REG - Fadel Partners Inc. - Results for the year ended 31 December 2023
30/04/2024 07:00
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RNS Number : 4997M Fadel Partners Inc. 30 April 2024
30 April 2024
Fadel Partners, Inc.
('FADEL', the 'Company' or, together with its subsidiaries, the 'Group')
Results for the year ended 31 December 2023
FADEL, the developer of cloud-based brand compliance and rights and royalty
management software is pleased to announce its full year results for the year
ended 31 December 2023.
Financial highlights
· Revenue up 10% on FY22 to $14.5m (2022: $13.2m)
· Recurring revenue growth rate of 31% on FY22 to $11.4m (2022: 34% to
$8.7m)
· Gross profit of $9.0m (2022: $7.9m) with a gross profit margin of 62%
(2022: 60%)
· Adjusted EBITDA* loss of $1,732k (2022: $609k) as a result of the
increased expenditure relating to planned investments for growth
· Cash and cash equivalents of $3.2m at 31 December 2023 (2022: $1.2m),
with net cash of $3.0m (2022: $0.1m)
US Dollars ($) 2022 2023 Change (%)
Group revenue 13,182,553 14,486,789 10%
Recurring revenue 8,681,002 11,395,295 31%
Recurring revenue % of Group revenue 66% 79%
Gross profit 7,945,159 9,019,811 14%
Adjusted EBITDA (608,585) (1,731,678) (185%)
Net cash 106,371 3,029,062
* Adjusted EBITDA (a non-US GAAP measure is defined as earnings after
capitalized commission costs and before interest, tax, depreciation,
amortization, exceptional costs and share-based payments
Operational highlights
· Milestone listing on AIM in April 2023, raising £8m gross proceeds,
providing the funding and increased profile to support our growth ambitions
· Improved customer diversification, with the top five customers
growing in terms of gross revenue but representing 61% of total revenue,
compared to 64% in 2022
· Hiring of key strategic personnel including global Chief Revenue
Officer, Global VP of Growth Marketing and several sales and lead generation
positions across the US and Europe
· An increase in Brand Vision customers of five to nine, no change in
the overall number of IPM Suite customers (16) and a small reduction of six
PictureDesk SaaS small market customers to 114 (2022: 120)
· Launch of new product offerings including Content Tracking,
enhancements to Content Cloud capabilities and video matching on YouTube and
TikTok, helping to attract new customers and further embed FADEL within
existing clients
Post period end highlights
· Launch of LicenSee, developed out of our flagship enterprise
solution, IPM Suite
· Continuing to grow the pipeline of opportunities with new and
existing customers in the Beauty, Fashion, Publishing and CPG industries
· Appointment of Ian Flaherty as Chief Financial Officer, who brings
with him a wealth of experience in listed technology companies
Tarek Fadel, Chief Executive Officer of FADEL, commented: "At the time of our
IPO in April 2023, we presented an ambitious growth strategy to the market,
based around investing in our technology and people. I am extremely proud to
report that we have delivered on that in our first financial year as a listed
company. During 2023, we achieved exceptional client wins in the Brand Vision
space, with notable new software licenses for major clients such as PepsiCo,
Kimberly-Clark, Sanofi, and Philip Morris. These successes not only validate
our investments in the Brand Vision product and our go-to-market strategy but
also propelled a 31% growth in total recurring revenue. This substantial
growth contributed to our overall revenue increase of 10% year on year. We
have had an encouraging start to 2024 with strong bookings in Q1, however in
line with an acceleration towards SaaS revenue by virtue of expected growth in
the Brand Vision and LicenSee product lines, we now expect that reported
revenue for 2024 will be behind previous market expectations. Revenue from our
SaaS offerings will be an increasingly important key financial reporting
metric for the Company. Successfully winning new clients for Brand Vision and
LicenSee and leveraging our IP into the mid-market will contribute to a much
higher mix of SaaS revenues going forward".
For further information please contact:
Tarek Fadel, Chief Executive Officer Via Alma
Ian Flaherty, Chief Financial Officer
Cavendish Capital Markets Limited (Nomad & Broker) Tel: +44(0)20 7220 0500
Jonny-Franklin Adams, Emily Watts, Abigail Kelly (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
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
and India. Founded in 2003 by Tarek Fadel (Chief Executive Officer), FADEL has
since grown to a team of 137 full time employees, plus an additional pool of
c.50-60 contractors.
For more information please visit the Group's website at: www.fadel.com
CHAIR'S STATEMENT
Introduction
I am delighted to provide an update on the strong progress of Fadel Partners,
Inc. as we celebrate our successful first year as a publicly listed company.
Over the past year, we have executed on our post-IPO strategy with precision,
navigating through the challenges of the technology sector and seizing
opportunities for growth. I believe we are on track to continue to achieve
double digit revenue growth while continuing to manage overall associated
costs.
Despite the challenges faced by the technology sector throughout 2023, we have
achieved significant milestones fuelled by the funds raised during our IPO. We
have diversified our product portfolio and expanded our sales and marketing
teams with strategic hires. The FY23 performance underscores our dedication to
executing our ambitious growth strategy and seizing the vast opportunities
available to us.
2023 Financial Results
Given the hard work of completing our IPO and the challenging macro
conditions, I was pleased that 2023 revenues increased 10% year on year to
$14.5m, with recurring revenues increasing 31% to $11.4m. We have delivered
this growth while balancing investment for the future with a measured approach
to managing all aspects of our business.
EBITDA loss was $2.0m (FY22: $1.5m), including $0.3m (2022: $1.2m) of
one-time IPO related expense. Our cost expansion plans are focused on smart
investments in R&D and sales headcount and developing and launching new
products that we believe have both substantial target markets and shorter
sales cycles given the compelling ROI for companies in our target markets. Our
balance sheet remains healthy, with net cash of approximately $3.0m at year
end, plus access to $1.0m of additional capital through our active credit
line.
People
The importance of our people has never been clearer than in this past year;
their expertise and dedication have played a pivotal role in navigating
through this critical phase of growth and expansion. As we progress beyond the
IPO, their continued dedication and passion remains key to achieving our
strategic objectives.
We are committed to expanding our operations and as such I am pleased to
report that on 15 March 2024 we opened an additional R&D office in Jordan,
welcoming seven talented individuals to the team, with plans to build on this
throughout the year. We have also amplified our presence in the UK and the US,
hiring six experienced sales representatives with two more coming later this
year, which will allow us to carefully execute our "land and expand" strategy
as well as win new major clients.
I would like to take this opportunity on behalf of the Board to thank every
one of our employees for their continued enthusiasm and commitment to FADEL
which is evident to all and much appreciated.
Board and Governance
The combined Board have a wealth of experience in dynamic software
environments characterised by rapid growth, with some board members having
been involved with FADEL for a number of years pre-IPO. The Board's extensive
industry network positions the Board to successfully execute FADEL's growth
strategy and effectively identify new opportunities as they arise.
As announced on 24 February 2024, Ian Flaherty, Chief Financial Officer, was
appointed to the Board of the Company. Ian is a Certified Public Accountant in
the Unites States and previously held various financial management positions
within publicly listed technology companies. We, as a Board, are delighted to
have a Chief Financial Officer of Ian's calibre and looking forward we believe
he will play a key role in the exciting next chapter for the Company.
