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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
____________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-40950
____________________
The Vita Coco Company, Inc.
(Exact Name of Registrant as Specified in its Charter)
____________________
Delaware11-3713156
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
  
250 Park Avenue South
Seventh Floor
New York, NY
10003
(Address of principal executive offices)(Zip Code)
(212) 206-0763
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, Par Value $0.01 Per ShareCOCOThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyo
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 7, 2022, there were 55,924,292 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: risks related to our supply chain and the impact of continued inflation; our dependence on third party manufacturing and co-packing partners, and any changes to their respective labor regulations and business practices; our dependence on existing suppliers for materials used to package our products; our dependence on distributor and retail customers for most of our sales; our cash flows and results of operations may be negatively affected if we are not successful in forecasting and managing our inventory at appropriate levels for our demand; our brands and reputation may be diminished due to quality or food safety issues with our products; competition in the food and beverage retail industry; a reduction in demand for and sales of our coconut water products or a decrease in consumer demand for coconut water generally; risks related to brand and company image, consumer awareness and brand loyalty; failure to introduce new products or successfully improve existing products; consumer preferences for our products are difficult to predict and may change; the impact of pandemics, epidemics or disease outbreaks, such as the COVID-19 pandemic, on our business; our ability to manage our future growth effectively; our reliance on independent certification for a number of our products; our ability to make acquisitions and successfully integrate newly acquired products or businesses; risks related to expanding our operations into countries in which we have no prior operating history; disruptions in the worldwide economy; risks related to climate change; our ability to retain our senior management and key personnel; risks related to sustainability and corporate social responsibility; food safety and food-borne illness incidents or other safety concerns, such as lawsuits, product recalls or regulatory enforcement actions; our products and operations are subject to government regulation and oversight both in the United States and abroad; risks related to the regulation of advertising and marketing and data privacy and data protection; our reliance on our information technology systems and those of our third-party vendors and business partners; our ability to protect our intellectual property; risks related to our Credit Agreement and any agreements governing any future indebtedness; and risks related to ownership of our common stock; as well as, the important factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, the terms “Vita Coco,” the “company,” “we,” “us,” and “our” refer to The Vita Coco Company, Inc. and its consolidated subsidiaries.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$21,211 $28,690 
Accounts receivable, net of allowance of $1,565 at September 30, 2022, and $1,301 at December 31, 2021
65,717 47,195 
Inventory74,459 75,360 
Supplier advances, current1,519 1,170 
Derivative assets5,080 126 
Asset held for sale503  
Prepaid expenses and other current assets22,368 20,718 
Total current assets190,857 173,259 
Property and equipment, net2,014 2,473 
Goodwill7,791 7,791 
Intangible assets, net7,019 7,934 
Supplier advances4,878 2,808 
Deferred tax assets, net1,091 1,265 
Other assets4,728 1,954 
Total assets$218,378 $197,484 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$17,353 $28,338 
Accrued expenses and other current liabilities 45,950 42,399 
Notes payable, current24 28 
Derivative liabilities1,735 3,197 
Total current liabilities65,062 73,962 
Credit facility9,500  
Notes payable30 48 
Other long-term liabilities2,173 301 
Total liabilities76,765 74,311 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 62,129,192 and 61,764,582 shares issued at September 30, 2022 and December 31, 2021, respectively; 55,922,992 and 55,558,382 shares outstanding at September 30, 2022 and December 31, 2021, respectively
621 618 
Additional paid-in capital143,095 134,730 
Retained earnings57,993 47,369 
