TIDMFADL
RNS Number : 5733D
Fadel Partners Inc.
22 June 2023
22 June 2023
Fadel Partners, Inc.
('FADEL', the 'Company' or, together with its subsidiaries, the
'Group')
Final Results and Notice of AGM
Fadel Partners, Inc. (AIM: FADL), a brand compliance and rights
and royalty management software provider, is pleased to announce
its full year results for the year ended 31 December 2022.
Financial Highlights
-- Revenue up 10% on FY21 to $13.2m (2021: $12.0m)
-- Recurring revenue increase of 34% on FY21 to $8.7m (2021:
$6.5m) reflecting the first full year of contribution from
IDS of GBP1.1m ($1.3m)
-- Gross profit of $7.9m (2021: $7.0m) with a gross profit margin
of 60% (2021: 58%)
-- Adjusted EBITDA* loss of ($609k) (2021: $359k) as a result
of the increased expenditure relating to planned investments
for growth
-- Cash and cash equivalents of $1.2m at 31 December 2022, with
net cash of $0.1m
Operational Highlights
-- Strong development of our Brand Vision offering through the
integration of PictureDesk, acquired as part of the IDS acquisition
in late 2021 and the addition of a sophisticated AI video
matching capability into Brand Vision's Content Tracking
product
-- Marquee new customer wins; Are Media, Coca-Cola, Macmillan
Learning and Whirlpool with a number of existing customers
successfully brought through a fully operational "Go-Live"
phase including Hasbro and Média Participations
-- Launched three component parts of Brand Vision in Content
Cloud, Rights Cloud and Content Tracking
Post Period Highlights
-- Milestone listing on AIM Market in April 2023, raising $8m
gross proceeds, providing the funding and increased profile
to support our growth ambitions
-- Hiring of key strategic personnel including global Chief
Revenue Officer and several sales and lead generation positions
across Europe
-- Rollout of Brand Vision for Coca-Cola and PictureDesk for
Are Media, a leading content and experiences company in
Australia and New Zealand
* 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)
Tarek Fadel, Chief Executive Officer, commented :
"2022 was a milestone year for FADEL, in which we delivered
strong revenue growth and successfully added a number of marquee
clients to our business, as we transition to the next phase of our
growth journey.
"The successes in the year have further consolidated our
position as a leader in the digital content and intellectual
property market and provide a strong platform to take advantage of
the significant market opportunity available to us."
"Following our successful IPO in April 2023, we have started
deploying the funds raised in line with our strategic objectives to
accelerate our growth. These include key strategic hires such as
our recent addition of a global Chief Revenue Officer in June 2023,
the rollout of a number of Brand Vision products at key clients and
the strengthening of R&D to widen our competitive moat and
expand our market share."
"I am pleased to report that trading in FY23 has been in line
with expectations and, with a growing pipeline of prospective new
clients, we are well positioned to capitalise on the significant
opportunities that lie ahead. We look forward to updating the
market in July when we will release a trading update in relation to
H1 FY23."
Report & Accounts and Notice of AGM
The Company's statutory accounts, together with a Notice of
Annual General Meeting, are due to be made available on the
Company's website ( https://investors.fadel.com/ ) and will be
posted to shareholders on 22 June 2023. The Annual General Meeting
is due to be held at finnCap's offices, One Bartholomew Close,
London, EC1A 7BL, United Kingdom on 21 July 2023 at 4:00 p.m. (UK
time).
In order to allow shareholders to follow the proceedings of the
AGM without attending in person, the company will provide access
online via the Investor Meet Company platform.
(
https://www.investormeetcompany.com/fadel-partners-inc/register-investor
).
For further information please contact:
Tarek Fadel, Chief Executive Officer Via Alma PR
Vicary Gibbs, Chief Financial Officer
finnCap Limited (Nomad & Broker) 020 7220 0500
Jonny-Franklin Adams, Emily Watts, Abigail
Kelly, Milesh Hindocha (Corporate Finance)
Tim Redfern, Sunila De Silva (ECM)
Alma PR Tel: +44(0)20 3405
0205
Josh Royston fadel@almapr.co.uk
Matthew Young
Andy Bryant
About FADEL Partners Inc.
FADEL is a developer of cloud based brand compliance and rights
and royalty management software, working with some of the world's
leading licensors and licensees across media, entertainment,
publishing, consumer brands and hi-tech/gaming companies. The Group
combines the power of rights management and content compliance with
sophisticated content services, AI-powered visual search and image
and video recognition.
FADEL has two solutions, being IPM Suite (rights and royalty
management for publishers and licensing) and Brand Vision (an
integrated platform for Brand Compliance & Monitoring that
includes Content Services, Digital Rights Management, AI-Powered
Content Tracking, a Brand Monitor, and 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, Lebanon, France, Canada and India. Founded in 2003 by Tarek
Fadel (Chief Executive Officer), FADEL has since grown to a team of
116 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 pleased to report on the progress of Fadel Partners Inc.
for the first time as a public company following its successful
flotation on AIM on 6 April 2023. I have been involved with FADEL
in an informal and formal capacity for several years, initially as
Chief Financial Officer of Marvel Entertainment which was a
customer of FADEL and more recently as Non-Executive Chair. FADEL
has demonstrated impressive organic growth over several years and
that is down to the dedication of the management team in
understanding the market opportunity, evolving FADEL's products and
services to meet the needs of its customer base and demonstrating
cost discipline. It is a privilege to be the Chair at a time of
such an exciting growth opportunity. I would also like to welcome
and thank those shareholders who joined us at IPO and
thereafter.
Despite the challenging market conditions facing the technology
sector and the broader economies throughout 2022, we have made
great progress across both our IPM Suite and, in particular, our
Brand Vision solution offerings as the industry's increasing
requirement for operational efficiencies, and the subsequent cost
savings, became ever more important. This past year represented a
significant milestone for the business as we built ever stronger
foundations for our journey ahead with the creation of Brand
Vision, a next generation of brand compliance and monitoring
software. We have placed ourselves at the very intersection of
content creators/owners and the users of that content, at a time
where digital content is multiplying. It is already a valuable
space to inhabit and as it continues to grow, and we grow with it,
we are optimistic in respect of the opportunity.
Our growth strategy remains unchanged, and we have already made
good progress in utilising the proceeds raised at IPO to reinvest
in the growth of the business through investments in sales,
marketing and R&D as well as underpinning this growth through
support and service recruitment.
2022 Financial Results
Revenues increased by 10% to $13.2m (FY21: $12.0m) and
underlying adjusted EBITDA was -$609k (FY21: $359k), which included
a full year contribution from IDS and was achieved notwithstanding
foreign exchange headwinds and the challenging global economic
environment. In particular, I would like to acknowledge the
management team for having delivered another year of growth, given
the significant amount of their time that was consumed in
successfully delivering the IPO process and securing growth capital
for the business. These pleasing results and the positive growth
trajectory for the Company are reflective of the significant market
opportunity, despite this time of macroeconomic uncertainty that is
driving demand for our solutions as clients (and prospects) focus
on improved management of their IP, including re-use rather than
creation, to drive their revenue growth. As we continue to deploy
the proceeds raised at IPO across US/European sales capabilities,
marketing activities and product development, we are confident that
we will continue to see sustainable growth in the coming
periods.
Strategic aims
At the time of our listing in April 2023, we emphasised our
intention to grow the business predominantly by organic routes, and
to utilise the proceeds from the IPO accordingly. I am pleased to
report that, post the year-end, this has already begun with the
strategic recruitment of a number of positions including Chief
Revenue Officer, Head of Demand Generation and a number of key
sales and operational support roles. As a result, our new business
pipeline looks very encouraging and as the market environment
continues to benefit the Group, we expect to see sustainable
organic growth over the mid-term.
FADEL's future plans aim to accelerate growth through the
pursuit of a selective acquisition strategy alongside our organic
approach of naturally accumulating IP through developing our
product set and working with our customers. As previously shown
with the acquisition of Image Data Systems (UK) Limited ("IDS") in
2021, we will approach acquisitions with a robust set of criteria
identifying companies that can complement and expand our existing
solutions, widen our competitive moat and expand our market share.
We expect this process to commence from 2024 onwards.
