FADL Fadel Partners Inc.

NOTES TO THE GROUP INTERIM FINANCIAL INFORMATION

1.    ORGANISATION AND NATURE OF BUSINESS

The interim financial information consolidates the financial information of the Company and:

●     its wholly-owned subsidiaries:

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

▪      Image Data Systems (UK) Limited;

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

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

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

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

These unaudited interim consolidated financial statements for the six months ended 30 June 2024 have been prepared in accordance with the accounting policies set out in the Annual Report and Financial statements of the Company for the year ended 31 December 2023 using the recognition and measurement principles in conformity with generally accepted accounting principles in the United States of America ("US GAAP"). Such consolidated financial statements reflect all adjustments that are, in management's opinion, necessary to present fairly, in all material respects, the Company's financial position, results of operations and cash flows, and are presented in U.S. Dollars. All material intercompany transactions and balances have been eliminated in consolidation.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principle of consolidation

The interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). They include the accounts of the Company, and interest owned in subsidiaries as follows: 99.99% of Fadel Lebanon and 100% of Fadel UK, Fadel France, Fadel Canada (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 interim financial information in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of the Group's assets and liabilities and disclosure of contingent assets and liabilities, as at the reporting dates, as well as the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

Fair Value Measurements

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

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

Level 1:     Quoted prices in active markets for identical assets or liabilities;

Level 2:     Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:     Inputs that are generally unobservable and typically management's estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents

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

Concentrations of Credit Risk

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

The Group maintains its bank accounts with major financial institutions in the United States, Lebanon, the UK and France. As at 30 June 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 $0.7 million out of a total of $2.2 million cash deposits. Cash amounts held in Lebanon are not insured and as such minimal deposits are held in Lebanese accounts, with payments transferred in country only on an as needed basis. The Company believes the risk is limited as the institutions are large national institutions with strong financial positions.

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

Accounts receivable 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.

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:

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

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

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

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

Amortization periods for customer lives typically vary between 5 and 10 years. The Group elected not to apply the practical expedient for contracts that have a duration of less than one year. The Group has also elected to not include amortisation of the costs of obtaining a revenue contract within gross profit in order to help the reader see the business through the eyes of management

Depreciation

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

Intangible assets - goodwill

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

Intangible assets other than goodwill

The Group has three categories of intangible assets:

Brand assets

The Group purchased IDS in October 2021 and with it acquired a long-established and respected brand. At the time of purchase, the Group estimated the useful life of the brand assets 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 interim financial information.

Customer relationships

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

Software and technology assets

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

Billed accounts receivable and concentrations of credit risk

As at 30 June 2024, there were three significant customers (defined as contributing at least 10%) that accounted for 64% of accounts receivable.

As at 30 June 2023, there were three significant customers (defined as contributing at least 10%) that accounted for 69% 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 30 June 2024, there was one significant vendor (defined as contributing at least 10%) that accounted for 25% of accounts payable.

As at 30 June 2023, there was one significant vendor (defined as contributing at least 10%) that accounted for 40% 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 30 June 2024, there were three significant customers (defined as contributing at least 10%) that accounted for 79% of unbilled work-in-progress.

As at 30 June 2023, there were three significant customers (defined as contributing at least 10%) that accounted for 90% (21%, 26% and 43%) of unbilled work-in-progress.

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

Revenue concentrations

In the six-month period ended 30 June 2024, the five largest customers accounted for $2,457,249 of revenue, some 47% of revenue from continuing operations.

In the six-month period ended 30 June 2023, the five largest customers accounted for $2,913,462 of revenue, some 54% 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.

Advertising and promotion costs

Advertising and promotion costs are expensed as incurred. These costs totalled approximately $502,858 for the six-month period ended 30 June 2024 (30 June 2023: $297,362) and $781,410 for the year ended 31 December 2023.

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.

Income taxes

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

Stock-based compensation

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

Leases

In February 2016, Financial Accounting Standards Board ("FASB") issued guidance Accounting Standards Codification ("ASC") 842, Leases, to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the 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, in 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, the financial statements for the six-month period ended 30 June 2024 reflect the Lebanon subsidiary's operations and financial position in USD.

Comprehensive income/(loss)

Comprehensive income/(loss) consists of two components:

•      net income/(loss); and

•      other comprehensive income/(loss).

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

Statement of cash flows

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

New Accounting Pronouncements

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

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326):

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

Recently Issued Accounting Pronouncements

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

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

3.    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 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" and "professional services" 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:

4.    ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

5.    EARNINGS PER SHARE

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

Diluted earnings / (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Due to the Group having losses in all years presented, the fully diluted loss per share for disclosure purposes, as shown in the Consolidated Statements of Comprehensive Income, is the same as for the basic loss per share due to the anti-dilutive nature of the calculations.

6.    FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following:

The total depreciation charge for the six-month period ended 30 June 2024 was $9,894, compared to $7,050 in the six-month period ended 30 June 2023 and $16,286 for the year ended 31 December 2023.

7.    CONTRACT COSTS

The Group applied ASC-606 with effect from 1 January 2019 to contracts that were either not completed as at that date, or that had an expected customer lifetime value that ended after 1 January 2019. This resulted in the capitalisation of $283,106 in commission costs incurred prior to and during 2019. Accumulated amortisation was $1,698,517 as at 30 June 2024, $1,259,120 as at 30 June 2023 and $1,093,968 as at 31 December 2023. 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:

8.    COMMON AND PREFFERED SHARES

The Company has authority to issue 150,000,000 shares at $0.001 par value per Share. As at 30 June 2023, 31 December 2023 and 30 June 2024, there were no preferred shares outstanding, compared to 7,552,309 as at 31 December 2022, which were converted to common shares at IPO.