Accumulated other comprehensive loss(1,168)(616)
Treasury stock, 6,206,200 shares at cost as of September 30, 2022, and 6,206,200 shares at cost as of December 31, 2021
(58,928)(58,928)
Total stockholders’ equity attributable to The Vita Coco Company, Inc.141,613 123,173 
Total liabilities and stockholders’ equity$218,378 $197,484 
See accompanying notes to the condensed consolidated financial statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except for share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net sales$124,043 $115,669 $335,796 $292,929 
Cost of goods sold91,467 77,168 254,868 201,368 
Gross profit32,576 38,501 80,928 91,561 
Operating expenses
Selling, general and administrative23,960 20,675 73,018 61,897 
Income (Loss) from operations8,616 17,826 7,910 29,664 
Other income (expense)
Unrealized gain/(loss) on derivative instruments952 (1,964)6,416 1,250 
Foreign currency gain/(loss)(364)(483)(508)(2,013)
Interest income20 31 30 104 
Interest expense(130)(127)(213)(319)
Total other income (expense)478 (2,543)5,725 (978)
Income before income taxes9,094 15,283 13,635 28,686 
Income tax expense(1,836)(2,296)(3,011)(6,277)
Net income7,258 12,987 10,624 22,409 
Net loss attributable to noncontrolling interest (3) (23)
Net income attributable to The Vita Coco Company, Inc.$7,258 $12,990 $10,624 $22,432 
Net income attributable to The Vita Coco Company, Inc. per common share
Basic$0.13 $0.25 $0.19 $0.42 
Diluted$0.13 $0.24 $0.19 $0.42 
Weighted-average number of common shares outstanding
Basic55,785,622 53,006,746 55,658,946 53,266,209 
Diluted56,579,912 53,780,060 56,029,069 53,742,048 
See accompanying notes to the condensed consolidated financial statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income$7,258 $12,987 $10,624 $22,409 
Other comprehensive income (loss):
Foreign currency translation adjustment(102)(185)(552)131 
Total comprehensive income including noncontrolling interest7,156 12,802 10,072 22,540 
Net loss attributable to noncontrolling interest (3) (23)
Foreign currency translation adjustment attributable to noncontrolling interest   4 
Total comprehensive loss attributable to noncontrolling interest (3) (19)
Total comprehensive income attributable to The Vita Coco Company, Inc.$7,156 $12,805 $10,072 $22,559 
See accompanying notes to the condensed consolidated financial statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
(UNAUDITED)
(Amounts in thousands, except for shares)
Common StockCommon Stock
with Exit
Warrants
Total Common
Stock
Additional
Paid-In
Loan to
Shareholder
Retained
Earnings
Accumulated
Other
Comprehensive
Income / (Loss)
Treasury Stock Total
Shareholders’
Equity
Attributable
to The Vita
Coco
Company, Inc.
Non-
controlling
Interest in
Subsidiary
Total
Shareholders’
Equity
Shares$ AmountShares$ AmountShares$ AmountCapitalSharesAmount
Balance at December 31, 2020
51,086,945 $511 8,113,105 $81 59,200,050 $592 $100,849 $(17,700)$28,354 $(949)1,014,195 $(8,925)$102,221 $78 $102,299 
Net income— — — — — — — — 1,645 — — — 1,645 (5)1,640 
Purchase of treasury stock— — — — — — — — — — 5,192,005 (50,003)(50,003)— (50,003)
Loan to Shareholder— — — — — — — (26)— — — — (26)— (26)
Stock-based compensation— — — — — — 487 — — — — — 487 — 487 
Exercise of stock options1,365 — — — 1,365 — 9 — — — — — 9 — 9 
Foreign currency translation adjustment— — — — — — — — — 17 — — 17 — 17 
Balance at March 31, 202151,088,310 $511 8,113,105 $81 59,201,415 $592 $101,345 $(17,726)$29,999 $(932)6,206,200 $(58,928)$54,350 $73 $54,423 
Net income— — — — — — — — 7,797 — — — 7,797 (15)7,782 
Loan to Shareholder       (25)    (25) (25)
Stock-based compensation expense      525      525  525 
Exercise of stock options910    910  10      10  10 
Foreign currency translation adjustment         295   295 4 299 
Balance at June 30, 202151,089,220 $511 8,113,105 $81 59,202,325 $592 $101,880 $(17,751)$37,796 $(637)6,206,200 $(58,928)$62,952 $62 $63,014 
Net income        12,990    12,990 (3)12,987 
Purchase of treasury stock               
Loan to Shareholder       17,751     17,751  17,751 
Stock-based compensation expense      629      629  629 
Exercise of stock options13,195    13,195  135      135  135 
Acquisition of portion of non-controlling interest      (18)     (18)(36)(54)
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
(UNAUDITED)
(Amounts in thousands, except for shares)
Common StockCommon Stock
with Exit
Warrants
Total Common
Stock
Additional
Paid-In
Loan to
Shareholder
Retained
Earnings
Accumulated
Other
Comprehensive
Income / (Loss)
Treasury Stock Total
Shareholders’
Equity
Attributable
to The Vita
Coco
Company, Inc.
