REG - Fadel Partners Inc. - Half Year Report
25/09/2024 07:00
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RNS Number : 5114F Fadel Partners Inc. 25 September 2024
25 September 2024
Fadel Partners, Inc.
('FADEL', the 'Company' or, together with its subsidiaries, the 'Group')
Unaudited interim results for the six months ended 30 June 2024
FADEL, the developer of cloud-based brand compliance and rights and royalty
management software, is pleased to provide its results for the six months
ended 30 June 2024, based on unaudited management accounts.
Financial Highlights
· Revenue for 1H24 was $5.3 million, of which 65% was
License/Subscription and Support revenue.
· Service revenue increased to $1.9 million in 1H24 (1H23: $1.0
million) reflecting the successful start of a new IPM customer implementation,
as well as professional services in support of expansionary regional rollouts
for existing IPM customers.
· Gross margin improvement to 53% for 1H24, compared to 50% in 1H23.
· Adjusted EBITDA loss of $3.6 million in 1H24, compared to a loss of
$2 million in 1H23, as a result increased expenditure relating to planned
investments for growth and weaker than expected sales.
US Dollars ($M) 1H24 1H23 FY23 Change %( 4 )
Group revenue 5.3 5.4 14.5 -2%
License/Subscription and Support revenue( 1 ) 3.4 4.3 11.4 -21%
Services revenue 1.9 1.0 2.3 90%
Gross profit 2.8 2.7 9.0 4%
Gross profit margin (%) 53% 50% 62% 3%
Adjusted EBITDA( 2 ) (3.6) (2.0) (1.7) -80%
Net cash 2.0 7.3 3.0 -72%
ARR( 3 ) 9.2 N/A* 9.0 N/A*
( 1 )Previously titled 'recurring revenue', see Financial Review for more
detail
( 2)( ) Earnings after capitalised commission costs and before interest, tax,
depreciation, amortization, exceptional costs and share-based payments.
( 3 ) ARR is the annual recurring revenue for all active customers at each
period end for all license contracts, and a selection of subscription and
support revenue that is recurring in nature. ARR tracking implemented on a
prospective basis effective December 31, 2023, as such comparison to 1H23 is
not presented.
( 4 ) Change % compares 30 June 2023 and 30 June 2024.
Operational Highlights
· Successful Launch of LicenSee™: On 1 March 2024, we introduced
LicenSee™, our cloud-based platform for automating royalty management for
mid-market consumer product licensees. During 1H24, we've secured our first
customer and built a strong opportunity pipeline, demonstrating the product's
early market traction.
· Ongoing Growth with Brand Vision: Our Brand Vision product,
featuring AI-based video matching, continues to attract enterprise clients
(see "Brand Vision Successes" below). The upcoming release of audio matching
for marketing videos in 2H24 is expected to further meet market demand,
contributing to pipeline growth for both new clients and upsell opportunities.
· Professional Services Revenue Momentum: The growth in our
professional services revenue during 1H24 reflects increased demand for IPM
implementations and regional rollouts. We anticipate this momentum to carry
through 2H24 and into FY25.
· Strategic Sales and Marketing Expansion: Post-IPO, we've expanded
our sales and marketing teams to strengthen our go-to-market capabilities.
This expansion has resulted in a larger pipeline of opportunities, though it
has also increased our costs in 1H24. We expect these investments to translate
into higher ARR Growth in 2H24 and through FY25.
· Enhanced Revenue Operations Systems: We've upgraded our revenue
operations systems, enabling us to streamline sales processes and focus on
high-potential opportunities across all product lines.
· Strengthening of the Board: We appointed a new Chairman, Simon
Wilson, and a new Chief Financial Officer, Ian Flaherty, a CPA in the United
States to further strengthen our Board.
Current Trading and Outlook
· We expect a similar H2 revenue weighting as in FY23, and
therefore a significant increase in 2H24 revenue compared to 1H24 due to the
timing of revenue recognition.
· Strong sales momentum has continued into 2H24 with an expanding
pipeline across sectors such as Publishing, Health, Beauty Products,
Technology, Consumer Goods, and low and mid-market licensees.
· Significant and growing market opportunity upon which FADEL is
well positioned to fully capitalise.
Tarek Fadel, Chief Executive Officer of FADEL, commented:
"We remain focused on expanding our market presence and driving pipeline and
revenue growth while carefully managing our costs and cash flows. Whilst we
are seeing positive developments in our pipeline, we recognize that longer
sales cycles may impact the timing of revenue recognition. However, the
growing pipeline positions us well to capitalize on these opportunities and
support growth in FY25."
For further information please contact:
Tarek Fadel, Chief Executive Officer Via Alma
Ian Flaherty, Chief Financial Officer
Tel: +44(0)20 7220 0500
Cavendish Capital Markets Limited (Nomad & Broker)
Jonny-Franklin Adams, Abigail Kelly, Rory Sale (Corporate Finance)
Tim Redfern, Sunila De Silva (ECM)
Alma Strategic Communications Tel: +44(0)20 3405 0205
Josh Royston, Andy Bryant, Sam Modlin, Robyn Fisher fadel@almastrategic.com
About FADEL Partners Inc.
FADEL is a developer of cloud-based brand compliance and rights and royalty
management software, working with some of the world's leading licensors and
licensees across media, entertainment, publishing, consumer brands and
hi-tech/gaming companies. The Group combines the power of rights management
and content compliance with sophisticated content services, AI-powered visual
search and image and video recognition.
FADEL has two main solutions, being IPM Suite (for rights and royalty
management for publishing and licensing) and Brand Vision (an integrated
platform for Brand Compliance & Monitoring that includes Digital Asset
Management, Digital Rights Management, AI-Powered Content Tracking, and a
Content Aggregation platform with over 100 million Ready-to-License Images).
The Group's main country of operation is the United States, where it is
headquartered in New York, with further operations in the UK, France, Lebanon,
Jordan and India.
For more information, please visit the Group's website at: www.fadel.com
(http://www.fadel.com/) .
OPERATIONAL REVIEW
Building the Pipeline for Long-Term Growth
The market need for our software remains strong, driven by the exponential
growth of digital content and its global distribution, and our recently formed
sales and business development teams are actively building up our pipeline.
Our outreach with LicenSee™ has already begun generating mid-market
opportunities, which complement our existing IPM Enterprise client base. We
are actively working to expand this pipeline, particularly in the mid-market
segment, where we see significant potential. Additionally, demand for Brand
Vision content tracking has shown measurable pipeline growth in 1H24. The
pipeline for Brand Vision has similarly seen measurable pipeline growth in
1H24 in response to our increased outreach efforts and supports our decision
to make ongoing investments in Brand Vision's development.
Our software continues to prove its relevance across a diverse range of
industries that require monitoring of content and intellectual property
rights. As of 1H24, our top 20 clients span sectors such as Publishing, Media,
Beverages, Beauty, Luxury, and Consumer Goods.
Following our IPO, we have strategically expanded our sales and marketing
teams, including the completion of our in-house outbound lead generation team.
This expansion is already contributing to a stronger new business pipeline,
enabling us to access new clients and markets more effectively. Our broadened
product offering, which now includes Brand Vision and the recently launched
LicenSee™, has diversified our target markets through new use cases and
client segments. While these developments are promising, we anticipate that
the full impact on client acquisition and cross-selling opportunities will be
realized from FY25 onward, supporting our long-term growth objectives.
This operational progress we have made has not yet had time to be reflected in
the financial results for 1H24. Revenues for 1H24 were $5.3 million (1H23:
$5.4 million), within which License/Subscription and Support revenues declined
by 21% to $3.4 million (1H23: $4.3 million), largely due to the timing shift
of renewal license revenue into 2H24 and the decision by some IPM customers to
transition to their own hosted environments in 2H23 for compliance with
security and GDPR standards. The U.S. GAAP revenue recognition for certain
2H23 licenses required full revenue recognition at the time of signing, which
contributed to a temporary increase in 2H23 revenue. These contracts are set
to renew in 2H24, and therefore we expect a significant increase in 2H24
revenue compared to 1H24. The only churned accounts in 1H24 were in our
PictureDesk Private Edition customers, with one specific customer representing
a loss of c$0.3m in ARR. Professional services revenue saw a 90% increase to
$1.9 million in 1H24 (1H23: $1.0 million), reflecting the initiation of new
IPM customer implementation projects and additional service contracts to supp
ort regional rollouts with existing customers.