Ian has led the Board in a full review and analysis of our markets, bookings
outlook and forecast revenues together with our investment plans. The wider
opportunity in our marketplace has never been greater and the strength of our
year-to-date bookings is ahead of plan but within the mix we now expect a
higher volume of SaaS subscription revenue going forward versus up-front
license income. The Board views this very positively in terms of the future
predictability and value of Fadel but in the short-term a higher proportion of
clients paying for our software on a subscription basis will impact the timing
of reported revenue recognition.
At the time of our IPO we undertook to appoint an additional UK based
Independent Non-Executive Director to the Board, whilst this remains our
intention, we want to ensure this appointment is additive to the business and
therefore our search continues.
Ken West
Chair of the Board
29 April 2024
CEO'S REVIEW
Overview
At the time of our IPO in April 2023, we presented an ambitious growth
strategy to the market, based around investing in our technology and people.
As a founder, I am extremely proud to report that we have delivered on that in
our first financial year as a listed company and have made an encouraging
start to the 2024 financial year.
Using the funds raised from our IPO, we have strategically expanded our sales
and marketing teams with key hires and are transitioning our go-to-market
strategy by investing in the development of our in-house outbound lead
generation teams. Additionally, we have diversified our product offering
from one solution, our heritage IPM Suite, to two today with the increasingly
established Brand Vison (including PictureDesk). We have also recently
released an expansion of our IPM Suite with the launch of LicenSee. These
developments have expanded our target markets by industry diversification,
territory diversification, new focused use cases and client size, which will
in turn accelerate our client acquisition and offer increased opportunities
for cross-selling. Consequently, this will drive accelerated revenue growth as
we aim to substantially scale the business over the next five years.
With the exponential growth of digital content across various forms such as
images, videos, and audio, coupled with diverse geographic distribution, the
demand for our software has never been stronger.
In the past year, we have observed two significant trends: a surge in the
demand for content tracking and the emergence of demand-led opportunities to
penetrate the mid-market consumer products licensing segment. These trends
capitalise on the extensive investment we have made in our core IPM Suite
product, including the launch of LicenSee, and the development and launch of
Brand Vision with a focus on AI-based image and video matching and tracking.
Most importantly our software is applicable across a diverse range of
industries that need to monitor the use of their content and intellectual
property rights. At the end of FY23 our top 20 clients operated in sectors
ranging from Media, Consumer and Beverages through to Beauty and Luxury.
Excitingly we are increasingly engaging with new sectors and our runway is
highlighted by a target market with annual global licensing revenues of over
$300bn a year.
During 2023, we achieved exceptional client wins in the Brand Vision space,
with notable new software licenses for major clients such as PepsiCo,
Kimberly-Clark, Sanofi, and Philip Morris. These successes not only validate
our investments in the Brand Vision product and our go-to-market strategy but
also propelled a 31% growth in total recurring revenue (2022: 34%).
Revenue from our SaaS offerings will be an increasingly important key
financial reporting metric for the Company. Successfully winning new clients
for Brand Vision and LicenSee and leveraging our IP into the mid-market will
contribute to a much higher mix of SaaS revenues going forward. These
multi-tenant cloud products have shorter implementation. This expected
accelerated transition in our business model towards SaaS is positive,
underpinning the future technology and financial scalability of the company.
At a Group level our analysis of the visibility, timing and value of future
contract wins and the cost plans to deliver it are largely unchanged although
we are finding it is taking longer than expected to ramp some of our new sales
hires. However, a higher SaaS mix and the associated impact on the timing of
monthly revenue recognition will translate into lower reported revenues in
FY24 than previously expected.
Investment in expanding our offering
I am proud that today our two distinct product families; Brand Vision and IPM
Suite, have expanded significantly to include an expansion of Content Tracking
under Brand Vision and the launch of the LicenSee offering under IPM. The
launch of LicenSee marks an exciting milestone for our company. With its
launch, we are poised to capitalise on a burgeoning mid-market opportunity,
further solidifying our position as a leader in the industry.
In March 2024, we announced an exciting push into the mid-market with the
launch of LicenSee, a platform designed to enhance and automate the management
of royalties for consumer product licensees. This solution has been developed
out of our flagship enterprise solution, IPM Suite, leveraging 20 years of
sector know-how, and enables small and medium sized businesses to manage their
license agreements, automate the calculation of royalties, and ensure
compliance checking across varied contractual landscapes. For these target
clients the solution is preconfigured, has a fast professional service
implementation cycle of typically 5-10 calendar days and is at a price point
that delivers a short pay-back period on their investment.
Delivery against growth strategy
Our growth strategy, which we summarise as "Fifty in Five," centres around
four key components in growing FADEL towards $50 million of revenue within a
five-year timeframe, with a high recurring revenue percentage and high gross
margins. This involves employing a "Land and Expand" approach, emphasising
both up-selling and cross-selling within our existing large-cap customer base.
Secondly, we aim to add new clients each year with a focus on high lifetime
value. Thirdly and key to expanding our client list, is to prioritise our
investment in products and functionality that generate high ROI in our
existing markets and opens up new substantial markets. Finally, we remain open
to selected acquisitions, actively seeking accretive or strategic deals that
complement and enhance our existing capabilities, thereby contributing to our
overall growth trajectory.
Land and Expand
A number of clients went live with IPM Suite in the year and we have been very
successful at agreeing multi-year support contracts ahead of the go-live. This
included support contracts with the likes of Hasbro, Cengage, Pearson,
Chronicle Books and Media Participations, which in some cases added over $250k
to recurring revenue. In 2023, the success of our Land and Expand strategy
within the IPM Suite was evidenced by a 34% increase in recurring revenue,
rising to $9.1m from $6.8m in 2022. Other notable IPM Suite clients include
Super 7, Marvel Entertainment, Editis and Bandai Namco.
Within Brand Vision, we were particularly pleased to support Pepsi as they
extended the use of Brand Vision within their US operations, adding more users
and expanding our agreement into an enterprise account, marking a significant
milestone.
Within the Content Tracking component of Brand Vision we were pleased that
Philip Morris extended their Brand Vision deal to include Content Tracking.
During 2023, our Brand Vision customer count (excluding Picture Desk) grew
125% to 9 customers (2022: 4 customers), with a 22% increase in recurring
revenue, rising to $2.3m from $1.9m in 2022. A selection of our other notable
Brand Vision clients includes Coca-Cola, Whirlpool, and L'Oreal.
With our expanded product lineup, we are witnessing a material increase in
opportunities for cross-selling among clients who are already utilising one of
our solutions. Take, for instance, major marketing brands: while many are
actively involved with our Brand Vision offering for content tracking and
management, there's also a significant portion of their operations dedicated
to licensing and royalty management. This has sparked conversations about how
our IPM Suite can effectively cater to these needs.
Pipeline
We are encouraged by the momentum in our pipeline, marked by strong bookings
in Q1 2024 and interactions with leading consumer brands, publishers, and
content owners across Europe, the US, and globally in Q2 2024. Our pipeline
spans various sectors and encompasses our established IPM and Brand Vision,
products. It includes initial discussions about substantial license and
service opportunities and one of our largest clients considering a significant
expansion of their use of Brand Vision.
While it is still early days for LicenSee, our first client has already gone
live and we have signed our second client during Q2 2024. We remain optimistic
about adding several new mid-sized companies to the FADEL client roster this
year.