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

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

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

As at 31 December 2023 and 30 June 2024, the Company had 20,231,250 common shares of $0.001 each in issue. Shareholders may use this figure as the denominator by which they are required to notify their interest in, or change their interest in, the Company under the Disclosure Guidance and Transparency Rules.

9.    RELATED PARTIES

Notes Payable

In January 2023, the Group entered into a demand note agreements totalling up to $50,000, with a Director in Fadel Lebanon for facilitating banking transactions and working capital purposes in Lebanon. The notes call for payment of interest at 0% per annum compounded annually. The outstanding balance, was repaid in full in 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"). The remaining balance on the Fadel Loan is repayable only as and when, following Admission (and excluding the issue of the New Shares in the Placing), the Company issues new shares at or above the placing price. The loan balance was $162,396 as at 30 June 2024 and 31 December 2023.

10.   LINE OF CREDIT

On 29 June 2022, the Company entered into a new $1 million note agreement for a line of credit between the Company and Bank of America, N.A.. Advances under the note bear interest at the bank's Prime Rate plus 0.7%.

On 11 May 2023, the line of credit between the Company and Bank of America, N.A. was extended until 31 May 2024 and again extended until 31 May 2025 on 12 April 2024. As at 30 June 2023, the balance owed was $700,000 which was subsequently repaid in September 2023. The balance owed to Bank of America, N.A under the terms of the line of credit was zero at 30 June 2024 and 31 December 2023.

11.   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 928,860 and 961,267 shares were granted and remain outstanding as at 30 June 2024 and 31 December 2023, respectively. Following Admission to AIM on 6 April 2023, the Company does not intend to operate the 2014 Equity Incentive Plan to grant further options, as it was superseded by the 2023 Equity Incentive Plan.

Outside of the above 2014 Equity Incentive Plan, are 576,924 non-plan options with an exercise price of $1.03. These non-plan options were fully vested at 31 December 2021 and expired in February 2023. On 2 April 2023, the Board approved the reissuance of these non-plan options in the same amount (with a ten year term and an exercise price of £1.44 per share). As at 30 June 2024 and 31 December 2023, the 576,924 non-plan options remained outstanding.

On 2 April 2023, the Directors approved the "2023 Equity Incentive Plan" which supersedes the 2014 Plan. Options may be granted at an exercise price determined by the Remuneration Committee which will be not less than the fair market value of a share on the date of grant (i.e. the current market price). Options may not be exercised later than the tenth anniversary of the date of the grant (or such earlier date specified when granted). These options vest over four years from date of grant. As at 30 June 2024, 1,493,922 options under the 2023 Equity Incentive Plan were granted and remain outstanding.

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

Due to limited historical data, the expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that options that vest are expected to be outstanding. Due to limited historical data, the Company calculates the expected life based on the midpoint between the vesting date and the contractual term, which is in accordance with the simplified method. The risk-free rate is based on the United States Treasury yield curve during the expected life of the option.

A summary of the status of the Group's option plans for the period as of 30 June 2024 is as follows:

Stock option expense for the period 30 June 2024 was $131,159 and for year ended 31 December 2023 was $542,409. Unrecognized compensation expense related to share options which will be recognized through the second half of 2024 was $114,612 as at 30 June 2024, compared to $229,224 as at 31 December 2023.

The stock compensation expenses for 2023 were recorded on an annual basis as of 31 December 2023. For the first half of 2024, we began recognizing these expenses on a quarterly basis.

12.   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 $65,033 for the six-month period ended 30 June 2024, $49,035 for the six-month period ended 30 June 2023 and $90,299 for the year ended 31 December 2023.

The provision for end-of-service indemnity in Lebanese companies is established to account for the financial obligation to employees who are entitled to end-of-service benefits upon leaving the company. This provision is particularly crucial when an employee opts to withdraw their pension immediately after leaving and has not yet commenced employment elsewhere.

To calculate this provision for inclusion in the Consolidated Statements of Financial Position at the end of each year, the company typically estimates the total liability it will incur for all eligible employees who may potentially claim end-of-service benefits in the future. This estimation involves considering factors such as the length of service of each employee, their salary level, and any applicable legal requirements or company policies regarding end-of-service benefits.

The calculation is performed based on factors such as the length of service of each employee, their salary level, and any applicable legal requirements or company policies regarding end-of-service benefits. This process ensures that the provision accurately reflects the company's financial obligation towards employees' end-of-service benefits, providing transparency and accountability in financial reporting. As at 31 December 2023, the end of services liability amounted to $467,225 and remains unchanged at 30 June 2024, as no alterations have been observed up to the date of the document. It will be reviewed and validated at the end of 2024.

13.   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 of 30 June 2024, 30 June 2023, and for the year ended 31 December 2023, the Company had approximately $169,262, $67,696 and $202,228, respectively, of operating lease ROU assets and $169,262, $67,696 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 of 30 June 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 30 June 2024:

Lease Cost:

14.   INCOME TAX RECEIVABLE

On 30 September 2022 a withholding tax of 32.5% became payable within the UK in respect of an intercompany loan between IDS and Fadel UK of $2,032,690, associated with the acquisition of IDS. This withholding tax amount of $660,624 will be reclaimable, conditional upon the loan between IDS and Fadel UK being repaid or cancelled before 31 December 2023. On 21 June 2023, the withholding tax of $660,624 due in the UK was paid by Image Data Systems (UK) Limited ("IDS") to HMRC. We are expecting the tax to be repaid in Q4 2024.

15.   SUBSEQUENT EVENTS

Management has evaluated the subsequent events for disclosure in these consolidated financial statements through 25 September 2024, the date these consolidated financial statements were available for issuance, and determined that no events have occurred that would require adjustment to or disclosure in these consolidated financial statements.