Forafric PLC(AFRI) - 2022 Q4 - Annual Report

Introduction and Definitions This section defines key terms and abbreviations used in the annual report, including details on the Business Combination, company entities, and financial standards, noting equity funding in U.S. dollars and primary revenues/expenses in Moroccan Dirhams pegged to USD and Euros - The report defines key terms such as 'Business Combination' (Globis combined with Forafric Agro Holdings Limited on June 9, 2022), 'Company' (Forafric Global PLC), and 'FAHL' (Forafric Agro Holdings Limited, now a fully owned subsidiary)[8][9][11][15] - The company's equity is funded in U.S. dollars, while the majority of revenues and expenses are incurred in Moroccan Dirhams, which is pegged to the U.S. dollar and Euros[35] Part I: Company Information This section provides an overview of the company's identity, key financial information, risk factors, business operations, and organizational structure Item 1. Identity of Directors, Senior Management and Advisers This item is not applicable for the registrant - This item is marked as 'Not Applicable'[36] Item 2. Offer Statistics and Expected Timetable This item is not applicable for the registrant - This item is marked as 'Not Applicable'[36] Item 3. Key Information This section provides key information about the company, including its capitalization, indebtedness, and a comprehensive overview of risk factors that could materially affect its business, financial condition, results of operations, and growth prospects A. [Reserved] This sub-item is reserved - This sub-item is marked as '[Reserved]'[36] B. Capitalization and Indebtedness This sub-item is not applicable for the registrant - This sub-item is marked as 'Not applicable'[36] C. Reasons for the Offer and Use of Proceeds This sub-item is not applicable for the registrant - This sub-item is marked as 'Not applicable'[36] D. Risk Factors The company faces significant risks across various domains, including market volatility for its securities, operational dependencies on raw materials and related parties, geopolitical events like the Russia-Ukraine war, and regulatory challenges in its primary market, Morocco - Sales of a substantial number of securities by Selling Securityholders or existing securityholders could cause the price of Ordinary Shares and Warrants to fall[38][39] - The company is dependent on a related party supplier (Millcorp Geneve SA) for substantially all of its raw material, with a five-year supply agreement extended through March 31, 2026[45][107] - The continuation of the war between Russia and Ukraine could lead to raw material shortages or substantial increases in raw material costs, as Ukraine and Russia account for approximately 10% and 16% of the world's wheat exports, respectively[51][113] - The Moroccan market, where the bulk of the company's business originates, is highly regulated, with restrictions on soft wheat imports and government subsidies for flour, which are expected to change[141][142] - The company is an 'emerging growth company' and a 'foreign private issuer,' which allows for reduced SEC reporting requirements, but this could make its securities less attractive to investors and limit shareholder protections compared to U.S. domestic public companies[42][43][77][82][83] - The company does not anticipate paying dividends for the foreseeable future, as it expects to operate at a loss and retain funds for business development and growth[97][98] Item 4. Information on the Company This section details the company's history, business operations, market position, and strategic initiatives, highlighting its integrated role in agricultural commodities, strong presence in the Moroccan market, and expansion into other African regions A. History and Development of the Company Forafric Global PLC is an integrated global business in agricultural commodities, formed through the combination of Forafric (Maymouna) and Tria Group, which completed a Business Combination on June 9, 2022, resulting in its Ordinary Shares and Warrants trading on Nasdaq - The company is an integrated, global business involved in the purchase, storage, transport, processing, and sale of agricultural commodities, primarily flour, semolina, pasta, and couscous[154][169] - On June 9, 2022, the company completed a Business Combination, leading to its Ordinary Shares and Warrants commencing trading on the Nasdaq Stock Market LLC under symbols 'AFRI' and 'AFRIW' respectively[156][160] - The company qualifies as an 'emerging growth company' and a 'foreign private issuer', allowing it to take advantage of reduced SEC reporting and disclosure requirements[162][166] B. Business Overview Forafric operates primarily in the growing African food market, focusing on staple products like flour, semolina, pasta, and couscous, holding a leadership position in the Moroccan wheat milling sector with a capacity of 2,200 tons per day - The company operates primarily in the African food market, providing staple products such as flour, semolina, pasta, and couscous, anticipating continued market growth due to demographic increases and urbanization[176] - The company is a leader in the Moroccan wheat milling business, with a milling capacity of 2,200 tons per day and a total volume of 550,000 tons per year, giving it significant bargaining power for raw materials[181][182] - Key brands include MayMouna (popular for Moroccan households) and Tria (popular for industrial clients in Morocco), with Tria holding approximately 15% of the overall couscous market and 9% of the overall pasta market in Morocco[184][196][198] - The company's business strategy focuses on sustainable growth, value generation, and commitment to social well-being, diversity, environmental balance, and ethical conduct[188][189][190] - Significant events include the acquisition of majority ownership in MDS Mali and MDS Burkina Faso in 2021, and Sanabil SA in Morocco, expanding its footprint in West Africa and central Morocco[173][219][220][222] - The company has a unique storage infrastructure in Morocco, with 2 units dedicated to storage and over 250,000 tons of grain storage