However, despite the growing pipeline and strong conversion rates contributing
to revenue growth, we are facing challenges in hiring and ramping up qualified
sales representatives at the pace we had hoped to at the time of IPO,
partially due to the challenges associated with training them on our broad
range of products and partially due to the diverse needs of the industries we
serve.
Despite these challenges, we remain confident in the sales growth strategy
outlined at our IPO. Recent customer interactions and pipeline growth have
validated this strategy, and we are actively monitoring and addressing the
delays in sales hires ramp-up. We remain confident that our strong pipeline
and initial successes with new offerings like LicenSee and Content Tracking
demonstrate our potential to significantly expand our client base and enhance
shareholder value in the coming years contributing to a much higher mix of
SaaS revenues and growth in recurring revenue.
Current trading and outlook
Despite facing broader macroeconomic challenges, FADEL's long-standing client
relationships and robust business model has protected us from pressure on
enterprise budgets. Our growth also reflects the substantial return on
investment provided by our software and services, which offer cost
efficiencies and licensing revenue growth opportunities beyond the reach of
legacy solutions.
Most importantly over the last year we have made calculated investments in
products and people that position us for significant growth over the next few
years with an optimised approach to marketing and selling our expanded range
of services into a total available market which has never been larger.
We have made an encouraging start to FY24 with healthy bookings in Q1 and the
overall funnel and pipeline being as large and diverse as at any point in the
Company's history. Whilst we remain confident about our sales strategy and
medium-term prospects, the Board now expects a higher proportion of bookings
to come from SaaS contracts which, when translated into reported revenues,
will drive a higher mix of monthly subscription income compared with more
traditional up-front licenses and longer-term service revenue. We, therefore,
now expect reported revenue will be behind previous market expectations for
the current financial year. By pursuing the opportunity to accelerate the
transition in our business model towards becoming a truly SaaS business, we
now anticipate reaching EBITDA break even in FY25, materially in-line with the
forecast at the time of our IPO.
On top of this, the Group maintains a clear medium-term acquisition strategy,
with the Board consistently evaluating potential opportunities in accordance
with stringent criteria.
Tarek Fadel
Chief Executive Officer
29 April 2024
CFO'S REVIEW
Expanding our sales capabilities has been a top priority. We have augmented
our sales organization by adding new sellers, strengthening our capacity to
engage with clients and capitalize on emerging opportunities. Furthermore, we
have bolstered our infrastructure to support the growth of our sales team,
appointing a Chief Revenue Officer (CRO) and a Vice President of Growth
Marketing. These strategic hires bring invaluable expertise and leadership,
empowering us to drive revenue growth and enhance our market presence.
Additionally, we have invested in building a robust business development
organization, laying the groundwork for future expansion and customer
acquisition.
The successful execution of our IPO and our achievement of 2023 revenue
in-line with market expectations, demonstrates our resilience and ability to
navigate challenging market dynamics. Looking ahead, we are poised to
capitalize on our strengthened foundation and seize opportunities for further
growth and innovation. As we continue to consolidate our position in the
market, we remain focused on delivering value to our shareholders, driving
sustainable growth, and realizing our vision for the future.
Revenue
Our revenue grew 10% to $14.5m (2022: $13.2m) despite strong macro headwinds.
The split of revenue showed very encouraging trends as the recurring element
of our revenue increased 31% year on year to $11.4m (2022: $8.7m), in part due
to a number of notable net new recurring software license wins with clients
including PepsiCo, Kimberly-Clark, Sanofi and Philip Morris and in part due to
a number of annual license contract renewals/upgrades.
Our service revenue reduced to $3.1m from $4.5m, this decrease is a reflection
of the successful completion in early 2023 of a number of IPM Suite
implementations and some delays/postponements in regional rollouts by existing
IPM Suite clients, in part due to the macro-economic environment.
Encouragingly, we are already seeing some of the postponed work being
rescheduled into the next 12 months.
Expenditure highlights
We maintained strong cost control discipline with our total cost of sales
increasing only 6% to $5.5m (2022: $5.2m) despite our revenue growing by
10%. Our research and development costs rose marginally to $3.8m (2022:
$3.7m) as we benefited from strong US Dollar vs Lebanese Pound currency
fluctuations, while continuing to invest in product development with ongoing
quarterly update release cycles and the addition of new features and
functionality to both Brand Vision and IPM Suite. We fully expense our R&D
costs under US GAAP rules whereas a number of our peers who report in IFRS
capitalise a significant proportion of their R&D costs, which spreads such
costs over future periods. Our SG&A costs showed a marked increase to
$7.2m (2022: $5.8m) due primarily to investments in our Sales and Marketing
organization of $1.1m resulting in a total cost of $2.5m (2022: $1.4m),
non-cash expense reported to stock based compensation of $0.6m (2022: $0m) and
expansion of our Board of Director and Finance organization to support
increase public company requirements amounting to an additional $0.4m expense
in 2023.
Gross Profit
The gross profit generated in the period was $9.0m (2022: $7.9m) with a gross
profit margin of 62% (2022: 60%). This improvement was in line with our
expectations that margins will improve over time as a greater proportion of
our revenue is derived from higher margin license sales, especially the Brand
Vision family of products. We expect to reach a gross profit margin of circa.
65-70% in future periods, as the revenue mix fluctuates between higher margin
license sales and historically lower margin services revenue.
Adjusted EBITDA (Earnings before interest, tax, depreciation and amortisation)
Our adjusted EBITDA (a non-US GAAP measure) is defined as earnings after
capitalized 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
to -$1,732k (2022: -$609k). 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 which for 2023 was $3.8m.
2022 2023
EBITDA (1,513,310) (1,990,482)
Adjustments to operating expenses
Commissions Capitalised during the period (323,209) (546,048)
Exceptional items
IPO Expenses((1)) 1,207,883 262,443
Share based payments 20,051 542,409
Total Adjustments 904,725 258,804
Adjusted EBITDA (608,585) (1,731,678)
(1) Additional IPO expenses in 1H23 of $808,349 which have been deducted from
Additional Paid in Capital under ASC 340.
Ending Customer Count
In 2023, we commenced tracking customer numbers by three categories IPM Suite,
Brand Vision (excluding PictureDesk) and PictureDesk, reporting only the
number of clients actively contracted at the end of the reporting period.
2022 2023
IPM Suite 16 16
Brand Vision 4 9
PictureDesk 120 114
Total 140 139
For our IPM product, our total customer count remained flat.
In our Brand Vision (excluding PictureDesk) product, we've witnessed a surge
in the demand for content tracking, leading to a 125% increase in customer
growth in 2023.
The net decrease of 6 customers in PictureDesk was a result of 6 new client
additions and 12 losses. Notably, PictureDesk's customer base mainly consists
of smaller revenue value customers compared to our IPM Suite and Brand Vision
customers. However, our strategic focus in 2024 includes enhanced marketing
efforts and improved client management for this product line.
Cash and working capital
We ended the year with $3.2m of cash (2022: $1.2m) and zero balance (2022:
$1.0m) on our line of credit from Bank of America ($1.0m limit). Due to the
timing of customer renewals and billings, we also ended the year with $6.0m of
billed and unbilled account receivable (2022: $2.8m), driven mostly by the
timing of certain contract renewals (typically we have a number of renewals
that sign in December but that are not paid until January). Post year end of
we collected the majority of this outstanding balance - cash as at 25 April
2024 was $4.6m. During the year we consumed $5.5m of cash in our operating
activities in 2023 (2022: generated $2.1m), driven principally by the $3.2m
increase in billed and unbilled account receivables and net loss of $1.5m. We
generated $8.1m from financing activities, composed primarily from $8.6m in
net IPO proceeds and a $0.6m shareholder loan offset by $1.0m pay down of our
Bank of America Line of Credit.
