Notes to the financial statements

1.    ORGANISATION AND NATURE OF BUSINESS

 

The Financial Information consolidates the financial information of the Company and:

·      its wholly-owned subsidiaries:

o  Fadel Partners UK Limited ("Fadel UK"), and its wholly-owned subsidiary;

§ Image Data Systems (UK) Limited ("IDS");

o  Fadel Partners France SAS ("Fadel France"); and

o  Fadel Partners Canada Inc. ("Fadel Canada") disolved November 2023.

·      its 99.99%-owned subsidiary, Fadel Partners SAL Lebanon ("Fadel Lebanon").

The Company is a New York Corporation formed in July 2003 and reincorporated in Delaware in January 2014. Fadel Lebanon was incorporated in Lebanon in August 2014, Fadel UK was formed in the United Kingdom ("UK") in January 2015, while Fadel Canada was formed in Canada in June 2021 and subsequently dissolved in November 2023. The primary reason for this dissolution was to initiate investment in the UK and expand our workforce there, following our decision to go public in that market. Consequently, it's more logical to close the entity in Canada and concentrate on strengthening our operations in the UK. Fadel France was formed in France in February 2020. IDS was formed in April 1992 in the UK, by an unrelated party, and acquired by the company on 1 October 2021. Together the entities are collectively referred to herein as the "Group". The Group is headquartered in New York, with a presence in Los Angeles, London, Paris and Beirut (Lebanon) and is engaged in providing and servicing its Intellectual Property Rights and Royalty Management suite of software.

On 6 April 2023, the Company was listed and started trading on AIM, a market operated by the London Stock Exchange plc ("AIM").

2.    LIQUIDITY AND FINANCIAL CONDITION

 

Under Accounting Standards Update, or ASU, Presentation of Financial Statements-Going Concern (Accounting Standard Codification ("ASC") Subtopic 205-40) ("ASC 205-40"), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Group's ability to meet its future financial obligations as they become due within one year after the date that the Consolidated Financial Information is issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as 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 $2.6 million in cash and cash equivalents on the Statement of Financial Position as at 31 December 2024. As at 31 December 2024, the Group had negative working capital of approximately $0.8 million and an accumulated deficit approximating $22.5 million. Additionally, the Group had a net loss of approximately $5.8 million and cash used in operating activities of approximately $0.6 million during the year ended 31 December 2024.

During Q4 2024, the Company undertook a comprehensive operational and structural review which led to significant cost-saving measures across key functions. These included the realignment and optimization of the Sales and Marketing and Services teams, along with transitioning certain delivery functions to lower-cost regions. These actions are expected to result in a reduction in annualized cost of sales and operating expenses exceeding $1.5 million, while continuing to support revenue growth and high service levels. The leaner cost structure meaningfully extends the Company's cash runway and supports its strategic path to cash flow breakeven.

The Group continued to expand its Annual Recurring Revenue (ARR), growing approximately 10% year over year in 2024. The Group also maintains access to an undrawn $1.0 million credit facility, providing additional liquidity if required.

Taking into account the Company's cash position, access to additional liquidity, continued ARR expansion, and the substantial cost reductions implemented in Q4 2024, management believes the Group has sufficient resources to meet its obligations and continue as a going concern for a period of at least twelve months from the date of issuance of these consolidated financial statements. Accordingly, the financial statements have been prepared on a going concern basis.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial Information has been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). They include the accounts of the Company, and interest owned in subsidiaries as follows: 99.99% of Fadel Lebanon and 100% of Fadel UK, Fadel France, Fadel Canada (dissolved November 2023) and IDS. All significant intercompany balances and transactions are eliminated on consolidation. The non-controlling interest represents the 0.00011% share of Fadel Lebanon owned by outside parties.

Use of estimates

The preparation of the consolidated financial information in conformity with US GAAP requires the Group to make estimates and assumptions that affect the reported amounts of the Group's assets and liabilities and disclosure of contingent assets and liabilities, at the date of the Consolidated Financial Information, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Fair value measurements

Generally accepted accounting principles require the disclosure of the fair value of certain financial instruments, whether or not recognised on the Consolidated Statement of Financial Position, for which it is practicable to estimate fair value. The Group estimated fair values using appropriate valuation methodologies and market information available as 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 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 and cash equivalents, accounts receivable and unbilled work-in-progress. The Company performs on-going evaluations of the Group's customers' financial condition and, generally, requires no collateral from customers.

The Group maintains its bank accounts with major financial institutions in the United States, Lebanon, the UK, and France.  At 31 December 2024, the Group had cash balances in excess of the Federal or National insured limits at financial institutions in the United States, France and the UK totalling some US$1.8 million out of a total of US$2.6 million cash deposits. The Company believes the risk is limited as the institutions are large national institutions with strong financial positions. Cash amounts held in Lebanon are not insured and as such minimal deposits are held in Lebanese accounts, with payments transferred in country only on an as needed basis.

Accounts receivable, unbilled work-in-progress and credit losses

Accounts receivable is recorded at the invoiced amount and do not bear interest. Credit is extended based on the evaluation of a customer's financial condition and collateral is not required. Unbilled work-in-progress is revenue which has been earned but not invoiced. An allowance is placed against accounts receivable or unbilled work-in-progress for management's best estimate of the amount of probable credit losses. The Company determines the allowance based on historical write-off experience and information received during collection efforts.

