CONSOLIDATED STATEMENTS OF CASH FLOWS

The audited, consolidated Statements of Cash Flows of the Group for each of the years ended 31 December 2021 and 2022 are set out below:

Notes to the financial statements

1.      ORGANISATION AND NATURE OF BUSINESS

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

The Company is a New York Corporation formed in July 2003 and reincorporated in Delaware in January 2014. Fadel Lebanon was incorporated in Lebanon in August 2014, Fadel UK was formed in the UK in January 2015, Fadel Canada was formed in Canada in June 2021, Fadel France was formed in France in February 2020 and IDS was formed in April 1992 in the UK, by an unrelated party, and acquired on 1 October 2021. Together the entities are collectively referred to herein as the "Group". The Group is headquartered in New York, with a presence in Los Angeles, Montreal, London, Paris and Beirut (Lebanon) and is engaged in providing and servicing its Intellectual Property Rights and Royalty Management suite of software.

2.      LIQUIDITY AND FINANCIAL CONDITION

Under Accounting Standards Update, or ASU, Presentation of Financial Statements-Going Concern (Accounting Standard Codification ("ASC") Subtopic 205-40) ("ASC 205-40"), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Group's ability to meet its future financial obligations as they become due within one year after the date that the Consolidated Financial Information is issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the Consolidated Financial Information is issued. The Company has assessed the Group's ability to continue as a going concern in accordance with the requirement of ASC 205-40.

As reflected in the consolidated financial information, the Group had approximately $1.2 million in cash on the Statement of Financial Position as at 31 December 2022. As at 31 December 2022, the Group had negative working capital of approximately $3.3 million and an accumulated deficit approximating $15.2 million. Additionally, the Group had a net Loss of approximately $3.5 million and cash provided by operating activities of approximately ($2.1) million during the year ended 31 December 2022.

As reflected in the consolidated financial information, the Group had approximately $2.0 million in cash on the Statement of Financial Position as at 31 December 2021. As at 31 December 2021, the Group had negative working capital of approximately $2.6 million and an accumulated deficit approximating $11.7 million. Additionally, the Group had a net profit of approximately $1.2 million and cash provided by operating activities of approximately $3.4 million during the year ended 31 December 2021.

Based on the results above, the Group believes there are sufficient funds to provide the Group with sufficient liquidity for at least twelve months from the date of this Document.

3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

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

Use of estimates

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

Fair value measurements

Generally accepted accounting principles require the disclosure of the fair value of certain financial instruments, whether or not recognised on the Statement of Financial Position, for which it is practicable to estimate fair value. The Group estimated fair values using appropriate valuation methodologies and market information available as of year-end. Considerable judgment is required to develop estimates of fair value, and the estimates presented are not necessarily indicative of the amounts that the Group could realise in a current market exchange. The use of different market assumptions or estimated methodologies could have a material effect on the estimated fair values. Additionally, the fair values were estimated at year end, and current estimates of fair value may differ significantly from the amounts presented.

Fair value is estimated by applying the following hierarchy, which prioritises inputs used to measure fair value into three levels and bases categorisation within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Cash and cash equivalents

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.

Concentrations of credit risk

Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash, accounts receivable and unbilled work-in-progress. The Company performs on-going evaluations of the Group's customers' financial condition and, generally, requires no collateral from customers.

The Group maintains its bank accounts with major financial institutions in the United States, Lebanon, the UK, France and Canada. As at 31 December 2022, the Group had cash balances in excess of the Federal or National insured limits at financial institutions in the United States, France and the UK totalling some US$657 thousand out of a total of US$1.18 million cash deposits. Cash amounts held in Lebanon are not insured and as such minimal deposits are held in Lebanese accounts, with payments transferred in country only on an as needed basis. The Company believes the risk is limited as the institutions are large national institutions with strong financial positions.