People
Our success to date is a result of the diligence shown by our
people. FADEL is built on a foundation of passionate and
hardworking employees which has been more apparent than ever over
the last 12 months. On behalf of the Board, I offer them my sincere
thanks.
Board and governance
Whilst several Board members have been involved across a number
of years in a more informal capacity, the Board, as established at
the time of IPO, brings with it a wealth of experience in dynamic
software environments characterised by rapid growth. Its extensive
industry network and background in the AIM market, as well other
stock exchanges, positions the Board to successfully execute
FADEL's growth strategy and effectively identify new opportunities
as they arise.
The Board also recognises the value and importance of high
standards of corporate governance and has, since IPO, observed the
requirements of the QCA Corporate Governance Code.
ESG
FADEL is committed to conducting its business responsibly and
mitigating negative environmental impacts resulting from its
operations. As a Group, we also strive to instil similar values
within our developer community and business partners.
In all aspects of its business and operations, the Group
prioritises sustainable resource utilisation, waste reduction, and
the well-being of its employees. It upholds a commitment to
fairness, equal opportunities, and supporting charitable
initiatives. Moreover, the Group maintains ethical practices across
the different jurisdictions where it conducts business, ensuring
responsible operations and engagement with stakeholders.
We intend to expand our ESG initiatives and beginning from our
2023 results we will be reporting on our progress via the Audit,
Risk and Sustainability Committee report.
Looking ahead
The Group's momentum as a private company has continued post-IPO
and I am pleased to report that trading for FY23 has been in line
with expectations. Demand for our products and services has
continued to increase and we believe the investments we continue to
make in product development, marketing and recruitment are already
showing signs of success and we expect new opportunities across new
geographies becoming available in early 2024. Backed by an
exceptional customer base and a favourable market environment, I
hold a strong belief that this positive momentum will endure as we
forge ahead with the execution of our growth strategy in the
upcoming year.
Ken West
Chair of the Board
21 June 2023
CEO's review
Overview
Overall, this has been a year of encouraging progress for the
Group and one that has seen us build strong foundations for the
next exciting phase of our growth journey.
We created and launched a new brand compliance and monitoring
product family in Brand Vision. This was achieved through three key
activities.
1) The integration of PictureDesk, acquired as part of the IDS
acquisition in late 2021, into our Brand Vision digital asset
management ("DAM") system called Content Cloud. This solution helps
customers centralise and manage their brand assets;
2) We also integrated a sophisticated AI matching capability
into Brand Vision's Content Tracking product to help customers
track and monitor compliance of published content across brand,
e-commerce, social and partner websites; and
3) Finally, we launched all three component parts of Brand
Vision, (our DAM called Content Cloud, our legacy Digital Rights
Management ("DRM") product called Rights Cloud and Content
Tracking) in Q4 of 2022.
We had strong operational progress.
4) We brought a number of existing customers through a fully
operational "Go-Live" phase including Hasbro and Média
Participations, completed successful additional regional rollouts
for Pearson and welcomed a number of marquee new customers into the
FADEL family including Are Media, Coca-Cola, Macmillan Learning and
Whirlpool.
We commenced the next phase of our growth trajectory.
5) We began our growth capital pursuit assessing multiple
options before settling on our preferred route being AIM, a market
supporting growth companies in London. IPO preparations began in
earnest, and we completed a multitude of accounting, taxation and
legal diligence workstreams across the five jurisdictions we
operate in.
6) Being certain of our path we choose to pre-invest our own
funds into the growth ahead of the IPO and started to hire
additional salespeople ahead of our launch of Brand Vision in Q4
2022.
The increased demand for our products from our extensive and
growing customer base throughout the year has, alongside robust
market dynamics, enabled us to continue to grow with significant
progress being made across both our Intellectual Property
Management (IPM) Suite and Brand Vision solutions and there is a
strong degree of confidence in the medium-term prospects of the
business.
Financial performance
It has been an encouraging year of trading for the Group with an
increasing demand for both our IPM Suite and Brand Vision solutions
driving revenue growth for FY22 to $13.2 million, a 10% increase
year-on-year and of which 66% was recurring (FY21: 54%), which
included a full year of contribution from IDS. There was an overall
decline in services ($4.5 million, FY 21: $5.5 million), primarily
driven by the reduction of material service contracts in IPM Suite
due to successful implementations. Underpinning the Group's revenue
growth has been the continual growth of our IPM Suite which sits as
the foundation of the business. IPM Suite typically has large
contract values of which a significant amount is related to
services, whilst the service revenue is non-recurring in nature,
the integration complexity results in an attractive defensive
revenue stream for us.
During the year, we have also heavily invested in our business
while maintaining a diligent eye on costs with our Adjusted EBITDA
coming in at -$609k. This is in line with the budget we set at the
start of the IPO process and reflects the investment into the
strong momentum we are seeing as FADEL embarks on the next stage of
its journey towards serving the rapidly expanding growth in digital
content usage.
The Group reports a cash position as at 31 December 2022 of $1.2
million, with net cash of $0.1 million.
Market opportunity
The demand for solutions to effectively manage digital content
and intellectual property (IP) licensing is increasing across
industries, geographies, and channels. In the area of rights and
royalties, where IPM Suite operates, a notable portion of companies
still rely on traditional custom-built legacy applications and
spreadsheet-based methods for licensing and royalty management.
These methods often involve large teams and outdated royalty
monitoring and collection systems that are no longer suitable for
current needs.
Many large brands have shifted their content creation and
digital agency operations in-house, however, in the digital brand
compliance marketplace, which Brand Vision addresses, the landscape
remains relatively new and highly fragmented. As companies
implement digital transformation strategies, the value of an
enterprise solution, such as those offered by FADEL, becomes
increasingly evident.
FADEL is well-positioned to expand its market share within its
current industry sectors as we innovate and invest in our solutions
and as we build out our sales teams.
We are committed to ongoing innovation and product development
of IPM Suite, as the more established product offering, boasting an
impressive customer list and holding a mature market position. This
product has historically seen considerable uptake in the publishing
sector and with increasing traction across adjacent industries, the
opportunity is significant. We also clearly recognise the
considerable market potential for Brand Vision products, with the
pool of potential customers in the thousands. We continue to invest
high levels of our profits into developing our products, our
R&D spend during 2022 was $3.7m (2021: $2.6m), and we will look
at any potential integrations or partnerships that add to our value
proposition.
We are also committed to expanding to focus across the broader
addressable market and investing in our sales team to proactively
sell our solutions into growing US and European markets through
direct sales, partnerships and distribution arrangements.
Overall, FADEL's strategic position, commitment to innovation,
and comprehensive product portfolio will allow it to capitalise on
the expanding opportunities within the industry sectors we
serve.
Intellectual Property Management (IPM) Suite solution
Utilising its Intellectual Property Management (IPM) Suite
solution, FADEL provides comprehensive support to several renowned
clients, such as Pearson, L'Oréal, Hachette Livre, and Marvel
Entertainment. These blue-chip customers require a cloud-based
platform that seamlessly integrates into third-party software and
ERP systems, enabling them to manage efficiently and streamline
their intricate licensing contracts and royalty billing
requirements.
FADEL's IPM Suite stands out due to several key differentiating
factors. Firstly, it is an award-winning cloud-based solution that
is built on a highly scalable architecture/software configuration,
ensuring robust performance and adaptability. Secondly, the
platform offers substantial scale, enabling customers to implement
a single cloud solution across numerous business units, spanning
multiple geographies, languages, and currencies while providing a
sophisticated and flexible offering, catering to the diverse needs
and requirements of its users.
Within the expanding global licensing market, the Group's IPM
Suite has experienced substantial growth in recent years. The
importance of our solutions and the size of the opportunity is
reflected in global licensing reaching over $300bn last year and
continuing to grow in size and complexity. FADEL has consistently
achieved high levels of customer satisfaction, reflected in
exceptionally low customer churn rates.
Brand Vision Solution
FADEL's Brand Vision is set apart from its competition through
its distinctive features and easy to use front-end. Brand Vision is
a fully integrated and scalable SaaS platform, offering a
comprehensive end-to-end solution to users. Serving as a one-stop
shop, it provides seamless digital asset storage, rights
management, and content tracking capabilities. One of its
innovative features is the AI-powered visual search functionality,
enabling efficient and accurate search results. Brand Vision excels
in post-distribution content tracking, promptly notifying users of
any violations or expirations while offering a picture hub with
over 100 million ready-to-license images, providing users with a
diverse range of options.