Credit losses to date have been insignificant and within management's expectations. The company provides an allowance for credit losses that is based upon a review of outstanding receivables, historical collection information, expected future losses, and existing economic conditions. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. See Note 8 for more details.

Revenue Recognition

The Group follows the guidance of ASC 606, "Revenue from Contracts with Customers," and ASC 340, "Other Assets and Deferred Cost," to account for revenue from 1 January 2019 onward.

Sources of Revenue

The Group's revenue is primarily derived from the following sources:

1.   License Fees

2.   Subscription Fees

3.   Customer Support

4.   Professional Services

 

Recognition Criteria

Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Group expects to receive in exchange for those goods or services. When a contract includes variable consideration, such as overage fees, contingent fees, or service level penalties, the Group estimates the amount to include in the transaction price only if it is probable that a significant reversal of cumulative revenue will not occur once the uncertainty associated with the variable consideration is resolved.

The Group applies the following five steps to determine the amount of revenue to recognize:

1.   Identify the contract(s) with a customer.

2.   Identify the performance obligations in the contract.

3.   Determine the transaction price.

4.   Allocate the transaction price to the performance obligations in the contract.

5.   Recognize revenue when or as the Group satisfies a performance obligation.

 

Performance Obligations and Timing of Revenue Recognition

ASC 606 requires the identification of distinct performance obligations within a contract. The Group customer agreements primarily fall into the three distinct contract structures:

1.   SaaS Offerings (Brand Vision, Picture Desk, LicenSee)

2.   IPM Suite: FADEL Hosted

3.   IPM Suite: Client Hosted

Each of these contract structures includes various promised goods and services that have been assessed to determine if they are distinct or not:

Contract Structures	Promised Goods and Services	Distinct Performance Obligations	Revenue Recognition
1- SaaS Products	- SaaS Subscriptions	SaaS subscription, support, and software updates are highly interdependent and interrelated, forming a single performance obligation.	Over Time
	- Support
	- Software Updates
	- Services	Services can be provided independently of the SaaS product functionality, either by the customer or other third parties.	As Delivered
2- IPM Suite: FADEL Hosted	- Software License	The software license and hosting are highly interdependent and are treated as a single performance obligation.	Over Time
	- Hosting
	- Support / ESS	Support and ESS provide additional, but not essential, benefits separate from the software license and hosting.	Over Time
	- Software Updates	Software updates are considered separate, allowing customers to decide on implementation independently.	Over Time
	- Services	Additional services are not essential to the core functionality of the software license and hosting.	As Delivered
3 - IPM Suite: Client Hosted	- Software License	The software license is distinct since it does not depend on other FADEL-managed services.	As Delivered
	- Support / ESS	These remain separate from the software license, enhancing customer experience but not critical for core software operation.	Over Time
	- Software Updates	Clients can choose whether to implement updates, keeping this service separate from the primary software license obligation.	Over Time
	- Services	Additional services are not essential to the core functionality of the software license and hosting.	As Delivered

 

The Group allocates the transaction price first by considering if standalone sales data is available for each identified performance obligation. Based on a review of historical subscription agreements, the combined Software License or SaaS Subscription is sold and renewed on a standalone basis. Consequently, the Group utilizes these observable inputs to develop the standalone selling prices of these services.

The Group typically invoices customers annually, with payment terms requiring settlement within 30 days of invoicing. Amounts invoiced are recorded as accounts receivable and as either unearned revenue or revenue, depending on whether control has transferred to the customer.

Costs of Obtaining a Revenue Contract

The Group capitalises costs of obtaining a revenue contract. These costs consist of sales commissions related to the acquisition of such contracts that would not have been incurred if these contracts were not won.

For licenses, the Group estimated the amortisation period based on the remaining expected life of the customer/the term for which it anticipates the Group's contract will remain effective. It anticipates the term due to the project size, terms, complexity and cost of implementation and transition, making it less likely that a client will change vendors for this service.

During the implementation, the Group applied the guidance as at 1 January 2019 only to contracts that were either not completed as 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. The Group has also elected to not include amortisation of the costs of obtaining a revenue contract within gross profit in order to help the reader see the business through the eyes of management.

Research and Development Costs:

The Company incurs research and development ("R&D") costs related to the development of software products that are marketed externally as well as internally hosted cloud-based solutions. As such, the Company evaluates its software development activities under both ASC 985-20 (Software to be Sold, Leased, or Marketed) and ASC 350-40 (Internal-Use Software).

In accordance with these standards, the Company historically expenses all R&D costs as incurred. While certain costs could potentially qualify for capitalization under the applicable guidance, management has determined that, due to the integrated nature of development activities and the inability to reasonably segregate capitalizable costs from non-capitalizable costs on a cost-effective basis, all costs are expensed as incurred.

Deferred Revenues

FADEL's contract liabilities primarily consist of amounts invoiced to customers in advance of the delivery of services or the satisfaction of performance obligations under licensing and professional services agreements.

