Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File Number: 001-40630

Zevia PBC

(Exact Name of Registrant as Specified in its Charter)

Delaware

86-2862492

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer

Identification Number)

15821 Ventura Blvd., Suite 145

135

Encino, CA91436

(855)
469-3842

(424) 343-2654

(Address including zip code,Zip Code, and telephone numberTelephone Number including area code,Area Code, of registrant’s principal executive offices)

Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.001 per
share

ZVIA

New York Stock Exchange

Indicate by check mark whether the registrantRegistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  YES NO     No  ☒

Indicate by check mark whether the registrantRegistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit such files). Yes  YES    No   NO

Indicate by check mark whether the registrantRegistrant is a large accelerated filer, an accelerated filer, a

non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated

filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrantRegistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  YES    No  

NO
The number

As of shares outstanding of registrant’s common stock, as of the last practicable dateMay 1, 2024, there were

34,416,450
58,180,510 shares and
30,113,152
14,117,351shares outstanding of the registrant’s Class A and Class B common stock, respectively, $0.001 par value per share, as of August 11, 2021share.

.


Table of Contents

Table of Contents

Page

PART I

Financial Information

Page

5

PART I.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

5

Item 1

CONDENSED FINANCIAL STATEMENTS (UNAUDITED) OF ZEVIA PBC
2
3
.
CONDENSED FINANCIAL STATEMENTS (UNAUDITED) OF ZEVIA LLC

6

5

7

6

8

7

9

8

10

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

26

Item 4.

Controls and Procedures

37

27

PART II.

39

Item 1.

Part II.

Other Information

39

28

Item 1A.

1.

Legal Proceedings

39

28

Item 2.

1A.

Risk Factors

60

28

Item 3.

2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

28

Item 4.

3.

Defaults Upon Senior Securities

60

28

Item 5.

4.

Mine Safety Disclosures

60

28

Item 6.

5.

Other Information

61

28

Item 6.

Exhibits

29

Signatures

62

30

i

2


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q for the period ended March 31, 2024 (“Quarterly Report”) contains “forward-looking statements” (withinwithin the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) about us and our industry that involve substantial known and unknown risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, on Form 10-Q including, without limitation, statements regarding our future results of operations or financial condition, business strategy, expectations about capital allocation, investment activities, sourcing of raw materials, the impact of our supply chain, logistics, distribution and marketing initiatives, the impact of our Productivity Initiative, including expected restructuring charges, cost savings and other benefits, factors and trends in our business, including seasonality, future expenses or payments under the TRA (as defined below), shifting market demand and consumer preferences, ability to effectively compete, ESG-related commitments, validity of our trademarks and other intellectual property, impact of government regulations, liquidity and capital requirements, including the sufficiency of our cash and liquidity or sources of capital, satisfying commitments, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “consider,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “on track,” “outlook,” “plan,” “potential,” “predict,” “project,” “pursue,” “seek,” “should,” “target,” “will” or “would” or the negative of these words or other similar words, terms or expressions.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 6, 2024 for the period ended December 31, 2023 (“Annual Report”), as well as our subsequent filings with the SEC. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report, on Form 10-Q including, but not limited to, the following:

failure to further develop, maintain, and maintainpromote our brand;
change in consumer preferences, perception and spending habitschanges in the beverage industry and on naturally sweetened products, and failure to developretail landscape or enrich our product offering or gain market acceptancethe loss of our new products;
key retail customers;
product safety and quality concerns, including those relating to our naturallyplant-based sweetening system, which could negatively affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings;
change in consumer preferences, perception and spending habits, particularly due to impacts of inflation, in the commercial beverage industry and on zero sugar, naturally sweetened products, and failure to develop or enrich our product offerings or gain market acceptance of our products, including new offerings;
inability to compete in our intensely competitive categories;
industry;
we have a history of losses, and we may be unable to achieve profitability;
changes in the retail landscape or the loss of key retail customers
the impact of the COVID-19 pandemic on our business, results of operations and financial condition;
failure to attract, train or retain qualified employees, manage our future growth effectively or maintain our company culture;
fluctuation ofin our net sales and earnings as a result of price concessions, promotional activities and chargebacks;
failure to introduce new products or successfully improve existing products;
inaccurate or misleading marketing claims, whether or not substantiated;
loss of any registered trademark or other intellectual property or actual or alleged claims of infringement of intellectual property rights;
our history of losses and potential inability to achieve or maintain profitability;
failure to attract, hire, train or retain qualified personnel, manage our future growth effectively or maintain our company culture;
the impact of adverse global macroeconomic conditions, including relatively high interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts;
climate change, adverse weather conditions, natural disasters and other natural conditions;
difficulties and challenges associated with expansion into new markets;
inability to obtain raw materials on a timely basis or in sufficient quantities to produce our products or meet the demand for our products due to reliance on a limited number of third-party suppliers;
suppliers and trade tensions between the U.S. and China;
substantial disruption within our supply chain or distribution channels, including disruption at our contract manufacturers, warehouse and distribution facilities, failure by our transportation providers to facilitate on-time deliveries, or our own failure to accurately forecast;
extensive governmental regulation and enforcement if we are not in compliance with applicable requirements;
changes in laws and regulations relating to beverage containers and packaging as well as marketing and labeling;
dependence on distributions from Zevia LLC to pay any taxes and other expenses;
impact from our status, duty and liability exposure as a public benefit corporation;
inadequacy, failure, interruption or security breaches of our information technology systems and failure to comply with data privacy and information security laws and regulations;

3


the impact of any future pandemics, epidemics, or other disease outbreaks on our business, results of operations and financial condition; and
other risks, uncertainties and factors set forth in the prospectus dated July 21, 2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on July 23, 2021 including those set forth under
“Item 1A. Risk Factors.” of our Annual Report.
Factor
s
,” “
M
a
nagement’s
Discussion
and
Analysis
of
Financial
Condition
and Res
u
lts
of Operation
s
” and “
Bu
s
i
n
e
s
s
.”

Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q.Report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form

10-Q.
Andand while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form

10-Q
relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form
10-Q
to reflect events or circumstances after the date of this Quarterly Report on Form
10-Q
or to reflect new information or the occurrence of unanticipated events, except as required by applicable law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

1

4


PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ZEVIA PBC

CONDENSED CONSOLIDATED BALANCE SHEETSHEETS (Unaudited)

   
As of June 30, 2021
 
Assets
     
Other receivables
  $1 
   
 
 
 
Total assets
  $1 
   
 
 
 
Shareholder’s equity
     
Common stock, $0.001 par value—1,000
 shares authorized, issued and outstanding
  $1 
   
 
 
 
Total stockholder’s equity
  $1 
   
 
 
 

(in thousands, except share and per share amounts)

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,720

 

 

$

31,955

 

Accounts receivable, net

 

 

14,048

 

 

 

11,119

 

Inventories

 

 

30,621

 

 

 

34,550

 

Prepaid expenses and other current assets

 

 

3,965

 

 

 

5,063

 

Total current assets

 

 

77,354

 

 

 

82,687

 

Property and equipment, net

 

 

1,902

 

 

 

2,109

 

Right-of-use assets under operating leases, net

 

 

1,812

 

 

 

1,959

 

Intangible assets, net

 

 

3,435

 

 

 

3,523

 

Other non-current assets

 

 

560

 

 

 

579

 

Total assets

 

$

85,063

 

 

$

90,857

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

19,045

 

 

$

21,169

 

Accrued expenses and other current liabilities

 

 

8,153

 

 

 

5,973

 

Current portion of operating lease liabilities

 

 

592

 

 

 

575

 

Total current liabilities

 

 

27,790

 

 

 

27,717

 

Operating lease liabilities, net of current portion

 

 

1,216

 

 

 

1,373

 

Total liabilities

 

 

29,006

 

 

 

29,090

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred Stock, $0.001 par value. 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2024 and December 31, 2023.

 

 

 

 

 

 

Class A common stock, $0.001 par value. 550,000,000 shares authorized, 58,135,308 and 54,220,017 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

 

 

58

 

 

 

54

 

Class B common stock, $0.001 par value. 250,000,000 shares authorized, 14,117,351 and 17,283,177 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

 

 

14

 

 

 

17

 

Additional paid-in capital

 

 

187,366

 

 

 

191,144

 

Accumulated deficit

 

 

(107,161

)

 

 

(101,337

)

Total Zevia PBC stockholders’ equity

 

 

80,277

 

 

 

89,878

 

Noncontrolling interests

 

 

(24,220

)

 

 

(28,111

)

Total equity

 

 

56,057

 

 

 

61,767

 

Total liabilities and equity

 

$

85,063

 

 

$

90,857

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

2

ZEVIA PBC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

 

 

Three Months Ended March 31,

 

 

(in thousands, except share and per share amounts)

 

2024

 

 

2023

 

 

Net sales

 

$

38,799

 

 

$

43,300

 

 

Cost of goods sold

 

 

21,080

 

 

 

23,195

 

 

Gross profit

 

 

17,719

 

 

 

20,105

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

 

 

15,070

 

 

 

11,912

 

 

General and administrative

 

 

8,115

 

 

 

8,645

 

 

Equity-based compensation

 

 

1,489

 

 

 

2,380

 

 

Depreciation and amortization

 

 

328

 

 

 

419

 

 

Total operating expenses

 

 

25,002

 

 

 

23,356

 

 

Loss from operations

 

 

(7,283

)

 

 

(3,251

)

 

Other income, net

 

 

97

 

 

 

340

 

 

Loss before income taxes

 

 

(7,186

)

 

 

(2,911

)

 

Provision for income taxes

 

 

13

 

 

 

1

 

 

Net loss and comprehensive loss

 

 

(7,199

)

 

 

(2,912

)

 

Loss attributable to noncontrolling interest

 

 

1,375

 

 

 

821

 

 

Net loss attributable to Zevia PBC

 

$

(5,824

)

 

$

(2,091

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

(0.03

)

 

Diluted

 

$

(0.10

)

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

Basic

 

 

55,890,168

 

 

 

49,372,874

 

 

Diluted

 

 

55,890,168

 

 

 

72,250,338

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


ZEVIA PBC

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

(in thousands, except for share amounts)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid in
Capital

 

 

Accumulated
Deficit

 

 

Noncontrolling interest

 

 

Total
Equity

 

 Balance at January 1, 2024

 

 

54,220,017

 

 

$

54

 

 

 

17,283,177

 

 

$

17

 

 

$

191,144

 

 

$

(101,337

)

 

$

(28,111

)

 

$

61,767

 

 Vesting and release of common stock under equity incentive plans, net

 

 

743,465

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 Exchange of Class B common stock for Class A common stock

 

 

3,165,826

 

 

 

3

 

 

 

(3,165,826

)

 

 

(3

)

 

 

(5,266

)

 

 

 

 

 

5,266

 

 

 

 

 Exercise of stock options

 

 

6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,489

 

 

 

 

 

 

 

 

 

1,489

 

 Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,824

)

 

 

(1,375

)

 

 

(7,199

)

 Balance at March 31, 2024

 

 

58,135,308

 

 

$

58

 

 

 

14,117,351

 

 

$

14

 

 

$

187,366

 

 

$

(107,161

)

 

$

(24,220

)

 

$

56,057

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

(in thousands, except for share amounts)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid in
Capital

 

 

Accumulated
Deficit

 

 

Noncontrolling interest

 

 

Total
Equity

 

 Balance at January 1, 2023

 

 

47,774,046

 

 

$

48

 

 

 

21,798,600

 

 

$

22

 

 

$

189,724

 

 

$

(79,843

)

 

$

(28,165

)

 

$

81,786

 

 Vesting and release of common stock under equity incentive plans, net

 

 

981,902

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 Exchange of Class B common stock for Class A common stock

 

 

537,991

 

 

 

1

 

 

 

(537,991

)

 

 

(1

)

 

 

(724

)

 

 

 

 

 

724

 

 

 

 

 Exercise of stock options

 

 

30,424

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

 Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,380

 

 

 

 

 

 

 

 

 

2,380

 

 Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,091

)

 

 

(821

)

 

 

(2,912

)

 Balance at March 31, 2023

 

 

49,324,363

 

 

$

50

 

 

 

21,260,609

 

 

$

21

 

 

$

191,402

 

 

$

(81,934

)

 

$

(28,262

)

 

$

81,277

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


ZEVIA PBC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(7,199

)

 

$

(2,912

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Non-cash lease expense

 

 

147

 

 

 

142

 

Depreciation and amortization

 

 

328

 

 

 

419

 

Gain on disposal of property, equipment and software, net

 

 

(12

)

 

 

 

Amortization of debt issuance cost

 

 

19

 

 

 

19

 

Equity-based compensation

 

 

1,489

 

 

 

2,380

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,929

)

 

 

(3,239

)

Inventories

 

 

3,929

 

 

 

(1,374

)

Prepaid expenses and other assets

 

 

1,098

 

 

 

546

 

Accounts payable

 

 

(2,112

)

 

 

14,589

 

Accrued expenses and other current liabilities

 

 

2,180

 

 

 

(1,025

)

Operating lease liabilities

 

 

(140

)

 

 

(148

)

Net cash (used in) provided by operating activities

 

 

(3,202

)

 

 

9,397

 

Investing activities:

 

 

 

 

 

 

Purchases of property, equipment and software

 

 

(33

)

 

 

(862

)

Net cash used in investing activities

 

 

(33

)

 

 

(862

)

Financing activities:

 

 

 

 

 

 

Proceeds from revolving line of credit

 

 

8,000

 

 

 

 

Repayment of revolving line of credit

 

 

(8,000

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

23

 

Net cash provided by financing activities

 

 

 

 

 

23

 

Net change from operating, investing, and financing activities

 

 

(3,235

)

 

 

8,558

 

Cash and cash equivalents at beginning of period

 

 

31,955

 

 

 

47,399

 

Cash and cash equivalents at end of period

 

$

28,720

 

 

$

55,957

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

 

 

$

71

 

Conversion of Class B common stock to Class A common stock

 

$

5,266

 

 

$

724

 

Operating lease right-of-use assets obtained in exchange for lease liabilities

 

$

 

 

$

1,818

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

26

 

 

$

19

 

Cash paid for income taxes

 

$

20

 

 

$

52

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


ZEVIA PBC

NOTES TO CONDENSED UNAUDITED BALANCE SHEET

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Description of DESCRIPTION OF BUSINESS

Organization and Business Operations

operations

Zevia PBC (the “Company,” “we,” “us,” “our”) was incorporated as, is a growth beverage company that develops, markets, sells, and distributes great tasting, zero sugar beverages made with simple, plant-based ingredients. We are a Delaware public benefit corporation on March 23, 2021, and prior to the consummation of the reorganization described herein and our initial public offering (“IPO”), did not conduct any activities other than those incidental to our formation and the IPO. In connection with the completion of the IPO on July 26, 2021, the Company became the holding company, and its sole material asset is a controlling equity interest in Zevia LLC, a Delaware limited liability company (“Zevia LLC”). Zevia LLC is the predecessor of the Company for financial reporting purposes. As the sole managing member of Zevia LLC, the Company operates and controls all of the business and affairs of Zevia LLC and, through Zevia LLC, conducts its business and subsequent to July 26, 2021, consolidates the results of Zevia LLC with a non-controlling interest reflected for the portion of Zevia LLC not owned by the Company. For more information about our holding company reorganization, see the section “Organizational Structure—The Reorganization” in the prospectus dated July 21, 2021 and filed with the SEC on July 23, 2021.

Public Benefit Corporation
In line with our mission to support the health of individuals and communities we live in, we elected to be treated as a public benefit corporation under Delaware law. Public benefit corporations are intended to produce a public benefit and to operate in a responsible and sustainable manner. As a public benefit corporation, we are required to balance the pecuniary interests of our stockholders with the best interests of those stakeholders materially affected by our conduct, including particularly those affected by the specific benefit purposes set forth in our certificate of incorporation. As provided in our amended and restated certificate of incorporation, the public benefits that we promote are to: (i) create and provide better-for-you beverages, food or other products that support the health of our consumers and their communities, (ii) promote the wellbeing of our employees in a supportive and empowering environment and (iii) forge an enduring profitable business.
Certified B Corporation
We have been designated as a “Certified B Corporation”Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by B Lab, an independent non-profit organization. Asoffering a Certified B Corporation, we have elected to have our socialbroad portfolio of zero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and environmental performance, accountabilityzero sodium and transparency assessed against the proprietary criteria established by B Lab.
Emerging Growth Company
Asinclude a company with less than $1.07
billion in revenue during our last fiscal year, we qualify as an emerging growth company (“EGC”) as defined in the Jumpstartvariety of flavors across Soda, Energy Drinks, Organic Tea, and Kids drinks. Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period,products are distributed and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption is required for private companies. As part of this election, we are delaying the adoption of accounting guidance related to implementation costs incurred in cloud computing arrangements that currently applies to public companies. We are assessing the impact this guidance will have on our financial statements.
As of June 30, 2021 the sole stockholder of the Company is the Chief Executive Officer of Zevia LLC (“the Purchaser”). The Company issued to the Purchaser, and the Purchaser purchased
1,000
shares of its common stock (the “PBC Shares”), for cash consideration of a $
1
to be paid in full before the issuance and delivery of the PBC Shares.
3

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Balance Sheet is prepared in accordance with generally accepted accounting principles insold principally across the United States of America (“US GAAP”U.S.”) and pursuant toCanada through a diverse network of major retailers in the accountingfood, drug, warehouse club, mass, natural and disclosure rulese-commerce channels and regulations of the SEC. The preparation of the financial statement in conformity with US GAAP requires management to make estimatesgrocery and assumptions that affect the reported amounts of assetsnatural product stores and liabilities and disclosures of contingent assets and liabilities at the date of the financial statement. As there has been no activity for this entity through June 30, 2021, separate statements of operations, changes in stockholder’s equity and cash flows have not been presented.specialty outlets. The Company’s fiscal year end is December 31.
On March 23, 2021,products are manufactured and maintained at third-party beverage production and warehousing facilities located in both the Purchaser acquired
1,000
shares of common stock for cash consideration of
$
0.001
per share, or total cash consideration of $
1
from the Company.
Initial Public Offering
On July 21, 2021, the prospectus of the Company was declared effective by the SEC related to the IPO of its Class A common stock. On July 22, 2021, the Company’s shares began trading on the New York Stock Exchange under the ticker symbol “ZVIA”. U.S. and Canada.

The Company completed the IPOits initial public offering (“IPO”) of 10,700,000 shares of it’sits Class A common stock at an offering price of

$14.00
per share on July 26, 2021. The Company received aggregate net
proceeds of approximately $139.7 million after deducting underwriting discounts and commissions of $10.1 million. Upon the closing of the IPO, we used (i) approximately $25.5 million to purchase Class B units from certain Zevia LLC’s unitholders, including certain members of our senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares ofIts Class A common stock (ii) approximately $0.4 million to cancel and cash-out outstanding options held by certain of Zevia LLC’s option holders, including certain members of our senior management, at a per-option price equal tois listed on the per-share price paid byNew York Stock Exchange trading under the underwriters for shares of Class A common stock, and (iii) approximately $23.7 million to pay the cash consideration to certain pre-IPO institutional investors in connection with the merger of the blocker corporations into the Company with the Company surviving. Accordingly, we have not retained any of those portions of the proceeds. The Company used the remaining net proceeds of $90.1 million to acquire newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters for shares of its Class A common stock. The underwriters have 30 days after the date of the prospectus, July 21, 2021, to exercise their option to purchase 1,605,000 additional shares of Class A common stock from the selling stockholders, until August 20, 2021. 
Offering Costs Associated with the IPO
Offering costs incurred in connection with the preparation of the IPO of approximately $
8.4
million, consisted primarily of accounting, legal, filing, regulatory and other costs. These costs will be recorded as a reduction to stockholder’s equity and recorded against the proceeds from the offering.
Income Taxes
The Company is treated as a subchapter C corporation, and therefore, is subject to both federal and state income taxes. Zevia LLC will continue to be recognized as a limited liability company, a pass-through entity for income tax purposes. 
3. Subsequent Events
Initial Public Offering
On July 21, 2021, the prospectus of the Company related to the IPO of its Class A common stock (as defined herein) was declared effective by the SEC. The closing date of the IPO was July 26, 2021, and in connection with the closing of the IPO, the following actions were taken:
The Company recapitalized its common and preferred membership interests into a single class of common units and each common unit outstanding after giving effect thereto was reclassified as two Class B units;
The Company amended and restated its certificate of incorporation in its entirety to, among other things: (i) authorize 800,000,000 shares of common stock, 550,000,000 shares, of which are designated as “Class A Common Stock” and 250,000,000 shares of which are designated as “Class B Common Stock;ticker symbol “ZVIA.and (ii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the board in one or more series and amended and restated its bylaws in their entirety to, among other things: (i) establish procedures relating to the presentation of stockholder proposals at stockholder meetings; (ii) establish procedures relating to the nomination of directors; and (iii) conform to the provisions of the amended and restated certificate;
The limited liability company agreement of Zevia LLC was amended and restated (the “Amended and Restated Zevia LLC Agreement”) to, among other things, provide for Class A units and Class B units and appoint the Company as the sole managing member of Zevia LLC;
4

The Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis;
The Amended and Restated Zevia LLC Agreement classified the interests acquired by the Company as Class A units and reclassified the interests held by the continuing members of Zevia LLC as Class B units and permits the continuing members of Zevia LLC to exchange Class B units for shares of Class A common stock on a 
one-for-one basis
 or, at the election of
t
he Company, for cash. For each membership unit of Zevia LLC that is reclassified as a Class B unit, the Company issued one corresponding share of its Class B common stock to the continuing members; 
The Company issued and sold 10,700,000
 shares of its Class A common stock to the underwriters at an IPO price of $
14.00
 per share, for gross proceeds of $
149.8
 million before deducting underwriting discounts and commissions of $
10.1
 million; 
The Company used approximately $90.1 million of the net proceeds of the IPO to acquire 6,900,000
 newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO; 
The Company used approximately $25.5 million of the net proceeds of the IPO to purchase 1,956,142 Class B units from certain of Zevia LLC’s unitholders, including certain members of senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. Such units were immediately converted into an equivalent number of Class A units;
The Company used approximately $0.4 million of the net proceeds of the IPO to cancel and cash-out outstanding options held by certain of Zevia LLC’s option holders, including certain members of senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. The Company received an equivalent number of Class A units from Zevia LLC in exchange for the cancellation of such options;
The Company formed a new, first-tier merger subsidiary with respect to each blocker company of certain pre-IPO institutional investors (“Direct Zevia Stockholders”), and contemporaneously with the IPO, each respective merger subsidiary merged with and into the respective blocker company, with the blocker company surviving. Immediately thereafter, each blocker company merged with and into the Company, with the Company surviving. As a result of the blocker mergers, the 100% owners of the blocker companies acquired an aggregate of 23,716,450
 shares of newly issued Class A common stock and received approximately $
23.7
 million in cash consideration, and the blocker companies ceased to own any Zevia LLC units; 
The Company entered into the Tax Receivable Agreement for the benefit of the continuing members of Zevia LLC (not including the Company) and the Direct Zevia Stockholders pursuant to which
the
C
ompany
will pay 
85
% of the amount of the net cash tax savings, if any, that the Company realizes (or, under certain circumstances, is deemed to realize) as a result of (i) increases in tax basis (and utilization of certain other tax benefits) resulting
from the
Company’s
 acquisition of a continuing member’s Zevia LLC units inIn connection with the IPO, and in future exchanges, (ii) certain favorable tax attributes the Company acquired from the blocker companies in the blocker mergers and (iii) payments the Company makes under the Tax Receivable Agreement (including tax benefits relatedalso completed certain reorganization transactions (the “Reorganization Transactions”), pursuant to imputed interest); 
The Company entered into an Amended and Restated Registration Rights Agreement with the Class B stockholders to provide for certain rights and restrictions after the IPO;
The underwriters have 30 days after the date of the prospectus, July 21, 2021, to exercise their option to purchase 1,605,000
 additional shares of Class A common stock, until August 20, 2021. 
Immediately following the closing of the IPO on July 26, 2021,which Zevia LLC became the predecessor of the Company for financial reporting purposes. The Company is a holding company, and its sole material asset is its controlling equity interest in Zevia LLC. As the sole managing member of Zevia LLC, the Company operates and controls all of the business and affairs of Zevia LLC. This reorganization is accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of the Company will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Zevia LLC. The Company will consolidate Zevia LLC in its consolidated financial statements and record a noncontrolling interest related to the Class B units held by the Class B stockholders on its consolidated balance sheet and statement of operations. The Company holds an economic interest of 53.5% in Zevia LLC and the remaining 46.7% represents the non-controlling interest. 

