TIDMFADL
RNS Number : 7537N
Fadel Partners Inc.
27 September 2023
27 September 2023
Fadel Partners, Inc.
('FADEL', the 'Company' or, together with its subsidiaries, the
'Group')
Half Year Report
Fadel Partners, Inc. (AIM: FADL), a brand compliance and rights
and royalty management software provider, is pleased to provide its
results for the six months ended 30 June 2023, based on unaudited
management accounts.
Financial Highlights
US Dollars ($) 1H22 1H23 Change %
Group revenue 6,691,404 5,373,143 (20)%
Recurring revenue 4,165,241 4,336,484 4%
Recurring revenue % of Group
revenue 62% 81% 30%
Gross profit 4,042,329 2,678,803 (34)%
Adjusted EBITDA(1) 223,449 (1,993,265) (698)%
Net cash 106,371 7,269,954 6735%
[1] Earnings after capitalised commission costs and before
interest, tax, depreciation, amortization, exceptional costs and
share-based payments
Operational Highlights
-- Consistent execution of growth strategy in line with plan
set out at IPO
-- Strong progress in new customer acquisition with Brand
Vision solutions gaining momentum and an increasing interest
in larger, enterprise-level contracts
-- Recruitment of a Chief Revenue Officer alongside a Global
VP of Growth Marketing, both enabling an increase in the
rate of scale as FADEL pursues its growth ambitions
-- Launch of new product offerings including Content Tracking,
enhancements to Content Cloud capabilities and video matching
on YouTube and TikTok attracting new customer acquisition
and further embedding FADEL in existing clients
Current Trading and Outlook
-- Strong sales momentum has continued into 2H23
-- Growing pipeline of opportunities with new and existing
clients in the Life Sciences, Publishing and FMCG industries
providing confidence in near to medium term outlook
-- Significant and growing market opportunity upon which FADEL
is well positioned to fully capitalise
-- On-track to meet full-year targets and recurring revenues
are expected to increase to become c.80% of total revenues
for FY23
Tarek Fadel, Chief Executive Officer of FADEL, commented:
"We are pleased with the considerable progress we have made in
the first six months of FY23 and since our IPO in April this year.
We presented the market with an ambitious growth strategy that
seeks to enable FADEL to capitalise on the significant opportunity
in the rapidly expanding digital content and IP market and the
execution of this plan remains firmly on track.
The funds raised at IPO have allowed us to make strategic hires,
accelerate the release of new product offerings and to facilitate
growth as we invest further in our business and build on our strong
foundations.
The outlook for FADEL remains positive and the benefits of our
investments are already coming through as the strong trading
momentum enjoyed in 1H23 continues into the second half of the
year. Investments made in the business to date, alongside the wider
shift towards digitisation, are driving increased demand for our
offering and give great confidence in the Group's outlook."
For further information please contact:
Tarek Fadel, Chief Executive Officer Via Alma PR
Vicary Gibbs, Chief Financial Officer
Cavendish Capital Markets Limited (Nomad &
Broker) 020 7220 0500
Jonny-Franklin Adams, Emily Watts, Abigail
Kelly (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 .
OPERATIONAL REVIEW
Overview
We are encouraged with the significant strategic progress we
have made in the first six months of 2023 now that we are a quoted
company. At the time of our IPO in April 2023, we presented an
ambitious growth strategy to the market and I am pleased to report
that we are progressing in line with our expectations.
Through the funds raised at IPO, we have expanded our sales and
marketing teams with key hires and have diversified our product
offering through the launch of new Brand Vision services which
further consolidates our competitive moat and increases the total
addressable market available to FADEL as we continue to scale.
FADEL's operational progress has been underpinned by a solid
financial performance with recurring revenues increasing 4% to $4.3
million (1H22: $4.2 million). Our total revenues declined as a
result of a reduction in our Professional services revenues due to
the expected completion of a number of IPM Suite implementations
and the postponement of regional roll-outs for existing clients due
mainly to challenging macro-economic conditions.
The shift towards digitisation continues to accelerate and
despite the tough macro-economic backdrop, the Company continues to
be a beneficiary of that acceleration. Pleasingly, we are on-track
to meet our full-year targets and recurring revenues are expected
to increase to become c.80% of total revenues for FY23. This strong
revenue visibility reflects the positive growth expected from
licence and support renewals alongside net new sales, providing us
with the ability to maintain our disciplined approach to invest in
our products and people while giving confidence for a good second
half and a strong FY23.
Performance against strategy
The Group's capital allocation policy and R&D roadmap has
driven select investments across the business to maximise growth
potential and the future returns for investors as we capitalise on
the growing opportunity available within the rapidly expanding
digital content and intellectual property market. We have continued
to innovate and adapt our sales processes and enhance our product
offerings, in line with customer requirements with the objective of
maximising the revenue potential per customer.
Investment in sales and marketing
As part of our growth strategy, we have continued to invest in
our sales and marketing teams in order to proactively sell FADEL's
solutions into the rapidly growing market. As announced in June
2023, we are pleased to have hired a Chief Revenue Officer
alongside a Global VP of Growth Marketing, both key to helping us
increase our rate of scale as we pursue our growth ambitions.
During the first half of 2023 we have also added five new
salesperson/lead generation hires to our team, complemented by
product management, sales support and administration hires to build
out phase I of the sales team growth, greatly expanding our go to
market capacity and capabilities.
Investments made in this area are bearing fruit with a number of
opportunities added to our already strong pipeline of new business
focused on the following key themes:
-- Strong interest in video Content Tracking providing
new opportunities for the Brand Vision family of
products
-- Significant interest from global brands who market
to consumers using high value marketing content in
the fast-moving consumer goods ("FMCG"), healthcare,
beauty, luxury and beverages industries
-- An increase in copyright compliance and litigation
activity resulting in a significant increase in enquiries
for our Rights Cloud product
-- The expansion of our marketing activities has resulted
in an increase in IPM product interest relative to
historic levels and driven increasingly by licensees
New customer acquisition
New customer acquisition has continued to progress well during
1H23 and into 2H23. Sales prospects for the Group's Brand Vision
solutions have been gaining momentum with an increasing interest in
larger, enterprise-level contracts. These larger contract types
involve longer sales cycles, however the benefits for FADEL are
clear and we are adapting as we grow and focusing our expanded
sales teams to capitalise on this opportunity.
Notable customer activity so far this year includes:
-- Are Media: Rollout of PictureDesk for one of the
biggest Australian and New Zealand omnichannel content
companies
-- Coca-Cola: Rollout of Brand Vision Rights Cloud
-- O'Reilly Media: new IPM cloud services agreement
and migration to the FADEL Cloud
-- Philip Morris: implementation of Brand Vision (Rights
Cloud and Content Tracking)
-- Sanofi: implementation of Brand Vision (Rights Cloud)
-- An American multinational personal care corporation:
implementation of Brand Vision (Rights Cloud)
-- An American multinational food, snack, and beverage
corporation: implementation of Brand Vision (Rights
Cloud)
-- A number of further enterprise level contracts for
both IPM Suite and Brand Vision customers are in
the later stages of negotiation and are expected
to be signed during the course of 2H23
Expansion within existing customer base
The opportunity of deepening the relationship within our
existing blue-chip customer base is significant and we see
cross/upselling as a key driver for growth going forward as
customers leverage the solutions provided by both IPM Suite and
Brand Vision. FADEL has 145 customers across a range of sectors,
representing a notable growth opportunity within its existing
customer base alone.