As of January 1, 2024 and 2023, deferred revenue balances were $3,033,095 and $3,335,781, respectively. During the year ended December 31, 2024, $2,650,934 of the deferred revenue was recognized as revenue (2023: $2,348,899).

 

Unbilled Work-in-Progress

 

Unbilled work-in-progress represents revenue recognized over time under ASC 606, for performance obligations satisfied but not yet invoiced as of the reporting date, and is included in contract assets on the balance sheet.

 

As of January 1, 2024 and 2023, unbilled work-in progress balances were $3,703,895 and $729,915 respectively. During the year ended December 31, 2024, $1,800,426 of the unbilled revenues was billed  (2023: $287,697).

 

Depreciation

Furniture and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations for the period. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and betterments are capitalised.

Intangible Assets - Goodwill

Goodwill arises on the acquisition of a business. Goodwill is not amortized. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. The Group determined that an impairment charge was not necessary during the years ended 31 December 2023 and 2024.

Intangible assets other than goodwill

The Group has three categories of intangible assets other than goodwill:

Brand assets

The Group purchased IDS in October 2021 and with it acquired a long-established and respected brand. At the time of purchase, the Group estimated the useful life of the brand assets acquired for financial reporting purposes and recognises amortisation on a straight-line basis over the useful life of the asset, typically 10 years. Purchased brand assets are reviewed for impairment at each reporting date or when events and circumstances indicate an impairment. The Group determined that an impairment charge was not necessary during the years ended 31 December 2023 and 2024.

Customer relationships

The Group purchased IDS in October 2021 and with it acquired a number of customer relationships. At the time of purchase, the Group estimated the useful life of the customer relationships acquired for financial reporting purposes and recognises amortisation on a straight-line basis over the useful life of the asset, typically 10 years. Purchased customer relationships are reviewed for impairment at each reporting date or when events and circumstances indicate an impairment. The Group determined that an impairment charge was not necessary during the years ended 31 December 2023 and 2024.

Software and technology assets

The Group purchased IDS in October 2021 and with it acquired a number of software and technology assets.  At the time of purchase, the Group estimates the useful life of the software and technology assets acquired for financial reporting purposes and recognised amortisation on a straight-line basis over the useful life of the asset, typically 10 years. Purchased software and technology assets are reviewed for impairment at each reporting date or when events and circumstances indicate an impairment. The Group determined that an impairment charge was not necessary during the years ended 31 December 2023 and 2024.

Billed accounts receivable and concentrations of credit risk

As at 31 December 2024, there were two significant customers (defined as contributing at least 10%) that accounted for 49% of accounts receivable.

As at 31 December 2023, there were two significant customers (defined as contributing at least 10%) that accounted for 72% of accounts receivable

 

Accounts payable and concentrations of credit risk

As at 31 December 2024, there were two significant vendors (defined as contributing at least 10%) that accounted for 44% of accounts payable.

As at 31 December 2023, there were three significant vendors (defined as contributing at least 10%) that accounted for 58% of accounts payable.

Unbilled work-in-progress and concentrations of credit risk

As at 31 December 2024, there were two significant customers that accounted for 69% (34% and 35%) of unbilled work-in-progress.

As at 31 December 2023, there were three significant customers that accounted for 76% (39%, 19% and 18%) of unbilled work-in-progress.

Segmental reporting

The Group reports its business activities in two areas:

·      License/subscription and support revenue; and

·      Professional services,

 

which are reported in a manner consistent with the internal reporting to the CEO, who has been identified as the chief operating decision maker.

Revenue concentrations

During 2024, the five largest customers accounted for an aggregate of $6,379,336 of revenue, some 49% of revenue from continuing operations

During 2023, the five largest customers accounted for an aggregate of $8,769,838 of revenue, some 61% of revenue from continuing operations

Top 5 Customers' revenue concentration   $'000			Revenue	2023 % of Total Revenue	Revenue	2024 % of Total Revenue
License/subscription			$ 5,944	41%	$ 4,004	31%
Support			720	5%	455	3%
Services			2,106	15%	1,920	15%
Total			$ 8,770	61%	$ 6,379	49%

Advertising and promotion costs

Advertising and promotion costs are expensed as incurred. These costs totalled $781,410 for the year ended 31 December 2023 and $1,001,898 for the year ended 31 December 2024.

Income taxes

The Group records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the Group's Consolidated Statements of Financial Position, as well as operating loss and tax-credit carry-forwards. The Group also measures deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realised.

Stock-based compensation

The Group records stock-based compensation in accordance with FASB ASC Topic 718 "Compensation-Stock Compensation". The fair value of awards granted is recognised as an expense over the requisite service period.

 

Leases

In February 2016, Financial Accounting Standards Board ("FASB") issued guidance Accounting Standards Codification ("ASC") 842, "Leases", to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the Consolidated Statements of Financial Position. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted FASB ASC 842 effective 1 January 2022.

