ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear under Item 8 in this Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report on Form 10-K. The consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
For the Year Ended December 31, 2024 and December 31, 2023
Our financial results for the year ended December 31, 2024 and 2023 are summarized as follows:
For the Year ended December 31,
Revenue
Operating expenses
General and administrative
Research and development
Depreciation expense
Total operating expenses
Operating income (loss)
Other income (expenses)
Net income (loss)
Revenue
For the Year ended December 31,
Revenue
We generated revenues of $8.0 million and $6.5 million for the year ended December 31, 2024 and 2023, respectively.
During the year ended December 31, 2024, flooid/Quantum sold ten Licensed Distributorships, exclusive and non-exclusive, totaling $8.0 million. During the year ended December 31, 2023, flooid/Quantum sold five Licensed Distributorships, exclusive and non-exclusive, totaling $6.5 million.
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General and Administrative
For the Year ended December 31,
General and administrative
Advertising
Professional fees
Provision for doubtful accounts
Facilities and operations
Wages and employee expenses
Office expense
Insurance
Travel, meals and entertainment
Other
Total general and administrative
During the year ended December 31, 2024, we incurred general and administrative expense in the amount of approximately $3,897,000 compared to approximately $484,000 for the year ended December 31, 2023, an increase of approximately $3,413,000. The increases during the year ended December 31, 2024 as compared to the comparable prior period were due to increases in advertising expense of approximately $1,767,000, wages and employee expenses of approximately $619,000, provision for doubtful of accounts of approximately $343,000, facilities and operations of approximately $212,000, travel, meals and entertainment of approximately $210,000, insurance expense of approximately $137,000, professional fees of approximately $66,000, office expense of approximately $22,000 and other expense of approximately $37,000. These increases were driven by a ramp up in operations during the year ended December 31, 2024 to prepare for installations of the Company’s products.
Research and Development
For the Year ended December 31,
Research and development
Research and development was approximately $2,320,000 for the year ended December 31, 2024, compared to $0 for the year ended December 31, 2023. The increase was driven by the Company’s ramp-up in operations during the current period.
Depreciation Expense
For the Year ended December 31,
Depreciation expense
Depreciation expense was approximately $391,000 for the year ended December 31, 2024, compared to $0 for the year ended December 31, 2023. The increase was driven by the Company’s purchase and the placing in service of approximately $4.7 million of various equipment, furniture and fixtures, vehicles and trailers and computers during the second quarter of 2024.
Other (Expense) Income
For the Year ended December 31,
Other (expense) income
Other expense was approximately $388,000 for the year ended December 31, 2024, compared to other income of approximately $5,221,000 for the year ended December 31, 2023, an increase of approximately $5,378,000. The increase in other expense was primarily driven by a loss on debt settlement of approximately $5,094,000 incurred during the year ended December 31, 2023.
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LIQUIDITY AND CAPITAL RESOURCES
The Company’s ability to generate and obtain adequate amounts of capital to meet its manufacturing, installation, and overhead is accomplished through the sales of licenses to entities that install and service its technologies and Direct Energy Systems.
The Company’s capital resource plan is managed through two distinct pathways. The first being the Company’s general operating overhead, including its administrative, accounting, sales, and other general expenses which are covered through the sales of the Company’s technology licenses, and related fees to its licensed distributors. The second is the funding of a customer’s specific installation of a Direct Energy System. The funding of any energy system installed by the Company is completed independently as a stand-alone financing function. Direct Energy System installations are funded either through its customers or through a separate investment made by investors that are interested in the various benefits of investing in a specific customer’s installation.
Through our 2025 fiscal year the Company has maintained steady sales of its licenses, and has generated fees to cover its capital needs to date. The Company currently generates approximately $2 to $2.5 million per month on average on the sales of its licenses, and related fees.
Beginning in March of 2025, the Company began Direct Energy System installations in Arizona, Texas, Nevada and Wyoming. The Company’s installation work is funded primarily through customer sales, and independent investment in equipment at the customer’s location. All customers currently are required to sign a 240-month long-term equipment sale or lease agreement with the Company. Installation funding covers two segments of revenue to be collected from the customer. The actual work, known as the installation fee, and the monthly equipment fee for the Direct Energy System installed. As of October of 2025, the Company had contracted or recorded as 2025 work, or pending contracts, approximately $172 million and installation fees, and approximately $56 million in recurring revenue. Individual Direct Energy System sales agreements can vary and not all of the pending or recurring revenue agreements will be approved. Monthly recurring revenue during the 240-month contract is collectible after the installation is completed and the Direct Energy System is commissioned and operable.