This offering is seeing significant growth potential in the
digital brand compliance marketplace, which is relatively nascent
and highly fragmented, with a number of large brands bringing their
content creation and digital agency function in-house. The
comprehensive suite of Brand Vision solutions operates within a
total addressable market projected by the CMI to grow from $8.9
billion in 2023 to $20.4 billion in 2028, a compound annual growth
rate of +18% per annum.
The nature of this expanding market, alongside the
differentiated offering when combined with IPM Suite, provides
confidence there is significant market opportunity in respect of
the Group's Brand Vision products with thousands of potential
customers to target. In Brand Vision, we see a significant land and
expand opportunity as we further embed with existing blue-chip
customers as well as win new clients.
We believe that Brand Vision is strongly positioned to expand
its market share. Beyond our technical leadership in delivering a
seamlessly integrated brand compliance solution there is a
significant opportunity to scale further as we enter new
geographies and continue to work with leading global brands across
various sectors. Clients such as L'Oreal, Coca-Cola, Kohler and
Whirlpool rely on Brand Vision to manage their brand compliance and
marketing content usage.
We are confident this extremely encouraging market backdrop,
alongside our strong network, growing blue-chip customer base and
investment in sales and support will support sustainable long-term
growth for FADEL.
Competitive strength
FADEL continues to build on its strong foundations and existing
relationships as it implements strategic investments to become the
leading brand compliance, rights and royalty management software
provider to businesses across the globe.
The Group is actively engaged in two distinct and highly
competitive sectors, namely publishing and licensing royalties,
rights management, and brand compliance. It faces competition from
a range of well-established enterprises as well as innovative
startups. The Digital Brand Compliance sector exhibits
fragmentation, with certain sub-sectors of the market, like content
tracking, still in their early stages of development.
Our platform sets itself apart through its unique technology,
adaptable solutions, and extensive industry expertise. It gains
advantages from robust customer connections, significant switching
barriers, and economies of scale specific to the platform.
FADEL's established sales and marketing strategy is a key
differentiating factor. The Group implements a well-established
sales strategy that encompasses both direct and indirect
approaches. With salespersons located in the US, UK, and France,
the Group maintains a global presence. Indirect sales are
facilitated through established partnership and reseller
arrangements, further expanding the reach of our solutions. In
terms of marketing, the Company has traditionally prioritised
initiatives that enhance brand awareness through targeted
campaigns. These efforts aim to promote the unique value of our
solutions in the market.
FADEL is recognised as a thought leader in its field, as
evidenced by our representatives' active participation in
leadership events, research contributions, and involvement in
relevant industry boards, such as the BISG. Our commitment to
thought leadership allows the Group to stay at the forefront of
industry trends and developments. A big piece of our overall
marketing strategy is to educate the end user as to the underlying
value of our products.
Since inception, FADEL has maintained offshore R&D and
delivery centres in Lebanon and India. This strategic decision
leverages the exceptional educational standards in those countries,
particularly in fields such as Engineering and Business, and
harnesses the multilingual capabilities of our talented resources.
This unique setup has become a key competitive advantage for the
Company, enabling it to broaden the range of products and services
while consistently delivering high customer satisfaction at a
minimal operating expense.
Post period update and outlook
The momentum experienced throughout 2022 has continued into 2023
with FADEL's sales pipeline continuing to grow in line with
management expectations as announced at the time of our IPO. The
Company is seeing increased demand for products and technology as
the market drivers persist and clients show resilience to
inflationary pressures through continued investments in operational
efficiencies. We entered FY23 with good visibility following a
number of contract renewals in December 2022 and with an
encouraging pipeline of opportunities including the recently
announced rollout of PictureDesk for Australia and New Zealand
omnichannel content company, Are Media. The successful execution of
contracts such as this serve to highlight the potential for FADEL
as it expands within the market.
In order to fully capitalise on the rapidly expanding market
opportunity, the Company is investing the funds raised at IPO with
a focus on R&D, recruitment, sales and marketing activities.
This investment strategy is already proving successful with a
number of tactical hires and strong increases in demand for
products, including the launch of a pilot scheme with one of our
biggest existing clients which will see FADEL track the content for
hundreds of thousands of assets which, if continued in full, will
deliver a substantial ARR for the Group. This serves to highlight
the significant cross sell opportunity within our existing customer
base as we expand our services and deliver greater future
revenues.
To strengthen and complement our team, we have made several
appointments across sales and marketing, services, product
management and QA functions. These have included the strategic
hiring of our Chief Revenue Officer, Global VP of Demand Generation
and UK Enterprise Sales Executive focused on Brand Vision and IDS
Platform and Content Sales, both of which will allow us to increase
the rate of scale as we achieve our growth ambitions.
The quality and leadership of our solutions and the underlying
market drivers provide us with confidence that the demand for our
services will continue to expand significantly. This, coupled with
our extensive network and sector expertise, positions us well to
capitalise on the market opportunity ahead.
Tarek Fadel
Chief Executive Officer
21 June 2023
CFO's Review
2022 has been a year of consolidation and preparation for our
growth trajectory ahead. Having concluded the acquisition of IDS in
Q4 of 2021, 2022 was a period spent integrating that business into
the broader FADEL family and combining a number of elements of the
technology and IP of IDS into our enlarged Marketing Technology
"MarTech" offering called Brand Vision, which we launched in Q4
2022. At the same time, we started the preparation phase for our
initial public offering on the AIM market. Given our
multi-jurisdictional organisational structure and the lack of
surplus capacity in the accounting and tax professions, the process
took a little longer than originally anticipated. Notwithstanding
this we navigated the challenges and timelines successfully and
brought our successful IPO to its conclusion in early April 2023,
despite unprecedented market headwinds. A great deal of thanks is
due to the dedication and hard work of the many teams internal to
FADEL and to the advisory groups who supported us throughout the
process
Revenue
Our revenue grew 10% to $13.2m (2021: $12.0m) despite strong
macro headwinds. The split of revenue showed very encouraging
trends as the recurring element of our revenue increased 34% year
on year to $8.7m (2021: $6.5m) reflecting the first full year of
contribution from IDS of GBP1.1m ($1.3m). Our service revenue
reduced to $4.5m from $5.5m reflecting positive progression with
the implementation process for a number of customers that completed
as they went live on IPM Suite through the course of 2022.
Expenditure highlights
We maintained strong cost control discipline with our total cost
of sales increasing only 5% to $5.2m (2021: $5.0m) despite our
revenue growing by 10%. Where we did spend more was on R&D as
we integrated IDS into and developed our Brand Vision product
offering with an increase over the prior year of $1.1m spend to a
total of $3.7m (2021: $2.6M). Our SG&A increased to $5.8m
(2021: $3.6m) reflecting an increase in headcount, a number of
costs associated with the IPO workstreams and an increase in
administration costs associated with the addition of a new entity
in the form of IDS.
Gross Profit
The gross profit generated in the period was $7.9m (2021: $7.0m)
with a gross profit margin of 60% (2021: 58%). We expect our
margins to improve over time as a greater proportion of our revenue
should be derived from the higher margin Brand Vision family of
products.
Key Performance Indicators ("KPIs")
The Directors also consider certain business KPIs when assessing
performance and believe that these, in addition to US GAAP
measures, provide an enhanced understanding of the Company's
results and related trends, increasing transparency and clarity of
the core results of the business. The Directors believe these
metrics are useful in evaluating FADEL's operating performance.
Adjusted EBITDA (Earnings before interest, tax, depreciation and
amortisation)
Our adjusted EBITDA (a non-US GAAP measure is defined as
earnings after capitalised commission costs and before interest,
tax, depreciation, amortization, exceptional costs and share-based
payments) decreased as a result of the increased expenditure
relating to planned investments for growth to -$609k (2021: $359k).
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 2022 were some
$3.7m.