capacity, including Finalog's multimodal platform linked to the port of Casablanca by rail[214][215] C. Organizational Structure The organizational structure is detailed in Item 4.A, which describes the company's history and development, including the Business Combination and its subsidiaries - The organizational structure refers to the details provided in 'Item 4. Information on the Company – A. History and Development of the Company'[235] D. Property, plants and equipment As of December 31, 2022, the company owns and leases 12 refining, packing, and milling facilities globally, with an aggregate production capacity of 3,050 metric tons per day, including eight milling plants in Morocco with a capacity of 2,400 metric tons per day and two storage facilities with 250,000 metric tons capacity - As of December 31, 2022, the company owns and leases 12 refining, packing, and milling facilities worldwide, with a total production capacity of 3,050 metric tons per day[235] - Eight of these milling plants are located in Morocco, contributing an aggregate capacity of 2,400 metric tons per day[235] - The company also possesses two storage facilities in Morocco, offering a combined storage capacity of 250,000 metric tons[235] Item 4A. Unresolved Staff Comments This item is not applicable for the registrant - This item is marked as 'Not applicable'[237] Item 5. Operating and Financial Review and Prospects This section provides a detailed analysis of the company's financial condition, results of operations, liquidity, and cash flows for the years ended December 31, 2022, 2021, and 2020, highlighting key factors affecting performance and the impact of global events Overview The overview sets the stage for the financial review, emphasizing that the discussion is based on consolidated financial statements and includes forward-looking statements subject to various risks, clarifying the company's identity before and after the Business Combination - The discussion is based on consolidated financial statements for the years ended December 31, 2022, 2021, and 2020[239] - The report contains forward-looking statements based on management's beliefs and assumptions, which involve known and unknown risks and uncertainties[241][242][243] Key Factors Affecting Our Performance The company's performance is primarily driven by the cost of raw materials (wheat, accounting for almost 90% of total cost), industrial costs (equipment, labor, interest), and average selling prices, which are influenced by market competition and bran prices - The cost of raw material (wheat) is the main factor, accounting for almost 90% of total cost, influenced by weather, supply/demand, international producers' strategies, freight, and currency exchange rates[246][258] - Industrial cost is the second main factor, including equipment, labor, and interest over financing, with a target to maintain it below $30 USD per ton produced[247][259] - Average selling price is based on flour/semolina and bran prices, with limited impact on finished product prices due to high market concurrency[248] Impact of COVID-19 The COVID-19 pandemic did not materially impact sales due to the staple nature of the company's food products, but it led to increases in raw material, freight, and shipping costs in 2021 and 2022, partially offset by sales price increases and Moroccan government subsidies - COVID-19 did not materially impact sales due to the staple nature of the company's food products[249] - The company experienced increases in raw material, freight, and shipping costs in 2021 and 2022, attributable to global demand and inflationary pressures[249] - These cost increases were partially offset by the company's ability to raise sale prices and subsidies from the Government of Morocco[249] - No significant supply chain disruptions are anticipated through the end of 2023 based on current trends[251] The War in Ukraine The war in Ukraine poses a risk of material reduction in global wheat availability and substantial price increases, as Ukraine and Russia are significant wheat exporters, but the company has diversified its supply sources, primarily from European countries, Argentina, and Brazil, mitigating direct impact - The war in Ukraine could lead to a material reduction in global wheat availability and substantial increases in raw material prices, given Ukraine and Russia's significant share of world wheat exports (10% and 16% respectively)[252] - The company has diversified its raw material sources, primarily purchasing from European countries, Argentina, and Brazil, and has not bought from Ukraine or Russia in 2023[253][254] - The price of soft wheat and durum began to decrease in the first three months of 2023, but a sustained trend is not yet clear[253] Key Components of Results of Operations The key components influencing the company's results are net sales, cost of goods sold (including raw materials, freight, foreign exchange, and production improvements), and gross profit, with industrial costs successfully reduced by 40% over the last three years - Net sales, cost of goods sold (raw materials, freight, foreign exchange, improvements), and gross profit are the primary components[255] - Raw material prices are affected by global/regional supply, weather, government policies, and demand, with imported wheat being a major factor[255][258] - Industrial costs, including human resources, equipment, maintenance, power, and financial costs, were successfully reduced by 40% over the last three years through a restructuring plan[259] Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 In 2022, the company saw a 10.7% increase in net revenues to $289.8 million, but cost of sales rose by 18.7% to $260.4 million, leading to a 30.7% decrease in gross profit to $29.4 million, with operating loss widening to $1.4 million and net loss increasing to $19.2 million Operating Results (2022 vs. 2021) | In thousands of USD | 2022 | 2021 | Change ($) | Change (%) | | :------------------ | :-------- | :-------- | :--------- | :--------- | | Revenues | $289,772 | $261,679 | $28,093 | 10.7% | | Cost of sales | $260,399 | $219,311 | $41,088 | 