5

ZEVIA LLC
CONDENSED BALANCE SHEETS (Unaudited)
(in thousands, except unit and per unit amounts)
  
June 30, 2021
  
December 31, 2020
 
ASSETS
   
Current assets:
         
Cash
  $6,380  $14,936 
Accounts receivable, net
   9,417   6,944 
Inventories, net
   22,544   20,800 
Prepaid expenses and other current assets
   5,979   1,492 
   
 
 
  
 
 
 
Total current assets
   44,320   44,172 
Property and equipment, net
   2,653   991 
Right-of-use
assets under operating leases, net
   498   773 
Intangible assets, net
   3,838   3,939 
Other
non-current
assets
   82   81 
   
 
 
  
 
 
 
Total assets
  $51,391  $49,956 
   
 
 
  
 
 
 
LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’ DEFICIT
 
Current liabilities:
         
Accounts payable
  $10,806  $7,770 
Accrued expenses
   3,689   3,429 
Operating lease liabilities
   548   623 
Other current liabilities
   3,781   2,251 
   
 
 
  
 
 
 
Total current liabilities
   18,824   14,073 
Operating lease liabilities, net of current portion
   10   238 
   
 
 
  
 
 
 
Total liabilities
   18,834   14,311 
Commitments and contingencies (Note 9)
   0  0
Redeemable convertible preferred units:
         
NaN par values. Authorized units of 34,410,379 and 34,410,379; 26,322,803 and 26,322,803 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; and aggregate liquidation preference, $329,753 and $329,753 as of June 30, 2021 and December 31, 2020, respectively.
   232,457   232,457 
Members’ deficit:
         
Common units: NaN par value. Authorized units of 7,274,742 and 7,274,742; 2,476,386 and 2,438,812
 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
   976   966 
Additional
paid-in
capital
   73    
Accumulated deficit
   (200,949  (197,778
   
 
 
  
 
 
 
Total members’ deficit
   (199,900  (196,812
   
 
 
  
 
 
 
Total liabilities, redeemable convertible preferred units and members’ deficit
  $51,391  $49,956 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these condensed financial statements.
6

ZEVIA LLC
CONDENSED STATEMENTS

2. SUMMARY OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

SIGNIFICANT ACCOUNTING POLICIES

   
For the Three Months Ended June 30,
  
For the Six Months Ended June 30,
 
(in thousands, except for per unit and weighted average common units outstanding)
  
2021
  
2020
  
2021
  
2020
 
Net sales
  $34,352  $27,677  $65,046  $50,167 
Cost of goods sold
   18,112   13,842   34,618   27,300 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross profit
   16,240   13,835   30,428   22,867 
Operating expenses:
                 
Selling and marketing expenses
   10,703   5,717   18,691   12,638 
General and administrative expenses
   6,014   4,643   11,727   8,976 
Depreciation and amortization
   230   250   474   473 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   16,947   10,610   30,892   22,087 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income (loss) from operations
   (707  3,225   (464  780 
Other expense, net   (42  (118  (38  (267
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) and comprehensive income (loss)
  $(749 $3,107  $(502 $513 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) attributable to common unit holders
   (749  460   (502  79 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) per unit attributable to common unit holders, basic
  $(0.30 $0.10  $(0.20 $0.02 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) per unit attributable to common unit holders, diluted
  $(0.30 $0.10  $(0.20 $0.02 
   
 
 
  
 
 
  
 
 
  
 
 
 
Weighted average common units outstanding, basic
   2,476,386   4,549,828   2,469,518   4,549,828 
   
 
 
  
 
 
  
 
 
  
 
 
 
Weighted average common units outstanding, diluted
   2,476,386   30,747,747   2,469,518   29,607,836 
   
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these condensed financial statements.
7

ZEVIA LLC
CONDENSED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’ DEFICIT
(Unaudited)
   
Redeemable Convertible
Preferred Units
       
Common Unit
   
Additional
Paid-In
   
Accumulated
  
Members’
 
(in thousands, except unit and per unit amounts)
  
Units
   
Amount
       
Units
   
Amount
   
Capital
   
Deficit
  
Deficit
 
Balance at January 1, 2020
   22,558,386   $58,037        4,529,061   $1,810   $1,312   $(43,091) $(39,969
Exercise of common units
   —      —          20,020    5    —      —     5 
Unit based compensation expense
   —      —          —      —      29    —     29 
Net loss
   —      —          —      —      —      (2,594  (2,594
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance at March 31, 2020
   22,558,386   $58,037        4,549,081   $1,815   $1,341   $(45,685) $(42,529
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Exercise of common units
   —      —          999    —      —      —     —   
Unit based compensation expense
   —      —          —      —      29    —     29 
Net loss
   —      —          —      —      —      3,107   3,107 
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance at June 30, 2020
   22,558,386   $58,037        4,550,080   $1,815   $1,370   $(42,578 $(39,392
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
       
   
Redeemable Convertible
Preferred Units
       
Common Unit
   
Additional
Paid-In
   
Accumulated
  
Members’
 
(in thousands, except unit and per unit amounts)
  
Units
   
Amount
       
Units
   
Amount
   
Capital
   
Deficit
  
Deficit
 
Balance at January 1, 2021
   26,322,803   $232,457        2,438,812   $966    —     $(197,778 $(196,812
Exercise of common units
   —      —          37,574    10    —      —     10 
Unit based compensation expense
   —      —          —      —      37    —     37 
Net income
   —      —          —      —      —      247   247 
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance at March 31, 2021
   26,322,803   $232,457        2,476,386   $976   $37   $(197,531 $(196,518
Unit based compensation expense
   —      —          —      —      36    —     36 
Distributions to
 
unitholders for tax
 
payments
   —      —          —      —      —      (2,669  (2,669
Net loss
   —      —          —      —      —      (749  (749
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance at June 30, 2021
   26,322,803   $232,457        2,476,386   $976   $73   $(200,949 $(199,900
   
 
 
   
 
 
       
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these condensed financial statements.
8

ZEVIA LLC
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
   
For the Six Months
Ended June 30,
 
(in thousands)
  
2021
  
2020
 
Operating activities:
         
Net income (loss)
  $(502 $513 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
         
Non-cash
lease expense
   275   242 
Depreciation and amortization
   474   448 
Loss on sale of equipment
   8   —   
Amortization of debt issuance cost
   17   25 
Unit-based compensation expense
   73   58 
Changes in operating assets and liabilities:
         
Accounts receivable, net
   (2,473  (2,625
Inventories, net
   (1,744  (7,117
Prepaid expenses and other current assets
   380   318 
Other
non-current
assets
   (30  (21
Accounts payable
   3,036   3,464 
Accrued expenses
   (778)  724 
Operating lease liabilities—current
   (75  32 
Other current liabilities
   1,530   1,529 
Operating lease liabilities, net of current portion
   (228  (293
   
 
 
  
 
 
 
Net cash used in operating activities
   (37  (2,703
Investing activities:
         
Purchases of property and equipment
   (2,031  (489
   
 
 
  
 
 
 
Net cash used in investing activities
   (2,031  (489
Financing activities:
         
Proceeds from exercise of common units
   10   5 
Proceeds from revolving line of credit
1
   64,308   51,384 
Repayment of revolving line of credit
1
   (64,308  (48,660
Proceeds from PPP Loan
   —     1,429 
Payment of deferred IPO costs
   (3,829  —   
Distribution to unitholders for tax payments
   (2,669  —   
   
 
 
  
 
 
 
Net cash (used in) provided by financing activities
   (6,488  4,158 
   
 
 
  
 
 
 
Net change from operating, investing, and financing activities
   (8,556  966 
Cash at beginning of period
   14,936   3,243 
   
 
 
  
 
 
 
Cash at end of period
  $6,380  $4,209 
   
 
 
  
 
 
 
Supplemental Disclosure of Cash Flow Information:
         
Cash paid for interest
  $72  $131 
Unpaid deferred offering costs
  $1,038  $—   
(1)
Zevia LLC’s revolving line of credit provides for daily drawdowns and repayments of amounts outstanding. As of June 30, 2021, 0 amounts were outstanding under the line of credit given repayments equaled drawdowns for each of the periods presented. Consistent with the provisions of ASC Topic 230,
Statement of Cash Flows,
Zevia LLC has presented these daily draw downs and repayments under its revolving line of credit with its lender on a gross basis in the statements of cash flows for the periods ended June 30, 2021, and 2020.
The accompanying notes are an integral part of these condensed financial statements.
9

ZEVIA LLC
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Organization and operations
Zevia LLC develops, markets, sells, and distributes a wide variety of zero calorie, non-GMO verified, carbonated and non-carbonated soft drinks under the Zevia
®
brand name. Zevia LLC’s products are sold principally in the United States and Canada through various retailer channels, including grocery stores, natural products stores, warehouse stores, and specialty outlets. Zevia LLC’s products are manufactured and generally maintained at third-party beverage production and warehousing facilities located in both the United States and Canada.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US GAAPgenerally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial informationreporting and with the instructions to SECForm 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all infor

m
ationinformation and footnotes required by USU.S. GAAP for complete financial statements and are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021,2024, or for any other interim period or for any other future fiscal year. The condensed consolidated balance sheet as of December 31, 2020,2023 included herein was derived from the audited financial statements as of that date but does not include all disclosures, including certain notes, required by USU.S. GAAP that are required on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with USU.S. GAAP have been or omitted pursuant to such rules and regulations. Therefore, these interim financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 20202023 and accompanying notes included in the Registration Statement on Form S-1, as amended.Annual Report. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the results of operations,condensed consolidated financial position and cash flowsstatements for the periods presented have been reflected.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, Zevia LLC, believes that it controls due to ownership of a majority equity interest. All intercompany transactions and balances have been eliminated in consolidation.

The Company owns a majority economic interest in, and operates and controls all of the disclosures provided herein are adequate to prevent the information presented from being misleading.

Initial Public Offering
On July 21, 2021, the prospectusbusinesses and affairs of, Zevia PBC (“the Company”) was declared effective by the SEC related to the IPO of its Class A common stock. On July 22, 2021, the Company’s shares began trading on the New York Stock Exchange under the ticker symbol “ZVIA”. The Company completed the IPO of
10,700,000
shares of its Class A common stock at an offering price of
$
14.00
per share on July 26, 2021. The Company received aggregate net proceeds
of approximately $
139.7
million after deducting underwriting discounts and commissions of $
10.1
million. Upon the closing of the IPO, we used (i) approximately $
25.5
million to purchase Class B units from certain Zevia LLC’s unitholders, including certain members of our senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock, (ii) approximately $
0.4
 million to cancel and cash-out outstanding options held by certain of Zevia LLC’s option holders, including certain members of our senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock, and (iii) approximately $
23.7
million to pay the cash consideration to certain pre-IPO institutional investors in connection with the merger of the blocker corporations intoLLC. Accordingly, the Company with the Company surviving. Accordingly, we have not retained any of those portions of the proceeds. The Company used the remaining net proceeds of $
90.1
million to acquire newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters for shares of its Class A common stock. The underwriters have
30
days after the date of the prospectus, July 21, 2021, to exercise their option to purchase
1,605,000
additional shares of Class A common stock from the selling stockholders, until August 20, 2021. 
10

2. Summary of Significant Accounting Policies
Use of estimates
The preparation of thehas prepared these accompanying unaudited condensed consolidated financial statements in accordance with USAccounting Standards Codification (“ASC”) Topic 810, Consolidation.

On January 1, 2022, the Company and Zevia LLC entered into a service agreement to transfer the services of all employees of the Company to Zevia LLC. Under terms of the service agreement between the entities, the payroll costs of employees are borne by Zevia LLC while certain other non-payroll costs, such as those associated with stock compensation arrangements, remain with the Company. In addition, pursuant to the Thirteenth Amended and Restated Limited Liability Company Agreement of Zevia LLC, dated as of July 21, 2021, Zevia LLC shall reimburse the Company for certain expenses for overhead, administrative, and other expenses, at the Company’s discretion. For the three months ended March 31, 2024 and 2023, it was determined that the majority of such costs will be retained by the Company, with certain costs directly attributable to Zevia LLC being borne by that entity. These costs impacted the amount of net loss reported by Zevia LLC and consequently impacted the amount allocated to noncontrolling interest.

9


Use of estimates

The preparation of the accompanying unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amount of net sales and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by Zevia LLCthe Company relate toto: net sales and associated cost recognition; the useful lives assigned to and the recoverability of property and equipment; reservesadjustments recorded for inventory obsolescence;obsolescence and adjustments made for net realizable value; the incremental borrowing rate for lease liabilities; allowance for doubtful accounts; the useful lives assigned to and the recoverability of intangible assets; realization of deferred tax assets; and the determination of the fair value of equity instruments, including redeemable convertible preferred and common units, restricted unit awards, and equity-based compensation awards. On an ongoing basis, Zevia LLCthe Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of its assets and liabilities.

As of June 30, 2021, Zevia LLC’s operations have not been adversely impacted by the COVID-19 pandemic to a significant extent. The global impact of COVID-19 continues to rapidly evolve, and Zevia LLC will continue to monitor the situation and the effects on its business and operations, particularly if the COVID-19 pandemic continues and persists for an extended period of time.
Deferred offering costs
Offering costs consist of legal, accounting, and other costs incurred that are directly related to the Company’s registration statement on Form S-1 filed with the SEC. These costs will be charged to stockholder’s equity of Zevia PBC upon the completion of the transaction. During the three and six months ended June 30, 2021, the Company incurred offering costs of approximately
$
3.3 million and $4.9 million respectively, with approximately $1.0 
million of this amount included in accounts payable in the accompanying balance sheets. These deferred offering costs are included in prepaid expenses and other current assets in the accompanying
condensed 
balance sheets.

Recent accounting pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (“JOBS Act.Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the accompanying unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In June 2016,November 2023, the FASB issues ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.

In December 2023, the FASB issued ASU No.

2016-13,
 Financial Instruments – Credit Losses 2023-09 Income Taxes (Topic 326): Measurement of Credit Losses740) Improvements to Income Tax Disclosures. The guidance requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on Financial Instruments
 (“ASU
2016-13”).
income taxes paid. The ASU provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets held.guidance is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The ASU is effective for private companies for annual periods and interim periods within those annual periods, beginning after December 15, 2022. Zevia LLC currently does not expect this2025, with early adoption permitted. The guidance to havewill be applied on a significant impact on Zevia LLC’s financial statements as Zevia LLC does not have a history of material credit losses.
11

In August 2018, the FASB issued ASU
No. 2018-15,
Intangibles - Goodwill and Other - Internal Use Software
(Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contractprospective basis with the requirements for capitalizing implementation costs incurredoption to develop or obtain internal use software.apply the standard retrospectively. The ASU is effective for private companies for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Zevia LLC currently does not expect this guidance to have a significant impact on our financial statements as the Company does not currently have material cloud computing software.
In August 2020, the FASB issued ASU
No. 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40).
This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance and requires the application of the
if-converted
method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU
2020-06
is applicable to this Company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. Zevia LLC adopted the ASU as of January 1, 2021 and has applied the accounting standard update in computing diluted earnings per share for its redeemable convertible preferred units. The adoption of this guidance did not have a material impact on Zevia LLC’s financial statements.
In April 2021, the FASB issued ASU
2021-04,
which included Topic 260,
Earnings Per Share
and Topic 718,
Compensation - Stock Compensation
. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU
2021-04
is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. Zevia LLC is currently evaluating the impact of adopting ASU
2021-04
on its financial statements.
this guidance.

Any other recently issued accounting pronouncements are neither relevant, nor expected to have a material impact on Zevia LLC’sthe Company’s financial statements.

3. REVENUES

Disaggregation of Revenue

The Company’s products are distributed and sold principally across the U.S. and Canada through a diverse network of major retailers, including: food and drug stores, grocery stores, natural product stores, specialty outlets, and warehouse clubs; and through natural and online/e-commerce channels. The following table disaggregates Zevia LLC’sthe Company’s sales by channel:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Retail sales

 

$

33,900

 

 

$

36,927

 

Online/e-commerce

 

 

4,899

 

 

 

6,373

 

Net sales

 

$

38,799

 

 

$

43,300

 

The following table disaggregates the Company’s sales by geographic location of the respective customers:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

U.S.

 

$

35,300

 

 

$

39,347

 

Canada

 

 

3,499

 

 

 

3,953

 

Net sales

 

$

38,799

 

 

$

43,300

 

   
For the three months
ended June 30,
   
For the six months
ended June 30,
 
(in thousands)
  
2021
   
2020
   
2021
   
2020
 
Retail sales
  $30,902   $23,482   $56,769   $43,404 
Online/ecommerce
   3,450    4,195    8,277    6,763 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net sales
  $34,352   $27,677   $65,046   $50,167 
   
 
 
   
 
 
   
 
 
   
 
 
 

Contract liabilities

Contract liabilities are recorded as deferred revenue on the accompanying condensed balance sheets and includes payments received in advance of performance obligations being filled under the contract. Zevia LLC

The Company did

0t
not have any material unsatisfied performance obligations as of June 30, 2021 andMarch 31, 2024 or December 31, 2020, respectively.
2023.

10


4. INVENTORIES NET

Inventories consist of the following as of:

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

2,295

 

 

$

4,714

 

Finished goods

 

 

28,326

 

 

 

29,836

 

Inventories

 

$

30,621

 

 

$

34,550

 

(in thousands)
  
June 30, 2021
   
December 31, 2020
 
Raw materials
  $8,014   $8,155 
Finished goods
   14,530    12,645 
   
 
 
   
 
 
 
Inventories, net
  $22,544   $20,800 
   
 
 
   
 
 
 
12

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, consistnet, consists of the following as of:

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Leasehold improvements

 

$

1,167

 

 

$

1,167

 

Computer equipment

 

 

703

 

 

 

677

 

Furniture and equipment

 

 

785

 

 

 

785

 

Quality control and marketing equipment

 

 

1,782

 

 

 

1,782

 

Assets not yet placed in service

 

 

101

 

 

 

101

 

 

 

4,538

 

 

 

4,512

 

Less accumulated depreciation

 

 

(2,636

)

 

 

(2,403

)

Property and equipment, net

 

$

1,902

 

 

$

2,109

 

(in thousands)
  Useful Life   June 30, 2021   December 31, 2020 
Land
  
N/A
  
$
 
336
  
$
 
 
Leasehold improvements
   
1-2
   468    468 
Computer equipment and software
   
3
   1,724    1,454 
Furniture and equipment
   
3-6
   672    473 
Quality control equipment
   
6
   140    340 
Building
   
30
   1,346    —   
       
 
 
   
 
 
 
        4,686    2,735 
Less accumulated depreciation
       (2,033   (1,744
       
 
 
   
 
 
 
Property and equipment, net
      $2,653   $991 
       
 
 
   
 
 
 

For the three months ended June 30, 2021March 31, 2024 and 2020,2023, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $0.2$0.2 million and $0.2$0.2 million, respectively. For the six months ended June 30, 2021 and 2020, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $0.4 million and $0.3 

million, respectively These amounts are included under depreciation and amortization in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).
loss.

6. INTANGIBLE ASSETS, NET

The following table provides information pertaining to Zevia LLC’sthe Company’s intangible assetassets as of:

 

 

March 31, 2024

 

(in thousands)

 

Weighted-Average Remaining Useful Life

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Intangible Assets, Net

 

Software

 

 

1.2

 

 

$

1,164

 

 

$

(1,016

)

 

$

148

 

Customer relationships

 

 

1.5

 

 

 

3,007

 

 

 

(2,720

)

 

 

287

 

 

 

 

 

 

4,171

 

 

 

(3,736

)

 

 

435

 

Trademarks

 

N/A

 

 

 

3,000

 

 

 

 

 

 

3,000

 

Intangible assets, net

 

 

 

 

$

7,171

 

 

$

(3,736

)

 

$

3,435

 

 

 

December 31, 2023

 

(in thousands)

 

Weighted-Average Remaining Useful Life

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Intangible Assets, Net

 

Software

 

 

1.4

 

 

$

1,164

 

 

$

(978

)

 

$

186

 

Customer relationships

 

 

1.7

 

 

 

3,007

 

 

 

(2,670

)

 

 

337

 

 

 

 

 

 

4,171

 

 

 

(3,648

)

 

 

523

 

Trademarks

 

N/A

 

 

 

3,000

 

 

 

 

 

 

3,000

 

Intangible assets, net

 

 

 

 

$

7,171

 

 

$

(3,648

)

 

$

3,523

 

      
June 30, 2021
   
December 31, 2020
 
(in thousands)
  Useful lives        
Customer relationships
  15 years  $3,007   $3,007 
Accumulated amortization
      (2,169   (2,068)
 
      
 
 
   
 
 
 
       838    939 
Trademarks
  Indefinite   3,000    3,000 
      
 
 
   
 
 
 
      $3,838   $ 3,939 
      
 
 
   
 
 
 

For the three months ended June 30, 2021March 31, 2024 and 2020,2023, total amortization expense amounted to approximately $51,000

for each$0.1 million and $0.2 million, respectively, including less than $0.1 million and $0.1 million, respectively, of the periods then ended. For the six months ended June 30, 2021 a
n
d 2020, total amortization expense amountedrelated to $0.1
million for eachsoftware. These amounts are included under depreciation and amortization in the accompanying unaudited condensed consolidated statements of the periods then ended.NaNoperations and comprehensive loss. No impairment losses have been recorded on any of Zevia LLC’sthe Company’s intangible assets for the
six-month
period three months ended June 30, 2021March 31, 2024 and 2020.
2023, respectively.

13

Amortization expense for intangible assets with definite lives is expected to be as follows:

(in thousands)

 

 

Remainder of 2024

 

258

 

2025

 

170

 

2026

 

7

 

Expected amortization expense for intangible assets with definite lives

$

435

 

11


(in thousands)
    
Remainder of 2021
  $100 
2022
   200 
2023
   200 
2024
   200 
2025
   138 
   
 
 
 
Expected amortization expense for intangible assets with definite lives
  $838 
   
 
 
 

7. DEBT

ABL Credit Facility

In 2019,

On February 22, 2022, Zevia LLC (the “Borrower”) obtained a revolving credit facility (the “Secured Revolving Line of Credit”) by entering into a Loan and Security Agreement with Bank of America, N.A. (the “Loan and Security Agreement”). The Borrower may draw funds under the Secured Revolving Line of Credit up to an amount not to exceed the lesser of (i) a $20 million revolving commitment and (ii) a borrowing base which is comprised of inventory and receivables. Up to $2 million of the Secured Revolving Line of Credit may be used for letter of credit issuances and the Borrower has the option to increase the commitment under the Secured Revolving Line of Credit by up to $10 million, subject to certain conditions. The Secured Revolving Line of Credit matures on February 22, 2027. During the first quarter of 2024, the Company drew $8 million on the Secured Revolving Line of Credit which was subsequently repaid in the same period. As of March 31, 2024, there was no amount outstanding on the Secured Revolving Line of Credit. The Secured Revolving Line of Credit is secured by a first priority security interest in substantially all of the Company’s assets.

Loans under the Secured Revolving Line of Credit bear interest based on either, at the Borrower’s option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50% to 2.00% or the Base Rate (customarily defined) plus an applicable margin between 0.50% to 1.00% with margin, in each case, determined by the average daily availability under the Secured Revolving Line of Credit.

Under the Secured Revolving Line of Credit, the Borrower must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days. As of March 31, 2024, the Company was in compliance with its financial covenant.

8. LEASES

The Company leases its office space which has a remaining lease term of 33 months. In January 2023, the Company entered into a loan agreement providingan amendment to the lease for a

$9.0
million revolving line of credit (the “Credit Facility”) with Stonegate Asset Company II, LLC (“Stonegate”), with a maturity date in
April 2022
.
Borrowings underits corporate headquarters offices to extend the revolving line are secured by accounts receivable and inventory. In June 2020, Zevia LLC amended the Credit facility and increased it to
$
12.0
million. As of June 30, 2021, andterm through December 31, 2020, the revolving line interest rate was
7.5
% annual percentage rate and there was
0
outstanding balance. On June 1, 2021, Zevia LLC extended the Credit Facility through
April 2023
and there were no other modifications made to the terms and conditions. In July 2021 and subsequent to the IPO, Zevia LLC terminated the Credit Facility. There were no material early-termination fees or any other penalties associated with the termination of the Credit Facility.
8. LEASES
Zevia LLC leases office space, vehicles and equipment. Zevia LLC’s2026. The Company’s recognized lease costs include:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Statements of Operations and Comprehensive Loss

 

 

 

 

 

 

Operating lease cost(1)

 

$

184

 

 

$

184

 

(1)
Operating lease cost is recorded within general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Weighted-average remaining lease term (months)

 

33.0

 

 

 

45.0

 

Weighted-average discount rate

 

7.6

%

 

 

7.6

%

   
For the six months
ended June 30,
 
(in thousands)
  
2021
   
2020
 
Income Statement
          
Operating lease cost
(1)
  $302  $302 
Lease income related to operating leases
(2)
   32    0   
   
Other Information
          
Operating cash flows from operating leases
  $330   $319 
   
 
 
   
 
 
 
Weighted-average remaining lease term (months)
   10.40    22.31 
   
 
 
   
 
 
 
Weighted-average discount rate
   7.56    7.56 
   
 
 
   
 
 
 
(1)
Operating lease cost is recorded within general and administrative expenses in the accompanying condensed statements of operations and comprehensive income (loss).
(2)
Lease income related to operating leases is recorded within revenues in the accompanying condensed statements of operations and comprehensive income (loss).
Zevia LLC’s

The Company’s variable lease costs and short-term lease costs were inconsequential.

14

not material.

The Company is obligated under a non-cancelable lease agreement providing for office space that expires on December 31, 2026. Maturities of lease payments under

non-cancellable
leases the non-cancelable lease were as follows:

(in thousands)

 

March 31, 2024

 

2024

 

$

527

 

2025

 

 

729

 

2026

 

 

756

 

Total lease payments

 

 

2,012

 

Less imputed interest

 

 

(204

)

Present value of lease liabilities

 

$

1,808

 

(in thousands)
  
June 30, 2021
 
Remainder of 2021
  $336 
2022
   240 
2023
   1 
   
 
 
 
Total lease payments
   577 
Less Imputed Interest
   (19)
 
   
 
 
 
Present value of lease liabilities
  $558 
   
 
 
 

9. COMMITMENTS AND CONTINGENCIES

Zevia LLC is obligated under various
non-cancellable
lease agreements providing for office space, vehicles and equipment that e
x
pire at various dates through 2023. Refer to Note 8
Leases
.

Purchase commitments

As of June 30, 2021 Zevia LLCMarch 31, 2024, the Company does not have any material agreements with suppliers for the purchase of raw material with minimum purchase quantities.

Our contract manufacturers are obligated to fulfill against purchase orders that are aligned with our forecast based on terms and conditions of the contract. Our forecasts provided to our contract manufacturers are short term in nature and at no time extend beyond a year.

Legal proceedings

Zevia LLC

The Company is involved from time to time in various claims, proceedings, and litigation. Zevia LLCThe Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. Management has not identified any material legal matters where it believes an unfavorable material outcome is reasonably possible and/or for which an estimate of possible losses can be made. Management does not believe that the resolution of these matters would have a material impact on the accompanying unaudited condensed consolidated financial statements.