Non-
controlling
Interest in
Subsidiary
Total
Shareholders’
Equity
Shares$ AmountShares$ AmountShares$ AmountCapitalSharesAmount
Foreign currency translation adjustment         (185)  (185) (185)
Balance at September 30, 202151,102,415 $511 8,113,105 $81 59,215,520 $592 $102,626 $ $50,786 $(822)6,206,200 $(58,928)$94,254 $23 $94,277 
Balance at December 31, 202153,651,477 $537 8,113,105 $81 61,764,582 $618 $134,730  $47,369 $(616)6,206,200 $(58,928)$123,173 $ $123,173 
Net income        2,227    2,227  2,227 
Stock-based compensation— — — — — — 2,386 — — — — — 2,386 — 2,386 
Exercise of stock options26,845 — — — 26,845 — 151 — — — — — 151 — 151 
Foreign currency translation adjustment— — — — — — — — — (254)— — (254)— (254)
Balance at March 31, 202253,678,322 $537 8,113,105 $81 61,791,427 $618 $137,267 $ $49,596 $(870)6,206,200 $(58,928)$127,683 $ $127,683 
Net income— — — — — — — — 1,139 — — — 1,139 — 1,139 
Stock-based compensation— — — — — — 1,814 — — — — — 1,814 — 1,814 
Exercise of stock options66,272 1 — — 66,272 1 89 — — — — — 90 — 90 
Foreign currency translation adjustment— — — — — — — — — (196)— — (196)— (196)
Balance at June 30, 202253,744,594 $538 8,113,105 $81 61,857,699 $619 $139,170 $ $50,735 $(1,066)6,206,200 $(58,928)$130,530 $ $130,530 
Net income— — — — — — — — 7,258 — — — 7,258 — 7,258 
Stock-based compensation expense— — — — — — 1,457 — — — — — 1,457 — 1,457 
Exercise of stock options271,493 2 — — 271,493 2 2,468 — — — — — 2,470 — 2,470 
Foreign currency translation adjustment— — — — — — — — — (102)— — (102)— (102)
Balance at September 30, 202254,016,087 $540 8,113,105 $81 62,129,192 $621 $143,095 $ $57,993 $(1,168)6,206,200 $(58,928)$141,613 $ $141,613 
See accompanying notes to the condensed consolidated financial statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net income$10,624 $22,409 
Adjustments required to reconcile net income to cash flows from operating activities:
Depreciation and amortization1,442 1,557 
(Gain)/loss on disposal of equipment 89 
Bad debt expense348 20 
Unrealized (gain)/loss on derivative instruments(6,416)(1,250)
Stock-based compensation5,657 1,641 
Impairment loss on assets held for sale619  
Noncash lease expense963  
Changes in operating assets and liabilities:
Accounts receivable(20,696)(26,940)
Inventory(255)(15,362)
Prepaid expenses, net supplier advances, and other assets(4,433)(12,766)
Accounts payable, accrued expenses, and other liabilities(6,034)14,251 
Net cash provided by (used in) operating activities(18,181)(16,351)
Cash flows from investing activities:
Cash paid for property and equipment(907)(127)
Net cash used in investing activities(907)(127)
Cash flows from financing activities:
Proceeds from exercise of stock options/warrants2,675 153 
Borrowings on credit facility22,000 16,500 
Repayments of borrowings on credit facility(12,500)(34,000)
Proceeds from settlement of loan to stockholder 17,700 
Cash received (paid) on notes payable(22)30,028 
Cash paid to acquire treasury stock (50,003)
Cash paid to acquire portion of non-controlling interest (54)
Net cash provided by (used in) financing activities12,153 (19,676)
Effects of exchange rate changes on cash and cash equivalents(544)(117)
Net decrease in cash and cash equivalents(7,479)(36,271)
Cash and cash equivalents at beginning of the period28,690 72,181 
Cash and cash equivalents at end of the period$21,211 $35,910 
See accompanying notes to the condensed consolidated financial statements.
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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except share and per share amounts)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Vita Coco Company, Inc. and subsidiaries (formerly known as All Market Inc.) (the “Company”) develop, market, and distribute various coconut water products under the brand name Vita Coco and for retailers' own brands, predominantly in the United States. Other products include coconut milk, natural energy drinks (under the brand name Runa), coconut oil, water (under the brand name Ever & Ever), protein infused fitness drinks (under the brand name PWR LIFT) and coconut as a commodity.
The Company was incorporated in Delaware on January 17, 2007. In 2018, the Company purchased certain assets and liabilities of Runa, which is marketed and distributed primarily in the United States. Effective as of September 9, 2021, the name of the Company was changed from All Market Inc. to The Vita Coco Company, Inc.
