Vita Coco Company, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K. I NDEX TO C ONSOLIDATED F INANCIAL S TATEMENTS Audited Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 63 Consolidated Balance Sheets as of December 31, 202 1 and 20 20 64 Consolidated Statements of Operations for the years ended December 31, 202 1 , 20 20 and 2019 65 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 1 , 20 20 and 2019 66 Consolidated Statements of Non-Controlling Interests and Stockholders’ Equity for the years ended December 31, 202 1 , 20 20 and 2019 67 Consolidated Statements of Cash Flows for the years ended December 31, 202 1 , 20 20 and 2019 69 Notes to Consolidated Financial Statements 70 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of The Vita Coco Company, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Vita Coco Company, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, non-controlling interests and stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP New York, New York March 14, 2022 We have served as the Company’s auditor since 2012. 63 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2021 AND 2020 (Amounts in thousands, except share data) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 28,690 $ 72,181 Accounts receivable, net of allowance of $ 1,301 at December 31, 2021, and $ 1,211 at December 31, 2020 47,195 30,504 Inventory 75,360 31,967 Supplier advances 1,170 1,190 Derivative assets 126 200 Prepaid expenses and other current assets 20,718 23,105 Total current assets 173,259 159,147 Property and equipment, net 2,473 2,880 Goodwill 7,791 7,791 Intangible assets, net 7,934 9,154 Supplier advances 2,808 2,925 Deferred tax assets, net 1,265 — Other assets 1,954 1,964 Total assets $ 197,484 $ 183,861 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 28,338 $ 15,837 Accrued expenses 42,399 34,482 Notes payable, current 28 22 Derivative liabilities 3,197 5,364 Total current liabilities 73,962 55,705 Credit facility — 25,000 Notes payable 48 34 Deferred tax liability — 342 Other long-term liabilities 301 481 Total liabilities $ 74,311 $ 81,562 Commitments and contingencies (Note 11) Stockholders' equity: Common stock, $ 0.01 par value; 500,000,000 shares authorized; and 61,764,582 shares and 59,200,050 shares issued at December 31, 2021 and 2020, respectively; 55,558,382 and 58,185,855 shares outstanding at December 31, 2021 and 2020, respectively. 618 592 Additional paid-in capital 134,730 100,849 Loan to stockholder — ( 17,700 ) Retained earnings 47,369 28,354 Accumulated other comprehensive loss ( 616 ) ( 949 ) Treasury stock, 6,206,200 shares at cost as of December 31, 2021, and 1,014,195 shares at cost as of December 31, 2020 ( 58,928 ) ( 8,925 ) Total stockholders' equity attributable to The Vita Coco Company, Inc. 123,173 102,221 Noncontrolling interests — 78 Total stockholders' equity $ 123,173 $ 102,299 Total liabilities and stockholders' equity $ 197,484 $ 183,861 See accompanying notes to the consolidated financial statements. 64 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Year Ended December 31, 2021 2020 2019 Net sales $ 379,513 $ 310,644 $ 283,949 Cost of goods sold 266,365 205,786 190,961 Gross profit 113,148 104,858 92,988 Operating expenses Selling, general and administrative 88,559 74,401 78,917 Change in fair value of contingent consideration — ( 16,400 ) 700 Total operating expenses 88,559 58,001 79,617 Income from operations 24,589 46,857 13,371 Other income (expense) Unrealized gain (loss) on derivative instruments 2,093 ( 4,718 ) ( 1,233 ) Foreign currency gain (loss) ( 2,088 ) 1,848 201 Loss on extinguishment of debt ( 132 ) — — Interest income 127 404 225 Interest expense ( 360 ) ( 791 ) ( 1,163 ) Total other income (expense) ( 360 ) ( 3,257 ) ( 1,970 ) Income before income taxes 24,229 43,600 11,401 Income tax expense ( 5,237 ) ( 10,913 ) ( 1,979 ) Net income $ 18,992 $ 32,687 $ 9,422 Net income (loss) attributable to noncontrolling interest ( 23 ) 27 5 Net income attributable to The Vita Coco Company, Inc. $ 19,015 $ 32,660 $ 9,417 Net income attributable to The Vita Coco Company, Inc. per common share Basic $ 0.35 $ 0.56 $ 0.17 Diluted $ 0.35 $ 0.56 $ 0.16 Weighted-average number of common shares outstanding Basic 53,689,910 58,501,170 56,968,730 Diluted 54,186,121 58,610,825 57,152,550 See accompanying notes to the consolidated financial statements. 65 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands) Year Ended December 31, 2021 2020 2019 Net income $ 18,992 $ 32,687 $ 9,422 Other comprehensive income: Foreign currency translation adjustment 320 346 855 Total comprehensive income including noncontrolling interest 19,312 33,033 10,277 Net income (loss) attributable to noncontrolling interest ( 23 ) 27 5 Foreign currency translation adjustment attributable to noncontrolling interest 4 5 11 Total comprehensive income (loss) attributable to noncontrolling interest ( 19 ) 32 16 Total comprehensive income attributable to The Vita Coco Company, Inc. $ 19,331 $ 33,001 $ 10,261 See accompanying notes to the consolidated financial statements. 66 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except share amounts) Common Stock Common Stock with Exit Warrants Total Common Stock Additional Paid-In Capital Loan to Shareholder Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income / (Loss) Treasury Stock Total Stockholders' Equity Attributable to The Vita Coco Company, Inc. Non- controlling Interest in Subsidiary Total Stockholders' Equity Shares $Amount Shares $Amount Shares $Amount Shares Amount Balance at January 1, 2019 48,320,090 483 8,113,105 81 56,433,195 564 78,490 — ( 13,866 ) ( 2,150 ) 207,935 ( 1,948 ) 61,090 173 61,263 Net income — — — — — — — — 9,417 — — — 9,417 5 9,422 Purchase of treasury stock — — — — — — — — — — 3,640 ( 37 ) ( 37 ) — ( 37 ) Issuance of common shares 2,472,925 25 — — 2,472,925 25 17,727 — 143 — — — 17,895 ( 143 ) 17,752 Loan to Stockholder — — — — — — — ( 17,700 ) — — — — ( 17,700 ) — ( 17,700 ) Stock-based compensation — — — — — — 2,227 — — — — — 2,227 — 2,227 Exercise of stock options 455 — — — 455 — 6 — — — — — 6 — 6 Foreign currency translation adjustment — — — — — — — — — 855 — — 855 11 866 Balance at December 31,, 2019 50,793,470 $ 508 8,113,105 $ 81 58,906,575 $ 589 $ 98,450 $ ( 17,700 ) $ ( 4,306 ) $ ( 1,295 ) 211,575 $ ( 1,985 ) $ 73,753 $ 46 $ 73,799 Net income — — — — — — — — 32,660 — — — 32,660 27 32,687 Purchase of treasury stock — — — — — — — — — — 802,620 ( 6,940 ) ( 6,940 ) — ( 6,940 ) Issuance of common shares — — — — — — — — — — — — — — — Loan to Stockholder — — — — — — — — — — — — — — — Stock-based compensation — — — — — — 1,517 — — — — — 1,517 — 1,517 Exercise of stock options 177,450 2 — — 177,450 2 882 — — — — — 884 — 884 Exercise of service warrants 116,025 1 — — 116,025 1 — — — — — — 1 — 1 Foreign currency translation adjustment — — — — — — — — — 346 — — 346 5 351 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 67 Table of Contents Common Stock Common Stock with Exit Warrants Total Common Stock Additional Paid-In Capital Loan to Shareholder Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income / (Loss) Treasury Stock Total Stockholders' Equity Attributable to The Vita Coco Company, Inc. Non- controlling Interest in Subsidiary Total Stockholders' Equity Shares $Amount Shares $Amount Shares $Amount Shares Amount Net income — — — — — — — — 19,015 — — — 19,015 ( 23 ) 18,992 Issuance of common stock pursuant to initial public offering, net of underwriting discounts and offering costs 2,500,000 25 — — 2,500,000 25 30,331 — — — — — 30,356 — 30,356 Purchase of treasury stock — — — — — — — — — — 5,192,005 ( 50,003 ) ( 50,003 ) — ( 50,003 ) Loan to stockholder — — — — — — — 17,700 — — — — 17,700 — 17,700 Stock-based compensation — — — — — — 3,380 — — — — — 3,380 — 3,380 Exercise of stock options 20,930 — — — 20,930 — 178 — — — — — 178 — 178 Acquisition of non-controlling interest 43,602 1 — — 43,602 1 ( 8 ) — — 13 — — 6 ( 59 ) ( 53 ) Foreign currency translation adjustment — — — — — — — — — 320 — — 320 4 324 Balance at December 31, 2021 53,651,477 $ 537 8,113,105 $ 81 61,764,582 $ 618 $ 134,730 $ — $ 47,369 $ ( 616 ) 6,206,200 $ ( 58,928 ) $ 123,173 $ — $ 123,173 See accompanying notes to the consolidated financial statements. 68 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 18,992 $ 32,687 $ 9,422 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,069 2,125 2,082 (Gain)/loss on disposal of equipment 112 ( 5 ) ( 2 ) Bad debt expense 76 859 1,330 Unrealized (gain)/loss on derivative instruments ( 2,093 ) 4,718 1,233 Stock-based compensation 3,380 1,517 2,227 Impairment of intangible assets — 90 — Deferred tax expense ( 1,644 ) 6,282 ( 788 ) Change in fair value of contingent consideration — ( 16,400 ) 700 Loss on extinguishment of debt 132 — — Changes in operating assets and liabilities: Accounts receivable ( 16,917 ) 190 ( 4,930 ) Inventory ( 43,501 ) 4,978 11,090 Prepaid expenses and other assets 2,584 ( 16,762 ) 3,276 Accounts payable, accrued expenses, and other long-term liabilities 20,503 12,708 ( 3,628 ) Net advances to suppliers 141 336 ( 247 ) Net cash provided by (used in) operating activities ( 16,166 ) 33,323 21,765 Cash flows from investing activities: Cash paid for property and equipment ( 557 ) ( 392 ) ( 1,009 ) Proceeds from sale of property and equipment — 17 — Net cash used in investing activities ( 557 ) ( 375 ) ( 1,009 ) Cash flows from financing activities: Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and offering costs 30,356 — — Proceeds from exercise of stock options/warrants 177 885 6 Proceeds from sale of common stock — — 27 Proceeds from settlement of loan to stockholder 17,700 — — Borrowings on credit facility — 25,000 Repayments of borrowings on credit facility ( 25,000 ) — ( 7,000 ) Proceeds from the term loan 30,000 — Repayments of the term loan ( 30,000 ) — Cash received (paid) on notes payable 21 ( 16,895 ) ( 3,361 ) Cash paid to acquire treasury stock ( 50,003 ) ( 6,940 ) ( 37 ) Cash paid to acquire portion of non-controlling interest ( 54 ) — — Net cash (used in) provided by financing activities ( 26,803 ) 2,050 ( 10,365 ) Effects of exchange rate changes on cash and cash equivalents 35 443 866 Net (decrease) increase in cash and cash equivalents ( 43,491 ) 35,441 11,257 Cash and cash equivalents at beginning of the period 72,181 36,740 25,483 Cash and cash equivalents at end of the period $ 28,690 72,181 36,740 Supplemental disclosures of cash flow information: Cash paid for income taxes $ 2,440 $ 9,718 $ 1,991 Cash paid for interest 349 812 1,131 See accompanying notes to the consolidated financial statements. 69 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION The Vita Coco Company, Inc. and subsidiaries (the “Company”) develops, markets, and distributes various coconut water products under the brand name Vita Coco and for retailers own brands, predominantly in the United States. Other products include coconut oil, coconut milk, coconut as a commodity, natural energy drink (under the brand name, Runa ), water (under the brand name, Ever & Ever ) and protein-infused fitness drink (under the brand name, PWR LIFT ). The Company was incorporated in Delaware as All Market Inc. on January 17 th , 2007. On September 9, 2021, we changed our name to The Vita Coco Company, Inc. In 2018, the Company purchased certain assets and liabilities of Runa , which is marketed and distributed primarily in the United States. 