Forafric Global PLC 6-K, filed Jan 16, 2025
Forafric Global PLC (AFRI)
About this 6-K
Forafric Global PLC filed this 6-K on January 16, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of January 2025
Commission File Number:
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Forafric Global PLC (the “Registrant”) is filing this report on Form 6-K to report its financial results for the six months ended June 30, 2024 and to discuss its recent corporate developments.
Attached as exhibits to this Report on Form 6-K are:
| (1) | the unaudited condensed interim consolidated financial statements and related notes as Exhibit 99.1; |
| (2) | Management’s Discussion and Analysis of Financial Condition and Results of Operations as Exhibit 99.2; |
| 2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this current report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the U.S. Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements.
All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
| 3 |
Exhibit Index
| 4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Forafric Global PLC | ||
| Date: January 16, 2025 | By: | /s/ Saad Bendidi |
| Name: | Saad Bendidi | |
| Title: | Chairman and Director (Principal Executive Officer) | |
| 5 |
Exhibit 99.1
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2024, AND DECEMBER 31, 2023
AND FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
| Page(s) | ||
| Condensed Consolidated Financial Statements | ||
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | 3 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 6-21 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| June 30, 2024 | December 31, 2023 | |||||||
| UNAUDITED | AUDITED | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Amount due from related parties | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets, noncurrent | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Lines of credit – working capital | $ | $ | ||||||
| Lines of credit – wheat inventories | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Contingent consideration liability | ||||||||
| Other liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Loan from related party | ||||||||
| Deferred tax liabilities, net | ||||||||
| Other liabilities, noncurrent | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 19) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred Shares; $ par value; authorized, and issued and outstanding, at June 30, 2024 and December 31, 2023, respectively | $ | $ | ||||||
| Ordinary shares, $ par value; authorized; issued and outstanding, at June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total Stockholders’ equity | ||||||||
| Total liabilities and Stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands, except share and per share data)
| Six months ended | ||||||||
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other expense (income): | ||||||||
| Interest income | ( | ) | ||||||
| Interest expense | ||||||||
| Change in fair value of derivatives and contingent consideration | ||||||||
| Foreign exchange gain | ( | ) | ( | ) | ||||
| Total other expense | ||||||||
| Loss before taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interest | ||||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Loss per ordinary shares outstanding – basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive loss net of tax: | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| less: Comprehensive income attributable to non-controlling interest | ||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except share and per share data)
| Shares | Amount | Shares | Amount | capital | Deficit | Income (Loss) | Interest | Equity | ||||||||||||||||||||||||||||
Ordinary shares | Class Z Ordinary shares | Additional paid-in | Accumulated | Accumulated Other Comprehensive | Non- Controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Deficit | Loss | Interest | Equity | ||||||||||||||||||||||||||||
Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Shares repurchased and retired | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Shares issued upon exercise of warrants | - | |||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign exchange (loss) gain | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
Balance, January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
Balance, value | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign exchange loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Foreign exchange (loss) gain | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2024 | $ | $ | $ | ( | ) | ( | ) | $ | $ | |||||||||||||||||||||||||||
Balance, value | $ | $ | $ | ( | ) | ( | ) | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands, except share and per share data)
June 30, 2024 | June 30, 2023 | |||||||
| Six months ended | ||||||||
June 30, 2024 | June 30, 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of right-of-use assets | ||||||||
| Bad debt expense | ||||||||
| Impairment of other assets | ||||||||
| Change in fair value of derivatives and contingent consideration | ||||||||
| Non-cash accretion of interest expense | ||||||||
| Share-based compensation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Other assets, noncurrent | ( | ) | ||||||
| Accounts payable | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Other payables and liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ( | ) | ||||
| Sales of property, plant, and equipment | ||||||||
| Additions to intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Borrowings on working capital facilities, net | ||||||||
| Borrowings on lines of credit – Wheat inventories | ||||||||
| Repayments on lines of credit – Wheat inventories | ( | ) | ( | ) | ||||
| Borrowings on loans | ||||||||
| Repayments on loans | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Shares repurchased and retired | $ | $ | ||||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Net income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2023
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations - Forafric Global PLC and Subsidiaries (the “Company”, “we”, “us” or “our”), formerly known as Forafric Agro Holdings Limited, through its subsidiaries is a market leader in the milling industry in Morocco, with a complete offering of flours and semolina, secondary processing products including pasta and couscous, rice, and starches (“Milling Business”).
These condensed consolidated financial statements are the condensed consolidated financial statements of the Company and its subsidiaries, each of which is controlled, and is based on the financial position and results of operations of the Company as a standalone company. Intercompany balances and transactions between consolidated entities have been eliminated. Refer to Note 21 — Related Parties for further information regarding the Company’s related party transactions.
| 6 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Basis of Presentation - The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with US GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the Unaudited Condensed Consolidated Financial Statements of the Company as of June 30, 2024, and for the six months ended June 30, 2024, and 2023. The results of operations for the six months ended June 30, 2024, and 2023 are not necessarily indicative of the operating results for the full year. It is suggested that these Unaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2023. The Balance Sheet as of December 31, 2023, has been derived from the Company’s audited Financial Statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies – The significant accounting policies used in preparing these condensed consolidated financial statements were applied on a basis consistent with those reflected in our consolidated financial statements that are included in the annual report on Form 20-F for the year ended December 31, 2023 that was filed with the U.S. Securities and Exchange Commission (“SEC”) on April 30, 2024.
Use of Estimates - The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to use judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. Significant accounting policy elections, estimates and assumptions include, among others, allowance for credit losses, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, and measurement of income tax assets. Given the uncertainty of the global economic environment, our estimates could be significantly different than future performance. Actual results could differ from these estimates. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our condensed consolidated financial statements.
Principles of Consolidation – The accompanying condensed consolidated financial statements include all entities controlled by the Company. Intercompany accounts and transactions are eliminated.
Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits from its activities that could potentially be significant to the entity. In assessing control, potential voting rights that are currently exercisable or convertible are considered. The accounts of subsidiaries are included in the condensed consolidated financial statements from the date that control commences until the date that control ceases.