The Company has not identified any legal matters where it believes a material loss is reasonably possible.

12


10. BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets

Accrued Expenses
Accrued

Prepaid expenses and other current assets consisted of the following as of:

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Prepaid expenses

 

$

1,772

 

 

$

1,794

 

Other current assets

 

 

2,193

 

 

 

3,269

 

Total

 

$

3,965

 

 

$

5,063

 

(in thousands)
  
June 30, 2021
   
December 31, 2020
 
Accrued customer paid bottle deposits
  $711   $563 
Accrued incentive compensation
   1,250    2,826 
Accrued other
   1,728    40 
   
 
 
   
 
 
 
Total
  $3,689   $3,429 
   
 
 
   
 
 
 

Accrued Expenses and Other Current Liabilities

Other

Accrued expenses and other current liabilities consisted of the following:following as of:

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Accrued employee compensation benefits

 

$

1,452

 

 

$

1,526

 

Accrued direct selling costs

 

 

2,544

 

 

 

1,113

 

Accrued customer paid bottle deposits

 

 

2,346

 

 

 

1,734

 

Accrued other

 

 

1,811

 

 

 

1,600

 

Total

 

$

8,153

 

 

$

5,973

 

(in thousands)
  
June 30, 2021
   
December 31, 2020
 
Accrued vacation liability
  $857   $728 
Accrued purchases
   1,857    1,201 
Other current liabilities
   1,067    322 
   
 
 
   
 
 
 
Total
  $3,781   $2,251 
   
 
 
   
 
 
 
15

11. EQUITY-BASED COMPENSATION

In July 2021, prior to the IPO, the Company adopted the Zevia LLCPBC 2021 Equity Incentive Plan (the “2021 Plan”) under which the Company may grant options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of the Company and its affiliates.

The number of shares available for issuance under the 2021 Plan is increased on January 1 of each year beginning in 2022 and ending with a final increase in 2031 in an amount equal to the lesser of: (i) 5% of the total number of shares of Class A common stock outstanding on the preceding December 31, or (ii) a smaller number of shares determined by the Company’s Board of Directors.

In October and November 2021, the Company’s Board of Directors approved an amendment to its equity-based compensation plans for a certain number of employees to allow immediate vesting upon retirement of all outstanding RSUs and stock options, and to extend the exercisability of outstanding stock options up to five years after retirement, if they meet certain conditions, including a resignation after the holder has reached 50 years of age with at least 10 years of service to the Company, so long as the holder provides advance notice of his or her resignation to the Company’s Board of Directors.

As of March 31, 2024, the 2021 Plan provides for future grants and/or issuances of up to approximately 2.8 million shares of our common stock. Equity-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.

Stock Options

The Company uses a Black-Scholes valuation model to measure unitstock option expense as of each respective grant date. Generally, unitstock option grants vest ratably over four years, have a

ten-year
term, and have an exercise price equal to the fair market value of each respective class of common unit as of the grant date. The fair value of unitstock options is amortized to expense over the vesting period. In determining the

The fair value of Zevia LLC’s unit options, management has made certain assumptions in calculatingstock option awards granted during the various elements used inperiod was determined on the optiongrant date using the Black-Scholes valuation model includingbased on the following weighted-average assumptions:

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

Stock price

 

$

1.36

 

$

3.00

 

Exercise Price

 

 

1.36

 

 

3.00

 

Expected term (years)(1)

 

 

6.25

 

 

6.25

 

Expected volatility (2)

 

 

80.3

%

 

62.0

%

Risk-Free interest rate (3)

 

 

4.1

%

 

3.4

%

Dividend yield (4)

 

 

0.0

%

 

0.0

%

(1) Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.

(2) Expected volatility for grants issued prior to July 21, 2023 (which is the two-year anniversary of the Company’s IPO) is based on the historical volatility of a selected peer group over a period equivalent to the expected term, and volatility. There were

0
optionexpected volatility for grants duringissued subsequent to July 21, 2023 is based on historical volatility of the periodCompany’s stock.

(3) The risk-free interest rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.

(4) We have assumed a dividend yield of zero as the Company has no plans to declare dividends in the foreseeable future.

s
ended June 30, 2021 and 2020.
Zevia LLC’s equity-based compensation expense

The weighted average grant date fair values for stock options granted for the three months ended June 30, 2021March 31, 2024 and 2020 amounted to approximately $36,0002023 was $0.98 and $29,000,$1.82, respectively. Zevia LLC’s equity-based

13


The following is a summary of stock option activity for the three months ended March 31, 2024:

 

Shares

 

 

Weighted average exercise price

 

 

Weighted average remaining life

 

 

Intrinsic value
(in thousands)

 

Outstanding Balance as of January 1, 2024

 

3,080,903

 

 

$

3.40

 

 

 

 

 

 

 

Granted

 

338,773

 

 

$

1.36

 

 

 

 

 

 

 

Exercised

 

(6,000

)

 

$

0.03

 

 

 

 

 

 

 

Forfeited and expired

 

(34,006

)

 

$

10.17

 

 

 

 

 

 

 

Balance as of March 31, 2024

 

3,379,670

 

 

$

3.13

 

 

 

7.8

 

 

$

706

 

Exercisable at the end of the period

 

1,430,484

 

 

$

2.73

 

 

 

6.3

 

 

$

706

 

Vested and expected to vest

 

3,379,670

 

 

$

3.13

 

 

 

7.8

 

 

$

706

 

The total intrinsic values of stock options exercised during the three months ended March 31, 2024 was less than $0.1 million.

As of March 31, 2024, total unrecognized compensation expense for the six months ended June 30, 2021 and 2020 amountedrelated to approximately $73,000 and $58,000, respectively. These amounts are included in general and administrative expenses in the condensed statementsunvested stock options was $3.3 million, which is expected to be recognized over a weighted-average period of operations and comprehensive income (loss).

As of June 30, 2021, Zevia LLC’s
non-vested
unit options had a weighted average remaining contractual life of approximately
1.9
2.7 years. Total unrecognized unit compensation expense on unvested unit options as of June 30, 2021 was approximately $
0.4
 million.

Restricted Unit

Awards
Stock Units

In March 2021, Zevia LLC granted

878,250
unitsthe Company’s Board of Restricted Class C common units (“RCCCUs”). Under the terms of the award agreements, these RCCCUs carry a
ten-year
term from their grant date, and fully vest at the earlier of (i) a change of control of the Company, or (ii)
six months
after the effective date of an IPO and termination of any lock up period. Settlement of the vested RCCCUs is deferred and generally occurs in annual installments over three years from the vesting date.
Also, in March 2021, the BoardDirectors also approved an amendment to the RCCCUsRSUs granted by Zevia LLC in August 2020 (“the RSU Amendment”). The RSU Amendment changeschanged the vesting of the RCCCUs granted in August 2020such RSUs to occur as follows: (i) full vesting in the event of a change of control, the RSUs shall vest effective as of such change of control or (ii) in the event of an initial public offering as in the case of the IPO, vestingthe RSUs shall vest in equal monthly installments over a 36-month36-month period following the termination of any lockup period and shall be subject to the participant’s continued employment through such vesting date. Settlement is toAdditionally, settlement shall occur within 30 days following eachthe vesting date of the RCCCUs.RSUs and the participant shall be entitled to receive one share of Class A common stock for each vested RSU. All other terms relatedremained unchanged. As a result of the RSU Amendment, the estimated fair value of the modified awards was $48.9 million and are being recognized as expense over the vesting period subsequent to the August 2020 grant remained unchanged.performance condition being met. As of March 31, 2024, the remaining service period of the awards is 10 months.

14


Total

The following is a summary of RSU activity for the three months ended March 31, 2024:

 

Shares

 

 

Weighted average grant date fair value

 

 

Aggregate Intrinsic Value
(in thousands)

 

Balance unvested shares at January 1, 2024

 

2,174,053

 

 

$

3.68

 

 

 

 

Granted

 

2,398,765

 

 

$

1.36

 

 

 

 

Vested

 

(459,303

)

 

$

3.75

 

 

 

 

Forfeited

 

(19,905

)

 

$

2.90

 

 

 

 

Balance unvested at March 31, 2024

 

4,093,610

 

 

$

2.32

 

 

$

4,790

 

Expected to vest at March 31, 2024

 

4,093,610

 

 

$

2.32

 

 

$

4,790

 

As of March 31, 2024, total unrecognized compensation expense onrelated to unvested restricted unit awards as of June 30, 2021,RSUs was approximately $106.6 million. Because Zevia LLC deems the likelihood of vesting as not probable, there was 0 compensation expense recognized for restricted unit awards during the six months ended June 30, 2021 and 2020, respectively. In connection with the IPO, the Company$7.2 million, which is expected to recognize approximately $57.5 millionbe recognized over a weighted-average period of equity-based compensation expense ratably3.0 years.

As of March 31, 2024, there were 309,510 of RSUs outstanding which vested in 2022 but are subjected to a deferred settlement provision over the requisite service period through December 31, 2021.

next year and therefore have not been released. As a result, these RSUs are not included in the table above.

In connection with the IPO, the Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis, such that unit options of Zevia LLC are now stock options of the Company, RCCCUs are now restricted stock of the Company, and phantom unit awards of Zevia LLC are now phantom stock awards of the Company.

12. SEGMENT REPORTING

Zevia LLC

The Company has one operating and reporting segment, whichand operates as a product portfolio with a single business platform. In reaching this conclusion, management considered the definition of the Chief Operating Decision Maker (“CODM”); how the business is defined by the CODM; the nature of the information provided to the CODM and how that information is used to make operating decisions; and how resources and performance are accessed. Zevia LLC’sassessed. The Company’s CODM is the Chief Executive Officer. The results of the operations are provided to and analyzed by the CODM at Zevia LLCthe Company’s level and accordingly, key resource decisions and assessment of performance are performed at Zevia LLCthe Company’s level. Zevia LLCThe Company has a common management team across all product lines and Zevia LLC does not manage these products as individual businesses and as a result, cash flows are not distinct.

13. MAJOR CUSTOMERS, ACCOUNTS RECEIVABLE AND VENDOR CONCENTRATION

The table below represents Zevia LLC’sthe Company’s major customers andthat accounted for more than

10
% of total net sales for the periods:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Customer A

 

 

12

%

 

 

15

%

Customer B

 

*

 

 

 

10

%

Customer C

 

 

12

%

 

 

13

%

   
For the three months
ended June 30,
  
For the six months
ended June 30,
 
   
2021
  
2020
  
2021
  
2020
 
Customer A
   19  18  18  19
Customer B
   17  19  17  17
Customer C
   11  12  11  13
Customer D
   8  13  11  12
16

The table below represents Zevia LLC’sthe Company’s customers whichthat accounted for

m
ore more than
10
% of total accounts receivable, net as of:

March 31, 2024

December 31, 2023

Customer B

*

13

%

Customer D

15

%

*

Customer I

*

18

%

   
June 30,
 
2021
  
December 31,
 
2020
 
Customer A
   8  11
Customer B
   22  17
Customer E   11  14
Customer F   11  2
Customer G   6  12

The table below represents raw material and finished goods vendors that accounted for more than 10%10% of all raw material and finished goods purchases for the following periods:

   
For the 
three
 
months

ended June 30,
  
For the six months
ended June 30,
 
   
2021
  
2020
  
2021
  
2020
 
Vendor A
   30  31  32  32
Vendor B
   24  18  23  21
Vendor C
   12  9  13  9
Vendor D
   2  18  2  11
14. NET INCOME (LOSS) PER UNIT ATTRIBUTABLE TO COMMON UNIT HOLDERS
As all of Zevia LLC’s common units and redeemable convertible preferred units

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Vendor A

 

*

 

 

 

23

%

Vendor B

 

*

 

 

 

20

%

Vendor C

 

*

 

 

 

12

%

Vendor D

 

 

42

%

 

*

 

Vendor E

 

 

31

%

 

*

 

Vendor F

 

 

20

%

 

*

 

The increase in vendor concentration during the three months ended March 31, 2024 was driven by the changes made in our supply chain whereby our contract manufacturers are participating securities, Zevia LLC has appl

i
ed the
two-class
method. Net income (loss) per unit under the
two-class
method is the same for all classes of common unitsresponsible for the periods presented.procurement of raw materials to produce our products, which are then sold to us as finished goods.

* Less than 10% of total net sales, accounts receivable, net or raw material and finished goods purchases in the respective periods.

Zevia LLC’s redeemable convertible preferred participating securities do not contractually require the holders of such units to participate in Zevia LLC’s losses. As such, net losses for the periods presented were not allocated to Zevia LLC’s participating securities. Further, given the net losses experienced, the net

14. LOSS PER SHARE

Basic loss per unit for Zevia LLC’s Class A, Class B, and Class C common units are identical for the periods presented.

The computationshare of income (loss) per unit is as follows:
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
  
2020
 
   
(in thousands, except unit and per unit amounts)
 
Net income (loss) per unit:                   
Net income (loss)
  $(749  $3,107   $(502 $513 
Less: Impact of assumed conversions
                   
Income allocated to participating units
   
 
 
    (2,647   
 
 
   (434
   
 
 
   
 
 
   
 
 
  
 
 
 
Net income (loss) available to Class A, Class B and Class C common unit members   (749   460    (502  79 
Units used in computation:
                   
Weighted-average common units outstanding, Basic
   2,476,386    4,549,828    2,469,518   4,549,828 
Common equivalent units from options to purchase common units, restricted units, and conversion of redeemable convertible preferred units
   —      26,197,919    —     25,058,008 
   
 
 
   
 
 
   
 
 
  
 
 
 
Weighted average common units outstanding, Diluted
   2,476,386    30,747,747    2,469,518   29,607,836 
                   
Basic net income (loss) per unit
  $(0.30  $0.10   $(0.20 $0.02 
Diluted net income (loss) per unit
  $(0.30  $0.10   $(0.20 $0.02 
17

Net income (loss) per unit under the
two-class
method is the same for all classes of common units for all the applicable periods are presented below (amounts in thousands, except for unit and per unit amounts).
   
Three months ended June 30, 2021
 
   
(in thousands, except unit and per unit amounts)
 
Common Units
  
Net loss
   
Class A
Common
Unitholders
   
Class B
Common
Unitholders
   
Class C
Common
Unitholders
 
As reported – basic
  $(749               
Deduct:
                    
Undistributed earnings allocated to participating securities
                   
Allocation of net loss to Common Class A, B & C Unit members  $(749  $(722  $(13  $(14
Weighted average common units outstanding, basic
        2,387,994    43,387    45,005 
        
 
 
   
 
 
   
 
 
 
Basic net loss per unit
       
$
(0.30
  
$
(0.30
  
$
(0.30
        
 
 
   
 
 
   
 
 
 

   
Three months ended June 30, 2020
 
   
(in thousands, except unit and per unit amounts)
 
Common Units
  
Net income
   
Class A
Common
Unitholders
   
Class B
Common
Unitholders
   
Class C
Common
Unitholders
 
As reported – basic
  $3,107                
Deduct:
                    
Undistributed earnings allocated to participating securities
   (2,647               
           
Allocation of net income to Common Class A, B & C Unit members
  $460   $450   $5   $5 
Weighted average common units outstanding, basic
        4,450,341    49,459    50,028 
        
 
 
   
 
 
   
 
 
 
Basic net income per unit
       
$
0.10
 
  
$
0.10
 
  
$
0.10
 
        
 
 
   
 
 
   
 
 
 
Numerator adjustment for diluted Incentive unit options and Restricted Class A common units (“RCCA”)/ RCCC
       $2,537   $29   $81 
Options (Dilutive)
        1,524,199    289,321    655,298 
Redeemable convertible preferred units converted to common
        22,558,386    —      —   
RCCAs/RCCCs
        1,022,334    —      148,381 
                 
Total shares – Diluted
        29,555,260    338,780    853,707 
        
 
 
   
 
 
   
 
 
 
Diluted net income per unit
       
$
0.10
 
  
$
0.10
 
  
$
0.10
 
        
 
 
   
 
 
   
 
 
 
18

   
Six months ended June 30, 2021
 
   
(in thousands, except unit and per unit amounts)
 
Common Units
  
Net loss
   
Class A
Common
Unitholders
   
Class B
Common
Unitholders
   
Class C
Common
Unitholders
 
As reported – basic
  $(502               
Deduct:
                    
Undistributed earnings allocated to participating securities
                   
           
Allocation of net loss to Common Class A, B & C Unit members  $(502  $(485  $(9  $(9
Weighted average common units outstanding, basic
        2,383,570    42,128    43,820 
        
 
 
   
 
 
   
 
 
 
Basic net loss per unit
       
$
(0.20
  
$
(0.20
  
$
(0.20
        
 
 
   
 
 
   
 
 
 

   
Six months ended June 30, 2020
 
Common Units
  
Net Income
   
Class A
Common
Unitholders
   
Class B
Common
Unitholders
   
Class C
Common
Unitholders
 
As reported – basic
  $513                
Deduct:
                    
Undistributed earnings allocated to participating sec
u
rities
   (434               
           
Allocation of net income to Common Class A, B & C Unit members
  $79   $77   $1   $1 
Weighted average common units outstanding, basic
        4,450,555    49,417    49,856 
        
 
 
   
 
 
   
 
 
 
Basic net income per unit
       
$
0.02
 
  
$
0.02
 
  
$
0.02
 
        
 
 
   
 
 
   
 
 
 
Numerator adjustment for diluted Incentive unit
options and Restricted Class A common units (“RCCA”)/ RCCC
       $418   $5   $11 
Options (Dilutive)
        1,524,152    289,314    655,040 
Redeemable convertible preferred units converted to common
        22,558,386    —      —   
RCCAs and RCCCs (Dilutive)
        29,875    —      1,241 
                 
Total shares – Diluted
        28,562,968    338,731    706,137 
        
 
 
   
 
 
   
 
 
 
Diluted net income per unit
       
$
0.02
 
  
$
0.02
 
  
$
0.02
 
        
 
 
   
 
 
   
 
 
 
19
The following potentially dilutive units were not includ
e
d in the calculation of diluted units outstanding as the effect would have been anti-dilutive for the:
Three Months Ended June 30,
2021
Employee unit options
663,965
Restricted units
3,872,572
Redeemable convertible preferred units
26,322,803
Six Months Ended June 30,
2021
Employee unit options
663,965
Restricted units
3,516,370
Redeemable convertible preferred units
26,322,803
15. SUBSEQUENT EVENTS
Initial Public Offering
On July 21, 2021, the prospectus of the Company related to the IPO of its Class A common stock was declared effectiveis computed by dividing net loss attributable to the Company for the period by the SEC. weighted-average number of shares of Class A common stock outstanding during the same period. Diluted loss per share of Class A common stock is computed by dividing net loss attributable to the Company by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities and assumed conversion of Class B common stock into shares of Class A common stock on a one-for-one basis using the if-converted method.

15


The closing datefollowing table sets forth reconciliations of the IPOnumerators and denominators used to compute basic and diluted loss per share of Class A common stock:

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

(in thousands, except for share and per share amounts)

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(7,199

)

 

$

(2,912

)

 

Less: net loss attributable to non-controlling interests

 

 

1,375

 

 

 

821

 

 

Add: adjustment to reallocate net loss to controlling interest

 

 

70

 

 (1)

 

597

 

 (1)

Net loss to Zevia PBC - basic

 

$

(5,754

)

 

$

(1,494

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding – basic

 

 

55,531,430

 

 

 

48,336,489

 

 

Add: weighted average shares of vested and unreleased RSUs

 

 

358,738

 

 (2)

 

1,036,385

 

 (2)

Weighted-average basic and diluted shares

 

 

55,890,168

 

 

 

49,372,874

 

 

 

 

 

 

 

 

 

 

Loss per share of Class A common stock – basic

 

$

(0.10

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

Net loss attributable to Zevia PBC - basic

 

$

(5,754

)

 

$

(1,494

)

 

Add: Loss attributable to noncontrolling interest upon assumed conversion

 

 

 

 (3)

 

(1,418

)

 

Net loss and comprehensive loss - diluted

 

$

(5,754

)

 

$

(2,912

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding – basic

 

 

55,890,168

 

 

 

49,372,874

 

 

Dilutive effect of incremental shares for conversion of Class B units

 

 

 

 (3)

 

21,631,225

 

 

Dilutive effect of stock options

 

 

 

 (3)

 

844,882

 

 

Dilutive effect of restricted stock units

 

 

 

 (3)

 

401,357

 

 

Weighted-average diluted shares

 

 

55,890,168

 

 

 

72,250,338

 

 

 

 

 

 

 

 

 

 

Loss per share of Class A common stock – diluted

 

$

(0.10

)

 (3)

$

(0.04

)

 

(1) The numerator for the basic and diluted loss per share is adjusted for additional losses being attributed to controlling interest as a result of the impacts of vested but unreleased RSUs being included in the denominator of the basic and diluted loss per share.

(2) The denominator for basic and diluted loss per share includes vested and unreleased RSUs as there are no conditions that would prevent these RSUs from being issued in the future as shares of Class A common stock except for the mere passage of time.

(3) There was July 26, 2021,no assumed conversion for Class B nor diluted effect of options and RSUs for the three months ended March 31, 2024 as they were anti-dilutive.

The following weighted average outstanding shares were excluded from the computation of diluted loss per share available to Class A common stockholders as they were anti-dilutive:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Zevia LLC Class B Common Units exchangeable to shares of Class A common stock

 

 

16,239,498

 

 

 

 

Stock options

 

 

3,127,305

 

 

 

1,510,563

 

Restricted stock units

 

 

2,582,758

 

 

 

1,486,597

 

16


15. INCOME TAXES AND TAX RECEIVABLE AGREEMENT

Income Taxes

The Company is the managing member of Zevia LLC and as a result, consolidates the financial results of Zevia LLC in the accompanying unaudited condensed consolidated financial statements of Zevia PBC. Zevia LLC is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following the Reorganization Transactions effected in connection with the closing,IPO. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the following actions were takenCompany. The Company is taxed as it relatesa C corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on Zevia PBC's economic interest in Zevia LLC, which was 80.5% and 75.8% as of March 31, 2024 and December 31, 2023, respectively.

The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate of 21% to income before provision of income taxes due to Zevia LLC’s pass-through structure for U.S. income tax purposes, pass-through permanent differences, state franchise taxes, tax effects of stock-based compensation, and the valuation allowance against the deferred tax assets. Except for state franchise taxes, Zevia PBC did not recognize an income tax expense (benefit) on its share of pre-tax book loss, exclusive of the noncontrolling interest of 19.5%, due to the Company:

Zevia LLC recapitalizedfull valuation allowance against its common and preferred membership interests into a single class of common units and each common unit outstanding after giving effect thereto was reclassified as two Class B units;
deferred tax assets (“DTAs”).

Tax Receivable Agreement

The Company amended and restated its certificate of incorporationexpects to obtain an increase in its entirety to, among other things: (i) authorize 800,000,000 sharesshare of common stock, 550,000,000 shares, of which are designated as “Class A Common Stock” and 250,000,000 shares of which are designated as “Class B Common Stock;” and (ii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time bytax basis in the board in one or more series and amended and restated its bylaws in their entirety to, among other things: (i) establish procedures relating to the presentation of stockholder proposals at stockholder meetings; (ii) establish procedures relating to the nomination of directors; and (iii) conform to the provisions of the amended and restated certificate;

The limited liability company agreementnet assets of Zevia LLC was amended and restated (the “Amended and Restated Zevia LLC Agreement”) to, among other things, provide for Class A units andwhen Class B units and appoint the Company as the sole managing member of Zevia LLC;
The Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis;
The Amended and Restated Zevia LLC Agreement classified the interests acquiredare exchanged by the Company as Class A units and reclassified the interests held by the continuing membersholders of Zevia LLC as Class B units and permits the continuing members of Zevia LLC to exchange Class B units for shares of Class A common stock on a 
one-for-one basis
 or, at the election of the Company for cash. For each membership unit of Zevia LLC that is reclassified as a Class B unit, the Company issued one corresponding share of its Class B common stock to the continuing members; 
The Company issued and sold
10,700,000
 shares of its Class A common stock to the underwriters at an IPO price of $
14.00
 per share, for gross proceeds of $
149.8
 million before deducting underwriting discounts and commissions of $
10.1
 million; 
The Company used approximately $
90.1
 million of the net proceeds of the IPO to acquire 
6,900,000
 newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters forupon certain qualifying transactions. Each change in outstanding shares of Class A common stock of the Company results in a corresponding change in the IPO; 
The Company used approximately $
25.5
 million of the net proceeds of the IPO to purchase 
1,956,142
 Class B units from certain of Zevia LLC’s unitholders, including certain members of senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. Such units were immediately converted into an equivalent number of Class A units; 
The Company used approximately $
0.4
 million of the net proceeds of the IPO to cancel and cash-out outstanding options held by certain of Zevia LLC’s option holders, including certain members of senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. The Company received an equivalent numberCompany's ownership of Class A units fromof Zevia LLC. The Company intends to treat any exchanges of Class B units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Zevia PBC would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with continuing members of Zevia LLC in exchange forand the cancellationshareholders of such options; 

The Company formed a new, first-tier merger subsidiary with respect to each blocker companycompanies (“Blocker Companies”) of certain pre-IPO institutional investors (“the Direct Zevia Stockholders”), and contemporaneously with. In the IPO, each respective merger subsidiary merged with and into the respective blocker company, with the blocker company surviving. Immediately thereafter, each blocker company merged with and into the Company, with the Company surviving. As a resultevent that such parties exchange any or all of the blocker mergers, the
100
% owners of the blocker companies acquired an aggregate of 
23,716,450
 shares of newly issuedtheir Class B units for Class A common stock, and received approximately $
23.7
 million in cash consideration, and the blocker companies ceased to own any Zevia LLC units; 
20

The Company entered into the Tax Receivable Agreement for the benefit of the continuing members ofTRA requires the Company (not including the Company) and the Direct Zevia Stockholders pursuant to which the Company will pay 
make payments to such holders for 85
% of the amount of the net cash tax savings, if any, thatbenefits realized, or in some cases deemed to be realized, by the Company realizes (or, under certain circumstances, is deemed to realize)by such exchange as a result of (i) certain favorable tax attributes acquired from the Blocker Companies in certain mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in tax basis (and utilization of certain other tax benefits) resulting from the Company’sZevia PBC’s acquisition of a continuing member’s Zevia LLC units in co
n
nectionconnection with the IPO and in future exchanges (ii) certain favorable tax attributes the Company acquired from the blocker companies in the blocker mergers and, (iii) tax basis increases attributable to payments the Company makesmade under the Tax Receivable AgreementTRA (including tax benefits related to imputed interest)
. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Company entered intoexpects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in Zevia LLC or the Company. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an Amendedassumption related to the fair market value of assets. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of the Secured Overnight Financing Rate plus 300 basis points from the due date (without extensions) of such tax return.