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 ten wholly-owned subsidiaries including four wholly-owned Asian subsidiaries established between fiscal 2012 and 2015, one North American subsidiary established in 2015, as well as majority ownership in All Market Europe, Ltd. (AME) in the United Kingdom until the Company reacquired the minority stockholders' shares and became wholly-owned as of December 31, 2021. AME was established in fiscal 2009 and has 100 % ownership in two European subsidiaries established in 2015. The noncontrolling interest in AME represents minority stockholders’ proportionate share of the equity in AME. The noncontrolling interest is presented in the equity section of the Company’s consolidated balance sheets. One of the wholly-owned Asian subsidiaries, All Market Singapore Pte Ltd (AMS), has 100 % ownership in one subsidiary, established in 2018 in Ecuador. Basis of Presentation The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The consolidated financial statements include all the accounts of the wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation; the noncontrolling interest in consolidated subsidiaries presented in the accompanying consolidated financial statements represents the portion of AME stockholders’ equity, which is not directly owned by the Company. Initial Public Offering (“IPO”) The Company’s registration statement on Form S-1, as amended, was declared effective by the SEC on October 20, 2021 related to the IPO of its common stock in the prospectus dated October 20, 2021, filed with the Securities and Exchange Commission (“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 million, after deducting the underwriting discount and commissions of approximately $ 2 million and offering expenses of approximately $ 5 million. Additionally, certain selling stockholders sold an aggregate of 9,000,000 shares in the initial offering, 399,922 shares under the option to purchase additional shares exercised by the underwriters, and 1,333,333 shares in a concurrent private placement (see Note 11 for additional information on the private placement). The Company did not receive any proceeds from the sale of these shares by certain selling stockholders. On October, 27, 2021, the Company used the net proceeds from the IPO to repay the outstanding balance on the 2021 Term Loan. See Note 10 for additional information on the repayment of the 2021 Term Loan. 70 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 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 co-CEOs, Mike Kirban and Martin Roper; • Adoption of the new 2021 Stock Incentive Award Plan and new grants of awards to employees and directors, which was effective in connection with the IPO; and • Adoption of a new 2021 Employee Stock Purchase Plan, which was effective in connection with the IPO. Stock Split and Authorized Shares On October 11, 2021, the Company’s Board of Directors and stockholders approved an amended and restated certificate of incorporation of the Company effecting a 455 -for-1 stock split of the Company’s issued and outstanding shares of common stock, and an increase to the authorized shares of our common stock to 500,000,000 shares. The split was effected on October 11, 2021 and without any change in the par value per share. All information related to the Company’s common stock and stock awards has been retrospectively adjusted to give effect to the 455 -for-1 stock split, without any change in the par value per share. Impact of the Covid-19 Pandemic On March 11, 2020, the World Health Organization declared the recent novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the outbreak many jurisdictions, including those in which the Company has locations, have implemented measures to combat the outbreak, such as travel restrictions and shelter in place orders. The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s cash flow, business, financial condition, results of operations and prospects will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), impact of the new COVID-19 variants and the rollout of COVID-19 vaccines, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. The Company has experienced some impacts on inventory availability and delivery capacity since the outbreak which have impacted, at times, the Company’s ability to fully service its customers, including temporary facility shutdowns, local transportation interruptions, and general pressure on global shipping lines. The Company has taken measures to bolster key aspects of its supply chain and the Company continues to work with its supply chain partners to try to ensure its ability to service its customers. Although not a material impact in the years ended December 31, 2019 and 2020, the Company saw in fiscal year 2021 significant changes to global ocean shipping availability and pricing of containers, lengthening transit times, increased domestic transportation costs and some payroll inflationary effects among other impacts. Starting in the second quarter 2021, we took pricing actions such as delaying promotions until later in the year, reducing discounting and sharing cost increases with private label customers as we were able, in order to partially offset the inflationary costs of goods effects we were experiencing. We do not believe the current costs of goods inflated by the current economic and supply chain pressures are fully representative of our future costs of goods in a normal supply chain environment. The Company is continuing to monitor the situation carefully to understand any future potential impact on its people and business. The Company is taking all necessary steps to protect its people and mitigate any risk to its business. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business, results of operations, financial condition or liquidity. Future events and effects related to COVID-19 cannot be determined with precision and actual results could significantly differ from estimates or forecasts. 71 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates Preparation of 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 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 consolidated financial statements. Management must apply significant judgement 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 consolidated financial statements relate to share-based compensation, assessing long-lived assets for impairment, estimating the net realizable value of inventories, the determination of accounts receivables reserve, 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. Revenue Recognition The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 defines a five-step model that requires entities exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying the performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration to which the Company is expected to be entitled to receive in exchange for those products. Each contract includes a single performance obligation to transfer control of the product to the customer. For the Company’s various products in the Vita Coco Coconut Water and Other product categories (refer to Note 3, Revenue Recognition ), control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue. The transaction price recognized reflects the consideration the Company expects to receive in exchange for the sale of the product. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that would meet the criteria for a distinct good or service that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent fulfillment costs, which are included in cost of goods sold, rather than revenue. Additionally, the Company determined the production and distribution of private label products represents a distinct performance obligation. Since there is no alternative use for these products and the Company has the right to payment for performance completed to date, the Company recognizes the revenue for the production of these private label products over time as the production for open purchase orders is completed, which may be prior to any shipment. The resulting contract assets are recorded in prepaid expenses and other current assets. The Company provides trade promotions to its customers. These discounts do not meet the criteria for a distinct good or service and therefore, the Company reduces revenue for the discounts associated with meeting this obligation based on the expected value method. These consolidated financial statements include trade promotion accruals. Trade promotion accruals are made for invoices that have not yet been received as of year-end and are recorded as a reduction of sales. This promotion accrual is a management estimate based upon the known price of retail promotions and estimates of the sales volume during the promotion period. Cost of Goods Sold Costs of goods sold includes the costs of the products sold to customers, inbound and outbound shipping and handling costs, freight and duties, shipping and packaging supplies, and warehouse fulfillment costs incurred in operating and staffing warehouses. 72 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Shipping and Handling Costs Shipping and handling costs related to the sale of inventory represent outbound distribution costs, and are included in cost of goods sold in the consolidated statement of operations. Shipping and handling costs were $ 9,331 , $ 7,353 and $ 7,928 for the years ended December 31, 2021, 2020, and 2019, respectively. Advertising Expenses Advertising expenses are charged to expense in the period they are incurred and are recorded in selling, general and administrative expenses. Advertising expenses were $ 13,755 , $ 12,862 and $ 16,571 for the years ended December 31, 2021, 2020 and 2019, respectively. Research and Development Research and development costs are charged to expense in the period incurred and are recorded in selling, general and administrative expenses. Research and development expenses were $ 477 , $ 313 and $ 642 for the years ended December 31, 2021, 2020 and 2019, respectively. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation (ASC 718) for stock options issued under the 2014 Stock Option and Restricted Stock Plan and the 2021 Stock Incentive Award Plan. The Company measures all stock option awards based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period of each stock-option grant, which is generally the vesting period of the respective award by using the accelerated attribution method. The Company applies an estimated forfeiture rate derived from historical employee termination behavior. If the actual forfeitures differ from those estimated by management, adjustment to compensation expense may be required in future periods. The Company issues stock-based awards with service-based and performance-based and market-based vesting conditions. The Company recognizes expense for performance-based awards when it becomes probable that such awards will be earned over a requisite service period. The Company defers the recognition of compensation expense for the stock-option awards that vest upon a qualifying liquidity events until the qualifying events are probable of occurrence. Stock option awards are equity-classified, as they do not contain a cash settlement option or other features requiring them to be liability-classified. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of stock awards with service-based vesting conditions and performance-based vesting conditions. For stock awards with performance-based and market-based vesting conditions, the Company uses the Barrier option valuation model to determine the fair value. The Company has classified stock-based compensation expense in its consolidated statements of operations in selling, general, and administrative expenses, reflecting the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. See Note 15 for further information. Income Taxes The Company accounts for income taxes under Accounting Standards Codification (ASC) 740, Income Taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax assets and liabilities computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Interest and penalties related to unrecognized tax positions are included in income tax expense in the consolidated statement of operations and comprehensive income and accrued expenses in the consolidated balance sheets. The Company recognizes the effect of income tax positions only if those positions are more likely than not 73 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Net Income per Common Share In accordance with ASC Topic 260 Earnings Per Share (ASC 260), net income per common share, on a basic and diluted basis, is presented for all periods, calculated using the treasury stock method. Basic net income per share is computed by dividing net income by the weighted average number of common shares and service warrants outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding. The calculation of common equivalent shares assumes the exercise of dilutive in-the-money stock options, net of assumed treasury share repurchases at average market prices, as applicable. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and money market instruments with maturities of three months or less. Accounts Receivable Accounts receivable are reported net of an allowance for doubtful accounts. In determining such an allowance, the Company considers historical losses and existing economic conditions, as well as the credit quality of each customer. Accounts receivable are charged off when the Company deems amounts to be uncollectible. Inventory Inventory represents raw materials, finished goods, packaging, and inbound shipping and handling and is reported at the lower of cost or net realizable value being determined using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company reserves for finished goods that are close to the date of expiration. Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. If an in-process equity financing is abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. As a result of the completion of the IPO on October 25, 2021 as described in Note 1, deferred offering costs recorded during the period were netted against the proceeds of the offering and reflected as a component of additional paid-in-capital in the quarter ended December 31, 2021. As of December 31, 2021 and 2020, the Company had no deferred offering costs in the consolidated balance sheets. Property and Equipment Property and equipment are stated at cost and are depreciated over the estimated useful lives of the related assets or in the case of leasehold improvements, the lease term if shorter, using the straight-line method of depreciation. Repairs and maintenance are charged to expense as incurred. The estimated useful lives of the Company’s property and equipment are as follows: • Equipment and computer software and hardware – 3 - 7 years • Leasehold improvements – The lesser of the life of the asset or the term of the lease 74 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) • Vehicles – 5 years • Furniture and fixtures – 3 - 5 years Impairment of Long-Lived Assets The Company evaluates the recoverability of its long-lived assets, principally intangibles and property and equipment, by comparing asset group’s carrying value to the expected undiscounted future cash flows to be generated from such assets when events or circumstances indicate that an impairment may have occurred. If the estimated undiscounted future cash flows are less than the carrying amount, an impairment loss is recorded based upon the difference between the carrying amount and the fair value of the asset. Acquisitions The Company evaluates each of its acquisitions under the accounting framework in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (ASC 805). ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the consolidated financial statements from the date of the acquisition. The Company allocated the purchase price, including the fair value of any non-cash and contingent consideration, to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Contingent consideration payable in cash or a fixed dollar amount settleable in a variable number of shares is classified as a liability and recorded at fair value, with changes in fair value recorded as a component of operating expenses in the accompanying consolidated statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in selling, general and administrative expense in the consolidated statements of operations. The Company performs valuations of assets acquired, liabilities assumed, and contingent consideration and allocate the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired, liabilities assumed, and contingent consideration requires the use of significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, the probability of the achievement of specified milestones, and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired, liabilities assumed, and contingent consideration in a business combination. Intangible assets Intangible assets consist primarily of acquired trade names and distributor relationships. The Company determines the appropriate useful life of the intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives of ten years , using the straight-line method, which approximates the pattern in which the economic benefits are consumed. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination and is measured in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other (ASC 350). Goodwill is not amortized; instead goodwill is tested for impairment on an annual basis on December 31, or more frequently if the Company believes indicators of impairment exist. The Company has determined that there are three reporting units for purposes of testing goodwill for impairment: (i) the Americas reporting unit, (ii) the Europe reporting unit, and (iii) the Asia reporting unit. All of the Company’s goodwill is allocated to the Americas reporting unit. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. In performing the qualitative assessment, the Company reviews factors both specific to the reporting units and to the Company as a whole, such as 75 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) financial performance, macroeconomic conditions, industry and market considerations, and the fair value of each reporting unit at the last valuation date. If the Company elects this option and believes, as a result of the qualitative assessment, that it is more likely than not that the carrying value of each of the reporting units exceeds their fair value, the quantitative impairment test is required; otherwise, no further testing is required. Alternatively, the Company may elect to bypass the qualitative assessment and perform the quantitative impairment test instead, or if the Company reasonably determines that it is more-likely-than-not that the fair value is less than the carrying value, the Company performs its annual, or interim, goodwill impairment test by comparing the fair value of each of the reporting units with their carrying amount. The fair value of each of the reporting units is estimated by blending the results from the income approach and the market multiples approach. These valuation approaches consider a number of factors that include, but are not limited to, expected future cash flows, growth rates, discount rates, and comparable multiples from publicly-traded companies in the Company’s industry, and require to make certain assumptions and estimates regarding industry economic factors and future profitability of the Company’s business. It is the Company’s policy to conduct impairment testing based on its most current business plans, projected future revenues and cash flows, which reflect changes anticipated in the economy and the industry. The cash flows are based on five-year financial forecasts developed internally by management and are discounted to a present value using discount rates that properly account for the risk and nature of the respective reporting unit’s cash flows and the rates of return market participants would require to invest their capital in the Company’s reporting unit. The Company will recognize an impairment for the amount by which the carrying amount exceeds a reporting unit’s fair value. For the years ended December 31, 2021, 2020 and 2019, there were no impairments recorded. Supplier Advances The Company issues advances to certain manufacturers with interest at rates between 0 % and 4 % with terms extending to November 2024 . These advances are assessed for collectability and an allowance for credit losses is recognized when it is probable that the Company will be unable to collect all amounts due according to the contractual terms. There was no allowance recorded as of December 31, 2021 and a $ 384 allowance was recorded as of December 31, 2020. Foreign Currency The Company’s reporting currency is the U.S. dollar. The Company maintains the financial statements of each entity within the group in its local currency, which is also the entity’s functional currency. Gains and losses on transactions denominated in currencies other than the functional currency are included in determining net income for the period. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate applicable during the period. Translation gains and losses are included as a component of accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included as a component of other income (expense) in the accompanying consolidated statements of operations when incurred. Derivative Instruments The Company periodically enters into forward foreign currency exchange contracts to hedge its foreign currency exposure. The fair value of these contracts is recorded in the consolidated balance sheets with a corresponding adjustment to the consolidated statements of operations for the change in fair value of the derivative instruments, as the contracts have not been designated as a hedge instrument. Refer to Note 13, Derivative Instruments, for more information. Segment Information The Company operates as two operating and reportable segments: (i) Americas segment, which is comprised of the Company’s operations in the Americas region, primarily in the U.S. and Canada, and (ii) International segment, which is comprised of the Company’s operations primarily in Europe, Middle East, and the Asia Pacific regions. 76 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) The Company’s Co-Chief Executive Officers (“Co-CEOs”), as the chief operating decision makers (CODM), manage and allocate resources between the Americas and International segments. Consistent with this decision-making process, the Co-CEOs use financial information disaggregated between the Americas and International segment for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets. The Co-CEOs evaluate segment business performance based primarily on net sales and gross profit. 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 Corporation (FDIC) up to $250. At times, such cash may be in excess of the FDIC insurance limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions and any excess cash above a certain minimum balance could be invested in overnight money market treasury deposits in widely diversified accounts. Substantially, all of the Company’s customers are either wholesalers or retailers of beverages. A material default in payment, a material reduction in purchase from these or any large customers, or the loss of a large customer or customer groups could have a material adverse impact on the Company’s financial condition, results of operations, and liquidity. The Company is exposed to concentration of credit risk from its major customers for which two customers represented 53 %, 54 % and 63 % of total net sales during the years ended December 31, 2021, 2020 and 2019, respectively. In addition, the two customers also accounted for 37 % and 38 % of total accounts receivable as of December 31, 2021 and 2020, respectively. The Company has not experienced credit issues with these customers. Recently Adopted Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , and several amendments, codified as ASC 606, which supersedes the revenue recognition guidance in ASC Topic 605. ASC 606, among other provisions, (i) is based on the principle that revenue should depict the transfer of control of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and (ii) requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments. The Company adopted ASC 606 and the related updates on January 1, 2019, for the year ended December 31, 2020. Implementation followed the modified retrospective method, which applies the new guidance to contracts not completed as of the date of adoption. The cumulative effect of initial application of the new standard did not result in any material changes, and therefore, no adjustment was made to the opening balance of retained earnings. Prior year comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not identify material changes to the consolidated financial statements for the period of ASC 606 adoption, and there were no significant policy changes impacting the timing or measurement of revenue. The Company has updated its accounting policies to ensure ongoing compliance with ASC 606. In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This update removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Upon adoption, the guidance is to be applied prospectively. The amendments in ASU 2017-04 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company adopted ASU 2017-04 on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Improvements to nonemployee share-based payment accounting (“ASU 2018-07”), that expands the scope of Topic 718 to include stock-based payments issued to nonemployees for goods and services, which are currently accounted for under Topic 505. The ASU specifies that Topic 718 will apply to all stock-based payment transactions in which a grantor acquires goods or services to be used or consumed in the grantor’s own operations in exchange for stock-based payment awards. The amendments in ASU 2018-07 are effective for fiscal years beginning after December 15, 2019. The Company adopted the guidance in this amendment effective January 1, 2020. Upon transition, the Company remeasured equity-classified awards for which a measurement date had not been established. The adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements. 