{"url_path":"/sec/afriw/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1903870/0001493152-26-023781-index.html","accession_number":"0001493152-26-023781","cik":"0001903870","ticker":"AFRI","issuer_name":"Forafric Global PLC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1903870/0001493152-26-023781-index.html","primary_entity_key":"0001903870","primary_entity_name":"Forafric Global PLC"},"word_count":6117,"has_tables":true,"body_markdown":"**Item\n5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n** **\n\n*The\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial\nstatements and the related notes included elsewhere in this annual report. The discussion below contains forward-looking statements that\nare based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially\nfrom these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Special\nNote Regarding Forward-Looking Statements” and under “Risk Factors” elsewhere in this annual report. Our discussion\nand analysis for the year ended December 31, 2024 can be found in Item 5, “Operating and Financial Review and Prospects”\nof our Annual Report on Form 20-F for the fiscal year ended December 31, 2024, filed with the SEC on April 30, 2025.*\n\n \n\nThis\nannual report includes consolidated financial statements for the years ended December 31, 2025, 2024, and 2023.\n\n \n\n**Overview**\n\n \n\n**Key\nFactors Affecting Our Performance**\n\n \n\nThe\nkey factors affecting the performance of our business are described below:\n\n \n\n*Cost\nof Raw material*. The cost of wheat is almost 90% of total cost in our business. Fluctuation on the price of wheat has a direct\nimpact on our performance. The cost of wheat depends on weather, supply and demand and strategies of main international producers. The\ncost of raw material depends also on freight cost and currency exchange rate fluctuations.\n\n \n\n- 25 -\n\n \n\n \n\n*Industrial\ncost*. The crushing cost is the second main factor affecting our performance. This cost includes equipment, labor and interest over\nfinancing. To perform on our business, we have to maintain this cost below 30 USD per ton produced. To achieve this performance, we have\nto monitor energy, equipment usage, logistics, human resources and financial cost.\n\n \n\n*Average\nselling price*. The average selling price is based on the two components:\n\n \n\n \n●\nPrice\nof flour/Semolina\n\n \n \n \n\n \n●\nPrice\nof Bran\n\n \n\nBran\nis between 20% to 25% of the production of finished products. We have no impact on the price of the bran.\n\n \n\nOn\nthe price of finished product, we can have a limited impact due to high concurrency on the market.\n\n \n\n**Key\nComponents of Results of Operations**\n\n \n\nNet\nsales, cost of sales and gross profit figures are calculated with the following method:\n\n \n\n●Net\nsales: Total consolidated sales;\n\n   \n\n●Cost\nof sales: includes cost of raw materials, cost of freight, depreciation expense, cost of\nforeign exchange and cost of improvements used in the production; and\n\n   \n\n●Gross\nprofit: the difference between net sales and cost of goods sold.\n\n \n\nThe\nkey components of our results of operation are:\n\n \n\n●Price\nof raw materials, which is affected by many factors, including global and regional supply,\nwhich in turn is impacted by factors such as weather conditions, local planting decisions,\ncrop failure, reduced harvests, governmental policies (including both tariffs and subsidies),\nand other agricultural conditions, as well as local, regional, and international demand.\n\n   \n\n●Cost\nof freight, which is impacted by shipping availability, international demand, labor shortages,\nstrikes, regional conflicts, inadequate or obsolete port infrastructure and other factors.\n\n   \n\n●Foreign\nexchange rates, which are continually fluctuating due to the relative economic strengths\nor governmental policies of different countries.\n\n   \n\n●Human\nresources productivity, which may be impacted by the training and skills of the available\nworkforce, the nature of tools and facilities in place, financial incentives and other factors\nover which we do not have any control.\n\n   \n\n●Power\nconsumption and costs, which may be affected by governmental policies, including green energy\ninitiatives and the age and efficiency of existing and newly acquired facilities.\n\n   \n\n●Our\nResults of Operations depends primarily on the cost of raw materials and on our industrial\ncost.\n\n \n\nIn\nour business, most raw materials are imported from Europe, South America, Black Sea and Canada (for durum). In Morocco, there is production\nof wheat but the quality is generally not high enough for industrial usage. The variation of the cost of raw materials has a significant\nimpact on our business and can explain the changes in the results of operations from period to period.