The Company uses the Black-Scholes option pricing model to determine the grant date fair value of its stock options and phantom options, respectively, as well as the fair value at each reporting period for liability classified awards. This model requires the Company to estimate the expected volatility and the expected term of the stock options, which are highly complex and subjective variables. The Company uses an expected volatility of its stock price during the expected life of the options that is based on the historical performance of the Company’s stock price as well as including an estimate using similar companies. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected exercise term of the stock option. The inputs to the valuation of phantom options are observable in the market, and as such are classified as Level 2 in the fair value hierarchy. The Company accounts for forfeitures of share-based awards as the occur.
| 7 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Foreign Currency Translation and Transactions - The Company’s functional currency is the Moroccan dirham (“MAD”), and its presentation currency is the United States Dollar (“USD”). The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The transactions in foreign currency (that is a different currency than the functional currency of the entity) are converted at the exchange rate prevailing to the date of the transaction. The assets and liabilities denominated in foreign currencies are evaluated in the current period on the date of the closing or at the opening rate, when applicable. The translation adjustments are deferred as a separate component of equity in “Accumulated other comprehensive income”. Gains or losses resulting from transactions denominated in foreign currencies and intercompany debt that is not of a long-term investment nature are included in (gain) loss on foreign currency exchange in the condensed consolidated statements of operations and comprehensive loss.
Credit Risk – Financial instruments potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. At times during the periods presented, the Company had funds in excess of Deposit Insurance programs in Morocco, on deposit at various financial institutions. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Foreign currency forward contracts –The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts. The Company has entered into foreign currency forward contracts and accounts for these instruments in accordance with Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging,” which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings. For more information, refer to Note 13 - Foreign currency forward contracts.
Fair Value Measurements – The Company follows the guidance in ASC 820, “Fair Value Measurement,” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities:
| - | Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| - | Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
| - | Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
The Company’s financial instruments include cash equivalents, accounts receivable from customers, other receivables, prepaid expenses and other current assets, accounts payable and accrued liabilities, all of which are typically short-term in nature. The Company believes that the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature.
The Company measures the derivative liabilities or assets related to foreign currency forward contracts at fair value on a recurring basis. Refer to Note 13 – Foreign currency forward contracts.
The Company measures the contingent consideration liability at fair value on a recurring basis. Refer to Note 14 – Contingent Consideration Liability for further information.
| 8 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Emerging Growth Company Status – the Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued until such time as those standards apply to private companies. The Company has elected to use this extended transition period. In providing this relief, the JOBS Act does not preclude the Company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. The Company will continue to use this relief until the earlier of the date that it (a) is no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.
Reclassifications – Certain prior period amounts have been reclassified to conform to the current period presentation.
Liquidity and going concern – The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. As of January 16, 2025, the Company’s management has assessed its ability to continue as a going concern and has concluded that it is able to do so for at least the next twelve months from the date of issuance of these condensed consolidated financial statements.
Management’s assessment is based on the following considerations:
| - | Cash and Liquidity: As
of December 31, 2024, the Company had cash and cash equivalents of $ |
| - | On January 15, 2025, the Company entered into a binding agreement for the sale of a wholly owned subsidiary to a third party for total consideration of $10.0 million. The Company expects that the proceeds from this transaction will be used to fund its operations, reduce liabilities, and support its ongoing strategic initiatives. |
| - | Management is also actively pursuing several potential sources of additional financing, including negotiations with investors and financial institutions, as well as exploring cost-reduction initiatives and the potential sale of other non-core assets, which management believes could be utilized if additional capital is needed to support operations beyond the next twelve months. |
Based on the above considerations, management believes that the Company has sufficient financial resources to meet its obligations as they come due at least the next twelve months from the date of issuance of these condensed consolidated financial statements.
3. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 mainly requires more enhanced information about a reportable segment’s expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is still evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures and will adopt it for the year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is determining the impact of the ASU 2023-09 on its condensed consolidated financial statements.
Other than as described above, no accounting pronouncements issued or effective during the six months ended June 30, 2024 has had or is expected to have a material impact on the condensed consolidated financial statements.
4. LEASES
The Company has operating leases for real estate and vehicles. The Company has finance leases for equipment and construction land space. Leases are classified as finance leases because ownership of the underlying assets transfers at the end the lease term. Remaining lease terms for these leases range from less than one year to six years.
The Company does not record leases with a term of 12 months or less on the balance sheet.
| 9 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Supplemental balance sheet information related to leases was as follows:
SCHEDULE OF BALANCE SHEET CLASSIFICATION
| June 30, | December 31, | |||||||||
| Balance Sheet | 2024 | 2023 | ||||||||
| Classification | (in thousands) | |||||||||
| Assets | ||||||||||
| Operating leases | $ | $ | ||||||||
| Finance leases | ||||||||||
| Total assets | $ | $ | ||||||||
Liabilities Current liabilities | ||||||||||
| Operating leases | $ | $ | ||||||||
| Finance leases | ||||||||||
| Total current liabilities | ||||||||||
| Noncurrent liabilities | ||||||||||
| Operating leases | ||||||||||
| Finance leases | ||||||||||
| Total noncurrent liabilities | ||||||||||
| Total liabilities | $ | $ | ||||||||
Right-of-use assets and their corresponding lease liabilities are measured and recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.
Discount Rates
For the majority of its leases, the Company uses the rate implicit in the lease. For leases without an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments for those leases.
The weighted-average discount rates for the Company’s leases were as follows:
SCHEDULE OF WEIGHTED AVERAGE DISCOUNT RATES OF LEASES
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Lease Payments
The Company includes lease payments under options to extend or terminate the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise such options. Fixed lease costs represent the explicitly quantified lease payments prescribed by the lease agreement and are included in the measurement of the right-of-use asset and corresponding lease liability.