2021 2022
============================================ =========== =============
EBITDA $922,744 ($1,513,310)
Adjustments to operating expenses
Commissions Capitalised during the period ($684,223) ($323,209)
Exceptional items
IDS acquisition cost adjustments $131,113 -
IPO Expenses - $1,207,883
Share based payments ($10,576) $20,051
Total Adjustments ($563,686) $904,725
----------- -------------
Adjusted EBITDA $359,058 ($608,585)
----------- -------------
Customer numbers
FADEL 19 20
IDS 131 126
Cash and working capital
We ended the year with $1.2m of cash (2021: $2.0m) and a fully
drawn line of credit from Bank of America of $1.0m. Post year end
we repaid $300k of the line of credit and expect to pay this down
during H2 2023. Following our successful IPO in early April 2023,
our cash balance exceeded $10.0m. We consumed $2.1m of cash in our
operating activities in 2022 (2021: generated $3.4m), driven
principally by a significant decline in accounts receivable and
deferred revenue, 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). We also had some
deferred consideration payments due as part of our IDS acquisition
in late 2021.
Taxation
The Income tax expense for the year is $786k. However, only $28k
is a current year tax expense. The remainder relates to the future
tax consequences of temporary differences between the carrying
amounts of our deferred revenue balances for financial reporting
purposes versus their tax bases.
Vicary Gibbs
Chief Financial Officer
21 June 2023
Financial statements
FADEL PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS YEARSED DECEMBER 31, 2021 AND 2022
The audited, consolidated Statements of Comprehensive Income of
the Group for each of the years ended 31 December 2021 and 2022 are
set out below:
Continuing operations Notes Year ended Year ended
31 December 31 December
2021 2022
$ $
License/subscription and Support 6,472,344 8,681,002
Professional services 5,498,528 4,501,551
Total revenue 4 11,970,872 13,182,553
Cost of fees and services 4,973,324 5,237,394
Research and development 2,560,219 3,693,655
Selling, general and administrative
expenses 3,591,680 5,785,374
Depreciation and amortisation 456,535 655,753
Net Interest expense/(income) 3,692 150,892
Foreign exchange gains (876,217) 371,860
Other expense 20,176 (1,408)
Other income (336,139)
------------------------------------- ------- -------------- --------------
Total expenses 10,393,270 15,893,520
Income/(loss) before income
taxes 1,577,602 (2,710,967)
Income tax (expense) 5 (361,943) (786,240)
------------------------------------- ------- -------------- --------------
Net income/(loss) after taxes 1,215,659 (3,497,207)
------------------------------------- ------- -------------- --------------
Total foreign currency gains 41,228 967,248
------------------------------------- ------- -------------- --------------
Total comprehensive income/(loss) 1,256,887 (2,529,959)
Net income attributable to
non-controlling
interest 96,550 23
Net income/(loss) attributable
to the Group 1,119,109 (3,497,230)
------------------------------------- ------- -------------- --------------
Net income/(loss) after taxes 1,215,659 (3,497,207)
------------------------------------- ------- -------------- --------------
Comprehensive income attributable
to non-controlling interest 96,550 23
Comprehensive income/(loss)
attributable to the Group 1,160,337 (2,529,982)
------------------------------------- ------- -------------- --------------
Total comprehensive income/(loss) 1,256,887 (2,529,959)
Basic earnings/(loss) per Share
($) 6 0.19 (0.37)
Diluted earnings/(loss) per
Share ($) 0.08 (0.37)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The audited, consolidated Statements of Financial Position of
the Group for each of the years as at 31 December 2021 and 2022 are
set out below:
As at As at
31 December 31 December
2021 2022
Assets Notes $ $
Cash 1,967,937 1,181,371
Accounts receivable 8 3,245,833 1,863,394
Unbilled work-in-progress 826,418 929,715
Other current assets 198,533 209,556
--------------------------------- ------ ------------- -------------
Current assets 6,238,721 4,184,036
--------------------------------- ------ ------------- -------------
Intangible assets 7 2,797,036 2,242,598
Goodwill 7 2,342,348 2,100,432
Furniture and equipment 9 102,955 88,170
Contract costs 10 644,270 584,510
Deferred tax asset 5 1,712,941 954,771
Right of use Asset - 109,728
Other assets 4,838 4,838
--------------------------------- ------ ------------- -------------
Non-current assets 7,604,389 6,085,048
--------------------------------- ------ ------------- -------------
TOTAL ASSETS 13,843,110 10,269,084
--------------------------------- ------ ------------- -------------
Liabilities
Accounts payable and accrued
expenses 4,104,703 3,174,313
Income tax payable 5 876,421 1,026,602
Deferred revenue 3,900,047 2,249,019
Notes payable - related
parties 12 - 75,000
Line of Credit Bank of
America 13 - 1,000,000
--------------------------------- ------ ------------- -------------
Current liabilities 8,881,171 7,524,934
--------------------------------- ------ ------------- -------------
Provisions-End of Services
Indemnity 253,483 274,045
Deferred revenue 860,292 1,086,762
Lease Liability - 85,187
--------------------------------- ------ ------------- -------------
Non-current liabilities 1,113,775 1,445,994
--------------------------------- ------ ------------- -------------
Total liabilities 9,994,946 8,970,928
--------------------------------- ------ ------------- -------------
Shareholders' equity
Series A-1 Preferred Shares 14 1,068 7,552
Common stock 14 6,783 7,083
Additional paid-in capital 11,403,793 15,581,802
Accumulated deficit (11,665,797) (15,163,027)
Accumulated other comprehensive
income/(loss) (103,562) 863,686
--------------------------------- ------ ------------- -------------
(357,715) 1,297,096
Non-controlling interest 4,205,879 1,059
--------------------------------- ------ ------------- -------------
Total Shareholders' equity 3,848,164 1,298,155
--------------------------------- ------ ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 13,843,110 10,269,084
--------------------------------- ------ ------------- -------------
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
The audited, consolidated Statements of Changes in Equity of the
Group for each of the years 31 December 2021 and 2022 are set out
below:
Preferred Common Common
Additional Accumulated
Preferred paid in Accumulated other comprehensive Non-controlling
stock stock stock stock capital deficit income/(loss) interest Total
# $ # $ $ $ $ $ $
------------------ ----------- ----------- ---------- -------- ------------ ------------- -------------------- ----------------- ------------
As at 31 December
2020 1,068,837 1,068 6,782,583 6,783 11,393,218 (12,784,906) (144,790) 4,109,329 2,580,702
------------------ ----------- ----------- ---------- -------- ------------ ------------- -------------------- ----------------- ------------
Stock-based
compensation - - - - 10,575 - - - 10,575
Net income - - - - - 1,119,109 - 96,550 1,215,659
Foreign exchange
translation
(expense)/income - - - - - - 41,228 - 41,228
------------------ ----------- ----------- ---------- -------- ------------ ------------- -------------------- ----------------- ------------
As at 31 December
2021 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 income - - - - - (3,497,230) - - (3,497,230)
Foreign exchange
translation
(expense)/income - - - - 967,248 - 967,248
------------------ ----------- ----------- ---------- -------- ------------ ------------- -------------------- ----------------- ------------
As at 31 December
2022 7,552,309 7,552 7,082,583 7,083 15,581,802 (15,163,027) 863,686 1,059 1,298,155
------------------ ----------- ----------- ---------- -------- ------------ ------------- -------------------- ----------------- ------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
The audited, consolidated Statements of Cash Flows of the Group
for each of the years ended 31 December 2021 and 2022 are set out
below:
Year ended Year ended
31 December 31 December
2021 2022
$ $
------------------------------------------ ------------- -------------
Net income (loss) after taxes 1,215,659 (3,497,207)
Adjustments to reconcile net
income to net cash from operating
activities:
Depreciation and amortisation 456,535 655,753
Non-cash stock compensation 10,576 (20,051)
Loss on disposal of furniture
and equipment - -
Forgiveness of Paycheck Protection
Program Loan (336,139) -
Non-cash impact of foreign exchange
on intangibles - 538,333
Changes in assets and liabilities
Accounts receivable (2,358,300) 1,380,395
Unbilled work-in-progress (493,047) (103,297)
Income tax receivable 519,687 -
Other current assets (4,390) (8,980)
Deferred tax asset (505,972) 758,169
Capitalisation of commissions (684,223) (323,210)
Right of use Assets - (109,728)
Accounts payable and accrued
expenses 2,394,656 (105,691)
Income tax payable 840,220 150,181
Other liabilities 66,519 -
Deferred revenue 2,286,094 (1,424,557)
------------------------------------------- ------------- -------------
Net cash from/(used by) operating
activities 3,407,874 (2,109,892)
Purchase of equipment (74,271) 24
Payment for intangibles (2,868,753) -
Payments for acquisition of subsidiaries (2,342,348) (718,948)
------------------------------------------- ------------- -------------
Net cash (used in)/from investing
activities (5,285,372) (718,924)
Proceeds from Line of Credit - 1,000,000
Proceeds from related party Loan - 75,000
Net cash /from financing activities - 1,075,000
Effect of exchange rates on cash 41,228 967,249
------------------------------------------- ------------- -------------
Net decrease in cash (1,836,270) (786,567)
------------------------------------------- ------------- -------------
Cash, beginning of year 3,804,208 1,967,937
------------------------------------------- ------------- -------------
Cash, end of year 1,967,937 1,181,371
------------------------------------------- ------------- -------------
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").