\n\n \n\n- 26 -\n\n \n\n \n\nAs\npart of its new strategy with a Morocco and soft wheat focus, the Company initiated in November 2024 a plan for the potential\ndisposal of several assets and businesses. As of December 31, 2024 the Company concluded that the following pending sale\ntransactions met the criteria of classification as held for sale in accordance with Subtopic 205-20 and 360-10:\n\n \n\n \n●\nAll\nlong-term assets belonging to a durum wheat mill with a capacity of 240 tons per day, located in Casablanca.\n\n \n●\nA\nwholly owned subsidiary operating in logistic activities.\n\n \n\nIn August 2025, the Company completed\nthe first sale transaction for total consideration of approximately $8.3 million.\n\n \n\nIn March 2026, the Company completed\nthe second sale transaction for total consideration of approximately $18.7 million.\n\n \n\n**Year\nEnded December 31, 2025 Compared to Year Ended December 31, 2024**\n\n \n\nOperating\nResults\n\n \n\n  \nFor the Years Ended December 31, \n\nIn thousands of USD \n2025  \n2024  \n$ Change \n\nRevenues \n$176,488  \n$274,223  \n$(97,735)\n\nCost of sales \n 158,091  \n 246,891  \n (88,800)\n\nGross profit \n 18,397  \n 27,332  \n (8,935)\n\nOperating expenses: \n    \n    \n   \n\nSelling, general and administrative expenses \n 21,952  \n 35,093  \n (13,141)\n\nTotal operating expenses \n 21,952  \n 35,093  \n (13,141)\n\nOperating loss from continuing operations \n (3,555) \n (7,761) \n 4,206 \n\nOther expense (income): \n    \n    \n   \n\nInterest income \n (52) \n (31) \n (21)\n\nInterest expense \n 14,319  \n 12,815  \n 1,504 \n\nChange in fair value of derivatives and contingent consideration \n 222  \n (1,442) \n 1,664 \n\nForeign exchange (gain) loss \n (1,619) \n 33  \n (1,652)\n\nGain on sale of subsidiary \n (6,603) \n -  \n (6,603)\n\nOther non-operating expenses \n 900  \n 2,546  \n (1,646)\n\nTotal other expense \n 7,167  \n 13,921  \n (6,754)\n\nLoss before taxes from continuing operations \n (10,722) \n (21,682) \n 10,960 \n\nIncome tax expense \n 1,383  \n 1,651  \n (268)\n\nLoss from continuing operations \n (12,105) \n (23,333) \n 11,228 \n\nDiscontinued operations: \n    \n    \n   \n\nProfit (Loss) before taxes from discontinued operations \n (1,647) \n 33  \n (1,680)\n\nIncome tax expense \n 38  \n 55  \n (17)\n\nLoss from discontinued operations \n (1,685) \n (22) \n (1,663)\n\nNet loss \n$(13,790) \n$(23,355) \n$9,565 \n\n \n\n*Revenues*\n\n \n\nNet\nsales from continuing operations for the year ended December 31, 2025 amounted to $176.5 million, compared to $274.2 million for the\nyear ended December 31, 2024, a decrease of $97.7 million, or 35.6% year over year. The decrease was primarily attributable to the decrease\nin crushed volume in both soft wheat and Durum in Morocco due to lack of financing for working capital.\n\n \n\n*Cost\nof Sales*\n\n \n\nOur\ncost of sales for the year ended December 31, 2025 amounted to $158.1 million, compared to $246.9 million for the year ended December\n31, 2024, a decrease of $88.8 million, or 36.0% year over year. The decrease was primarily attributable to the decrease in crushed volume\nin both wheat and Durum.\n\n \n\n- 27 -\n\n \n\n \n\n*Gross\nProfit*\n\n* *\n\nOur\ngross profit for the year ended December 31, 2025 amounted to $18.4 million, compared to $27.3 million for the year ended December 31,\n2024, a decrease of $8.9 million, or 32.7% year over year. The decrease was primarily attributable to the decrease in total sales.\n\n \n\n*Selling,\nGeneral and Administrative Expenses*\n\n \n\nOur\nselling, general and administrative expenses for the year ended December 31, 2025 amounted to $22.0 million, compared to $35.1 million\nfor the year ended December 31, 2024, a decrease of $13.1 million, or 37.4% year over year. The decrease was primarily attributable to\nthe decrease in activity in Morocco.\n\n \n\n*Other\nExpense (Income)*\n\n \n\nOur\nother expense (income) for the year ended December 31, 2025 amounted to $7.2 million, compared to $13.9 million for the year ended December\n31, 2024, a decrease of $6.8 million, or 48.5% year over year. The decrease was primarily attributable to the increase of other non-operating\nincome due to sale of assets in 2025.