New Accounting Pronouncements:

In February 2016, the FASB issued ASU No. 2016-02 "Leases (Topic 842)" ("ASU 2016-02") that requires almost all lessees' operating leases to be recorded on the Statement of Financial Position. The guidance specifies a lessee should recognize a right-of-use asset and corresponding lease liability for those leases.

classified as operating leases. ASU 2016-02 is effective beginning in fiscal year 2022. Early adoption is permitted. During transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13 "Financial Instruments - Credit Losses" ("Topic 326"), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on consolidated experience, current conditions and reasonable and supportable financial projections.

The standard also requires additional disclosures related to significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. Operating lease receivables are excluded from the scope of this guidance. The amended guidance is effective for the Group for fiscal years, and interim periods within those years, beginning 1 January 2023. The Company is evaluating the impact of adopting this new accounting standard on the Group's financial information and related disclosures.

ASU 2020-06 is effective for all other entities aside from SEC-filers, for fiscal years beginning after 15 December 2023, including interim periods within those fiscal years.  SEC-filers are required to adopt for fiscal years beginning after 15 December 2021. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The Company is evaluating the impact that adopting this new accounting standard will have on the Group's financial information and related disclosures.

The Company is evaluating the impact of adopting recently issued guidance on the Group's consolidated financial condition, results of operations and cash flows.

Effective 1 January 2022, the Group accounts for its leases under ASC 842 "Leases". Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the Statement of Financial Position as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease-term at the rate implicit in the lease or the Group's incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease-term.  A discount rate of 10% was used to determine the right of use assets for operating leases. This was based on market rates for obligations with comparable terms effective at the lease inception date. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.

In calculating the right of use asset and lease liability, the Company elected to combine the Group's lease and non-lease components. The Company excluded the Group's short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognized rent expenses on a straight-line basis over the lease-term.

Accounts receivable, unbilled work-in-progress and allowance for doubtful accounts

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

The Company reviews allowances monthly and past due balances over 90 days are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Revenue recognition

Since 1 January 2019, the Group has accounted for revenue recognition in line with ASC 606 "Revenue from Contracts with Customers" and ASC 340 "Other Assets and Deferred Cost."

The Group's revenue is derived from three primary sources:

·      license fees;

·      customer support; and

·      services.

Revenue is recognised upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Group expects to receive in exchange for those products or services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Group includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognised will not occur.

The Group determines the amount of revenue to be recognised through the application of the following steps:

·      identification of the contract, or contracts, with a customer;

·      identification of the performance obligations in the contract;

·      determination of the transaction price;

·      allocation of the transaction price to the performance obligations in the contract; and

·      recognition of revenue when or as the Group satisfies its performance obligations.

The Group's offerings fall primarily under four contract categories:

·      SaaS subscriptions;

·      perpetual licenses;

·      support; and

·      services.

License/subscription and support revenues

License/subscription and support revenues are comprised of fees that provide customers with access to cloud services, software licenses, related support and updates during the term of the arrangement.

Professional services

The Group's professional services contracts are based on either a time and materials, fixed fee or subscription basis. Revenue is recognised as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts or rateably over the contract term for subscription professional services contracts. Other revenue consists primarily of training revenue recognised as such services are performed.

Significant judgements - contracts with multiple performance obligations

The Group enters into contracts with its customers that may include promises to transfer multiple performance obligations such as cloud services, software licenses, support, updates, and professional services. Multiple performance obligations are a promise in a contract with a customer to transfer products or services that are concluded to be distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment. The Group accounts for these performance obligations under individual contracts on an 'as combined' basis because the supplementary product or services that accompany cloud services and or software licenses are tailored and do not have a distinct fair market value.

As the Group's go-to-market strategies evolve, the Group may modify its pricing practices in the future, which could result in distinct products or services that require a standalone selling price.

The Group records amounts billed in advance of services being performed as deferred revenue. Unbilled work-in-progress represents revenue earned but not yet billable under the terms of the fixed-price contracts. Most of these amounts are expected to be billed and collected within 12 months.

Costs of obtaining a revenue contract

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

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

During the implementation, the Group applied the guidance as of 1 January 2019 only to contracts that were either not completed as of that date, or that had a life of customer that ended after 1 January 2019.