18.7% | | Gross profit | $29,373 | $42,368 | $(12,995) | (30.7%) | | Operating (loss) income | $(1,422) | $3,386 | $(4,808) | (141.9%) | | Net loss | $(19,170) | $(7,784) | $(11,386) | (146.3%) | - Revenues increased by $28.1 million (10.7%) year-over-year, driven by higher sales volume and average sales prices due to increased global commodity prices following the Ukraine-Russia war[261] - Cost of sales increased by $41.1 million (18.7%) year-over-year, primarily due to rising raw material costs, increased shipping and logistics costs, and unfavorable mark-to-market results[262] - Selling, general and administrative expenses decreased by $8.2 million (21.0%) year-over-year, mainly due to lower compensation costs and reduced bad debt expense[263] - Other expense increased by $8.5 million (75.9%) year-over-year, driven by higher interest expense and foreign transaction losses, partially offset by a $4.7 million net gain from changes in fair value of derivatives and contingent consideration[264] Sales to External Customers by Segment (2022 vs. 2021) | In thousands of USD | 2022 | 2021 | Change ($) | | :------------------ | :-------- | :-------- | :--------- | | Soft wheat | $216,659 | $177,175 | $39,484 | | Durum wheat | $45,286 | $54,737 | $(9,451) | | Couscous and pasta | $27,827 | $29,767 | $(1,940) | | Total | $289,772 | $261,679 | $28,093 | - Soft wheat revenues increased by 22.3% due to higher sales volume and full-year operations from 2021 acquisitions (MDS Mali, MDS Burkina Faso, Sanabil SA)[266][267] - Durum wheat and couscous/pasta sales decreased by 17.3% and 6.5% respectively, primarily due to decreased volume[266][267] - Working capital deficits were $94.6 million at December 31, 2022, compared to $85.3 million in 2021[268] - The company had $48.0 million in revolving working capital credit lines and $148.0 million in Wheat Credit Facilities available as of December 31, 2022[269] - Cash and cash equivalents increased to $24.8 million at December 31, 2022, from $14.4 million in 2021[271] - The Business Combination generated approximately $19.4 million in gross proceeds from the Trust Account and $13.9 million from PIPE Investment[273] - The Seller received 17,004,762 Ordinary Shares and 1,550,000 Ordinary Shares, plus an $8 million payment and 516,666 warrants[274][275] Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 In 2021, net revenues increased by 33.1% to $261.7 million, but cost of sales rose by 40.4% to $219.3 million, leading to a modest 4.9% increase in gross profit to $42.4 million, while operating income decreased significantly by 40.4% to $3.4 million and net loss reached $7.8 million Operating Results (2021 vs. 2020) | In thousands of USD | 2021 | 2020 | Change ($) | Change (%) | | :------------------ | :-------- | :-------- | :--------- | :--------- | | Revenues | $261,679 | $196,596 | $65,083 | 33.1% | | Cost of sales | $219,311 | $156,188 | $63,123 | 40.4% | | Gross profit | $42,368 | $40,408 | $1,960 | 4.9% | | Operating income | $3,386 | $9,891 | $(6,505) | (65.8%) | | Net loss | $(7,784) | $(139) | $(7,645) | (5499.9%) | - Net revenues increased by 33.1% to $261.7 million, while cost of sales increased by 40.4% to $219.3 million, reflecting higher raw material and shipping costs[287][288] - Selling, general and administrative expenses increased to $39.0 million from $30.5 million, mainly due to higher compensation costs, professional fees, and bad debt expense[289] - Other expenses increased by 13.9% to $11.3 million, driven by a 51.3% increase in interest expense to $10.4 million, partially offset by a 52.7% reduction in foreign currency exchange losses[290] Sales to External Customers by Segment (2021 vs. 2020) | In thousands of USD | 2021 | 2020 | Change ($) | | :------------------ | :-------- | :-------- | :--------- | | Soft wheat | $177,175 | $129,096 | $48,079 | | Durum wheat | $54,737 | $37,571 | $17,166 | | Couscous and pasta | $29,767 | $29,930 | $(163) | | Total | $261,679 | $196,597 | $65,082 | - Soft wheat sales increased by 37.2% due to higher volume and acquisitions (MDS Mali, MDS Burkina Faso, Sanabil SA)[292][293] - Durum wheat sales increased by 45.7% due to higher selling prices, while couscous and pasta sales slightly decreased by 0.5%[292][293] - Working capital deficits increased to $85.3 million at December 31, 2021, from $66.5 million in 2020[294] - Revolving working capital credit lines were $80.0 million, and Wheat Credit Facilities were $100.0 million[295] - Cash and cash equivalents increased to $14.4 million at December 31, 2021, from $12.7 million in 2020[297] Trend Information The company is not aware of any trends, uncertainties, demands, commitments, or events from January 1, 2022, to December 31, 2022, that are reasonably likely to have a material adverse effect on its net revenue, income, profitability, liquidity, or capital resources, other than those already disclosed - No new material adverse trends or uncertainties identified for the period from January 1, 2022, to December 31, 2022, beyond those already disclosed[299] Critical Accounting Estimates The preparation of financial statements requires significant management judgment and estimates, particularly for revenue recognition, accounts receivable allowances, income taxes, foreign currency translation, inventory valuation, property/plant/equipment depreciation and impairment, goodwill, and other intangible assets - Significant accounting policy elections, estimates, and assumptions include allowance for credit losses, valuation of goodwill and intangible assets, useful lives of long-lived assets, and measurement of income tax assets[300][571] - Revenue is recognized when control of a product or service is transferred to a customer, typically at the point of delivery and acceptance[301][302][596][598] - Inventories are valued at the lower of cost or net realizable value using the weighted average cost method, including raw materials, labor, and overhead[310][576] - Goodwill and other intangible assets are evaluated for impairment annually, using qualitative or quantitative assessments, with fair value determined by income and market approaches[315][582][583][584] - The