Ian Flaherty
Chief Financial Officer
29 April 2024
Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The audited, Consolidated Statements of Comprehensive Income of the Group for
each of the years ended 31 December 2022 and 2023 are set out below:
Continuing operations Notes Year ended Year ended
31 December 31 December
2022 2023
$ $
License/subscription and support 8,681,002 11,395,295
Professional services 4,501,551 3,091,494
Total revenue 4 13,182,553 14,486,789
Cost of fees and services 5,237,394 5,466,978
Gross Profit 7,945,159 9,019,811
Research and development 3,693,655 3,833,225
Selling, general and administrative expenses 5,785,374 7,177,068
Depreciation and amortisation 655,753 647,640
Net interest expense 150,892 62,550
Foreign exchange losses/(gains) 371,860 (846,035)
Other income (1,408) -
Total operating expenses 10,656,126 10,874,448
Loss before income taxes (2,710,967) (1,854,637)
Income tax expense/(gain) 5 786,240 (307,015)
Net loss after taxes (3,497,207) (1,547,622)
Total foreign currency gains/(losses) 967,248 (501,406)
Total comprehensive loss (2,529,959) (2,049,028)
Net income attributable to non-controlling 23 1
interest
Net loss attributable to the Group (3,497,230) (1,547,623)
Net loss after taxes (3,497,207) (1,547,622)
Comprehensive income attributable to non-controlling interest 23 1
Comprehensive loss attributable to the Group (2,529,982) (2,049,029)
Total comprehensive loss (2,529,959) (2,049,028)
Basic loss per Share ($) 6 (0.37) (0.12)
Diluted loss per Share ($) (0.37) (0.12)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The audited, Consolidated Statements of Financial Position of the Group for
each of the years as at 31 December 2022 and 2023 are set out below:
As at As at
31 December 31 December
2022 2023
Assets Notes $ $
Cash and cash equivalents 1,181,371 3,191,458
Accounts receivable, net 8 1,863,394 2,308,580
Unbilled work-in-progress 929,715 3,703,895
Income tax receivable 18 - 660,624
Other current assets 214,395 298,574
Current assets 4,188,875 10,163,131
Intangible assets, net 7 2,242,598 2,112,018
Goodwill 7 2,100,432 2,209,470
Furniture and equipment 9 88,170 136,212
Contract costs 10 584,510 763,323
Deferred tax asset 5 954,771 830,778
Right-of-use asset 16 109,728 202,228
Non-current assets 6,080,209 6,254,029
TOTAL ASSETS 10,269,084 16,417,160
Liabilities
Accounts payable and accrued expenses 3,174,313 2,299,550
Income tax payable 5 1,026,602 1,262,702
Deferred revenue 2,249,019 2,642,005
Notes payable - related parties 11 75,000 162,396
Current lease liability 16 56,641 67,447
Line of credit 12 1,000,000 -
Current liabilities 7,581,575 6,434,100
Provisions - end of services indemnity 15 274,045 467,225
Deferred revenue 1,086,762 391,090
Non-current lease liability 16 28,546 134,781
Non-current liabilities 1,389,353 993,096
Total liabilities 8,970,928 7,427,196
Shareholders' equity
Series A-1 preferred shares 13 7,552 -
Common shares 13 7,083 20,231
Additional paid-in capital 15,581,802 25,317,043
Accumulated deficit (15,163,027) (16,710,650)
Cumulative translation adjustment 863,686 362,280
1,297,096 8,988,904
Non-controlling interest 1,059 1,060
Total Shareholders' equity 1,298,155 8,989,964
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 10,269,084 16,417,160
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
The audited, Consolidated Statements of Changes in Equity of the Group for
each of the years 31 December 2022 and 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 2021 (audited) 1,068,837 1,068 6,782,583 6,783 11,403,793 (11,665,797) (103,562) 4,205,879 3,848,164
Stock-based compensation - - - - (20,051) - - - (20,051)
Change of control in Fadel Partners SAL from 59.2% to 99.99% - - - - 4,204,843 - - (4,204,843) -
Impact Fund by MEVP holding SAL common - - 300,000 300 (300) - - - -
Impact Fund by MEVP Holding SAL- Series A-2 1,436,260 1,436 - - (1,436) - - - -
Impact Fund by MEVP Holding SAL-Series B 2,943,243 2,943 - - (2,943) - - - -
Impact Fund by MEVP Holding SAL-Series B-1 1,117,318 1,117 - - (1,117) - - - -
iSME SAL Holding-Series B-2 580,383 581 - - (581) - - - -
B&Y Division One Holding SAL 406,268 407 - - (407) - - - -
Net loss - - - - - (3,497,230) - - (3,497,230)
Non-controlling interest - - - - - - - 23 23
Foreign exchange translation Income - - - - - - 967,248 - 967,248
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
Capitalisation of direct IPO costs - - - - (808,350) - - - (808,350)
Issuance of additional common shares - - 223,289 223 401,022 - - - 401,245
Commission shares - - 90,630 91 162,039 - - - 162,130
Non-controlling interest - - - - - - - 1 1
Adjustment of common stock - - 360 - - - - - -
Exercise of warrants - - 39,958 40 (40) - - - -
Stock-based compensation - - - - 542,409 - - - 542,409
Net loss - - - - - (1,547,623) - - (1,547,623)
Foreign exchange translation expense - - - - - - (501,406) - (501,406)
As at 31 December 2023 (audited) - - 20,231,250 20,231 25,317,043 (16,710,650) 362,280 1,060 8,989,964
CONSOLIDATED STATEMENTS OF CASH FLOWS
The audited, Consolidated Statements of Cash Flows of the Group for each of
the years ended 31 December 2022 and 2023 are set out below:
Year ended Year ended
31 December 31 December
2022 2023
$ $
Net loss after taxes (3,497,207) (1,547,622)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortisation 655,753 647,640
Non-cash stock compensation (20,051) 542,409
Non-cash commission shares - 162,130
Non-cash impact of foreign exchange on intangibles 538,331 (242,518)
Changes in assets and liabilities
Accounts receivable 1,380,395 (445,186)
Unbilled work-in-progress (103,297) (2,774,180)
Income tax receivable - (660,624)
Other current assets (8,980) (84,179)
Deferred tax asset 758,169 123,933
Capitalisation of commissions (323,210) (546,048)
Right of use assets (109,728) (92,500)
Accounts payable and accrued expenses (105,691) (564,542)
Income tax payable 150,181 236,100
Deferred revenue (1,424,557) (302,686)
Net cash used in operating activities (2,109,892) (5,547,873)
Purchase of equipment 24 (64,328)
Payments for acquisition of subsidiaries (718,948) -
Net cash used in investing activities (718,924) (64,328)
Proceeds from issuance of IPO common shares - 8,635,053
Proceeds from issuance of additional common shares - 401,245
Proceeds from shareholder loan - 564,009
Repayment of shareholder loan - (401,613)
Proceeds from /(repayment) of line of credit 1,000,000 (1,000,000)
Proceeds from/(repayment) of related party loan 75,000 (75,000)
Net cash provided by financing activities 1,075,000 8,123,694
967,249 (501,406)
Effect of exchange rates on cash
Net (decrease)/increase in cash and cash equivalents (786,567) 2,010,087
Cash and cash equivalents, beginning of year 1,967,937 1,181,371
Cash and cash equivalents, end of year 1,181,371 3,191,458
Supplemental disclosure of cash flow information
Cash paid for interest 14,007 72,155
Cash received from interest 56 22,622
Cash paid for income taxes 85,072 21,415
Conversion of preferred stock to common shares - 7,552
Conversion of warrants to preferred shares 6,484 -
Conversion of warrants to common shares 300 40
Commissions and fees paid through issuance of common shares - 970,480
Notes to the financial statements
1. ORGANISATION AND NATURE OF BUSINESS
The 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 ("IDS");
o Fadel Partners France SAS ("Fadel France"); and
o Fadel Partners Canada Inc. ("Fadel Canada") disolved 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 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").