The Company determines if an arrangement is a lease at inception. If applicable, operating leases are included in operating lease ROU assets, other current liabilities, and operating lease liabilities on the accompanying Consolidated Statements of Financial Position. If applicable, finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the accompanying Consolidated Statements of Financial Position.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Foreign currency

The Group's reporting currency is the US Dollar. The functional currency of foreign operations, excluding the Lebanon entity, is the local currency for the foreign subsidiaries. Assets and liabilities of those foreign operations denominated in local currencies are translated at the spot (historical) rate in effect at the applicable reporting date. The Group's Consolidated Statements of Comprehensive Income are translated at the weighted average rate of exchange during the applicable period. Realised and unrealised transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (expense) in the Consolidated Statements of Comprehensive Income in the period in which they occur.

The exchange rate used to translate the sterling pound ("£"), ("EURO") and (CAD) into $ for the purpose of preparing the financial information uses the average rate for the Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows and the rate at the end of the reporting period for the Consolidated Statements of Financial Position.

In accordance with applicable US GAAP, on January 1, 2023, our company transitioned Fadel Lebanon to a USD functional currency entity due to the hyperinflationary conditions prevalent in the Lebanese currency. As a result, all financial statements for periods end 31 December 2023 and 2024, reflect the Lebanon subsidiary's operations and financial position in USD.

Comprehensive loss

Comprehensive loss consists of two components:

•      net loss; and

•      other comprehensive loss.

 

Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of Shareholder's equity but are excluded from net loss. Other comprehensive loss consists of foreign currency translation adjustments from those subsidiaries not using the $ as their functional currency.

Statement of cash flows

Cash flows from the Group's operations are calculated based upon the functional currencies. As a result, amounts related to assets and liabilities reported on the Consolidated Statements of Cash Flows will not necessarily agree with changes in the corresponding balances on the Consolidated Statements of Financial Position.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as at the specified date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Group's Consolidated Statements of Financial Position, Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13)". ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after 15 December 2022. The Company adopted this standard as of 1 January 2023, with no material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure". This standard requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss and the title and position of the entity's CODM. The amendments in this update also expand the interim segment disclosure requirements. This standard is effective for fiscal years beginning after 15 December 2023, and interim periods within fiscal years beginning after 15 December 2024 and early adoption is permitted. The Company is currently evaluating the potential impact that this new standard will have on our consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to provide enhancements to annual income tax disclosures. In particular, the standard will require more detailed information in the income tax rate reconciliation, as well as the disclosure of income taxes paid disaggregated by jurisdiction, among other enhancements. The standard is effective for years beginning after 15 December 2024 and early adoption is permitted. The Company is currently evaluating the impact of the standard on the presentation of its consolidated financial statements and footnotes.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. This standard enhances the transparency of financial reporting by requiring public entities to disclose additional information about the nature of certain expense line items presented in the income statement. FADEL is currently evaluating the impact of this standard on its financial statement disclosures.

4.    SEGMENTAL REPORTING

The Group reports its business activities in two areas:

·      License/subscription and support revenue; and

·      professional services,

 

which are reported in a manner consistent with the internal reporting the Chief Executive Officer, which has been identified as the chief operating decision maker.

While the chief operating decision maker considers there to be only two segments, the Group's revenue is further split between "license subscriptions and support" (recurring in nature) and "professional services" (non-recurring) and by key product families IPM Suite and Brand Vision (which includes PictureDesk) and hence to aid the readers understanding of our results, the split of revenue from these categories is shown below:

		As at 31 December 2023	As at 31 December 2024
		$	$
Revenue
Licence/Subscription
IPM Suite		7,407,547	6,432,379
Brand Vision		2,312,778	2,559,367
Total Licence/Subscription		9,720,325	8,991,746
Support
IPM Suite		1,674,970	674,027
Brand Vision
Total Support		1,674,970	674,027
Licence/subscription and support		11,395,295	9,665,773
Professional services		3,091,494	3,356,428
Total Revenue		14,486,789	13,022,201
Cost of Sales
License/Subscription and support		3,010,432	3,394,219
Professional services		2,456,546	1,579,011
Total cost of sales		5,466,978	4,973,230
Gross Profit Margins
Profit margin licence/subscription and support		74%	65%
Profit margin service		21%	53%
Total gross profit margin		62%	62%

 

 

 

5.    INCOME TAXES

The components of income/(loss) before income taxes are as follows:

		As at 31 December 2023	As at 31 December 2024
		$	$
Domestic		(3,437,382)	(4,817,109)
Foreign		1,101,596	(83,175)
US taxable profit before income taxes		(2,335,786)	(4,900,284)

Provision for income taxes consisted of the following:

Provision components are as follows:		As at 31 December 2023	As at 31 December 2024
		$	$
Current:
Foreign		(454,704)	90,025
Federal		16,283	7,041
State		7,223	(109,360)
Total current expense/(income)		(431,198)	(12,294)
Deferred:
Foreign		(39,542)	39,732
Federal		6,541	587,582
State		157,184	203,465
Total deferred expense		124,183	830,779
Provision for/(benefit from) income taxes		(307,015)	(818,485)
Deferred:

The differences between income taxes expected at the U.S federal statutory income tax rate and income taxes reported were as follows:

Effective Tax Rate Reconciliation		As at 31 December 2023	Tax Rate As at 31 December 2023 %	As at 31 December 2024	Tax Rate As at 31 December 2024 %
		$		$
U.S federal income tax (benefit) at statutory rate		(490,515)	21	(1,029,060)	21
State tax (net of federal benefit)		143,385	(6)	(186,769)	4
Foreign tax rate differential		(624,689)	27	(8,785)	-
Meals and entertainment		3,343	0	-	-
GILTI income		599,441	0	459,569	(9)
Stock Compensation		-	-	57,885	(1)
Change in Valuation Allowance		-	-	(316,895)	6
True Ups		-	-	1,894,965	(39)
Research & development credit		-	-	-	-
SALT rate change		19,504	(1)	-	-
Other		42,014	(2)	(42,692)	1
Provision for/(benefit from) income taxes		(307,015)	13	828,218	(17)

 

 

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, France, Lebanon and the UK.