New Customer Acquisition and Expansion within Existing Customer Base
Sales prospects for Brand Vision solutions are gaining momentum, with
increasing interest in larger enterprise-level contracts, although these
involve longer sales cycles. Additionally, the expansion of our IPM suite
products, including the IPM Enterprise suite and LicenSee™, continues to
strengthen our market position by broadening software functionality and
supporting new use cases. Our expanded sales teams are strategically
positioned to capture these opportunities across all product lines, leveraging
growing demand to drive further growth in these key areas.
Cross and upselling within our existing blue-chip customer base remain
significant opportunities for growth. Customers are increasingly integrating
both IPM Suite and Brand Vision solutions to meet their needs, with
anticipated benefits in 2H24 and beyond.
Notable customer activity in 1H24:
· Sanoma and Ata-Boy: Successful rollout and implementation of IPM
Suite and LicenSee™, highlighting our capabilities across both enterprise
and mid-market offerings. The Sanoma contract, valued at approximately $1.5
million, includes $0.9 million for software licensing, which is being
recognized as revenue over a minimum three-year term.
· Brand Vision Successes: Strong adoption of Brand Vision, with key
implementations including Rights Cloud and Content Tracking for one of the
world's largest manufacturers of audio equipment, the Los Angeles Tourism
& Convention Board, and L'Oreal US, which expanded Content Tracking to a
new location. Additionally, Philip Morris has increased its use of Content
Tracking within Rights Cloud.
· Extended Support Services (ESS): Continued growth in ESS, with
upsells to existing IPM Suite customers, including Macmillan Learning and
Abrams Books.
· Enterprise-Level Contracts: Several enterprise-level contracts
for both IPM Suite and Brand Vision are in the later stages of negotiation and
are expected to be signed during 2H24.
Heightened Tensions in the Middle East and Contingency Plans
We currently have 93 employees working predominantly across R&D and
Professional Services at our Beirut office in Lebanon. Given the recent
heightened geopolitical tensions, we have been closely monitoring the
situation. It is important to note that our Beirut office has remained well
away from the conflict zone and continues to be fully operational.
To ensure business continuity, we have taken pre-emptive measures, including
expanding our R&D capacity in the Jordan office, which now has 11
employees and serves as a backup for many critical functions performed by our
Beirut team. We plan to further increase the R&D capabilities in Jordan
over the next 6 to 12 months. Additionally, we have a global Professional
Services team and access to contractors in India, providing us with further
flexibility and resources to maintain operations under any circumstances.
Board Changes
· Effective 14 February 2024, we appointed a new Chief Financial
Officer, Ian Flaherty, a CPA in the United States. Ian has held various
financial management positions in publicly listed companies (New York Stock
Exchange and Toronto Stock Exchange) within the technology and
direct-to-consumer sector and brings with him a wealth of US GAAP reporting
and international tax experience.
· Effective 1 July 2024, we appointed Simon Wilson as Chairman.
Simon brings extensive executive and board experience from enterprise B2B
software companies in the UK and US, including AIM-listed and growth
equity-backed companies.
Current trading and outlook
FADEL is focusing on growing Annual Recurring Revenue ("ARR") through strong
client retention and an expanding pipeline across sectors such as Publishing,
Health, Beauty Products, Technology, Consumer Goods, and low and mid-market
licensees. As our solutions deliver high ROI from cost efficiencies and
licensing revenue growth, we are well-positioned to capitalize on these
opportunities. Our consistent renewal rates and success in expanding our
pipeline reinforce our confidence in achieving positive financial outcomes for
FY24.
Looking forward to the full year, the Board anticipates that FADEL is trading
in line with revised market expectations. We expect a similar H2 weighting as
in FY23, and therefore a significant increase in 2H24 revenue compared to 1H24
due to the timing of revenue recognition for certain IPM customers and
underlying growth in new business. This is expected to result in positive
adjusted EBITDA for 2H24 and a reduced adjusted EBITDA loss for the full year.
We remain focused on expanding our market presence and driving pipeline and
revenue growth while carefully managing our costs and cash flows. Whilst we
are seeing positive developments in our pipeline, we recognize that longer
sales cycles may impact the timing of revenue recognition. However, the
growing pipeline positions us well to capitalize on these opportunities and
support growth in FY25.
Tarek Fadel
Chief Executive Officer
24 September 2024
FINANCIAL REVIEW
Revenue
Revenue for the first six months of the year was $5.3 million. Of this $3.4
million (65%) was License/Subscription and Support revenue, a decrease of 21%
relative to 1H23 of $4.3 million, primarily due to the timing of revenue
recognition discussed above. Our service revenue increased relative to the
same prior period to a total of $1.9 million (1H23: $1.0 million). This
increase reflects the successful start of a new IPM customer implementation,
as well as professional services in support of expansionary regional rollouts
for existing IPM customers.
Our expected full-year revenue for 2024 remains in line with revised market
expectations. As in 1H23, a significant proportion of the license revenue will
be realised in the second half of the year in-line with historical contract
renewals.
With the introduction of the ARR metric, we are updating the title of
'recurring revenue' to 'license/subscription and support revenue' which is a
more accurate description
Margins
Cost of sales decreased to $2.5 million in 1H24 from $2.7 million in 1H23,
resulting in an overall gross margin improvement to 53% for 1H24, compared to
50% in 1H23. This reduction in cost of sales reflects our deliberate efforts
to control spending, while still meeting all client deliverable deadlines, as
we work toward achieving positive adjusted EBITDA. The cost reductions were
accomplished through several strategic measures, including replacing
higher-cost consulting resources in India with equally qualified but
moderately lower-cost resources in other locations, and leveraging more
underutilized resources in our Support and R&D departments. This approach
has enabled us to support product development and accelerate our product
roadmap when these resources are not fully engaged in client-facing projects.
Within this overall improvement, our License/Subscription and Support gross
margin declined to 48% in 1H24 from 65% in 1H23. This decrease was primarily
due to the shift in the timing of revenue recognition to the second half of
the year, as previously discussed.
Services gross margin increased, rising to 61% in 1H24 from -13% in 1H23. This
improvement was largely driven by the return of significant client projects,
which has greatly enhanced the utilization of our highly skilled employee pool
and supported our growth trajectory.
Costs
Our research and development (R&D) costs decreased to $1.8 million in 1H24
from $2.0 million in 1H23. This reduction was primarily driven by the foreign
exchange benefits of Lebanon-based costs, coupled with efforts to reduce
India-based consulting resources and replace them with dedicated resources in
Jordan. Despite these reductions, we continue to invest in product
development, including quarterly update release cycles and new features for
both Brand Vision and IPM Suite. Under U.S. GAAP, we fully expense our R&D
costs, whereas some of our peers reporting under IFRS capitalize a significant
portion of their R&D expenses, then amortizing those costs over future
periods.
Selling, general, and administrative (SG&A) costs increased to $4.4
million in 1H24 from $2.6 million in 1H23. This rise includes a $1.0 million
increase in sales and marketing expenses, driven by significant investments in
our go-to-market teams, in line with our IPO objectives. This includes an
increase in headcount and external marketing spend. General and administrative
expenses increased by $0.8 million, primarily due to the expansion of our
executive, administrative, and board functions, along with higher
administrative costs necessary to maintain our public company requirements.
Since our IPO in April 2023, the prior period only included a partial period
of these expenses.
Key Performance Indicators ("KPIs")
The Directors also consider certain business KPIs when assessing performance
and believe that these, in addition to US GAAP measures, provide an enhanced
understanding of the Company's results and related trends, increasing
transparency and clarity of the core results of the business. The Directors
believe the following metrics are useful in evaluating FADEL's operating
performance.