2. LIQUIDITY AND FINANCIAL CONDITION
Under Accounting Standards Update, or ASU, Presentation of Financial
Statements-Going Concern (Accounting Standard Codification ("ASC") Subtopic
205-40) ("ASC 205-40"), the Company has the responsibility to evaluate whether
conditions and/or events raise substantial doubt about the Group's ability to
meet its future financial obligations as they become due within one year after
the date that the Consolidated Financial Information is issued. As required by
ASC 205-40, this evaluation shall initially not take into consideration the
potential mitigating effects of plans that have not been fully implemented as
at the date the Consolidated Financial Information is issued. The Company has
assessed the Group's ability to continue as a going concern in accordance with
the requirement of ASC 205-40.
As reflected in the consolidated financial information, the Group had
approximately $3.2 million in cash on the Statement of Financial Position as
at 31 December 2023. As at 31 December 2023, the Group had positive working
capital of approximately $3.7 million and an accumulated deficit approximating
$16.7 million. Additionally, the Group had a net loss of approximately $1.5
million and cash used by operating activities of approximately $5.5 million
during the year ended 31 December 2023.
The Company has historically funded its operations through the sale of
convertible preferred stock, common stock, and lines of credit from
shareholders and banks. During the year ended 31 December 2023, the Company
raised gross proceeds of $8,635,053 from its successful initial public
offering to AIM, including $564,009 by way of a loan from Tarek Fadel (the
"Fadel Loan"). Also, during the year ended 31 December 2023, the Company
issued 223,289 common shares at a price of £1.44 per share to employees and
friends, resulting in a cash receipt of $401,245. This cash was used to part
repay the Fadel Loan.
Based on the results above, the Group believes there are sufficient funds to
provide the Group with sufficient liquidity for at least twelve months from
the date of this Document.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated 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 consolidated financial information in conformity with
US GAAP requires the Group to make estimates and assumptions that affect the
reported amounts of the Group's assets and liabilities and disclosure of
contingent assets and liabilities, at the date of the consolidated financial
information, as well as the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from these estimates.
Fair value measurements
Generally accepted accounting principles require the disclosure of the fair
value of certain financial instruments, whether or not recognised on the
Consolidated Statement of Financial Position, for which it is practicable to
estimate fair value. The Group estimated fair values using appropriate
valuation methodologies and market information available as at year-end.
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 realise 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 prioritises
inputs used to measure fair value into three levels and bases categorisation
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. At 31 December 2023, 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
US$2.37 million out of a total of US$3.2 million cash deposits. The Company
believes the risk is limited as the institutions are large national
institutions with strong financial positions. 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.
Accounts receivable, unbilled work-in-progress and credit losses
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. See Note 8
for more details.
Revenue recognition
Since 1 January 2019, the Group has accounted for revenue recognition in line
with ASC 606 "Revenue from Contracts with Customers" and ASC 340 "Other Assets
and Deferred Cost."
The Group's revenue is derived from three primary sources:
· license / subscription fees;
· customer support; and
· services.
Revenue is recognised upon transfer of control of promised products and
services to customers in an amount that reflects the consideration the Group
expects to receive in exchange for those products or services. If the
consideration promised in a contract includes a variable amount, for example,
overage fees, contingent fees or service level penalties, the Group includes
an estimate of the amount it expects to receive for the total transaction
price if it is probable that a significant reversal of cumulative revenue
recognised will not occur.
The Group determines the amount of revenue to be recognised through the
application of the following steps:
· identification of the contract, or contracts, with a customer;
· identification of the performance obligations in the contract;
· determination of the transaction price;
· allocation of the transaction price to the performance
obligations in the contract; and
· recognition of revenue when or as the Group satisfies its
performance obligations.
We typically have multiple contracts with each customer with each contract
varying in nature depending on the type of license or services being contract.
· Term licenses: a majority of our contracts (in revenue terms) are
term licenses. Some of these, based on specific terms within the contracts,
are recognised rateably, but some which are single tenant, cloud hosted in a
private environment and non-cancellable in nature, are recognised in full upon
the signing of the annual contract under the requirements of Accounting
Standards Codification (ASC) 606. Most of these term contracts are for the
provision of our IPM Suite family of products. These contracts typically range
from between 1-3 years in duration.
· Software as a service ("SaaS") contracts: Increasingly, our
contracts are SaaS in nature and are recognised rateably on a monthly basis.
These SaaS type contracts are a majority in number, however many of these are
not particularly high value contracts on either an individual or collective
basis relative to our overall revenue levels today. However, they are expected
to scale significantly over the next few years as existing clients expand
their usage and we win new clients.
· Perpetual licenses: There are a small number of perpetual
licenses, accompanied by annual support contracts that were sold to customers
more than a decade ago, and in line with our efforts, some of these customers,
moved to subscription contracts during 2023.
· Professional services: The Group's professional services
contracts are either on a time and materials, fixed fee or subscription basis.
These revenues are recognized as the services are rendered for time and
materials contracts, on a proportional performance basis for fixed price
contracts or rateably over the contract term for subscription professional
services contracts. Other revenues consist primarily of training revenues
recognized as such services are performed.
Significant judgements - contracts with multiple performance obligations
The Group enters into contracts with its customers that may include promises
to transfer multiple performance obligations such as cloud services, software
licenses, support, updates, and professional services. Multiple performance
obligations are a promise in a contract with a customer to transfer products
or services that are concluded to be distinct. Determining whether products
and services are distinct performance obligations that should be accounted for
separately or combined as one unit of accounting may require significant
judgment. The Group accounts for these performance obligations under
individual contracts on an 'as combined' basis because the supplementary
product or services that accompany cloud services and or software licenses are
tailored and do not have a distinct fair market value.
As the Group's go-to-market strategies evolve, the Group may modify its
pricing practices in the future, which could result in distinct products or
services that require a standalone selling price.
The Group records amounts billed in advance of services being performed as
deferred revenue. Unbilled work-in-progress represents revenue earned but not
yet billable under the terms of the fixed-price contracts. Most of these
amounts are expected to be billed and collected within 12 months.
Costs of obtaining a revenue contract
The Group capitalises 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 amortisation period based on the
remaining expected life of the customer/the term for which it anticipates the
Group's 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 at 1 January 2019
only to contracts that were either not completed as at that date, or that had
a life of customer that ended after 1 January 2019.
For service and support contracts, the amortisation 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.
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. 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 capitalised.
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 other than goodwill:
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 years ended 31 December 2022 and 2023.
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 recognises amortisation 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 years ended 31 December 2022 and 2023.