The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur; (ii) there is a material uncured breach of any obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and Restated Registration Rights Agreement with the Company’s obligations, or the Company’s successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any Class B stockholders to provideunits that have not been exchanged are deemed exchanged for certain rights and restrictions after the IPO; 

The underwriters have 30 days after the datefair market value of the prospectus, July 21, 2021, to exercise their option to purchase 
1,605,000
 additional shares ofCompany’s Class A common stock un
til
 August 20, 2021. 
Immediately followingat the closingtime of termination.

As of March 31, 2024, the Company believes based on applicable accounting standards, that it was more likely than not that its DTAs subject to the TRA would not be realized as of March 31, 2024; therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such DTAs. The TRA liability that would be recognized if the associated tax benefits were determined to be fully realizable totaled $56.4 million and $56.2 million at March 31, 2024 and December 31, 2023, respectively. The increase in the TRA liability is primarily related to Class B to Class A exchanges during the three months ended March 31, 2024. If utilization of the IPO on July 26, 2021, Zevia LLC becameDTAs subject to the predecessor ofTRA becomes more likely than not in the Company for financial reporting purposes. The Company is a holding company, and its sole material asset is its controlling equity interest in Zevia LLC. As the sole managing member of Zevia LLC, the Company operates and controls all of the business and affairs of Zevia LLC. This reorganization is accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements offuture, the Company will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Zevia LLC. The Company will consolidate Zevia LLC in its consolidated financial statements and record a noncontrolling interestliability related to the Class B units held by the Class B stockholders onTRA, which will be recognized as an expense within its condensed consolidated balance sheetstatements of operations and statement of operations. The Company holdscomprehensive loss.

16. SUBSEQUENT EVENTS

In May 2024, we initiated certain restructuring actions designed to reduce costs and economic interest of 

53.3
%improve efficiency while continuing to invest in Zevia LLCour brand and the remaining 
46.7
% represents the non-controlling interest.
In July 2021, Zevia LLC issued
121,750
 RCCCUs to certain employees and non-employee directors under the Zevia 2020 Incentive Plan (the “2020 Plan”). The fair valuerelated initiatives. As part of the RCCCUs granted at such time wasrestructuring plan, the Company expects that it will restructure and reduce its current workforce and estimates that it will incur charges of approximately $
3.4
million.
In July 2021, Zevia LLC terminated its Credit Facility, which was set0.5 million to mature
$0.8 million of costs in
April 2023
.
There were no material early-termination fees or any other penalties associated with the terminationsecond quarter of the Credit Facility.
Also, in July 2021, the Board approved an amendment to certain restricted phantom Class A common units and restricted phantom Class C common units (collectively, the phantom units) previously granted by Zevia LLC (the “Phantom Unit Amendment”). The Phantom Unit Amendment changed the settlement feature of such awards so that following vesting the phantom unitholders were entitled to receive one Class A and one Class C Common Unit, respectively, for each phantom unit which vests. All other terms2024 primarily related to these phantom units remained unchanged. As a result of the change in the settlement provision, the Zevia LLC will recognize an incremental charge of approximately
employee termination expenses.

$33.9 million over the vesting period, subsequent to the performance condition being met, resulting from the fair value of the awards as remeasured at the amendment date.
Additionally, in July 2021 immediately following the effectiveness of the Company’s prospectus, the Company’s Board of Directors approved the issuance of (i) 
17,300 restricted stock units (“RSUs”) under the Zevia PBC 2021 Equity Incentive Plan (the “2021 Plan”) and (ii) 186,000 stock options under the 2021 Plan to certain employees and non-employee directors. The fair value of the RSUs granted at such time was approximately $0.2 million, and the fair value of the stock options granted at such time was approximately $2.6 million.
21

17


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion contains forward-looking statements that involve risks and uncertainties. The following discussion of our financial condition and results of operations should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and “Note Regarding Forward-Looking Statements” included elsewhere inother sections of this report. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the related notes and other financial information included elsewhere in this quarterly reportQuarterly Report and our auditedconsolidated financial statements and notes thereto included in our prospectus dated July 21, 2021 (the “Prospectus”) as filed with the SEC on July 23, 2021.Annual Report. The financial data discussed below reflectreflects the historical results of operations and financial position of Zevia LLC, our predecessor for accounting purposes,the Company. References in this Quarterly Report to “Zevia,” the “Company,” “we,” “us,” and “our” refer (1) prior to the corporate reorganizationconsummation of the Reorganization Transactions, to Zevia LLC, and IPO.

(2) after the consummation of the Reorganization Transactions, to Zevia PBC and its consolidated subsidiaries unless the context indicates otherwise. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

We are a high-growthgrowth beverage company that is disrupting the liquid refreshment beverage industry through deliciousdevelops, markets, sells, and refreshing, zero calorie,distributes great tasting, zero sugar naturally sweetened beverages that are all

Non-GMO
Project Verified.made with simple, plant-based ingredients. We are a pioneering beverage brand,Delaware public benefit corporation and have been designated as a “Certified B Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by offering a platformbroad portfolio of products thatzero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and zero sodium and include a broad variety of flavors across Soda, Energy Drinks, Organic Tea, Mixers, Kidz drinks and Sparkling Water. All of our beverages are made with only a handful of plant-based ingredients that most consumers can easily pronounce.Kids drinks. Our products are distributed and sold principally across the U.S. and Canada through a diverse network of major retailers in the food, drug, warehouse club, mass, natural and ecommerce channels.e-commerce channels and in grocery and natural product stores and specialty outlets. We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the ZeviaZevia® brand and resulted in over one2.0 billion cans of Zevia sold to date.
Consumers can purchase

Key Events During the First Quarter of 2024

Beginning in the first quarter of 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods. We believe this change will allow us to leverage the purchasing power of our contract manufacturers and further diversify, as well as provide us with the flexibility to scale the business. We also onboarded a new global transportation management company in the first quarter of 2024 to support the optimization of the procurement of freight and associated freight management activities to improve our cost management. We believe both brickof these changes will better optimize our supply chain in order to help support future growth and mortardrive increasing returns as we scale the business.

We experienced delays in the recovery of SKU level distribution at certain retailers during the first quarter of 2024 which was primarily due to a lag effect from supply chain challenges in 2023 that resulted in reduced volumes. We expect it may take time to recover this lost shelf space, however we are focused on winning back distribution in our key accounts and ecommerce channels. Zevia was initially distributedconcurrently evolving our route-to-market.

We are launching a regional approach to direct store delivery “DSD”as well as gaining distribution in a limited number of regional convenience chains in the U.S. natural products retail channel, whereand Canada. We expect these initiatives to have an immaterial impact to net sales in the near term, however, we still maintainexpect to obtain certain insights from these routes to position us for potential additional opportunities for future growth and expansion.

In parallel with these evolutions in route-to-market, and with the leading position. Fueled by a loyal and growingcompletion of our brand refresh marketing efforts, we began ramping up investments in consumer base, we expanded our presence online and into conventional food, drug and mass retailers. In 2020, Zevia was the highest selling carbonated soft drink brand on Amazon according to Stackline, which we believe is representative of an online product discovery and education-oriented purchasing process that is gaining traction among shoppers.

On July 26, 2021, we completed our IPO of Class A common stock, in which we sold 10,700,000 shares, including the sale of 3,800,000 shares by existing holders. Shares of Class A common stock began trading on the New York Stock Exchange under the ticker symbol “ZVIA” on July 22, 2021. These shares were sold at an IPO price of $14.00 per share for net proceeds of approximately $139.7 million, after deducting underwriting discounts and commissions of $10.1 million but before estimated offering expensesmarketing outside of the IPOstore and the Reorganization of approximately $8.4 million payable by Zevia LLC. Upon the closing of the IPO, we used (i) approximately $25.5 millionexpect that to purchase Class B units from certain Zevia LLC’s unitholders, including certain members of our senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock, (ii) approximately $0.4 million to cancel and cash-out outstanding options held by certain of Zevia LLC’s option holders, including certain members of our senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock, and (iii) approximately $23.7 million to pay the cash consideration to certain pre-IPO institutional investors in connection with the merger of the blocker corporations into the Company with the Company surviving. Accordingly, we have not retained any of those portions of the proceeds.
22

Other Factors Affecting Our Performance
COVID-19 UPDATE
The COVID-19 pandemic continued to have significant adverse impacts on the national and global economy duringcontinue throughout 2024.

Productivity Initiative

In the second quarter of 2021. From2024, we began executing a multi-year, broad-based Productivity Initiative designed to realign our cost structure in order to accelerate our route-to-market evolution and build the beginningZevia Brand. This Productivity Initiative is designed to focus on our most critical initiatives including driving growth and innovation in our highest margin carbonated better for you beverages, re-align our cost structure to support greater investments in the Zevia Brand and improve operational excellence while simplifying processes across the organization.

The Productivity Initiative is projected to result in the following:

Costs associated with the Productivity Initiative, including restructuring costs, are expected to be between $0.5 million and $0.8 million during the three months ended June 2024, which primarily includes employee related severance costs.
The cash impact of costs related to the COVID-19 pandemic,Productivity Initiative is expected to be in the range of $0.5 million and $0.8 million for the three months ended June 30, 2024.
The Productivity Initiative is expected to result in estimated annualized benefits in the range of $8.0 million to $12.0 million, and we have remained committedexpect to makingbegin seeing these benefits in the third quarter of 2024. These benefits include reduction in costs of goods sold and reduction in operating expenses.

Additional Restructuring Charges or cash expenditures may be incurred as the Company makes further progress on this Productivity Initiative.

18


Factors Affecting Our Performance

Macroeconomic Environment

In addition to the supply chain challenges discussed above, a number of external factors, including the global economy, global health and wellness of our employees and customers a priority. Based uponemergencies, inflationary pressures, relatively high interest rates, volatility in the guidancefinancial markets, recession fears, financial institution instability, any potential shutdown of the U.S. Centers for Disease Control (“CDC”) and local health authorities, we maintain appropriate measures to help reduce the spread of infection to our employees and customers,government, global hostilities, including the institution of social distancing protocolsmilitary conflicts in Ukraine and increased frequency of cleaningIsrael and sanitizing in our third-party facilities. Our corporate headquarters remained closedthe surrounding areas, and most of our employeespolitical tensions between the U.S. and China have impacted and may continue to work from home.

Althoughimpact transportation, labor, and commodity costs. During the three months ended March 31, 2024, we encountered closurescontinued to experience slightly higher operating costs, including logistics, manufacturing and delays at somelabor costs, which we expect to continue through 2024. These pressures have and are expected to continue to impact our margins and operating results. We, along with our competitors, have increased pricing on a number of our third-party facilities dueproducts in response to confirmed cases in the workforce or due to government mandate during the course of the pandemic, these closures and delays did not have a material impact on our operations or our ability to serve customer needs. While at this time we are working to manage and mitigate potential disruptions to our supply chain, and we have not experienced decreases in demand or material financial impacts as compared to prior periods, the fluid nature of the
COVID-19
pandemic and uncertainties regarding the related economic impact are likely towidespread inflation. These pricing increases may result in sustained market turmoil with continued supply chain risk. The impact of the COVID-19 pandemic on our operational and financial performance is dependent on future developments, including the duration of the pandemic, actions that may be taken by governmental authorities, the speed at which effective vaccines will be administered to a sufficient number of people to enable cessation of the virus and the related length of its impact on the global economy, all of which are uncertain and difficult to predict at this time. See “Risk Factors- The COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition.”
23

reductions in volume.

The following summarizes the components of our results of operations for the three months ended March 31, 2024 and six months ended June 30, 2020 and 2021,2023, respectively.

Components of Our Results of Operations

Net Sales

We generate net sales from the sales of our products, including Soda, Energy Drinks, Organic Tea, Mixers, Kidz beverages and Sparkling Water,Kids drinks, to our customers, which include grocery distributors, national retailers, andconvenience retailers, natural products retailers, as well aswarehouse club retailers and retailers with e-commerce channels, in the U.S. and Canada.

We offer our customers sales incentives that are designed to support the distribution of our products to consumers. These incentives include discounts, trade promotions, price allowances and product placement fees. The amounts for these incentives are deducted from gross sales to arrive at our net sales.

We have experienced substantial growth in net sales in the past three years.

The following factors and trends in our business have driven net sales growth over this period and are expected to continue to be key drivers of our net sales growth for the foreseeable future:

leveraging our platform and mission to grow brand awareness, increase velocity and expand our consumer base;
continuing to grow our strong relationships across our retailer network and retain and expand distribution amongst new and existing channels, both
in-store
and online; and
ongoingcontinuous innovation efforts, including enhancingenhancement of existing products, and introducingintroduction of additional flavors within existing categories, as well as entering into new categories.

We also expect expansion ofboth new distribution into new channelsand increased organic sales from existing outlets and pricing strategies to contribute to our future growth; however, sales levels in any given period may continue to be impacted by seasonality, increased level of competition, customers efforts to manage inventory, and our ability to fulfill customer demands. During the first quarter of 2024, we experienced delays in the recovery of SKU level distribution at certain retailers which was primarily due to a lag effect from supply chain challenges in 2023 that resulted in reduced volumes. We are also increasing our spend on promotional activity at key driver of our future sales growth.accounts during the quarter in order to drive velocity. We expect thatit may take time to recover this lost shelf space, however we are focused on winning back distribution in our sales directly to retailers will increase as a percentage ofkey accounts and concurrently evolving our net sales over time.

route-to-market.

We sell our products in the U.S. and Canada, direct to retailers and also through distributors. We do not have short- or long-termlong- term sales commitments with our customers.

Cost of Goods Sold

Cost

Historically, cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of the various ingredients, raw materials, packaging,

in-bound
freight and logistics and third-party production fees. OurBeginning in 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods, therefore, cost of goods sold also includes otherfor the three months ended March 31, 2024 consist of all costs incurred to bring thepurchase our product to saleable condition. from our contract manufacturers as a finished good.

Our cost of goods sold is subject to price fluctuations in the marketplace, in particularparticularly in the price of aluminum and other raw materials, as well as in the cost of

production, packaging, in-bound
freight and logistics. Our cost of goods sold is generally higher for cans sold through our ecommerce channel than through our retail store channel due to additional packaging requirements. Our results of operations depend on our contract manufacturers ability to arrange for the purchase of raw materials and the production of our products in sufficient quantities at competitive prices. We have long termlong-term contracts with certain suppliers of stevia and aluminum cans. We expect over the long term that, as the scale of our business increases, we will purchase a greater percentage of our aluminum cans directly rather than through
co-pack
arrangements. We have long term contracts with certain third-party contract manufacturers governing quality control, regulatory compliance, pricing and other terms, and minimum commitments on our part, but these contracts generally do not guarantee any minimum production volumes onpurchase commitments to our third-party contract manufacturers. Our third-party contract manufacturers procure packaging and ingredient materials to manufacture our products according to our submitted rolling forecasts, with the partinitial three months of the manufacturers.
each forecast generally constituting our purchase commitment.

We expect our cost of goods sold to increase in absolute dollars as our mix shiftsvolume increases.

We elected to higherclassify shipping and handling costs for salable product outside of cost of goods sold, in selling price and highmarketing expenses in our accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As a result, our gross profit and profit margin products.

24

cost of goods sold.

Gross Profit

Gross profit consists of our net sales less costs of goods sold. Our gross profit and gross margin are affected by the mix of distribution channels of our net sales in each period, as well as the level of discounts and promotions offered during the period. We expect our gross margin to improve over time as we continue to leverageGross profit may be favorably impacted by leveraging our asset-light business model and realize margin expansion through increased distribution direct to retailers, the increased scale of our business and our continued focus on cost improvements, particularly in our supply chain.and efficiency improvements.

19


Operating Expenses

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of warehousing and distribution costs and advertising and marketing expenses. Warehousing and distribution costs include storage, transfer, repacking and

handling fees and out-bound
freight and delivery charges. Advertising and marketing expenses consist of variable costs associated with production and media buying of marketing programs and trade events.events, as well as sampling and in-store demonstration costs. Selling and marketing expenses also includes the incremental costs of obtaining contracts, such as sales commissions.

Our selling and marketing expenses are expected to increase both in absolute dollars and as a percentage of net sales,in the long-term, both as a result of the increased warehousing and distribution costs resulting from increased net sales and as a result of increased focus on marketing programs/spend, which we expect to be partially offset by our continued focus on cost improvements in our supply chain. Our selling and marketing expenses are expected to slightly decrease from the prior year in the short-term, largely due to a decrease in logistics expenses compared to the prior year as a result of the historical supply chain andlogistics challenges encountered during 2023 as well as cost savings initiatives implemented. These cost savings are expected to be partially offset by increased marketing expenses as a result of increased focus on marketing.

marketing programs.

General and Administrative Expenses

Administrative

General and administrative expenses include all salary and other personnel expenses (other than equity-based compensation expense) for our employees, including employees related to management, marketing, sales, product development, quality control, accounting, ITinformation technology and other functions. Our ongoing general and administrative expenses are expected to increaseremain flat in absolute dollars but to decreasein the near term and as a percentage of net sales over time as we increase our headcount to support our growth and as we increase personnel in legal, accounting, IT and compliance-related expenses to support our obligations as a public company.

time.

Equity-Based Compensation Expense

Equity-based compensation expense is included in general and administrative expenses and consists of the recorded expense of equity-based compensation for our employees and, if any, for certain

consultants and service providers who are non-employees.
We record equity-based compensation expense for employee grants using grant date fair value for Restricted Stock UnitsRSUs or a Black-Scholes-Merton option pricingBlack-Scholes valuation model to calculate the fair value of unitstock options by date granted. We record compensation expense for
non-employee
unit options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the
non-employee
to earn the unit option is reached or (2) the date at which the
non-employee’s
performance is complete, using the Black-Scholes Merton option pricing model. Equity-based compensation cost for restricted unitRSU awards is measured based on the closing fair market value of ourthe Zevia LLC Class B unit or the Zevia PBC Class A common unit atstock, as applicable, on the date of grant. If we have the option and intent to settle a restricted unit award in cash, the award is classified as a liability and revalued at each balance sheet date. We expect ourOur equity-based compensation expense is expected to increase over timeremain relatively consistent in absolute dollars as we grow our business.
In connection with the IPO, 2,082,572 of the Company’s restricted stock units and phantom stock units will vest over the 180 days following the IPO (the lockup period). As a result, the Company will recognize approximately $57.5 million of equity-based compensation ratably through December 31, 2021.
In connection with the closing of our Series E Financing in December 2020, we used approximately $175 million of the proceeds to repurchase outstanding preferred and common units. The majority of the units repurchased were units that had been purchased by the holders in connection with financing transactions, and a minority of units purchased were units that holders ownedbut decline as a resultpercentage of equity awards granted by us. General and administrative expenses in 2020 include equity-based compensation expense of $7.8 million as a result of this transaction, which represents the excess of the tender offer repurchase pricenet sales over the fair value of the units and unit options repurchased, which were held by both current and former employees.
time.

Depreciation and Amortization

Depreciation is primarily related to building, software applications, computer equipment, quality control and marketing equipment, and leasehold improvements. Intangible assets subject to amortization consist of customer relationships.

relationships and software applications. Non-amortizable
intangible assets consist of trademarks, which represent the Company’s exclusive ownership of the ZeviaZevia® brand used in connection with the manufacture,manufacturing, marketing, and distribution of its carbonated beverages. The CompanyWe also ownsown several other trademarks in both the U.S. and in foreign countries. Depreciation and amortization expense is expected to increase
in-line
with ongoing capital expenditures as our business grows, which we do not expect to be material, given our asset-light business model.
Other Income (Expense), net
grows.

Other income, (expense),net

Other income, net consists primarily of interest expenseincome (expense), and foreign currency transaction gains and losses.

(loss) gains.

25

20


Results of Operations

The following table sets forth selected items in our accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss)loss for the periods presented:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
(in thousands)
 
Net sales
  $34,352   $27,677   $65,046   $50,167 
Cost of goods sold
   18,112    13,842    34,618    27,300 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
   16,240    13,835    30,428    22,867 
  
 
 
   
 
 
   
 
 
   
 
 
 
Selling and marketing expenses
   10,703    5,717    18,691    12,638 
General and administrative expenses(1)
   6,014    4,643    11,727    8,976 
Depreciation and amortization
   230    250    474    473 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
   16,947    10,610    30,892    22,087 
  
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) from operations
   (707   3,225    (464   780 
Other expense, net
   (42   (118   (38   (267
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) and comprehensive income (loss)
  $(749  $3,107   $(502  $513 
  
 
 
   
 
 
   
 
 
   
 
 
 
(1)
General and administrative expenses include equity-based compensation expense of less than $0.1 million for the three months ended June 30, 2021 and 2020, and $0.1 million for the six months ended June 30, 2021 and 2020.

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

(in thousands, except per share amounts)

 

 

 

Net sales

 

$

38,799

 

 

$

43,300

 

Cost of goods sold

 

 

21,080

 

 

 

23,195

 

Gross profit

 

 

17,719

 

 

 

20,105

 

Operating expenses:

 

 

 

 

 

 

Selling and marketing

 

 

15,070

 

 

 

11,912

 

General and administrative

 

 

8,115

 

 

 

8,645

 

Equity-based compensation

 

 

1,489

 

 

 

2,380

 

Depreciation and amortization

 

 

328

 

 

 

419

 

Total operating expenses

 

 

25,002

 

 

 

23,356

 

Loss from operations

 

 

(7,283

)

 

 

(3,251

)

Other income, net

 

 

97

 

 

 

340

 

Loss before income taxes

 

 

(7,186

)

 

 

(2,911

)

Provision for income taxes

 

 

13

 

 

 

1

 

Net loss and comprehensive loss

 

 

(7,199

)

 

 

(2,912

)

Loss attributable to noncontrolling interest

 

 

1,375

 

 

 

821

 

Net loss attributable to Zevia PBC

 

$

(5,824

)

 

$

(2,091

)

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

(0.03

)

Diluted

 

$

(0.10

)

 

$

(0.04

)

The following table presents selected items in our accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss)loss as a percentage of net sales for the respective periods presented. Percentages may not sum due to rounding:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Net sales
   100   100   100   100
Cost of goods sold
   53    50    53    54 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
   47    50    47    46 
  
 
 
   
 
 
   
 
 
   
 
 
 
Selling and marketing expenses
   31    21    29    25 
General and administrative expenses
   18    17    18    18 
Depreciation and amortization
   1    1    1    1 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
   49    38    47    44 
  
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) from operations
   (2)%    12   (1)%    2
Other expense, net
   0    0    0    (1
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) and comprehensive income (loss)
   (2)%    11   (1)%    1
  
 
 
   
 
 
   
 
 
   
 
 
 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net sales

 

 

100

%

 

 

100

%

Cost of goods sold

 

 

54

%

 

 

54

%

Gross profit

 

 

46

%

 

 

46

%

Operating expenses:

 

 

 

 

 

 

Selling and marketing

 

 

39

%

 

 

28

%

General and administrative

 

 

21

%

 

 

20

%

Equity-based compensation

 

 

4

%

 

 

5

%

Depreciation and amortization

 

 

1

%

 

 

1

%

Total operating expenses

 

 

64

%

 

 

54

%

Loss from operations

 

 

(19

)%

 

 

(8

)%

Other income, net

 

 

0

%

 

 

1

%

Loss before income taxes

 

 

(19

)%

 

 

(7

)%

Provision for income taxes

 

 

0

%

 

 

0

%

Net loss and comprehensive loss

 

 

(19

)%

 

 

(7

)%

Loss attributable to noncontrolling interest

 

 

4

%

 

 

2

%

Net loss attributable to Zevia PBC

 

 

(15

)%

 

 

(5

)%

Three Months Ended June 30, 2021March 31, 2024 Compared to Three Months Ended June 30, 2020

March 31, 2023

Net sales

   
For the Three Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Net sales
  $34,352   $27,677   $6,675    24
Sales

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

Net sales

 

$

38,799

 

 

$

43,300

 

 

$

(4,501

)

 

 

(10.4

)%

Net sales were $34.4$38.8 million for the three months ended June 30, 2021March 31, 2024 as compared to $27.7$43.3 million for the three months ended June 30, 2020. NetMarch 31, 2023. Equivalized cases sold were 3.0 million during the three months ended March 31, 2024 as compared to 3.3 million equivalized cases sold during the three months ended March 31, 2023. The decrease in net sales increased due to an approximately 29% increasewas primarily driven by a decrease in the number of equivalized cases sold, despite outbound shipment disruptions that temporarily impacted our ecommerceresulting in $4.9 million lower net sales primarily caused by delay in the recovery of SKU level distribution at retail discussed in the Key Events During the First Quarter of 2024 section above, partially offset by a 4% decrease in net average price per equivalized case due to higher trade discounts during the three months ended June 30, 2021.pricing increases of $0.4 million. We define an equivalized case as a 288 fluid ounce case.