For service and support contracts, the amortisation period is based on the duration of the contract in consideration that it would be less difficult and costly for clients to transition to another vendor for continued service.

Amortisation periods for customer lives typically vary between 5 and 10 years. The Group elected not to apply the practical expedient for contracts that have a duration of less than one year.

Depreciation

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

Intangible assets - goodwill

Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.

Intangible assets other than goodwill

The Group has three categories of intangible assets:

Brand assets

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

Customer relationships

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

Software and technology assets

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

Billed accounts receivable and concentrations of credit risk

As at 31 December 2022, there were three significant customers (defined as contributing at least 10%) that accounted for 68% of accounts receivable.

As at 31 December 2021, there was one significant customer that accounted for 80% of accounts receivable.

Accounts payable and accrued expenses

As at 31 December 2022, there were three significant vendors (defined as contributing at least 10%) that accounted for 62% of accounts payable.

As at 31 December 2021, there was no significant vendor of accounts payable and accrued expenses.

Unbilled work-in-progress and concentrations of credit risk

As at 31 December 2022, there were three significant customers that accounted for 88% (17%, 27% and 44%) of unbilled work-in-progress.

As at 31 December 2021, there were three significant customers that accounted for 83% (22%, 29% and 32%) of unbilled work-in-progress.

Segmental reporting

The Group reports its business activities in two areas:

·      License/subscription and support revenue (recurring); and

·      Professional services (non-recurring),

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

Revenue concentrations

During 2022, the five largest customers accounted for an aggregate of $8,411,729 of revenue, some 64% of revenue from continuing operations. This is primarily due to a decline in services revenue, which is as expected, as it is due to a number of customers completing an implementation phase.

During 2021, the five largest customers accounted for an aggregate of $8,990,966 of revenue, some 75% of revenue from continuing operations.

Advertising and promotion costs

Advertising and promotion costs are expensed as incurred. These costs totalled $426,119 for the year ended 31 December 2021 and $536,552 for the year ended 31 December 2022.

Paycheck Protection Program loan

The Group's policy is to account for the Paycheck Protection Program loan as debt (see Note 0 to the Consolidated Financial Information). The Group recorded the loan as debt until it was forgiven in February 2021.

Income taxes

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

Stock-based compensation

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

Foreign currency

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

The exchange rate used to translate the Lebanese pound ("LBP") into $ for the purpose of preparing the Consolidated Financial Information has been fixed at $1 = LBP 1,500. The exchange rate used to translate the sterling pound ("£"), ("EURO") and (CAD) into $ for the purpose of preparing the Consolidated Financial Information uses the average rate for the consolidated Statements of Comprehensive Income and consolidated Statements of Cash Flows and the rate at the end of the reporting period for the Statement of Financial Position.

Starting in November 2019, the banking system in Lebanon imposed currency controls to prevent $ flight from the country. As a result, customer deposits in $ prior to the implementation from these controls were categorised as current accounts. Customers who own current accounts are not allowed to withdraw cash from such accounts, however, they are allowed to make payments from these accounts.

In order to access $ from current accounts, bank customers must ask the bank to convert the withdrawal amount into LBP using an official rate of $1 = LBP 3,900 determined by the Lebanese banking association. On 9 December 2021, the Lebanese Central Bank issued intermediate circular No: 601 which increased the value of $1 from LBP 3,900 to LBP 8,000.

New $ deposited into the bank accounts after the start of the currency controls, generally from overseas sources, are considered to be external, and can be used with minimum restrictions. The Group opened a new external account during the year ended 31 December 2019 to deposit funds transferred from the US and use those funds for operating expenses including payroll.

The official conversion rate set by the Lebanese government remains at $1 to LBP 1,500. As at 31 December 2021, the Group had the $ equivalent of approximately $34,500 and 29,700 at 31 December 2022 in external deposits (accounts not subject to same restrictions as Lebanese Current Accounts ("LCAs")) and approximately $1,200 in current deposits (LCAs) at 31 December 2021 and $7,600 at 31 December 2022.