\n\n \n\n*Segments*\n\n \n\nThe\nfollowing table presents revenue and operating income (loss) from continuing operations by segment for the year ended December 31, 2025\nand 2024:\n\n \n\n  \nFor\nthe Years Ended December 31, \n\nIn\nthousands of USD \n2025  \n2024  \n$\nChange \n\nSales to external customers: \n    \n    \n   \n\nSoft wheat \n$150,136  \n$215,090  \n (64,954)\n\nDurum wheat \n 6,238  \n 27,418  \n (21,180)\n\nCouscous and pasta \n 17,397  \n 27,021  \n (9,624)\n\nAll other \n 2,717  \n 4,694  \n (1,977)\n\nTotal \n$176,488  \n$274,223  \n$(97,735)\n\n  \n    \n    \n   \n\nCost of sales: \n    \n    \n   \n\nSoft wheat \n$(134,749) \n$(194,492) \n$59,743 \n\nDurum wheat \n (6,923) \n (29,150) \n 22,227 \n\nCouscous and pasta \n (13,912) \n (19,397) \n 5,485 \n\nAll other \n (2,507) \n (3,852) \n 1,345 \n\nTotal \n$(158,091) \n$(246,891) \n$88,800 \n\n  \n    \n    \n   \n\nGross profit: \n    \n    \n   \n\nSoft wheat \n$15,387  \n$20,598  \n$(5,211)\n\nDurum wheat \n (685) \n (1,732) \n 1,047 \n\nCouscous and pasta \n 3,485  \n 7,624  \n (4,139)\n\nAll other \n 210  \n 842  \n (632)\n\nTotal \n$18,397  \n$27,332  \n$(8,935)\n\n  \n    \n    \n   \n\nSelling, general, and administrative expenses: \n    \n    \n   \n\nSoft wheat \n$(13,009) \n$(21,806) \n$8,797 \n\nDurum wheat \n (1,753) \n (264) \n (1,489)\n\nCouscous and pasta \n (1,348) \n (9,236) \n 7,888 \n\nAll other \n (5,842) \n (3,787) \n (2,055)\n\nTotal \n$(21,952) \n$(35,093) \n$13,141 \n\n  \n    \n    \n   \n\nOperating income (loss): \n    \n    \n   \n\nSoft wheat \n$2,378  \n$(1,208) \n$3,586 \n\nDurum wheat \n (2,438) \n (1,996) \n (442)\n\nCouscous and pasta \n 2,137  \n (1,612) \n 3,749 \n\nAll other \n (5,632) \n (2,945) \n (2,687)\n\nTotal \n$(3,555) \n$(7,761) \n$4,206 \n\n \n\n- 28 -\n\n \n\n \n\nOur\nnet sales of soft wheat for the year ended December 31, 2025 amounted to $150.1 million, compared to $215.1 million for the year ended\nDecember 31, 2024, a decrease of $65.0 million, or 30.2% year over year. The decrease was primarily attributable to the decrease in crushed\nvolume in 2025 due to lack of financing.\n\n \n\nOur\nnet sales of durum wheat for the year ended December 31, 2025 amounted to $6.2 million, compared to $27.4 million for the year ended\nDecember 31, 2024, a decrease of $21.2 million, or 77.2% year over year. The decrease was primarily attributable to the planned asset\ndisposal of one of our semolina crushing facilities.\n\n \n\nOur\nnet sales of couscous and pasta for the year ended December 31, 2025 amounted to $17.4 million, compared to $27.0 million for the year\nended December 31, 2024, a decrease of $9.6 million, or 35.6% year over year. The decrease was primarily attributable to the decrease\nin volume sold in 2025 due to lack of financing.\n\n \n\nOur\ncost of sales on soft wheat for the year ended December 31, 2025 amounted to $134.7 million, compared to $194.5 million for the year\nended December 31, 2024, a decrease of $59.7 million, or 30.7% year over year. The change was primarily attributable to the decrease\nin crushed volume in 2025.\n\n \n\nOur\ncost of sales on durum wheat for the year ended December 31, 2025 amounted to $6.9 million, compared to $29.2 million for the year ended\nDecember 31, 2024, a decrease of $22.2 million, or 76.3% year over year. The decrease was primarily attributable to the planned asset\ndisposal of one of our semolina crushing facilities.\n\n \n\nOur\ncost of sales on couscous and pasta for the year ended December 31, 2025 amounted to $13.9 million, compared to $19.4 million for the\nyear ended December 31, 2024, a decrease of $5.5 million, or 28.3% year over year. The decrease was primarily attributable to the decrease\nin volume sold in 2025.\n\n \n\nOur\nselling, general, and administrative expenses on soft wheat for the year ended December 31, 2025 amounted to $13.0 million, compared\nto $21.8 million for the year ended December 31, 2024, a decrease of $8.8 million, or 40.3% year over year. The decrease was primarily\nattributable to the decreased volume sold in 2025.\n\n \n\nOur\nselling, general, and administrative expenses on durum wheat for the year ended December 31, 2025 amounted to $1.8 million, compared\nto $0.3 million for the year ended December 31, 2024, an increase of $1.5 million or 564.0% year over year. The increase was largely\ndue to impairment of goodwill recorded as of June 30, 2025.\n\n \n\nOur\nselling, general, and administrative expenses on couscous and pasta for the year ended December 31, 2025 amounted to $1.3 million, compared\nto $9.2 million for the year ended December 31, 2024, a decrease of $7.9 million, or 85.4% year over year. The decrease was primarily\nattributable to the decreased volume sold in 2025.\n\n \n\nLiquidity\nand Capital Resources\n\n \n\nIn\nconnection with the preparation of the consolidated financial statements for the year ending December 31, 2025, management has evaluated\nthe Company’s ability to continue as a going concern. Based on current financial conditions, the Company has incurred significant\noperating losses in recent periods, and its cash flow projections indicate that it may not have sufficient liquidity to meet its obligations\nover the next twelve months.