-- 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
UK in January 2015, Fadel Canada was formed in Canada in June 2021,
Fadel France was formed in France in February 2020 and IDS was
formed in April 1992 in the UK, by an unrelated party, and acquired
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, Montreal, London, Paris and Beirut
(Lebanon) and is engaged in providing and servicing its
Intellectual Property Rights and Royalty Management suite of
software.
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 of 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 $1.2 million in cash on the Statement of
Financial Position as at 31 December 2022. As at 31 December 2022,
the Group had negative working capital of approximately $3.3
million and an accumulated deficit approximating $15.2 million.
Additionally, the Group had a net Loss of approximately $3.5
million and cash provided by operating activities of approximately
($2.1) million during the year ended 31 December 2022.
As reflected in the consolidated financial information, the
Group had approximately $2.0 million in cash on the Statement of
Financial Position as at 31 December 2021. As at 31 December 2021,
the Group had negative working capital of approximately $2.6
million and an accumulated deficit approximating $11.7 million.
Additionally, the Group had a net profit of approximately $1.2
million and cash provided by operating activities of approximately
$3.4 million during the year ended 31 December 2021.
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
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 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 of 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 Quoted prices in active markets for identical assets
1: or liabilities;
Level Observable inputs other than quoted prices in active
2: 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 Inputs that are generally unobservable and typically
3: 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, France and
Canada. As at 31 December 2022, 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$657 thousand out of a total of US$1.18 million cash deposits.
Cash amounts held in Lebanon are not insured and as such minimal
deposits are held in Lebanese accounts, with payments transferred
in country only on an as needed basis. The Company believes the
risk is limited as the institutions are large national institutions
with strong financial positions.
New Accounting Pronouncements:
In February 2016, the FASB issued ASU No. 2016-02 "Leases (Topic
842)" ("ASU 2016-02") that requires almost all lessees' operating
leases to be recorded on the Statement of Financial Position. The
guidance specifies a lessee should recognize a right-of-use asset
and corresponding lease liability for those leases.
classified as operating leases. ASU 2016-02 is effective
beginning in fiscal year 2022. Early adoption is permitted. During
transition, lessees and lessors are required to recognize and
measure leases at the beginning of the earliest period presented
using a modified retrospective approach.
In June 2016, the FASB issued Accounting Standards Update
("ASU") No. 2016-13 "Financial Instruments - Credit Losses" ("Topic
326"), which requires entities to measure all expected credit
losses for financial assets held at the reporting date based on
consolidated experience, current conditions and reasonable and
supportable financial projections.
The standard also requires additional disclosures related to
significant estimates and judgments used in estimating credit
losses, as well as the credit quality and underwriting standards of
an entity's portfolio. Operating lease receivables are excluded
from the scope of this guidance. The amended guidance is effective
for the Group for fiscal years, and interim periods within those
years, beginning 1 January 2023. The Company is evaluating the
impact of adopting this new accounting standard on the Group's
financial information and related disclosures.
ASU 2020-06 is effective for all other entities aside from
SEC-filers, for fiscal years beginning after 15 December 2023,
including interim periods within those fiscal years. SEC-filers are
required to adopt for fiscal years beginning after 15 December
2021. This ASU simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity,
including convertible instruments and contracts on an entity's own
equity. The Company is evaluating the impact that adopting this new
accounting standard will have on the Group's financial information
and related disclosures.
The Company is evaluating the impact of adopting recently issued
guidance on the Group's consolidated financial condition, results
of operations and cash flows.
Effective 1 January 2022, the Group accounts for its leases
under ASC 842 "Leases". Under this guidance, arrangements meeting
the definition of a lease are classified as operating or financing
leases and are recorded on the Statement of Financial Position as
both a right of use asset and lease liability, calculated by
discounting fixed lease payments over the lease-term at the rate
implicit in the lease or the Group's incremental borrowing rate.
Lease liabilities are increased by interest and reduced by payments
each period, and the right of use asset is amortized over the
lease-term. A discount rate of 10% was used to determine the right
of use assets for operating leases. This was based on market rates
for obligations with comparable terms effective at the lease
inception date. For operating leases, interest on the lease
liability and the amortization of the right of use asset result in
straight-line rent expense over the lease term. Variable lease
expenses, if any, are recorded when incurred.
In calculating the right of use asset and lease liability, the
Company elected to combine the Group's lease and non-lease
components. The Company excluded the Group's short-term leases
having initial terms of 12 months or less from the new guidance as
an accounting policy election and recognized rent expenses on a
straight-line basis over the lease-term.
Accounts receivable, unbilled work-in-progress and allowance for
doubtful accounts
Accounts receivable are 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.
The Company reviews allowances monthly and past due balances
over 90 days are reviewed individually for collectability. Account
balances are charged against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote.
Revenue recognition
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 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.
The Group's offerings fall primarily under four contract
categories:
-- SaaS subscriptions ;
-- perpetual licenses ;
-- support; and
-- services .
License/subscription and support revenues
License/subscription and support revenues are comprised of fees
that provide customers with access to cloud services, software
licenses, related support and updates during the term of the
arrangement.
-- SaaS subscriptions - Cloud services allow customers to
use the Group's multi-tenant software without taking possession
of the software. Revenue is generally recognised rateably
over the contract term. Contracts are paid in advance
and typically are non-cancellable and do not contain refund-type
provisions.
-- Licenses and Support - License/subscription and support
revenues also include revenues associated with term and
perpetual software licenses that provide the customer
with a right to use the software as it exists when originally
made available. Revenue from term and perpetual software
licenses are generally recognised at the point in time
when the software is made available to the customer. Revenue
from software support and updates is recognised as the
support and updates are provided, which is generally rateably
over the contract term. The Group typically invoices its
customers annually and its payment terms provide that
customers pay within 30 days of invoice. Amounts that
have been invoiced are recorded in accounts receivable
and in unearned revenue or revenue, depending on whether
transfer of control to customers has occurred.
Professional services
The Group's professional services contracts are based on either
a time and materials, fixed fee or subscription basis. Revenue is
recognised 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 revenue consists primarily
of training revenue recognised 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 of
1 January 2019 only to contracts that were either not completed as
of that date, or that had a life of customer that ended after 1
January 2019.
For service and support contracts, the 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
.
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 amortised. Instead, goodwill is tested annually for impairment,
or more frequently if events or changes in circumstances indicate
that it might be impaired and is carried at cost less accumulated
impairment losses. Impairment losses on goodwill are taken to
profit or loss and are not subsequently reversed.
Intangible assets other than goodwill
The Group has three categories of intangible assets:
Brand assets
The Group purchased IDS in October 2021 and with it acquired a
long-established and respected brand. At the time of purchase, the
Group estimated the useful life of the brand assets acquired for
financial reporting purposes and recognises amortisation on a
straight-line basis over the useful life of the asset, typically 10
years. Purchased brand assets are reviewed for impairment at each
reporting date or when events and circumstances indicate an
impairment. The Group determined that an impairment charge was not
necessary during the period covered by the accompanying
Consolidated Financial Information.