company's functional currency is the Moroccan Dirham, and its presentation currency is the U.S. Dollar, with foreign currency transactions translated using exchange rates at transaction dates and balance sheet accounts at period-end rates[309][594] Recent Accounting Pronouncements The company adopted ASU 2021-10, Government Assistance (Topic 832), in November 2021, which requires enhanced disclosures about government assistance received, with no material impact on the company's financial statements - ASU 2021-10, Government Assistance (Topic 832), was adopted, requiring disclosure of types, accounting, and effects of government assistance[316][622] - The adoption of this guidance had no material impact on the company's results of operations, balance sheet, or cash flows[316][622] Item 6. Directors, Senior Management and Employees This section outlines the company's leadership, including executive officers and directors, their compensation, and corporate governance practices, detailing the board's composition, committee structures, and policies regarding related person transactions and employee relations A. Directors and Senior Management The company's executive officers include Saad Bendidi (Chairman), Mustapha Jamaleddine (CEO), Julien Benitah (CFO), Mustapha Ghazali (CTO), and Oury Marciano (VP Business Development), with a Board of Directors consisting of seven members, including independent directors Franco Cassar, Ira Greenstein, and Rachel Bitan Executive Officers | Name | Age | Position(s) | | :----------------- | :-- | :---------------------- | | Saad Bendidi | 64 | Chairman | | Mustapha Jamaleddine | 61 | CEO | | Julien Benitah | 41 | CFO | | Mustapha Ghazali | 51 | CTO | | Oury Marciano | 39 | VP Business Development | Board of Directors | Name | Age | Position(s) | | :--------------- | :-- | :---------- | | Saad Bendidi | 64 | Director | | Julien Benitah | 41 | Director | | Franco Cassar | 63 | Director | | James Lasry | 55 | Director | | Paul Packer | 52 | Director | | Ira Greenstein | 64 | Director | | Rachel Bitan | 47 | Director | - Franco Cassar, Ira Greenstein, and Rachel Bitan are considered 'independent directors' under Nasdaq rules and applicable SEC rules[339] B. Compensation of Executive Directors and Executive Officers Executive officers' compensation for 2022 included base salaries and, for some, cash bonuses, with the company also having an Equity Incentive Plan, adopted in June 2022, allowing for grants of nominal cost or phantom options, reserving a maximum of 2,645,684 Ordinary Shares 2022 Summary Compensation Table for NEOs | Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :------------------------- | :-------- | | Saad Bendidi, Chairman | 2022 | 174,419 | — | 21,140 | 195,559 | | Mustapha Jamaleddine, CEO | 2022 | 377,291 | — | 83,116 | 460,407 | | Julien Benitah, CFO | 2022 | 176,465 | 96,300 | 10,262 | 283,027 | - The Forafric 2022 Long Term Employee Share Incentive Plan was adopted on June 9, 2022, reserving a maximum of 2,645,684 Ordinary Shares for awards[348][352] - Non-employee directors are compensated with $40 thousand per annum, shares equivalent to $25 thousand annually, and additional fees for attending board meetings and serving as committee chairpersons[359][360] C. Board Practices The Board of Directors consists of seven members and has established an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, all composed of independent directors, and has adopted a formal policy for reviewing and approving related person transactions - The Board of Directors has seven members and maintains an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee[362][364] - All members of the Audit Committee (Franco Cassar, Ira Greenstein, Rachel Bitan) are independent, with Franco Cassar qualifying as an 'audit committee financial expert'[365] - The company qualifies as a 'controlled company' under Nasdaq rules but has chosen not to rely on the associated exemptions, maintaining a majority of independent directors and fully independent committees[341][342] - A formal written policy for Related Person Transactions (exceeding $120 thousand) was adopted, requiring Audit Committee approval[375][376][377] - Directors are generally appointed for three-year terms and may be removed by ordinary or special resolution of shareholders[382][383] D. Employees As of December 31, 2022, the company's subsidiaries employed approximately 750 individuals across four countries, with employee relations considered good and no labor union representation, focusing on employee welfare, development, and incentive programs - As of December 31, 2022, the company had approximately 750 employees across four countries[384] - None of the employees are represented by labor unions, and employee relations are considered good[384] - The company is dedicated to promoting employee welfare, development, and personal growth through incentive programs[384] E. Share Ownership As of the report date, Lighthouse Settlement is the largest beneficial owner, holding 71.62% of the Ordinary Shares, while all directors and executive officers as a group beneficially own less than 1% of the total outstanding Ordinary Shares Beneficial Ownership of Ordinary Shares | Name of Beneficial Owners | Number of Ordinary Share Beneficially Owned | Percentage of Outstanding Ordinary Share | | :------------------------ | :---------------------------------------- | :--------------------------------------- | | Lighthouse Settlement | 19,250,483 | 71.62% | | All directors and executive officers as a group (8 individuals) | 13,200 | 0.05% | - Lighthouse Settlement, controlled by Lighthouse Corporation PTC, is the sole shareholder of Lighthouse Capital Limited, which holds the majority of shares[390] - Beneficial ownership percentages are based on 26,879,102 Ordinary Shares outstanding as of the report date[386] Item 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders and significant transactions with related parties, elaborating on the Business Combination's impact on share distribution and outlining various related agreements, including PIPE financing, convertible bonds, related