Company capital demands are based and regulated by the Company by limiting installations to fully funded customer projects. If funding is not obtained for an installation project, then no capital is spent on that project in regards to design, engineering, permitting, or manufacturing. This greatly regulates and limits the possibility of a large demand being put on company cash resources.
The Company projects that it will increase its potential installation fees during its 2025 fiscal year to more than $150 million, and that potential recurring revenue contracts will exceed $100 million. This would require the Company to fund through customer or investment approximately $35 million during the 2025 fiscal year, that would be used for manufacturing and product placement to fulfill the potential contracts. The Company manufactures photonic, photovoltaic, Hydro, and a wide variety of other equipment, assemblies, computers, software, and parts that make up a Direct Energy System. The ability for the Company to produce the products and provide the necessary labor to install this potential contract work is solely based on the ability of our customers, or investors, to provide the capital necessary to complete the work.
At the present time the Company’s liquidity is limited. The Company anticipates that its available cash will increase during the 2025 fiscal year, so long as customer and investor capital is made available to the Company.
The Company has limited ability, or plans to offer equity, or to take on additional debt to finance customer installations. At the time of this filing, the Company feels that its current ability to obtain customer and investor capital for the installation of its systems is adequate to meet demand.
The Company is engaged in the electrical energy industry, a capital-intensive manufacturing and service business. The Company has developed and put in place a system where the sale of its Direct Energy Systems, and a customer installation is regulated by having customer or investor financing for the customer installation secured prior to the start of any manufacturing or installation work. This system insurers that the Company does not build a demand for cash that it cannot meet.
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The Company’s plans that are in place for sales of its energy systems, as well as the costs associated with the installation of such systems at the customers locations also benefits the Company in the fact that its costs are real time, which allows the Company to adjust its sales prices and regulate installation costs on a case-by-case basis, as that installation is funded through customer or investment capital. In this manner, cost escalations in raw material, labor, freight, and a wide variety of other project related costs can be adjusted prior to the customer purchase agreement being executed.
The cash and cash equivalents change was as follows:
For the Year Ended December 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents
Beginning of year
End of year
Cash Flows from Operating Activities
For the year ended December 31, 2024, cash provided by operating activities was approximately $1,963,000 and primarily consisted of net income of approximately $1,780,000, changes in operating assets and liabilities of approximately $163,000, provision for credit losses of approximately $343,000, depreciation expense of approximately $391,000, a loss on foreign currency translation of approximately $308,000 and gain on sale of equipment of $80,000.
For the year ended December 31, 2023, cash used in operating activities was $0 and primarily consisted of net income of approximately $794,000 and changes in operating assets and liabilities of approximately $6,004,000 primarily offset by a non-cash adjustment for the loss on debt extinguishment of approximately $5,094,000 and approximately loss on foreign currency translation of $116,000.
Cash Flows from Investing Activities
During the year ended December 31, 2024, cash used in investing activities was approximately $0.8 million. During the year ended December 31, 2024, the Company paid approximately $1.0 million for property and equipment. The purchases consisted of equipment, furniture and fixtures, vehicles and trailers and computers. Additionally, we sold equipment for a total of $80,000 during the current period and received a refund of approximately $67,000 for equipment purchases.
During the year ended December 31, 2023, the Company had no cash flows provided by (used in) investing activities.
Cash Flows from Financing Activities
During the year ended December 31, 2024, the Company paid approximately $1.1 million on notes payable.
During the year ended December 31, 2023, the Company had no financing activities.