\n\n \n\nManagement\nis actively pursuing several potential sources of additional financing, including negotiations with investors and financial institutions,\nas well as exploring cost-reduction initiatives and the potential sale or strategic restructuring of certain assets. As part of these\ninitiatives, the Company completed the sale of a wholly owned subsidiary engaged in logistics activities in August 2025 for proceeds\nof $8.3 million and the sale of long-term assets related to a durum wheat milling operation in March 2026 for proceeds of $18.7 million.\n\n \n\n- 29 -\n\n \n\n \n\nThese\nconditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements\nhave been prepared assuming the Company will continue as a going concern, but if the Company is unable to secure additional financing\nor otherwise resolve these uncertainties, it may be unable to realize its assets and discharge its liabilities in the normal course of\nbusiness.\n\n \n\nThe Company maintains term loans with several financial institutions (the “Term Loans”). The Term Loans\nare unsecured and have fixed monthly payments ranging from approximately $4 to $107, with annual payments ranging from approximately $83\nto $354. Interest on the Term Loans range from 5.5% to 13.36% per annum. The Term Loans mature through 2034.\n\n \n\n*Cash\nand Cash Equivalents* - Cash and cash equivalents were $14.3 million and $12.2 million at December 31, 2025 and December 31, 2024,\nrespectively, an increase of $2.1 million, or 17.0% year over year. The increase was primarily attributable to decrease of working capital\nneeds.\n\n \n\nCash\nbalances are managed in accordance with our investment policy, the objectives of which are to preserve the principal value of our cash\nassets, maintain a high degree of liquidity and deliver competitive returns subject to prevailing market conditions.\n\n \n\n*Trade\naccounts receivable, net* - Trade accounts receivable, net were $14.0 million and $18.0 million at December 31, 2025 and December\n31, 2024, respectively, a decrease of $4.0 million, or 22.3% year over year. The decrease was primarily attributable to the decrease\nin sales in 2025.\n\n \n\n*Inventories*- Inventories were $14.1 million and $15.2 million at December 31, 2025 and December 31, 2024, respectively, a decrease of $1.1 million,\nor 7.5% year over year. The decrease was primarily attributable to the decrease in sales in 2025.\n\n \n\nRecent\nDevelopments\n\n \n\nOn\nMarch 9, 2026, the Company announced that, as part of its previously reported strategy to increase shareholder value, the Company submitted\nto the Moroccan antitrust commission a proposed transaction with Cap Holding, a Moroccan industrial group,\nfor regulatory approval. The Company announced on April 23, 2026 that antitrust approval has been obtained from the Moroccan antitrust\ncommission in connection with the proposed transaction, under which Cap Holding may obtain a controlling interest in Forafric Maroc,\nan indirect subsidiary of the Company. Completion of the transaction remains subject to the satisfaction of certain conditions, including\napproval by the Board and other customary closing conditions, and there can be no assurance that the transaction will be completed on\nthe anticipated terms or timeline, or at all.\n\n \n\nOn\nApril 23, 2026, we announced a strategic expansion initiative to complement our core agribusiness operations by pursuing opportunities\nin defense, food security and energy infrastructure through joint ventures, partnerships and selective investments, with a disciplined\napproach to capital allocation. These initiatives are at an early stage and are expected to require capabilities, regulatory clearances\nand counterparties we have not historically relied upon. There can be no assurance that we will successfully implement or achieve this\nstrategy on the anticipated timeline or at all, or that the anticipated strategic or financial benefits will be realized, and any benefits\nthat are realized may be smaller in scope or delayed. See “*Item 4. Information On The Company – B. Business Overview –\nOur Business Strategy*” for a more detailed description of our strategic expansion plan.\n\n \n\nTrend\nInformation\n\n \n\nOther\nthan as disclosed below and elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments,\nor events for the period from January 1, 2025 to December 31, 2025 that are reasonably likely to have a material adverse effect on our\nnet revenue, income, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily\nindicative of future operating results or financial condition.