party loans, and lock-up agreements A. Major Shareholders Information regarding major shareholders is provided in Item 6.E. Share Ownership - This section refers to 'Item 6. Directors, Senior Management and Employees—E. Share Ownership' for major shareholder information[391] B. Related Party Transactions The Business Combination on June 9, 2022, involved the Seller receiving 17,004,762 Ordinary Shares, 1,550,000 Ordinary Shares from a subscription agreement, an $8 million payment, and 516,666 warrants, with related agreements including a PIPE Investment of $14.0 million, conversion of $11.5 million FAHL Bonds into 1,248,426 Ordinary Shares, and conversion of $15.1 million FAHL Related Party Loans into 1,445,164 Ordinary Shares - As a result of the Business Combination, the Seller received 17,004,762 Ordinary Shares on the Closing Date, an additional 1,550,000 Ordinary Shares, an $8,000,000 principal payment, and 516,666 warrants[393][394] - The PIPE Investment resulted in the purchase of 1,320,195 Ordinary Shares for approximately $14.0 million in gross proceeds[397] - FAHL Bonds totaling $11.5 million were converted into 1,248,426 Ordinary Shares at $9.45 per share upon consummation of the Business Combination[399] - Approximately $15.1 million in FAHL Related Party Loans were repaid or converted into 1,445,164 Ordinary Shares at $10.50 per share[400] - A Lock-Up Agreement restricts the Seller and Sponsors from selling 20,574,702 Ordinary Shares for 180 days post-closing or until specific price conditions are met[401] - The company has an exclusive supply agreement with Millcorp Geneve SA (a wholly-owned subsidiary of the Seller) to obtain at least 80% of its annual wheat requirements, which was extended through March 31, 2026[406][713] - Purchases from Millcorp were $207.2 million in 2022[406][713] C. Interests of Experts and Counsel This item is not applicable for the registrant - This item is marked as 'Not applicable'[410] Item 8. Financial Information This section confirms the inclusion of consolidated financial statements in the annual report and provides details on legal proceedings and dividend policy, stating the company is not currently involved in any material legal proceedings and does not anticipate paying dividends in the foreseeable future A. Consolidated Statements and Other Financial Information The consolidated financial statements are appended to this annual report, and the company is not currently a party to any material legal proceedings, with no dividends declared in the past and none expected in the foreseeable future as earnings will be retained for business growth - Consolidated financial statements are included as part of this annual report[410] - The company is not currently a party to any legal proceeding or investigation likely to have a material adverse effect on its business[411] - The company has not declared any dividends in the past and does not expect to pay cash dividends in the foreseeable future, intending to retain funds for business development and growth[412] B. Significant Changes No significant changes have occurred since the date of the audited consolidated financial statements, other than those disclosed elsewhere in this annual report - No significant changes have been experienced since the date of the audited consolidated financial statements, except as disclosed elsewhere in the report[412] Item 9. The Offer and Listing The company's Ordinary Shares and Warrants are listed on the NASDAQ Global Market under the symbols "AFRI" and "AFRIW," respectively, with other sub-items related to offering and listing details not applicable A. Offering and Listing Details The company's Ordinary Shares and Warrants are listed on the NASDAQ Global Market under the symbols "AFRI" and "AFRIW" - Ordinary Shares and Warrants are listed on NASDAQ Global Market under symbols "AFRI" and "AFRIW"[413] B. Plan of Distribution This item is not applicable for the registrant - This item is marked as 'Not applicable'[413] C. Markets The company's Ordinary Shares and Warrants are listed on the NASDAQ Global Market under the symbols "AFRI" and "AFRIW" - Ordinary Shares and Warrants are listed on NASDAQ Global Market under symbols "AFRI" and "AFRIW"[413] D. Selling Shareholders This item is not applicable for the registrant - This item is marked as 'Not applicable'[413] E. Dilution This item is not applicable for the registrant - This item is marked as 'Not applicable'[413] F. Expenses of the Issue This item is not applicable for the registrant - This item is marked as 'Not applicable'[413] Item 10. Additional Information This section provides additional information on the company's share capital, corporate governance, and legal framework, detailing the Memorandum and Articles of Association, including rules for director and shareholder meetings, voting requirements, and anti-takeover measures under Gibraltar law A. Share Capital This item is not applicable, with details referring to Exhibit 2.2 - This item is marked as 'Not applicable' and refers to 'Exhibit 2.2 — Description of Securities'[414][415] B. Memorandum and Articles of Association The company was registered in Gibraltar on May 26, 2022, with its governance defined by its Memorandum and Articles of Association and the Companies Act, including rules for director and shareholder meetings, voting requirements, and anti-takeover measures under Gibraltar law - The company was registered as a public company limited by shares in Gibraltar on May 26, 2022[414] - Directors are generally appointed for three-year terms and can be removed by ordinary or special resolution[418][421][426][427] - A quorum for directors' meetings is half the appointed directors, rounded up, and for general meetings, it's 33 1/3% of issued and outstanding share capital[416][428] - Ordinary resolutions require a simple majority (more than 50%) of voting rights, while extraordinary resolutions require at least 75% majority[429] - Gibraltar law includes anti-takeover measures such as the Companies (Cross-Border Mergers) Regulations 2010 and 'Squeeze Out provisions' (s.208 of the Companies Act 1930 and s.352(A) of the Companies