77 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) In August 2018, the FASB issued ASU 2018-13, Changes to the disclosure requirements for fair value measurement , that modify the disclosure requirements on fair value measurements in Topic 820, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements , including the consideration of costs and benefits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019. The Company adopted the guidance in this amendment effective January 1, 2020. The adoption of ASU 2018-13 resulted in changes in disclosures but did not have an impact on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). The update is associated with customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update require that a customer in a hosting arrangement that is a service contract follow the guidance in Subtopic 350-40 to determine which implementation costs should be capitalized as an asset and which costs should be expensed and states that any capitalized implementation costs should be expensed over the term of the hosting arrangement. The guidance is effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The Company adopted the guidance in this amendment using a prospective approach effective January 1, 2021 for the fiscal year ended December 31, 2021. The adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements. Recently Issued Accounting Pronouncements As a company with less than $1.07 billion of revenue during the last fiscal year, the Company qualifies as an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act. This classification allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance , which requires disclosure about certain government assistance they receive. ASU 2021-10 is effective for all entities for annual periods beginning after December 15, 2021. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company is currently evaluating the impacts of this guidance on the Company’s Consolidated Financial Statements. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), (“ASU 2019-12”) that simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating incomes taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods with those fiscal years, for nonpublic entities. Early adoption is permitted. This standard will be effective for the Company in the first quarter of its fiscal year ending December 31, 2023. The Company is assessing the impact of adoption on the consolidated financial statements. 78 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) (“ASU 2016-02”). In July 2018, the FASB issued Accounting Standards Update 2018-11 Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which contains certain amendments to ASU 2016-02 intended to provide relief in implementing the new standard. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all operating leases, with an exception provided for leases with a duration of one year or less. Further, incremental disclosures will be required around the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021 for nonpublic entities. Early adoption is permitted. Entities are required to use a modified retrospective approach of adoption for leases that exist or are entered into after the beginning of the earliest comparative period in the consolidated financial statements. The Company will adopt ASU 2016-02 beginning on January 1, 2022. The Company is assessing the impact of adoption on the consolidated financial statements. 3. REVENUE RECOGNITION Revenues are accounted for in accordance with ASC 606. The Company disaggregates revenue into the following product categories: • Vita Coco Coconut Water – This product category consists of all branded coconut water product offerings under the Vita Coco labels, where the majority ingredient is coconut water. The Company determined that the sale of the products represents a distinct performance obligation as customers can benefit from purchasing the products on their own or together with other resources that are readily available to the customers. For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue. • Private Label – This product category consists of all private label product offerings, which includes coconut water and oil. The Company determined the production and distribution of private label products represents a distinct performance obligation. Since there is no alternative use for these products and the Company has the right to payment for performance completed to date, the Company recognizes the revenue for the production of these private label products over time as the production for open purchase orders occurs, which may be prior to any shipment. • Other – This product category consists of all other products, which includes Runa, Ever & Ever and PWR LIFT product offerings, Vita Coco product extensions beyond coconut water, such as Vita Coco Sparkling , coconut milk products, and other revenue transactions (e.g., bulk product sales). For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue. The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. Disaggregation of Revenue The following table disaggregates net revenue by product type and reportable segment: December 31, 2021 Americas International Consolidated Vita Coco Coconut Water $ 231,858 $ 34,639 $ 266,497 Private Label 80,639 14,007 94,646 Other 11,394 6,976 18,370 Total $ 323,891 $ 55,622 $ 379,513 79 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) December 31, 2020 Americas International Consolidated Vita Coco Coconut Water $ 164,786 $ 27,167 $ 191,953 Private Label 83,449 12,596 96,045 Other 14,664 7,982 22,646 Total $ 262,899 $ 47,745 $ 310,644 December 31, 2019 Americas International Consolidated Vita Coco Coconut Water $ 151,045 $ 31,742 $ 182,787 Private Label 71,774 10,903 82,677 Other 14,596 3,889 18,485 Total $ 237,415 $ 46,534 $ 283,949 4. ACCOUNTS RECEIVABLE, NET Accounts receivable, net was $ 47,195 and $ 30,504 as of December 31, 2021 and 2020, respectively. The Company recorded an allowance for doubtful accounts of $ 1,301 and $ 1,211 as of December 31, 2021 and 2020, respectively. Changes in the allowance for doubtful accounts for the periods presented were as follows: Balance at January 1, 2020 $ 1,543 Provision charged to operating results 475 Account write-offs and other deductions, net of recoveries ( 807 ) Balance as of December 31, 2020 $ 1,211 Provision charged to operating results 76 Account write-offs and other deductions, net of recoveries 14 Balance as of December 31, 2021 $ 1,301 5. INVENTORY Inventory consists of the following: December 31, 2021 2020 Raw materials and packaging $ 4,868 $ 2,771 Finished goods 70,492 29,196 Inventory $ 75,360 $ 31,967 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: 80 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) December 31, 2021 2020 Tax receivables $ 2,946 $ 6,920 Contract assets 2,627 2,128 VAT receivables 1,436 2,106 Supplier prepaid 6,182 3,467 Prepaid insurance 2,530 391 Other prepaid expenses 2,614 5,018 Other receivables 2,383 3,075 $ 20,718 $ 23,105 7. PROPERTY AND EQUIPMENT, NET Property and equipment, net consist of the following: December 31, 2021 2020 Equipment and computer software and hardware $ 4,604 $ 4,930 Leasehold improvement 503 818 Vehicles 820 774 Land and improvements 506 506 Furniture and fixtures 321 370 Total Property Plant & Equipment 6,754 7,398 Less accumulated depreciation and amortization ( 4,281 ) ( 4,518 ) Property and equipment-net $ 2,473 $ 2,880 Depreciation expense related to property and equipment, net for the years ended December 31, 2021, 2020 and 2019 was $ 849 , $ 905 and $ 846 , respectively. 8. GOODWILL AND INTANGIBLE ASSETS Goodwill and Intangible Assets, net consist of the following: December 31, 2021 2020 Goodwill $ 7,791 $ 7,791 December 31, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Intangible assets, net Trade names $ 6,200 $ ( 2,187 ) $ 4,013 $ 6,200 $ ( 1,567 ) $ 4,633 Distributor relationships 6,000 ( 2,117 ) $ 3,883 6,000 ( 1,517 ) 4,483 Other 38 — $ 38 38 — 38 Total intangible assets subject to amortization $ 12,238 $ ( 4,304 ) $ 7,934 12,238 $ ( 3,084 ) $ 9,154 81 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Annual Goodwill Impairment Testing All of the Company’s goodwill is associated with the acquisition of Runa , which was acquired in June 2018. The goodwill is allocated to the Americas reporting unit and is tax deductible. In assessing whether goodwill was impaired in connection with its annual impairment testing performed at December 31, 2020, the Company elected to bypass the qualitative assessment and, performed a quantitative assessment in accordance with ASC 350. Refer to Note 2, Summary of Significant Accounting Policies, for further discussion of the quantitative analysis. In December 31, 2021, the Company performed the qualitative assessment only, which did not indicate that it is more likely than not that the carrying value of each of the reporting units exceeds their fair value, resulting in no further quantitative testing. Based on the results of the annual impairment test, the Company concluded that no impairment to goodwill existed as of December 31, 2021, 2020 and 2019. Intangible Assets, net The intangible assets, net associated with the acquisition of Runa was $ 7,934 and $ 9,154 as of December 31, 2021 and 2020, respectively. All the intangible assets are amortized over their useful life. Since the intangibles are subject to amortization, they are reviewed for impairment in accordance with ASC 360, Property, Plant, and Equipment . Under ASC 360, long-lived assets are tested for recoverability at the asset group level whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. In step 1, the entity determines recoverability of the asset group by comparing its carrying value with the sum of its undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the sum of the undiscounted cash flows is less than the carrying value of the asset group, then step 2 must be performed, in which the entity compares the fair value of the asset group to its carrying amount. The excess of the carrying value of the asset group over its fair value, if any, would be recognized as an impairment loss. During 2020, the Company identified facts and circumstances that indicated that the fair value of the intangible assets associated with Runa, including the trade names and distributor relationships, and certain of its Other intangible assets not associated with Runa may not be recoverable, resulting in the determination that a triggering event had occurred. Based on step 1, the Company determined that the Runa intangible assets were recoverable based on a test of recoverability using expected undiscounted future cash flows for the Runa brand in the Americas. However, based on step 1, the Other intangible assets not associated with Runa were not recoverable based on a test of recoverability using expected undiscounted future cash flows. For the Other intangible assets not associated with Runa , the Company then applied step 2, by determining the fair value of the Other intangible asset using a discounted cash flow valuation analysis, which concluded that the fair value was below the carrying amount. Accordingly, the Company recorded an impairment charge of $ 90 for the year ended December 31, 2020, which is recorded in selling, general and administrative expense on the Company’s consolidated statements of operations. There were no indicators or impairment of the intangible assets for the year ended December 31, 2021 or 2019. Amortization expense of $ 1,220 , $ 1,220 , and $ 1,236 for the years ended December 31, 2021, 2020 and 2019 were included in selling, general and administrative expenses on the consolidated statements of operations. As of December 31, 2021, the estimated future amortization expense for amortizable intangible assets placed in service is as follows: Year ending December 31, 2022 $ 1,224 2023 1,224 2024 1,224 2025 1,224 2026 1,224 Thereafter 1,814 $ 7,934 82 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 9. ACCRUED EXPENSES Accrued expenses consist of the following: December 31, 2021 2020 Accrued promotions and marketing $ 19,455 $ 15,137 Payroll and benefits related expenses 10,258 7,493 Shipping and handling costs 4,175 3,215 