\n\n \n\nCritical\nAccounting Estimates\n\n \n\nAs\ndisclosed in Note 2 to our financial statements, the significant accounting policies used in preparing the consolidated financial statements\nwere applied on a basis consistent with those reflected in our consolidated financial statements that are included in this annual report.\nWe believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal\nof our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.\n\n \n\n- 30 -\n\n \n\n \n\n*Revenue\nRecognition*– The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance\nobligation by transferring control over a product or service to a customer. The majority of the Company’s contracts with customers\nhave one performance obligation and a contract duration of one year or less. The Company applies the practical expedient in Accounting\nStandards Codification (“ASC”) paragraph 606-10-50-14 of ASC Topic 606, *Revenue from Contracts with Customers* and\ndoes not disclose information about remaining performance obligations that have original expected durations of one year or less. Trade\ndiscounts or volume rebates are recognized as a deduction in revenue. No payment terms beyond one year are granted at contract inception.\n\n \n\nRevenue\nrelated to the sale of goods and equipment is measured based on consideration specified in a contract with a customer. The Company recognizes\nrevenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a\ncustomer, generally when legal title and risks and rewards transfer to the customer. Sales terms typically provide for transfer of title\nat the time and point of delivery and acceptance of the product being sold.\n\n \n\nAmounts\nreceived from customers prior to revenue recognition on a contract are recorded as contract liabilities on the consolidated balance sheets.\n\n \n\n*Shipping\nand Handling Costs*– Shipping and handling costs related to contracts with customers for the sale of goods are accounted for\nas a fulfillment activity and are included in cost of sales. Accordingly, amounts billed to customers for such costs are included as\na component of revenues.\n\n \n\n*Taxes\nCollected from Customers and Remitted to Governmental Authorities*– The Company does not include taxes assessed by governmental\nauthorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in\nthe measurement of transactions prices or as a component of revenues and cost of sales.\n\n \n\n*Accounts\nReceivable and Allowances for Credit Losses*– We provide credit terms to customers in-line with industry standards, perform\nongoing credit evaluations of our customers, and maintain allowances for potential credit losses based on historical experience recorded.\nWe analyze the aging of customer accounts, customer concentrations, customer creditworthiness, current economic trends and changes in\nour customer payment patterns when evaluating the adequacy of the allowance for credit losses. Customer balances are written off after\nall collection efforts are exhausted. Estimated product returns, which have not been material, are deducted from sales at the time of\nshipment.\n\n \n\n*Other\nReceivables*– Other receivables include government subsidies for the production and sale of flour. The Moroccan government\nprovides a fixed subsidy based on production and customer. Subsidies are paid by the Moroccan government twice a year based on sales\nof flour for the previous six months. The Company records the flour subsidies as a credit against the related costs that the subsidies\nwere intended to offset in the same periods that the costs were incurred within the consolidated statement of operations.\n\n \n\n*Income\nTaxes*– The provision for income taxes includes income taxes currently payable in Morocco and local jurisdictions, and those\ndeferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets\nor liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using\nenacted tax rates. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit\nwill not be realized. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.\nWe account for uncertain tax positions using a “more-likely-than-not” threshold. A tax benefit from an uncertain tax position\nis recognized if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on\nthe technical merits of the position, or the statute of limitations concerning such issues lapses.