Act)[433][435][436] C. Material Contracts The company has not entered into any material contracts outside the ordinary course of business, other than those described in Item 7.B. Related Party Transactions or elsewhere in this annual report - No material contracts outside the ordinary course of business, other than those described in 'Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions' or elsewhere in the report[438] D. Exchange Controls There are currently no currency control restrictions on remittances of dividends, proceeds from share sales, or interest payments to non-residents of Gibraltar - No currency control restrictions exist on remittances of dividends, share sale proceeds, or interest payments to non-residents of Gibraltar[439] E. Taxation This section provides a detailed analysis of U.S. federal income tax considerations for holders of the company's Ordinary Shares and Warrants, addressing the potential for the company to be treated as a U.S. corporation under Section 7874 of the Code, the tax treatment of distributions, sales, and exercises of warrants, and the complex Passive Foreign Investment Company (PFIC) rules - The company is incorporated and tax resident in Gibraltar, but the IRS may assert it should be treated as a U.S. corporation under Section 7874 of the Code, though this is not expected based on current analysis[449][452][453] - Distributions on Ordinary Shares are treated as dividends to the extent of earnings and profits, then as a tax-free return of capital, and any excess as capital gain[463] - Dividends are generally not eligible for the dividends received deduction for U.S. corporations[463] - The company does not believe it is a Passive Foreign Investment Company (PFIC) for its current taxable year and does not expect to become one, but this determination is annual and subject to change[480][481] - If the company were a PFIC, U.S. Holders would be subject to special tax rules (excess distribution rules) unless a Qualified Electing Fund (QEF) or mark-to-market election is made[484][487][494] - Non-U.S. Holders are generally not subject to U.S. federal income tax on dividends or gains unless effectively connected with a U.S. trade or business, or if certain presence requirements are met for individuals[504] F. Dividends and Paying Agents This item is not applicable for the registrant - This item is marked as 'Not applicable'[515] G. Statement by Experts This item is not applicable for the registrant - This item is marked as 'Not applicable'[515] H. Documents on Display The company is subject to SEC periodic reporting requirements under the Exchange Act, filing annual reports on Form 20-F, which are available for inspection at the SEC's public reference facilities and on its EDGAR website, and as a foreign private issuer, the company is exempt from certain proxy statement and insider trading rules - The company files annual reports on Form 20-F with the SEC, available at SEC public reference facilities and on EDGAR[515] - As a foreign private issuer, the company is exempt from certain Exchange Act rules, including those for proxy statements and Section 16 insider trading provisions[515] I. Subsidiary Information Information regarding the company's subsidiaries is provided in Item 4.A. History and Development of the Company - This section refers to 'Item 4. Information on the Company — A. History and Development of the Company' for subsidiary information[516] J. Annual Report to Security Holders If required to provide an annual report to security holders under Form 6-K, the company will submit it in electronic format according to the EDGAR Filer Manual - Annual reports to security holders, if required under Form 6-K, will be submitted electronically via EDGAR[516] Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to various market risks, including foreign exchange risk (primarily MAD, USD, EUR), credit risk from commercial sales, and commodity price risk for agricultural products, which it manages through derivative instruments, credit monitoring, and policies limiting unhedged commodity positions - Primary foreign currency exposures are the Moroccan Dirham, US Dollar, and Euro, with potential use of derivative instruments to reduce risk[518] - The company faces credit and counterparty risks from commercial sales, actively monitored through exposure reporting and credit analysis[519][520] - Agricultural commodities (Flour, Semolina, Pasta, Couscous) are subject to price fluctuations, managed through derivative contracts and policies limiting unhedged fixed price positions[521][522] - Inflation has not had a material impact on the company's results of operations in recent years[524] Item 12. Description of Securities Other Than Equity Securities Items 12.D.3 and 12.D.4 are not applicable as the company does not have any American Depositary Shares, with other required information included in Exhibit 2.3 - Items 12.D.3 and 12.D.4 are not applicable due to the absence of American Depositary Shares[524] - All other applicable information for this item is provided in Exhibit 2.3[524] Part II: Other Information This section covers defaults, modifications to security holder rights, controls and procedures, audit committee expertise, code of ethics, principal accountant fees, and changes in certifying accountant Item 13. Defaults, Dividend Arrearages and Delinquencies There are no defaults, dividend arrearages, or delinquencies to report - This item is marked as 'None'[525] Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds The rights of security holders remain unchanged, as described in Item 10, and the use of proceeds section is not applicable - Rights of security holders remain unchanged, as described in 'Item 10. Additional Information'[525] - The 'Use of Proceeds' section is marked as 'Not applicable'[525] Item 15. Controls and Procedures As of December 31, 2022, the company's disclosure controls and procedures were deemed effective, with management not yet providing an assessment of internal control over financial reporting due to the recent Business Combination in June 2022, and no material changes in internal controls occurred