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 recognised amortisation 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 years ended 31 December 2022
and2023.
Billed accounts receivable and concentrations of credit risk
As at 31 December 2023, there were two significant customers (defined as
contributing at least 10%) that accounted for 72% of accounts receivable.
As at 31 December 2022, there were three significant customers that accounted
for 68% of accounts receivable.
Accounts payable and concentrations of credit risk
As at 31 December 2023, there were three significant vendors (defined as
contributing at least 10%) that accounted for 58% of accounts payable.
As at 31 December 2022, there were three significant vendor that accounted for
62% of accounts payable.
Unbilled work-in-progress and concentrations of credit risk
As at 31 December 2023, there were three significant customers that accounted
for 76% (39%, 19% and 18%) of unbilled work-in-progress.
As at 31 December 2022, there were three significant customers that accounted
for 88% (44%, 27% and 17%) of unbilled work-in-progress.
Segmental reporting
The Group reports its business activities in two areas:
· License/subscription and support revenue (recurring); and
· Professional services (non-recurring),
which are reported in a manner consistent with the internal reporting to the
CEO, who has been identified as the chief operating decision maker.
Revenue concentrations
During 2023, the five largest customers accounted for an aggregate of
$8,769,838 of revenue, some 61% of revenue from continuing operations
During 2022, the five largest customers accounted for an aggregate of
$8,411,729 of revenue, some 64% of revenue from continuing operations.
Top 5 Customers' revenue concentration Revenue 2022 % of Total Revenue Revenue 2023 % of Total Revenue
$'000
License/subscription $ 2,798 21% $ 5,944 41%
Support 2,073 16% 720 5%
Services 3,540 27% 2,106 15%
Total $ 8,411 64% $ 8,770 61%
Advertising and promotion costs
Advertising and promotion costs are expensed as incurred. These costs totalled
$536,552 for the year ended 31 December 2022 and $781,410 for the year ended
31 December 2023.
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 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 realised.
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
recognised 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 consolidated 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, as at January 1, 2023, our company
transitioned Fadel to a USD functional currency entity due to the
hyperinflationary conditions prevalent in the Lebanese currency. Prior to this
date, the Lebanon subsidiary was accounted for using its local currency as a
functional currency. This change was applied prospectively and is consistent
with US GAAP principles. As a result, all financial statements for periods
after January 1, 2023, reflect the Lebanon subsidiary's operations and
financial position in USD, while comparative financial information remains
reported in its previous local currency.
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
functional currencies. As a result, amounts related to assets and liabilities
reported on the Consolidated Statements 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.
4. 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
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" (recurring in nature) and "professional services" (non-recurring)
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:
Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
Revenue
License/Subscription
IPM Suite 4,346,891 7,407,547
Brand Vision 1,902,979 2,312,778
Total License/Subscription 6,249,870 9,720,325
Support
IPM Suite 2,431,132 1,674,970
Brand Vision - -
Total Support 2,431,132 1,674,970
License/subscription and support 8,681,002 11,395,295
Professional services 4,501,551 3,091,494
Total Revenue 13,182,553 14,486,789
Cost of Sales
License/Subscription and support 2,371,550 3,010,432
Professional services 2,865,844 2,456,546
Total cost of sales 5,237,394 5,466,978
Gross Profit Margins
Profit margin license/subscription and support 73% 74%
Profit margin service 36% 21%
Total gross profit margin 60% 62%
5. INCOME TAXES
The components of income/(loss) before income taxes are as follows:
Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
Domestic (415,977) (3,437,382)
Foreign 139,210 1,101,596
US taxable loss before income taxes (276,767) (2,335,786)
Provision for income taxes consisted of the following:
Provision components are as follows: Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
Current:
Foreign 25,265 (454,704)
Federal - 16,283
State 2,806 7,223
Total current expense/(income) 28,071 (431,198)
Deferred:
Foreign - (39,542)
Federal 513,180 6,541
State 244,989 157,184
Total deferred expense 758,169 124,183
Provision for/(benefit from) income taxes 786,240 (307,015)
The differences between income taxes expected at the U.S federal statutory
income tax rate and income taxes reported were as follows:
Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
U.S federal income tax (benefit) at statutory rate (58,121) (490,015)
State tax (net of federal benefit) 68,795 143,385
Foreign rate differential (4,133) (624,689)
Meals and entertainment 1,570 3,343
GILTI Income 653,618 599,441
Research & development credit (50,000) -
SALT rate change 178,411 19,505
Other (3,900) 42,015
Provision for/(benefit from) income taxes 786,240 (307,015)
The Company is subject to taxation in the United States and certain foreign
jurisdictions. Earnings from non-U.S. activities are subject to local country
income tax.
The material jurisdictions where the Company is subject to potential
examination by tax authorities include the United States, Lebanon, France and
the UK.
U.S Companies are eligible for a deduction that lowers the effective tax rate
on certain foreign income. This treatment is referred to as the
Foreign-Derived Intangible Income deduction.
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
realised.
As at 31 December 2022, the Company had a US federal and state NOL carry
forward of approximately $612 thousand and $5.5 million respectively. The
state NOL will expire beginning in 2037. As at 31 December 2022, the Company
had NOLs in California, Florida, New Jersey and Pennsylvania
As at 31 December 2023, the Company had a federal, state, and foreign NOL
carry forwards of approximately $135 thousand, $1.5 million, and $40 thousand,
respectively. The state NOL will begin to expire in 2037. As at 31 December
2023, the Company had foreign NOLs in the UK and state NOLs in California,
Connecticut, Florida, Massachusetts, New York, and Pennsylvania.
Due to its current year earnings, the Company believes that it is
more-likely-than-not that substantially all the deferred tax assets, except
the foreign NOL, will be realized. The foreign NOL is comprised of two types
of UK losses; losses which occurred in periods prior to 2018 ("pool 1") and
losses which occurred after 31 December 2017 ("pool 2"). Neither type of NOL
is eligible for use in the U.S. due to the dual consolidated loss rules.
"Pool 1" losses are available to offset taxable income in the UK, only,
without restriction; "pool 2" losses are restrictive based on the type of
income recognized in the future. Management assesses the need to establish a
valuation allowance using all available evidence to estimate whether
sufficient future taxable income will be generated to permit the use of the
existing deferred tax asset related to the "pool 2" foreign NOL. For the
period ended 31 December 2023, the Company has determined that a valuation
allowance is needed for the deferred tax asset balance related to the "pool 2"
foreign NOL as management believes it is more likely than not that the
specific deferred tax asset will be not realized in the future.
On 27 March 2020, the CARES Act was signed into law. The Act contains several
new or changed income tax provisions, including but not limited to the
following: increased limitation threshold for determining deductible interest
expense, class life changes to qualified improvements (in general, from 39
years to 15 years), and the ability to carry back net operating losses
incurred from tax years 2018 through 2020 up to the five preceding tax
years. Most of these provisions are either not applicable or have no material
effect on the Company.
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") contains a provision which
subjects a U.S parent of a foreign subsidiary to current U.S. tax on its
global intangible low-taxed income ("GILTI"). The Company will report the tax
impact of GILTI as a period cost when incurred. In 2023, the company has a net
GILTI inclusion of approximately $2.9 million primarily due to Section 174
capitalisation. Accordingly, the Company is not providing deferred taxes for
basis differences expected to reverse as GILTI.