U.S Companies are eligible for a deduction that lowers the effective tax rate on certain foreign income.  This treatment is referred to as the Foreign-Derived Intangible Income deduction.

As at 31 December 2023, the Company had a federal, state, and foreign NOL carry forwards of approximately $135 thousand, $1.5 million, and $40 thousand, respectively. The state NOL will begin to expire in 2037. As at 31 December 2023, the Company had foreign NOLs in the UK and state NOLs in California, Connecticut, Florida, Massachusetts, New York and Pennsylvania.

As at 31 December 2024, the Company had a federal and state NOL carry forward of approximately $2.5 million and $2.8 million. The state NOL will expire beginning in 2037. As at 31 December 2024, the Company had NOLs in California, Connecticut, Florida, Massachusetts, New York and Pennsylvania.

The TCJA introduced a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries. For the years ended 31 December, 2024 and 2023, the Company had to include GILTI relating to the Company's foreign subsidiaries. The Company elected to account for GILTI as a current period cost.

Significant components of the Company's deferred tax assets and deferred tax liabilities are as follows:

 

Deferred Tax Table		As at 31 December 2023	As at 31 December 2024
		$	$
Amortisation		629,016	780,186
Net Operating loss carry forwards		28,306	525,250
Net Operating loss carry forwards (state)		96,109	175,098
Net Operating loss carry forwards (foreign)		2,744,200	675,799
Reserves and accruals		117,276	78,839
Deferred revenue		97,894	111,410
R&D credit		-	-
Net deferred tax assets		3,712,801	2,346,582
Less valuation allowance		(2,704,468)	(2,346,582)
Total deferred tax assets		(1,008,333)	-
Total deferred tax liabilities		(177,555)	-
Deferred tax assets, net		830,778	-

 

As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. The Company considers all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. The significant 2024 pre-tax loss, coupled with cumulative book losses projected in early future years, was significant negative evidence considered by the Company. As a result, the Company's valuation balance as of 31 December 2024 is $2.3M.

 

The change in the valuation allowance is as follows:

 

	Beginning of the Year	Additions/ (Deductions)	Balance at the end of the year
2023
Reserves Deducted from deferred income taxes, net:	954,941	(2,580,475)	3,535,416
Valuation Allowance	-	(2,704,638)	(2,704,638)
2024
Reserves Deducted from deferred income taxes, net:	3,535,416	(1,147,674)	2,387,742
Valuation allowance	(2,704,468)	(316,895)	(2,387,572)

 

At 31 December 2024, the Company did not have any unrecognized tax benefits and did not anticipate any significant changes to the unrecognized tax benefits within twelve months of this reporting date. In the year ended 31 December 2024, the Company recorded no interest and penalties on income taxes. At 31 December 2024, there was no accrued interest included in income taxes payable.

 

The Company considers the earnings of its foreign entities to be permanently reinvested outside the United States based on estimates that future cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred taxes have not been recorded for the $2.1 million of undistributed earnings of the Company's foreign subsidiaries. As a result of the Tax Cuts and Jobs Act ("TCJA") and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign earnings are not significant. All other outside basis differences not related to earnings were impractical to account for at this period of time and are currently considered as being permanent in duration.

 

 

6.    EARNINGS PER SHARE

 

The Company computes earnings (loss) per share in accordance with ASC 260, Earnings per Share, which requires presentation of both basic and diluted earnings per share on the face of Consolidated Statements of Comprehensive Income. Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding shares during the period.

Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Due to their anti-dilutive effect, the calculation of diluted net loss per share for the years ended 31 December 2023 and 31 December 2024 does not include stock options and warrants. The number of dilutive shares would have been 1,846,296 and 1,689,826 as at 31 December 2024 and 31 December 2023, respectively.

		As at 31 December 2023	As at 31 December 2024
		$	$
Total comprehensive income attributable to Shareholders		(2,049,028)	(5,691,342)
Weighted average number of Shares		16,772,311	20,231,250
Basic and diluted earnings per share ($)		(0.12)	(0.28)

 

 

7.    BUSINESS COMBINATION

 

On 1 October 2021, Fadel UK Limited signed a Share Purchase Agreement to acquire 100% of the ordinary shares of Image Data Systems (IDS), a UK based business with over 30 years' experience in image and video management providing production agencies and media publishers with a fast and scalable cloud-based content services platform. The complementary nature of the IDS content services platform, when combined with the digital rights management system of FADEL will make an even more compelling offering for brand managers.

Fair Value of Purchase Consideration

The fair value of the purchase consideration on the acquisition date was ($7.4 million (£5.5 million)).