The weighted-average remaining lease term of the Company’s leases were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM
June 30, 2024 | December 31, 2023 | |||||||
| Operating leases | ||||||||
| Finance leases |
| 10 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The components of lease expense for the six months ended June 30, 2024 and 2023 were as follows:
SCHEDULE OF LEASE EXPENSE
| 2024 | 2023 | |||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Operating lease cost | $ | $ | ||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Interest on lease liabilities | ||||||||
| Total lease cost | $ | $ | ||||||
As of June 30, 2024, future maturities of lease liabilities were as follows:
SCHEDULE OF FUTURE OF LEASE LIABILITIES
Operating Leases | Finance Leases | |||||||
(in thousands) | ||||||||
| Remainder of 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: Interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
| 11 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Other information related to leases for the six months ended June 30, 2024 and 2023 were as follows:
SCHEDULE OF OTHER INFORMATION RELATED TO LEASES
| 2024 | 2023 | |||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Operating cash flows for finance leases | $ | $ | ||||||
| Financing cash flows for finance leases | $ | $ | ||||||
5. ACCOUNTS RECEIVABLE, NET
The gross and realizable value of accounts receivable are detailed as follows:
SCHEDULE OF ACCOUNT RECEIVABLES
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Changes in allowances for credit losses consisted of:
SCHEDULE OF CHANGES IN ALLOWANCES FOR CREDIT LOSSES
Allowance for Credit Losses | ||||
| (in thousands) | ||||
| Balance at December 31, 2022 | $ | ( | ) | |
| Current period provision for expected credit losses | ( | ) | ||
| Foreign currency exchange adjustments | ( | ) | ||
| Balance at December 31, 2023 | $ | ( | ) | |
| Current period provision for expected credit losses | ( | ) | ||
| Foreign currency exchange adjustments | ||||
| Balance at June 30, 2024 | $ | ( | ) | |
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of:
SCHEDULE OF PREPAID EXPENSE AND OTHER CURRENT ASSETS
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Value-added tax receivable | $ | $ | ||||||
| Prepaid income taxes | ||||||||
| Advances to suppliers | ||||||||
| Prepaid expenses | ||||||||
| Insurance recoveries | ||||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
| 12 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
7. INVENTORIES
Inventories are detailed as follows:
SCHEDULE OF INVENTORIES
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Merchandise | $ | $ | ||||||
| Raw materials and consumable supplies | ||||||||
| Finished Goods | ||||||||
| Total | $ | $ | ||||||
The
Company has
8. PROPERTY, PLANT AND EQUIPMENT, NET
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT, NET
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Machinery and equipment | ||||||||
| Assets in progress | ||||||||
| Others | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expense was $
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill allocated to its reporting units for the six months ended June 30, 2024, and the year ended December 31, 2023, are as follows:
SCHEDULE OF GOODWILL
| Soft | Durum | Couscous | ||||||||||||||
| Wheat | Wheat | and Pasta | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Foreign currency exchange adjustments | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Goodwill, Beginning balance | $ | $ | $ | $ | ||||||||||||
| Foreign currency exchange adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Goodwill, Ending balance | $ | $ | $ | $ | ||||||||||||
The Company performed the annual impairment assessment as of December 31, 2023, which did not result in impairment losses.
| 13 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Changes in the carrying amount of intangible assets for the six months ended June 30, 2024, and the year ended December 31, 2023, are as follows:
SCHEDULE OF INTANGIBLE ASSETS
| Trade | Customer | Other | Total Intangible | |||||||||||||
| names | relationships | intangibles | Assets | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Acquisitions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency exchange adjustments | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Acquisitions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency exchange adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
As
of June 30, 2024, the weighted-average remaining amortization period for intangibles other than goodwill is
SCHEDULE OF FUTURE INTANGIBLE AMORTIZATION
| (in thousands) | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total amortization | $ | |||
10. ACCRUED EXPENSES
Accrued expenses consist of:
SCHEDULE OF ACCRUED EXPENSES
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Consideration payable to selling stockholder | $ | $ | ||||||
| Accrued government taxes | ||||||||
| Accrued interest | ||||||||
| Accrued salaries and benefits | ||||||||
| Accruals to social agencies | ||||||||
| Other accrued expenses | ||||||||
| Total | $ | $ | ||||||
11. LINES OF CREDIT
Lines of Credit – working capital
The Company
has entered into unsecured revolving credit agreements with several financial institutions to fund working capital requirements (“WC
Lines of Credit”). The WC Lines of Credit provide the Company with the ability to borrow funds under consolidated lines of credit
of up to approximately $
| 14 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Lines of Credit – wheat inventories
The
Company has entered into credit agreements with several financial institutions for asset-based credit facilities in order to fund wheat
raw material purchases (“Wheat Credit Facilities”). The Wheat Credit Facilities provide the ability to borrow funds under
consolidated lines of credit of up to approximately $
12. LONG-TERM DEBT
The long-term debt of is presented as follows:
SCHEDULE OF LONG TERM DEBT
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Loans | $ | $ | ||||||
| Leases | ||||||||
| Total outstanding debt | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total long-term debt | $ | $ | ||||||
The term loans and other financial liabilities are evaluated according to the amortized cost method using the effective interest rate of the loan. The loan issuance costs and premiums are determined at inception and are amortized over the useful life of the loan via the effective interest rate.
Term Loans
The
Company maintains term loans with several financial institutions (the “Term Loans”). The Term Loans are unsecured and have
fixed monthly payments ranging from approximately $
Lease Obligations
The
Company owes $
The scheduled maturities of outstanding debt as of June 30, 2024, are as follows:
SCHEDULE OF MATURITIES OF OUTSTANDING DEBT
| (in thousands) | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total outstanding debt | $ | |||
13. FOREIGN CURRENCY FORWARD CONTRACTS
Our global operations require active participation in foreign exchange markets. From the beginning of 2023, the Company entered into foreign currency forward contracts to reduce the risk arising from foreign exchange rate fluctuations.