Customer relationships
The Group purchased IDS in October 2021 and with it acquired a
number of customer relationships. At the time of purchase, the
Group estimated the useful life of the customer relationships
acquired for financial reporting purposes and 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 period covered by
the Consolidated Financial Information.
Software and technology assets
The Group purchased IDS in October 2021 and with it acquired a
number of software and technology assets. At the time of purchase,
the Group estimates the useful life of the software and technology
assets acquired for financial reporting purposes and 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 period covered by
the Consolidated Financial Information.
Billed accounts receivable and concentrations of credit risk
As at 31 December 2022, there were three significant customers
(defined as contributing at least 10%) that accounted for 68% of
accounts receivable.
As at 31 December 2021, there was one significant customer that
accounted for 80% of accounts receivable.
Accounts payable and accrued expenses
As at 31 December 2022, there were three significant vendors
(defined as contributing at least 10%) that accounted for 62% of
accounts payable.
As at 31 December 2021, there was no significant vendor of
accounts payable and accrued expenses.
Unbilled work-in-progress and concentrations of credit risk
As at 31 December 2022, there were three significant customers
that accounted for 88% (17%, 27% and 44%) of unbilled
work-in-progress.
As at 31 December 2021, there were three significant customers
that accounted for 83% (22%, 29% and 32%) 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 Board, which has been identified as the chief
operating decision maker.
Revenue concentrations
During 2022, the five largest customers accounted for an
aggregate of $8,411,729 of revenue, some 64% of revenue from
continuing operations. This is primarily due to a decline in
services revenue, which is as expected, as it is due to a number of
customers completing an implementation phase.
During 2021, the five largest customers accounted for an
aggregate of $8,990,966 of revenue, some 75% of revenue from
continuing operations.
Top 5 Customers'
revenue concentration 2021 % 2022 %
of Total of Total
$'000 Revenue Revenue Revenue Revenue
License/subscription 2,503 21% 2,798 21%
Support 1,746 15% 2,073 16%
Services 4,742 40% 3,540 27%
------------------------------------ -------- ---------- -------- ----------
Total 8,991 75% 8,412 64%
Advertising and promotion costs
Advertising and promotion costs are expensed as incurred. These
costs totalled $426,119 for the year ended 31 December 2021 and
$536,552 for the year ended 31 December 2022.
Paycheck Protection Program loan
The Group's policy is to account for the Paycheck Protection
Program loan as debt (see Note 0 to the Consolidated Financial
Information). The Group recorded the loan as debt until it was
forgiven in February 2021.
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.
Foreign currency
The Group's reporting currency is the $. The functional currency
of foreign operations is the local currency for the foreign
subsidiaries. Assets and liabilities of 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 statement of
operations and comprehensive loss in the period in which they
occur.
The exchange rate used to translate the Lebanese pound ("LBP")
into $ for the purpose of preparing the Consolidated Financial
Information has been fixed at $1 = LBP 1,500. The exchange rate
used to translate the sterling pound ("GBP"), ("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 Statement
of Financial Position.
Starting in November 2019, the banking system in Lebanon imposed
currency controls to prevent $ flight from the country. As a
result, customer deposits in $ prior to the implementation from
these controls were categorised as current accounts. Customers who
own current accounts are not allowed to withdraw cash from such
accounts, however, they are allowed to make payments from these
accounts.
In order to access $ from current accounts, bank customers must
ask the bank to convert the withdrawal amount into LBP using an
official rate of $1 = LBP 3,900 determined by the Lebanese banking
association. On 9 December 2021, the Lebanese Central Bank issued
intermediate circular No: 601 which increased the value of $1 from
LBP 3,900 to LBP 8,000.
New $ deposited into the bank accounts after the start of the
currency controls, generally from overseas sources, are considered
to be external, and can be used with minimum restrictions. The
Group opened a new external account during the year ended 31
December 2019 to deposit funds transferred from the US and use
those funds for operating expenses including payroll.
The official conversion rate set by the Lebanese government
remains at $1 to LBP 1,500. As at 31 December 2021, the Group had
the $ equivalent of approximately $34,500 and 29,700 at 31 December
2022 in external deposits (accounts not subject to same
restrictions as Lebanese Current Accounts ("LCAs")) and
approximately $1,200 in current deposits (LCAs) at 31 December 2021
and $7,600 at 31 December 2022.
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 Statements of Financial Position.
4. SEGMENTAL REPORTING
The Group reports its business activities in two areas:
-- subscription and support revenue; and
-- professional services,
which are reported in a manner consistent with the internal
reporting to the Board, 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
2021 2022
$ $
---------------------------------- ------------- -------------
Revenue
Licence/Subscription
IPM Suite 3,075,637 4,346,891
Brand Vision 759,036 1,902,979
------------- -------------
Total Licence/Subscription 3,834,673 6,249,870
Support
IPM Suite 2,637,670 2,431,132
Brand Vision - -
------------- -------------
Total Support 2,637,670 2,431,132
Licence/subscription and support 6,472,344 8,681,002
Professional services 5,498,528 4,501,401
----------------------------------- ------------- -------------
Total Revenue 11,970,872 13,182,403
----------------------------------- ------------- -------------
Cost of Sales
Subscription and support 1,599,027 2,371,550
Professional services 3,374,297 2,865,844
----------------------------------- ------------- -------------
Total cost of sales 4,973,324 5,237,394
----------------------------------- ------------- -------------
Gross Profit Margins
Profit margin Subscription and
support 75% 73%
Profit margin Service 39% 36%
----------------------------------- ------------- -------------
Total gross profit margin 58% 60%
----------------------------------- ------------- -------------
5. INCOME TAXES
The components of income/(loss) before income taxes are as
follows:
Audited Audited
As at As at
31 December 31 December
2021 2022
$ $
------------- -------------
Domestic 1,577,895 (415,977)
Foreign 2,278,118 139,210
------------- -------------
US taxable profit before income
taxes 3,856,013 (276,767)
Provision for income taxes consisted of the following:
Audited Audited
As at As at
Provision components are 31 December 31 December
as follows: 2021 2022
$ $
------------- -------------
Current:
Foreign 27,696 25,265
Federal 764,518 -
State 111,903 2,806
------------- -------------
Total current expense 904,117 28,070
Deferred:
Foreign - -
Federal (475,988) 513,180
State (29,484) 244,989
------------- -------------
Total deferred expense (505,472) 758,170
------------- -------------
Provision for/ (benefit from)
income taxes 398,644 786,240
------------- -------------
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
2021 2022
$ $
------------- -------------
U.S federal income tax (benefit)
at statutory rate 331,358 (58,121)
State tax (net of federal
benefit) 58,919 68,795
Foreign tax rate differential - (4,133)
Meals and Entertainment 1,987 1,569
Change in valuation allowance - -
Subpart F income 33,817 653,618
Research & Development Credit - (50,000)
SALT Rate Change - 178,411
Other (61,754) (3,900)
------------- -------------
Provision for (benefit from)
income taxes 364,327 786,240
------------- -------------
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, Canada and the UK.
The above amounts are recorded as Other Income in the Statement
of Comprehensive Income.
U.S Companies are eligible for a deduction that lowers the
effective tax rate on certain foreign income. This regime 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 realized.
As at 31 December 2021, the Company had a US federal and state
Net Operating Losses ("NOL") carry forward of $0 and $4.0 million
respectively. The state NOL will expire beginning in 2037. As at 31
December 2021, the Company had NOLs in New Jersey, Pennsylvania,
New York, and New York City.
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 of
12/31/2022, the Company had NOLs in California, Florida, New Jersey
and Pennsylvania
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 2022, the company has a net GILTI
inclusion of approximately $3.1 million primarily due to Section
174 capitalization. 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 will
finalize an R&D study and method change related to deferred
revenue in order to defer revenue expected to be received within 1
year. The 481(a)-adjustment benefit is expected to be approximately
$3.8 million (gross) and $817 thousand (net). The R&D credit is
expected to be $50 thousand and is carried forward for up to 20
years.