during the reporting period - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022[525] - Management has not yet provided an assessment of internal control over financial reporting due to the recent Business Combination in June 2022[526] - An attestation report from the registered public accounting firm is not required because the company is a non-accelerated filer and an 'emerging growth company'[527] - No material changes in internal controls over financial reporting occurred during the period covered by this annual report[527] Item 16. [RESERVED] This item is reserved - This item is marked as '[RESERVED]'[529] Item 16A. Audit Committee Financial Expert Franco Cassar, the chair of the audit committee, has been determined to qualify as an 'audit committee financial expert' as defined by SEC rules and satisfies the financial sophistication requirements of The NASDAQ Global Market, and is also independent - Franco Cassar, chair of the audit committee, is qualified as an 'audit committee financial expert' and is independent[529] Item 16B. Code of Ethics Following the Business Combination, the company posted its Code of Conduct and Ethics and plans to disclose any amendments or waivers as required by SEC or securities exchange rules - The company posted its Code of Conduct and Ethics after the Business Combination and will disclose any amendments or waivers[530] Item 16C. Principal Accountant Fees and Services The aggregate audit fees billed by the principal external auditors were $480 thousand in 2022 and $555 thousand in 2021, with the audit committee's policy to pre-approve all audit and non-audit services Principal Accountant Fees | Category | 2022 (In thousand) | 2021 (In thousand) | | :--------------- | :----------------- | :----------------- | | Audit fees | $480,000 | $555,000 | | Audit-related fees | - | - | | Tax fees | - | - | | All other fees | - | - | | Total | $480,000 | $555,000 | - The audit committee pre-approves all audit and non-audit services provided by the principal auditor[534] Item 16D. Exemptions from the Listing Standards for Audit Committees This item is not applicable for the registrant - This item is marked as 'Not applicable'[534] Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers This item is not applicable for the registrant - This item is marked as 'Not applicable'[535] Item 16F. Change in Registrant's Certifying Accountant On June 9, 2022, Marcum LLP was dismissed as Globis' independent registered public accounting firm, and UHY LLP was engaged as the new independent registered public accounting firm for Forafric Global PLC, with no disagreements or reportable events during their engagement - Marcum LLP was dismissed as Globis' independent registered public accounting firm on June 9, 2022[536] - UHY LLP was engaged as Forafric Global PLC's independent registered public accounting firm for the year ended December 31, 2022[536] - No adverse opinions, disclaimers, qualifications, or modifications were issued by Marcum LLP, and there were no disagreements or reportable events[537] Item 16G. Corporate Governance Further information on corporate governance is provided in Item 6. Directors, Senior Management and Employees - This section refers to 'Item 6. Directors, Senior Management and Employees' for more information on corporate governance[539] Item 16H. Mine Safety Disclosure This item is not applicable for the registrant - This item is marked as 'Not applicable'[539] Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable for the registrant - This item is marked as 'Not applicable'[539] Part III: Financial Statements and Exhibits This section presents the audited consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes, along with a list of all filed exhibits Item 17. Financial Statements The company has elected to provide financial statements pursuant to Item 18 - The company has elected to provide financial statements under Item 18[539] Item 18. Financial Statements This section presents the audited consolidated financial statements of Forafric Global PLC and its subsidiaries for the years ended December 31, 2022, 2021, and 2020, including the Independent Registered Public Accounting Firm's Report, Consolidated Balance Sheets, Statements of Operations and Comprehensive (Loss) Income, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and detailed Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm UHY LLP, the independent registered public accounting firm, audited the consolidated financial statements of Forafric Global PLC for the years ended December 31, 2022, 2021, and 2020, issuing an unqualified opinion that the financial statements present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP - UHY LLP audited the consolidated financial statements for 2022, 2021, and 2020[546][550] - An unqualified opinion was issued, confirming fair presentation of financial position, results of operations, and cash flows in conformity with U.S. GAAP[546] - The audit did not include an opinion on the effectiveness of the company's internal controls over financial reporting[548] Consolidated Balance Sheets The consolidated balance sheets show total assets of $307.2 million in 2022, up from $299.9 million in 2021, with total liabilities increasing to $262.2 million in 2022 from $252.3 million in 2021, and total stockholders' equity decreasing to $45.0 million in 2022 from $47.7 million in 2021 Consolidated Balance Sheet Highlights (in thousands USD) | Category | Dec 31, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Total current assets | $143,572 | $117,548 | | Property, plant, and equipment, net | $100,527 | $109,476 | | Goodwill | $45,898 | $51,571 | | Total assets | $307,164 | $299,902 | | Total current liabilities | $238,181 | $202,897 | | Total liabilities | $262,209 | $252,250 | | Total Stockholders' equity | $44,955 | $47,652 | - Cash and cash equivalents increased from $14.4 million in 2021 to $24.8 million in 2022[552] - Lines of credit for wheat inventories significantly increased from $70.4 million in 2021 to $137.5 million in 2022[552] Consolidated Statements of Operations and Comprehensive (Loss) Income The company