Our expanded sales and marketing teams are actively engaged with
many customers to discuss how a combination of our offerings can be
deployed to most effectively meet their unique needs and we are
confident that we will see the benefits of this in FY23 and
beyond.
Innovation and product expansion
Innovation and product expansion continues to be a key focus
area for FADEL as we continually provide customers with additional
features and capabilities to meet their increasingly complex needs.
The launch of new offerings is a core part of the Group's growth
plan and creates opportunities to both attract new customers by
widening the competitive moat with peers while also further
embedding in existing clients through FADEL's land and expand
strategy. Examples of product innovation from the period
include:
-- Content Tracking - Released in 2Q23, this product
introduces AI based image and video matching and
web crawling. This enables clients to search for
brand marketing content in image and video form across
the web and social media. Video Tracking is proving
to be a much-needed solution to a challenging problem
many multi-national brands have thus far been unable
to solve to stay compliant with their marketing content
and its digital distribution
-- Video matching on YouTube and TikTok - Using our
Content Tracking offering we have introduced connectors
to YouTube and TikTok allowing global brands to track
and monitor their video content online to ensure
copyright and usage compliance
-- Enhancements to Content Cloud capabilities - Further
product enhancements broadening the capabilities
and appeal of the offerings for departmental users
Current trading and outlook
Despite the wider macroeconomic headwinds, our resilient
business model has shielded FADEL from many of the challenges in
the sector. We continue to see strong interest in and uptake of our
solutions as companies seek to benefit from the high ROI from cost
efficiencies and licensing revenue growth opportunities available
through our services, which are not obtainable using legacy
solutions.
As we enter 2H23 we have a growing pipeline of opportunities
with new and existing clients in the Life Sciences, Publishing and
FMCG industries. We expect , from discussions with several
customers that their upcoming renewals this year will result in
recognition of the contract value in full on signing and as a
result our revenue in 2H23 is expected to be materially higher than
1H23 underpinning our confidence in the full-year outlook.
Beyond this financial year, the successful conversion of our
current pipeline has the potential to add materially to our
revenue, bringing us into new industries with multiple products and
significant land and expand opportunities. The potential for our
future growth is becoming increasingly self-evident although our
recently expanded sales team is still very much in ramp up
mode.
The market opportunity remains substantial, and our software has
a growing number of use cases across many industries. Therefore, we
are working on analysing and understanding these organic
opportunities to ensure we are allocating capital and investing in
our development teams effectively. In addition, the Group has a
clear medium-term acquisition strategy as a Board we are regularly
reviewing the wider market, in relation to our strict criteria, for
prospective opportunities.
As we continue to execute against our growth strategy and
capitalise on the significant opportunity available to us in the
market, we have great confidence in our business prospects for FY23
and beyond.
Tarek Fadel
Chief Executive Officer
27 September 2023
FINANCIAL REVIEW
Revenue
Our revenue for the first six months of the year was a total of
$5. 4 million. Of this $4.3 million (81%) was recurring(1) in
nature, an increase of 4% relative to 1H22: $4.2 million. Our
service revenue declined relative to the same prior period to a
total of $1.0 million (1H22 of $2.5 million). This decrease is a
reflection of the successful completion in 1H23 of a number of IPM
Suite implementations and some delays/postponements in regional
rollouts by existing IPM Suite clients, in part due to the
macro-economic environment. Encouragingly, we are already seeing
some of the postponed work being rescheduled into the next 18
months.
As stated in our half year trading update, our expected
full-year revenue for 2023 remains in line with market
expectations(2) , implying a significant proportion of revenue to
be realised in the second half of the year in-line with historical
contract renewals. To put this confidence in context it is worth
expanding on why and how this is the case by providing more details
on the relationship between revenue recognition and the type of
contracts we have with customers.
[1] Recurring revenue is defined as Licence/subscription and
Support revenue.
2 FY23 consensus revenue estimate: $14.6m.
Revenue Recognition
We typically have multiple contracts with each customer with
each contract varying in nature depending on the type of licence or
services being contracted.
-- Term licences : a majority of our contracts (in
revenue terms) are term licences. Some of these,
based on specific terms within the contracts, are
recognised rateably, but some which are single tenant,
cloud hosted in a private environment and non-cancellable
in nature, are recognised in full upon the signing
of the annual contract under the requirements of
Accounting Standards Codification (ASC) 606. Most
of these term contracts are for the provision of
our IPM Suite family of products. These contracts
typically range from between 1-3 years in duration.
Today some 80% of our revenue comes from our IPM
Suite product offering and all of these contracts
are term licences in nature
-- SaaS contracts: Increasingly, our contracts are
SaaS in nature and are recognised rateably on a monthly
basis. These SaaS type contracts are a majority in
number, however many of these are not particularly
high value contracts on either an individual or collective
basis relative to our overall revenue levels today.
However, they are expected to scale significantly
over the next few years as existing clients expand
their usage and we win new clients
-- Perpetual licences : There are a small number of
perpetual licences, accompanied by annual support
contracts that were sold to customers more than a
decade ago, and in line with our efforts, some of
these customers, moved to subscription contracts
during 1H23
Our revenue model has constantly evolved to meet the needs of
our customers and we expect this to continue. Our products, and in
particular our IPM Suite of products, are increasingly critical to
the business models of some of the world's largest companies with
significant royalty revenues. While our strategy is to accelerate
our group revenue mix towards recurring subscription licences and
SaaS, due to the size of a number of our customers, we have to take
account of customer requirements in respect of the contracting
model.
There is also a growing trend of large enterprises, largely IPM
suite customers, moving to a cloud hosted private environment model
and as such we expect a proportion of existing contracts to move to
this model on renewal. Depending on the contract terms some are
recognised rateably (e.g. Service and Support contracts) but some
annual contracts are recognised in full on signing if they meet the
requirements as described above under "Revenue Recognition, Term
Licences".
We expect from discussions with several customers that their
upcoming renewals in 2H23 will result in recognition of the
contract value in full on signing and as a result our revenue in
2H23 is expected to be materially higher than 1H23 underpinning our
confidence in the full-year outlook.
Following the launch of Brand Vision in Q422 we expect the
nature of our revenue to evolve and have an increasing element of
SaaS revenue. As planned, we are seeing encouraging uptake form
smaller clients using our platform and in addition our initial
marketing of Brand Vision has resulted in a number of contract wins
with enterprise scale customers. These customers while fewer in
number, are higher in value. While the sales and implementation
cycles are longer, they represent a great growth opportunity as our
products expand within their businesses through increased user
numbers, higher volumes of content and searches and the licensing
by multiple owned products/brands and/or regions within a potential
customer.