\n\n \n\n- 31 -\n\n \n\n \n\n*Foreign\nCurrency Translation and Transactions*- The Company’s reporting currency is the USD. The functional\ncurrency of the Company’s operating subsidiaries is generally the same as the corresponding local currency. Assets and liabilities\nof the operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the\noperating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency\ntranslation adjustment is recorded as Accumulated other comprehensive loss, which is reflected as a separate component of stockholders’\nequity. The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as\nof the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The transactions\nin foreign currency (that is a different currency than the functional currency of the entity) are converted at the exchange rate prevailing\nto the date of the transaction. The assets and liabilities denominated in foreign currencies are evaluated in the current period on the\ndate of the closing or at the opening rate, when applicable. The translation adjustments are deferred as a separate component of equity\nin “Accumulated other comprehensive income”. Gains or losses resulting from transactions denominated in foreign currencies\nand intercompany debt that is not of a long-term investment nature are included in (Gain) loss on foreign currency exchange in the consolidated\nstatements of operations and comprehensive loss.\n\n \n\n*Foreign\ncurrency forward contracts*–The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its\nbusiness, which the Company at times manages through the use of foreign currency forward contracts. The Company has entered into foreign\ncurrency forward contracts and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging,”\nwhich establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either\nan asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments\nunder ASC 815; accordingly, changes in the fair value are recorded in current period earnings.\n\n \n\n*Share-Based\nCompensation*- Share-based awards principally comprise of stock options and cash-settled stock options, referred to as “phantom\noptions”. Share-based awards are generally issued to certain senior management personnel. Share-based compensation cost (other\nthan 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\nservice period, which is the vesting period, on a straight-line basis. Our phantom options are accounted for as liability awards and\nare re-measured at fair value each reporting period with compensation expense being recognized over the requisite service period.\n\n \n\nThe\nCompany uses the Black-Scholes option pricing model to determine the grant date fair value of its stock options and phantom options,\nrespectively, as well as the fair value at each reporting period for liability classified awards. This model requires the Company to\nestimate the expected volatility and the expected term of the stock options, which are highly complex and subjective variables. The Company\nuses an expected volatility of its stock price during the expected life of the options that is based on the historical performance of\nthe Company’s stock price as well as including an estimate using similar companies. The expected term is computed using the simplified\nmethod as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based\non the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected exercise term of the stock option.\nThe inputs to the valuation of phantom options are observable in the market, and as such are classified as Level 2 in the fair value\nhierarchy. The Company accounts for forfeitures of share-based awards as they occur.\n\n \n\n*Inventories*\n- Inventories are stated at the lower of cost or net realizable value. the Company’s inventory is valued using the weighted average\ncost method. The costs of finished goods inventories include raw materials, labor, and overhead costs.\n\n \n\n*Business\nCombinations and Asset Acquisitions* – The Company accounts for acquisitions that qualify as business combinations by applying\nthe acquisition method according to ASC 805, Business Combinations. Transaction costs\nrelated to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The\nidentifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity are recognized and measured at\ntheir estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired,\nliabilities assumed, and noncontrolling interests in an acquired entity, net of the fair value of any previously held interest in the\nacquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.