Fair Value of Assets Acquired and Liabilities Assumed

The Group accounted for the acquisition using the purchase method of accounting for business combinations under ASC 805, Business Combinations. The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities based on their estimated fair values as at the acquisition date.

Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The Company's judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and the expected future cash flows and related discount rates, can materially impact the Consolidated Financial Information. Significant inputs used for the calculations included the amount of cash flows, the expected period of the cash flows and the discount rates.

The allocation of the purchase price was based on the Company's estimate of the fair values of the assets acquired and liabilities assumed on the acquisition date, as follows:

·      brand assets ($0.4 million (£0.30 million));

·      customer relationships ($0.4 million ((£0.29 million)); and

·      software / technology assets ($2.07 million (£1.53 million)).

The following table shows the current carrying value of the intangible assets.  The information is presented in US Dollar given the assets acquired were paid for in £ and the resulting values arise on consolidation of our UK entities.

	Goodwill	Customer Relationships	Technology Based Assets	Brand Assets	Total
Cost	$	$	$	$	$
As at 31 December 2022	2,100,432	356,956	1,857,133	358,249	4,672,770
Additions
As at 31 December 2023	2,209,470	375,487	1,953,542	376,847	4,915,346
Additions
As at 31 December 2024	2,178,198	370,172	1,925,890	371,513	4,845,773
Amortisation and impairment:
As at 31 December 2022	-	45,757	238,060	45,923	329,740
Amortisation charge for the period	-	36,651	190,683	36,784	264,118
As at 31 December 2023	-	82,408	428,743	82,707	593,858
Amortisation charge for the period	-	38,234	196,635	38,235	273,104
As at 31 December 2024	-	120,642	625,378	120,942	866,962
Carrying amount:
As at 31 December 2022	2,100,432	311,199	1,619,073	312,326	4,343,030
As at 31 December 2023	2,209,470	293,079	1,524,799	294,140	4,321,488
As at 31 December 2024	2,178,198	249,530	1,300,512	250,571	3,978,811

The approximate estimated future amortization expense is $261,000 (£212,537) each year, for the next five years (2025-2029).                  

Goodwill represented the excess of the purchase price over the fair value of the net assets acquired. The fair value of IDS net assets on the date of acquisition was $2.28 million (£1.69 million) (of which $1.96 million (£1.45 million) was cash and $0.34 million (£0.25 million) was net working capital). Goodwill was therefore determined to be $2.34 million (£1.74 million), which reflects the perceived value of the employees and expected synergies the combination of the two businesses will bring to the Group.

The consideration's fair value was estimated on the date of acquisition and was to be paid out in a series of stage payments. As at 1 October 2021, the total consideration paid to the sellers or transferred into escrow for future payment was $6.7 million (£5 million). A final payment of $0.58 million (£428,874), as assessed at 31 December 2021. A revised final payment of $0.63 million (£470,032) was agreed subsequently on 10 July 2022 and is recognised as a liability within accounts payable and accrued expenses as at 31 December 2021. The final payment of $568,867 (£470,032) was paid on 30 December 2022.

Goodwill Impairment

The Company assesses its investment in IDS for impairment on at least an annual basis. Based on projections of income, cash flows and the conditions of current operations, it believes the fair value of the reporting unit is greater than it carrying amount and no impairment is needed.

8.    ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	As at 31 December 2023	As at 31 December 2024
	$	$
Accounts receivable	2,330,600	1,952,329
Allowance for doubtful accounts	(22,020)	(113,024)
Accounts receivable, Net	2,308,580	1,839,305

 

9.    FURNITURE, EQUIPMENT AND PURCHASED SOFTWARE  

Furniture, equipment and purchased software consist of the following:

	As at 31 December 2023	As at 31 December 2024
	$	$
Furniture, equipment and purchased software	266,353	363,328
Accumulated depreciation	(130,141)	(156,650)
Furniture and equipment	136,212	206,678

The depreciation expense was $26,003 and $16,286 for the years ended 31 December 2024 and 2023,

respectively.

10.  CONTRACT COSTS

The Group accounts for commission costs in accordance with ASC 606, Revenue from Contracts with Customers, which requires the capitalization of incremental costs of obtaining a contract when the expected amortization period is greater than one year. These costs are amortized on a systematic basis consistent with the pattern of transfer of the goods or services to which the asset relates. Amortization periods for customer lives typically range from 5 to 10 years.

As of 31 December 2024, and 2023, the Group recorded accumulated amortization of $1,863,969 and $1,461,203, respectively. The Group has elected not to apply the practical expedient available under ASC 606 for contracts with a duration of less than one year.