Comprehensive income/(loss)

Comprehensive income/(loss) consists of two components:

•      net income/(loss); and

•      other comprehensive income/(loss).

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

Statement of cash flows

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

4.      SEGMENTAL REPORTING

The Group reports its business activities in two areas:

·      subscription and support revenue; and

·      professional services,

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

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

5.      INCOME TAXES

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

Provision for income taxes consisted of the following:

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

The Company is subject to taxation in the United States and certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax.

The material jurisdictions where the Company is subject to potential examination by tax authorities include the United States, Lebanon, Canada and the UK.

The above amounts are recorded as Other Income in the Statement of Comprehensive Income.

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

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

As at 31 December 2021, the Company had a US federal and state Net Operating Losses ("NOL") carry forward of $0 and $4.0 million respectively. The state NOL will expire beginning in 2037. As at 31 December 2021, the Company had NOLs in New Jersey, Pennsylvania, New York, and New York City.

As at 31 December 2022, the Company had a US federal and state NOL carry forward of approximately $612 thousand and $5.5 million respectively. The state NOL will expire beginning in 2037. As of 12/31/2022, the Company had NOLs in California, Florida, New Jersey and Pennsylvania

On 27 March 2020, the CARES Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. Most of these provisions are either not applicable or have no material effect on the Company.  

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") contains a provision which subjects a U.S parent of a foreign subsidiary to current U.S. tax on its global intangible low-taxed income ("GILTI"). The Company will report the tax impact of GILTI as a period cost when incurred. In 2022, the company has a net GILTI inclusion of approximately $3.1 million primarily due to Section 174 capitalization. Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.

In 2023, as a part of the 2022 tax return, the company will finalize an R&D study and method change related to deferred revenue in order to defer revenue expected to be received within 1 year. The 481(a)-adjustment benefit is expected to be approximately $3.8 million (gross) and $817 thousand (net). The R&D credit is expected to be $50 thousand and is carried forward for up to 20 years.

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

Due to its current year earnings, the Company believes that it is more-likely-than-not that substantially all of the deferred tax assets except state net operating losses and capital loss carry forwards will be realised. Therefore, the Company has released valuation allowance on U.S. deferred tax assets other than those stated above.

The change in the valuation allowance is as follows:

As at 31 December 2022, the Company did not have any unrecognised tax benefits and did not anticipate any significant changes to the unrecognised tax benefits within twelve months of this reporting date. In the year ended 31 December 2022, the Company recorded no interest or penalties on income taxes. At December 31, 2022, there was no accrued interest included in income taxes payable.

6.      EARNINGS PER SHARE

The Group reports basic and diluted earnings per Share. Basic earnings per share is calculated by dividing the profit attributable to common Shareholders by the weighted average number of Shares outstanding during the period. 

Diluted earnings per share is determined by adjusting the profit attributable to Shareholders by the weighted average number of Shares outstanding, taking into account the effects of all potential dilutive Shares, including Preferred Shares, warrants and Options.

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 £5.5 million ($7.4 million).

Fair Value of Assets Acquired and Liabilities Assumed

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

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

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

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

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

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

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

The approximate estimated future amortization expense is £ 212,537 each year, for the next five years (2023-2027).

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

The consideration's fair value was estimated on the date of acquisition and was to be paid out in a series of stage payments. As at 1 October 2021, the total consideration paid to the sellers or transferred into escrow for future payment was £5 million ($6.7 million). A final payment of £428,874 ($0.58 million), as assessed at 31 December 2021. A revised final payment of £470,032 ($0.63 million) was agreed subsequently on 10 July 2022 and is recognised as a liability within accounts payable and accrued expenses as at 31 December 2021. The final payment of £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 its carrying amount and no impairment is needed.

8.      ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

9.      FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following:

The depreciation expense was $14,760 for the year ended 31 December 2022 (2021: $17,841).