reported a net loss of $19.2 million in 2022, an increase from $7.8 million in 2021 and $0.1 million in 2020, with revenues growing to $289.8 million in 2022 from $261.7 million in 2021, but gross profit decreased due to a higher increase in cost of sales, and operating income turned into a loss in 2022 Consolidated Statements of Operations Highlights (in thousands USD) | Category | 2022 | 2021 | 2020 | | :------------------------ | :--------- | :-------- | :-------- | | Revenues | $289,772 | $261,679 | $196,596 | | Cost of sales | $260,399 | $219,311 | $156,188 | | Gross profit | $29,373 | $42,368 | $40,408 | | Operating (loss) income | $(1,422) | $3,386 | $9,891 | | Net loss | $(19,170) | $(7,784) | $(139) | | Loss per ordinary shares outstanding – basic and diluted | $(0.72) | $(0.38) | $(0.22) | - Revenues increased by 10.7% from 2021 to 2022, but cost of sales increased by 18.7%, leading to a 30.7% decrease in gross profit[260][261][262] - Operating income shifted from a profit of $3.4 million in 2021 to a loss of $1.4 million in 2022[555] - Net loss significantly widened to $19.2 million in 2022, primarily due to increased interest expense and foreign exchange losses[555] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased from $47.7 million in 2021 to $45.0 million in 2022, reflecting a net loss of $19.2 million and a foreign exchange loss of $7.2 million, partially offset by a merger and recapitalization that added $45.0 million to additional paid-in capital and the issuance of Ordinary and Class Z shares Stockholders' Equity Changes (in thousands USD) | Category | Dec 31, 2022 | Dec 31, 2021 | | :---------------------------------------- | :----------- | :----------- | | Ordinary Shares (Amount) | $27 | $21 | | Class Z Ordinary Shares (Amount) | $30 | $0 | | Additional paid-in capital | $143,658 | $119,979 | | Accumulated deficit | $(102,678) | $(83,550) | | Accumulated other comprehensive (loss) income | $(2,984) | $3,685 | | Non-controlling interest | $6,902 | $7,517 | | Total Stockholders' equity | $44,955 | $47,652 | - The merger and recapitalization in 2022 resulted in the issuance of 7,451,249 Ordinary Shares and 29,999,990 Class Z Ordinary Shares, contributing $44.9 million to additional paid-in capital[557] - Net loss of $19.1 million and a foreign exchange loss of $7.2 million were significant factors impacting equity in 2022[557] Consolidated Statements of Cash Flows Net cash used in operating activities increased to $57.6 million in 2022 from $26.0 million in 2021, while net cash provided by financing activities significantly increased to $75.0 million in 2022 from $42.8 million in 2021, driven by cash acquired in merger, proceeds from forward share purchase agreements, and increased borrowings on financial debt Consolidated Statements of Cash Flows Highlights (in thousands USD) | Category | 2022 | 2021 | 2020 | | :---------------------------------------- | :--------- | :-------- | :-------- | | Net cash used in operating activities | $(57,569) | $(26,048) | $(11,482) | | Net cash used in investing activities | $(4,030) | $(14,514) | $(699) | | Net cash provided by financing activities | $74,991 | $42,754 | $18,766 | | Net increase in cash and cash equivalents | $10,434 | $1,710 | $3,689 | | Cash and cash equivalents, end of year | $24,827 | $14,393 | $12,683 | - Operating cash outflows increased significantly in 2022, mainly due to changes in accounts receivable and other receivables[559] - Financing activities provided substantial cash in 2022, including $14.0 million from merger, $6.7 million from forward share purchase agreements, and $11.0 million from convertible bonds[559][570] - Total borrowings on financial debt were $193.0 million in 2022, with repayments of $146.9 million[559] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's nature of operations, basis of presentation, significant accounting policies, and specific financial statement line items, covering areas such as the reverse recapitalization, lease obligations, accounts receivable, inventories, property/plant/equipment, goodwill/intangible assets, accrued expenses, lines of credit, long-term debt, forward share purchase agreements, contingent consideration, income taxes, variable interest entities and acquisitions, stockholders' equity, equity incentive plan, earnings per share, commitments/contingencies, segment information, related parties, and subsequent events 1. Nature of Operations and Basis of Presentation Forafric Global PLC operates as a market leader in the Moroccan milling industry, offering flours, semolina, pasta, couscous, rice, and starches, and underwent a restructuring in 2021, spinning off its Grain Trading business (Millcorp), and completed a Business Combination with Globis Acquisition Corp. in June 2022, which was accounted for as a reverse recapitalization - The company is a market leader in the Moroccan milling industry, offering a range of wheat-based products[561] - A restructuring in June 2021 involved the spin-off of the Grain Trading business (Millcorp) to the Parent Company, with Millcorp's financials excluded retroactively[562][563] - The Business Combination on June 9, 2022, with Globis Acquisition Corp. was accounted for as a reverse recapitalization, with FAHL as the accounting acquirer, continuing FAHL's financial statements[564][566] Ordinary Shares Reconciliation (Dec 31, 2022) | Item | Shares | | :---------------------------------------------------------------- | :----------- | | FAHL existing shares at closing date - converted | 20,555,595 | | Issuance of ordinary shares upon exercise of warrants | 1,887,464 | | Ordinary shares issued in PIPE | 1,320,195 | | Conversion of convertible bonds to ordinary shares | 1,248,426 | | Consideration and accrued interest paid to selling shareholder in ordinary shares | 1,550,000 | | Conversion of shareholder loans to ordinary shares | 1,445,164 | | Total Recapitalization | 7,451,249 | | Total ordinary shares outstanding as of December 31, 2022 | 26,879,102 | 2. Summary of Significant Accounting Policies The company's financial statements are prepared in accordance with U.S. GAAP, requiring signif