Contract costs consist of the following:

	As at 31 December 2023	As at 31 December 2024
	$	$
Contract Costs - Opening balance	584,510	763,323
Commissions capitalised during the year	546,048	474,965
Amortisation charge for the year	(367,235)	(402,767)
Contract costs - Ending Balance	763,323	835,521

 

 

11.   RELATED PARTIES

In January 2023, the Group entered into a demand note agreement totalling up to $50,000 with a Director of Fadel Lebanon for the purpose of facilitating banking transactions and supporting working capital needs in Lebanon. The note carries 0% interest per annum, compounded annually. The outstanding balance was fully repaid during the year ended 31 December 2023. On 2 April 2023, Tarek Fadel and the Company entered into a loan agreement whereby Mr. Fadel agreed to advance a loan (the "Fadel Loan") of £451,346 to the Company equivalent to $564,009. The Fadel Loan is unsecured and bears no interest or fees. The Company made a loan repayment of $401,613 on 28 April 2023 after the issuance of 223,289 new depositary interests ("New Shares") over common shares at a price of £1.44 per share (the "Placing"). As of 31 December 2024, the remaining balance on the Fadel Loan is $162,396 and is repayable only as and when, following Admission (and excluding the issue of the New Shares in the Placing), the Company issues new shares at or above the placing price.

12.   LINE OF CREDIT: Bank of America

 

 The Group maintains access to a revolving credit facility with Bank of America, N.A., originally established in June 2022 and renewed on an annual basis. The facility provides for borrowings of up to $1.0 million to support working capital and general corporate purposes.

In 2023, the Group repaid $1.0 million in outstanding borrowings originally drawn under the facility in 2022. During the year ended 31 December 2024, the Group drew $300,000 on the facility, which was fully repaid prior to year-end. Borrowings during the year bore interest at a variable rate equal to the U.S. Prime Rate plus 0.95%.

The facility is secured by substantially all assets of Fadel Partners, Inc., and is further supported by a personal guarantee from the Group's Chief Executive Officer, Tarek Fadel.

Subsequent to year end, on April 4, 2025, the facility was renewed and extended through 31 May 2026.

13.   COMMON AND PREFERRED STOCK

 

The Company has authority to issue up to 150,000,000 shares at a par value of $0.001 per share. As of 31 December 2023, there were no preferred shares outstanding. A total of 6,385,937 preferred shares previously issued were converted into common shares in connection with the Company's initial public offering during 2023.

On 2 April 2023 the outstanding preferred shares of MEVP, BBEF, iSME and B&Y were converted into common shares in accordance with the terms of their agreements pursuant to the IPO. Impact Fund by MEVP Holding SAL converted their Series A-2, B and B-1 preferred shares into 5,496,821 common shares, BBEF (Holding) SAL converted their Series A-1 preferred shares into 1,068,837 common shares, iSME SAL Holding converted their Series A-1 preferred shares into 580,383 common shares and B&Y Division One Holding SAL converted their Series B-2 preferred shares into 406,268 common shares.

On 6 April 2023 the Company announced the admission of its entire issued share capital to trading on AIM, a market operated by the London Stock Exchange. In connection with its initial public offering the Company raised gross proceeds of £8.0 million. On 2 May 2023, the Company announced the issuance of 223,289 new depositary interests over common shares at a price of £1.44 per share, raising $401,245.

On 4 August 2023 the company announced that following receipt of two notices to exercise warrants over a total of 121,925 common shares of $0.001 in the Company (the "Common Shares") on a net exercise basis, the Company has concluded the exercise resulting in the issuance of 39,958 Common Shares. These warrants were issued in July 2016 as part of a previous capital raising process. As the warrants were exercised on a net exercise basis there are no proceeds due to the company and following the exercise, no warrants remain outstanding in the Company.

As at 31 December 2023 and 2024, the Company had 20,231,250 common shares of $0.001 each in issue. No additional shares were issued during the year ended 31 December 2024. Shareholders may use this figure as the denominator by which they are required to notify their interest in, or any change to their interest in, the Company under the Disclosure Guidance and Transparency Rules.

14.   STOCK OPTION PLANS

In 2014, the Directors approved the "2014 Equity Incentive Plan" with a maximum of 1,620,366 shares reserved for issuance. As applicable, the exercise price is as established between the Company and recipient. These options vest over three or four years from date of grant. Options to acquire 961,267 shares were granted and remain outstanding as at 31 December 2023 and 793,830 remain outstanding as at 31 December 2024. Following Admission to AIM on 6 April 2023, the Company does not intend to operate the 2014 Equity Incentive Plan to grant further options, as it was superseded by the 2023 Equity Incentive Plan.

Outside of the above 2014 Equity Incentive Plan, are 576,924 non-plan options with an exercise price of $1.03. These non-plan options were fully vested at 31 December 2021 and expired in February 2023. On 2 April 2023, the Board approved the reissuance of these non-plan options in the same amount (with a ten- year term and an exercise price of £1.44 per share. As at 31 December 2024, the 576,924 non-plan options remained outstanding.

On 2 April 2023, the Directors approved the "2023 Equity Incentive Plan" which supersedes the 2014 Plan. Options may be granted at an exercise price determined by the Remuneration Committee which will be not less than the fair market value of a share on the date of grant (i.e. the current market price). Options may not be exercised later than the tenth anniversary of the date of the grant (or such earlier date specified when granted). These options vest over four years from date of grant. For the year ended 31 December 2024, 557,920 options were granted under the "2023 Equity Incentive Plan" and 1,723,952 remain outstanding.