Adjusted EBITDA
Our adjusted EBITDA (a non-US GAAP measure is defined as earnings after
capitalised commission costs and before interest, tax, depreciation,
amortization, exceptional costs and share-based payments) decreased as a
result of the increased expenditure relating to planned investments for growth
and weaker than expected sales to -$3.6m (1H23: -$2.0m). This metric is a
conservative one, which if used for comparison with other companies, needs to
consider that in accordance with US GAAP we fully expense our R&D costs as
incurred, which for 1H24 were some $1.8 million (1H23: $2.0 million).
Six months Six months Year ended
31 December
ended ended
2023
30 June
30 June
2024
2023
EBITDA ($3,399,906) ($1,935,791) ($1,990,482)
Adjustments to operating expenses
Commissions capitalized during the period ($310,366) ($319,917) ($546,048)
Exceptional items
IPO Expenses ((1)) - $262,443 $262,443
Share based payments ((2)) $131,158 - $542,409
Total Adjustments ($179,208) ($57,474) $258,804
Adjusted EBITDA ($3,579,114) ($1,993,265) ($1,731,678)
(1) Additional IPO expenses in 1H23 of $808,349 which have been deducted
from Additional Paid in Capital under ASC 340.
(2) Share based payments for 2023 were recorded on an annual basis as of
31 December 2023. For the first half of 2024, we began recognizing these
expenses on a quarterly basis.
Annual recurring revenue
$ As at As at 6-month growth rate (30 December 2023 to 30 June 2024) (%)
30 June
31 December
2024
2023
IPM Suite 6,819,142 6,625,587 3%
Brand Vision 1,527,903 1,152,013 33%
PictureDesk 868,823 1,260,960 -31%
Total 9,215,868 9,038,560 2%
During 1H24, we initiated the tracking of Annual Recurring Revenue ("ARR"), a
non-US GAAP measure. We separate our ARR between three categories IPM Suite
(including LicenSee™), Brand Vision (excluding PictureDesk) and PictureDesk.
To compute ARR, we conducted an analysis for 31 December 2023, and June 2024,
aggregating the annual (12-month) value for all active customers at each
period end for all license contracts, and a specific categories of
subscription and support revenue that is recurring in nature. A small portion
of subscription and support revenue is deemed to be non-recurring and thus
have been excluded from our ARR calculations. Revenue associated with one-time
services performed are excluded from ARR.
Our total ARR has demonstrated growth, with increases in our Brand Vision and
IPM suite products. There has been a decrease in ARR from PictureDesk,
primarily due to the loss of a PictureDesk Private Edition customer
representing c $0.3 million in annual ARR. The majority of our remaining
PictureDesk ARR is represented by smaller PictureDesk Public Edition clients,
each with an average ARR of $8K.
Customer numbers
As at As at
30 June
31 December
2024
2023
IPM Suite 18 16
Brand Vision 11 9
PictureDesk 104 114
Total 133 139
During 1H24, IPM Suite and Brand Vision customer counts both increased by two,
with two net new additions for each and no customer losses.
The net decrease of 10 customers in PictureDesk was a result of six new client
additions, 11 losses and five customer aggregations/mergers. Notably,
PictureDesk's customer base mainly consists of smaller revenue value customers
compared to our IPM Suite and Brand Vision customers. However, it's important
to highlight that our acquisition of IDS was largely focused on adopting their
intellectual property, particularly their exceptional video tracking
capabilities, which we have successfully integrated into the Brand Vision
product to significantly enhance our content tracking features. Through 1H24,
our primary focus was on growing our go-to-market strategy around our core
offerings in IPM and Brand Vision, which meant there wasn't a significant
emphasis on PictureDesk product sales directly. Despite this, we see growth
potential in this business, and during 2H24, we will be increasing investment
in our marketing and sales efforts for PictureDesk in 2H24.
Cash
Cash and cash equivalents were $2.2 million as of 30 June 2024 (31 December
2023: $3.2million). We remain confident in meeting our year-end cash forecast
but are closely monitoring a $0.4 million accounts receivable from a
publishing customer, based in France. This customer has recently attempted to
use outstanding payments as leverage in renegotiations with technology
vendors. Legally, we are confident in our position, having fulfilled all
contractual obligations.
Ian Flaherty
Chief Financial Officer
24 September 2024
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The unaudited Consolidated Statements of Comprehensive Income of the Group for
the six-month periods ended 30 June 2024 and 2023, and audited Consolidated
Statement of Comprehensive Income of the Group for the year ended 31 December
2023, are set out below:
Continuing Unaudited Unaudited Audited
operations
Notes
Six months ended Six months ended Year ended
30 June 30 June 31 December
2024 2023 2023
$ $ $
License/subscription and support 3,403,523 4,336,484 11,395,295
Professional services 1,853,263 1,036,659 3,091,494
Total revenue 4 5,256,786 5,373,143 14,486,789
Cost of fees and services 2,482,777 2,694,340 5,466,978
Gross profit 2,774,009 2,678,803 9,019,811
Research and development 1,752,136 1,979,161 3,833,225
Selling, general and administrative expenses 4,421,779 2,635,432 7,177,068
Depreciation and amortization 381,637 303,584 647,640
Interest expense 60,172 54,408 62,550
Foreign exchange (gains)/losses 185,887 (1,014,162) (846,035)
Other income (13,883) (342) -
Total operating expenses 6,787,728 3,958,081 10,874,448
Loss before income taxes (4,013,719) (1,279,278) (1,854,637)
Income tax expense/(gain) 92,099 6,932 (307,015)
Net loss after taxes (4,105,818) (1,286,210) (1,547,622)
Total foreign currency losses/(gains) (40,170) 656,486 501,406
Total comprehensive loss (4,065,648) (1,942,696) (2,049,028)
Net income attributable to non-controlling interest 16 19 1
Net loss attributable to the Group (4,105,834) (1,286,229) (1,547,623)
Net loss after taxes (4,105,818) (1,286,210) (1,547,622)
Comprehensive income attributable to non-controlling interest 16 19 1
Comprehensive loss attributable to the Group (4,065,664) (1,942,715) (2,049,029)
Total comprehensive loss (4,065,648) (1,942,696) (2,049,028)
Basic and diluted loss per Share ($) 6 (0.20) (0.15) (0.12)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The unaudited Consolidated Statements of Financial Position of the Group as at
30 June 2024 and 2023, together with the audited Consolidated Statement of
Financial Position of the Group as at 31 December 2023, are set out below:
Unaudited Unaudited Audited
As at As at As at
30 June
30 June
31 December
2024
2023
2023
Assets Notes $ $ $
Cash and cash equivalents 2,215,802 8,232,350 3,191,458
Account receivable, net 5 2,116,256 1,032,462 2,308,580
Unbilled work-in-progress 1,292,042 981,581 3,703,895
Income tax receivable 15 656,130 - 660,624
Other current assets 280,866 356,161 298,574
Current assets 6,561,097 10,602,554 10,163,131
Intangible assets, net 1,948,415 2,224,127 2,112,018
Goodwill 2,194,442 2,192,628 2,209,470
Furniture and equipment 7 133,831 83,362 136,212
Contract costs 8 836,375 739,275 763,323
Deferred tax asset 830,778 954,771 830,778
Other assets - 5,583 -
Right-of-use asset 14 169,262 67,696 202,228
Non-current assets 6,113,103 6,267,443 6,254,029
TOTAL ASSETS 12,674,200 16,869,997 16,417,160
Liabilities
Accounts payable and accrued expenses 1,701,249 1,793,823 2,299,550
Income tax payable 1,339,470 1,042,483 1,262,702
Deferred revenue 3,506,567 3,504,281 2,642,005
Notes payable - related parties 10 162,396 262,396 162,396
Current lease liability 70,765 33,879 67,447
Line of Credit 11 - 700,000 -
Current liabilities 6,780,447 7,336,862 6,434,100
Provisions - End of services indemnity 467,225 274,045 467,225
Deferred revenue 272,556 705,202 391,090
Non-current lease liability 98,497 - 134,781
Non-current liabilities 838,279 979,247 993,096
Total liabilities 7,618,726 8,316,109 7,427,196
Shareholders' equity
Common shares 9 20,231 20,191 20,231
Additional paid-in capital 25,448,201 24,774,674 25,317,043
Accumulated deficit (20,816,484) (16,449,256) (16,710,650)
Cumulative translation adjustment 402,450 207,200 362,280