Significant components of the Company's deferred tax assets and
deferred tax liabilities are as follows:
Audited Audited
As at As at
31 December 31 December
2021 2022
$ $
----------------------------------- ------------- -------------
Depreciation
Amortisation 338,029
Net Operating loss carry forwards - 128,535
Net Operating loss carry forwards
(state) 246,732 340,655
Reserves and accruals 151,092 90,612
Deferred revenue 1,321,422 205,909
R&D Credit - 50,000
------------------------------------ ------------- -------------
Net deferred tax assets 1,719,246 1,153,741
Less valuation allowance - -
----------------------------------- ------------- -------------
Total deferred tax assets 1,719,246 1,153,741
------------------------------------ ------------- -------------
Total deferred tax liabilities (6,305) (198,969)
------------------------------------ ------------- -------------
Deferred tax assets, net 1,712,941 954,772
------------------------------------ ------------- -------------
Due to its current year earnings, the Company believes that it
is more-likely-than-not that substantially all of the deferred tax
assets except state net operating losses and capital loss carry
forwards will be realised. Therefore, the Company has released
valuation allowance on U.S. deferred tax assets other than those
stated above.
The change in the valuation allowance is as follows:
Beginning of Additions/ Balance at
the Year (Deductions) the end of
the year
------------- -------------- ------------
2021
Reserves Deducted from
deferred income taxes,
net: 1,206,967 505,972 1,712,941
Valuation Allowance - - -
2022
Reserves Deducted from
deferred income taxes,
net: 1,712,941 (758,169) 954,772
Valuation allowance - - -
As at 31 December 2022, the Company did not have any
unrecognised tax benefits and did not anticipate any significant
changes to the unrecognised tax benefits within twelve months of
this reporting date. In the year ended 31 December 2022, the
Company recorded no interest or penalties on income taxes. At
December 31, 2022, there was no accrued interest included in income
taxes payable.
6. EARNINGS PER SHARE
The Group reports basic and diluted earnings per Share. Basic
earnings per share is calculated by dividing the profit
attributable to common Shareholders by the weighted average number
of Shares outstanding during the period.
Diluted earnings per share is determined by adjusting the profit
attributable to Shareholders by the weighted average number of
Shares outstanding, taking into account the effects of all
potential dilutive Shares, including Preferred Shares, warrants and
Options.
Audited Audited
As at As at
31 December 31 December
2021 2022
$ $
----------------------------------------- ------------- -------------
Total comprehensive income attributable
to Shareholders 1,256,887 (2,529,959)
Weighted average number of Shares 6,782,943 6,855,443
Basic earnings per share ($) 0.19 (0.37)
------------------------------------------ ------------- -------------
Audited Audited
As at As at
31 December 31 December
2021 2022
$ $
----------------------------------------- ------------- -------------
Total comprehensive income attributable
to Shareholders 1,256,887 (2,529,959)
Weighted average number of shares 6,782,943 6,855,443
Dilutive effect of Options and
warrants 8,918,860 8,530,997
Weighted average number of diluted
shares 15,701,803 15,313,940
Diluted earnings per share
($) 0.08 (0.37)
------------------------------------------ ------------- -------------
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 GBP5.5 million ($7.4 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 (GBP0.30 million ($0.4 million));
-- customer relationships (GBP0.29 million ($0.4 million)); and
-- software / technology assets (GBP1.53 million ($2.07 million)).
The following table shows the current carrying value of the
intangible assets. The information is presented in GBP given the
assets acquired were paid for in GBP and the resulting values arise
on consolidation of our UK entities.
Customer Technology Brand
Goodwill Relationships based assets Assets Total
Cost GBP GBP GBP GBP GBP
As at 31 December 2020 - - - - -
Additions 1,735,463 294,932 1,534,440 296,000 3,860,835
As at 31 December 2021 1,735,463 294,932 1,534,440 296,000 3,860,835
Additions
---------- --------------- -------------- -------- ----------
As at 31 December
2022 1,735,463 294,932 1,534,440 296,000 3,860,835
---------- --------------- -------------- -------- ----------
Amortisation and impairment:
As at 31 December 2020
Amortisation charge
for the period - 7,373 38,361 7,400 53,134
As at 31 December 2021 - 7,373 38,361 7,400 53,134
Amortisation charge
for the period - 29,493 153,444 29,600 212,537
---------- --------------- -------------- -------- ----------
As at 31 December
2022 - 36,866 191,805 37,000 265,671
---------- --------------- -------------- -------- ----------
Carrying amount:
As at 31 December 2020
As at 31 December 2021 1,735,463 287,559 1,496,079 288,600 3,807,701
---------- --------------- -------------- -------- ----------
As at 31 December
2022 1,735,463 258,065 1,342,635 259,000 3,595,164
---------- --------------- -------------- -------- ----------
The approximate estimated future amortization expense is GBP
212,537 each year, for the next five years (2023-2027).
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 GBP1.69 million ($2.28
million) (of which GBP1.45 million ($1.96 million) was cash and
GBP0.25 million ($0.34 million) was net working capital). Goodwill
was therefore determined to be GBP1.74 million ($2.34 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 GBP5 million
($6.7 million). A final payment of GBP428,874 ($0.58 million), as
assessed at 31 December 2021. A revised final payment of GBP470,032
($0.63 million) 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 GBP470,032
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 its carrying amount and
no impairment is needed.
8. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
As at As at
31 December 31 December
2021 2022
$ $
--------------------------------- ------------- -------------
Accounts receivable 3,267,852 1,885,414
Allowance for doubtful accounts (22,019) (22,019)
--------------------------------- ------------- -------------
Accounts receivable 3,245,833 1,863,394
--------------------------------- ------------- -------------
9. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
As at As at
31 December 31 December
2021 2022
$ $
Furniture and equipment 202,049 202,025
Accumulated depreciation (99,094) (113,855)
-------------------------- ------------- -------------
Furniture and equipment 102,955 88,170
-------------------------- ------------- -------------
The depreciation expense was $14,760 for the year ended 31
December 2022 (2021: $17,841).
10. CONTRACT COSTS
The Group applied ASC-606 with effect from 1 January 2019 to
contracts that were either not completed as of 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
as of 31 December 2021 was $710,998 and $1,093,968 on 31 December
2022. 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 31 December
2021 2022
$ $
-------------------------------- ------------- -------------
Opening balance 327,049 644,270
-------------------------------- ------------- -------------
Commissions capitalised during
the year 684,223 323,209
Amortisation charge for the
year (367,002) (382,969)
Accumulated contract costs 644,270 584,510
-------------------------------- ------------- -------------
11. PAYCHECK PROTECTION PROGRAM
As a result of COVID-19, on 27 March 2020, the Coronavirus Aid,
Relief, and Economic Security (CARES) Act (the "Act") was signed
into law. The Act amends the Small Business Act to include a new
guaranteed, unsecured loan program (the "Paycheck Protection
Program"). On 8 April 2020, the Group applied for a loan under the
Paycheck Protection Program. On 26 April 2020 the loan was approved
in the amount of $336,139.
The loan has a term of two years and is subject to interest of
1%. Interest (and potential principal payments) is deferred for the
first ten months. Subject to certain conditions as defined in the
Act, up to 100% of the loan may be forgiven. On 19 February 2021,
the Group received full forgiveness of both the loan principal and
applicable interest (recorded under other income on the income
statement).
12. RELATED PARTIES
Notes Payable:
In each of January 2020, January 2021, January 2022 and January
2023, the Group entered into demand note agreements totalling up to
$100,000, up to $135,000 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 January 2020 and the January 2021 notes were paid in
full in each of the years ended 31 December 2020 and 31 December
2021. The outstanding balance of all such loans as of 31 December
2022 was $75,000.
13. 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%. The expiration date of the note is 31 May
2023. The outstanding balance as at 31 December 2022 was
$1,000,000. On 11 May 2023 the line of credit between the Company
and Bank of America, N.A. was extended until 31 May 2024.
14. COMMON AND PREFERRED STOCK
The Company has authority to issue 28,830,991 Shares, consisting
of 20,000,000 Shares of $0.001 par value per Share and 8,830,991
Preferred Shares of $0.001 par value per Preferred Share.
The first series of Preferred Shares is designated "Series A-1
Preferred Shares" and consists of 1,120,841 Preferred Shares with a
conversion and liquidation preference of $0.94 per Preferred
Share.
The second series of Preferred Share is designated "Series A-2
Preferred Shares" and consists of 1,506,181 Preferred Share with a
conversion and liquidation preference of $1.39 per Preferred
Share.