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Working Capital
For the Year ended December 31,
Current assets
Current liabilities
Working capital
Working capital increased by approximately $5.1 million between December 31, 2024 and December 31, 2023 primarily due to increases in other receivables of approximately $4.4 million, accounts receivables, net of provision of approximately $0.8 million and prepaid expenses of approximately $0.6 million, partially offset by increases in accounts payable and accrued liabilities of approximately $0.4 million and current notes payable approximately $0.3 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Revenue Recognition
The Company had only one revenue stream in 2024 and 2023, which was revenue earned from the sale of distributor licenses. The distributor license provides a right to use for the Company’s technology to the distributor through an exclusive or non-exclusive agreement for a specific territory, dependent on the type of the Licensed Distributorship agreement. The right to use allows the distributor to install the Company’s direct energy systems. The license fee collected from the distributor based on the Licensed Distributorship agreement is considered a one-time fee. This license fee is non-refundable to the distributor.
The Company considers the license fees as earned at a point in time, and has no further performance obligations beyond approval of license use by the distributor, which occurs upon contract signature.
Revenue Recognition under ASC 606 Revenue from Contracts with Customers
In applying Accounting Standards Codification (“ASC”) 606, revenue is recognized by following a five-step process:
1. Identify the contract(s) with a customer. Evidence of a contract generally consists of a signed Licensed Distributorship agreement issued pursuant to the terms and conditions of an agreement.
2. Identify the performance obligations in the contract. The single performance obligation provides the distributor with a license of right to use the Company’s technology in a specific territory for a license fee.
3. Determine the transaction price. The purchase price stated is the fixed price stated in the License Distributor Agreement. The agreements with our customers do not include any form of variable consideration. The licensor and licensee agree that the Licensee may pay the stated fee in cash, real estate, or trade. When the license fee is paid by non-cash consideration, the license fee is measured by the estimated fair value of the non-cash consideration at the inception of the agreement.
4. Allocate the transaction price to the performance obligations in the contract. Because there is a single performance obligation no allocation is required.
5. Recognize revenue when (or as) we satisfy a performance obligation. Consideration from the Licensed Distributorship agreements is recognized at a point in time upon delivery of the license to the distributor.
The Company excludes from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers by the distributor. Accordingly, such tax amounts are not included as a component of net sales or cost of sales.
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Accounts Receivable, net of provision
Accounts receivables, net of the provision for doubtful accounts, represent their estimated net realizable value, which approximates fair value. Provisions for doubtful accounts are recorded based on historical collection experience, current conditions and reasonable and supportable forecasts. Receivables are written off when they are deemed uncollectible. As of December 31, 2024 and 2023, the Company had accounts receivable balances of $6.3 million and $5.2 million, respectively. During the year ended December 31, 2024, the Company recorded a provision for doubtful accounts of $342,535, resulting in accounts receivable, net of provision of approximately $6.0 as of December 31, 2024. All amounts were deemed collectable as of December 31, 2023.
Other Receivables
Other receivables were $5.7 million and $1.3 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024, other receivables consist of accounts receivable collections through a third-party which is due to the Company of $3.2 million and amounts owed related to cash collected on behalf of the Company for future common stock issuances of $2.6 million which is imminently collectible as of December 31, 2024. During the year ended December 31, 2023, the Company began and ultimately terminated a merger with a third-party entity. In connection with this merger termination, certain of the Company’s accounts receivable were collected on behalf of flooidCX by the third-party entity as of throughout the years ended December 31, 2024 and 2023. The Company has deemed these amounts imminently collectible as of December 31, 2024.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments , which changes the impairment model for most financial assets. The update was intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The Company adopted the new standard on January 1, 2023. The adoption did not have a material impact on our financial statements.
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures-In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company is still assessing the impact of the ASU but does not believe it will have a material impact on its financial statements.
Income Taxes (Topic 740): Improvements to Income Tax Disclosures-In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025, and continuing to provide the pre-ASU disclosures for the prior periods or may apply the amendments retrospectively by providing the revised disclosures for all period presented. flooidCX Corp expects this ASU to only impact its disclosures with no impact to the Company’s results of operations, cash flows, and financial condition.
Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this Update require a public business entity to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. The objective of the disclosure requirements is to provide disaggregated information about a public business entity’s expense to help investors (a) better understand the entity’s performance, (b) better assess the entity’s prospects for future cash flows, and (c) compare an entity’s performance over time and with that of other entities. Public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is still assessing the new standard but does not believe it will have a material impact on its financial statements.