5,054,398 8,552,809 8,988,904
Non-controlling interest 1,076 1,078 1,060
Total Shareholders' equity 5,055,474 8,553,887 8,989,964
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,674,200 16,869,997 16,417,160
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
The unaudited Consolidated Statements of Changes in Equity of the Group for
the six-month periods ended 30 June 2024 and 2023 together with the audited
Consolidated Statement of Changes in Equity of the Group as at 31 December
2023, are set out below:
Preferred Shares Preferred Shares Common shares Common shares Additional paid in capital Accumulated deficit Cumulative translation adjustment Non-controlling interest Total
# $ # $ $ $ $ $ $
As at 31 December 2022 (audited) 7,552,309 7,552 7,082,583 7,083 15,581,802 (15,163,027) 863,686 1,059 1,298,155
Converting Preferred shares to common (7,552,309) (7,552) 7,552,309 7,552 - - - - -
Issuance of IPO shares - - 5,242,121 5,242 9,438,161 - - - 9,443,403
Capitalization of direct IPO costs - - - (808,350) - - - (808,350)
Issuance of common shares* - - 223,289 223 401,022 - - - 401,245
Commission shares - - 90,630 91 162,039 - - - 162,130
Non-controlling interest - - - - - - - 19 19
Adjustment of common stock - - 360 - - - - - -
Net loss - - - - - (1,286,229) - - (1,286,229)
Foreign exchange translation income - - - - - - (656,486) - (656,486)
As at 30 June 2023 (unaudited) - - 20,191,292 20,191 24,774,674 (16,449,256) 207,200 1,078 8,553,887
Non-controlling interest - - - - - - - (18) (18)
Exercise of warrants - - 39,958 40 (40) - - - (0)
Stock-based compensation - - - - 542,409 - - - 542,409
Net loss - - - - - (261,394) - - (261,394)
Foreign exchange translation income - - - - - - 155,080 - 155,080
As at 31 December 2023 (audited) - - 20,231,250 20,231 25,317,043 (16,710,650) 362,280 1,060 8,989,964
Non-controlling interest - - - - - - - 16 16
Stock-based compensation - - - - 131,158 - - - 131,158
Net loss - - - - - (4,105,834) - - (4,105,834)
Foreign exchange translation income - - - - - - 40,170 - 40,170
As at 30 June 2024 (unaudited) - - 20,231,250 20,231 25,448,201 (20,816,484) 402,450 1,076 5,055,474
* As per the RNS dated 2 May 2023
(https://investors.fadel.com/investors/regulatory-news/)
(https://investors.fadel.com/investors/regulatory-news)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The unaudited Consolidated Statements of Cash Flows of the Group for the
six-month period ended 30 June 2024 and 2023, alongside the audited
Consolidated Statement of Cash Flows of the Group for the year ended 31
December 2023 are set out below:
Unaudited
Six
months Unaudited Audited
ended 30 June
Six
2024
months Year
$
ended 30 June
ended
2023
31 December
$
2023
$
Cash flows from operating activities
Net income (4,105,818) (1,286,210) (1,547,622)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 381,637 303,584 647,640
Non-cash stock compensation 131,158 - 542,409
Non-Cash commission shares - 162,130 162,130
Non-cash impact of foreign exchange on intangibles 45,366 (205,106)
(242,518)
Changes in assets and liabilities
Accounts receivable 192,324 830,933 (445,186)
Unbilled work-in-progress 2,411,853 (51,866) (2,774,180)
Other current assets 17,708 (147,351) (84,179)
Income tax receivable 4,494 - (660,624)
Capitalization of commissions (310,366) (319,917) (546,048)
Deferred tax asset - - 123,933
Right of use assets 32,966 42,033 (92,500)
Accounts payable and accrued expenses (598,301) (1,380,490) (564,542)
Income Tax Payable 76,768 15,881 236,100
Other Liability (32,966) (51,308) -
Deferred revenue 746,027 873,700 (302,686)
Net cash used in operating activities (1,007,150) (1,213,987) (5,547,873)
Purchase of equipment (8,676) (2,242) (64,328)
Payments for acquisition of subsidiaries - - -
Net cash used in investing activities (8,676) (2,242) (64,328)
Proceeds from the issuance of common shares - 8,635,053
8,635,053
Proceeds from issuance of additional common shares - 401,245 401,245
Proceeds from shareholder loan - 564,009 564,009
Repayment of shareholder loans - (401,613) (401,613)
Proceeds from/(repayment) of line of credit - (300,000) (1,000,000)
Proceeds from/(repayment) of related party loan - 25,000 (75,000)
Net cash from financing activities - 8,923,694 8,123,694
Effect of exchange rates on cash 40,170 (656,486) (501,406)
Net increase/(decrease) in cash (975,656) 7,050,979 2,010,087
Cash, beginning of period 3,191,458 1,181,371 1,181,371
Cash, end of year 2,215,802 8,232,350 3,191,458
Supplemental disclosure of cash flow information
Cash paid for interest 37,738 50,379 72,155
Cash received from interest 13,883 342 22,622
Cash paid for income taxes 8,827 7,593 21,415
Conversion of preferred stock to common shares - 7,552 7,552
Conversion of warrants to common shares - 40 40
Commissions and fees paid through issuance - 970,480 970,480
of common shares
NOTES TO THE GROUP INTERIM FINANCIAL INFORMATION
1. ORGANISATION AND NATURE OF BUSINESS
The interim financial information consolidates the financial information of
the Company and:
● its wholly-owned subsidiaries:
o Fadel Partners UK Limited ("Fadel UK"), and its wholly-owned subsidiary;
▪ Image Data Systems (UK) Limited;
o Fadel Partners France SAS ("Fadel France"); and
o Fadel Partners Canada Inc. ("Fadel Canada") dissolved November 2023.
● its 99.99%-owned subsidiary, Fadel Partners SAL Lebanon ("Fadel
Lebanon").
The Company is a New York Corporation formed in July 2003 and reincorporated
in Delaware in January 2014. Fadel Lebanon was incorporated in Lebanon in
August 2014, Fadel UK was formed in the United Kingdom ("UK") in January 2015,
while Fadel Canada was formed in Canada in June 2021 and subsequently
dissolved in November 2023. The primary reason for this dissolution was to
initiate investment in the UK and expand our workforce there, following our
decision to go public in that market. Consequently, it was more logical to
close the entity in Canada and concentrate on strengthening our operations in
the UK. Fadel France was formed in France in February 2020. IDS was formed in
April 1992 in the UK, by an unrelated party, and acquired by the company on 1
October 2021. Together the entities are collectively referred to herein as the
"Group". The Group is headquartered in New York, with a presence in Los
Angeles, London, Paris, Jordan and Beirut (Lebanon) and is engaged in
providing and servicing its Intellectual Property Rights and Royalty
Management suite of software.
On 6 April 2023, the Company was listed and started trading on AIM, a market
operated by the London Stock Exchange plc ("AIM").
These unaudited interim consolidated financial statements for the six months
ended 30 June 2024 have been prepared in accordance with the accounting
policies set out in the Annual Report and Financial statements of the Company
for the year ended 31 December 2023 using the recognition and measurement
principles in conformity with generally accepted accounting principles in the
United States of America ("US GAAP"). Such consolidated financial statements
reflect all adjustments that are, in management's opinion, necessary to
present fairly, in all material respects, the Company's financial position,
results of operations and cash flows, and are presented in U.S. Dollars. All
material intercompany transactions and balances have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle of consolidation
The interim financial information has been prepared in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP"). They include the accounts of the Company, and interest owned in
subsidiaries as follows: 99.99% of Fadel Lebanon and 100% of Fadel UK, Fadel
France, Fadel Canada (dissolved November 2023) and IDS. All significant
intercompany balances and transactions are eliminated on consolidation. The
non-controlling interest represents the 0.00011% share of Fadel Lebanon owned
by outside parties.
Use of Estimates
The preparation of the interim financial information in conformity with US
GAAP requires the Company to make estimates and assumptions that affect the
reported amounts of the Group's assets and liabilities and disclosure of
contingent assets and liabilities, as at the reporting dates, as well as the
reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from these estimates.