Margins
Our gross profit margins from recurring revenue
(Licence/subscription and Support) declined to 65% from 72% in
1H22. This was expected and reflected higher costs driven by a
couple of factors: firstly, we have increased our employee count by
12.5% to 117 and secondly the per employee costs have risen through
inflationary necessity as we remain a competitive employer. As we
build our Brand Vision customer base, we expect an enhancement of
our gross margins.
Our gross margins from services for 1H23 were negative at -13%
(1H22: 41%) due to delays from customer schedule revisions due to
client corporate activity and macro-economic environment influences
highlighted above. This includes a number of fixed price contracts
where we have chosen to retain our client teams in place in the
interests of serving our customers. As a result, we have adjusted
(delayed into future periods) our rateable revenue recognition for
those contracts' that are exposed to such delays or rescheduling.
Fortunately, we are already seeing some of the postponed work being
rescheduled into the next 18 months or offset by change requests.
This current decline in overall service revenue has not yet been
offset by the addition of new client wins requiring implementation
services from which we have benefitted in recent years and which we
expect to benefit from again in future periods. As customers come
to the end of their implementation service contracts, we have been
successful in converting these clients into subscription (customer
user support) contracts increasing our mix of visible recurring
revenues. As a result, we have seen an increase in licence and
subscription revenue.
Costs
Our research and development costs rose marginally ($2.0m vs
1H22: $1.9m) as we have continued to invest in product development
with ongoing quarterly update release cycles and the addition of
new features and functionality to both Brand Vision and IPM Suite.
We fully expense our R&D costs under US GAAP rules whereas a
number of our peers who report in IFRS typically capitalise a
significant proportion of their R&D costs which spreads such
costs over future periods. Our SG&A costs showed a marked
increase to $2.6m (1H22: $1.8m) due primarily to our IPO costs, for
which a significant proportion were incurred in 1H23, which are
non-recurring costs.
Foreign Exchange
During 1H23, the Group recognised a foreign exchange gain of
$1.0 million, compared to a loss of $1.1 million in 1H22. The gains
and losses recognised were predominantly due to the increasing
intercompany balance between the UK entities (held in GB Pounds)
and our US parent (reporting in US Dollars) which when translated
results in a gain or loss. These gains or losses are non-cash in
nature. On a constant currency basis, there is minimal foreign
exchange impact on revenue and costs, for the period under
review.
The Group is exposed to fluctuations in foreign currencies as
its operations and customers are globally based and have revenues
and costs in multiple currencies. The functional currency of the
Group is US Dollars with the majority of transactions conducted in
US Dollars, but a significant number of transactions also occur in
GB Pounds and Euros amongst other currencies. In these two periods,
we saw significant fluctuations in foreign currency exchange rates,
particularly in the Lebanese Pound and GB Pounds vs the US Dollar.
We are now implementing additional processes to help manage our
treasury function more actively.
Key Performance Indicators ("KPIs")
The Directors also consider certain business KPIs when assessing
performance and believe that these, in addition to US GAAP
measures, provide an enhanced understanding of the Company's
results and related trends, increasing transparency and clarity of
the core results of the business. The Directors believe the
following metrics are useful in evaluating FADEL's operating
performance.
Adjusted EBITDA
Our adjusted EBITDA (a non-US GAAP measure is defined as
earnings after capitalised commission costs and before interest,
tax, depreciation, amortization, exceptional costs and share-based
payments) decreased as a result of the increased expenditure
relating to planned investments for growth to -$1,993k (1H22:
$223k). This metric is a conservative one, which if used for
comparison with other companies, needs to consider that in
accordance with US GAAP we fully expense our R&D costs as
incurred, which for 1H23 were some $2.0 million.
1H22 1H23
EBITDA $323,569 ($1,935,791)
Adjustments to operating expenses
Commissions capitalised during
the period ($125,120) ($319,917)
Exceptional items
IPO expenses* $25,000 $262,443
Total Adjustments ($100,120) ($57,474)
Adjusted EBITDA $223,449 ($1,993,265)
* Additional IPO expenses in 1H23 of $808,349 which have been
deducted from Additional Paid in Capital under ASC 340.
Customer numbers
During 1H23 we have started to track customer numbers by product
and will continue to share this breakdown going forward. We are not
able to present a like-for-like comparison for the previous period
as FADEL in 1H22 included only IPM Suite and Rights Cloud (now a
component of Brand Vision) customers and IDS was exclusively
PictureDesk customers.
1H22
FADEL 20
IDS 126
----
Total 146
1H23
IPM Suite 16
Brand Vision 129
-----
Total 145
Cash
Cash and cash equivalents of $8.2m as at 30 June 2023 (31
December 2022: $1.2m). Net cash, taking into account the related
party loans and Bank of America credit facility was $7.3m. The
Company raised GBP8.0 million of gross proceeds (including a loan
of GBP0.5 million) during the period under review.
Processes
Post IPO we have implemented a number of key processes to
deliver on our IPO strategy. Following a successful hiring process
that saw us bring on a new Chief Revenue Officer, a new VP of
Growth Marketing and several new hires into both the Sales team and
into the Marketing department we have set about building and
managing an effective pipeline of opportunities. We are in the
process of converting macro level IPO plans into detailed
operational deliverables and are pleased with the progress made
thus far. This includes analyses around lead ge neration tools and
pipeline management, business development and opportunity
screening, and integrated financial modelling covering current
period through to long range tax planning amongst other things.
Risk
The Group's activities expose it to a variety of economic,
financial, operational and regulatory risks. Our principal risks
continue to be concentrated in our ability to retain and attract
new customers, our ability to retain and attract new staff and the
concentration risks inherent in our current customer base. The
principal risks and uncertainties facing the Group are set out on
pages 19 and 20 of the 2022 Annual Report and Accounts, a copy of
which is available on the Group's website at
https://investors.fadel.com/
Outlook
Pleasingly, we are on-track to meet our internal targets for the
financial year ending 31 December 2023, with recurring revenues
expected to be c.80% of total revenues for FY23. This reflects the
positive growth expected from licence and support renewals
alongside net new sales, providing us with the ability to maintain
our investment in our products and people while giving confidence
for a good second half and a strong FY23.
As stated at the time of our half year trading update and as
further detailed above, 2H23 will show a significant increase in
revenue relative to 1H23, in part due to the timing of annual
contract renewals for certain enterprise licences which are now
heavily weighted towards the Company's year-end.
We have spent a great deal of effort since our IPO in hiring
people, developing systems and processes and preparing for our
growth ahead. We are already seeing positive signs that these
efforts are starting to bear fruit and with our continued focus and
the hard work of our dedicated employees and contractors we are
looking forward to the future immensely.