The third series of Preferred Share is designated "Series B
Preferred Shares" and consists of 4,100,000 Preferred Share with a
conversion and liquidation preference of $1.79 per Preferred
Share.
15. OPTIONS AND WARRANTS
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 1,548,191 and 1,614,696
shares were granted and remain outstanding as at 31 December 2022
and 2021, respectively.
Approximately 1,795,794 and 1,786,423 shares have vested as at
31 December 2022 and 2021, respectively.
During the year ended 31 December 2021, 65,000 Options were
granted to employees with an exercise price of approximately $0.895
under the plan. There were no options granted during 2022.
Unrecognized compensation expense related to share options which
will be recognized through 2023 was $5,297 and $7,588 as at 31
December 2022 and 2021, respectively.
A summary of the status of the Group's Option plan for the three
years ended 31 December 2021 and 31 December 2022 is as
follows:
Number of Options Weighted average
(in Shares) exercise price
Options outstanding
------------------------------- -------------------- -----------------
Options Outstanding
As at 31 December 2021 1,614,696 $1.15
------------------------------- -------------------- -----------------
Granted - -
Exercised
Forfeited or expired (66,505)
As at 31 December 2022 1,548,191 $1.14
------------------------------- -------------------- -----------------
Exercisable as at 31 December
2021 1,539,696 $1.15
Exercisable as at 31 December
2022 1,492,561 $1.25
------------------------------- -------------------- -----------------
Summary information regarding the Options outstanding and
exercisable as at 31 December 2022 is as follows:
Outstanding Exercisable
---------------------------------------------- -------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Remaining Average Exercisable Average
Prices (in Shares) Contractual Exercise (in shares) Exercise
Life Price Price
---------------- ------------- ---------- ------------- ----------
(In years)
---------------- ------------- ------------------- ---------- ------------- ----------
$0.895- $1.430 1,548,191 2.11 $1.15 1,492,561 $1.15
Summary information regarding the Options outstanding and
exercisable at 31 December 2021 is as follows:
Outstanding Exercisable
---------------------------------------------- -------------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Remaining Average Exercisable Average
Prices (in Shares) Contractual Exercise (in shares) Exercise
Life Price Price
-------------- ------------- ---------- ------------- ----------------
(In years)
-------------- ------------- ------------------- ---------- ------------- ----------------
$0.89-$1.430 1,027,412 0.85 $1.23 1,158,923 $1.03
The intrinsic value of options exercisable as at 31, December
2022 ranged from $0.24 to $1.08 and for options exercisable at 31
December 2021 ranged from $0.35 to $1.08. The total value of shares
vested during the year ended 31, December 2022 was $2,291.
Warrants
The Group issued warrants to investors to purchase various
classes of stock as follows:
-- on 20 July 2016, the Group issued to Hamed Moghaddam warrants
to purchase 46,804 Series A-1 Preferred Shares for an exercise
price of $0.961 per Preferred Share, with an expiration
date of 20 July 2023;
-- on 20 July 2016, the Group issued to Hamed Moghaddam warrants
to purchase 62,929 Series A-2 Preferred Shares for an exercise
price of $1.430 per Preferred Share, with an expiration
date of 20 July 2023;
-- on 20 July 2016, the Group issued to Arcadia warrants to
purchase 5,200 Series A-1 Preferred Shares for an exercise
price of $0.961 per Preferred Share, with an expiration
date of 20 July 2023;
-- on 20 July 2016, the Group issued to Arcadia warrants to
purchase 6,992 Series A-2 Preferred Shares for an exercise
price of $1.430 per Preferred Share, with an expiration
date of 20 July 2023;
-- during the years ended 31 December 2017 and 31 December
2018, the Group entered into a series of capital increase
agreements with MEVP, whereby MEVP purchased 4,484 shares
of Fadel Lebanon, 3,000,000 of the Company's Common 4C Shares
and warrants to acquire 1,436,260 Series A-2 Preferred Shares,
2,943,243 Series B Preferred Shares and 1,117,318 Series
B-1 Preferred Shares. In order to exercise the warrants,
MEVP must surrender its ownership interests in Fadel Lebanon;
and
-- During the year ended 31 December 2018, the Group entered
into capital increase agreements with ISME and B&Y, whereby
these entities acquired 3,332 shares of Fadel Lebanon and
warrants to acquire 982,651 Series B-2 Preferred Shares.
In order to exercise the warrants, ISME and B&Y must surrender
their ownership interests in Fadel Lebanon.
-- Effective as of 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 stock, as follow:
- 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"
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"
16. 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
$80,680 for the year ended 31 December 2021 and $87,251 for the
year ended 31 December 2022.
17. LEASES
On 1 March 2019, the Group entered into a 36-month lease for the
2(nd) and 6(th) Floor offices in Beirut, Lebanon. The monthly lease
payment is $4,902;
On 1 July 2021, the Group entered into a 12-month lease for the
7(th) Floor office in Beirut, Lebanon. The monthly lease payment is
$2,960;
On 1 May 2021, the Group entered into a 2-month lease for an
apartment in France, with monthly lease payments of EUR1,600 per
month, and extended it to a 12-month lease from 1 July 2021 at a
monthly lease payment of EUR1,700 per month. During 2022 the total
lease payments was EUR20,900.
The Lease was terminated end of March 2023.
On January 2023, the Group entered into a 12-month lease for a
work space office in France. The total annual lease payment was
EUR920 for a pack of 200 hours valid for one year.
On 1 March 2022, the Group entered into a 12-month lease for a
work space office in New York. The monthly lease payment is $1,647.
The lease has been renewed for a further 12 months.
On October 2022, the Group entered into a 12-month lease for a
work space office in the UK. The monthly lease payment is $
GBP650.00.
Total rental expense (USD) Consolidated
------------------------------ -------------
Year ending 31 December 2021 $92,272
Year ending 31 December 2022 $72,788
On 1 March 2022, the Group entered into a 2-year renewal
operating lease agreement for the 2(nd) and 6(th) floor office in
Beirut. The initial present value of the future lease payments was
determined to be $ 102,091. The monthly payment is $4,902.
The future minimum lease payments, exclusive of related costs,
are approximately as follows:
$ Payment Interest Principal
----------------- -------- --------- ----------
Maturity within
1 year 58,824 4,025 54,799
Maturity after
1 year 9,804 123 9,681
----------------- -------- --------- ----------
Total: 68,628 4,148 64,480
On 1 July 2022, the Group entered into a 2-year renewal
operating lease agreement for the 7(th) floor office in Beirut. The
initial present value of the future lease payments was determined
to be $67,426. The monthly payment is $ 3,238.
The future minimum lease payments, exclusive of related costs,
are approximately as follows:
$ Payment Interest Principal
Maturity within
1 year 38,850 3,856 34,994
Maturity after
1 year 19,425 560 18,865
Total: 58,275 4,416 53,859
Rent expense, including related costs, for the year ended 31
December 2021 aggregated approximately $92,272 and $72,788 for the
year ended 31 December 2022.
18. SUBSEQUENT EVENTS
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 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 GBP451,346 to the Company. The Fadel Loan is unsecured
and bears no interest or fees. The Fadel Loan is repayable only as
and when, following Admission (and excluding the issue of the New
Shares in the Placing), the Company issues new Shares at a price at
or above the Placing Price.
On 3 April 2023 $300,000 of the line of credit between the
Company and Bank of America, N.A. was repaid leaving an outstanding
balance of $700,000.
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 GBP8.0 million.
On 28 April 2023 the Company announced the issuance of 223,289
new depositary interests over common shares at a price of GBP1.44
per share, raising $401,613 which was used to repay part of the
Fadel Loan.
On 11 May 2023 the line of credit between the Company and Bank
of America, N.A. was extended until 31 May 2024.
On 20 June 2023 the withholding tax of GBP518,898 due in the UK
was paid by Image Data Systems (UK) Limited ("IDS") to HMRC. Upon
repayment of the loan between IDS and Fadel Partners UK Limited
(expected to be repaid this year) the withholding tax can be
reclaimed from HMRC.
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END
FR FTMATMTITMLJ
(END) Dow Jones Newswires
June 22, 2023 02:00 ET (06:00 GMT)
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