Fair Value Measurements
US GAAP requires the disclosure of the fair value of certain financial
instruments, whether or not recognized on the Statement of Financial Position,
for which it is practicable to estimate fair value. The Group estimate fair
values using appropriate valuation methodologies and market information
available as at each reporting date. Considerable judgment is required to
develop estimates of fair value, and the estimates presented are not
necessarily indicative of the amounts that the Group could realize in a
current market exchange. The use of different market assumptions or estimated
methodologies could have a material effect on the estimated fair values.
Additionally, the fair values were estimated at year end, and current
estimates of fair value may differ significantly from the amounts presented.
Fair value is estimated by applying the following hierarchy, which prioritizes
inputs used to measure fair value into three levels and bases categorization
within the hierarchy upon the lowest level of input that is available and
significant to the fair value measurement:
Level 1: Quoted prices in active markets for identical assets or
liabilities;
Level 2: Observable inputs other than quoted prices in active markets
for identical assets and liabilities, quoted prices for identical or similar
assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; and
Level 3: Inputs that are generally unobservable and typically
management's estimate of assumptions that market participants would use in
pricing the asset or liability.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the
date of purchase are classified as cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Group to concentrations of
credit risk consist primarily of cash, accounts receivable and unbilled
work-in-progress. The Company performs on-going evaluations of the Group's
customers' financial condition and, generally, requires no collateral from
customers.
The Group maintains its bank accounts with major financial institutions in the
United States, Lebanon, the UK and France. As at 30 June 2024, the Group had
cash balances in excess of the Federal or National insured limits at financial
institutions in the United States, France and the UK totalling some $0.7
million out of a total of $2.2 million cash deposits. Cash amounts held in
Lebanon are not insured and as such minimal deposits are held in Lebanese
accounts, with payments transferred in country only on an as needed basis. The
Company believes the risk is limited as the institutions are large national
institutions with strong financial positions.
Accounts receivable, unbilled work-in-progress and allowance for doubtful
accounts
Accounts receivable is recorded at the invoiced amount and do not bear
interest. Credit is extended based on the evaluation of a customer's financial
condition and collateral is not required. Unbilled work-In progress is revenue
which has been earned but not invoiced. An allowance is placed against
accounts receivable or unbilled work-in-progress for management's best
estimate of the amount of probable credit losses. The Company determines the
allowance based on historical write-off experience and information received
during collection efforts.
Credit losses to date have been insignificant and within management's
expectations. The Company provides an allowance for credit losses that is
based upon a review of outstanding receivables, historical collection
information, expected future losses, and existing economic conditions. Account
balances are charged against the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote.
Revenue Recognition
The Group follows the guidance of ASC 606, "Revenue from Contracts with
Customers," and ASC 340, "Other Assets and Deferred Cost," to account for
revenue from 1 January 2019 onward.
Sources of Revenue
The Group's revenue is primarily derived from the following sources:
1. License Fees
2. Subscription Fees
3. Customer Support
4. Professional Services
Recognition Criteria
Revenue is recognized when control of the promised goods or services is
transferred to customers in an amount that reflects the consideration the
Group expects to receive in exchange for those goods or services. When a
contract includes variable consideration, such as overage fees, contingent
fees, or service level penalties, the Group estimates the amount to include in
the transaction price only if it is probable that a significant reversal of
cumulative revenue will not occur once the uncertainty associated with the
variable consideration is resolved.
The Group applies the following five steps to determine the amount of revenue
to recognize:
1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the
contract.
5. Recognize revenue when or as the Group satisfies a performance
obligation.
Performance Obligations and Timing of Revenue Recognition
ASC 606 requires the identification of distinct performance obligations within
a contract. The Group customer agreements primarily fall into the three
distinct contract structures:
1. SaaS Offerings (Brand Vision, Picture Desk, LicenSee)
2. IPM Suite: FADEL Hosted
3. IPM Suite: Client Hosted
Each of these contract structures includes various promised goods and services
that have been assessed to determine if they are distinct or not:
Contract Structures Promised Goods and Services Distinct Performance Obligations Revenue Recognition
1- SaaS Products - SaaS Subscriptions SaaS subscription, support, and software updates are highly interdependent and Over Time
interrelated, forming a single performance obligation.
- Support
- Software Updates
- Services Services can be provided independently of the SaaS product functionality, As Delivered
either by the customer or other third parties.
2- IPM Suite: FADEL Hosted - Software License The software license and hosting are highly interdependent and are treated as Over Time
a single performance obligation.
- Hosting
- Support / ESS Support and ESS provide additional, but not essential, benefits separate from Over Time
the software license and hosting.
- Software Updates Software updates are considered separate, allowing customers to decide on Over Time
implementation independently.
- Services Additional services are not essential to the core functionality of the As Delivered
software license and hosting.
3 - IPM Suite: Client Hosted - Software License The software license is distinct since it does not depend on other As Delivered
FADEL-managed services.
- Support / ESS These remain separate from the software license, enhancing customer experience Over Time
but not critical for core software operation.
- Software Updates Clients can choose whether to implement updates, keeping this service separate Over Time
from the primary software license obligation.
- Services Additional services are not essential to the core functionality of the As Delivered
software license and hosting.
The Group allocates the transaction price first by considering if standalone
sales data is available for each identified performance obligation. Based on a
review of historical subscription agreements, the combined Software License or
SaaS Subscription is sold and renewed on a standalone basis. Consequently, the
Group utilizes these observable inputs to develop the standalone selling
prices of these services.
The Group typically invoices customers annually, with payment terms requiring
settlement within 30 days of invoicing. Amounts invoiced are recorded as
accounts receivable and as either unearned revenue or revenue, depending on
whether control has transferred to the customer.
Costs of obtaining a revenue contract
The Group capitalizes costs of obtaining a revenue contract. These costs
consist of sales commissions related to the acquisition of such contracts that
would not have been incurred if these contracts were not won.
For licenses, the Group estimated the amortization period based on the
remaining expected life of the customer/the term for which it anticipates the
contract will remain effective. It anticipates the term due to the project
size, terms, complexity and cost of implementation and transition, making it
less likely that a client will change vendors for this service.
During the implementation, the Group applied the guidance as of 1 January 2019
only to contracts that were either not completed as of that date, or that had
a life of customer that ended after 1 January 2019.
For service and support contracts, the amortization period is based on the
duration of the contract in consideration that it would be less difficult and
costly for clients to transition to another vendor for continued service.
Amortization periods for customer lives typically vary between 5 and 10 years.
The Group elected not to apply the practical expedient for contracts that have
a duration of less than one year. The Group has also elected to not include
amortisation of the costs of obtaining a revenue contract within gross profit
in order to help the reader see the business through the eyes of management
Depreciation
Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to seven years. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in operations for the period. The cost
of maintenance and repairs is charged to operations as incurred. Significant
renewals and betterments are capitalized.
Intangible assets - goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortized.
Instead, goodwill is tested annually for impairment, or more frequently if
events or changes in circumstances indicate that it might be impaired and is
carried at cost less accumulated impairment losses. Impairment losses on
goodwill are taken to profit or loss and are not subsequently reversed.
Intangible assets other than goodwill
The Group has three categories of intangible assets:
Brand assets
The Group purchased IDS in October 2021 and with it acquired a
long-established and respected brand. At the time of purchase, the Group
estimated the useful life of the brand assets acquired for financial reporting
purposes and recognises amortisation on a straight-line basis over the useful
life of the asset, typically 10 years. Purchased brand assets are reviewed for
impairment at each reporting date or when events and circumstances indicate an
impairment. The Group determined that an impairment charge was not necessary
during the period covered by the interim financial information.
Customer relationships
The Group purchased IDS in October 2021 and with it acquired a number of
customer relationships. At the time of purchase, the Group estimated the
useful life of the customer relationships acquired for financial reporting
purposes and recognizes amortization on a straight-line basis over the useful
life of the asset, typically 10 years. Purchased customer relationships are
reviewed for impairment at each reporting date or when events and
circumstances indicate an impairment. The Group determined that an impairment
charge was not necessary during the period covered by the interim financial
information.
