | 200,000 | $ | 400,000 | 100–700+ consultant hours at $150–$350/hour (Panorama 2025) | |||||
| Custom development & integrations | $ | 80,000 | $ | 180,000 | CRM and barcode integrations; each gap adds $5,000–$50,000 (DualEntry 2025) | |||||
| Data migration — 10+ years historical | $ | 75,000 | $ | 150,000 | 10+ years of data (since April 2015) across multiple modules; Panorama estimates up to $75,000 for complex migrations | |||||
| Training & change management | $ | 30,000 | $ | 60,000 | Standard allocation per Panorama 2025 ERP Report | |||||
| Business disruption / downtime risk | $ | 50,000 | $ | 100,000 | Lost productivity during cutover; typically excluded from vendor quotes | |||||
| Total Estimated Replacement Cost | $ | 585,000 | $ | 1,190,000 | Conservative; excludes 10+ years of intact historical transaction data and configured integration value | |||||
Benefits to Cycurion
| ● | Perpetual license — no subscription cost: GP is owned outright under a perpetual license; Buyer assumes no ongoing licensing fee, only the annual Enhancement Plan renewal ($259/incident support; annual renewal cost documentable from contract #4098270) | |
| ● | Zero day-one ERP spend: No capital outlay required to stand up financial and operational systems at closing | |
| ● | Immediate operational continuity: Billing, collections, deferred revenue recognition, and financial reporting continue uninterrupted | |
| ● | CRM integration ready: GP’s open API architecture supports connection to external CRM without custom development | |
| ● | Barcode, fixed assets & field operations - Panatrack actively deployed: PanatrackerGP already running with Manufacturing Standard, Fixed Assets, RMA Receiving, and 3 MCLs — no setup or integration required at closing | |
| ● | Prepaid maintenance transfers at closing: FY2026 annual maintenance ($24,532) is prepaid through 9/26/2026; Buyer receives remaining prepaid value as a balance sheet asset on the closing date | |
| ● | Preserved data history: Ten-plus years of customer, contract, and financial records transfer intact (since April 2015) — standalone migration of this volume estimated at $75,000–$150,000 | |
| ● | ASC 805 purchase accounting: Buyer establishes new amortizable tax basis (15-year life, Section 197) at fair value regardless of Seller’s $0 carrying value |
GP is not included in Exhibit 1 operating assets due to its $0 carrying value. Under ASC 805, buyer is required to recognize all identifiable acquired assets at fair value on the acquisition date, independent of our book value.
14001 Marshall Drive ● Lenexa, KS 66215 ● digitalally.com ● 800.440.4947