In 2023, as a part of the 2022 tax return, the Company finalized an R&D
study and method change related to deferred revenue in order to defer revenue
expected to be received within one year.
Significant components of the Company's deferred tax assets and deferred tax
liabilities are as follows:
Deferred Tax Table: Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
Amortisation 338,029 629,016
Net Operating loss carry forwards 128,535 28,306
Net Operating loss carry forwards (state) 340,655 96,110
Net Operating loss carry forwards (foreign) - 2,744,200
Reserves and accruals 90,612 117,276
Deferred revenue 205,909 97,893
R&D credit 50,000 -
Net deferred tax assets 1,153,740 3,712,801
Less valuation allowance - (2,704,468)
Total deferred tax assets 1,153,740 1,008,333
Total deferred tax liabilities (198,969) (177,555)
Deferred tax assets, net 954,771 830,778
Due to its current year earnings, the Company believes that it is
more-likely-than-not that substantially all of the deferred tax assets will be
realised. Therefore, the Company has not recorded a valuation allowance on the
deferred tax assets. The change in the valuation allowance is as follows:
Beginning of the Year Additions/ (Deductions) Balance at the end of the year
2022
Reserves Deducted from deferred income taxes, net: 1,712,941 (758,170) 954,771
Valuation Allowance - - -
2023
Reserves Deducted from deferred income taxes, net: 954,941 2,580,475 3,535,416
Valuation allowance - (2,704,638) (2,704,638)
At 31 December 2023, the Company did not have any unrecognized tax benefits
and did not anticipate any significant changes to the unrecognized tax
benefits within twelve months of this reporting date. In the year ended 31
December 2023, the Company recorded no interest and penalties on income taxes.
At 31 December 2023, there was no accrued interest included in income taxes
payable.
6. 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 their anti-dilutive
effect, the calculation of diluted net loss per share for the years ended 31
December 2022 and 31 December 2023 does not include stock options and
warrants. The number of dilutive shares would have been 1,689,826 and
8,290,788 as at 31 December 2023 and 31 December 2022, respectively.
.
Audited Audited
As at As at
31 December 31 December
2022 2023
$ $
Total comprehensive income attributable to Shareholders (2,529,959) (2,049,028)
Weighted average number of Shares 6,855,443 16,772,311
Basic and diluted earnings per share ($) (0.37) (0.12)
7. BUSINESS COMBINATION
On 1 October 2021, Fadel UK Limited signed a Share Purchase Agreement to
acquire 100% of the ordinary shares of Image Data Systems (IDS), a UK based
business with over 30 years' experience in image and video management
providing production agencies and media publishers with a fast and scalable
cloud-based content services platform. The complementary nature of the IDS
content services platform, when combined with the digital rights management
system of FADEL will make an even more compelling offering for brand managers.
Fair Value of Purchase Consideration
The fair value of the purchase consideration on the acquisition date was $7.4
million (5.5 million)
Fair Value of Assets Acquired and Liabilities Assumed
The Group accounted for the acquisition using the purchase method of
accounting for business combinations under ASC 805, Business Combinations. The
total purchase price was allocated to the tangible and identifiable intangible
assets acquired and liabilities based on their estimated fair values as at the
acquisition date.
Fair value estimates are based on a complex series of judgments about future
events and uncertainties and rely heavily on estimates and assumptions. The
Company's judgments used to determine the estimated fair value assigned to
each class of assets acquired and liabilities assumed, as well as asset lives
and the expected future cash flows and related discount rates, can materially
impact the Consolidated Financial Information. Significant inputs used for the
calculations included the amount of cash flows, the expected period of the
cash flows and the discount rates.
The allocation of the purchase price was based on the Company's estimate of
the fair values of the assets acquired and liabilities assumed on the
acquisition date, as follows:
· brand assets ($0.4 million (£0.30 million));
· customer relationships $0.4 million (£0.29 million)); and
· software / technology assets ($2.07 million (£1.53 million)).
The following table shows the current carrying value of the intangible
assets. The information is presented in US Dollar given the assets acquired
were paid for in £ and the resulting values arise on consolidation of our UK
entities.
Goodwill Customer Relationships Technology based assets Brand Assets Total
Cost $ $ $ $ $
As at 31 December 2021 2,342,348 398,089 2,071,133 399,530 5,211,100
Additions - - - - -
As at 31 December 2022 2,100,432 356,956 1,857,133 358,249 4,672,770
Additions - - - - -
As at 31 December 2023 2,209,470 375,487 1,953,542 376,847 4,915,346
Amortisation and impairment:
As at 31 December 2021 - 9,952 51,777 9,988 71,717
Amortisation charge for the period - 35,805 186,283 35,935 258,023
As at 31 December 2022 - 45,757 238,060 45,923 329,740
Amortisation charge for the period - 36,651 190,683 36,784 264,118
As at 31 December 2023 - 82,408 428,743 82,707 593,858
Carrying amount:
As at 31 December 2021 2,342,348 388,137 2,019,356 389,542 5,139,383
As at 31 December 2022 2,100,432 311,199 1,619,073 312,326 4,343,030
As at 31 December 2023 2,209,470 293,079 1,524,799 294,140 4,321,488
The approximate estimated future amortisation expense is $261,000 (£212,537)
each year, for the next five years (2024-2027).
Goodwill represented the excess of the purchase price over the fair value of
the net assets acquired. The fair value of IDS net assets on the date of
acquisition was $2.28 million (£1.69 million) of which $1.96 million (£1.45
million) was cash and $0.34 million (£0.25 million) was net working capital).
Goodwill was therefore determined to be $2.34 million (£1.74 million), which
reflects the perceived value of the employees and expected synergies the
combination of the two businesses will bring to the Group.
The consideration's fair value was estimated on the date of acquisition and
was to be paid out in a series of stage payments. As at 1 October 2021, the
total consideration paid to the sellers or transferred into escrow for future
payment was $6.7 million (£5 million). A final payment of $0.58 million
(£428,874) , as assessed at 31 December 2021. A revised final payment of
$0.63 million (£470,032) was agreed subsequently on 10 July 2022 and is
recognised as a liability within accounts payable and accrued expenses as at
31 December 2021. The final payment of $568,867 (£470,032) was paid on 30
December 2022.
Goodwill Impairment
The Company assesses its investment in IDS for impairment on at least an
annual basis. Based on projections of income, cash flows and the conditions of
current operations, it believes the fair value of the reporting unit is
greater than it carrying amount and no impairment is needed.
8. ACCOUNTS RECEIVABLE, Net
Accounts receivable consist of the following:
As at As at
31 December 2022 31 December 2023
$ $
Accounts receivable 1,885,414 2,330,600
Credit Losses (22,020) (22,020)
Accounts receivable, Net 1,863,394 2,308,580
9. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
As at As at
31 December 2022 31 December 2023
$ $
Furniture and equipment 202,025 266,353
Accumulated depreciation (113,855) (130,141)
Furniture and equipment 88,170 136,212
The depreciation expense was $16,286 and $14,760 for the years ended 31
December 2023 and 2022, respectively.