Software and technology assets
The Group purchased IDS in October 2021 and with it acquired a number of
software and technology assets. At the time of purchase, the Group estimates
the useful life of the software and technology assets acquired for financial
reporting purposes and recognizes amortization on a straight-line basis over
the useful life of the asset, typically 10 years. Purchased software and
technology assets are reviewed for impairment at each reporting date or when
events and circumstances indicate an impairment. The Group determined that an
impairment charge was not necessary during the period covered by the interim
financial information.
Billed accounts receivable and concentrations of credit risk
As at 30 June 2024, there were three significant customers (defined as
contributing at least 10%) that accounted for 64% of accounts receivable.
As at 30 June 2023, there were three significant customers (defined as
contributing at least 10%) that accounted for 69% of accounts receivable
As at 31 December 2023, there were two significant customers (defined as
contributing at least 10%) that accounted for 72% of accounts receivable.
Accounts payable and concentrations of credit risk
As at 30 June 2024, there was one significant vendor (defined as contributing
at least 10%) that accounted for 25% of accounts payable.
As at 30 June 2023, there was one significant vendor (defined as contributing
at least 10%) that accounted for 40% of accounts payable.
As at 31 December 2023, there were three significant vendors (defined as
contributing at least 10%) that accounted for 58% of accounts payable.
Unbilled work-in-progress and concentrations of credit risk
As at 30 June 2024, there were three significant customers (defined as
contributing at least 10%) that accounted for 79% of unbilled
work-in-progress.
As at 30 June 2023, there were three significant customers (defined as
contributing at least 10%) that accounted for 90% (21%, 26% and 43%) of
unbilled work-in-progress.
As at 31 December 2023, there were three significant customers that accounted
for 76% (39%, 19% and 18%) of unbilled work-in-progress.
Revenue concentrations
In the six-month period ended 30 June 2024, the five largest customers
accounted for $2,457,249 of revenue, some 47% of revenue from continuing
operations.
In the six-month period ended 30 June 2023, the five largest customers
accounted for $2,913,462 of revenue, some 54% of revenue from continuing
operations.
During 2023, the five largest customers accounted for an aggregate of
$8,769,838 of revenue, some 61% of revenue from continuing operations.
Top 5 Customers' Revenue Concentration
$'000 Revenue Unaudited Revenue Unaudited Revenue Audited
For 6 months ending June 2024 % of Total Revenue For 6 months ending June 2023 % of Total Revenue Year ended
31 December
2023 % of Total Revenue
License/subscription $ 1,056 20% $ 1,591 30% $ 5,944 41%
Support $ 304 6% $ 655 12% $ 720 5%
Services $ 1,098 21% $ 667 12% $ 2,106 15%
Total $ 2,457 47% $ 2,913 54% $ 8,770 61%
Advertising and promotion costs
Advertising and promotion costs are expensed as incurred. These costs totalled
approximately $502,858 for the six-month period ended 30 June 2024 (30 June
2023: $297,362) and $781,410 for the year ended 31 December 2023.
Segmental reporting
The Group reports its business activities in two areas:
• License/subscription and support revenue; and
• Professional services.
which are reported in a manner consistent with the internal reporting to the
CEO, who has been identified as the chief operating decision maker.
Income taxes
The Group records deferred tax assets and liabilities for the estimated future
tax effects of temporary differences between the tax bases of assets and
liabilities and amounts reported in the Group's Consolidated Statements of
Financial Position, as well as operating loss and tax-credit carry-forwards.
The Group also measures the Group's deferred tax assets and liabilities using
enacted tax rates expected to be applied to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance if, based on
available evidence, it is more likely than not that these benefits will not be
realized.
Stock-based compensation
The Group records stock-based compensation in accordance with FASB ASC Topic
718 "Compensation-Stock Compensation". The fair value of awards granted is
recognized as an expense over the requisite service period.
Leases
In February 2016, Financial Accounting Standards Board ("FASB") issued
guidance Accounting Standards Codification ("ASC") 842, Leases, to increase
transparency and comparability among organizations by requiring the
recognition of right-of-use ("ROU") assets and lease liabilities on the
Consolidated Statements of Financial Position. Most prominent among the
changes in the standard is the recognition of ROU assets and lease liabilities
by lessees for those leases classified as operating leases. Under the
standard, disclosures are required to meet the objective of enabling users of
financial statements to assess the amount, timing, and uncertainty of cash
flows arising from leases. The Company adopted FASB ASC 842 effective 1
January 2022.
The Company determines if an arrangement is a lease at inception. If
applicable, operating leases are included in operating lease ROU assets, other
current liabilities, and operating lease liabilities on the accompanying
Consolidated Statements of Financial Position. If applicable, finance leases
are included in property and equipment, other current liabilities, and other
long-term liabilities on the accompanying Consolidated Statements of Financial
Position.
ROU assets represent the right to use an underlying asset for the lease term
and lease liabilities represent our obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease
term.
Foreign currency
The Group's reporting currency is the US Dollar. The functional currency of
foreign operations, excluding the Lebanon entity, is the local currency for
the foreign subsidiaries. Assets and liabilities of those foreign operations
denominated in local currencies are translated at the spot (historical) rate
in effect at the applicable reporting date. The Group's Consolidated
Statements of Comprehensive Income are translated at the weighted average rate
of exchange during the applicable period. Realised and unrealised transaction
gains and losses generated by transactions denominated in a currency different
from the functional currency of the applicable entity are recorded in other
income (expense) in the Consolidated Statements of Comprehensive Income in the
period in which they occur.
The exchange rate used to translate the sterling pound ("£"), ("EURO") and
(CAD) into $ for the purpose of preparing the financial information uses the
average rate for the Consolidated Statements of Comprehensive Income and
Consolidated Statements of Cash Flows and the rate at the end of the reporting
period for the Consolidated Statements of Financial Position.
In accordance with applicable US GAAP, in 2023, our company transitioned Fadel
Lebanon to a USD functional currency entity due to the hyperinflationary
conditions prevalent in the Lebanese currency. As a result, the financial
statements for the six-month period ended 30 June 2024 reflect the Lebanon
subsidiary's operations and financial position in USD.
Comprehensive income/(loss)
Comprehensive income/(loss) consists of two components:
• net income/(loss); and
• other comprehensive income/(loss).
Other comprehensive income/(loss) refers to revenue, expenses, gains and
losses that are recorded as an element of shareholder's equity but are
excluded from net income/(loss). Other comprehensive income/(loss) consists of
foreign currency translation adjustments from those subsidiaries not using the
$ as their functional currency.
Statement of cash flows
Cash flows from the Group's operations are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on
the Consolidated Statement of Cash Flows will not necessarily agree with
changes in the corresponding balances on the Consolidated Statements of
Financial Position.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or
other standard setting bodies and adopted by the Company as at the specified
date. Unless otherwise discussed, the Company believes that the impact of
recently issued standards that are not yet effective will not have a material
impact on the Group's Consolidated Statements of Financial Position,
Consolidated Statements of Comprehensive Income or Consolidated Statements of
Cash Flows.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit
Losses (Topic 326):
"Measurement of Credit Losses on Financial Instruments (ASU 2016-13)". ASU
2016-13 requires that credit losses be reported as an allowance using an
expected losses model, representing the entity's current estimate of credit
losses expected to be incurred. The accounting guidance currently in effect is
based on an incurred loss model. For available-for-sale debt securities with
unrealised losses, this standard now requires allowances to be recorded
instead of reducing the amortized cost of the investment. The amendments under
ASU 2016-13 are effective for interim and annual fiscal periods beginning
after 15 December 2022. The Company adopted this standard as at 1 January
2023, with no material impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic
280): Improvements to Reportable Segment Disclosure". This standard requires
disclosure of significant segment expenses that are regularly provided to the
chief operating decision maker ("CODM") and included within each reported
measure of segment profit or loss, an amount and description of its
composition for other segment items to reconcile to segment profit or loss and
the title and position of the entity's CODM. The amendments in this update
also expand the interim segment disclosure requirements. This standard is
effective for fiscal years beginning after 15 December 2023, and interim
periods within fiscal years beginning after 15 December 2024 and early
adoption is permitted. The Company is currently evaluating the potential
impact that this new standard will have on our consolidated financial
statement disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):
Improvements to Income Tax Disclosures", which is intended to provide
enhancements to annual income tax disclosures. In particular, the standard
will require more detailed information in the income tax rate reconciliation,
as well as the disclosure of income taxes paid disaggregated by jurisdiction,
among other enhancements. The standard is effective for years beginning after
15 December 2024 and early adoption is permitted. The Company is currently
evaluating the impact of the standard on the presentation of its consolidated
financial statements and footnotes.