Vicary Gibbs
Chief Financial Officer
27 September 2023
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
The unaudited, consolidated Statements of Comprehensive Income
of the Group for the six-month periods ended 30 June 2023 and 30
June 2022 are set out below:
Continuing operations Notes Unaudited Unaudited
Six months Six months
ended ended
30 June 30 June
2022 2023
$ $
Licence/subscription and support 4,165,241 4,336,484
Professional services 2,526,163 1,036,659
Total revenue 4 6,691,404 5,373,143
Cost of fees and services 2,649,075 2,694,340
------------------------------------------ ------------- -------------
Gross profit 4,042,329 2,678,803
------------------------------------------ ------------- -------------
Research and development 1,874,721 1,979,161
Selling, general and administrative
expenses 1,844,039 2,635,432
Depreciation and amortization 273,729 303,584
Interest expense 1,850 54,408
Foreign exchange losses/(gains) 1,052,136 (1,014,162)
Gain on acquisition 48,362 -
Other expense 124 -
Other income (11) (342)
------------------------------------------ ------------- -------------
Total operating expenses 5,094,950 3,958,081
Income/(loss) before income taxes (1,052,622) (1,279,278)
Income tax benefit/(expense) - (6,932)
------------------------------------------ ------------- -------------
Net income/(loss) after taxes (1,052,622) (1,286,210)
------------------------------------------ ------------- -------------
Total foreign currency gains / (loss) 701,066 (656,486)
------------------------------------------ ------------- -------------
Total comprehensive income (351,556) (1,942,696)
Net income/(loss) attributable to
non-controlling interest (17,620) 19
Net income/(loss) attributable to
the Group (1,035,002) (1,286,229)
------------------------------------------ ------------- -------------
Net income/(loss) after taxes (1,052,622) (1,286,210)
------------------------------------------ ------------- -------------
Comprehensive income/(loss) attributable
to non-controlling interest (17,620) 19
Comprehensive income/(loss) attributable
to the Group (333,936) (1,942,715)
Total comprehensive income/(loss) (351,556) (1,942,696)
------------------------------------------ ------------- -------------
Basic and diluted (loss) per Share
($) 6 (0.05) (0.15)
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
The unaudited, consolidated Statement of Financial Position of
the Group as at 30 June 2023 and 30 June 2022, together with the
audited, consolidated Statement of Financial Position of the Group
as at 31 December 2022, are set out below:
Audited Unaudited Unaudited
As at As at As at
31 December 30 June 30 June
2022 2022 2023
Assets Notes $ $ $
Cash and cash equivalents 1,181,371 3,232,960 8,232,350
Accounts receivable, net 5 1,863,394 686,988 1,032,462
Unbilled work-in-progress 929,715 1,029,048 981,581
Other current assets 209,556 248,713 356,161
Current assets 4,184,036 5,197,709 10,602,554
Furniture and equipment, net 7 88,170 103,910 83,362
Contract costs 8 584,510 617,392 739,275
Deferred tax asset 954,771 1,712,941 954,771
Other assets 4,838 4,838 5,583
Operating right of use asset 12 109,728 85,030 67,696
Intangible Assets 2,242,598 2,385,841 2,224,127
Goodwill 2,100,432 2,106,106 2,192,628
-------------------------------------- ------ ------------- ------------- -------------
Non-current assets 6,085,048 7,016,058 6,267,443
-------------------------------------- ------ ------------- ------------- -------------
TOTAL ASSETS 10,269,084 12,213,767 16,869,997
-------------------------------------- ------ ------------- ------------- -------------
Liabilities
Line of Credit - Bank of America 11 1,000,000 - 700,000
Accounts payable and accrued
expenses 3,174,313 3,540,170 1,793,823
Income tax payable 1,026,602 876,421 1,042,483
Deferred revenue 2,249,019 3,373,420 3,504,281
Notes payable - related parties 10 75,000 40,000 262,396
Current liabilities 7,524,934 7,830,011 7,302,983
Deferred revenue 1,086,762 578,195 705,202
Lease Liability 85,187 55,470 33,879
Provisions-End of Services Indemnity 274,045 253,483 274,045
Non-current liabilities 1,445,994 887,148 1,013,126
Total liabilities 8,970,928 8,717,159 8,316,109
-------------------------------------- ------ ------------- ------------- -------------
Shareholders' equity
Series A-1 Preferred Shares 9 7,552 1,068 -
Common Shares 9 7,083 6,783 20,191
Additional paid-in capital 15,581,802 11,403,793 24,774,674
Accumulated deficit (15,163,027) (12,700,799) (16,449,256)
Cumulative translation adjustment 863,686 597,504 207,200
-------------------------------------- ------ ------------- ------------- -------------
1,297,096 (691,651) 8,552,809
Non-controlling interest 1,059 4,188,259 1,078
-------------------------------------- ------ ------------- ------------- -------------
Total Shareholders' equity 1,298,155 3,496,608 8,553,887
-------------------------------------- ------ ------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 10,269,084 12,213,767 16,869,997
-------------------------------------- ------ ------------- ------------- -------------
STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
The unaudited, consolidated Statements of Changes in Equity of
the Group for the six-month periods ended 30 June 2023 and 30 June
2022 are set out below:
Cumulative
Preferred Preferred Common Common Additional Accumulated translation Non-controlling
Shares Shares Shares Shares paid in capital deficit adjustment interest Total
# $ # $ $ $ $ $ $
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
As at 31
December
2021 (audited) 1,068,837 1,068 6,782,583 6,783 11,403,793 (11,665,797) (103,562) 4,205,879 3,848,164
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
Stock-based
compensation - - - - (20,051) - - - (20,051)
Change of
control
in Fadel
Partners
SAL from 59.2%
to 99.99% - - - - 4,204,843 - - (4,204,843) -
Impact Fund
by MEVP holding
SAL common - - 300,000 300 (300) - - - -
Impact Fund
by MEVP Holding
SAL- Series
A-2 1,436,260 1,436 - - (1,436) - - - -
Impact Fund
by MEVP Holding
SAL-Series B 2,943,243 2,943 - - (2,943) - - - -
Impact Fund
by MEVP Holding
SAL-Series B-1 1,117,318 1,117 - - (1,117) - - - -
iSME SAL
Holding-Series
B-2 580,383 581 - - (581) - - - -
B&Y Division
One Holding
SAL 406,268 407 - - (407) - - - -
Net loss - - - - - (3,497,230) - - (3,497,230)
Non-controlling
interest - - - - - - - 23 23
Foreign exchange
translation
Income - - - - - - 967,248 - 967,248
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
As at 31
December
2022 (audited) 7,552,309 7,552 7,082,583 7,083 15,581,802 (15,163,027) 863,686 1,059 1,298,155
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
Converting
Preferred
shares to
common (7,552,309) (7,552) 7,552,309 7,552 - - - - -
Issuance of
IPO shares - - 5,242,121 5,242 9,438,161 - - - 9,443,403
Capitalization
of direct IPO
costs - - - - (808,350) - - - (808,350)
Issuance of
common shares* 223,289 223 401,022 401,245
Commission
shares - - 90,630 91 162,039 - - 162,130
Non-controlling
interest - - - - - - - 19 19
Adjustment of - - 360 - - - - - -
common stock
Net loss - - - - - (1,286,229) - - (1,286,229)
Foreign exchange
translation
income - - - - - - (656,486) - (656,486)
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
As at 30 June
2023
(unaudited) - - 20,191,292 20,191 24,774,674 (16,449,256) 207,200 1,078 8,553,887
----------------- ------------------- ----------- ------------------------------- -------------------- ----------------------------- ------------- ----------------------------- ----------------------- ----------------------------------------
* As per the RNS dated 2 May 2023 ( https://investors.fadel.com/investors/regulatory-news/ .)