Accrued trade payable 1,647 2,782 VAT Payable 2,276 1,927 Income Tax payable 2,138 1,661 Accrued Professional fees 628 380 Other accrued expenses 1,822 1,887 $ 42,399 $ 34,482 10. DEBT The table below details the outstanding balances on the Company’s credit facility and notes payable as of December 31, 2021 and 2020: December 31, 2021 2020 2020 Credit facility $ — $ 25,000 Notes payable 2021 Term Loan $ — $ — Vehicle loans 76 56 $ 76 $ 56 Current $ 28 $ 22 Non-current $ 48 $ 34 2020 Credit Facility In May 2020, the Company entered into a five-year credit facility (“2020 Credit Facility”) with Wells Fargo consisting of a revolving line of credit. The 2020 Credit Facility was further amended in May 2021 and October 2021, and currently provides for committed borrowings of $ 60 million. Borrowings on the 2020 Credit Facility bear interest at rates based on either London InterBank Offered Rate (LIBOR) or a specified base rate (determined by reference to the greatest of the prime rate published by Wells Fargo, the federal funds effective rate plus 1.5 % and one-month LIBOR plus 1.5 %), as selected periodically by the Company. The LIBOR-based loans bear interest at LIBOR plus a spread ranging from 1.00 % to 1.75 % per annum, with the spread in each case being based on the Company’s leverage ratio (as defined in the credit agreement) for the immediately preceding fiscal quarter as defined in the credit agreement. In addition, the Company is currently subject to an unused commitment fee ranging from 0.05 % and 0.20 % on the unused amount of the line of credit, with the rate being based on the Company’s leverage ratio (as defined in the credit agreement). The maturity date on the 2020 Credit Facility is May 12, 2026. In December 2020, the Company drew down $ 25,000 on the 2020 Credit Facility. As of December 31, 2020, the Company had $ 25,000 outstanding, $ 25,000 undrawn and available as well as a $ 10,000 non-committed accordion feature under its 2020 Credit Facility. As of December 31, 2021, the Company had no outstanding balance and $ 60,000 undrawn and available under its amended 2020 Credit Facility. 83 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Interest expense and unused commitment fee for the 2020 Credit Facility amounted to $ 176 and $ 39 , respectively, for the year ended December 31, 2021. Interest expense and unused commitment fee for the 2020 Credit Facility amounted to $ 42 and $ 22 , respectively, for the year ended December 31, 2020.The effective interest rate was 0.97 % and 1.15 %, respectively, as of December 31, 2021 and 2020. The 2020 Credit Facility is collateralized by substantially all of the Company’s assets. The 2020 Credit Facility contains certain affirmative and negative covenants that, among other things, limit the Company’s ability to, subject to various exceptions and qualifications: (i) incur liens; (ii) incur additional debt; (iii) sell, transfer or dispose of assets; (iv) merge with or acquire other companies, (v) make loans, advances or guarantees; (vi) make investments; (vii) make dividends and distributions on, or repurchases of, equity; and (viii) enter into certain transactions with affiliates. The 2020 Credit Facility also requires the Company to maintain certain financial covenants including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum asset coverage ratio. As of December 31, 2021, the Company was compliant with all financial covenants. 2021 Term Loan In May 2021, the Company entered into a Term Commitment Note with Wells Fargo (“2021 Term Loan”) pursuant to the terms of the credit agreement entered into in connection with the 2020 Credit Facility. The 2021 Term Loan provided the Company with borrowings up to $ 30,000 . The Company incurred interest on the 2021 Term Loan at the same rate as the 2020 Credit Facility. The Company was required to repay the principal on the 2021 Term Loan in quarterly installments commencing on October 1, 2021 through the maturity date of May 21, 2026. The 2021 Term Loan was subject to the same affirmative, negative and financial covenants as the 2020 Credit Facility. On October 27, 2021, the Company repaid the outstanding balance on the 2021 Term Loan using the net proceeds from the IPO as discussed in Note 1. In accordance with ASC 470, the Company recognized a loss of $ 132 related primarily to the write-off of deferred financing costs, which was recorded in the "Loss on extinguishment of debt" line in the accompanying consolidated statements of operations. Prior to entering into the 2021 Term Loan, the Company held two other Term Loans: • 2016 Term Loan—On August 9, 2016, the Company entered into a five-year term loan with JPMorgan Chase, N.A. (“2016 Term Loan”). The total amount of the term loan is $ 10,000 which matures in August 2021. Principal payments are based on an increasing percentage of the initial loan amount varying from 2.5 % to 5 % and are made at the end of each quarter. • 2017 Term Loan—On April 25, 2017, the Company entered into a five-year term loan with JPMorgan Chase, N.A. (“2017 Term Loan 2017”). The total amount of the term loan is $ 15,000 which matures in April 2022. Principal payments are based on an increasing percentage of the initial loan amount varying from 2.5 % to 5 % and are made at the end of each quarter. The 2016 Term Loan and the 2017 Term Loan bear interest at LIBOR plus 1.50 % and were collateralized by substantially all of the Company’s assets. The 2016 Term Loan and 2017 Term Loan contained certain affirmative and negative covenants that, among other things, limited the Company’s ability to, subject to various exceptions and qualifications: (i) incur liens; (ii) incur additional debt; (iii) sell, transfer or dispose of assets; (iv) merge with or acquire other companies, (v) make loans, advances or guarantees; (vi) make investments; and (vii) enter into certain transactions with affiliates. The 2016 Term Loan and 2017 Term Loan also required the Company to maintain certain financial covenants including a maximum leverage ratio and a minimum fixed charge coverage ratio. In May 2020, the Company paid off its 2016 Term Loan and the 2017 Term Loan in connection with entering into the 2020 Credit Facility. Interest expense related to the 2021, 2017, and 2016 Term Loans amounted to $ 141 , $ 188 and $ 734 for the years ended December 31, 2021, 2020 and 2019, respectively. 84 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Vehicle Loans The Company periodically enters into vehicle loans. Interest rate on these vehicle loans range from 4.56 % to 5.68 %. The Company is required to make principal payments of $ 2 on a monthly basis. Aggregate principal payments on the notes payable for the next five years are as follows: 2022 $ 28 2023 22 2024 13 2025 10 2026 3 Total notes payable $ 76 11. COMMITMENTS AND CONTINGENCIES Operating Leases — The aggregate minimum commitments for renting the office spaces under non-cancellable operating leases as of December 31 are as follows: Years Ending December 31, Minimum Commitment 2022 $ 1,085 2023 226 2024 154 2025 51 2026 — Thereafter — $ 1,516 Rent expense on the leases included above amounted to $ 1,134 , $ 1,126 and $ 1,140 for the years ended December 31, 2021, 2020 and 2019, respectively, and is recorded within selling, general and administrative expenses in the accompanying consolidated statements of operations. Contingencies: Litigation —The Company may engage in various litigation in the ordinary course of business. The Company intends to vigorously defend itself in such matters and management, based upon the advice of legal counsel, is of the opinion that the resolution of these matters will not have a material effect on the consolidated financial statements. For the cases for which management believes that it is more likely than not that it will lose the case, a provision for legal settlements has been recorded. As of December 31, 2021 and 2020, the Company has no t recorded any liabilities relating to legal settlements. Business Risk —The Company imports finished goods predominantly from manufacturers located in South American and Southeast Asian countries. The Company may be subject to certain business risks due to potential instability in these regions. Major Customers — The Company’s customers that accounted for 10% or more of total net sales and total accounts receivable were as follows: 85 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Net sales Accounts receivable Year Ended December 31, December 31, 2021 2020 2019 2021 2020 Customer A 30 % 35 % 37 % 18 % 22 % Customer B 23 % 19 % 26 % 19 % 16 % Concurrent with, and subject to, the consummation of the IPO, entities affiliated with a significant customer agreed to purchase $ 20 million of shares of common stock, at a price per share equal to the IPO price per share at which our common stock was sold to the public, from Verlinvest Beverages SA, an existing stockholder, in a private placement. The Company did no t receive any proceeds from the private placement. As a result, this customer acquired less than 5 % ownership in the Company. Major Suppliers — The Company’s suppliers that accounted for 10% or more of the Company’s purchases were as follows: Year Ended December 31, 2021 2020 Supplier A 21 % 27 % Supplier B 13 % 18 % Supplier C 6 % 10 % 12. DERIVATIVE INSTRUMENTS The Company accounts for derivative instruments in accordance with the ASC Topic 815, Derivatives and Hedging (ASC 815). These principles require that all derivative instruments be recognized at fair value on each balance sheet date unless they qualify for a scope exclusion as a normal purchases or sales transaction, which is accounted for under the accrual method of accounting. In addition, these principles permit derivative instruments that qualify for hedge accounting to reflect the changes in the fair value of the derivative instruments through earnings or stockholders’ equity as other comprehensive income on a net basis until the hedged item is settled and recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of a derivative instrument’s change in fair value is immediately recognized in earnings. As of December 31, 2021 and December 31, 2020, the Company did not have any derivative instruments that it had designated as fair value or cash flow hedges. The Company is subject to the following currency risks: Inventory purchases from Brazilian and Malaysian manufacturers— In order to mitigate the currency risk on inventory purchases from its Brazilian and Malaysian manufacturers, which are settled in Brazilian Real (BRL) and Thai Bhatt (THB), the AMS subsidiary enters into a series of forward currency swaps to buy BRL and THB. Intercompany transactions between AME and AMS— In order to mitigate the currency risk on intercompany transactions between AME and AMS, AMS enters into foreign currency swaps to buy/sell British Pounds (GBP). Commercial transactions with Canadian customer and vendors— In order to mitigate the currency risk on transactions with Canadian customer and vendors, the Company enters into foreign currency swaps to sell Canadian Dollars (CAD). The Company was also subject to interest rate risk on its variable interest rate over the 2017 Term Loan. On October 29, 2018 the Company entered into a swap agreement (ISDA) with JPMorgan Chase, N.A. to hedge part of its variable interest rate over the Term Loan 2017 listed in Note 10. The lock in rate was fixed at 3.08 % and covered a notional amount of $ 10,875 as of December 31, 2019. The Company terminated the swap agreement in May 2020, in connection with the repayment of the outstanding Term Loan 2017 balance. 