We do not utilize hedge accounting and as such value open foreign currency forward contracts at fair value with the change in unrealized gain or loss recorded in “Change in fair value of derivatives and contingent consideration” on the Company’s condensed consolidated statements of operations.
| 15 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The
Company had 18 foreign currency forward contracts outstanding as of June 30, 2024, with a notional value of $
Foreign currency forward contracts are marked-to-market based on the difference between the forward rate and the exchange rate as of the reporting period; thus, the Company measures the fair value of these contracts under a Level 2 input.
The
foreign currency forward contract liabilities totaled $
14. CONTINGENT CONSIDERATION LIABILITY
In accordance with the terms of the Business Combination Agreement, the Company will pay to the Seller 20% of any cash proceeds received by Company before the five-year anniversary of the Closing resulting from the exercise of Company Warrants outstanding as of June 9, 2022.
The contingent consideration liability is included in “Contingent consideration liability” on the consolidated balance sheet. Changes in the fair value of the liability are included in “Change in fair value of derivatives and contingent consideration” on the Consolidated Statements of Operations.
The
Company utilized a probability weighted scenario-based model under level 3 to determine the fair value of the contingent consideration.
Based on this valuation model, the Company determined the fair value of the contingent consideration to be $
The
significant unobservable inputs used in the fair value measurement of the contingent consideration liability are measures of the estimated
payouts over a five-year period based on internally generated financial projections on a probability-weighted basis and a discount rate
which was in a range of
The following table presents a summary of the changes in the fair value of the contingent consideration liability:
SCHEDULE OF FAIR VALUE MEASUREMENT OF CONTINGENT CONSIDERATION LIABILITY
| (in thousands) | ||||
| December 31, 2022 | $ | |||
| Change in fair value | ||||
| December 31, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| June 30, 2024 | $ | |||
15. INCOME TAXES
The following table presents the components of the six months ended June 30, 2024 and 2023 provision for income taxes:
SCHEDULE OF COMPONENTS OF PROVISION FOR INCOME TAX
| 2024 | 2023 | |||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
| 16 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The
Company’s effective tax rate was -
During
the six months ended as of June 30, 2024, and the year ended December 31, 2023, the Company has $
In assessing the realizability of these deferred tax assets, management considers whether it is more-likely-than-not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. The Company considers the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies, and projected future taxable income in determining whether a valuation allowance is warranted.
As
of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization
of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain net operating loss carryforwards
will not be realized. In recognition of this risk, we continue to provide a valuation allowance on the deferred tax assets in the amount
of $
16. STOCKHOLDERS’ EQUITY
Capital stock
Preferred Shares - The Company is authorized to issue Preferred Shares with a par value of $ per share. The authorized Preferred Shares will be available for issuance by the Board upon the passing of an ordinary resolution of the holders of the ordinary shares. The ordinary resolutions of the stockholders of the Company will stipulate the powers, preferences and relative, participating, optional and other rights or special rights, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as well as any restrictions, of the class of preferred shares as a whole, which has not yet been determined.
Ordinary Shares - The Company is authorized to issue Ordinary Shares with a par value of $ per share. As of June 30, 2024 and December 31, 2023, a total of ordinary shares were issued and outstanding. In the event of the liquidation of the Company, after satisfaction of liabilities to creditors, the assets of the Company will be distributed to the holders of the ordinary shares in the Company in proportion to their respective shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of preferred shares with preferential rights that may be authorized by ordinary resolution in the future. The holders of ordinary shares have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the ordinary shares. The rights, preferences and privileges of holders of the ordinary shares may be subject to those of the holders of any preferred shares the Company may issue in the future.
Class Z non-redeemable and non-convertible ordinary shares - The Company is authorized to issue Class Z non-redeemable and non-convertible ordinary shares (“Class Z Ordinary Shares”) with a par value of $ per share. As of June 30, 2024 and December 31, 2023, the Company had Class Z Ordinary Shares issued and outstanding. All outstanding Class Z non-redeemable and non-convertible ordinary shares were repurchased and retired during 2023.
Warrants
Public
Warrants - There were
| - | at any time while the warrants are exercisable; | |
| - | upon not less than 30 days’ prior written notice of redemption to each warrant holder; | |
| - | if, and only if, the reported
last sale price of the Ordinary Share equals or exceeds $ | |
| - | if, and only if, there is a current registration statement in effect with respect to the Ordinary Share underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
| 17 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
Private
Warrants - At June 30, 2024 and December 31, 2023, there were
Stockholder Earn-Out Rights
As a
part of the Business Combination consideration, the selling stockholder shall be entitled to receive, as additional consideration,
and without any action on behalf of the Company or the Company’s stockholders, additional ordinary shares (the “Earnout
Shares”), to be issued as follows during the period from and after the Closing until the end of calendar year 2024 (A)
Earnout Shares, if, during calendar year 2022, Adjusted EBITDA (as defined in the Business Combination Agreement) of the Company is
equal to or greater than $
The Earnout have been deemed financial instruments to be issued upon the occurrence of contingent earn out provisions. The Earnout Shares are accounted for under ASC Topic 815-40, “Derivatives and Hedging”, pursuant to which the Earnout Shares are considered to be indexed to the Company’s own stock and therefore will be classified as equity instruments.
17. EQUITY INCENTIVE PLAN
In connection with the Business Combination, the Stockholders of the Company considered and approved the Forafric 2022 Long Term Employee Share Incentive Plan (the “Equity Incentive Plan”) which provides for the grant of awards, consisting of nominal cost options or phantom options to employees, directors and consultants of the Company or any of its subsidiaries. The maximum number of shares which may be the subject of awards under the Equity Incentive Plan may not exceed 10% of the issued share capital of the Company from time to time and the maximum number of shares reserved and available for issuance shall not exceed . No award can be exercised after the tenth anniversary of the date of grant. With the exception of certain special circumstances, an award can only be exercised while the award holder is employed or engaged by the Company or any of its subsidiaries. Subject to certain provisions, a vested award may be exercised in whole or in part at any time after its date of grant.
SCHEDULE OF STOCK OPTION ACTIVITY
| Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (thousands) | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited/Expired | - | - | ||||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
The weighted-average grant-date fair value of options granted during the period ended June 30, 2024, was $.
| 18 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
As of June 30, 2024, the unrecognized compensation expense associated with the stock options is $ and it will be recognized over months from the end of June 30, 2024.