STATEMENTS OF CONSOLIDATED CASH FLOWS
The unaudited, consolidated Statements of Cash Flows of the
Group for the six-month period ended 30 June 2022 and 30 June 2023
are set out below:
Unaudited Unaudited
Six months Six months
ended ended
30 June 30 June
2022 2023
$ $
--------------------------------------------- ------------- --------------------------
Net income/(loss) after taxes (1,052,622) (1,286,210)
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 273,729 303,584
Non-cash commission shares - 162,131
Non-cash impact of foreign exchange on
intangibles 525,707 (205,107)
Changes in assets and liabilities
Accounts receivable 2,558,845 830,933
Unbilled work-in-progress (202,630) (51,866)
Other current assets (50,180) (147,351)
Capitalization of commissions (125,120) (319,917)
Operating lease liability (85,030) 42,033
Accounts payable and accrued expenses (524,533) (1,380,490)
Income Tax payable - 15,881
Other Liability 55,470 (51,308)
Deferred revenue (808,724) 873,700
Net cash from operating activities 564,912 (1,213,987)
Purchase of equipment (955) (2,243)
Net cash used in investing activities (955) (2,243)
Proceeds from the Issuance of common shares - 8,635,053
Proceeds from line of credit-shareholder
Loans - 589,010
Repayment of Shareholder Loans - (401,613)
Cash received from issuance of common
shares - 401,245
Repayment of Bank of America loan - (300,000)
Net cash from financing activities - 8,923,695
Effect of exchange rates on cash 701,066 (656,486)
--------------------------------------------- ------------- --------------------------
Net increase / (decrease) in cash 1,265,023 7,050,979
--------------------------------------------- ------------- --------------------------
Cash, beginning of period 1,967,937 1,181,371
--------------------------------------------- ------------- --------------------------
Cash, end of period 3,232,960 8,232,350
--------------------------------------------- ------------- --------------------------
NOTES TO THE GROUP INTERIM FINANCIAL INFORMATION
1. ORGANISATION AND NATURE OF BUSINESS
The interim financial information consolidates the financial
information of the Company and:
-- its wholly-owned subsidiaries:
o Fadel Partners UK Limited ("Fadel UK"), and its wholly-owned
subsidiary;
-- Image Data Systems (UK) Limited;
o Fadel Partners France SAS ("Fadel France"); and
o Fadel Partners Canada Inc. ("Fadel Canada").
-- 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.
On 6 April 2023, the Company was listed and started trading on
AIM, a market operated by the London Stock Exchange plc
("AIM").
2. LIQUIDITY AND GOING CONCERN
Under Accounting Standards Update Presentation of Financial
Statements "Going Concern (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 interim 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 of this
interim financial information. Management has assessed the
Company's ability to continue as a going concern in accordance with
the requirement of ASC 205-40.
As reflected in the interim financial information, the Group had
$8.2 million in cash (31 December 2022: $1.2 million) and negative
working capital of $2.6 million as at 30 June 2023 (31 December
2022: negative $3.3 million). For the six-month period ended 30
June 2023, the Group reported a net loss of approximately $1.3
million (30 June 2022: net loss of $1.1 million) and cash used by
operating activities of approximately $1.4 million (30 June 2022:
cash provided by operating activities of approximately $0.6
million).
The Company has historically funded its operations through the
sale of preferred stock and common stock, and lines of credit from
shareholders and banks. In the six-month period ended 30 June 2023,
the Company raised gross proceeds of GBP8,000,000 from its
successful initial public offering to AIM, including GBP451,346
($564,009) by way of a loan from Tarek Fadel (the "Fadel Loan").
Also, during the six-month period ended 30 June 2023 the Company
issued 223,289 common shares at a price of GBP1.44 per share to
employees and friends, resulting in a cash receipt of $401,245.
This cash was used to part repay the Fadel Loan.
Based on the results above, the Company believes that the Group
has enough funds to provide sufficient liquidity for at least
twelve months from the date of thee results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle of consolidation
The interim financial information has been prepared in
accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). They include the accounts of
the Company, and interest owned in subsidiaries as follows: 99.99%
of Fadel Lebanon and 100% of Fadel UK, Fadel France, Fadel Canada
and IDS. All significant intercompany balances and transactions are
eliminated on consolidation. The non-controlling interest
represents the 0.00011% share of Fadel Lebanon owned by outside
parties.
Use of estimates
The preparation of the interim financial information in
conformity with US GAAP requires the Company to make estimates and
assumptions that affect the reported amounts of the Group's assets
and liabilities and disclosure of contingent assets and
liabilities, as at the reporting dates, as well as the reported
amounts of revenue and expenses during the reporting periods.
Actual results could differ from these estimates.
Fair Value Measurements
US GAAP requires the disclosure of the fair value of certain
financial instruments, whether or not recognized on the Statement
of Financial Position, for which it is practicable to estimate fair
value. The Group estimate fair values using appropriate valuation
methodologies and market information available as at each reporting
date. Considerable judgment is required to develop estimates of
fair value, and the estimates presented are not necessarily
indicative of the amounts that the Group could realize in a current
market exchange. The use of different market assumptions or
estimated methodologies could have a material effect on the
estimated fair values. Additionally, the fair values were estimated
at year end, and current estimates of fair value may differ
significantly from the amounts presented.
Fair value is estimated by applying the following hierarchy,
which prioritizes inputs used to measure fair value into three
levels and bases categorization within the hierarchy upon the
lowest level of input that is available and significant to the fair
value measurement:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Observable inputs other than quoted prices in active
markets for identical assets and liabilities, quoted prices for
identical or similar assets or liabilities in inactive markets, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities; and
Level 3: Inputs that are generally unobservable and typically
management's estimate of assumptions that market participants would
use in pricing the asset or liability.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or
less at the date of purchase are classified as cash
equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Group to
concentrations of credit risk consist primarily of cash, accounts
receivable and unbilled work-in-progress. The Company performs
on-going evaluations of the Group's customers' financial condition
and, generally, requires no collateral from customers.