26

21


Cost of Goods Sold

   
For the Three Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Cost of goods sold
  $18,112   $13,842   $4,270    31

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

Cost of goods sold

 

$

21,080

 

 

$

23,195

 

 

$

(2,115

)

 

 

(9.1

)%

Cost of goods sold was $18.1$21.1 million for the three months ended June 30, 2021March 31, 2024 as compared to $13.8$23.2 million for the three months ended June 30, 2020.March 31, 2023. The increasedecrease of $4.3$2.1 million, or 31%9.1%, was primarily due to volume increases as costa 10.4% decrease in the shipment of equivalized cases, resulting in $2.3 million lower costs of goods sold was essentially flat on a per case basis comparedand favorable product mix of $0.6 million, partially offset by unfavorable unit costs of $1.0 million primarily driven by investments in pack-specific enhanced visuals to the prior period.

improve on-shelf visibility.

Gross Profit and Gross Margin

   
For the Three Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Gross profit
  $16,240   $13,835   $2,405    17
Gross margin
   47   50    

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

Gross profit

 

$

17,719

 

 

$

20,105

 

 

$

(2,386

)

 

 

(11.9

)%

Gross margin

 

 

45.7

%

 

 

46.4

%

 

 

 

 

 

(0.8

)%

Gross profit was $16.2$17.7 million for the three months ended June 30, 2021March 31, 2024 as compared to $13.8$20.1 million for the three months ended June 30, 2020.March 31, 2023. The increasedecrease in gross profit of $2.4 million, or 17%11.9%, was primarily driven by higher net revenue.

lower volumes, and unfavorable unit costs, partially offset by favorable product mix.

Gross margin infor the three months ended June 30, 2021 declinedMarch 31, 2024 decreased to 47%45.7% from 50%46.4% in the prior-year period. The declinedecrease was primarily due to lower net price realization as a result of higher trade discounts in 2021. In 2020, trade discounts were significantly lower largely associated with the COVID-19 pandemic.

As disclosed in Note 2,
Basis Of Presentation And Summary Of Significant Accounting Policies
, in the Notes to Audited Financial Statements for the years ended December 31, 2020unfavorable unit costs and 2019 included in the Prospectus, we elected to classify shipping and handling costs for salableincreased spend on promotional activity at key accounts, partially offset by favorable product outside of cost of goods sold, in selling and marketing expenses in the accompanying condensed statements of operations and comprehensive income (loss). As a result, our gross profit and profit margin may not be comparable to other entities that present shipping and handling costs as a component of cost of goods sold.
Operating Expenses
mix.

Selling and Marketing Expenses

   
For the Three Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Selling and marketing expenses
  $10,703   $5,717   $4,986    87

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

Selling and marketing expenses

 

$

15,070

 

 

$

11,912

 

 

$

3,158

 

 

 

26.5

%

Selling and marketing expenses were $10.7$15.1 million for the three months ended June 30, 2021March 31, 2024 as compared to $5.7$11.9 million for the three months ended June 30, 2020.March 31, 2023. The increase of $5.0$3.2 million, or 87%26.5%, was primarily due to $1.0 million of higher freight and freight transfer costs related to increased levels of inventory production, and overall net sales growth and $2.0$1.7 million of higher warehousing costs resulting from increased marketing spendlevel of storage costs driven by higher levels of inventory. Marketing expenses increased $0.5 million as 2020 spend was reduced largely associated witha result of investments made to drive brand awareness as discussed in the

COVID-19
pandemic.
Key Events During the First Quarter of 2024 section above.

General and Administrative Expenses

   
For the Three Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
General and administrative expenses
  $6,014   $4,643   $1,371    30
27

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

General and administrative expenses

 

$

8,115

 

 

$

8,645

 

 

$

(530

)

 

 

(6.1

)%

General and administrative expenses were $6.0$8.1 million for the three months ended June 30, 2021 and $4.6March 31, 2024 as compared to $8.6 million for the three months ended June 30, 2020.March 31, 2023. The increasedecrease of $1.4$0.5 million, or 30%6.1%, was primarily driven by $0.6 million in employee-related costs due to an overall increasea decrease in employee headcount to support our growth and in preparation to become a public company and a $0.5 million increase in accounting and tax fees, legal and other professional fees and expenses.

28

First Six Months Ended June 30, 2021 Compared to First Six Months End June 30, 2020
Net sales
   
For the Six Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Net sales
  $65,046   $50,167   $14,879    30
Net sales were $65.0costs.

Equity-Based Compensation Expenses

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands)

 

2024

 

 

2023

 

 

Amount

 

 

Percentage

 

Equity-based compensation

 

$

1,489

 

 

$

2,380

 

 

$

(891

)

 

 

(37.4

)%

Equity-based compensation expense was $1.5 million for the sixthree months ended June 30, 2021March 31, 2024 as compared to $50.2$2.4 million for the sixthree months ended June 30, 2020. Net sales increased dueMarch 31, 2023, primarily related to a 26% increase inoutstanding equity-based awards being recognized over the numberremaining service periods of equivalized cases sold and a 3% increase in net average price per equivalized case. We define an equivalized case as a 288 fluid ounce case.

Costthe awards. The decrease of Goods Sold
   
For the Six Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Cost of goods sold
  $34,618   $27,300   $7,318    27
Cost of goods sold was $34.6$0.9 million for the six months ended June 30, 2021 as compared to $27.3 million for the six months ended June 30, 2020. The increase of $7.3 million or 27% was primarily due to volume increases as cost of goods sold was essentially flat on a per case basis compared to the prior period.
Gross Profit and Gross Margin
   
For the Six Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Gross profit
  $30,428   $22,867   $7,561    33
Gross margin
   47   46    
Gross profit was $30.4 million for the six months ended June 30, 2021 as compared to $22.9 million for the six months ended June 30, 2020. The increase in gross profit of $7.6 million, or 33% was primarily driven by higher net revenue.
Gross margina $1.0 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the six months ended June 30,Company’s IPO in 2021, increased to 47% from 46% in the prior-year period. The increase was due to a price realization and a shift in product mix toward higher margin product lines, partially offset by increases in the cost of goods sold.
As disclosed in Note 2,
Basis Of Presentation And Summary Of Significant Accounting Policies
, in the Notesequity-based compensation expense related to Audited Financial Statements for the years ended December 31, 2020 and 2019 included in the Prospectus, we elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in the accompanying condensed statements of operations and comprehensive income (loss). As a result, our gross profit and profit margin may not be comparable to other entities that present shipping and handling costs as a component of cost of goods sold.
new equity awards granted.

29

22


Selling and Marketing Expenses
   
For the Six Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
Selling and marketing expenses
  $18,691   $12,638   $6,053    48
Selling and marketing expenses were $18.7 million for the six months ended June 30, 2021 as compared to $12.6 million for the six months ended June 30, 2020. The increase of $6.1 million or 48%, was primarily due to higher freight costs and overall net sales growth and $2.0 million of increased marketing spend as 2020 spend was reduced largely associated with the
COVID-19
pandemic.
General and Administrative Expenses
   
For the Six Months Ended
June 30,
   
Change
 
(in thousands)
  
2021
   
2020
   
Amount
   
Percentage
 
General and administrative expenses
  $11,727   $8,976   $2,751    31
General and administrative expenses were $11.7 million for the six months ended June 30, 2021 and $9.0 million for the six months ended June 30, 2020. The increase of $2.8 million, or 31%, was primarily driven by $1.5 million in employee-related costs driven by an overall increase in employee headcount to support our growth and in preparation to become a public company and a $0.5 million increase in accounting and tax fees, legal and other professional fees and expenses.

Seasonality

Generally, we experience greater demand for our products during the second and third fiscal quarters, which correspond to the warmer months of the year in our major markets. As our business continues to grow, we expect to see continued seasonality effects, with net sales tending to be greater in the second and third quarters of the year.

30

Liquidity and Capital Resources

Liquidity and Capital Resources

As of March 31, 2024, we had $28.7 million in cash and cash equivalents. We believe that our cash and cash equivalents as of March 31, 2024, together with our operating activities and available borrowings under the Secured Revolving Line of Credit (as defined below), will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments beyond the next 12 months.

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from sales of our products, and borrowing capacity currently available under our Secured Revolving Line of Credit. Our primary cash needs are for operating expenses, working capital, and capital expenditures to support the growth in our business. Prior to our IPO, we have financed our operations through private sales of equity securities and through sales of our products. In connection with our IPO, which was completed on July 26, 2021, we sold an aggregate of 10,700,000 shares of our Class A common stock at an IPO price of $14.00 per share and retained approximately $90.1 million in net proceeds, after deducting underwriting discounts and commissions and giving effect to the use of proceeds thereto.

As of June 30, 2021, we had $6.4 million in cash. We believe that our cash and cash equivalents as of June 30, 2021, together with cash provided by our operating activities, and proceeds from our IPO, will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments for at least the next 12 months.

Future capital requirements will depend on many factors, including our rate of revenue growth, gross margin and the level of expenditures in all areas of the Company. In future years, we may experience an increase in operating and capital expenditures from time to time, as needed, as we expand business activities. To the extent that existing capital resources and sales growth are not sufficient to fund future activities, we will need to raise capitalmay seek alternative financing through additional equity or debt financing.financing transactions. Additional funds may not be available on terms favorable to us or at all. In addition,Also, we will continue to assess our liquidity needs in light of current and future global health emergencies, inflationary pressures, relatively high interest rates, volatility in the COVID-19 pandemic continuesfinancial markets, recession fears, financial institution instability, any potential shutdown of the U.S. government, current and future global hostilities, and political tensions between the U.S. and China that may continue to rapidly evolvedisrupt and has already resulted in a significant disruption ofimpact the global and national economies and global financial markets. If any disruption continues into the disruption persistsfuture, we may not be able to access the financial markets and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.operations in the future. Failure to raise additional capital, if and when needed, could have a material adverse effect on our financial position, results of operations, and cash flows.

Upon consummation of the IPO, the

The Company becameis a holding company, with no operationsand is the sole managing member of its own.Zevia LLC. The Company operates and controls all of the business and affairs of Zevia LLC. Accordingly, the Company will beis dependent on distributions from Zevia LLC to pay its taxes, its obligations under the Tax Receivable AgreementTRA and other expenses. Any future credit facilities may impose limitations on the ability of Zevia LLC to pay dividends to the Company.

In connection with the IPO and the Reorganization Transactions in July 2021, the Direct Zevia Stockholders and certain continuing members of Zevia LLC received the right to receive future payments pursuant to the Tax Receivable Agreement.TRA. The amount payable under the Tax Receivable AgreementTRA will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of certain pre-IPO tax attributes and tax benefits resulting from sales and exchanges by continuing members of Zevia LLC. See

Certain“Certain Relationships and Related Party Transactions—Tax Receivable Agreement
Agreement” included in the Company’s Prospectusprospectus dated July 21, 2021 and filed with the SEC on July 23, 2021. We expect that the payments that we may be required to make under the Tax Receivable AgreementTRA may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement,TRA, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $75.5$66.3 million through 2036.2037. Under such scenario we would be required to pay the Direct Zevia Stockholders and certain continuing members of Zevia LLC 85% of such amount, or $64.2$56.4 million through 2036.
2037.

The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreementTRA payments by us will be calculated using prevailing tax rates applicable to us over the life of the Tax Receivable AgreementsTRA and will be dependent on us generating sufficient future taxable income to realize the benefit.

We cannot reasonably estimate future annual payments under the Tax Receivable AgreementTRA given the difficulty in determining those estimates as they are dependent on a number of factors, including the extent of exchanges by continuing Zevia LLC unitholders, the associated fair value of the underlying Zevia LLC units at the time of those exchanges, the tax rates applicable, our future income, and the associated tax benefits that might be realized that would trigger a Tax Receivable AgreementTRA payment requirement.

31

However, a significant portion of any potential future payments under the Tax Receivable AgreementTRA is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by the Company,us, assuming Zevia LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by Zevia LLC, the associated taxable income of the CompanyZevia will be impacted and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated Tax Receivable AgreementTRA payments to be made. Given the length of time over which payments would be payable, the impact to liquidity in any single year is greatly reduced.

Although the timing and extent of future payments could vary significantly under the Tax Receivable AgreementTRA for the factors discussed above, we anticipate funding payments from the Tax Receivable AgreementTRA from cash flows generated from operations.

23


Credit Facility

ABL Credit Facility

In 2019, Zevia LLC entered

On February 22, 2022, we obtained a revolving credit facility (the “Secured Revolving Line of Credit”) by entering into a loan agreement providing forLoan and Security Agreement with Bank of America, N.A (the “Loan and Security Agreement”). Under the Secured Revolving Line of Credit, we may draw funds up to an amount not to exceed the lesser of (i) a $9.0$20 million revolving linecommitment and (ii) a borrowing base which is comprised of inventory and receivables. Up to $2 million of the Secured Revolving Line of Credit may be used for letter of credit (the “Credit Facility”)issuances with Stonegate, with a maturity date in April 2022. Borrowingsthe option to increase the commitment under the revolving line are securedSecured Revolving Line of Credit by accounts receivable and inventory. In June 2020, Zevia LLC amendedup to $10 million, subject to certain conditions. The Secured Revolving Line of Credit matures on February 22, 2027. During the first quarter of 2024, the Company drew $8 million on the Secured Revolving Line of Credit Facility and increased it to $12.0 million.which was subsequently repaid in the same period. As of June 30, 2021 and DecemberMarch 31, 2020, the revolving line interest rate was 7.5% annual percentage rate and2024, there was no amount outstanding balance. On June 1, 2021, Zevia LLC extendedon the Secured Revolving Line of Credit. The Secured Revolving Line of Credit Facility through April 2023 and there were no other modifications madeis secured by a first priority security interest in substantially all of the Company’s assets.

Loans under the Secured Revolving Line of Credit bear interest based on either, at our option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50% to 2.00% or the terms and conditions. In July 2021 and subsequentBase Rate (customarily defined) plus an applicable margin between 0.50% to 1.00% with margin, in each case, determined by the IPO, Zevia LLC terminatedaverage daily availability under the Secured Revolving Line of Credit.

Under the Secured Revolving Line of Credit Facility. There were no material early-termination feeswe must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any other penalties associated withday on which availability under the terminationSecured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the Credit Facility.

borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days. As of March 31, 2024, the Company was in compliance with its financial covenant.

Cash Flows

The following table presents the major components of net cash flows from and used in operating, investing and financing activities for the periods indicated.

   
For the Six Months Ended
June 30,
 
   
2021
   
2020
 
Cash (used in) provided by:
    
Operating activities
  $(37  $(2,703
Investing activities
  $(2,031  $(489
Financing activities
  $(6,488  $4,158 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash (used in) provided by:

 

 

 

 

 

 

Operating activities

 

$

(3,202

)

 

$

9,397

 

Investing activities

 

$

(33

)

 

$

(862

)

Financing activities

 

$

 

 

$

23

 

Net Cash Used in(Used in) Provided by Operating Activities

Our cash flows used in(used in) provided by operating activities are primarily influenced by working capital requirements.

Net cash used in operating activities of $37,000$3.2 million for the sixthree months ended June 30, 2021March 31, 2024 was primarily driven by a net loss of $0.5$7.2 million, partially offset by non-cash expenses of $2.0 million primarily related to equity-based compensation and bydepreciation and amortization expense, and a net decreaseincrease in cash related to changes in operating assets and liabilities of $0.4 million partially offset by non-cash expenses of $0.9 million related to depreciation and amortization.$2.0 million. Changes in cash flows related to operating assets and liabilities were primarily consisted of a $2.5 million increase in accounts receivable due to increases in net sales, a $1.7 million increasedecrease in inventories of $3.9 million as a result of managing inventory levels, a decrease in prepaid expenses and other assets of $1.1 million largely due to a decrease in prepaid deposits related to the timingsale of inventory purchases partially offset by $3.9raw materials, and an increase of $0.1 million net increase in accounts payable, accrued expenses and other current liabilities.

32

purchases and increased production of inventory, partially offset by an increase in accounts receivable of $2.9 million due to timing of sales.

Net cash used inprovided by operating activities of $2.7$9.4 million for the sixthree months ended June 30, 2020March 31, 2023 was primarily driven by a net decreaseincrease in cash related to changes in operating assets and liabilities of $4.0$9.3 million, partially offset by a net incomeloss of $0.5$2.9 million and non-cash expenses of $0.8$3.0 million primarily related to equity-based compensation and depreciation and amortization and loss on sale of equipment.expense. Changes in cash flows related to operating assets and liabilities were primarily consisted of a $7.1 million increase in inventories as a precaution to ensure adequate supply in the midst of a pandemic and $2.6 million in accounts receivable due to increases in net sales, partially offset by a $5.7 millionan increase of $13.6 in accounts payable, accrued expenses and other current liabilities.

liabilities due to timing of purchases and increased production of inventory and a decrease in prepaid expenses and other assets of $0.5 million primarily due to amortization of prepaid insurance policies, partially offset by an increase in accounts receivable of $3.2 million due to increases in net sales, and an increase in inventories of $1.4 million due to timing of purchases.

Net Cash Used in Investing Activities

Net cash used in investing activities of $2.0 million$33 thousand for the sixthree months ended June 30, 2021March 31, 2024 was primarily due to the purchasepurchases of a warehouse facilityproperty and equipment used in ongoing operations.

Net cash used in investing activities of $0.5$0.9 million for the sixthree months ended June 30, 2020March 31, 2023 was primarily due to purchases of property, equipment, and software applicationsof $0.9 million for leasehold improvements and computer equipment and software used in ongoing operations.

Net Cash Provided by (Used in)By Financing Activities

Net cash used in financing activities of $6.5 million for the six months ended June 30, 2021 was due to distribution to unitholders for tax payments of $2.7 million and the payment of deferred IPO related costs of $3.8 million.

Net cash provided by financing activities of $4.2$0.0 million infor the sixthree months ended June 30, 2020March 31, 2024 was due to borrowings underproceeds from the Company’s Credit Facility andrevolving line of credit of $8 million which was repaid in the Paycheck Protection Program.same period.

Net cash provided by financing activities of $23 thousand for the three months ended March 31, 2023 was due to proceeds from the exercise of stock options.

24


Non-GAAP

Financial Measures

We report our financial results in accordance with USU.S. GAAP. However, management believes that Adjusted EBITDA, and Adjusted Net Income (Loss),

a non-GAAP
financial measures, providemeasure, provides investors with additional useful information in evaluating our operating performance.

We calculate Adjusted EBITDA as net (loss) incomeloss adjusted to exclude: (1) income tax expense, (2) depreciation and amortization, (3) other income (expense), net, which includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets, (2) provision (benefit) for income taxes, (3) depreciation and amortization, and (4) interest expense, and (5) equity-based compensation expense.compensation. Also, Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the Tax Receivable AgreementTRA liability and other infrequent and unusual transactions. We calculate Adjusted Net Income (Loss) as net (loss) income adjusted to exclude equity-based compensation expense.

Adjusted EBITDA and Adjusted Net Income (Loss) areis a financial measuresmeasure that areis not required by, or presented in accordance with USU.S. GAAP. We believe that Adjusted EBITDA, and Adjusted Net Income (Loss), when taken together with our financial results presented in accordance with USU.S. GAAP, provideprovides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA and Adjusted Net Income (Loss) areis helpful to our investors as they are measuresit is a measure used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.

Adjusted EBITDA and Adjusted Net Income (Loss) areis presented for supplemental informational purposes only, havehas limitations as an analytical toolstool and should not be considered in isolation or as a substitute for financial information presented in accordance with USU.S. GAAP. Some of the limitations of Adjusted EBITDA include that (1) it does not properly reflect capital commitments to be paid in the future, (2) although depreciation and amortization are

non-cash
charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures, (3) it does not consider the impact of equity-based compensation expense, including the potential dilutive impact thereof, and (4) it does not reflect other
non-operating
expenses, including interest expense. Some(income) expense, foreign currency (gains)/losses and (gains)/losses on disposal of the limitations of Adjusted Net Income (Loss) include that it does not consider the impact of equity-based compensation expense, including the potential dilutive impact thereof.fixed assets. In addition, our use of Adjusted EBITDA and Adjusted Net Income (Loss) may not be comparable to similarly titledsimilarly-titled measures of other companies because they may not calculate Adjusted EBITDA or Adjusted Net Income (Loss) in the same manner, limiting theirits usefulness as a comparative measures.measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) alongside other financial measures, including our net loss or income (loss) and other results stated in accordance with USU.S. GAAP.
33

The following table presents a reconciliation of net income (loss),loss, the most directly comparable financial measure stated in accordance with USU.S. GAAP, to adjustedAdjusted EBITDA for the periods presented:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
(in thousands)
 
Net income (loss) and comprehensive income (loss)
  $(749  $3,107   $(502  $513 
Income tax expense (benefit)
   —      —      —      —   
Depreciation and amortization
   230    250    474    473 
Other expense, net
   42    118    38    267 
Equity-based compensation expense
   36    29    73    58 
  
 
 
   
 
 
   
 
 
   
 
 
 
Adjusted EBITDA
  $(441  $3,504   $83   $1,311 
  
 
 
   
 
 
   
 
 
   
 
 
 
The following table presents

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Net loss and comprehensive loss

 

$

(7,199

)

 

$

(2,912

)

Other income, net*

 

 

(97

)

 

 

(340

)

Provision for income taxes

 

 

13

 

 

 

1

 

Depreciation and amortization

 

 

328

 

 

 

419

 

Equity-based compensation

 

 

1,489

 

 

 

2,380

 

Adjusted EBITDA

 

$

(5,466

)

 

$

(452

)

* Includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets.

Commitments

Effective March 2022, the Company entered into an amendment to the lease for its corporate headquarters offices to extend the lease term through December 31, 2023 and expand the total square footage from 17,923 square feet to 20,185 square feet which commenced on May 1, 2022. In January 2023, the Company further extended the lease term through December 31, 2026.

Our leases generally consist of long-term operating leases, which are payable monthly and relate to our office space. For a reconciliationfurther discussion on our debt and operating lease commitments as of net income (loss)March 31, 2024, see the sections above including Note 7, Debt, and Note 8, Leases, included in the most directly comparableaccompanying unaudited condensed consolidated financial measure statedstatements of this Quarterly Report.

Our inventory purchase commitments are generally short-term in accordance with US GAAP, to adjusted net income (loss) for the periods presented:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
(in thousands)
 
Net income (loss) and comprehensive income (loss)
  $(749  $3,107   $(502  $513 
Equity-based compensation expense
   36    29    73    58 
  
 
 
   
 
 
   
 
 
   
 
 
 
Adjusted net income (loss)
  $(713  $3,136   $(429  $571 
  
 
 
   
 
 
   
 
 
   
 
 
 
Off-Balance
Sheet Arrangements
nature and have ordinary commercial terms. We dodid not have any
off-balance
sheet arrangements or any holdings material long-term inventory purchase commitments as of March 31, 2024. Our contract manufacturers are obligated to fulfill against purchase orders that are aligned with our forecast based on terms and conditions of the contract. Our forecasts provided to our contract manufacturers are short term in variable interest entities.
Commitments
There have beennature and at no significant changes during the three months ended June 30, 2021time extend beyond a year.

We expect to the contractual obligations disclosed in Management’s Discussionsatisfy these commitments through a combination of cash on hand and Analysiscash generated from sales of Financial Condition and Results of Operations set forth in the Prospectus.

34

our products.

Critical Accounting Policies and Estimates

Our accompanying unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with USU.S. GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue,sales, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus and the notes to the audited financial statements appearing elsewhere in the Prospectus. During the three and six months ended June 30, 2021, there were

There have been no material changes to our critical accounting policies from those discussed in our Prospectus.

35

Annual Report.

Recent Accounting Pronouncements

Refer to Note 2, to our Summary of Significant Accounting Policies, included in the accompanying unaudited condensed consolidated financial statements included inof this Quarterly Report on Form

10-Q
for a discussion of recently issued accounting pronouncements not yet adopted.pronouncements.

25


Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if any of the following events occur: (i) we have more than $1.07$1.235 billion in annual revenue, (ii) we have more than $700.0 million in market value of our Class A common stock held by

non-affiliates
(and (and we have been a public company for at least 12 months and have filed one annual report on Form
10-K)
or (iii) we issue more than $1.0 billion of
non-convertible
debt securities over a three- yearthree-year period.
36

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist of raw material prices, foreign exchange, inflation and inflationcommodities as follows:

Raw Material and Finished Goods Risk

Our profitability is dependent on, among other things, our ability to anticipate and react to raw material costs. Currently, thea key ingredient in our products is stevia extract. Our stevia leaf extract which we source through a multi-year supply agreement withis procured by our contract manufacturers and sourced from a large multi-national ingredient company. Thecompany with whom we have a long-standing relationship through a two-year agreement that was entered into effective October 15, 2023 which includes fixed pricing for the duration of the term. During 2023, we also tested and approved the use of another stevia leaf extract supplier, whose stevia leaf is derived from a region different than the above supplier. We continue to seek to diversify to alternative sources of supply to mitigate potential supply disruptions. However, there can be no assurance that we will be able to secure alternative sources of supply. Additionally, the prices of stevia and other ingredients we use are subject to many factors beyond our control, such as marketingmarket conditions, climate change, supply chain challenges, and adverse weather conditions. We expect to sign a new agreement for the supply of stevia on similar terms in the near future. As of June 30, 2021, a hypothetical 10% increase or 10% decrease in the weighted average cost of stevia,

Our aluminum cans are procured by our key ingredient, would have resulted in an increase of approximately $0.2 million or a decrease of $0.2 million, respectively, to cost of goods sold.

contract manufacturers through various can manufacturers. The price for aluminum cans also fluctuates depending on market conditions. There is currently a global shortage of aluminum cans. We have contracts with certain suppliers of aluminum cans, but such contracts do not cover all of our expected future needs for aluminum cans. We might not be able to source enough aluminum cans in the future to meet our consumers’ demand. Our contract manufacturers ability to continue to procure enough aluminum cans at reasonable prices will depend on future developments that are highly uncertain. As of June 30, 2021, a hypothetical 10% increase or 10% decrease in the weighted average cost of aluminum cans, would have resulted in an increase of approximately $0.9 million or a decrease of $0.9 million, respectively, to cost of goods sold.