86 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) The notional amount and fair value of all outstanding derivative instruments in the consolidated balance sheets consist of the following at: December 31, 2021 Derivatives not designated as hedging instruments under ASC 815-20 Notional Amount Fair Value Balance Sheet Location Assets Foreign currency exchange contracts Receive USD/pay GBP $ 22,323 $ 125 Derivative assets Receive MYR/sell USD 392 1 Derivative assets Liabilities Foreign currency exchange contracts Receive BRL/sell USD $ 43,174 $ ( 2,389 ) Derivative liabilities Receive USD/pay CAD 4,731 ( 57 ) Derivative liabilities Receive THB/sell USD 18,488 ( 751 ) Derivative liabilities December 31, 2020 Derivatives not designated as hedging instruments under ASC 815-20 Notional Amount Fair Value Balance Sheet Location Assets Foreign currency exchange contracts Receive THB/sell USD $ 8,730 $ 200 Derivative assets Liabilities Foreign currency exchange contracts Receive BRL/sell USD $ 29,329 $ ( 3,817 ) Derivative liabilities Receive USD/pay GBP 15,298 ( 1,120 ) Derivative liabilities Receive USD/pay CAD 9,006 ( 427 ) Derivative liabilities The amount of realized and unrealized gains and losses and consolidated statements of operations and comprehensive income location of the derivative instruments as of December 31, 2021 and 2020 are as follows: 2021 2020 2019 Unrealized gain (loss) on derivative instruments $ 2,093 $ ( 4,718 ) $ ( 1,233 ) Location Unrealized gain on derivative instruments Unrealized (loss) on derivative instruments Unrealized (loss) on derivative instruments Foreign currency gain (loss) $ ( 5,679 ) $ 6,765 $ ( 615 ) Location Foreign currency (loss) Foreign currency gain Foreign currency (loss) The Company applies recurring fair value measurements to its derivative instruments in accordance with ASC Topic 820, Fair Value Measurements (ASC 820). In determining fair value, the Company used a market approach and incorporates the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable internally developed inputs. 87 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 13. FAIR VALUE MEASUREMENTS ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observability of the inputs used in valuation techniques, the Company’s assets and liabilities are classified as follows: • Level 1— Quoted market prices in active markets for identical assets or liabilities. • Level 2— Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes internally developed models and methodologies utilizing significant unobservable inputs. Forward currency swap contracts— The Company’s valuation methodology for forward currency swap contracts is based upon third-party institution data. Contingent consideration liability— The Company utilized a probability weighted scenario-based model to determine the fair value of the contingent consideration. The Company’s fair value hierarchy for those assets (liabilities) measured at fair value on a recurring basis at December 31, 2021 and 2020, is as follows: Level 1 Level 2 Forward Currency Swaps/Contracts Level 3 Contingent consideration liability Total 2021 $ — $ ( 3,071 ) $ — $ ( 3,071 ) 2020 $ — $ ( 5,164 ) $ — $ ( 5,164 ) In connection with the Company’s acquisition of the entity currently known as AMI Runa USA LLC ("Runa") , the Company was obligated to pay contingent payments to Runa’s former shareholders only if a certain growth rate is achieved. Assuming the revenue growth is achieved, the former shareholders could elect for payment to be calculated based on quarterly data available between December 2021 and December 2022, as follows: 49 % of the product of (a) the net revenue for the trailing 12 calendar months and (b) a specified multiple, which is contingent on the revenue growth achieved since December 31, 2017. Per the acquisition agreement, the contingent payment cannot exceed $ 51,500 . If a certain revenue growth rate is not achieved, the Company is not required to pay any contingent payment. The Company does not believe that the Runa business will achieve the growth targets required and thus expect that the contingent consideration will be zero at December 2022. The fair value of contingent consideration of $ 15,700 determined on the acquisition date in 2018 was initially recognized as a liability and then subsequently remeasured to fair value at each reporting date with changes in fair value recognized as a component of operating expenses in the accompanying consolidated statements of operations. The contingent consideration liability related to the acquisition of Runa was considered a Level 3 liability, as the fair value was determined based on significant inputs not observable in the market, and recorded within other long-term liabilities in the accompanying consolidated balance sheets. The Company estimated the fair value of the contingent consideration liability based on a probability-weighted present value of various future cash payment outcomes using a Monte Carlo simulation. The technique considered the following unobservable inputs as of each valuation date: • The probability and timing of achieving the specified milestones, 88 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) • Revenue performance expectations, and • Market-based discount rates Based on updated revenue performance expectations during the earn-out period for Runa, the Company remeasured the contingent consideration to zero at December 31, 2020 and at December 31, 2021. The $ 16,400 decrease in the liability is included as a component of operating expenses in the accompanying consolidated statements of operations for the year ended December 31, 2020. The following table presents the change in contingent consideration liability during the twelve months ended December 31, 2021 and 2020: 2021 2020 Balance at the beginning of the period $ — $ ( 16,400 ) Change in fair value of contingent consideration — 16,400 Ending balance $ — $ — There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements. 14. STOCKHOLDERS’ EQUITY Common and Treasury Stock — Each share of common stock entitles its holder to one vote on matters required to be voted on by the stockholders of the Company and to receive dividends, when and if declared by the Company’s Board of Directors. As of December 31, 2021 and 2020, the Company held 6,206,200 and 1,014,195 shares, respectively, in treasury stock and had 3,434,312 and 3,883,425 shares, respectively, of common stock reserved for issuance upon the conversion of outstanding warrants and stock options. In January 2021, the Company entered into a Stock Purchase Agreement with RW VC S.a.r.l, f/k/ a Vita Coco S.a.r.l (the “Seller”). The Company repurchased 5,192,005 shares of its own common stock from the Seller at a purchase price of $ 9.63 per share, or an aggregate purchase price of approximately $ 50,000 . The purchase price per share approximated the most recent third-party common stock valuation prepared in conjunction with the accounting of stock-based compensation discussed within this Note. Non-controlling Interest —On August 17, 2021, the Company’s ownership interest in AME increased as a result of the subsidiary AME repurchasing AME shares from certain minority stockholders. As a result, the noncontrolling interest in AME representing minority stockholders’ proportionate share of the equity in AME was reduced from 1.3 % to 0.71 %. On December 31, 2021, the Company purchased the remaining outstanding AME shares directly from minority stockholders by exchanging shares in the Company on the basis of 5.485 Vita Coco shares being allotted for every 1 AME share. The share ratio exchange reflects a mutually agreed valuation of AME shares relative to Vita Coco shares. Since the Company continued to retain a controlling financial interest in AME, the change in ownership interest was accounted for as an equity transaction. Warrants —The following table summarizes warrant activity as of and for the years ended December 31, 2021 and 2020: 89 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Exit Warrants (a) Service Warrants (b) Total Warrants Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in Years) Outstanding - January 1, 2021 28,665 — 28,665 $ 0.000022 0.75 Granted — — — — 0.0 Exercised — — — — 0.0 Expired 28,665 — 28,665 — 0.0 Outstanding - December 31, 2021 — — — — 0.0 Exercisable - December 31, 2021 — — — — — Outstanding - January 1, 2020 285,285 123,760 409,045 $ 0.000022 0.60 Granted — — — — 0.0 Exercised — 116,025 116,025 0.000022 0.0 Expired 256,620 7,735 264,355 — 0.0 Outstanding - December 31, 2020 28,665 — 28,665 $ 0.000022 0.75 Exercisable - December 31, 2020 — — — $ — — (a) As of December 31, 2021 and 2020, the Company has exit warrants to purchase zero and 28,665 , respectively,shares of common stock at a weighted-average exercise price of $ 0.000022 per share outstanding to certain investors. These exit warrants, expire upon the earlier of 10 years from the date of grant or the occurrence of a liquidity event, as defined in the warrant agreements. The warrants, which were issued in connection with the sale of common stock, only vest when proceeds from a liquidity event provide an annual internal rate of return of less than 30 %. (b) As of December 31, 2021 and 2020, the Company has no remaining service warrants to purchase shares of common stock at an exercise price of $ 0.000022 per share outstanding to several individuals for the performance of certain marketing services. . Stock-based Compensation — The stockholders of the Company approved the adoption of the Company’s 2014 Stock Option and Restricted Stock Plan (the “2014 Plan”). The 2014 Plan allowed for a maximum of 8 % of the sum of the Available Equity defined as the sum of (i) the total then outstanding shares of common shares and (ii) all available stock option (i.e., granted and outstanding stock options and stock options not yet granted). Under the terms of the 2014 Plan, the Company may grant employees, directors, and consultants stock options and restricted stock awards and has the authority to establish the specific terms of each award, including exercise price, expiration, and vesting. Currently, only stock options were granted under the 2014 Plan. Generally, stock options issued pursuant to the 2014 Plan must contain exercise prices no less than the fair value of the Company’s common stock on the date of grant and have a ten-year contractual term. As of December 31, 2021 and 2020, there were 618,995 and 545,545 shares, respectively, of common stock reserved for future issuance pursuant to the 2014 Plan. All shares awarded due to exercise of stock options are newly issued. Subsequent to September 30, 2021, the stockholders of the Company approved the adoption of the 2021 Incentive Award Plan ("2021 Plan"), which was effective after the closing of the initial public offering discussed in Note 1. On and after closing of the offering and the effectiveness of the 2021 Incentive Award Plan, no further grants will be made under the 2014 Plan. The maximum number of shares of our common stock available for issuance under the 2021 Plan is equal to the sum of (i) 3,431,312 shares of our common stock and (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) two percent ( 2 %) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (B) such lesser amount as determined by our board of directors; provided, however, no more than 3,431,312 shares may be issued upon the exercise of incentive stock options, or ISOs. The 2021 Plan provides for the grant of stock options, including ISOs and nonqualified stock options, or NSOs, restricted stock, dividend equivalents, stock payments, restricted stock units, or RSUs, other incentive awards, SARs, and cash awards. Currently, stock options, restricted stock, and RSU's were granted under 2021 Plan. As of December 31, 2021, there were 2,170,975 shares of common stock reserved for future issuance pursuant to the 2021 Plan. 90 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) The Company recognized stock-based compensation expense of $ 3,103 , $ 1,517 and $ 2,227 for the years ended December 31, 2021, 2020 and 2019, respectively in selling, general, and administrative expenses. The Company also recognized a reduction of revenue of $ 277 related to stock-based compensation awards granted to a customer that was accounted for as a stock-based sales incentive for the year ended December 31, 2021. The total impact to additional paid-in capital related to stock-based compensation arrangements in 2021was $ 3,380 . Stock Option Awards with Service-based Vesting Conditions Most stock option awards granted under the 2014 and 2021 Plans vest based on the continuous service. Generally, 50 % of the stock options granted vest over the two years and 50 % of the stock options granted vest over the four years . The following table summarizes the service-based stock option activity during the year ended December 31, 2021: Number of Stock Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value (per option) (in years) (in thousands) Outstanding—December 31, 2020 3,206,840 $ 10.05 Granted 1,156,076 13.55 Exercised 20,930 8.31 Forfeited 224,315 10.77 Outstanding—December 31, 2021 4,117,671 $ 11.00 7.7 $ 4,829 Exercisable—December 31, 2021 1,939,210 $ 9.92 7.0 $ 3,086 The weighted average grant-date fair value of the service-based stock option awards granted during the years ended December 31, 2021 and 2020 was $ 5.62 per option and $ 3.55 per option, respectively. The aggregate intrinsic value of service-based stock options exercised was $ 66 and $ 856 for the years ended December 31, 2021 and 2020, respectively. The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for all stock options that had exercise prices lower than the fair value of the Company’s common stock. In December 2019, the Board of Directors of the Company approved a one-time repricing of 1,877,785 outstanding service-based stock options for 53 grantees. In addition, the Company extended the expiration date of the modified stock options with the contractual term being 10 years from the date of the modification, while all other modified option terms remained the same. As a result of that option modification, the Company recognized incremental compensation expense of $ 115 and $ 408 for the years ended December 31, 2021 and 2020, respectively. The fair value of the service-based stock options granted in 2021 and 2020 pursuant to the Stock Option Plan as well as the fair value of the modified in 2019 stock options was estimated on a grant or on a modification date using the Black-Scholes option-pricing model. The weighted average assumptions used in the Black-Scholes option-pricing model were as follows: 2021 2020 Weighted average expected term 6.3 years 5.6 years Weighted average expected volatility 39 % 40 % Weighted average risk-free interest rate 1.19 % 0.45 % Weighted average expected dividend yield 0 % 0 % Expected Term: Represents the period that the stock-based awards are expected to be outstanding based on a contractual term and service conditions specified for the awards. The Company estimated the expected term of the options with service conditions in accordance with the “simplified” method as defined in ASC 718, which enables the use of a practical expedient for “plain vanilla” share options. 