The Group maintains its bank accounts with major financial
institutions in the United States, Lebanon, the UK, France and
Canada. As at 30 June 2023, the Group had cash balances in excess
of the Federal or National insured limits at financial institutions
in the United States, France and the UK totalling some US$6.75
million out of a total of US$8.23 million cash deposits. Cash
amounts held in Lebanon are not insured and as such minimal
deposits are held in Lebanese accounts, with payments transferred
in country only on an as needed basis. The Company believes the
risk is limited as the institutions are large national institutions
with strong financial positions.
Accounts receivable, unbilled work-in-progress and allowance for
doubtful accounts
Accounts receivable 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. Management determines the
allowance based on historical write-off experience and information
received during collection efforts.
Management 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. See Note 5 for more details.
Revenue recognition
Since 1 January 2019, the Group has accounted for revenue
recognition in line with ASC 606 "Revenue from Contracts with
Customers" and ASC 340 "Other Assets and Deferred Cost."
The Group's revenue is derived from three primary sources:
-- licence fees;
-- customer support; and
-- services.
Revenue is recognized 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
recognized will not occur.
The Company determines the amount of revenue to be recognized
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 the performance obligations.
The Group's offerings fall primarily under four contract
categories:
-- SaaS subscriptions;
-- perpetual licences;
-- support; and
-- services.
Licence/subscription and support revenues
License/subscription and support revenues are comprised of fees
that provide customers with access to cloud services, software
licences, 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 recognized rateably over the
contract term. Substantially all of the Group's subscription
service arrangements are non-cancellable and do not contain
refund-type provisions.
-- Licence/subscription and support revenues also include
revenues associated with term and perpetual software licences that
provide the customer with a right to use the software as it exists
when originally made available. Revenue from term and perpetual
software licences are generally recognized at the point in time
when the software is made available to the customer. Revenue from
software support and updates is recognized 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 either on a time
and materials, fixed fee or subscription basis. These revenues are
recognized as the services are rendered for time and materials
contracts, on a proportional performance basis for fixed price
contracts or rateably over the contract term for subscription
professional services contracts. Other revenues consist primarily
of training revenues recognized as such services are performed.
Significant judgments - 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 licences, support, updates, and
professional services. Multiple performance obligations are
milestones 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 Company accounts
for these performance obligations under individual contracts as
combined as the supplementary product or services that accompany
cloud services and or software licence are tailored and would 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 capitalizes costs of obtaining a revenue contract.
These costs consist of sales commissions related to the acquisition
of such contracts that would not have been incurred if these
contracts were not won.
For licences, the Group estimated the amortization period based
on the remaining expected life of the customer/the term for which
it anticipates the contract will remain effective. It anticipates
the term due to the project size, terms, complexity and cost of
implementation and transition, making it less likely that a client
will change vendors for this service.
During the implementation, the Group applied the guidance as of
1 January 2019 only to contracts that were either not completed as
of that date, or that had a life of customer that ended after 1
January 2019.
For service and support contracts, the amortization period is
based on the duration of the contract in consideration that it
would be less difficult and costly for clients to transition to
another vendor for continued service.
Amortization periods for customer lives typically vary between 5
and 10 years. The Group elected not to apply the practical
expedient for contracts that have a duration of less than one
year.
Contract Balances
Contract assets represent the Company's rights to consideration
in exchange for services transferred to a customer that have not
been billed as of the reporting date. While the Company's rights to
consideration are generally unconditional at the time its
performance obligations are satisfied, under certain circumstances
the related billing occurs in arrears, generally within one month
of the services being rendered. The asset, " Unbilled
work-in-progress ", represents revenues recognized in excess of
amounts billed.
Contract liabilities relate to advance consideration received or
the right to consideration that is unconditional from customers for
which revenue is recognized when the performance obligation is
satisfied and control transferred to the customer. The liability,
"deferred revenue", represents billings in excess of revenues
recognized to the extent the performance criteria has not yet been
met.
Research and development
Research and development costs are charged to operations as
incurred and include costs associated with the design of
software.
Depreciation
Furniture and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets, generally three to seven years. When assets
are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations for the period.
The cost of maintenance and repairs is charged to operations as
incurred. Significant renewals and betterments are capitalized.
Intangible assets - goodwill
Goodwill arises on the acquisition of a business. Goodwill is
not amortized. Instead, goodwill is tested annually for impairment,
or more frequently if events or changes in circumstances indicate
that it might be impaired and is carried at cost less accumulated
impairment losses. Impairment losses on goodwill are taken to
profit or loss and are not subsequently reversed.
Intangible assets other than goodwill
The Group has three categories of intangible assets:
Brand assets
The Group purchased IDS in October 2021 and with it acquired a
long established and respected brand. At the time of purchase, the
Group estimated the useful life of the brand assets for financial
reporting purposes and recognizes amortization on a straight-line
basis over the useful life of the asset, typically 10 years.
Purchased brand assets are reviewed for impairment at each
reporting date or when events and circumstances indicate an
impairment. The Group determined that an impairment charge was not
necessary during the period covered by the interim financial
information.
Customer relationships
The Group purchased IDS in October 2021 and with it acquired a
number of customer relationships. At the time of purchase, the
Group estimated the useful life of the customer relationships
acquired for financial reporting purposes and recognizes
amortization on a straight-line basis over the useful life of the
asset, typically 10 years. Purchased customer relationships are
reviewed for impairment at each reporting date or when events and
circumstances indicate an impairment. The Group determined that an
impairment charge was not necessary during the period covered by
the interim financial information.
Software and technology assets
The Group purchased IDS in October 2021 and with it acquired a
number of software and technology assets. At the time of purchase,
the Group estimates the useful life of the software and technology
assets acquired for financial reporting purposes and recognizes
amortization on a straight-line basis over the useful life of the
asset, typically 10 years. Purchased software and technology assets
are reviewed for impairment at each reporting date or when events
and circumstances indicate an impairment. The Group determined that
an impairment charge was not necessary during the period covered by
the interim financial information.
Billed accounts receivable and concentrations of credit risk
As at 30 June 2023, there were three significant customers
(defined as contributing at least 10%) that accounted for 69% (33%,
20% and 16%) of accounts receivable.
As at 30 June 2022, there were three significant customers
(defined as contributing at least 10%) that accounted for 69% (33%,
20% and 16%) of accounts receivable.
As at 31 December 2022, there were three significant customers
(defined as contributing at least 10%) that accounted for 68% of
accounts receivable.
Accounts payable and concentrations of credit risk
As at 30 June 2023, there was one significant vendor (defined as
contributing at least 10%) that accounted for 40% of accounts
payable and accrued expenses.
As at 30 June 2022, there were two significant vendors (defined
as contributing at least 10%) that accounted for 41% (26% and 15%)
of 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.
Unbilled work-in-progress and concentrations of credit risk
As at 30 June 2023, there were three significant customers
(defined as contributing at least 10%) that accounted for 90% (21%,
26% and 43%) of unbilled work-in-progress.
As at 30 June 2022, there were three significant customers
(defined as contributing at least 10%) that accounted for 75% (29%,
26% and 20%) of unbilled work-in-progress.