\n\n \n\nThe\nCompany evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as\na business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value\nof the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction\nis accounted for as an asset acquisition. If not, further determination is required as to whether the Company has acquired inputs and\nprocesses that can create outputs that would meet the definition of a business. When applying the screen test, significant judgment is\nrequired to determine whether an acquisition is a business combination or an acquisition of assets. Accounting for asset acquisitions\nfalls under the guidance of Topic 805, Business Combinations, specifically Subtopic 805-50. A cost accumulation model is used to determine\nan asset acquisition’s cost. Assets acquired are based on their cost, generally allocated to them on a relative fair value basis.\nDirect acquisition-related costs are included in the cost of the acquired assets.\n\n \n\n- 32 -\n\n \n\n \n\n*Property,\nPlant, and Equipment* - Property, plant, and equipment are stated at acquisition cost, plus capitalized interest on borrowings during\nthe actual construction period of major capital projects. Depreciation and amortization are calculated using the straight-line method\nover the estimated useful lives of the assets as follows:\n\n \n\n**Assets**\n** **\n**Useful\nLives**\n\nBuildings\n \n39\nyears\n\nMachinery\nand equipment (technical installations)\n \n30-50\nyears\n\nOther\nassets\n \n5-30\nyears\n\n \n\nBuilding\nimprovements are depreciated over the shorter of the estimated useful life of the assets or the remaining useful life. Leasehold improvements\nare amortized over the shorter of their useful life or remaining lease term. Expenditures for repairs and maintenance, which do not improve\nor extend the life of the assets, are expensed as incurred.\n\n \n\nWe\nperform impairment tests when circumstances indicate that the carrying value of an asset may not be recoverable. Indicators of impairment\ninclude deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in\nbusiness conditions. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that\nthe carrying amount of an asset may not be recoverable. The Company’s assessment of recoverability of property, plant and equipment\nis performed on a reporting unit level. Recoverability of assets to be held and used is measured by a comparison of the carrying amount\nof such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset\nexceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of\nthe 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\nvalue, less estimated costs to sell.\n\n \n\n*Goodwill\nand Other Intangible Assets* - Identifiable intangible assets with finite lives are amortized over their estimated useful lives as\nfollows:\n\n \n\n**Assets**\n** **\n**Useful\nLives**\n\nTrademarks\n \nIndefinite\n\nCustomer\nrelationships\n \n20\nyears\n\nPatents\nand licenses\n \n5-10\nyears\n\nComputer\nsoftware\n \n5-10\nyears\n\nOther\nintangible assets\n \n3-10\nyears\n\n \n\nRecognized\nintangible assets, exclusive of goodwill, are amortized over the useful lives of the assets unless that life is determined to be indefinite.\nAll of our intangible assets, exclusive of goodwill, are finite lived. All amortization expenses related to intangible assets are recorded\nin selling, general, and administrative expense in the consolidated statements of operations. Intangible assets with finite lives are\nevaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an\nevaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is generally\nbased on discounted future cash flows.\n\n \n\n- 33 -\n\n \n\n \n\nGoodwill\nand other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate\nthat the carrying value may not be recoverable. Our annual impairment evaluation is conducted during our fiscal fourth quarter.\n\n \n\nIn\naccordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and\ncircumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such\nassessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an\nentity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if\nimpaired, the associated assets must be written down to fair value.\n\n \n\nThe\nquantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including\ngoodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be\nrecorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value.\nWe determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a\ncombination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins,\ntax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under\nthe market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted\nappropriately.\n\n \n\n*Assets\nand liabilities held for sale and discontinued operations* – The Company classifies disposal groups as held for sale if their\ncarrying amounts will be recovered principally through a sale transaction rather than through continuing use. Disposal groups classified\nas held for sale are measured at the lower of their carrying amount and fair value less costs to sell.