We, along with our contract manufacturers, are working to diversify our sources of supply and intend to enter into additional long-term contracts to better ensure stability of prices of our raw materials.

During the first quarter of 2024, the Company changed its supply chain process whereby our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods. As a result, during the three months ended March 31, 2024, we had three vendors accounting for approximately 93% of our total raw material and finished goods purchases. Refer to Note 13, Major Customers, Accounts Receivable and Vendor Concentration, included in the accompanying unaudited condensed consolidated financial statements.

Foreign Exchange Risk

The majority of our sales and costs are denominated in United StatesU.S. dollars and are not subject to foreign exchange risk. As weOur contract manufacturers source some ingredients and packaging materials from international sources, and as a result our results of operations could be impacted by changes in exchange rates. We sell and distribute our products to Canadian customers, who are invoiced and remit payment in Canadian dollars. All Canadian dollar transactions are translated into United StatesU.S. dollars using

period-end
rates of exchange for assets and liabilities, and average rates of exchange for the period for sales and expenses. To the extent weour contract manufacturers increase sourcing from outside the United StatesU.S. or we increase net sales outside of the United StatesU.S. that are denominated in currencies other than the U.S. dollar, the impact of changes in exchange rates on our results of operations would increase.
Foreign exchange gains and losses were not material for the three months ended March 31, 2024 and 2023, respectively.

Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations, orand financial condition. If our costs were to become subject to further and prolonged significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations and financial condition.

Commodity Risk

We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to purchases of aluminum, diesel fuel, cartons and corrugate.

26


Item 4. Controls and Procedures.

Evaluation of CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021.March 31, 2024. Based on the foregoing evaluation, and in light of the material weaknesses in internal controls described below, our Chief Executive Officer and our Chief Financial Officer concludedmanagement determined that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures were not effective in timely alerting them to material information to be included in our reports filed or submitted underat the Exchange Act.
In lightreasonable assurance level as of the material weaknesses described below, we performed additional analyses and other procedures to ensure that our condensed financial statements included in this Quarterly Report were prepared in accordance with US GAAP. These measures included, among other things, expansion of our quarter-end closing procedures, including the dedication of significant internal resources and external consultants to scrutinize account analyses, reserve estimates, asset valuations, proper accounting treatment for revenues and expenses and account reconciliations at a detailed level.
37

As previously disclosed in the section titled “Risk Factors” in the prospectus dated July 21, 2021 as filed with the SEC on July 23, 2021 and “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, we previously identified material weaknesses in our internal control over financial reporting that we are currently working to remediate, which relate to (a) a lack of sufficient accounting resources, (b) inadequate segregation of duties, including access security to our IT systems, related to the preparation, review and posting of journal entries, and (c) the sufficiency of review over accounting analyses used in the classification of promotional activities and the accounting for equity transactions. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional material misstatements to our financial statements that could not be prevented or detected on a timely basis.
Our management has concluded that these material weaknesses in our internal control over financial reporting were due to the fact that we were a private company with limited resources and did not have the necessary business processes and related internal controls formally designed and implemented coupled with the appropriate resources and personnel with the appropriate level of experience and technical expertise to oversee our business processes and controls.
Remediation Plans
We have commenced measures to remediate the identified material weaknesses. These measures include adding additional accounting and financial personnel with industry experience during the quarter ended June 30, 2021, including a Chief Accounting Officer to oversee internal controls and procedures and implement a formal closing process. In addition, we hired a Director of Financial Planning and Analysis, and Director of Tax. We also engaged a nationally recognized accounting firm to work with us to establish, document and test our key internal controls in order for management to effectively assess the internal control environment and all its related aspects and significant processes. We intend to continue to take steps to remediate the material weaknesses described above and further evolving our accounting processes. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.
While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting. The Company will continue its efforts to strengthen its accounting and finance departments and aggressively pursue remediation of all material weaknesses.
Changes in March 31, 2024.

Internal Control over Financial Reporting.

There wereReporting

Management determined that as of March 31, 2024, no changes in our internal control over financial reporting had occurred during the fiscal quarter then ended June 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

38

27


PART II—II - OTHER INFORMATION

From time to time, we may become involved in legal proceedings or be subject to claims and litigation arising in the ordinary course of our business. Proceedings

We are not currently partysubject to any material legal proceedings. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained. Although the outcome of these and other claims cannot be predicted with certainty, we do not believe the ultimate resolution of the current matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

In additionFactors

Our business is subject to various risks, including those described in the other information set forthsection titled “Risk Factors” in this Quarterly Report on Form 10-Q, you should carefully consider the following risk factors, as well as the other information in our other public filings. If any of the following risks actually occurs, our business, results of operations and financial condition could be adversely affected. In this case, the trading pricePart I, Item 1A of our common stock would likely decline.

Summary of Risk Factors
The following summarizes the principal factors that make an investment in the Company speculative or risky. This summary should be read in conjunction with the remainder of this “Risk Factors” section and should not be relied upon as an exhaustive summary of theAnnual Report. There have been no material risks facing our business. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materiallychanges from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors describeddisclosed in our public filings when evaluating our business.
failure to further develop and maintain our brand;
change in consumer preferences, perception and spending habits in the beverage industry and on naturally sweetened products, and failure to develop or enrich our product offering or gain market acceptanceItem 1A of our new products;
product safety and quality concerns, including relating to our plant-based sweetening system, could negatively affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings;
inability to compete in our intensely competitive categories;
we have a history of losses, and we may be unable to achieve profitability;
changes in the retail landscape or the loss of key retail customers;
the impact of the COVID-19 pandemic on our business, results of operations and financial condition;
failure to attract, train or retain qualified employees, manage our future growth effectively or maintain our company culture;
fluctuation of our net sales and earnings as a result of price concessions, promotional activities and chargebacks;
failure to introduce new products or successfully improve existing products;
inability to obtain raw materials on a timely basis or in sufficient quantities to produce our products or meet the demand for our products due to reliance on a limited number of third-party suppliers;
extensive governmental regulation and enforcement if we are not in compliance with applicable requirements; and dependence on distributions from Zevia LLC to pay any taxes and other expenses.
Risks Relating to Our Business
If we fail to further develop and maintain our brand, our business could suffer.
We believe our continued success depends on our ability to maintain and grow the value of the Zevia brand. Because our products are comprised of a handful of simple ingredients that are readily available in the market and we do not depend on a particular flavor as we are continuously reformulating and remodifying flavors, we are particularly dependent on maintaining the success of our brand and reputation.
Maintaining, promoting and positioning our brand and reputation will depend on, among other factors, the success of our plant-based product offerings, food safety, quality assurance, marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience. Any negative publicity, regardless of its accuracy, could materially adversely affect our business. Brand value is based on perceptions of subjective qualities, and any incident that erodes the loyalty of our customers, suppliers or manufacturers, including adverse publicity or a governmental investigation or litigation, could significantly reduce the value of our brand and significantly damage our business.
39

We could be adversely affected by a change in consumer preferences, perception and spending habits in the beverage industry and on naturally sweetened products, and failure to develop or enrich our product offering or gain market acceptance of our new products could have a negative effect on our business.
We have positioned our brand to capitalize on growing consumer interest in plant-based, clean label, ethically produced and great-tasting beverages, particularly those sweetened with stevia extract or other plant-based sweeteners as an alternative to sugar or artificial sweeteners. The market in which we operate is subject to changes in consumer preference, perception and spending habits. Our performance depends significantly on factors that may affect the level and pattern of consumer spending in the beverage industry market in which we operate. Such factors include consumer preference, consumer confidence, consumer income, consumer perception of the safety and quality of our products and shifts in the perceived value for our products relative to alternatives. Media coverage regarding the safety or quality of, or diet or health issues relating to, our products or the raw materials, ingredients (particularly stevia or other plant-based sweeteners) or processes involved in their manufacturing may damage consumer confidence in our products. A general decline in the consumption of our products could occur at any time as a result of change in consumer preference, perception, confidence and spending habits, including an unwillingness or inability to purchase our products due to financial hardship or increased price sensitivity, which may be exacerbated by the effects of the
COVID-19
pandemic.
The success of our products depends on a number of factors including continued market acceptance of stevia, our ability to accurately anticipate changes in market demand and consumer preferences, our ability to differentiate the quality of our products from those of our competitors, and the effectiveness of our marketing and advertising campaigns for our products. We may not be successful in identifying trends in consumer preferences and developing products that respond to such trends in a timely manner. We also may not be able to promote our products effectively by our marketing and advertising campaigns and gain market acceptance. If our products fail to gain market acceptance, are restricted by regulatory requirements or have quality issues, we may not be able to fully recover costs and expenses incurred in our operation, and our business, financial condition or results of operations could be materially and adversely affected.
In addition, in many of our markets, shopping patterns are being affected by the shift to ecommerce, with consumers rapidly embracing shopping by way of mobile device applications, ecommerce retailers and ecommerce websites or platforms. If we fail to address changes in consumer product and shopping preferences, or do not successfully anticipate and prepare for future changes in such preferences, our share of sales, revenue growth and overall financial results could be negatively affected.
Product safety and quality concerns, including relating to our plant-based sweetening system, could negatively affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings.
The success of our business depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products, including relating to our plant-based sweetening system. The sale of products for human use and consumption involves the risk of injury or illness to consumers. We have various quality, environmental, health and safety supply chain standards. A failure or perceived failure to meet our quality or safety standards, including product adulteration, contamination, or tampering, or allegations of mislabeling, whether actual or perceived, could occur in our operations or those of our contract manufacturers, distributors or suppliers. This could result in time consuming and expensive production interruptions, negative publicity, the destruction of product inventory, the discontinuation of sales or our relationships with such contract manufacturers, distributors, or suppliers, lost sales due to the unavailability of product for a period of time and higher-than-anticipated rates of returns of goods. The occurrence of health-related illnesses or other incidents related to the consumption of our products, including allergies, excessive consumption or death to a consumer, could also adversely affect the price and availability of affected ingredients, resulting in higher costs, disruptions in supply and a reduction in our sales.
Noncompliance with applicable food product quality and safety regulations can result in enforcement action by applicable regulatory agencies, including product recalls, market withdrawals, product seizures, warning letters, injunctions, or criminal or civil liability. Such incidents could also expose us to product liability, negligence or other lawsuits, including consumer class action lawsuits. Any claims brought against us may exceed or be outside the scope of our existing or future insurance policy coverage or limits. Any judgment against us that is more than our policy limits or not covered by our policies or not subject to insurance would have to be paid by us, which would affect our results of operations and financial condition. Moreover, negative publicity also could be generated from false, unfounded or nominal liability claims or limited recalls.
Negative publicity surrounding the health effects of our plant-based sweetening system or other ingredients in our products could have an adverse effect on our business. Reports that stevia extract or plant-based sweeteners (or another ingredient) causes adverse effects on consumer health, whether founded or unfounded. For example, in the past there have been unfounded and scientifically refuted claims that stevia may cause reproductive issues or require allergy warnings. Future similar founded or unfounded claims could cause customers or consumers to reduce the number of our products that they purchase or stop buying our products altogether. Any or all of these events may lead to a loss of consumer confidence and trust, could damage the goodwill associated with our brands and may cause consumers to choose other products and could negatively affect our business and financial performance.
40

If we are unable to compete in our intensely competitive categories, our business may not grow or succeed.
We operate in the highly competitive liquid refreshment beverage industry that continues to evolve in response to changing consumer preferences. Some of our competitors, such as The Coca-Cola Company, Keurig Dr. Pepper, PepsiCo, Inc., National Beverage Corp., Monster Energy, and Red Bull, are multinational corporations with significantly greater financial resources than us. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, changing their route to market, reducing prices or increasing promotional activities. We also compete with a range of emerging brands, including a number of smaller brands and a variety of smaller, regional and private label manufacturers. Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets. In Canada, we compete with many of these same international companies as well as a number of regional competitors.
Our sales may be negatively affected by numerous factors, including our inability to maintain or increase prices, our inability to effectively promote our products, ineffective advertising and marketing campaigns, new entrants into the market, the decision of wholesalers, retailers or consumers to purchase competitors’ products instead of ours, and increased marketing costs and
in-store
placement and slotting fees due to our competitors’ willingness to spend aggressively. Competitive pressures may also cause us to reduce prices we charge customers or may restrict our ability to increase such prices.
We have a history of losses, and we may be unable to achieve profitability.
Through June 30, 2021, we experienced net losses in each year since our inception. We incurred net losses of $6.1 million in 2020, $5.4 million in 2019 and $6.0 million in 2018. We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to invest to increase our customer base, supplier network and contract manufacturers, expand our marketing channels and hire additional employees. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenues and margins sufficiently to offset the anticipated higher expenses. We incur significant expenses in developing our innovative products, obtaining and storing ingredients and other products and marketing the products we offer. In addition, many of our expenses are fixed. Accordingly, we may not be able to achieve profitability, and we may incur significant losses in the future.
Changes in the retail landscape or the loss of key retail customers could adversely affect our financial performance.
The consumer packaged goods industry is being affected by the trend toward consolidation in, and blurring of, the lines between retail channels. Larger retailers have sought lower prices from us, demanded increased marketing or promotional expenditures, and have and may continue to use their distribution networks to introduce and develop private label brands, any of which could negatively affect profitability. The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business.
In 2020, our largest customer represented 20% of our net sales and our largest ten customers represented 80% of our net sales. We have also recently increased concentration in the ecommerce channel. In 2020, the ecommerce channel represented approximately 13% of our net sales. The loss of any large customer, the reduction of purchasing levels or the cancellation of any business from a large customer for an extended length of time could negatively impact our sales and profitability. Furthermore, as retailers consolidate, they may reduce the number of branded products they offer in order to accommodate private label products and generate more competitive terms from branded suppliers. Consequently, our financial results may fluctuate significantly from period to period based on the actions of one or more significant retailers. A retailer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. Despite operating in different channels, our retailers sometimes create their own beverages that compete for the same consumers. Because of actual or perceived conflicts resulting from this competition, retailers may take actions that negatively affect us. In addition, our success depends in part on our ability to maintain good relationships with key retail customers.
The
COVID-19
pandemic could have a material adverse impact on our business, results of operations and financial condition.
In connection with the
COVID-19
pandemic, governments have implemented significant measures, including closures, quarantines, travel restrictions and other social distancing directives, intended to control the spread of the virus. Companies have also taken precautions, such as requiring employees to work remotely, imposing business travel restrictions and temporarily closing businesses. To the extent that these restrictions remain in place, additional prevention and mitigation measures are implemented in the future, or there is uncertainty about the effectiveness of these or any other measures to contain or treat
COVID-19,
there is likely to be an adverse impact on global economic conditions and consumer confidence and spending, which could materially and adversely affect our supply chain as well as the demand for our products. Although we encountered closures at some of our third-party facilities due to confirmed cases in the workforce or due to government mandate, these closures did not have a material impact on our operations or our ability to serve customer needs. While at this time we are working to manage and mitigate potential disruptions to our supply chain, and we have not experienced decreases in demand or material financial impacts as compared to prior periods, the fluid nature of the
COVID-19
pandemic and uncertainties regarding the related economic impact are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows.
41