As at 31 December 2022, there were three significant customers
that accounted for 88% (17%, 27% and 44%) of unbilled
work-in-progress.
Revenue concentrations
As at 30 June 2023, the five largest customers accounted for
$2,913,462 of revenue, some 54% of revenue from continuing
operations.
As at 30 June 2022, the five largest customers accounted for
$4,360,714 of revenue, some 65% of revenue from continuing
operations.
Top 5 Customers' Revenue For 6 months ending For 6 months ending
concentration June 2022 June 2023
% of Total % of Total
$'000 Revenue Revenue Revenue Revenue
Licence/subscription 1,390 21% 1,591 30%
Support 1,036 15% 655 12%
Services 1,935 29% 667 12%
--------- ----------- --------- -----------
Top 5 customers 4,361 65% 2,913 54%
Advertising and promotion costs
Advertising and promotion costs are expensed as incurred. These
costs totalled approximately $297,362 for the six-month period
ended 30 June 2023 (30 June 2022: $221,453).
Segmental reporting
The Group reports its business activities in two areas:
Licence/subscription and support revenue (recurring) and
professional services (non-recurring), which is reported in a
manner consistent with the internal reporting to the Board, which
has been identified as the chief operating decision maker.
Income taxes
The Group records deferred tax assets and liabilities for the
estimated future tax effects of temporary differences between the
tax bases of assets and liabilities and amounts reported in the
Group's consolidated Statements of Financial Position, as well as
operating loss and tax-credit carry-forwards. The Group also
measures the Group's deferred tax assets and liabilities using
enacted tax rates expected to be applied to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by a
valuation allowance if, based on available evidence, it is more
likely than not that these benefits will not be realized.
Stock-based compensation
The Group records stock-based compensation in accordance with
FASB ASC Topic 718 "Compensation-Stock Compensation". The fair
value of awards granted is recognized as an expense over the
requisite service period.
Leases
In February 2016, Financial Accounting Standards Board ("FASB")
issued guidance Accounting Standards Codification ("ASC") 842,
Leases, to increase transparency and comparability among
organizations by requiring the recognition of right-of-use ("ROU")
assets and lease liabilities on the balance sheet. Most prominent
among the changes in the standard is the recognition of ROU assets
and lease liabilities by lessees for those leases classified as
operating leases. Under the standard, disclosures are required to
meet the objective of enabling users of financial statements to
assess the amount, timing, and uncertainty of cash flows arising
from leases. The Company adopted FASB ASC 842 effective 1 January
2022.
The Company determines if an arrangement is a lease at
inception. If applicable, operating leases are included in
operating lease ROU assets, other current liabilities, and
operating lease liabilities on the accompanying balance sheet. If
applicable, finance leases are included in property and equipment,
other current liabilities, and other long-term liabilities on the
accompanying balance sheet.
ROU assets represent the right to use an underlying asset for
the lease term and lease liabilities represent our obligation to
make lease payments arising from the lease. Operating lease ROU
assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term.
Foreign currency
The Company's functional currency is United States Dollar ("$").
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. Realized and unrealized 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
Comprehensive Income in which they occur.
The exchange rate used to translate the Lebanese pound ("LBP")
into $ for the purpose of preparing the interim financial
information has been fixed at $1 = LBP 1,500. The exchange rate
used to translate the sterling pound ("GBP"), Euro ("EUR") and
Canadian dollar into $ for the purpose of preparing the interim
financial information uses the average rate for the Statement of
Comprehensive Income and Statement of Cash Flows and the historical
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 categorized 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.
On 1 February 2023, the Lebanese Central Bank issued
intermediate circular No: 151 which increased the value of $1 from
LBP 8,000 to LBP 15,000.
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
changed from $1 to LBP 1,500 to $1 to LBP 15,000 effective 1
February 2023. As at 30 June 2023, the Group had the $ equivalent
of approximately $158,800 in external deposits (accounts not
subject to same restrictions as Local Currency Accounts ("LCAs"))
and $2,100 in LCAs (31 December 2022: approximately $29,700 in
external deposits and approximately $7,600 in current
deposits).
"Foreign exchange gains / (losses)" include gains on payments in
Lebanon at rates of LBP 1,500 per $ as of January 2023 and LBP
15,000 per $ effective 1 February 2023 and losses on the decline in
the GBP vs $ rates as applied against the capitalized loan
(GBP10,143,073) in Fadel UK in favour of the Company.
The currency exchange rates to the $ as at 30 June 2023 were
0.791 for GBP, 0.922 for EUR and for 1.325 CAD. The currency
exchange rates to the $ as at 30 June 2022 were 0.824 for GBP,
0.959 for EUR and for 1.120 CAD.
Comprehensive income/(loss)
Comprehensive income/(loss) consists of two components:
-- net income/(loss); and
-- other comprehensive income/(loss).
Other comprehensive income/(loss) refers to revenue, expenses,
gains and losses that are recorded as an element of shareholder's
equity but are excluded from net income/(loss). Other comprehensive
income/(loss) consists of foreign currency translation adjustments
from those subsidiaries not using the $ as their functional
currency.
Statement of cash flows
Cash flows from the Group's operations are calculated based upon
the local currencies. As a result, amounts related to assets and
liabilities reported on the Statement of Cash Flows will not
necessarily agree with changes in the corresponding balances on the
Statements of Financial Position.
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
historical 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. 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.
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
"licence 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:
Unaudited Unaudited
Six months Six months
ended ended
30 June 30 June
2022 2023
$ $
------------------------------------------ --------------------- --------------------
Revenue
Licence/Subscription
IPM Suite 2,031,201 2,481,046
Brand Vision 922,434 1,006,783
--------------------- --------------------
Total Licence/Subscription 2,953,635 3,487,829
Support
IPM Suite 1,211,606 848,655
Brand Vision - -
--------------------- --------------------
Total Support 1,211,606 848,655
Licence/subscription and support 4,165,241 4,336,484
Professional services 2,526,163 1,036,659
------------------------------------------- --------------------- --------------------
Total revenue 6,691,404 5,373,143
------------------------------------------- --------------------- --------------------
Cost of Sales
Licence/subscription and support 1,158,356 1,520,658
Professional services 1,490,719 1,173,682
------------------------------------------- --------------------- --------------------
Total cost of sales 2,649,075 2,694,340
------------------------------------------- --------------------- --------------------
Gross Profit Margins
Gross profit margin Licence/subscription
and support 72% 65%
Gross profit margin Service 41% (13)%
------------------------------------------- --------------------- --------------------
Total gross profit margin 60% 50%
------------------------------------------- --------------------- --------------------
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Audited Unaudited Unaudited
As at As at As at
31 December 30 June 30 June
2022 2022 2023
$ $ $
--------------------------------- ------------- ---------- ----------
Accounts receivable 1,885,413 709,007 1,054,481
Allowance for doubtful accounts (22,019) (22,019) (22,019)
--------------------------------- ------------- ---------- ----------
Accounts receivable, net 1,863,394 686,988 1,032,462
--------------------------------- ------------- ---------- ----------
The accounts receivable balance as at 31 December 2022 was
$1,863,394 whilst at 31 December 2021 was $3,245,833.