SCHEDULE OF STOCK OPTIONS VALUATION ASSUMPTIONS
| Expected term | years | |||
| Volatility | % | |||
| Expected dividend yield | % | |||
| Risk-free interest rate | % |
SCHEDULE OF STOCK OPTION ACTIVITY
| Phantom Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (thousands) | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited/Expired | - | - | ||||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
The
weighted-average fair value of the phantom stock options for the period ended June 30, 2023 was $. The liability for outstanding
phantom stock options as of June 30, 2023 was $
As of June 30, 2024, the unrecognized compensation expense associated with the phantom options is $ and it will be recognized over months from the end of June 30, 2024.
SCHEDULE OF STOCK OPTIONS VALUATION ASSUMPTIONS
| Expected term | years | |||
| Volatility | % | |||
| Expected dividend yield | % | |||
| Risk-free interest rate | % |
Basic earnings per share is computed by dividing net income by the number of weighted average ordinary shares outstanding during the reporting period. The Company’s weighted average number of shares outstanding used in calculating earnings per share are and for the periods ended June 30, 2024 and 2023, respectively. Because there was no activity to cause dilution in the weighted average ordinary shares, basic and diluted earnings per share are disclosed together in each of the reporting periods.
The computation of diluted loss per share excludes the effect of earnout and option shares and warrants to purchase the Company’s shares because their inclusion would be anti-dilutive.
19. COMMITMENTS AND CONTINGENCIES
Since February 2022, the quantity of soft wheat available on the international market has decreased by 35% due to the ongoing war in Ukraine, causing the price of raw materials to increase. Despite this situation, we have not had any shortages on raw materials, and do not project to have any issuing fulfilling future orders. We have no firm and irrevocable commitments that will be affected by the war in Ukraine, and we will continue to assess the impact the war may have on our business.
The
Company entered into a five-year supply agreement with Millcorp Geneva SA (“Millcorp”), pursuant to which the Company is
obligated to obtain at least 80% of the Company’s annual requirements of common wheat, durum wheat, or any other cereal, from Millcorp.
The agreement expired on March 31, 2023 and was subsequently amended to extend through March 2026. The purchases incurred were $
The
Company has commitments with banks to finance its operating activities. The Company has provided collateral and mortgages to banks of
$
| 19 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
From time to time the Company is involved in litigation incidental to the conduct of its business. These matters may relate to employment and labor claims, patent and intellectual property claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. When applicable, the Company records accruals for contingencies when it is probable that a liability will be incurred, and the amount of loss can be reasonably estimated. Defense costs are expensed as incurred and are included in professional fees. While the outcome of lawsuits and other proceedings against the Company cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits and other proceedings had or are expected to have a material effect on the condensed consolidated financial statements at June 30, 2024.
20. SEGMENT INFORMATION
The Company manages operations on a company-wide basis, thereby making determinations as to the allocation of resources in total rather than on a segment-level basis. The Company has designated reportable segments based on how management views its business. The Company does not segregate assets between segments for internal reporting. Therefore, asset-related information has not been presented. The reportable segments, as presented below, are consistent with the manner in which the Company reports its results to the Chief Operating Decision Maker (“CODM”).
The principal products that comprise each segment are as follows:
Soft Wheat – The Soft Wheat segment includes the production and sale of soft wheat yielding flour that is used to make desserts and sauces.
Durum Wheat - The Durum Wheat segment includes the production and sale of hard wheat yielding flour that is used to make pasta.
Couscous and Pasta – The Couscous and Pasta segment includes the secondary processing of products including couscous and pasta sold to end customers.
The Company evaluates the performance of its segments based on sales and operating income. Operating income is defined as gross profit less sales & marketing costs, direct selling, general, and administrative expenses, and other operating expenses. The amounts in the following tables are obtained from reports used by senior management and do not include income taxes. Other expenses not allocated include unallocated corporate expenses (other operating expenses).
Financial information relating to the Company’s reportable segments is as follows:
SCHEDULE OF COMPANY REPORTABLE SEGMENTS
| 2024 | 2023 | |||||||
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Sales to external customers: | ||||||||
| Soft Wheat | $ | $ | ||||||
| Durum Wheat | ||||||||
| Couscous & Pasta | ||||||||
| All others | ||||||||
| Total | $ | $ | ||||||
| Sales to external customers | $ | $ | ||||||
| Direct Operating (loss) income: | ||||||||
| Soft Wheat | $ | $ | ||||||
| Durum Wheat | ( | ) | ||||||
| Couscous & Pasta | ( | ) | ( | ) | ||||
| All others | ( | ) | ( | ) | ||||
| Operating loss | $ | ( | ) | $ | ( | ) | ||
| 20 |
FORAFRIC GLOBAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Geographic
Information — The Company had net sales from customers outside of Morocco of approximately
Long-lived assets consist of net property, plant, and equipment. The geographic location of long-lived assets is as follows:
SCHEDULE OF LONG-LIVED ASSETS NET PROPERTY, PLANT AND EQUIPMENT
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Morocco | $ | $ | ||||||
| Burkina | ||||||||
| Mali | ||||||||
| Angola | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
21. RELATED PARTIES
The following discussion summarizes activity between the Company and related parties:
In
2015, the Company entered into a building lease agreement for the headquarters of Forafric Maroc, a wholly owned subsidiary, with a lease
term through 2024. The Company’s Parent owns
The
purchases incurred were $
The Company grants share-based payments to non-executive members of its board of directors in exchange for directors’ services. For the period ended June 30, 2024, the share-based compensation expense recognized was $.
The Company’s
amounts due from related parties were $
The
Company’s amounts due to related parties were $
The Company has not entered into any significant transactions with other related parties.
22. SUBSEQUENT EVENTS
In preparing the condensed consolidated financial statements through the June 30, 2024, the Company has evaluated subsequent events for recognition and disclosure through January 16th, 2024, the date that these condensed consolidated financial statements and accompanying notes were available for issuance.