91 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Expected Volatility : The Company has historically been a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, the Company estimated volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the expected term of the options. Risk-free Interest Rate: The risk-free interest rate was based on the yield, as of the option valuation date, by reference to the U.S. Treasury yield curve in effect at the time of the grant or the modification of the award for time periods equal to the expected term of the award. Dividend Yield —The Company does not anticipate declaring a dividend over the expected term. As such, the dividend yield has been estimated to be zero . Fair Value of Common Stock —Because there has been no public market for the Company’s common stock, the board of directors has determined the estimated fair value of the common stock at the time of grant of options by considering valuations performed by an independent third-party valuation specialist, which considers a number of objective and subjective factors including valuations of comparable companies, operating and financial performance, the lack of liquidity of capital stock, the likelihood of achieving an initial public offering and general and industry specific economic outlook. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The third-party common stock valuations were prepared using a combination of the income approach and market approach. As of December 31, 2021, there was $ 6,864 of total unrecognized compensation cost related to unvested service-based stock options, which is expected to be recognized over a weighted-average service period of 2.3 years. Stock Option Awards with Performance and Market-based Vesting Conditions During the year ended December 31, 2021, the Company awarded options for the purchase 262,990 shares of common stock of the Company containing a performance-based vesting condition, subject to achievement of various performance goals by the end of 2026, including revenue and gross margin targets. In addition, during the year ended December 31, 2020, the Company awarded options to purchase 68,250 shares of common stock of the Company containing performance and market vesting conditions, such as option vesting upon occurrence of an initial public offering (“IPO”) or other qualifying liquidity event and upon achieving predetermined equity value of the Company at a time of the IPO or other qualifying liquidity event. The following table summarizes the stock option activity during the year ended December 31, 2021: Number of Stock Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value (per option) (in years) (in thousands) Outstanding—December 31, 2020 647,920 $ 10.18 Granted 262,990 10.62 Exercised — — Forfeited 131,950 10.18 Outstanding—December 31, 2021 778,960 $ 10.33 7.9 $ 928 None of the stock options included in the table above are exercisable at December 31, 2021. The fair value of the awards with performance-based vesting condition was estimated using the Black-Scholes option-pricing model used for the Company’s service-based stock options and assumed that performance goals will be achieved. If such performance conditions are not met, no compensation cost is recognized and any recognized 92 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) compensation cost is reversed. The grant-date fair value of the stock options with performance-based vesting condition granted during the year ended December 31, 2021 and 2020 was $ 4.38 per option and $ 4.56 per option, respectively. In December 2020, the Board of Directors of the Company approved a one-time modification of the options to purchase 579,670 shares of common stock containing both a performance and market vesting conditions to reduce the equity value required to be achieved at the time of the IPO or other qualifying liquidity event. All other option terms remained the same. In connection with the modification, the Company revalued the options using a Barrier option valuation model which resulted in a fair value of $ 2.11 per option. There was no incremental compensation expense recognized in connection with the modification during the year ended December 31, 2021, as the attainment of the performance and market vesting conditions was not probable. The assumptions used to revalue the performance and market-based stock option grants were as follows: Weighted average expected term 2.44 years Weighted average expected volatility 40 % Weighted average risk-free interest rate 0.16 % Weighted average expected dividend yield 0 % Expected Term: The period of time for which the stock option awards are expected to be outstanding until exercise and considers time until expected liquidity event. Expected Volatility : The Company has historically been a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, the Company estimated volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the expected term of the options. Risk-free Interest Rate: The risk-free interest rate is based on the yield, as of the option valuation date, by reference to the U.S. Treasury yield curve in effect at the time of the grant or the modification of the award for time periods equal to the expected term of the award. Dividend Yield —The Company does not anticipate declaring a dividend over the expected term. As such, the dividend yield has been estimated to be zero . As of December 31, 2021, the unrecognized stock-based compensation cost related to the stock options for which performance-based vesting conditions are probable of being achieved was $ 403 , expected to be recognized over the period of approximately 3.18 years. As of December 31, 2021, total unrecognized compensation cost related to the unvested stock option awards containing performance and market vesting conditions was $ 1,599 , which will be recognized when attainment of the performance and market vesting conditions becomes probable. Restricted Stock and Restricted Stock Unit Awards ("RSUs") Restricted stock and RSUs were granted under the 2021 Plan and primarily vest based on continuous service. Currently, there is no restricted stock or RSUs that contain any performance or market conditions. The RSUs awarded to the employees have different vesting schedules as specified in each grant agreement. The RSUs granted to non-employee directors vest in full on the earlier of (i) the day immediately preceding the date of the first Annual Meeting following the date of grant and (ii) the first anniversary of the date of grant. The following table summarizes the restricted stock and RSU activity for the year ended December 31, 2021: 93 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Number of Restricted Stock or RSU Awards Weighted Average Grant Date Fair Value Non-vested - December 31, 2020 — Granted 455,819 $ 15.00 Vested — Forfeited/Cancelled 938 $ 15.00 Non-vested - December 31, 2021 454,881 $ 15.00 Included in these awards are the RSU's granted to co-CEO, Mike Kirban, related to a new bonus agreement approved on October 11, 2021 by the Company’s Board of Directors, that will replace and supersede existing agreements. In the new bonus agreement, upon the consummation of the IPO, (i) each of Verlinvest, and RW VC S.a.r.l. (the “Bonus Stockholders”) shall pay Mr. Kirban a bonus equal to 1.4 % of the total cash consideration received by the Bonus Stockholders through the sale by the Bonus Stockholders of the Company’s securities pursuant to the IPO, as of the closing date of the IPO (the “Bonus Stockholders Proceeds”); and (ii) the Company shall pay Mr. Kirban a bonus equal to 1.4 % of the total cash consideration received by the Company through the sale of the Company’s securities pursuant to the IPO, as of the closing date of the IPO (the “Company IPO Proceeds”). The Bonus Stockholders’ portion was paid in cash equal to 1.4 % of the Bonus Stockholders Proceeds to be made on the closing date of the IPO. The Company’s portion was satisfied through a grant of restricted stock units pursuant to the 2021 Plan that is equal to the ratio of (x) an amount equal to 1.4 % of the Company IPO Proceeds to (y) the fair market value per share of the Company’s common stock on the date of grant, which shall vest in full on the six ( 6 ) month anniversary of the date of grant subject to Mr. Kirban’s continued employment with the Company through such vesting date. Also included in these awards are $ 3 million of shares of restricted common stock granted to entities affiliated with a significant customer, at a price per share granted at the initial public offering price per share of $ 15.00 , or 200,000 restricted shares, in exchange for an amendment to extend the distributor agreement term to June 10, 2026. Assuming the distribution agreement has not been terminated by either party for cause, 50 % of the shares are released on October 11, 2023 and the remaining 50 % are released on October 11, 2024. The grant was accounted for as a stock-based sales incentive based on guidance in ASC 606 and is reflected as a reduction in the transaction price of revenue on the basis of the grant-date fair-value measure in accordance with the stock compensation guidance in ASC 718. The aggregate grant date fair value of RSUs granted during 2021 was $ 3,837 . At December 31, 2021, there was $ 3,261 of unrecognized stock compensation expense related to non-vested RSUs, which is expected to be recognized over a weighted average period of 2.1 years. 15. Income Taxes The domestic and foreign components of the Company’s income before income taxes are as follows: Year Ended December 31, 2021 2020 2019 Domestic $ 15,085 $ 33,412 $ 7,835 Foreign 9,144 10,188 3,566 Income before income taxes $ 24,229 $ 43,600 $ 11,401 The income tax expense for the years ended December 31, 2021 and 2020, consist of the following: 94 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Year Ended December 31, 2021 2020 2019 Current Federal $ 3,343 $ 1,871 $ 1,374 State and local 1,076 886 610 Foreign 2,435 1,874 848 6,854 4,631 2,832 Deferred Federal $ ( 304 ) $ 4,884 $ ( 447 ) State and local ( 29 ) 1,403 ( 380 ) Foreign ( 1,284 ) ( 5 ) ( 26 ) ( 1,617 ) 6,282 ( 853 ) Total $ 5,237 $ 10,913 $ 1,979 The reconciliation of the U.S. federal statutory rate to the Company’s effective rate is as follows: 2021 2020 2019 Income tax benefit using U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State and local taxes. net of U.S. federal income tax benefit 3.6 % 4.7 % 1.8 % Global intangible low-taxed income 1.8 % 2.7 % 3.7 % Tax attribute expiration — % 1.5 % 3.0 % Permanent differences 0.4 % ( 0.1 %) 0.5 % Foreign rate differential ( 1.8 %) ( 0.4 %) ( 0.8 %) Foreign derived intangible income ( 1.9 %) ( 0.8 %) ( 2.5 %) Valuation allowance ( 3.2 %) ( 1.2 %) 0.6 % Return to provision ( 0.1 %) 0.3 % ( 4.5 %) Tax credits ( 1.8 %) ( 2.7 %) ( 3.7 %) IPO costs 2.1 % — % — % Other 1.5 % — % ( 1.7 %) Provision for income taxes 21.6 % 25.0 % 17.4 % Deferred tax assets and liabilities at December 31, 2021 and 2020, consist of the following: 95 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) 2021 2020 Deferred Tax Assets: Inventory reserves $ 562 $ 494 Reserves and accruals 868 266 Stock based compensation 2,632 2,338 Net operating loss carryforwards 5,454 4,820 Charitable contributions carryforward 356 968 Deferred revenue — 52 Other—Net — 8 Subtotal 9,872 8,946 Valuation Allowance ( 4,267 ) ( 5,075 ) Total deferred tax assets 5,605 3,871 Deferred Tax Liabilities: Prepaid insurance ( 615 ) ( 79 ) Intangibles ( 3,453 ) ( 3,810 ) Fixed assets ( 183 ) ( 324 ) Other—Net ( 89 ) — Total deferred tax liabilities ( 4,340 ) ( 4,213 ) Net deferred tax assets (liability) $ 1,265 $ ( 342 ) A valuation allowance of $ 4,267 and $ 4,820 was recorded against the non-US deferred tax asset balance as of December 31, 2021 and 2020, respectively. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2021 and 2020, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the US deferred taxes are realizable with the exception of a portion of the charitable contribution deferred tax asset in which no valuation allowance was recorded as of December 31, 2021 and $ 255 as of December 31, 2020. A valuation allowance has been established against the net operating loss carryforwards which has been generated by our foreign jurisdictions. As of December 31, 2021 and 2020, the Company had no US state and net operating loss carryforwards. As of December 31, 2021 and 2020, the Company had net operating loss carryforwards related to foreign operations of $ 24,920 and $ 22,290 , respectively. These net operating loss carryforwards have various lives ranging from 10 years to indefinite carryforward periods. As of December 31, 2021 and 2020, there were no liabilities for income tax uncertainties recorded in the Company’s consolidated balance sheets. The Company did no t recognize any interest on penalties related to income tax uncertainties in its consolidated balance sheets or consolidated statements of operations for years ended December 31, 2021 and 2020. The Company is subject to income tax examinations by the IRS and various state and local jurisdictions for the open tax years between December 31, 2018 and December 31, 2021. As of December 31, 2020, income taxes on undistributed earnings of the Company’s subsidiaries have not been provided for as the Company planned to indefinitely reinvest these amounts, had the ability to do so, and the cumulative undistributed foreign earnings were not material. As of December 31, 2021, income taxes on undistributed earnings of the Company’s foreign subsidiaries have not been provided for as the Company plans to indefinitely reinvest these amounts. The cumulative undistributed foreign earnings were not material as of December 31, 2021. The COVID-19 pandemic has a global reach, and many countries are introducing measures that provide relief to taxpayers in a variety of ways. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) into law to support businesses during the COVID-19 pandemic, which included 96 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for qualified improvement property. Under ASC 740, entities are required to recognize the financial statement effects of new tax legislation upon enactment, which in the U.S. federal jurisdiction is the date the President signs the Bill into law. Accordingly, the enactment requires the recognition of the financial statement impacts of the new federal income tax law in the period that includes March 27, 2020. The CARES Act did not have a material impact on the Company’s income tax provision for the year ended December 31, 2021 or December 31, 2020. During the second quarter of 2021, the Finance Act 2021 (the Act) was enacted in the United Kingdom. The Act increases the corporate income tax rate from 19% to 25% effective April 1, 2023 and enhances the first-year capital allowance on qualifying new plant and machinery assets effective April 1, 2021. The effects on the Company’s existing deferred tax balances have been recorded and is offset by the valuation allowance maintained against the Company’s U.K. net deferred tax assets. 16. Earnings Per Share Basic and diluted earnings per share is calculated as follows: Year Ended December 31, 2021 2020 2019 Numerator: Net income attributable to The Vita Coco Company, Inc. $ 19,015 $ 32,660 $ 9,417 Denominator: Weighted-average number of common shares used in earnings per share—basic 53,689,910 58,501,170 56,968,730 Effect of conversion of stock options and RSU's 496,211 109,655 183,820 Weighted-average number of common shares used in earnings per share—diluted 54,186,121 58,610,825 57,152,550 Earnings per share—basic $ 0.35 $ 0.56 $ 0.17 Earnings per share—diluted $ 0.35 $ 0.56 $ 0.16 The vested service warrants are exercisable for little consideration and all necessary conditions have been satisfied. Accordingly, the calculation of weighted average common shares outstanding includes vested service warrants, exercisable for a value of $ 0.000022 , which consisted of zero and 4,550 weighted number of service warrants as of December 31, 2021 and 2020, respectively. The exit warrants, which expire upon a liquidity event and only vest when proceeds from a liquidity event provide an annual internal rate of return of less than 30 %, were not considered in the basic and diluted earnings per share, as the contingency of a liquidity event has not occurred during the years ended December 31, 2021 and 2020. The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average number of common shares outstanding, as they would be anti-dilutive: December 31, 2021 2020 2019 Options to purchase common stock 1,288,350 3,719,625 4,884,880 17. Employee Benefit Plan 97 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Employees of the Company may participate in a defined contribution plan which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute into a traditional plan with pretax salary or into a Roth plan with after tax salary up to statutory limits. The Company matches contributions up to 3 % of each employee’s earnings, which vest over 2 years. Matching contributions were $ 475 , $ 372 and $ 329 for the years ended December 31, 2021, 2020 and 2019, respectively. 18. Segment Reporting The Company has two operating and reportable segments: • Americas—The Americas segment is comprised primarily of US and Canada and derives its revenues from the marketing and distribution of various coconut water and non-coconut water products (e.g., oil and milk). The Company’s Guayusa leaf products ( Runa ) and aluminum bottle canned water ( Ever & Ever ) are marketed only in the Americas segment. • International—The International segment is comprised primarily of Europe, Middle East, and Asia Pacific, which includes the Company’s procurement arm, and derives its revenues from the marketing and distribution of various coconut water and non-coconut water products. The Company’s Co-CEOs are the chief operating decision makers and evaluate segment performance primarily based on net sales and gross profit. All intercompany transactions between the segments have been eliminated. Information about the Company’s operations by operating segment as of and for the years ended December 31, 2021, 2020 and 2019 is as follows: December 31, 2021 Americas International Consolidated Net sales $ 323,891 $ 55,622 $ 379,513 Gross profit 101,864 11,284 113,148 Total segment assets 141,973 55,511 197,484 December 31, 2020 Americas International Consolidated Net sales $ 262,899 $ 47,745 $ 310,644 Gross profit 90,256 14,602 104,858 Total segment assets 139,452 44,409 183,861 December 31, 2019 Americas International Consolidated Net sales $ 237,415 $ 46,534 $ 283,949 Gross profit 80,718 12,270 92,988 98 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Year Ended December 31, Reconciliation 2021 2020 2019 Total gross profit $ 113,148 $ 104,858 $ 92,988 Less: Selling, general and administrative expenses 88,559 74,401 78,917 Change in fair value of contingent consideration — ( 16,400 ) 700 Income from operations 24,589 46,857 13,371 Less: Unrealized (gain) loss on derivative instruments ( 2,093 ) 4,718 1,233 Foreign currency (gain) loss 2,088 ( 1,848 ) ( 201 ) Loss on extinguishment of debt 132 — — Interest income ( 127 ) ( 404 ) ( 225 ) Interest expense 360 791 1,163 Income before income taxes 24,229 43,600 11,401 Geographic Data: The following table provides information related to the Company’s net revenues by country, which is presented on the basis of the location that revenue from customers is recorded: Year Ended December 31, 2021 2020 2019 United States $ 323,891 $ 262,899 $ 237,415 All other countries (1) 55,622 47,745 46,534 Net sales $ 379,513 $ 310,644 $ 283,949 (1) No individual country is greater than 10% of total net sales for the years ended December 31, 2021, 2020 and 2019. The following table provides information related to the Company’s property and equipment, net by country: Year Ended December 31, 2021 2020 United States $ 890 $ 1,186 Ecuador 870 953 Singapore 536 445 All other countries (1) 177 296 Property and equipment, net $ 2,473 $ 2,880 (1) No individual country is greater than 10% of total property and equipment, net as of December 31, 2021 and 2020. 19. Related-Party Transactions Management Fees —The Company is subject to an arrangement with one of its stockholders for as long as such stockholder holds at least 5 % of the Company’s capital stock. Pursuant to the terms of the amended arrangement, the Company was required to make fixed annual management fee payments of $ 281 . On October 20, 2021, in connection with the IPO discussed in Note 1, the Stockholder’s Agreement was revised and the new Investor Rights Agreement does not include a management fee to this stockholder. For the year ended December 31, 2021, the Company had amounts due in accounts payable of $ 227 for the portion of the year prior to the execution of the new Investor Rights Agreement. 99 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Amounts in thousands, except for share and per share data) Loan to Employee —On September 18, 2019 the Company extended a five year promissory note of $ 17,700 to its newly appointed President, in order for him to buy 1,739,010 shares of The Vita Coco Company, Inc.’s common stock in conjunction with his employment agreement. The interest on the note accrues annually at a rate of 1.78 % with principal balance due at maturity. The purchase of the Company's shares occurred simultaneously with the commencement of the loan, as a result no funds were actually disbursed by the Company. The purchased shares are pledged as collateral to the loan until full repayment of the principal balance. On May 18, 2020, the Company amended the interest rate on the note to 0.58 %. On September 16, 2021, Martin Roper, the co-CEO of the Company, repaid the outstanding principal balance and accrued interest in full satisfaction of the promissory note. Distribution Agreement with Shareholder – On October 1, 2019 the Company entered into a distribution agreement with one of its stockholders, which currently extends through December 31, 2022. The distribution agreement grants the stockholder the right to sell, resell and distribute designated products supplied by the Company within a specified territory. The amount of revenue recognized related to this distribution agreement was $ 6,247 , $ 5,294 , and $ 7,155 for the years ended December 31, 2021, 2020 and 2019, respectively. The amounts due from the stockholder in Accounts Receivable, net were $ 600 and $ 575 as of December 31, 2021 and 2020, respectively. Amounts payable to the stockholder in Accounts payable were $ 71 and $ 0 as of December 31, 2021 and 2020 respectively. Related to this distribution arrangement, the Company and the stockholder have a service agreement where the Company shares in the compensation costs of the stockholder’s employee managing the China market. The Company recorded $ 215 , $ 132 and $ 46 for the years ended December 31, 2021, 2020 and 2019, respectively, in selling, general, and administrative expense for this service agreement. 100 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The information required by this Item 9 was previously reported in the Prospectus.