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 warrants and Options.
Unaudited Unaudited
Six months Six months
ended ended
30 June 30 June
2022 2023
$ $
----------------------------------------- ------------ ------------
Total comprehensive income attributable
to Shareholders (351,556) (1,942,696)
Weighted average number of Shares 6,782,943 13,245,516
Basic and diluted loss per
share ($) (0.05) (0.15)
------------------------------------------ ------------ ------------
Due to the Group having losses in all years presented, the fully
diluted loss per share for disclosure purposes, as shown in the
statement of consolidated comprehensive income, is the same as for
the basic loss per share due to the anti-dilutive nature of the
calculations.
7. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
Audited Unaudited Unaudited
As at As at As at
31 December 30 June 30 June
2022 2022 2023
$ $ $
Furniture and equipment 202,025 202,218 204,267
Accumulated depreciation (113,855) (98,308) (120,905)
-------------------------- ------------- ---------- ----------
Furniture and equipment,
net 88,170 103,910 83,362
-------------------------- ------------- ---------- ----------
The total depreciation charge in 1H23 was $7,050, compared to
$nil in 1H22.
8. CONTRACT COSTS
The Group applied ASC-606 as at 1 January 2019 to contracts that
were either not completed as of that date, or that had a life of
customer that ended after 1 January 2019. This resulted in the
capitalization of $283,106 in commission expenses incurred prior
to, and during the year ended 31 December 2019. Accumulated
amortization as at 30 June 2023 was $1,259,120 (31 December 2022:
$1,093,968, 30 June 2022: $862,997). Amortization periods for
customer lives typically vary between 5 and 10 years. The Group
elected not to apply the practical expedient for the Group's
contracts that have a duration of less than one year.
Contract costs consist of the following:
Audited Unaudited Unaudited
As at As at As at
31 December 30 June 30 June
2022 2022 2023
$ $ $
-------------------------------- ------------- ---------- ----------
Opening balance 644,270 644,270 584,510
-------------------------------- ------------- ---------- ----------
Commissions capitalized during
the period 323,209 125,121 319,917
Amortization charge for the
period (382,969) (151,999) (165,152)
Accumulated contract costs 584,510 617,392 739,275
-------------------------------- ------------- ---------- ----------
9. EQUITY
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.
On 2 April 2023 the outstanding preferred shares of MEVP, BBEF,
iSME and B&Y were converted into common shares in accordance
with the terms of their agreements pursuant to the IPO. Impact Fund
by MEVP Holding SAL converted their Series A-2, B and B-1 preferred
shares into 5,496,821 common shares, BBEF (Holding) SAL converted
their Series A-1 preferred shares into 1,068,837 common shares,
iSME SAL Holding converted their Series A-1 preferred shares into
580,383 common shares and B&Y Division One Holding SAL
converted their Series B-2 preferred shares into 406,268 common
shares.
On 6 April 2023 the Company announced the admission of its
entire issued share capital to trading on AIM, a market operated by
the London Stock Exchange. In connection with its initial public
offering the Company raised gross proceeds of GBP8.0 million. On 2
May 2023, the Company announced the issuance of 223,289 new
depositary interests over common shares at a price of GBP1.44 per
share, raising $401,245.
As at 30 June 2023 the Company had 20,191,292 common shares
issued and outstanding.
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; and
-- 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.
10. 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 $100,000,
respectively, with a Director in Fadel Lebanon for facilitating
banking transactions and working capital purposes in Lebanon. The
notes call for payment of interest at 0% per annum compounded
annually. The outstanding balance of all such loans was $75,000 and
$100,000 as at 31 December 2022 and 30 June 2023 respectively. The
remaining GBP100k will be fully paid prior to 31 December 2023.
On 2 April 2023, Tarek Fadel and the Company entered into a loan
agreement whereby Mr. Fadel agreed to advance a loan (the "Fadel
Loan") of GBP451,346 to the Company equivalent to $564,009. The
Fadel Loan is unsecured and bears no interest or fees. The Company
made a loan repayment of $401,613 on 28 April 2023 after the
issuance of 223,289 new depositary interests ("New Shares") over
common shares at a price of GBP1.44 per share (the "Placing"). The
remaining balance on the Fadel Loan is repayable only as and when,
following Admission (and excluding the issue of the New Shares in
the Placing), the Company issues new shares at or above the placing
price.
11. LINE OF CREDIT - BANK OF AMERICA
On 3 April 2023, $300,000 of the $1 million line of credit
between the Company and Bank of America, N.A. was repaid leaving an
outstanding balance of $700,000 as at 30 June 2023. On 11 May 2023,
the line of credit between the Company and Bank of America, N.A.
was extended until 31 May 2024. Subsequent to 30 June 2023 the
facility was repaid in full on 26 September 2023.
12. 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, at a monthly lease payment of EUR1,600 per
month, and extended it to a 12-month lease from 1July 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.
In January 2023, the Group entered into a 12-month lease for a
workspace 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 with
Convene for a workspace office in New York (USA). The monthly lease
payment is approximately $1,647. The lease has been renewed for a
further 12 months.
On 1 February 2023 the Group entered into a 12-month lease with
Serendipity Labs, Inc. for a workspace office in Rye New York
(USA). The monthly lease payment is approximately $597.
On October 2022, the Group entered into a 12-month lease for a
workspace office in the UK. The monthly lease payment is
GBP650.
Total rental expense (USD) Consolidated
For 6 months ended June 2022 $45,266
For 6 months ended June 2023 $29,408
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 these future lease payments
was determined to be $102,091. The monthly payment is $4,902.
The current and future minimum lease payments, exclusive of
related costs, are approximately as follows:
$ Payment Interest Principal
For 6 months ended
June 2023 29,412 2,685 26,727
Maturity within 1
year 39,216 1,462 37,754
Maturity after 1 year - - -
Total: 68,628 4,147 64,481
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 current and future minimum lease payments, exclusive of
related costs, are approximately as follows:
$ Payment Interest Principal
For 6 months ended
June 2023 19,425 2,352 17,073
Maturity within 1 year 38,850 2,063 36,787
Maturity after 1 year - - -
Total: 58,275 4,415 53,860
13. SUBSEQUENT EVENTS
The withholding tax amount associated with the acquisition of
IDS that was paid in June 2023 for GBP 518,898 will be reclaimable,
by 30 September 2024.
Following receipt of two notices to exercise warrants over a
total of 121,925 common shares of $0.001 in the Company on a net
exercise basis, the Company concluded the exercise, resulting in
the issuance of 39,958 Common Shares.
The Bank of America loan facility was repaid in full on 26
September 2023.
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END
IR LQLLLXKLBBBX
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