On August 8, 2024, the Company granted additional share-based awards to new directors. The total number of options granted rises to in the form cash-settled stock options, referred to as “phantom options”.
On January 14, the Company received a delinquency letter (the “Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it is not in compliance with Nasdaq’s Listing Rule 5250(c)(2) due to the Company’s failure to file its interim financial statements for the period ended June 30, 2024, on Form 6-K with the Securities and Exchange Commission. Pursuant to Nasdaq Listing Rule 5250(c)(2), the Company was required to file its interim financials no later than six months following the end of its second quarter ended June 30, 2024, or December 31, 2024. The Letter received from Nasdaq has no immediate effect on the listing or trading of the Company’s ordinary shares and warrants. The Company will regain compliance upon the filing of these condensed consolidated financial statements on Form 6-K.
On
January 15, 2025, the Company entered into a binding agreement for the sale of a wholly owned subsidiary to a third
party for total consideration of $
| 21 |
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of operations for the six-month periods ended June 30, 2024 and 2023. Unless otherwise specified herein, references to the “Company”, “FG”, “we” or “our” shall include Forafric Global PLC (NASDAQ: AFRI) and its subsidiaries. You should read the following discussion and analysis together with our unaudited interim condensed consolidated financial statements as at June 30, 2024 and for the six-month periods ended June 30, 2024 and 2023, and the accompanying notes thereto, included elsewhere in this report. For additional information relating to our management’s discussion and analysis of the financial condition and results of operations, please see our Annual Report on Form 20-F, which includes the consolidated audited financial statements for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on April 30, 2024. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the Registration Statement, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Key Factors Affecting Our Performance
The key factors affecting the performance of our business are described below:
Cost of Raw material. The cost of wheat is almost 90% of total cost in our business. Fluctuation on the price of the wheat has a direct impact on our performance. The cost of wheat depends on weather, supply and demand and strategies of main international producers. The cost of raw material depends also on freight cost and currency exchange rate fluctuations.
Industrial cost. The crushing cost is the second main factor affecting our performance. This cost includes equipment, labor and interest over financing. To perform on our business, we have to maintain this cost below 30 USD per ton produced. To achieve this performance, we have to monitor energy, equipment usage, logistics, human resources and financial cost.
Average selling price. The average selling price is based on the two components:
| ● | Price of flour/Semolina | |
| ● | Price of Bran |
Bran is between 20% to 25% of the production of finished products. We have no impact on the price of the bran.
On the price of finished product, we can have a limited impact due to high concurrency on the market.
Key Components of Results of Operations
Net sales, cost of sales and gross profit figures are calculated with the following method:
Net sales: Total consolidated sales;
Cost of sales: includes cost of raw materials, cost of freight, depreciation expense, cost of foreign exchange and cost of improvements used in the production; and
Gross profit: the difference between net sales and cost of goods sold.
The key components of our results of operation are:
Price of raw materials, which is affected by many factors, including global and regional supply, which in turn is impacted by factors such as weather conditions, local planting decisions, crop failure, reduced harvests, governmental policies (including both tariffs and subsidies), and other agricultural conditions, as well as local, regional, and international demand. The price of raw materials increased during the first six months of 2024 over the same period for 2023.
Cost of freight, which is impacted by shipping availability, international demand, labor shortages, strikes, regional conflicts, inadequate or obsolete port infrastructure and other factors.
Foreign exchange rates, which are continually fluctuating due to the relative economic strengths or governmental policies of different countries.
Human resources productivity, which may be impacted by the training and skills of the available workforce, the nature of tools and facilities in place, financial incentives and other factors over which we do not have any control.
Power consumption and costs, which may be affected by governmental policies, including green energy initiatives and the age and efficiency of existing and newly acquired facilities.
Our Results of Operations depends primarily on the cost of raw materials and on our industrial cost.
In our business, most raw materials are imported from Europe, South America, Black Sea and Canada (for durum). In Morocco, there is production of wheat but the quality is generally not high enough for industrial usage. The variation of the cost of raw materials has a huge impact on our business and can explain the changes in the result of operation form period to period.
Industrial cost is the second main component of our result of operation. The industrial cost includes human resources, cost of equipment, maintenance, power consumption and financial cost as main components. We launched a huge restructuring plan in 2018 to reduce our industrial cost with success. We will launch a new restructuring plan in 2025.
Results of Operations
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
The following table presents our unaudited interim condensed consolidated results of operations for the six months ended June 30, 2024 and 2023:
| Six months ended June 30, | ||||||||||||
| In thousands of USD | 2024 | 2023 | $ Change | |||||||||
| Revenues | $ | 165,238 | $ | 145,616 | $ | 19,622 | ||||||
| Cost of sales | 146,520 | 131,969 | 14,551 | |||||||||
| Gross profit | 18,718 | 13,647 | 5,071 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative expenses | 22,327 | 15,024 | 7,303 | |||||||||
| Total operating expenses | 22,327 | 15,024 | 7,303 | |||||||||
| Operating loss | (3,609 | ) | (1,377 | ) | (2,232 | ) | ||||||
| Other expense (income): | ||||||||||||
| Interest income | - | (55 | ) | 55 | ||||||||
| Interest expense | 6,959 | 6,529 | 430 | |||||||||
| Change in fair value of derivatives and contingent consideration | 287 | 1,579 | (1,292 | ) | ||||||||
| Foreign exchange gain | (504 | ) | (1,500 | ) | 996 | |||||||
| Total other expense | 6,742 | 6,553 | 189 | |||||||||
| Loss before income taxes | (10,351 | ) | (7,930 | ) | (2,421 | ) | ||||||
| Income tax expense | 1,696 | 646 | 1,050 | |||||||||
| Net loss | $ | (12,047 | ) | $ | (8,576 | ) | $ | (3,471 | ) | |||
Revenues
For the six-months period ended June 30, 2024, net revenues totaled $165.2 million, increasing $19.6 million or 13.5% for the same period in 2023. The increase in revenues when compared period over period is a direct result of an increase in sales volume.