10.   CONTRACT COSTS

The Group applied ASC-606 with effect from 1 January 2019 to contracts that were either not completed as of that date, or that had an expected customer lifetime value that ended after 1 January 2019. This resulted in the capitalisation of $283,106 in commission costs incurred prior to and during 2019. Accumulated amortisation as of 31 December 2021 was $710,998 and $1,093,968 on 31 December 2022. Amortisation periods for customer lives typically vary between 5 and 10 years. The Group elected not to apply the practical expedient for contracts that have a duration of less than one year.

Contract costs consist of the following:

11.   PAYCHECK PROTECTION PROGRAM

As a result of COVID-19, on 27 March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "Act") was signed into law. The Act amends the Small Business Act to include a new guaranteed, unsecured loan program (the "Paycheck Protection Program"). On 8 April 2020, the Group applied for a loan under the Paycheck Protection Program. On 26 April 2020 the loan was approved in the amount of $336,139.

The loan has a term of two years and is subject to interest of 1%. Interest (and potential principal payments) is deferred for the first ten months. Subject to certain conditions as defined in the Act, up to 100% of the loan may be forgiven. On 19 February 2021, the Group received full forgiveness of both the loan principal and applicable interest (recorded under other income on the income statement).

12.   RELATED PARTIES

Notes Payable:

In each of January 2020, January 2021, January 2022 and January 2023, the Group entered into demand note agreements totalling up to $100,000, up to $135,000 up to $75,000 and up to $50,000, respectively, with a Director in Fadel Lebanon for facilitating banking transactions and working capital purposes in Lebanon. The notes call for payment of interest at 0% per annum compounded annually. The January 2020 and the January 2021 notes were paid in full in each of the years ended 31 December 2020 and 31 December 2021. The outstanding balance of all such loans as of 31 December 2022 was $75,000.

13.   LINE OF CREDIT: Bank of America:

On 29 June 2022, the Company entered into a new $1 million note agreement for a line of credit between the Company and Bank of America, N.A.. Advances under the note bear interest at the bank's Prime Rate plus 0.7%. The expiration date of the note is 31 May 2023. The outstanding balance as at 31 December 2022 was $1,000,000. On 11 May 2023 the line of credit between the Company and Bank of America, N.A. was extended until 31 May 2024.

14.   COMMON AND PREFERRED STOCK

The Company has authority to issue 28,830,991 Shares, consisting of 20,000,000 Shares of $0.001 par value per Share and 8,830,991 Preferred Shares of $0.001 par value per Preferred Share.

The first series of Preferred Shares is designated "Series A-1 Preferred Shares" and consists of 1,120,841 Preferred Shares with a conversion and liquidation preference of $0.94 per Preferred Share.

The second series of Preferred Share is designated "Series A-2 Preferred Shares" and consists of 1,506,181 Preferred Share with a conversion and liquidation preference of $1.39 per Preferred Share.

The third series of Preferred Share is designated "Series B Preferred Shares" and consists of 4,100,000 Preferred Share with a conversion and liquidation preference of $1.79 per Preferred Share.

15.   OPTIONS AND WARRANTS

Stock option plans

In 2014, the Directors approved the "2014 Equity Incentive Plan" with a maximum of 1,620,366 shares reserved for issuance. As applicable, the exercise price is as established between the Company and recipient. These options vest over three or four years from date of grant. Options to acquire 1,548,191 and 1,614,696 shares were granted and remain outstanding as at 31 December 2022 and 2021, respectively.

Approximately 1,795,794 and 1,786,423 shares have vested as at 31 December 2022 and 2021, respectively.

During the year ended 31 December 2021, 65,000 Options were granted to employees with an exercise price of approximately $0.895 under the plan. There were no options granted during 2022.

Unrecognized compensation expense related to share options which will be recognized through 2023 was $5,297 and $7,588 as at 31 December 2022 and 2021, respectively.

A summary of the status of the Group's Option plan for the three years ended 31 December 2021 and 31 December 2022 is as follows:

Summary information regarding the Options outstanding and exercisable as at 31 December 2022 is as follows:

Summary information regarding the Options outstanding and exercisable at 31 December 2021 is as follows:

The intrinsic value of options exercisable as at 31, December 2022 ranged from $0.24 to $1.08 and for options exercisable at 31 December 2021 ranged from $0.35 to $1.08. The total value of shares vested during the year ended 31, December 2022 was $2,291.