10. 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 $1,461,203 and $1,093,968 for the year's
ended 31 December 2023 and 2022, respectively. 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:
As at As at
31 December 2022 31 December 2023
$ $
Contract Costs - Opening balance 644,270 584,510
Commissions capitalised during the year 323,209 546,048
Amortisation charge for the year (382,969) (367,235)
Contract costs - Ending Balance 584,510 763,323
11. RELATED PARTIES
Notes Payable:
In each of January 2022 and January 2023, the Group entered into demand note
agreements totalling up to $75,000 and up to $50,000, respectively, 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 of $75,000 as at 31
December 2022, was paid in full in year 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"). As of 31
December 2023, the remaining balance on the Fadel Loan is $162,396 and 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.
12. LINE OF CREDIT: Bank of America
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. The balance owed to Bank of America, N.A under the terms of
the line of credit was zero and $1,000,000 as at 31 December 2023 and 2022,
respectively.
13. COMMON AND PREFERRED STOCK
The Company has authority to issue 150,000,000 shares at $0.001 par value per
Share. As at 31 December 2023, 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, 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.
14. 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 961,267 shares
were granted and remain outstanding as at 31 December 2022 and 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 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 31 December 2023, 1,186,032 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 year ended 31 December 2023
Estimated dividend yield 0%
Expected stock price volatility 41%
Risk-free interest rate 3.4% to 4.5%
Expected life of option (in years) 7
Weighted-average fair value per share $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 year ended 31
December 2023 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 2022 971,267 $1.21 576,924 $1.03 - $0.00 1,548,191 $1.14
Granted 292,705 $1.78 576,924 $1.78 1,186,032 $1.81 2,055,661 $1.80
Exercised - $- - $- - $- - $-
Forfeited or (302,705) $1.78 (576,924) $1.03 - $0.00 (879,629) $1.29
expired
As at 31 December 2023 961,267 $1.21 576,924 $1.78 1,186,032 $1.81 2,724,223 $1.59
Exercisable as at 31 915,637 $1.22 576,924 $1.03 - $0.00 1,492,561 $1.15
December 2022
Exercisable as at 31 961,267 $1.21 576,924 $1.78 151,635 $1.79 1,689,826 $1.46
December 2023
Stock option expense for the year ended 31 December 2023 was $542,409 and
($20,051) for the year ended 31 December 2022. Unrecognized compensation
expense related to share options which will be recognized through 2024 was
$229,224 and $7,588 as at 31 December 2023 and 2022, respectively.
Warrants
On 4 October 2022, all warrants held by MEVP, ISME and B&Y were exercised
and retired in exchange for the issuance of shares of the Company's preferred
and/or common shares, as follows:
· Impact Fund by MEVP Holding SAL
· 300,000 common shares;
· 1,436,260 preferred shares "Series A-2";
· 2,943,243 preferred shares "Series B"; and
· 1,117,318 preferred shares "Series B-1".
· iSME SAL Holding
· 580,383 preferred shares "Series A-1"
· B&Y Division One Holding SAL
· 406,268 preferred shares "Series B21"
On 4 August 2023, all warrants held by Hamed Moghaddam and Arcadia were
exercised and retired in exchange for the issuance of common shares, as
follows:
· Hamed Moghaddam
· 35,962 common shares;
· 46,804 preferred shares "Series A-1"; and
· 62,929 Preferred shares "Series A-2".
· Arcadia:
· 3,996 common shares;
· 5,200 preferred shares "Series A-1"; and
· 6,992 Preferred shares "Series A-2".
As at 31 December 2023, the Company had no outstanding warrants.
15. 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 $87,251 for the year ended 31 December 2022 and
$90,299.45 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 and 2022, the end of services
liability amounted to $467,225 and $274,045 respectively.
16. LEASES
On 1 May 2021, the Group entered into a 2-month lease for an apartment in
France, with monthly lease payments of €1,600 per month, and extended it to
a 12-month lease from 1 July 2021 at a monthly lease payment of €1,700 per
month. This lease was extended for one additional month at the same rate and
then to a 10-month lease, starting 1 August 2022, at a monthly lease payment
of €1,800 per month and was terminated in March 2023. The total lease
payments during 2023 was $5,813 (€5,400).
On January 2023, the Group entered into a 12-month lease for a work space
office in France. The total annual lease payment was $995 (€920) for a
pack of 200 hours valid for one year. It was not renewed for 2024 as at the
date of this document.
On 1 March 2022, the Group entered into a 12-month lease for a work space
office in New York. This lease does not need to be renewed as it is payable
month-to-month and is cancellable with 30 days' notice. The average monthly
lease payment during the year ended 31 December 2023 was $2,069.
In February 2023, the Group entered into a lease for another work space office
in New York. This lease was payable month-to-month and was terminated in
October 2023. The average monthly lease payment during the year ended 31
December 2023 was $760. The total lease payments during 2023 was $6,080.
On October 2022, the Group entered into a 12-month lease for a work space
office in the UK. This lease does not need to be renewed as it is payable
month-to-month and is cancellable with 30 days' notice. The average monthly
lease payment during the year ended 31 December 2023 was $1,360 (£1,090).
On October 30, 2023, the Group entered into a 12-month lease for a work space
office in Jordan. The monthly lease payment was $900.
On October 26, 2023, the Group entered into a 12-month lease for an apartment
in Jordan payable every three months in advance. The quarterly lease payment
was $3,420.
On October 26, 2023, the Group entered into a 12-month lease for another
apartment in Jordan payable every three months in advance. The quarterly lease
payment was $3,240.
Total rental expense (USD) Consolidated
Year ending 31 December 2022 $72,788
Year ending 31 December 2023 $60,317
On 1 October 2023, the Group entered into a 36-month lease for the 2(nd),
6(th) and 7(th) Floor offices in Beirut, Lebanon. The monthly lease payment is
$6,938.
As at 31 December 2023, the Company rents office space in Beirut across three
separate floors under non-cancellable operating lease agreements with monthly
payments ranging from approximately $1,803 to $2,590. These leases end on 30
September 2026.
During the year ended 31 December 2023, the leases signed during 2022 were
ended early by the lessor. Subsequently, the leases were renewed and the end
dates were all brought in-line with each other, 30 September 2026. The
previous end dates were as follows:
· 2nd floor - 28 February 2024;
· 6th floor - 28 February 2024; and
· 7th floor - 30 June 2024.
The following summarizes the cash flow information related to operating leases
for the year ended 31 December 2023:
Cash paid for amounts included in the measurement of lease
liabilities:
2022 2023
Operating cash flows from operating leases (fixed
payments) $
91,038 $94,544
The following table presents lease costs, future minimum lease payments and
other lease information as at 31 December 2023 of the remaining years under
lease:
Year Ending 31 December, Operating
2024 $67,447
2025 $74,248
2026 $60,533
Total Operating Lease Liabilities $202,228
Less amounts representing interest $26,719
Present Value of Future Minimum Lease Payments $175,509
Less current maturities $67,447
Long-term Lease Liability $108,062
The following summarizes the line items in the Consolidated Statements of
Financial Position which include amounts for operating and financing leases at
31 December 2023:
2022 2023
Operating Right-of-Use Assets $109,728 $202,228
Current maturities of operating lease liabilities $56,641 $67,447
Operating lease liabilities, less current maturities $28,546 $134,781
Total Operating Lease
Liabilities
$85,187
$202,228
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 weighted average lease term and discount rate are as follows as at 31
December 2023:
2022 2023
Weighted average remaining lease term -operating 1.4 years 2.7 years
Weighted average discount rate - operating 10% 10%
17. 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.
18. SUBSEQUENT EVENTS
In April 2024, the Company extended the line of credit with Bank of America,
N.A for one more year until May 2025.
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