Determining the appropriate fair value model and the related assumptions requires judgment. The fair value of each option granted is estimated using a Black-Scholes option-pricing model on the date of grant as follows:

		For the year ended 31 December 2023	For the year ended 31 December 2024
Estimated dividend yield		0%	0%
Expected stock price volatility		34%	30%
Risk-free interest rate		3.57%	4.19%
Expected life of option (in years)		6.4	7
Weighted-average fair value per share		$0.75	$0.62

A summary of the status of the Group's option plans for the year ended 31 December 2024 is as follows

 

 

	2014 plan		Non-plan		2023 plan		Total
Options outstanding	Number of Options (in Shares)	Weighted average exercise price	Number of Options (in Shares)	Weighted average exercise price	Number of Options (in Shares)	Weighted average exercise price	Number of Options (in Shares)	Weighted average exercise price
As at 31 December 2023	961,267	$1.21	576,924	$1.78	1,186,032	$1.81	2,724,223	$1.59
Granted	-	$-	-	$-	557,920	$1.73	557,920	$1.73
Exercised	-	$-	-	$-	-	$-	-	$-
Forfeited or expired	(167,437)	$1.19	-	$-	(20,000)	$1.73	(187,437)	$1.25
As at 31 December 2024	793,830	$1.19	576,924	$1.78	1,723,952	$1.73	3,094,706	$1.60
Exercisable as at 31 December 2023	961,267	$1.21	576,924	$1.78	151,635	$1.79	1,689,826	$1.46
Exercisable as at 31 December 2024	793,830	$1.21	576,924	$1.78	475,542	$1.81	1,846,296	$1.54

 

Stock option expense for the year ended 31 December 2024 was $275,643 and $542,409 for the year ended 31 December 2023. Unrecognized compensation expense related to share options which will be recognized through 2025 was $272,980 as at 31 December 2024, compared to $229,224 as at 31 December 2023.

 

15.   RETIREMENT PLAN

 

The Company has a 401(k) safe harbor plan that covers all employees of the U.S. entity 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 $112,333 for the year ended 31 December 2024 and $90,299.45 for the year ended 31 December 2023.  

The Group also maintains a provision for end-of-service indemnity for employees of its Lebanese subsidiary, in accordance with local labor regulations. This liability reflects the estimated obligation for benefits payable to employees upon separation from service. During 2024, the Company adopted a refined approach to estimating this provision, representing a change in accounting estimate. The updated methodology incorporates a forfeiture rate of 8.11%, derived from historical employee turnover data, and applies a present value discounting approach using a 10% discount rate, consistent with prevailing economic conditions in Lebanon. These changes enhance the accuracy of the estimate by reflecting both expected employee behavior and the time value of money. As at 31 December, 2024 the liability to end of services indemnity was $308,824 (2023: $467,225)

16.   LEASES

 

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company accounts for its leases in accordance with the guidance in Accounting Standards Codification ("ASC") 842 ("ASC 842"). Substantially all of the leases in which the Company is the lessee are comprised of real estate property for remote office spaces and corporate office space. Substantially all of the leases are classified as operating leases.

As at the year ended 31 December 2024 and 31 December 2023, the Company had approximately $134,777 and $202,228, respectively, of operating lease ROU assets and $134,777 and $202,228, respectively of operating lease liabilities on the Group's Consolidated Statements of Financial Position. The Company has elected not to recognize right-of-use ("ROU") assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Group's Consolidated Statements of Financial Position.

As at 30 December 2024, these leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company's ability to incur additional financial obligations. The discount rate for operating leases was based on market rates from a bank for obligations with comparable terms effective at the lease inception date.

The following table presents lease costs, future minimum lease payments and other lease information as of 31 December of the remaining years under lease:

Year Ending 31 December,	Operating
2025	74,248
2026	60,529
Total Operating Lease Liabilities	134,777
Less amounts representing interest	10,917
Present Value of Future Minimum Lease Payments	123,860
Less current maturities	74,248
Long-term Lease Liability	49,612

 

Lease Cost:

 

	2023	2024
Operating lease - operating cash flows  (fixed payments)	41,625	62,438
Weighted average remaining lease term -operating	2.7 years	1.7 years
Weighted average discount rate - operating	10%	10%

 

17.   INCOME TAX RECEIVABLE

 

On 30 September 2022, a withholding tax liability of 32.5% became payable in the UK in connection with an intercompany loan of $2,032,690 between Image Data Systems (UK) Limited ("IDS") and Fadel UK, related to the acquisition of IDS. This resulted in a withholding tax obligation of $660,624, which became reclaimable on the condition that the intercompany loan was repaid or cancelled by 31 December 2023. The tax was paid by IDS to HMRC on 21 June 2023. As the conditions for reclaim were met, the amount was recognized as a receivable as of 31 December 2023, and the refund of $660,624 was received on 25 October 2024.

 

18.  EMPLOYEE BENEFIT TRUST (THE "EBT")

 

In August 2024, FADEL established an Employee Benefit Trust (EBT) to support the administration of employee equity awards, including the exercise of stock options and acquisition of common shares. The EBT is intended to facilitate employee participation in the Company's equity programs and enhance long-term alignment with shareholder interests.

 

As of 31 December 2024, the EBT had been formed but had not yet conducted any transactions.

 

19.   SUBSEQUENT EVENTS

 

In April 2025, the company extended the line of credit with Bank of America, N.A for one more year until May 2026.