Warrants

The Group issued warrants to investors to purchase various classes of stock as follows:

-     Impact Fund by MEVP Holding SAL
300,000 common shares
1,436,260 preferred shares "Series A-2"
2,943,243 preferred shares "Series B"
1,117,318 preferred shares "Series B-1"

-     iSME SAL Holding
580,383 preferred shares "Series A-1"

-     B&Y Division One Holding SAL
406,268 preferred shares "Series B21"

16.   RETIREMENT PLAN

The Company has a 401(k) safe harbor plan that covers all employees at least 21 years of age who have worked for the Company for at least three months. Employees vest immediately for all employer matching contributions. The retirement plan expense was $80,680 for the year ended 31 December 2021 and $87,251 for the year ended 31 December 2022.

17.   LEASES

On 1 March 2019, the Group entered into a 36-month lease for the 2^nd and 6^th Floor offices in Beirut, Lebanon. The monthly lease payment is $4,902;

On 1 July 2021, the Group entered into a 12-month lease for the 7^th Floor office in Beirut, Lebanon. The monthly lease payment is $2,960;

On 1 May 2021, the Group entered into a 2-month lease for an apartment in France, with monthly lease payments of €1,600 per month, and extended it to a 12-month lease from 1 July 2021 at a monthly lease payment of €1,700 per month. During 2022 the total lease payments was €20,900.

The Lease was terminated end of March 2023.

On January 2023, the Group entered into a 12-month lease for a work space office in France.  The total annual lease payment was €920 for a pack of 200 hours valid for one year.

On 1 March 2022, the Group entered into a 12-month lease for a work space office in New York.  The monthly lease payment is $1,647. The lease has been renewed for a further 12 months.

On October 2022, the Group entered into a 12-month lease for a work space office in the UK.  The monthly lease payment is $ £650.00.

On 1 March 2022, the Group entered into a 2-year renewal operating lease agreement for the 2^nd and 6^th floor office in Beirut. The initial present value of the future lease payments was determined to be $102,091. The monthly payment is $4,902.

The future minimum lease payments, exclusive of related costs, are approximately as follows:

On 1 July 2022, the Group entered into a 2-year renewal operating lease agreement for the 7^th floor office in Beirut. The initial present value of the future lease payments was determined to be $67,426. The monthly payment is $3,238.

The future minimum lease payments, exclusive of related costs, are approximately as follows:

Rent expense, including related costs, for the year ended 31 December 2021 aggregated approximately $92,272 and $72,788 for the year ended 31 December 2022.

18.   SUBSEQUENT EVENTS

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

On 2 April 2023, Tarek Fadel and the Company entered into a loan agreement whereby Mr Fadel agreed to advance a loan (the "Fadel Loan") of £451,346 to the Company. The Fadel Loan is unsecured and bears no interest or fees. The Fadel Loan is repayable only as and when, following Admission (and excluding the issue of the New Shares in the Placing), the Company issues new Shares at a price at or above the Placing Price.

On 3 April 2023 $300,000 of the line of credit between the Company and Bank of America, N.A. was repaid leaving an outstanding balance of $700,000.

On 6 April 2023 the Company announced the admission of its entire issued share capital to trading on AIM, a market operated by the London Stock Exchange.  In connection with its initial public offering the Company raised gross proceeds of £8.0 million.

On 28 April 2023 the Company announced the issuance of 223,289 new depositary interests over common shares at a price of £1.44 per share, raising $401,613 which was used to repay part of the Fadel Loan.

On 11 May 2023 the line of credit between the Company and Bank of America, N.A. was extended until 31 May 2024.

On 20 June 2023 the withholding tax of £518,898 due in the UK was paid by Image Data Systems (UK) Limited ("IDS") to HMRC.  Upon repayment of the loan between IDS and Fadel Partners UK Limited (expected to be repaid this year) the withholding tax can be reclaimed from HMRC.