The impact of the
COVID-19
pandemic on any of our suppliers, manufacturers, distributors or transportation or logistics providers may negatively affect the price and availability of our raw materials and impact our supply chain. If the disruptions caused by the
COVID-19
pandemic continue for an extended period of time, our ability to meet the demands of our customers may be materially impacted.
Further, the
COVID-19
pandemic may impact customer and consumer demand. Retail and grocery stores have been impacted due to business closures, quarantines, travel restrictions and other social distancing directives to slow the spread of the virus. Further, to the extent our customers’ operations are negatively impacted, our customers may reduce demand for or spending on our products, or customers or distributors may delay payments to us or request payment or other concessions. There may also be significant reductions or volatility in consumer demand for our products due to travel restrictions or social distancing directives, as well as the temporary inability of consumers to purchase our products due to illness, quarantine or financial hardship, decreased consumer confidence and spending or pantry-loading activity, any of which may negatively impact our results, including as a result of an increased difficulty in planning for operations.
The extent of the
COVID-19
pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the future impact of the
COVID-19
pandemic on our business. However, if the pandemic continues to persist as a severe worldwide health crisis, the disease could continue to affect our business, financial condition results of operations and cash flows, and may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
If we fail to attract, train or retain qualified employees, manage our future growth effectively or maintain our company culture, our business could be materially adversely affected.
We have grown rapidly since inception and anticipate further growth. Our growth and success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and can represent our brand effectively and establish credibility with our business partners and consumers. The number of our full-time employees increased from 72 at December 31, 2019 to 108 at June 30, 2021. Any of our employees may terminate his or her employment with us at any time. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.
In addition, our recent growth has placed significant demands on our management, financial, operational, technological and other resources. The anticipated growth and expansion of our business will place significant demands on our management and operations teams and require significant additional resources to meet our needs, which may not be available in a cost-effective manner, or at all. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, any of which could harm our business, brand, results of operations and financial condition.
As we grow and develop the infrastructure of a public company during the COVID-19 pandemic, we may find it difficult to maintain our company culture. In 2020, we hired 25 full-time employees and in the six months ended June 30, 2021, we hired 15 full-time employees. If we are not able to effectively integrate our new employees into our company culture, we may not be able to retain these employees or we may not be able to maintain our company culture. We believe our culture and our brand have been key contributors to our success to date and promote a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture or focus on our brand could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our objectives. If we fail to maintain our company culture or focus on our brand, our business and competitive position may be harmed.
Our net sales and earnings may fluctuate as a result of price concessions, promotional activities and chargebacks.
We are often required to grant retailers price concessions that negatively impact our margins and our profitability in order to compete with our larger competitors with significantly greater financial resources. If we are not able to lower our cost structure adequately in response to such competitive customer pricing, and if we are not able to attract and retain a profitable customer mix and a profitable product mix, our profitability could continue to be adversely affected.
In addition, we periodically offer sales incentives through various programs to customers and consumers, including temporary price reductions,
off-invoice
discounts, retailer advertisements, product coupons and other trade activities. We also periodically provide chargebacks to our retailers, which include credits or discounts on the sale of products to consumers. The cost associated with promotions and chargebacks is estimated and recorded as a reduction in net sales. We anticipate that these price concessions and promotional activities could adversely impact our net sales and that changes in such activities could adversely impact period-over-period results. If we are not correct in predicting the performance of such promotions, or if we are not correct in estimating chargebacks, our business, financial condition and results of operations would be adversely affected.
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Failure to introduce new products or successfully improve existing products may adversely affect our ability to continue to grow.
Part of our growth strategy depends on our ability to develop and market new products and improvements to our existing products that meet our standards for quality and appeal to consumer preferences. The success of our innovation and product development efforts is affected by our ability to anticipate changes in consumer preferences, the technical capability of our innovation staff in developing and testing product prototypes, including complying with applicable governmental regulations, and the success of our management and sales and marketing teams in introducing and marketing new products. Our innovation team is continuously working to enhance the taste of our beverages and quality of our ingredients, including expanding to additional flavors and categories. Failure to develop and market new products that appeal to consumers may lead to a decrease in our growth, sales and profitability. If we are unsuccessful in meeting our objectives with respect to new or improved products, our business could be harmed.
Inaccurate or misleading marketing claims may harm our brand and business.
We have partnered with health professionals such as renal dietitians and diabetes educators to provide health-focused educational materials and webinars. Although we take measures to ensure that such information is accurate, compliant with regulations and supported by factual analysis and research, we may be subject to claims that such information is false or misleading. Even if such claims are disproven, any negative publicity surrounding an assertion that our marketing materials are inaccurate could cause consumers to lose confidence in the safety and quality of our products. In addition, a judgment against us could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Climate change may negatively affect our business and operations.
We believe greenhouse gases in the atmosphere have and will continue to have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. As climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as stevia extract. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our third-party contract manufacturers’ operations, as well as the agricultural businesses of our suppliers, which rely on the availability and quality of water.
Adverse weather conditions, fires, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.
Agricultural products, including the stevia rebaudiana plant, are vulnerable to adverse weather conditions, including severe rains, drought and temperature extremes, floods and windstorms, which are common but difficult to predict. Agricultural products also are vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climate conditions. Unfavorable growing conditions caused by these factors can reduce both crop size and crop quality and, in extreme cases, entire harvests may be lost. Additionally, adverse weather or natural disasters, including fires, earthquakes, winter storms, floods, droughts, or volcanic events, could impact manufacturing and business facilities, which could result in significant costs and meaningfully reduce our capacity to fulfill orders and maintain normal business operations. These factors may result in lower sales volume and increased costs due increased costs of products. Incremental costs, including transportation, may also be incurred if we need to find alternate short-term supplies of products from alternative areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.
Similarly, an earthquake, fire, tsunami, tornado or other natural disaster could seriously disrupt our entire business. Our corporate offices and research and development functions are located in Los Angeles, California. The impact of an earthquake, fire or tsunami, or both, or other natural disasters in the Los Angeles area on our facilities and overall operations is difficult to predict, but such a natural disaster could seriously disrupt our entire business. Our insurance may not adequately cover our losses and expenses in the event of such a natural disaster. As a result, natural disasters, such as an earthquake, fire or tsunami in the Los Angeles area or in areas where our manufacturers are located, could lead to substantial losses.
We may face difficulties as we expand our operations into countries in which we have no prior operating experience.
We intend to expand our global footprint in order to enter into new markets, including expanding into countries other than those in which we currently operate. It may be difficult for us to understand and accurately predict taste preferences and purchasing habits of consumers in these new geographic markets. We will also face increased competition with larger competitors who have stronger established brands in such markets. It is also costly to establish, develop and maintain international operations and develop and promote our brands in international markets. Our expansion may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. As we expand our business into new countries, we may encounter regulatory, legal, personnel, technological and other difficulties that increase our expenses and/or delay our ability to become profitable in such countries, which may have a material adverse effect on our business and brand.
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Risks Relating to Our Relationships with Third Parties
Because we rely on a limited number of third-party suppliers, we may not be able to obtain raw materials on a timely basis or in sufficient quantities to produce our products or meet the demand for our products.
We rely on a limited number of suppliers to supply us with raw materials. Our financial performance depends in large part on our ability to arrange for the purchase of raw materials in sufficient quantities at competitive prices. We are not assured of continued supply or pricing of raw materials. Any of our suppliers could discontinue or seek to alter their relationship with us.
We currently have one supplier for the stevia extract used in our products which we have selected since they meet our specific requirements for a particular blend of leaf compounds. As a result of this concentration in our supply chain, any disruption in the supply, price, quality, availability or timely delivery of stevia from this supplier could adversely affect our business, performance, and results of operations. Additionally, the concentration of our supply of stevia extract increases the risk of significant supply disruptions from local and regional events. For more information regarding contract terms, see the section of the Prospectus captioned “
Business—Our Supply Chain
.”
Events that adversely affect our supplier of stevia extract and other raw materials could impair our ability to obtain raw material inventory in the quantities that we desire. Such events include problems with our suppliers’ businesses, finances, labor relations, ability to import raw materials, costs, production, insurance and reputation, as well as natural disasters, fires or other catastrophic occurrences. We have in the past experienced interruptions in the supply of carbon dioxide and caffeine. While those disruptions did not have a material impact, future disruptions could have a material negative impact on our business operations.
We continually seek alternative sources of stevia extract and other plant-based ingredients to use in our products, but we may not be successful in diversifying the raw materials we use in our products. If we need to replace an existing supplier, there can be no assurance that supplies of raw materials will be available when required on acceptable terms, or that a new supplier would allocate sufficient capacity to us in order to meet our requirements, fill our orders in a timely manner or meet our strict quality standards. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease.
Substantial disruption at our independent third-party manufacturing and distribution facilities could occur.
We use third-party manufacturing companies to produce our products. Some of these manufacturers are also our direct competitors, or also manufacture and distribute products for our competitors. As independent companies, these manufacturers and distributors make their own business decisions. They have the right to determine whether, and to what extent, they produce and distribute our products, our competitors’ products and their own products. They may devote more resources to other products, prioritize their own products, or take other actions detrimental to our products or brand. In addition, we may enter into ‘take or pay’ arrangements to improve assurance of supply for both
co-pack
volume and aluminum cans. In most cases, they are able to terminate their manufacturing and distribution arrangements with us without cause. We may need to increase support for our brands in their territories to protect our route to market and may not be able to pass price increases through to them. Their financial condition could also be adversely affected by conditions beyond their control, and their business could suffer as a result. Deteriorating economic conditions could negatively impact the financial viability of third-party contract manufacturers.
A disruption at our third-party manufacturing and distribution facilities could have a material adverse effect on our business. The disruption could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturing problems, disease, epidemics, strikes, transportation or supply interruption, contractual dispute, government regulation, cybersecurity attacks or terrorism. Moreover, if demand increases more than we forecast, we will need to acquire additional capacity. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more than existing facilities or may take a significant time to start production, each of which could negatively affect our business and financial performance.
We use distributors for a significant amount of our sales, and if we experience the loss of one or more distributors and cannot replace them in a timely manner, our results of operations may be adversely affected.
We sell a substantial portion of our products through distributors such as United Natural Foods, Inc. and KeHE Distributors, and we depend on these third parties to sell our products to a broad group of retailers. Our largest distributors in 2020 were United Natural Foods, Inc. and KeHE Distributors, which accounted for 20%, and 16% of our net sales, respectively. Sales to retailer Kroger and online customer Amazon each accounted for 12% of our net sales in 2020. No other retailer or distributor represented more than 10% of our net sales in 2020. We expect that most of our sales will be made through a small number of customers for the foreseeable future. We do not have short-term or long-term commitments or minimum purchase volumes in our contracts with them that ensure future sales of our products. If we lose one or more of our significant customers and cannot replace the customer in a timely manner or at all, our business, results of operation and financial condition may be materially adversely affected. Similarly, if we do not maintain our relationship with existing customers or develop relationships with new customers, the growth of our business may be adversely affected and our business may be harmed.
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Increase in the cost, disruption of supply or shortage of stevia sweetener or other ingredients, other raw materials, packaging materials, aluminum cans and other containers could harm our business.
We use various ingredients in our business, including stevia sweetener and flavor ingredients relating to consumable products, aluminum cans and other packaging materials. The prices for ingredients, other raw materials, packaging materials and aluminum cans fluctuate depending on market conditions. For example, there is currently a global shortage of aluminum cans. We might not be able to source enough aluminum cans in the future to meet our consumers’ demand. Our ability to continue to procure enough aluminum cans at reasonable prices will depend on future developments which are highly uncertain.
Substantial increases in the prices of stevia sweetener, our other ingredients, other raw materials, packaging materials and aluminum cans, to the extent they cannot be recouped through increases in the prices of finished beverage products, could increase operating costs for us and companies we do business with and reduce our profitability. Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials, packaging materials and aluminum cans could affect affordability in some markets and reduce sales.
Failure by our transportation providers to deliver our products on time, or at all, could result in lost sales.
We currently rely upon third-party transportation providers for our product shipments. Our utilization of delivery services for shipments is subject to risks, including availability of trucking capacity and increases in fuel prices, which would increase our shipping costs, and employee strikes or work stoppages and inclement weather, which may impact the ability of providers to provide delivery services that adequately meet our shipping needs. In particular, the increase in volume of online shopping due to the
COVID-19
pandemic has led to an increase in demand for shipping services and subsequent increase in our transportation expense. We periodically change shipping companies, and we could face logistical difficulties that could adversely affect deliveries. In addition, we could incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently use, which in turn would increase our costs and thereby adversely affect our operating results.
Risks Relating to Governmental Regulation
We and our manufacturers and suppliers are subject to extensive governmental regulation and may be subject to enforcement if we are not in compliance with applicable requirements.
We and our manufacturers and suppliers are subject to a broad range of federal, state, and local laws and regulations that govern, among other issues, the testing, design, development, formulation, manufacturing, storage, product safety, labeling, distribution, marketing, sales, advertising and post-market reporting of foods. These include laws administered by the FDA, the U.S. Federal Trade Commission (“FTC”), the U.S. Department of Agriculture (“USDA”), and other federal, state, and local regulatory authorities. Because we market products that are regulated as food, we and the companies that pack our products are subject to the requirements of the Federal Food, Drug, and Cosmetic Act (“FDCA”) and regulations promulgated thereunder by the FDA. The statute and regulations govern, among other things, the production, composition, ingredients, packaging, labeling, and safety of beverages. The FDA requires that facilities that produce food products comply with a range of requirements, including hazard analysis and preventative controls regulations, current good manufacturing practice requirements (“cGMPs”), and supplier verification requirements. Production facilities are subject to periodic inspection by federal, state, and local authorities. If we cannot successfully contract with manufacturers for our products and if they cannot conform to our specifications and the strict regulatory requirements of the FDA and applicable state and local laws, they may be subject to adverse inspectional findings or enforcement actions, which could materially impact our ability to market our products, could result in their inability to continue to pack for us, or could result in a recall of our products that have already been distributed.
Our products are subject to the FDA’s comprehensive regulatory authority under the FDCA, as well as by other regulatory authorities which regulate the manufacturing, preparation, quality control, import, export, packaging, labeling, marketing, advertising, promotion, distribution, safety, and/or adverse event reporting of foods. Among other things, manufacturers of conventional foods must meet applicable cGMPs and certain requirements that govern the constituents, packaging, labeling and holding of foods. Failure by us, our manufacturers, or our suppliers to comply with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, or other enforcement action. Any of these actions would have a materially adverse effect on our business, financial condition, results of operations and prospects.
Our products and their manufacturing, labeling, marketing and sale are also subject to various aspects of the Federal Trade Commission Act, the Food Safety Modernization Act, the Lanham Act, state consumer protection laws and state warning and labeling laws, such as Proposition 65 in California. Various states, provinces and other authorities require deposits,
eco-taxes
or fees on certain products or packaging. Similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the U.S. and elsewhere. In addition, various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the marketing or sale of our products as a result of what they contain or allegations that they cause adverse health effects.
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Failure by us, our manufacturers, or our suppliers to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relating to our operations could subject us to administrative and civil penalties, including significant fines, injunctions, product recalls or seizures, withdrawals, warning letters, restrictions on the production or marketing of our products, or refusals to permit the import or export of products, civil liability, criminal liability or sanctions, or other enforcement actions. Any of these actions would result in a material effect on our operating results and business and business and financial condition, including increased operating costs. See “
Description of Business—Government Regulation
.”
Our policies and procedures are designed to comply with all applicable laws, accounting and reporting requirements, tax rules and other regulations and requirements, including those imposed by the SEC, the Internal Revenue Service (“IRS”), the U.S. Department of Health & Human Services, the FDA, the FTC, the USDA, the U.S. Environmental Protection Agency (“EPA”), the U.S. Occupational Safety and Health Administration (“OSHA”), the U.S. Department of Justice (“DOJ”), by state and local governments, and by comparable entities in foreign countries, as well as applicable trade, labor, sanitation, safety, environmental, labeling, anti-bribery and corruption and merchandise laws.
Changes in laws and regulations, or the adoption of new laws or regulations, relating to beverage containers and packaging could increase our costs, reduce demand for our products, and otherwise adversely affect our business, results of operations and financial condition.
Proposals relating to beverage container deposits, recycling,
eco-tax
and/or product stewardship have been introduced in various jurisdictions in the U.S. and overseas, and we anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the U.S. and elsewhere. Consumers’ increased concerns and changing attitudes about solid waste streams and environmental responsibility and the related publicity could result in the adoption of such legislation or regulations. If these types of requirements are adopted and implemented on a large scale in any of the major markets in which we operate, they could affect our costs or require changes in our distribution model, which could reduce our net operating revenues and profitability.
The regulatory environment in which we operate could change significantly and adversely in the future. Any change in manufacturing, labeling or packaging requirements for our products may lead to an increase in costs or interruptions in production, either of which could adversely affect our operations and financial condition. New or revised government laws and regulations could result in additional compliance costs and, in the event of
non-compliance,
civil remedies, including fines, injunctions, withdrawals, recalls or seizures and confiscations, as well as potential criminal sanctions, any of which may adversely affect our business, results of operations and financial condition.
Litigation and regulatory enforcement concerning marketing and labeling of our products could adversely affect our business and reputation.
The marketing and labeling of any food product in recent years has brought increased risk that consumers will bring class action lawsuits and that the FTC and/or state attorneys general will bring legal action concerning the truth and accuracy of the marketing and labeling of the product, seek removal of a product from the marketplace, and/or impose fines and penalties. Products that we sell carry claims as to their ingredients or health and wellness related attributes, including the term “natural” or other express or implied statements relating to the ingredients or health and wellness related attributes of our products. Although the FDA and the USDA each has issued statements regarding the appropriate use of the word “natural,” there is no single, official U.S. government regulation defining the term “natural” for use in the food industry, which is true for many other label statements in the
better-for-you
and functionally-focused food industry. The lack of regulatory definition for “natural” and other label statements has contributed to legal challenges against many consumer products companies, and plaintiffs have commenced legal actions against several food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” that contain synthetic ingredients or components. As a result of such legal or regulatory challenges, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded.
Even when unmerited, class claims, action by the FTC or state attorneys general enforcement actions can be expensive to defend and adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image, which could have a material and adverse effect on our business, financial condition or results of operations. The number of private consumer class actions relating to false or deceptive advertising against cosmetic, food, beverage and nutritional supplement manufacturers has increased in recent years. In addition, the FDA has aggressively enforced its regulations with respect to different types of product claims that may or may not be made for food products. These events could interrupt the marketing and sales of our products, severely damage our brand reputation and public image, increase our legal expenses, result in product recalls or litigation, and impede our ability to deliver our products in sufficient quantities or quality, which could result in a material adverse effect on our business, financial condition, results of operations and cash flows.
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We are subject to international regulations that could adversely affect our business and results of operations.
We are subject to regulations internationally where we distribute and/or will sell our products. Our products are subject to numerous food safety and other laws and regulations relating to the sourcing, manufacturing, storing, labeling, marketing, advertising and distribution of these products. If regulators determine that the labeling and/or composition of any of our products is not in compliance with Canadian law or regulations, or if we or our manufacturers otherwise fail to comply with applicable laws and regulations in Canada, we could be subject to civil remedies or penalties, such as fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of the products, or refusals to permit the import or export of products, as well as potential criminal sanctions. In addition, enforcement of existing laws and regulations, changes in legal requirements and/or evolving interpretations of existing regulatory requirements may result in increased compliance costs and create other obligations, financial or otherwise, that could adversely affect our business, financial condition or operating results.
In addition, if we increase international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to
non-U.S.
officials or other third parties for the purpose of obtaining or retaining business. While our policies mandate compliance with these anti-bribery laws, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, cash flows and financial condition.
Risks Relating to Tax Matters
The Company is dependent on distributions from Zevia LLC to pay any taxes and other expenses, including payments under the Tax Receivable Agreement.
The Company is a holding company and, its only business is to act as the managing member of Zevia LLC, and its only material assets are Class A units representing approximately 53.3% of the membership interests of Zevia LLC. The Company does not have any independent means of generating revenue. We anticipate that Zevia LLC will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to the members of Zevia LLC. Accordingly, the Company will be required to pay income taxes on its allocable share of any net taxable income of Zevia LLC. We intend to cause Zevia LLC to make distributions to each of its members, including the Company, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to such member and to allow the Company to make payments under the Tax Receivable Agreement. In addition, Zevia LLC will reimburse the Company for corporate and other overhead expenses. If the amount of tax distributions to be made exceeds the amount of funds available for distribution, the Company shall receive the full amount of its tax distribution before the other members receive any distribution and the balance, if any, of funds available for distribution shall be distributed to the other members pro rata in accordance with their assumed tax liabilities. To the extent that the Company needs funds, and Zevia LLC is restricted from making such distributions under applicable laws or regulations, or is otherwise unable to provide such funds, it could materially and adversely affect the Company’s ability to pay taxes and other expenses, including payments under the Tax Receivable Agreement, and affect our liquidity and financial condition. In addition, although we do not currently expect to pay dividends, such restrictions could affect our ability to any dividends, if declared.
The Internal Revenue Service (IRS) might challenge the tax basis
step-ups
and other tax benefits we receive in connection with the IPO and the related transactions and in connection with future acquisitions of Zevia LLC units.
The Company acquired Zevia LLC units held directly by other members of Zevia LLC in connection with the IPO and may in the future acquire such units in exchange for shares of our Class A common stock or, at our election, cash. Those acquisitions and exchanges resulted or are expected to result in increases in the tax basis of the assets of Zevia LLC that otherwise would not have been available. These increases in tax basis are expected to increase (for tax purposes) the Company’s depreciation and amortization and, together with other tax benefits, reduce the amount of tax that the Company would otherwise be required to pay, although it is possible that the IRS might challenge all or part of these tax basis increases or other tax benefits, and a court might sustain such a challenge. the Company’s ability to achieve benefits from any tax basis increases or other tax benefits will depend upon a number of factors, as discussed below, including the timing and amount of our future income. We will not be reimbursed for any payments previously made under the Tax Receivable Agreement if the basis increases or other tax benefits described above are successfully challenged by the IRS or another taxing authority. As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement in excess of our ultimate cash tax savings.
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The Company will be required to pay over to continuing members of Zevia LLC and the Direct Zevia Stockholders most of the tax benefits the Company receives from tax basis
step-ups
(and certain other tax benefits) attributable to its acquisition of units of Zevia LLC in connection with the IPO and in the future, and the amount of those payments are expected to be substantial.
The Company entered into the Tax Receivable Agreement with continuing members of Zevia LLC (not including the Company) and the Direct Zevia Stockholders. The Tax Receivable Agreement provides for payment by the Company to continuing members of Zevia LLC (not including the Company) and the Direct Zevia Stockholders of 85% of the amount of the net cash tax savings, if any, that the Company realizes (or, under certain circumstances, is deemed to realize) as a result of (i) increases in tax basis (and utilization of certain other tax benefits) resulting from the Company’s acquisition of a continuing member’s Zevia LLC units in connection with the IPO and in future exchanges, (ii) certain favorable tax attributes we acquired from the blocker companies in the blocker mergers and (iii) payments the Company makes under the Tax Receivable Agreement (including tax benefits related to imputed interest). Generally, payments under the TRA will be made to the continuing members of Zevia LLC (not including the Company) and to the Direct Zevia Stockholders pro rata based on their relative percentage ownership of Zevia LLC immediately prior to the Reorganization. Such payments will reduce the cash provided by the tax savings generated from the previously described transactions with the members of Zevia LLC and the Direct Zevia Stockholders that would otherwise have been available to the Company for other uses, including reinvestment or dividends to the Company Class A stockholders. The Company will retain the benefit of the remaining 15% of these net cash tax savings.
The term of the Tax Receivable Agreement commenced upon the completion of the IPO and will continue until all tax benefits that are subject to the Tax Receivable Agreement have been utilized or have expired, unless we exercise our right to terminate a Tax Receivable Agreement (or it is terminated due to a change in control or our breach of a material obligation thereunder), in which case the Company will be required to make the termination payment specified in that Tax Receivable Agreement. In addition, payments we make under the Tax Receivable Agreement will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return. Based on certain assumptions, including no material changes in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefit of the increased amortization of our assets and the net operating losses (and similar items), we expect that future payments to the continuing members of Zevia LLC (not including the Company) in respect of the IPO will be approximately $64.2 million in the aggregate, based on a price of our Class A common stock of $14.00 per share, although the actual future payments to the continuing members of Zevia LLC will vary based on the factors discussed below, and estimating the amount and timing of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, as the calculation of amounts payable depends on a variety of factors and future events. We expect to receive distributions from Zevia LLC in order to make any required payments under the Tax Receivable Agreement. To the extent such distributions or our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise, such payments may be deferred for up to six months and would accrue interest until paid.
The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending on a number of factors, including the price of our Class A common stock at the time of the exchange; the timing of future exchanges; the extent to which exchanges are taxable; the amount and timing of the utilization of tax attributes; the amount, timing and character of the Company’s income; the U.S. federal, state and local tax rates then applicable; the amount of each exchanging unitholder’s tax basis in its units at the time of the relevant exchange; the depreciation and amortization periods that apply to the increases in tax basis; the timing and amount of any earlier payments that the Company may have made under the Tax Receivable Agreement and the portion of the Company’s payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or amortizable tax basis. We expect that, as a result of the increases in the tax basis of the tangible and intangible assets of Zevia LLC attributable to the acquired or exchanged Zevia LLC interests, and certain other tax benefits, the payments that the Company will be required to make to the holders of rights under the Tax Receivable Agreement will be substantial. There may be a material negative effect on our financial condition and liquidity if, as described below, the payments under the Tax Receivable Agreement exceed the actual benefits the Company receives in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to the Company by Zevia LLC are not sufficient to permit the Company to make payments under the Tax Receivable Agreement.
In certain circumstances, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual tax benefits, if any, that the Company actually realizes.
The Tax Receivable Agreement provides that if (i) the Company exercises its right to early termination of the Tax Receivable Agreement in whole (that is, with respect to all benefits due to all beneficiaries under the Tax Receivable Agreement) or in part (that is, with respect to some benefits due to all beneficiaries under the Tax Receivable Agreement), (ii) the Company experiences certain changes in control, (iii) the Tax Receivable Agreement is rejected in certain bankruptcy proceedings, (iv) the Company fails (subject to certain exceptions) to make a payment under the Tax Receivable Agreement within 180 days after the due date or (v) the Company materially breaches its obligations under the Tax Receivable Agreement, the Company will be obligated to make an early termination payment to holders of rights under the Tax Receivable Agreement equal to the present value of all payments that would be required to be paid by the Company under the Tax Receivable Agreement. The amount of such payments will be determined on the basis of certain assumptions in the Tax Receivable Agreement, including (i) the assumption that the Company would have enough taxable income in the future to fully utilize the tax benefit resulting from the tax assets that are the subject of the Tax Receivable Agreement, (ii) the
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assumption that any item of loss deduction or credit generated by a basis adjustment or imputed interest arising in a taxable year preceding the taxable year that includes an early termination will be used by the Company ratably from such taxable year through the earlier of (x) the scheduled expiration of such tax item or (y) 15 years; (iii) the assumption that any
non-amortizable
assets are deemed to be disposed of in a fully taxable transaction on the fifteenth anniversary of the earlier of the basis adjustment and the early termination date; (iv) the assumption that U.S. federal, state and local tax rates will be the same as in effect on the early termination date, unless scheduled to change; and (v) the assumption that any units of Zevia LLC (other than those held by the Company) outstanding on the termination date are deemed to be exchanged for an amount equal to the market value of the corresponding number of shares of Class A common stock on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates. The amount of the early termination payment is determined by discounting the present value of all payments that would be required to be paid by the Company under the Tax Receivable Agreement at a rate equal to the lesser of (a) 6.5% and (b) the Secured Overnight Financing Rate, as reported by the Wall Street Journal (SOFR) plus 400 basis points.
Moreover, as a result of an elective early termination, a change in control or the Company’s material breach of its obligations under the Tax Receivable Agreement, the Company could be required to make payments under the Tax Receivable Agreement that exceed its actual cash savings under that Tax Receivable Agreement. Thus, the Company’s obligations under the Tax Receivable Agreement could have a substantial negative effect on its financial condition and liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. We cannot assure you that we will be able to finance any early termination payment. It is also possible that the actual benefits ultimately realized by us may be significantly less than were projected in the computation of the early termination payment. We will not be reimbursed if the actual benefits ultimately realized by us are less than were projected in the computation of the early termination payment.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we will determine and the IRS or another tax authority may challenge all or part of the tax basis increases, as well as other related tax positions we take, and a court could sustain such a challenge. If any tax benefits that have given rise to payments under the Tax Receivable Agreement are subsequently disallowed, the Company would be entitled to reduce future amounts otherwise payable to a holder of rights under the Tax Receivable Agreement to the extent the holder has received excess payments. However, the required final and binding determination that a holder of rights under the Tax Receivable Agreement has received excess payments may not be made for a number of years following commencement of any challenge, and the Company will not be permitted to reduce its payments under the Tax Receivable Agreement until there has been a final and binding determination, by which time sufficient subsequent payments under such Tax Receivable Agreement may not be available to offset prior payments for disallowed benefits. the Company will not be reimbursed for any payments previously made under either of the Tax Receivable Agreement if the basis increases described above are successfully challenged by the IRS or another taxing authority. As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement that are significantly in excess of the benefit that the Company actually realizes in respect of the increases in tax basis (and utilization of certain other tax benefits) and the Company may not be able to recoup those payments, which could adversely affect the Company’s financial condition and liquidity.
In certain circumstances, Zevia LLC will be required to make distributions to us and the existing members of Zevia LLC, and the distributions that Zevia LLC will be required to make may be substantial.
Zevia LLC is expected to continue to be treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income will be allocated to members, including the Company. Pursuant to the Zevia LLC Operating Agreement, Zevia LLC will make tax distributions to its members, including the Company, which generally will be made pro rata based on the ownership of Zevia LLC units, calculated using an assumed tax rate, to help each of the members to pay taxes on that member’s allocable share of Zevia LLC’s net taxable income. Under applicable tax rules, Zevia LLC is required to allocate net taxable income disproportionately to its members in certain circumstances. Because tax distributions will be determined based on the member who is allocated the largest amount of taxable income on a per unit basis and on an assumed tax rate that is the highest possible rate applicable to any member, but will be made pro rata based on ownership of Zevia LLC units, Zevia LLC will be required to make tax distributions that, in the aggregate, will likely exceed the aggregate amount of taxes payable by its members with respect to the allocation of Zevia LLC income.
Funds used by Zevia LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business. Moreover, the tax distributions Zevia LLC will be required to make may be substantial, and may significantly exceed (as a percentage of Zevia LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. In addition, because these payments will be calculated with reference to an assumed tax rate, and because of the disproportionate allocation of net taxable income, these payments likely will significantly exceed the actual tax liability for many of the existing members of Zevia LLC.
As a result of potential differences in the amount of net taxable income allocable to us and to the existing members of Zevia LLC, as well as the use of an assumed tax rate in calculating Zevia LLC’s distribution obligations, we may receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. We may choose to manage these excess distributions through a number of different approaches, including through the payment of dividends to our Class A common stockholders or by applying them to other corporate purposes.
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We may incur tax and other liabilities attributable to our pre-IPO investors as a result of certain reorganization transactions.
Certain of our pre-IPO institutional investors held their interests in Zevia LLC through the blocker companies which were taxable as corporations for U.S. federal income tax purposes. The Company formed a new, first-tier merger subsidiary with respect to each blocker company and contemporaneously with the IPO, each respective merger subsidiary merged with and into the respective Blocker Company, with the blocker company surviving. Immediately thereafter, the blocker companies merged with and into the Company, with the Company surviving. In the blocker mergers, the owners of the blocker companies acquired an aggregate of 23,716,450 shares of newly issued Class A common stock. See “Organizational Structure—The Reorganization” of the Prospectus. As the successor to these merged entities, the Company generally succeeded to and is responsible for any outstanding or historical tax or other liabilities of the merged entities, including any liabilities that were incurred as a result of the mergers described in the previous sentence. Any such liabilities for which the Company is responsible could have an adverse effect on our liquidity and financial condition.
Pursuant to regulations issued under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Company may not be permitted to deduct its distributive share of compensation expense to the extent that the compensation was paid by Zevia LLC to certain of the Company’s covered employees, potentially resulting in additional U.S. federal income tax liability for the Company and reducing cash available for distribution to the Company’s stockholders and/or for the payment of other expenses and obligations of the Company.
Section 162(m) of the Code disallows the deduction by any publicly held corporation of applicable employee compensation paid with respect to any covered employee to the extent that such compensation for the taxable year exceeds $1,000,000. A “covered employee” means any employee of the taxpayer if the employee (a) is the principal executive officer (“PEO”) or principal financial officer (“PFO”) of the taxpayer at any time during the taxable year, or was an individual acting in such a capacity, (b) was among the three highest compensated executive officers for the taxable year (other than the PEO or PFO or an individual acting in such a capacity), or (c) was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016. Pursuant to final regulations released for publication in the Federal Register by the IRS and the United States Department of the Treasury on December 30, 2020 (the 162(m) Regulations), the Company will not be permitted to claim a deduction for the distributive share of compensation expense of Zevia LLC allocated to it to the extent that such distributive share, plus the amount of any compensation paid directly by the Company, exceeds $1,000,000 with respect to a covered employee, even if Zevia LLC, rather than the Company, pays the compensation. The 162(m) Regulations were effective upon publication of final regulations in the Federal Register but apply to any deduction for compensation that is otherwise allowable for a taxable year ended on or after December 20, 2019. However, the 162(m) Regulations do not apply to compensation paid pursuant to a written binding contract in effect on December 20, 2019 that is not materially modified after that date. Accordingly, to the extent that the Company is disallowed a deduction for its distributive share of compensation expense under Section 162(m) of the Code, it may result in additional U.S. federal income tax liability for the Company and/or reduce cash available for distribution to the Company’s stockholders or for the payment of other expenses and obligations of the Company.
Future changes to tax laws or our effective tax rate could materially and adversely affect our company and reduce net returns to our stockholders.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in various jurisdictions. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid, or the taxation of partnerships and other passthrough entities. In addition, the Group of Twenty, the OECD, the U.S. Congress and Treasury Department and other government agencies in jurisdictions where we and our affiliates do business have focused on issues related to the taxation of multinational corporations, including, but not limited to, transfer pricing,
country-by-country
reporting and base erosion. As a result, the tax laws in the United States and in jurisdictions which we do business could change on a prospective or retroactive basis, and any such changes could have an adverse effect on our worldwide tax liabilities, business, financial condition and results of operations. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our stockholders, and increase the complexity, burden and cost of tax compliance.
Our businesses are subject to income taxation in the United States. Tax rates at the federal, state and local levels may be subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a number of complex factors including, but not limited to, projected levels of taxable income in each jurisdiction, tax audits conducted and settled by various tax authorities, and adjustments to income taxes upon finalization of income tax returns.
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We may be required to pay additional taxes because of the U.S. federal partnership audit rules and potentially also state and local tax rules.
Under the U.S. federal partnership audit rules, subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity (and any holder’s share thereof) are determined, and taxes, interest, and penalties attributable thereto, are assessed and collected, at the entity level. Zevia LLC (or any of its applicable subsidiaries or other entities in which Zevia LLC directly or indirectly invests that are treated as partnerships for U.S. federal income tax purposes) may be required to pay additional taxes, interest and penalties as a result of an audit adjustment, and Zevia PBC, as a member of Zevia LLC (or such other entities), could be required to indirectly bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. Audit adjustments for state or local tax purposes could similarly result in Zevia LLC (or any of its applicable subsidiaries or other entities in which Zevia LLC directly or indirectly invests) being required to pay or indirectly bear the economic burden of state or local taxes and associated interest, and penalties.
Under certain circumstances, Zevia LLC or an entity in which Zevia LLC directly or indirectly invests may be eligible to make an election to cause members of Zevia LLC (or such other entity) to take into account the amount of any understatement, including any interest and penalties, in accordance with such member’s share in Zevia LLC in the year under audit. We will decide whether or not to cause Zevia LLC to make this election; however, there are circumstances in which the election may not be available and, in the case of an entity in which Zevia LLC directly or indirectly invests, such decision may be outside of our control. If Zevia LLC or an entity in which Zevia LLC directly or indirectly invests does not make this election, the then-current members of Zevia LLC (including Zevia PBC) could economically bear the burden of the understatement.
If Zevia LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, Zevia PBC and Zevia LLC might be subject to potentially significant tax inefficiencies, and Zevia PBC would not be able to recover payments previously made by it under the Tax Receivable Agreement, even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
We intend to operate such that Zevia LLC does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is an entity that otherwise would be treated as a partnership for U.S. federal income tax purposes, the interests of which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof. Under certain circumstances, exchanges of Zevia LLC units pursuant to the Zevia LLC Operating Agreement or other transfers of Zevia LLC units could cause Zevia LLC to be treated like a publicly traded partnership. From time to time the U.S. Congress has considered legislation to change the tax treatment of partnerships and there can be no assurance that any such legislation will not be enacted or if enacted will not be adverse to us.
If Zevia LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, significant tax inefficiencies might result for Zevia PBC and Zevia LLC, including as a result of Zevia PBC’s inability to file a consolidated U.S. federal income tax return with Zevia LLC. In addition, Zevia PBC may not be able to realize tax benefits covered under the Tax Receivable Agreement and would not be able to recover any payments previously made by it under the Tax Receivable Agreement, even if the corresponding tax benefits (including any claimed increase in the tax basis of Zevia LLC’s assets) were subsequently determined to have been unavailable.
Risks Relating to Ownership of Our Common Stock
An active trading market may not develop or be sustained following the IPO.
You may not be able to sell your shares quickly or at a recently reported market price if trading in our common stock does not remain active. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
The market price of our Class A common stock has been and may continue to be volatile or may decline regardless of our operating performance, and you could lose all or part of your investment.
The market price of our common stock has been volatile. The market price of our Class A common stock has been and may continue to fluctuate significantly in response to numerous factors, some of which are beyond our control and may not be related to our operating performance, including:
announcements of new products, commercial relationships, acquisitions or other events by us or our competitors;
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price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of food and beverage companies in general and of companies in the beverage industry in particular;
addition or loss of significant customers or other developments with respect to significant customers;
fluctuations in the trading volume of our shares or the size of our public float;
actual or anticipated changes or fluctuations in our operating results;
whether our operating results meet the expectations of securities analysts or investors;
actual or anticipated changes in the expectations of investors or securities analysts;
litigation involving us, our industry, or both;
regulatory developments in the United States, foreign countries, or both applicable to our products;
general economic conditions and trends;
major catastrophic events;
lockup releases or sales of large blocks of our Class A common stock;
departures of key employees; or
an adverse impact on the company from any of the other risks cited in this report.
In addition, if the stock market for beverage companies, or the stock market generally, experiences a loss of investor confidence, the trading price of our Class A common stock could decline for reasons unrelated to our business, operating results or financial condition. Stock prices of many beverage companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The trading price of our Class A common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
As a public benefit corporation, our duty to balance a variety of interests may result in actions that do not maximize stockholder value.
We have elected to be classified as a public benefit corporation under the DGCL. As a public benefit corporation, our board of directors has a duty to balance (i) the pecuniary interest of our stockholders, (ii) the best interests of those materially affected by our conduct and (iii) specific public benefits identified in our charter documents. While we believe our public benefit designation and obligation will benefit our stockholders, in balancing these interests our board of directors may take actions that do not maximize stockholder value. Any benefits to stockholders resulting from our public benefit purposes may not materialize within the timeframe we expect or at all, and our status as a public benefit corporation may negatively impact stockholders. For example:
we may choose to revise our policies in ways that we believe will be beneficial to our stakeholders, including our employees, customers and local communities, even though the changes may be costly;
we may take actions, such as building
state-of-the-art
facilities with technology and quality control mechanisms that exceed the requirements of USDA and the FDA, even though these actions may be more costly than other alternatives;
we may be influenced to pursue programs and services to demonstrate our commitment to the communities to which we serve and bringing ethically produced products to customers even though there is no immediate return to our stockholders; or
in responding to a possible proposal to acquire the company, our board of directors may be influenced by the interests of our stakeholders, including our employees, customers and local communities, whose interests may be different from the interests of our stockholders.
Our status as a public benefit corporation and a Certified B Corporation may not result in the benefits that we anticipate.
We have elected to be classified as a public benefit corporation under the DGCL. As a public benefit corporation, we are required to balance the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct and the specific public benefit or public benefits identified in our certificate of incorporation. In addition, there is no assurance that the expected positive impact from being a public benefit corporation will be realized as we may be unable or slow to realize the benefits we expect from actions taken to benefit our stakeholders, including our employees, customers and local communities, which could adversely affect our business, financial condition and results of operations, which in turn could cause our stock price to decline. Accordingly, being a public benefit corporation and complying with our related obligations could negatively impact our ability to provide the highest possible return to our stockholders.
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As a public benefit corporation, we are required to disclose to stockholders a report at least biennially on our overall public benefit performance and on our assessment of our success in achieving our specific public benefit purpose. If we are not timely or are unable to provide this report, or if the report is not viewed favorably by parties doing business with us or regulators or others reviewing our credentials, our reputation and status as a public benefit corporation may be harmed.
While not required by the DGCL or the terms of our amended and restated certificate of incorporation, we have elected to have our social and environmental performance, accountability and transparency assessed against the proprietary criteria established by an independent non-profit organization. As a result of this assessment, we have been designated as a “Certified B Corporation,” which refers to companies that are certified as meeting certain levels of social and environmental performance, accountability and transparency. The standards for Certified B Corporation certification are set by an independent organization and may change over time. Currently, Certified B corporations are required to recertify as a Certified B Corporation once every three years. Our reputation could be harmed if we lose our status as a Certified B Corporation, whether by our choice or by our failure to continue to meet the certification requirements, if that failure or change were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations. Likewise, our reputation could be harmed if our publicly reported Certified B Corporation score declines.
As a public benefit corporation, we may become subject to increased derivative litigation concerning our duty to balance stockholder and public benefit interests, the occurrence of which may have an adverse impact on our financial condition and results of operations.
We have elected to be a public benefit corporation under the DGCL. Stockholders of a Delaware public benefit corporation (if they, individually or collectively, own at least 2% of its outstanding capital stock or the lesser of such percentage or shares of at least $2 million in market value) are entitled to file a derivative lawsuit claiming that its directors failed to balance stockholder and public benefit interests. This potential liability does not exist for traditional corporations. Therefore, we may be subject to the possibility of increased derivative litigation, which could cause us to incur additional expenses and liabilities and would require the attention of management and, as a result, may adversely impact management’s ability to effectively execute our strategy. Any such derivative litigation may be costly and have an adverse impact on our financial condition and results of operations.
Sales of substantial blocks of our Class A common stock into the public market, or the perception that such sales might occur, could cause the market price of our Class A common stock to decline.
Sales of substantial blocks of our Class A common stock into the public market or the perception that such sales might occur, could cause the market price of our Class A common stock to decline and may make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate. As of July 22, 2021, we had 36,300,484 shares of Class A common stock outstanding. All of the shares of Class A common stock sold in the IPO are freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our “affiliates” as defined in Rule 144 under the Securities Act.
Subject to certain exceptions, we, all of our directors and officers and all of the other holders of our capital stock and securities convertible into, or exchangeable for, our capital stock have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of Class A common stock without the permission of the underwriters for a period of 180 days from July 21, 2021. When the applicable
lock-up
period expires, we, our directors and officers and
locked-up
equityholders will be able to sell shares into the public market. The underwriters may, in their sole discretion, permit our directors and officers and
locked-up
equityholders to sell shares prior to the expiration of the restrictive provisions contained in the
“lock-up”
agreements with the underwriters.
Pursuant to the Amended and Restated Registration Rights Agreement, and subject to the
lock-up
agreements described above, holders of our Class B common stock have rights to require us to file registration statements covering the sale of shares of Class A common stock issuable upon exchange of the corresponding Class B units or to include such shares in registration statements that we may file for ourselves or other stockholders. See “
Organizational Structure—Amended and Restated Registration Rights Agreement”
in the Prospectus.
We have also registered the offer and sale of shares of common stock that we may issue under our equity compensation plans.
On July 26, 2021, we filed a registration statement on Form
S-8
under the Securities Act to register the 12,947,487 shares subject to outstanding options granted under the Zevia LLC 2011 Unit Incentive Plan, RCCCUs granted under the 2020 Plan and otherwise, outstanding phantom units, and shares of common stock reserved for issuance under the 2021 Plan. The 2021 Plan provides for automatic increases in the shares reserved for grant or issuance under the 2021 Plan which could result in additional dilution to our stockholders. The shares registered on this Form
S-8
can be freely sold in the public market upon issuance, subject to a
180-day
lock-up
period following the effectiveness of the initial public offering and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants.
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We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.
We do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Our charter documents and the DGCL could discourage takeover attempts and other corporate governance changes.
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include the following provisions that:
our board of directors are classified into three classes of directors with staggered
three-year
terms. Commencing with the annual meeting of stockholders to be held in 2027, directors of each class the term of which shall then expire shall be elected to hold office for a
one-year
term;
directors are only able to be removed from office with the affirmative vote of at least 66 2/3% of the voting power of all shares of our common stock then outstanding and, until the annual meeting of stockholders to be held in 2027, only for cause;
authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
prohibit stockholder action by written consent, which requires stockholder actions to be taken at a meeting of our stockholders;
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings;
provide the board of directors with sole authorization to establish the number of directors and fill director vacancies;
certain provisions of our amended and restated certificate may only be amended only with the approval of at least 66 2/3% of the voting power of all shares of our common stock then outstanding;
the board of directors is expressly authorized to make, alter, or repeal our amended and restated bylaws and that our stockholders may amend our bylaws only with the approval of at least 66 2/3% of the voting power of all shares of our common stock then outstanding; and
special meetings of the stockholders may only be called by the stockholders upon the written request of one or more stockholders of record that own, or who are acting on behalf of persons who own, shares representing 25% or more of the voting power of the then outstanding shares of capital stock entitled to vote on the matter or matters to be brought before the proposed special meeting.
In addition, as a Delaware corporation, we are subject to Section 203 of the DGCL. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time. In addition, our credit facility includes, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of certain change of control events relating to our company, which also could discourage, delay or prevent a business combination transaction.
Also, as a public benefit corporation, our board of directors is required by the DGCL 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 amended and restated certificate of incorporation. Additionally, pursuant to our amended and restated certificate of incorporation, a vote of at least 66 2/3% of our outstanding shares of voting stock is required for matters directly or indirectly amending or removing our public benefit purpose. We believe that our public benefit corporation status will make it more difficult for another party to obtain control of us without maintaining our public benefit corporation status and purpose. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our common stock in an acquisition.
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Our amended and restated certificate of incorporation includes an exclusive forum clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any complaint asserting any internal corporate claims, including claims in the right of the Company that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or as to which the DGCL confers jurisdiction upon the Court of Chancery. In addition, our amended and restated certificate of incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. This forum selection provision will not apply to claims brought to enforce a duty or liability created by the Exchange Act.
This choice of forum provision may limit a stockholder’s ability to bring a claim in other judicial forums for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees in jurisdictions other than Delaware, or federal courts, in the case of claims arising under the Securities Act. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. See the section entitled “
Description of Capital Stock—Exclusive Forum Clause
” in the Prospectus.
General Risk Factors
The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time- consuming or costly and increases demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal controls over financial reporting.
Significant resources and management oversight are required to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
Being a public company and these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
Our management team has limited experience managing a public company.
Most members of our management team have limited or no experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern public companies. There are significant obligations we are subject to relating to reporting, procedures and internal controls, and our management team may not successfully or efficiently manage our transition to being a public company. These new obligations and added scrutiny require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, operating results and financial condition.
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We have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our financial statements and have other adverse consequences.
We have identified material weaknesses in our internal control over financial reporting that we are currently working to remediate, which relate to (a) a lack of sufficient accounting resources, (b) inadequate segregation of duties, including access security to our IT systems, related to the preparation, review and posting of journal entries, and (c) the sufficiency of review over accounting analyses used in the classification of promotional activities and the accounting for equity transactions. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional material misstatements to our financial statements that could not be prevented or detected on a timely basis.
Our management has concluded that these material weaknesses in our internal control over financial reporting are due to the fact that we are a private company with limited resources and do not have the necessary business processes and related internal controls formally designed and implemented coupled with the appropriate resources and personnel with the appropriate level of experience and technical expertise to oversee our business processes and controls.
We have commenced measures to remediate the identified material weaknesses. These measures include adding additional accounting and financial personnel with industry experience during the quarter ended June 30, 2021, including experienced a Chief Accounting Officer to oversee internal controls and procedures and implement a formal closing process. In additional we also hired a Director of Financial Planning and Analysis, and Tax director. We also engaged a nationally recognized accounting firm in to work with us to establish, document and test our key internal controls in order for management to effectively assess the internal control environment and all its related aspects and significant processes. We intend to continue to take steps to remediate the material weaknesses described above and further evolving our accounting processes. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time. Our management will monitor the effectiveness of its remediation plans and will make changes management determines to be appropriate. If not remediated, these material weaknesses could result in further material misstatements to our annual or interim financial statements that might not be prevented or detected on a timely basis, or in delayed filing of required periodic reports. If we are unable to assert that our internal control over financial reporting is effective, or when required if our Independent Registered Public Accounting Firm is unable to express an unqualified opinion as to the effectiveness of the Company’s internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of the Class A common stock could be adversely affected and we could become subject to litigation or investigations by the New York Stock Exchange, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Reduced reporting and disclosure requirements applicable to us as an emerging growth company (EGC) could make our Class A common stock less attractive to investors.
We are an EGC and, for as long as we continue to be an EGC, we may choose to continue to take advantage of exemptions from various reporting requirements applicable to other public companies. Consequently, we are not required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, and we are subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and on the frequency of such votes as well as stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of the dates such pronouncements are effective for public companies. We could be an EGC for up to five years following the completion of the IPO. We will cease to be an EGC upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the IPO, (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in nonconvertible debt securities or (iv) the end of any fiscal year in which the market value of our Class A common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict whether investors will find our Class A common stock less attractive since we choose to rely on these exemptions. If some investors find our Class A common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class A common stock, and the price of our Class A common stock may be more volatile.
If we fail to maintain or implement effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business and the per share price of our Class A common stock.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
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Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. We have identified material weaknesses in our internal control over financial reporting that we are currently working to remediate, which relate to (a) a lack of sufficient accounting resources, (b) inadequate segregation of duties, including access security to our IT systems, related to the preparation, review and posting of journal entries, and (c) the sufficiency of review over accounting analyses used in the classification of promotional activities and the accounting for equity transactions. Further, additional weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.
We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. We will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.
Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results, and cause a decline in the market price of our Class A common stock.
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.
The trading market for our Class A common stock will partially depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our business prospects, our share price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
The estimates of market opportunity and forecasts of market growth included in our filings may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. For example, several of the reports rely on or employ projections of consumer adoption and incorporate data from secondary sources such as company websites as well as industry, trade and government publications. While our estimates of market size and expected growth of our market were made in good faith and are based on assumptions and estimates we believe to be reasonable, these estimates may not prove to be accurate. Even if the market in which we compete meets the size estimates and growth forecast in our filings, our business could fail to grow at the rate we anticipate, if at all.
Failure to retain our senior management may adversely affect our operations.
Our success is substantially dependent on the continued service of certain members of our senior management, including Paddy Spence, our Chair and Chief Executive Officer. These executives have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand, culture and the reputation we enjoy with suppliers, manufacturers, distributors, customers and consumers. The loss of the services of any of these executives could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause the price of our common stock to decline. We do not currently carry key-person life insurance for our senior executives other than for our Chief Executive Officer.
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The loss of any registered trademark or other intellectual property could enable other companies to compete more effectively with us.
We utilize intellectual property in our business. Our trademarks are valuable assets that reinforce our brand and consumers’ favorable perception of our products. We have invested a significant amount of money in establishing and promoting our trademarked brands. Our continued success depends, to a significant degree, upon our ability to protect and preserve our intellectual property.
We rely on confidentiality agreements and trademark law to protect our intellectual property rights. Our confidentiality agreements with our crew members and certain of our consultants, contract employees, suppliers and independent contractors, including some of our manufacturers who use our formulations to manufacture our products, generally require that all information made known to them be kept strictly confidential. Further, some of our formulations have been developed by or with our suppliers and manufacturers. As a result, we may not be able to prevent others from independently developing and using similar formulations.
We cannot assure you that the steps we have taken to protect our intellectual property rights are adequate, that our intellectual property rights can be successfully defended and asserted in the future or that third parties will not infringe upon or misappropriate any such rights. In addition, our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could prevent us in the future from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of our brand and products. Moreover, intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have an adverse effect on our business, financial condition and results of operations.
We rely on information technology systems and any inadequacy, failure, interruption or security breaches of those systems may harm our ability to effectively operate our business.
We are dependent on various information technology systems, including, but not limited to, networks, applications and outsourced services in connection with the operation of our business. No operational applications are physically hosted on our premises, although we do manage internal file servers. Most of our applications are operated in the cloud, either as Software as a Service (SaaS) platforms or hosted services. Key third-party, cloud- based systems include NetSuite, an enterprise resource planning system used for executing purchase orders and other key operational and accounting transactions; Microsoft OneDrive for document storing, sharing and collaboration; as well as other platforms to manage activities including, but not limited to, payroll and personnel data. Supply plans are driven by our demand plan, both of which are updated monthly and as needed, using Smoothie, also a SaaS application. A failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies and loss of sales, causing our business to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, viruses and security breaches. Any such damage or interruption could have a material adverse effect on our business.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking, email, and other online activities to connect with our employees, suppliers, manufacturers, distributors, customers and consumers. Such uses give rise to cybersecurity risks, including security breaches, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information, including customers’ and suppliers’ information, private information about employees and financial and strategic information about us and our business partners. Further, as we pursue new initiatives that improve our operations and cost structure, we will also be expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with new initiatives, we may become increasingly vulnerable to such risks. Additionally, we have been subject to security breaches and cyber incidents in the past and our preventative measures and incident response efforts may not be entirely effective at preventing future breaches. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability, remediation costs and competitive disadvantage all of which could have a material adverse effect on our business, financial condition or results of operations.
Our actual or perceived failure to comply with privacy, data protection and information security laws, regulations and obligations could harm our business.
We are subject to numerous federal, state, local and international laws and regulations regarding privacy, data protection, information security and the storing, sharing, use, processing, transfer, disclosure and protection of personal information and other content and data, which we refer to collectively as privacy laws, the scope of which is changing, subject to differing interpretations and may be inconsistent among countries, or conflict with other laws, regulations or other obligations. We are also subject to the terms of our privacy policies and obligations to our customers and other third parties related to privacy, data protection and information security. We strive to comply with applicable privacy laws; however, the regulatory framework for privacy and data protection worldwide is, and is likely to remain for the foreseeable future, varied, and it is possible that these or other actual obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another.
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California also recently enacted legislation affording consumers expanded privacy protections: the California Consumer Privacy Act of 2018, or CCPA, went into effect as of January 1, 2020 and was subject to enforcement starting July 1, 2020. Additionally, the California Attorney General issued CCPA regulations that add additional requirements on businesses. The potential effects of this legislation and the related CCPA regulations may require us to incur substantial costs and expenses in an effort to comply. For example, the CCPA gives California residents (including employees, though only in limited circumstances until January 1, 2023) expanded rights to transparency, access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is collected and used. The CCPA also
provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act, or CPRA, was approved by California voters in the November 3, 2020 election. The CPRA significantly modifies the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in efforts to comply. The enactment of the CCPA and CPRA is prompting similar legislative developments in other states in the United States, which could create the potential for a patchwork of overlapping but different state laws, and is inspiring federal legislation.
Further, some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of operating our products and services and other aspects of our business.
With laws and regulations such as the CCPA/CPRA imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, there is a risk that the requirements of these or other laws and regulations, or of contractual or other obligations relating to privacy, data protection or information security, are interpreted or applied in a manner that is, or is alleged to be, inconsistent with our management and processing practices, our policies or procedures, or the features of our products and services. We may face challenges in addressing their requirements and making any necessary changes to our policies and practices, and we may find it necessary or appropriate to assume additional burdens with respect to data handling, to restrict our data processing or otherwise to modify our data handling practices and to incur significant costs and expenses in these efforts. Any failure or perceived failure by us to comply with our privacy policies, our privacy, data protection or information security-related obligations to customers or other third parties or any of our other legal obligations relating to privacy, data protection or information security may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others, and could result in significant liability or cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the adoption and use of, and reduce the overall demand for, our products and services.
Additionally, if third parties we work with, such as vendors or developers, violate applicable laws or regulations or our contracts and policies, such violations may also put our customers’, suppliers or other third parties’ content and personal information at risk and could in turn have an adverse effect on our business. Any significant change to applicable privacy laws or relevant industry practices could increase our costs and require us to modify our platform, applications and features, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process customer data or develop new applications and features.
Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition.
Adverse and uncertain economic conditions may impact distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, manufacturers, distributors, retailers and creditors may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. In addition, consumers may choose to purchase private label products rather than branded products because they are generally less expensive. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors, retailer customers, our ability to attract new consumers, the financial condition of our consumers and our ability to provide products that appeal to consumers at the right price. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs, which may in turn impair our growth.
We intend to continue to grow our business, which may require additional capital to develop new products or enhance our platform, expand distribution, improve our operating infrastructure or finance working capital requirements. Accordingly, we may need to engage in additional equity or debt financings to secure additional capital. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to secure additional funding on favorable terms, or at all, when we require it, our ability to continue to grow our business to react to market conditions could be impaired and our business may be harmed.
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Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds
On July 26, 2021, we completed our IPO, pursuant to which we issued and sold an aggregate of 10,700,000 shares of Class A common stock at the IPO price of $14.00 per share. The aggregate gross proceeds to the Company from our IPO were $149.8 million and the net proceeds were $139.7 million after deducting underwriting discounts and commissions of $10.1 million.
The offer and sale of the shares of common stock in the IPO were registered pursuant to registration statements on Form S-1 (File No. 333-257378), which the SEC declared effective on July 21, 2021. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10% or more of any class of our equity securities or to any other affiliates. The underwriters for our IPO were Goldman Sachs & Co. LLC, BofA Securities, Inc., Morgan Stanley & Co. LLC, Stephens Inc., BMO Capital Markets Corp., Wells Fargo Securities, LLC, Telsey Advisory Group LLC, Loop Capital Markets LLC, Academy Securities, Inc., AmeriVet Securities, Inc. and Samuel A. Ramirez & Company, Inc.
There has been no material change in the use of proceeds as described in the Prospectus.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On August 10, 2021, uponInformation