3. SEGMENTAL REPORTING
The Group reports its business activities in two areas:
● subscription and support revenue; and
● professional services,
which are reported in a manner consistent with the internal reporting to the
Chief Executive Officer, which has been identified as the chief operating
decision maker.
While the chief operating decision maker considers there to be only two
segments, the Group's revenue is further split between "license subscriptions
and support" and "professional services" and by key product families (IPM
Suite and Brand Vision) and hence to aid the readers understanding of our
results, the split of revenue from these categories is shown below:
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2024 2023 2023
$ $ $
Revenue
License/subscription
IPM Suite 1,730,580 2,481,046 7,407,547
Brand Vision 1,195,210 1,006,783 2,312,778
Total license/subscription 2,925,790 3,487,829 9,720,325
Support
IPM Suite 477,733 848,655 1,674,970
Total support 477,733 848,655 1,674,970
License/subscription and support 3,403,523 4,336,484 11,395,295
Professional services 1,853,263 1,036,659 3,091,494
Total revenue 5,256,786 5,373,143 14,486,789
Cost of sales
License/subscription and support 1,760,867 1,520,658 3,010,432
Professional services 721,910 1,173,682 2,456,546
Total cost of sales 2,482,777 2,694,340 5,466,978
Gross profit margins
License/subscription and support 48% 65% 74%
Professional services 61% -13% 21%
Total gross profit margin 53% 50% 62%
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2024 2023 2023
$ $ $
Accounts receivable 2,138,275 1,054,481 2,330,600
Allowance for doubtful accounts (22,019) (22,019) (22,020)
Accounts receivable, net 2,116,256 1,032,462 2,308,580
5. EARNINGS PER SHARE
The Company computes earnings / (loss) per share in accordance with ASC 260,
"Earnings per Share", which requires presentation of both basic and diluted
earnings per share on the face of the Consolidated Statements of Comprehensive
Income. Basic earnings (loss) per share is computed by dividing net income /
(loss) available to common shareholders by the weighted average number of
outstanding shares during the period.
Diluted earnings / (loss) per share gives effect to all dilutive potential
common shares outstanding during the period. Due to the Group having losses in
all years presented, the fully diluted loss per share for disclosure purposes,
as shown in the Consolidated Statements of Comprehensive Income, is the same
as for the basic loss per share due to the anti-dilutive nature of the
calculations.
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 30 June 31 December
2024 2023 2023
Total comprehensive income attributable to the owners of the company (4,065,648) (1,942,696) (2,049,028)
Weighted average number of shares 20,231,250 13,245,516 16,772,311
Basic earnings per share ($) (0.20) (0.15) (0.12)
6. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2024 2023 2023
$ $ $
Furniture and equipment 274,750 204,267 266,353
Accumulated depreciation (140,919) (120,905) (130,141)
Furniture and equipment, net 133,831 83,362 136,212
The total depreciation charge for the six-month period ended 30 June 2024 was
$9,894, compared to $7,050 in the six-month period ended 30 June 2023 and
$16,286 for the year ended 31 December 2023.
7. CONTRACT COSTS
The Group applied ASC-606 with effect from 1 January 2019 to contracts that
were either not completed as at that date, or that had an expected customer
lifetime value that ended after 1 January 2019. This resulted in the
capitalisation of $283,106 in commission costs incurred prior to and during
2019. Accumulated amortisation was $1,698,517 as at 30 June 2024, $1,259,120
as at 30 June 2023 and $1,093,968 as at 31 December 2023. Amortisation periods
for customer lives typically vary between 5 and 10 years. The Group elected
not to apply the practical expedient for contracts that have a duration of
less than one year.
Contract costs consist of the following:
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2024 2023 2023
$ $ $
Opening balance 763,323 584,510 584,510
Commissions capitalized during the period 310,366 319,917 546,048
Amortization charge for the period (237,314) (165,152) (367,235)
Accumulated contract costs 836,375 739,275 763,323
8. COMMON AND PREFFERED SHARES
The Company has authority to issue 150,000,000 shares at $0.001 par value per
Share. As at 30 June 2023, 31 December 2023 and 30 June 2024, there were no
preferred shares outstanding, compared to 7,552,309 as at 31 December 2022,
which were converted to common shares at IPO.
On 2 April 2023 the outstanding preferred shares of MEVP, BBEF, iSME and
B&Y were converted into common shares in accordance with the terms of
their agreements pursuant to the IPO. Impact Fund by MEVP Holding SAL
converted their Series A-2, B and B-1 preferred shares into 5,496,821 common
shares, BBEF (Holding) SAL converted their Series A-1 preferred shares into
1,068,837 common shares, iSME SAL Holding converted their Series A-1 preferred
shares into 580,383 common shares and B&Y Division One Holding SAL
converted their Series B-2 preferred shares into 406,268 common shares.
On 6 April 2023 the Company announced the admission of its entire issued share
capital to trading on AIM, a market operated by the London Stock Exchange. In
connection with its initial public offering the Company raised gross proceeds
of £8.0 million. On 2 May 2023, the Company announced the issuance of 223,289
new depositary interests over common shares at a price of £1.44 per share,
raising $401,245.
On 4 August 2023 the Company announced that following receipt of two notices
to exercise warrants over a total of 121,925 common shares of $0.001 in the
Company (the "Common Shares") on a net exercise basis, the Company has
concluded the exercise resulting in the issuance of 39,958 Common Shares.
These warrants were issued in July 2016 as part of a previous capital raising
process. As the warrants were exercised on a net exercise basis there are no
proceeds due to the company and following the exercise, no warrants remain
outstanding in the Company.
As at 31 December 2023 and 30 June 2024, the Company had 20,231,250 common
shares of $0.001 each in issue. Shareholders may use this figure as the
denominator by which they are required to notify their interest in, or change
their interest in, the Company under the Disclosure Guidance and Transparency
Rules.
9. RELATED PARTIES
Notes Payable
In January 2023, the Group entered into a demand note agreements totalling up
to $50,000, with a Director in Fadel Lebanon for facilitating banking
transactions and working capital purposes in Lebanon. The notes call for
payment of interest at 0% per annum compounded annually. The outstanding
balance, was repaid in full in the year ended 31 December 2023.
On 2 April 2023, Tarek Fadel and the Company entered into a loan agreement
whereby Mr. Fadel agreed to advance a loan (the "Fadel Loan") of £451,346 to
the Company equivalent to $564,009. The Fadel Loan is unsecured and bears no
interest or fees. The Company made a loan repayment of $401,613 on 28 April
2023 after the issuance of 223,289 new depositary interests ("New Shares")
over common shares at a price of £1.44 per share (the "Placing"). The
remaining balance on the Fadel Loan is repayable only as and when, following
Admission (and excluding the issue of the New Shares in the Placing), the
Company issues new shares at or above the placing price. The loan balance was
$162,396 as at 30 June 2024 and 31 December 2023.
10. LINE OF CREDIT
On 29 June 2022, the Company entered into a new $1 million note agreement for
a line of credit between the Company and Bank of America, N.A.. Advances under
the note bear interest at the bank's Prime Rate plus 0.7%.
On 11 May 2023, the line of credit between the Company and Bank of America,
N.A. was extended until 31 May 2024 and again extended until 31 May 2025 on 12
April 2024. As at 30 June 2023, the balance owed was $700,000 which was
subsequently repaid in September 2023. The balance owed to Bank of America,
N.A under the terms of the line of credit was zero at 30 June 2024 and 31
December 2023.