Cost of Sales
For the six-months period ended June 30, 2024, cost of sales totaled $146.5 million, increasing $14.6 million or 11.0% when compared to the same period in 2023. The increase in cost of sales when is a direct result of the increase in crushed volume.
As a result, gross profits for the six-month period ended June 30, 2024 increased by $5.1 million or 37.2% when compared to the same period in 2023.
Selling, General and Administrative Expenses
For the six-months period ended June 30, 2024, selling, general and administrative expenses totaled $22.3 million, increasing $7.3 million or 48.6% when compared to the same period in 2023. The increase in selling, general and administrative expenses is primarily attributable to impairment of $4.9 million of insurance recoveries related to reception of damaged wheat in 2022.
Other Expense (Income)
For the six-months period ended June 30, 2024, other expense totaled $6.7 million, increasing $0.2 million or 2.9% when compared to the same period in 2023.
Segments
The following table presents revenue and operating income (loss) by segment for the six-months period ended June 30, 2024 and June 30, 2023:
| Six Months Ended June 30, | ||||||||||||
| In thousands of USD | 2024 | 2023 | $ Change | |||||||||
| Sales to external customers: | ||||||||||||
| Soft wheat | $ | 122,408 | $ | 104,124 | $ | 18,284 | ||||||
| Durum wheat | 26,012 | 24,980 | 1,032 | |||||||||
| Couscous and pasta | 14,894 | 14,591 | 303 | |||||||||
| All other | 1,924 | 1,921 | 3 | |||||||||
| Total | $ | 165,238 | $ | 145,616 | $ | 19,622 | ||||||
| Direct operating income (loss): | ||||||||||||
| Soft wheat | $ | 729 | $ | 2,340 | $ | (1,611 | ) | |||||
| Durum wheat | (595 | ) | 504 | (1,099 | ) | |||||||
| Couscous and pasta | (827 | ) | (384 | ) | (443 | ) | ||||||
| All other | (2,916 | ) | (3,837 | ) | 921 | |||||||
| Operating loss | $ | (3,609 | ) | $ | (1,377 | ) | $ | (2,232 | ) | |||
For the six-months period ended June 30, 2024, net revenues of soft wheat totaled $122.4 million, increasing 17.6% from $104.1 million during the comparable period in 2023. The increase was primarily attributable to an increase in volume of sales during this period.
For the six-months period ended June 30, 2024, net sales of durum wheat totaled $26.0 million, increasing 4.1% from $25.0 million during the comparable period in 2023. The increase was primarily attributable to an increase in volume during this period.
For the six-months period ended June 30, 2024, net sales of couscous and pasta totaled $14.9 million, increasing 2.1% from $14.6 million during the comparable period in 2023.
Liquidity and Capital Resources
Working Capital and Working Capital Facilities. Working capital deficits were $141.2 million and $132.0 million at June 30, 2024 and December 31, 2023, respectively.
The Company had revolving working capital credit lines available in the amount of $53.0 million and $50.0 million as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, the Company had borrowed $52.9 million and had unused availability of $0.1 million under such credit lines. As of December 31, 2023, the Company had borrowed $48.5 million and had unused availability of $1.5 million under such credit lines. The Company has also entered into credit agreements for asset-based credit facilities in order to fund wheat raw material purchases (“Wheat Credit Facilities”). The Wheat Credit Facilities provide the ability to borrow funds under consolidated lines of credit of up to approximately $135.0 million as of June 30, 2024 and $142.0 million as of December 31, 2023. The Wheat Credit Facilities are secured by inventory. The Wheat Credit Facilities must be renewed on a semi-annual basis. As of June 30, 2024, the Company had borrowed $104.6 million under the Wheat Credit Facilities, with unused availability of approximately $30.4 million. As of December 31, 2023, the Company had borrowed $126.5 million under the Wheat Credit Facilities, with unused availability of approximately $15.5 million.
As of June 30, 2024, the Company has, in addition to its obligations under the working capital credit lines and the Wheat Credit Facilities, $3.9 million in lease obligations.
Cash and Cash Equivalents - Cash and cash equivalents were $16.4 million and $24.0 million at June 30, 2024 and December 31, 2023, respectively. Cash balances are managed in accordance with our investment policy, the objectives of which are to preserve the principal value of our cash assets, maintain a high degree of liquidity and deliver competitive returns subject to prevailing market conditions.
Trade accounts receivable, net - Trade accounts receivable, net were $36.3 million and $34.7 million at June 30, 2024 and December 31, 2023, respectively.
Inventories - Inventories were $28.7 million and $28.4 million at June 30, 2024 and December 31, 2023, respectively.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. As of January 16, 2025, the Company’s management has assessed its ability to continue as a going concern and has concluded that it is able to do so for at least the next twelve months from the date of issuance of these condensed consolidated financial statements.
Management’s assessment is based on the following considerations:
| - | Cash and Liquidity: As of December 31, 2024, the Company had cash and cash equivalents of $12.8 million, which management believes is sufficient to fund its planned operations and meet its obligations for the next twelve months. Management continues to actively manage cash flows, including monitoring receivables and payables, and has implemented cost control measures to conserve cash. | |
| - | On January 15, 2025, the Company entered into a binding agreement for the sale of a wholly owned subsidiary to a third party for total consideration of $10.0 million. The Company expects that the proceeds from this transaction will be used to fund its operations, reduce liabilities, and support its ongoing strategic initiatives. | |
| - | Management is also actively pursuing several potential sources of additional financing, including negotiations with investors and financial institutions, as well as exploring cost-reduction initiatives and the potential sale of other non-core assets, which management believes could be utilized if additional capital is needed to support operations beyond the next twelve months. |
Based on the above considerations, management believes that the Company has sufficient financial resources to meet its obligations as they come due at least the next twelve months from the date of issuance of the condensed consolidated financial statements.