(c) None of our directors or executive officers adopted or terminated a proposal from Padraic “Paddy” Spence,Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s Chief Executive Officer, the independent membersquarter ended March 31, 2024, as such terms are defined under Item 408(a) of the Board unanimously approved a reduction of Mr. Spence’s annual base salary to $1.00 and eliminated Mr. Spence’s target annual bonus, effective as of August 1, 2021.

Regulation S-K.

Item 6. [Reserved]

Not applicable.

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28


EXHIBIT INDEX

  Exhibit

No.

Description of Exhibit

    3.1

Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2021).

    3.2

Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2021).

  10.1*

    4.1

Thirteenth Amended and Restated Limited Liability Company AgreementDescription of Zevia LLC Agreement dated as of July 21, 2021.

  10.2*Tax Receivable Agreement dated as of July 21, 2021.
  10.3*Zevia PBC Eleventh Amended and Restated Registration Rights Agreement dated July 21, 2021.
  10.4*#Severance Agreement dated as of July 26, 2021 by and between Zevia LLC and Robert Gay.
  10.5*#Severance Agreement dated as of July 26, 2021 by and between Zevia LLC and Harry Margolis.
  10.6*#Severance Agreement dated as of July 26, 2021 by and between Zevia LLC and Padraic Spence.
  10.7Form of Indemnification Agreement entered into with Directors and Executive Officers (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A, filed on July 12, 2021).
  10.8#Zevia PBC 2021 Equity Incentive PlanSecurities (incorporated herein by reference to Exhibit 99.14.1 to the Company’s Registration StatementAnnual Report on Form S-810-K filed with the SEC on July 26, 2021)March 11, 2022).

  10.9#

    10.1#

Form of Restricted Stock Unit Award Grant NoticeLetter Agreement dated February 7, 2024 between the Company and Standard Terms and Conditions under the Zevia PBC 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8Girish Satya. filed with the SEC on July 26, 2021).

  10.10#

    10.2#

Form of Nonqualified Stock Options Grant NoticeSeverance Agreement dated February 21, 2024 between the Company and Standard Terms and Conditions under the Zevia PBC 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8Girish Satya. filed with the SEC on July 26, 2021).

  10.11#

    31.1*

Form of Zevia LLC First Amendment to Notice of Restricted Phantom Class C Common Unit Award and Restricted Phantom Class C Common Unit Agreement (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1/A, filed on July 12, 2021).

  10.12#Offer Letter dated June 9, 2021 between Zevia LLC and Amy Taylor (incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1/A, filed on July 12, 2021).
  31.1*Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    32**

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  101.INS*

Inline XBRL Instance Document

  101.SCH*

Inline XBRL Taxonomy Extension Schema Document

  101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

  101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

  101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

  101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

  104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Filed herewith.

#

**

Furnished herewith.

#

Management contract or compensatory plan or arrangement.

61

29


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportQuarterly Report to be signed on its behalf by the undersigned hereuntothereunto duly authorized.

Zevia PBC

ZEVIA PBC

By:

/s/ Amy E. Taylor

Name:

Amy E. Taylor

Dated: August 13, 2021

By:

/s/ Padraic Spence

Title:

Padraic Spence

President and Chief Executive Officer

(Principal Executive Officer)

Date:

May 8, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:

/s/ Amy E. Taylor

Dated: August 13, 2021

Name:

By:

Amy E. Taylor

/s/ William D. Beech

Title:

President and Chief Executive Officer

William D. Beech

(Principal Executive Officer)

Date:

May 8, 2024

By:

/s/ Girish Satya

Name:

Girish Satya

Title:

Chief Financial Officer

(Principal Financial Officer)

Date: August 13, 2021

Date:

By:

May 8, 2024

By:

/s/ Hany Mikhail

Name:

Hany Mikhail

Title:

Chief Accounting Officer

(Principal Accounting Officer)

Date:

May 8, 2024

30

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