\n\n \n\nThe\ncriteria for held for sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is\navailable for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that\nsignificant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan\nto sell the asset, and the sale expected to be completed within one year from the date of the classification, except if events or circumstances\nbeyond the Company’s control extend the period of time required to sell the asset or disposal group beyond one year; the asset\nor disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions\nrequired to complete the plan to sell have been initiated.\n\n \n\nAssets\nand liabilities classified as held for sale are presented separately in the Consolidated Balance Sheets. Discontinued operations are\nexcluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued\noperations in the statement of profit or loss only if they represent a strategic shift.\n\n \n\n**Recent\nAccounting Pronouncements**\n\n \n\nOther\nthan as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a\nmaterial impact on the consolidated financial statements.\n\n \n\nIn\nDecember 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”),\nwhich enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater\ndisaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain\nother amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for\nannual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 prospectively for the year ended December 31, 2025.\nSee Note 14 — Income Taxes. Since this new ASU addresses only disclosures, its adoption did not have any effect on\nthe Company’s financial position, results of operations, or cash flows.\n\n \n\n- 34 -\n\n \n\n \n\nIn\nNovember 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic\n220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense\ncategories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning\nafter December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently\nevaluating the impact of adopting this standard on its consolidated financial statements.\n\n \n\nIn\nJuly 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts\nReceivable and Contract Assets. ASU No. 2025-05 provides a practical expedient that permits an entity to assume that current economic\nconditions as of the balance sheet date do not change for the remaining life of the asset. Further, the ASU allows an entity, other than\na public business entity, that elects the practical expedient to make an accounting policy election to consider collection activity after\nthe balance sheet date when estimating expected credit losses. ASU 2025-05 is effective for the Company for annual periods beginning\nafter December 15, 2025. The ASU is applied prospectively and early adoption is permitted. The Company is currently evaluating the impact\nof adopting this standard on its consolidated financial statements.\n\n \n\nIn\nDecember 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832). ASU No. 2025-10 establishes guidance on the recognition,\nmeasurement, and presentation of government grants received by business entities. The guidance is effective for public business entities\nin annual periods beginning after December 15, 2028 (including interim periods within) and one year later for all other entities, with\nearly adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.\n\n \n\nOn\nDecember 8, 2025, the FASB issued ASU 2025-11 to clarify the current interim disclosure requirements and the applicability of ASC 270\n— “Interim Reporting” (“ASC 270”). The ASU creates a comprehensive list of interim disclosures in ASC 270\nthat are required in interim financial statements and the accompanying notes under GAAP. It also incorporates a disclosure principle\nrequiring entities to disclose in interim periods events and changes that occur after the end of the most recent annual reporting period\nthat have a material impact on the entity. ASU 2025-11 also clarifies that SEC registrants are required to refer to existing SEC guidance,\nsuch as Rule 10-01 of Regulation S-X, since those rules provide form and content requirements for condensed financial statements. ASU\n2025-11 will be effective for interim and annual reporting periods beginning after 2027, which will be first quarter of fiscal 2028 for\nthe Company. Early adoption is permitted, and the guidance can be applied prospectively or retrospectively. Since ASU 2025-11 is disclosure-related\nonly, its adoption is not expected to have an effect on the Company’s financial position, results of operations, or cash flows.\nThe Company is currently evaluating the disclosure guidance in ASU 2025-11 to determine if any new or amended disclosures will be required\nupon adoption."}