11. STOCK OPTION PLANS
In 2014, the Directors approved the "2014 Equity Incentive Plan" with a
maximum of 1,620,366 shares reserved for issuance. As applicable, the exercise
price is as established between the Company and recipient. These options vest
over three or four years from date of grant. Options to acquire 928,860 and
961,267 shares were granted and remain outstanding as at 30 June 2024 and 31
December 2023, respectively. Following Admission to AIM on 6 April 2023, the
Company does not intend to operate the 2014 Equity Incentive Plan to grant
further options, as it was superseded by the 2023 Equity Incentive Plan.
Outside of the above 2014 Equity Incentive Plan, are 576,924 non-plan options
with an exercise price of $1.03. These non-plan options were fully vested at
31 December 2021 and expired in February 2023. On 2 April 2023, the Board
approved the reissuance of these non-plan options in the same amount (with a
ten year term and an exercise price of £1.44 per share). As at 30 June 2024
and 31 December 2023, the 576,924 non-plan options remained outstanding.
On 2 April 2023, the Directors approved the "2023 Equity Incentive Plan" which
supersedes the 2014 Plan. Options may be granted at an exercise price
determined by the Remuneration Committee which will be not less than the fair
market value of a share on the date of grant (i.e. the current market price).
Options may not be exercised later than the tenth anniversary of the date of
the grant (or such earlier date specified when granted). These options vest
over four years from date of grant. As at 30 June 2024, 1,493,922 options
under the 2023 Equity Incentive Plan were granted and remain outstanding.
Determining the appropriate fair value model and the related assumptions
requires judgment. The fair value of each option granted is estimated using a
Black-Scholes option-pricing model on the date of grant as follows:
For the six-month ended 30 June 2024 For the year ended 31 December 2023
Estimated dividend yield 0% 0%
Expected stock price volatility 27% 41%
Risk-free interest rate 4.0% to 4.6% 3.4% to 4.5%
Expected life of option (in years) 7 7
Weighted-average fair value per share $0.64 $0.63
Due to limited historical data, the expected volatility rates are estimated
based on the actual volatility of comparable public companies over the
expected term. The expected term represents the average time that options that
vest are expected to be outstanding. Due to limited historical data, the
Company calculates the expected life based on the midpoint between the vesting
date and the contractual term, which is in accordance with the simplified
method. The risk-free rate is based on the United States Treasury yield curve
during the expected life of the option.
A summary of the status of the Group's option plans for the period as of 30
June 2024 is as follows:
2014 plan Non-plan 2023 plan Total
Options outstanding Number of Weighted Number of Weighted Number of Weighted Number of Weighted
Options
average
Options
average
Options
average
Options
average
(in Shares)
exercise price
(in Shares)
exercise price
(in Shares)
exercise price
(in Shares)
exercise price
As at 31 December 2023 961,267 $1.21 576,924 $1.78 1,186,032 $1.81 2,724,223 $1.59
Granted - $0 - $0 307,890 $1.82 307,890 $1.82
Exercised - $0 - $0 - $0 - $-
Forfeited or (32,407) $1.30 - $0 - $0 (32,407) $1.30
expired
As at 30 June 2024 928,860 $1.21 576,924 $1.78 1,493,922 $1.81 2,999,706 $1.62
Exercisable as at 31 961,267 $1.21 576,924 $1.78 151,635 $1.79 1,689,826 $1.46
December 2023
Exercisable as at 30 June 2024 928,860 $1.21 576,924 $1.78 330,851 $1.81 1,836,635 $1.49
Stock option expense for the period 30 June 2024 was $131,159 and for year
ended 31 December 2023 was $542,409. Unrecognized compensation expense related
to share options which will be recognized through the second half of 2024 was
$114,612 as at 30 June 2024, compared to $229,224 as at 31 December 2023.
The stock compensation expenses for 2023 were recorded on an annual basis as
of 31 December 2023. For the first half of 2024, we began recognizing these
expenses on a quarterly basis.
12. RETIREMENT PLAN
The Company has a 401(k) safe harbor plan that covers all employees at least
21 years of age who have worked for the Company for at least three months.
Employees vest immediately for all employer matching contributions. The
retirement plan expense was $65,033 for the six-month period ended 30 June
2024, $49,035 for the six-month period ended 30 June 2023 and $90,299 for the
year ended 31 December 2023.
The provision for end-of-service indemnity in Lebanese companies is
established to account for the financial obligation to employees who are
entitled to end-of-service benefits upon leaving the company. This provision
is particularly crucial when an employee opts to withdraw their pension
immediately after leaving and has not yet commenced employment elsewhere.
To calculate this provision for inclusion in the Consolidated Statements of
Financial Position at the end of each year, the company typically estimates
the total liability it will incur for all eligible employees who may
potentially claim end-of-service benefits in the future. This estimation
involves considering factors such as the length of service of each employee,
their salary level, and any applicable legal requirements or company policies
regarding end-of-service benefits.
The calculation is performed based on factors such as the length of service of
each employee, their salary level, and any applicable legal requirements or
company policies regarding end-of-service benefits. This process ensures that
the provision accurately reflects the company's financial obligation towards
employees' end-of-service benefits, providing transparency and accountability
in financial reporting. As at 31 December 2023, the end of services liability
amounted to $467,225 and remains unchanged at 30 June 2024, as no alterations
have been observed up to the date of the document. It will be reviewed and
validated at the end of 2024.
13. LEASES
A lease is defined as a contract that conveys the right to control the use of
identified property, plant or equipment for a period of time in exchange for
consideration. The Company accounts for its leases in accordance with the
guidance in Accounting Standards Codification ("ASC") 842 ("ASC 842").
Substantially all of the leases in which the Company is the lessee are
comprised of real estate property for remote office spaces and corporate
office space. Substantially all of the leases are classified as operating
leases.
As of 30 June 2024, 30 June 2023, and for the year ended 31 December 2023, the
Company had approximately $169,262, $67,696 and $202,228, respectively, of
operating lease ROU assets and $169,262, $67,696 and $202,228, respectively of
operating lease liabilities on the Group's Consolidated Statements of
Financial Position. The Company has elected not to recognize right-of-use
("ROU") assets and lease liabilities arising from short-term leases, leases
with initial terms of twelve months or less, or equipment leases (deemed
immaterial) on the Group's Consolidated Statements of Financial Position.
As of 30 June 2024, these leases do not contain material residual value
guarantees or impose restrictions or covenants related to dividends or the
Company's ability to incur additional financial obligations. The discount rate
for operating leases was based on market rates from a bank for obligations
with comparable terms effective at the lease inception date. The following
table presents lease costs, future minimum lease payments and other lease
information as of 30 June 2024:
Operating
6 Months ended 31 December 2024 $40,685
Year ending 31 December 2025 $74,251
Year ending 31 December 2026 $60,525
Total Operating Lease Liabilities $175,461
Less amounts representing interest $18,059
Present Value of Future Minimum Lease Payments $157,402
Lease Cost:
Unaudited As at 30 June 2024 Unaudited As at 30 June 2023 Audited As at 31 December 2023
Operating lease - operating cash flows (fixed payments) $71,266 $69,245 $145,228
Weighted average remaining lease term - operating 1.4 years 0.6 year 1.5 years
Weighted average discount rate - operating 10% 10% 10%
14. INCOME TAX RECEIVABLE
On 30 September 2022 a withholding tax of 32.5% became payable within the UK
in respect of an intercompany loan between IDS and Fadel UK of $2,032,690,
associated with the acquisition of IDS. This withholding tax amount of
$660,624 will be reclaimable, conditional upon the loan between IDS and Fadel
UK being repaid or cancelled before 31 December 2023. On 21 June 2023, the
withholding tax of $660,624 due in the UK was paid by Image Data Systems (UK)
Limited ("IDS") to HMRC. We are expecting the tax to be repaid in Q4 2024.
15. SUBSEQUENT EVENTS
Management has evaluated the subsequent events for disclosure in these
consolidated financial statements through 25 September 2024, the date these
consolidated financial statements were available for issuance, and determined
that no events have occurred that would require adjustment to or disclosure in
these consolidated financial statements.
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