We are a public benefit corporation under Section 362 of the Delaware General Corporation Law. As a public benefit corporation, our Board of Directors is required by the Delaware General Corporation Law to manage or direct our business and affairs in a manner that balances the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct and the specific public benefits identified in our certificate of incorporation.
The Company has nine wholly-owned subsidiaries including four wholly-owned Asian subsidiaries established between fiscal year 2012 and 2015, one North American subsidiary established in 2015, as well as All Market Europe, Ltd. ("AME") in the United Kingdom. AME was established in fiscal year 2009 and has 100% ownership in two European subsidiaries established in 2015. The non-controlling interest in AME represented minority stockholders’ proportionate share of the equity in AME during fiscal year 2021, which was fully acquired by the Company as of December 31, 2021. One of the wholly-owned Asian subsidiaries, All Market Singapore Pte Ltd ("AMS"), has 100% ownership in one subsidiary established in fiscal year 2018 in Ecuador.
Initial Public Offering
The Company’s registration statement on Form S-1, as amended, was declared effective by the Securities and Exchange Commission ("SEC") on October 20, 2021 and related to the initial public offering ("IPO") of its common stock in the prospectus dated October 20, 2021, filed with the SEC in accordance with Rule 424(b)(4) of the Securities Act on October 22, 2021 (the “Prospectus”). On October 21, 2021, the Company’s shares began trading on the NASDAQ under the ticker symbol “COCO”. On October 25, 2021, we completed our IPO by issuing 2,500,000 shares of our common stock, $0.01 par value per share, at a price to the public of $15 per share, resulting in net proceeds to us of approximately $30,000, after deducting the underwriting discount and commissions of approximately $2,000 and offering expenses of approximately $5,000. Additionally, certain selling stockholders sold an aggregate of 9,000,000 shares. On October, 27, 2021, the Company used the net proceeds from the IPO to repay the outstanding balance on the 2021 Term Loan.
Concurrent with the IPO, various agreements were amended or newly effective, which are further described in our Prospectus, which include:
The Registration Rights agreement;
The Investor Rights agreement;
Amendments to the employment agreements for the then co-CEOs, Mike Kirban and Martin Roper;
Adoption of the 2021 Stock Incentive Award Plan and grants of awards to employees and directors, and
Adoption of the 2021 Employee Stock Purchase Plan.
Impact of the COVID-19 Pandemic and Current Geopolitical Instability
Disruptions in the worldwide economy may affect our business, and the macroeconomic environment continues to be affected by the COVID-19 pandemic and the current geopolitical instability (including the effects of the conflict between Ukraine and Russia). As a result, the Company has seen significant cost inflation to domestic and international shipping costs and some inflationary pressures on other cost elements; only some of which have been covered by pricing actions to date. The Company is continuing to monitor the situation carefully to understand any future potential impact on
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its people and business. As a result, it is not currently possible to ascertain the overall impact of COVID-19 or the ongoing geopolitical instability on the Company’s business, results of operations, financial condition or liquidity. Future events and effects related to COVID-19 or the ongoing geopolitical instability cannot be determined with precision and actual results could significantly differ from estimates or forecasts. The Company has also seen greater volatility on foreign exchange rates. A strong dollar generally benefits the Company's supply chain activities while negatively impacting our reported international revenues.
Unaudited interim financial information
The Company’s condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s financial information for the interim period presented. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year. The condensed consolidated balance sheet as of September 30, 2022 is unaudited and should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2021.
During the nine months ended September 30, 2022, there were no significant changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statement as of and for the year ended December 31, 2021, except for the adoption of the new lease standard described in "Recently Adopted Accounting Pronouncements" in the Summary of Significant Accounting Policies (Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements are presented in accordance with U.S. GAAP.
Principles of Consolidation
The condensed consolidated financial statements include all the accounts of the wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The non-controlling interest in consolidated subsidiaries presented in the accompanying condensed consolidated financial statements for periods prior to December 31, 2021 represents the portion of AME stockholders’ equity, which was not directly owned by the Company.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the condensed consolidated financial statements relate to share-based compensation, assessing long-lived assets for impairment, estimating the net realizable value of inventories, the determination of allowance for uncollectible accounts, assessing goodwill for impairment, the determination of the value of trade promotions, and assessing the realizability of deferred income taxes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company’s cash and accounts receivable are subject to concentrations of credit risk. The Company’s cash balances are primarily on deposit with banks in the U.S. which are guaranteed by the Federal Deposit Insurance
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