Critical Accounting Policies and Estimates
As disclosed in Note 2, the significant accounting policies used in preparing the condensed consolidated financial statements were applied on a basis consistent with those reflected in our consolidated financial statements that are included in the annual report on Form 20-F for the year ended December 31, 2023 that was filed with the SEC on April 30, 2024. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Revenue Recognition – the Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product or service to a customer. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The Company applies the practical expedient in Accounting Standards Codification (“ASC”) paragraph 606-10-50-14 of ASC Topic 606, Revenue from Contracts with Customers and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Trade discounts or volume rebates are recognized as a deduction in revenue. No payment terms beyond one year are granted at contract inception.
Revenue related to the sale of goods and equipment is measured based on consideration specified in a contract with a customer. the Company recognizes revenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a customer, generally when legal title and risks and rewards transfer to the customer. Sales terms typically provide for transfer of title at the time and point of delivery and acceptance of the product being sold.
Amounts received from customers prior to revenue recognition on a contract are recorded as contract liabilities on the condensed consolidated balance sheets.
Shipping and Handling Costs – Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in cost of sales. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Taxes Collected from Customers and Remitted to Governmental Authorities – the Company does not include taxes assessed by governmental authorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in the measurement of transactions prices or as a component of revenues and cost of sales.
Accounts Receivable and Allowances for Credit Losses – We provide credit terms to customers in-line with industry standards, perform ongoing credit evaluations of our customers, and maintain allowances for potential credit losses based on historical experience recorded. We analyze the aging of customer accounts, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for credit losses. Customer balances are written off after all collection efforts are exhausted. Estimated product returns, which have not been material, are deducted from sales at the time of shipment.
Other Receivables – Other receivables include government subsidies for the production and sale of flour. The Moroccan government provides a fixed subsidy based on production and customer. Subsidies are paid by the Moroccan government twice a year based on sales of flour for the previous six months. The Company records the flour subsidies as a credit against the related costs that the subsidies were intended to offset in the same periods that the costs were incurred within the condensed consolidated statement of operations.
Income Taxes – The provision for income taxes includes income taxes currently payable in Morocco and local jurisdictions, and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. We account for uncertain tax positions using a “more-likely-than-not” threshold. A tax benefit from an uncertain tax position is recognized if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position, or the statute of limitations concerning such issues lapses.
Foreign Currency Translation and Transactions - The Company’s reporting currency is the US dollar (“USD”). The functional currency of the Company’s operating subsidiaries is generally the same as the corresponding local currency. Assets and liabilities of the operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the operating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive loss, which is reflected as a separate component of Stockholders’ equity. The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The transactions in foreign currency (that is a different currency than the functional currency of the entity) are converted at the exchange rate prevailing to the date of the transaction. The assets and liabilities denominated in foreign currencies are evaluated in the current period on the date of the closing or at the opening rate, when applicable. The translation adjustments are deferred as a separate component of equity in “Accumulated other comprehensive income”. Gains or losses resulting from transactions denominated in foreign currencies and intercompany debt that is not of a long-term investment nature are included in (Gain) loss on foreign currency exchange in the condensed consolidated statements of operations and comprehensive loss.
Foreign currency forward contracts –The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts. The Company has entered into foreign currency forward contracts and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging,” which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings.
Share-Based Compensation - Share-based awards principally comprise of stock options and cash-settled stock options, referred to as “phantom options”. Share-based awards are generally issued to certain senior management personnel. Share-based compensation cost (other than phantom options) is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis. Our phantom options are accounted for as liability awards and are re-measured at fair value each reporting period with compensation expense being recognized over the requisite service period.
The Company uses the Black-Scholes option pricing model to determine the grant date fair value of its stock options and phantom options, respectively, as well as the fair value at each reporting period for liability classified awards. This model requires the Company to estimate the expected volatility and the expected term of the stock options, which are highly complex and subjective variables. The Company uses an expected volatility of its stock price during the expected life of the options that is based on the historical performance of the Company’s stock price as well as including an estimate using similar companies. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected exercise term of the stock option. The inputs to the valuation of phantom options are observable in the market, and as such are classified as Level 2 in the fair value hierarchy. The Company accounts for forfeitures of share-based awards as the occur.
Inventories - Inventories are stated at the lower of cost or net realizable value. the Company’s inventory is valued using the weighted average cost method. The costs of finished goods inventories include raw materials, labor, and overhead costs.
Property, Plant, and Equipment - Property, plant, and equipment are stated at acquisition cost, plus capitalized interest on borrowings during the actual construction period of major capital projects. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets as follows:
| Assets | Useful Lives | |
| Buildings | 39 years | |
| Machinery and equipment (technical installations) | 30-50 years | |
| Other assets | 5-30 years |
Building improvements are depreciated over the shorter of the estimated useful life of the assets or the remaining useful life. Leasehold improvements are amortized over the shorter of their useful life or remaining lease term. Expenditures for repairs and maintenance, which do not improve or extend the life of the assets, are expensed as incurred.
We perform impairment tests when circumstances indicate that the carrying value of an asset may not be recoverable. Indicators of impairment include deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in business conditions. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment of recoverability of property, plant and equipment is performed on a reporting unit level. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.
Goodwill and Other Intangible Assets - Identifiable intangible assets with finite lives are amortized over their estimated useful lives as follows:
| Assets | Useful Lives | |
| Trademarks | Indefinite | |
| Customer relationships | 20 years | |
| Patents and licenses | 5-10 years | |
| Computer software | 5-10 years | |
| Other intangible assets | 3-10 years |
Recognized intangible assets, exclusive of goodwill, are amortized over the useful lives of the assets unless that life is determined to be indefinite. All of our intangible assets, exclusive of goodwill, are finite lived. All amortization expense related to intangible assets is recorded in selling, general, and administrative expense in the condensed consolidated statements of operations. Intangible assets with finite lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.
Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our annual impairment evaluation is conducted during our fiscal fourth quarter.
In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.
The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.
Recent Accounting Pronouncements
Other than as described below, no new accounting pronouncement issued or effective during the six months ended June 30, 2024 has had or is expected to have a material impact on the condensed consolidated financial statements.
In November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 mainly requires more enhanced information about a reportable segment’s expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is still evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures and will adopt it for the year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is determining the impact of the ASU 2023-09 on its consolidated financial statements.