S-1 1 d115565ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on June 25, 2021.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Zevia PBC

(Exact name of registrant as specified in its charter)

 

Delaware   2086   86-2862492
(State or other jurisdiction of
incorporation or organization)
 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

15821 Ventura Blvd., Suite 145

Encino, CA 91436

(855) 469-3842

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Padraic (“Paddy”) Spence

Chair and Chief Executive Officer

Zevia PBC

15821 Ventura Blvd., Suite 145

Encino, CA 91436

(855) 469-3842

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Andrew Fabens

Stewart McDowell

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, NY 10166

(212) 351-4000

 

Steven B. Stokdyk

Brent T. Epstein

Latham & Watkins LLP

355 South Grand Avenue,

Los Angeles, CA 90071-1560

(213) 485-1234

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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 registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of
Securities to be Registered
  Proposed
Maximum
Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee

Class A common stock, par value $0.001 per share

  $100,000,000   $10,910

 

 

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”)

(2)

Includes shares subject to the underwriters’ option to purchase additional shares, if any.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated June 25, 2021

PROSPECTUS

            Shares

LOGO

 

zevia

Class A Common Stock

 

 

This is Zevia PBC’s initial public offering. We are selling                shares of our Class A common stock.

We expect the public offering price to be between $                and $                per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares of our Class A common stock will trade on the New York Stock Exchange under the symbol “ZVIA.”

Each share of Class A common stock and Class B common stock will entitle the holder to one vote. The Class B stockholders will hold                % of the combined voting power of our common stock immediately after this offering. See “Organizational Structure.”

We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for this and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

We elected in March 2021 to be treated as a public benefit corporation under Delaware law. 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. Accordingly, our duty to balance a variety of interests may result in actions that do not maximize stockholder value.

 

 

Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 27 of this prospectus.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount

   $        $    

Proceeds to us, before expenses

   $        $    

The underwriters may also exercise an option to purchase up to an additional                shares of our Class A common stock from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of Class A common stock will be ready for delivery on or about                     , 2021.

 

Goldman Sachs & Co. LLC    BofA Securities    Morgan Stanley
Stephens Inc.    BMO Capital Markets    Wells Fargo Securities

 

 

The date of this prospectus is                     , 2021.


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LOGO
Zevia
LIVE YOUR BEST


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LOGO

Zevia LIVE YOUR BEST
ZERO SUGAR.
ZERO CALORIES.
SIMPLE, PLANT-BASED INGREDIENTS.


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LOGO

A GLOBAL MISSION, DRIVEN BY A CORE SET VALUES
Zevia is focused on providing real social and behavioral impact
Zevia LIVE YOUR BEST ZERO CALORIE SODA ZERO SUGAR. ZERO CALORIES. SIMPLE, PLANT-BASED INGREDIENTS. Zevia LIVE YOUR BEST


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TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     27  

FORWARD-LOOKING STATEMENTS

     58  

ORGANIZATIONAL STRUCTURE

     60  

USE OF PROCEEDS

     70  

DIVIDEND POLICY

     71  

CAPITALIZATION

     72  

DILUTION

     74  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

     77  

SELECTED HISTORICAL FINANCIAL INFORMATION

     86  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     89  

LETTER FROM PADDY SPENCE, OUR CHAIR AND CHIEF EXECUTIVE OFFICER

     106  

BUSINESS

     108  

MANAGEMENT

     128  

EXECUTIVE COMPENSATION

     137  

PRINCIPAL STOCKHOLDERS

     145  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     148  

DESCRIPTION OF CAPITAL STOCK

     158  

SHARES ELIGIBLE FOR FUTURE SALE

     164  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK

     166  

UNDERWRITING

     170  

LEGAL MATTERS

     176  

EXPERTS

     176  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     176  

INDEX TO FINANCIAL STATEMENTS

     F-1  

Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

For investors outside of the United States: We have not and the underwriters have not, done anything that would permit this offering, or possession or distribution of this prospectus, in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.

 

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GENERAL INFORMATION

Unless otherwise indicated or the context otherwise requires, references in this prospectus to (i) “Zevia PBC” refer to Zevia PBC, a Delaware public benefit corporation, the company conducting the offering made pursuant to this prospectus and not to any of its subsidiaries and (ii) the “Company,” “we,” “us,” “our” and “Zevia” refer to Zevia PBC and its consolidated subsidiaries. Zevia PBC was incorporated as a Delaware public benefit corporation on March 23, 2021 and, prior to the consummation of the Reorganization described herein and our initial public offering, did not conduct any activities other than those incidental to our formation and our initial public offering.

Basis of Presentation

This prospectus includes certain historical financial and other data for Zevia LLC, a Delaware limited liability company. Following this offering, Zevia LLC will be the predecessor of Zevia PBC for financial reporting purposes. Immediately following this offering, Zevia PBC will be a holding company, and its sole material asset will be a controlling equity interest in Zevia LLC. As the sole managing member of Zevia LLC, Zevia PBC will operate and control all of the business and affairs of Zevia LLC and, through Zevia LLC, conduct our business. The Reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Zevia PBC 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. Zevia PBC 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. See “Organizational Structure.”

Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

Market and Industry Data

Within this prospectus, we reference estimates, projections and other information and statistics regarding the beverages industry, our business and the markets for our products. We have obtained this information and statistics from various independent third-party sources, including independent industry publications, reports by market research firms and other independent sources, such as Euromonitor International Limited. Some data and other information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of internal research and surveys, independent sources and our knowledge of the market. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within this industry. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. We have not independently verified market data and industry forecasts provided by any of these or any other third-party sources referred to in this prospectus. In addition, assumptions and estimates of our and our industries’ future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. These and other factors, including those described in the sections titled “Risk Factors” and “Forward-Looking Statements” could cause our future performance to differ materially from our assumptions and estimates. As a result, you should be aware that market, ranking and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable. Neither we nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus.

 

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Unless otherwise expressly stated, we obtained industry, business, market and other data from the reports, publications and other materials and sources listed below. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

The sources of certain statistical data, estimates and forecasts contained in this prospectus include the following independent industry publications or reports:

 

   

SPINS LLC, Food, Mass, Drug, Warehouse Club, Convenience, and Foodservice Channel Data for the 52 Weeks Ending June 14, 2020, Loyalty Rate Data for the 52 Weeks Ending April 25, 2021, Stores, Market Share, Total Distribution Points and Channel and Brand Data for the 4 Weeks Ending December 27, 2020 and 52 Weeks Ending December 27, 2020, April 18, 2021, April 25, 2021 and May 16, 2021;

 

   

Numerator Insights, Shopper Metrics regarding Amazon Zevia Buyers, February 1, 2020 to January 31, 2021, Shopper Metrics regarding Buy Rate, December 30, 2019 to December 27, 2020 and April 1, 2020 to March 31, 2021, Shopper Metrics regarding consumer purchases of flavors and categories for the 52 Weeks Ending February 28, 2021, Shopper Metrics regarding Brand Household Penetration, May 4, 2020 to May 2, 2021;

 

   

Stackline Inc., www.stackline.com, Amazon Soda Brand Rankings, for the 52 Weeks Ending April 17, 2021;

 

   

Euromonitor International Limited, Soft Drinks 2020ed, global liquid refreshment market defined as Bottled Water, Carbonates, RTD Tea, Energy Drinks, RTD Coffee, Sports Drinks, Juice, Concentrates, and Asian Specialty Drinks, total value RSP, constant 2020 prices, fixed exchange rates, quarterly update published March 2021; and

 

   

Non-alcoholic beverages and soft drinks in the United States (Statista); Beverage-Digest Fact Book 25th Edition.

Information contained on any website or linked therein or otherwise connected thereto does not constitute part of and is not incorporated by reference into this prospectus or the registration statement of which this prospectus forms a part. We have included the website address in this prospectus solely as an inactive textual reference.

Trademarks

We own or have the rights to use various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and does not, imply a relationship with, or endorsement or sponsorship by, us. Solely for convenience, the trademarks, service marks and trade names presented in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names.

 

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PROSPECTUS SUMMARY

This summary highlights selected information discussed in this prospectus. The summary is not complete and does not contain all of the information you should consider before investing in our Class A common stock. Therefore, you should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes included elsewhere in this prospectus, before making a decision to purchase shares of our Class A common stock. Some of the statements in this summary constitute forward-looking statements. See “Forward-Looking Statements.

Overview

Zevia is a high-growth beverage company that is disrupting the liquid refreshment beverage industry through delicious and refreshing, zero calorie, zero sugar, naturally sweetened beverages that are all Non-GMO Project Verified. We are a pioneering beverage brand, offering a platform of products that 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. Our products are distributed across the U.S. and Canada through a diverse network of major retailers in the food, drug, mass, natural and ecommerce channels. We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the Zevia brand and resulted in over one billion cans of Zevia sold to date.

We are guided by our mission to support the health of individuals and the communities we serve by creating zero calorie, naturally sweetened beverages. This purpose sets the foundation for our existence, as we strive to make the world a better place. Our focus on environmental, social and corporate governance, or ESG, impact is core to how we do business, and we believe makes us a more successful company. These ideals are embodied through our “Certified B Corporation” status, and we are acutely focused on:

 

   

Improving Public Health: The U.S. Centers for Disease Control and Prevention warns that Americans are consuming too much added sugars in their diets, which can lead to health problems. One of the leading sources of added sugars in the U.S. diet is sugar-sweetened beverages. Zevia products help consumers reduce their sugar intake and avoid artificial ingredients by offering a refreshing and enjoyable zero sugar, naturally sweetened alternative to high-sugar and artificially sweetened competitors. We estimate that by choosing Zevia, our consumers have eliminated almost 40,000 metric tons of sugar from their diets since 2011.

 

   

Providing Access: We are committed to supporting underserved communities by partnering with health professionals such as dietitians and nutrition educators to provide health-focused educational materials, webinars and product samples that educate patients and address the effects of sugary beverage consumption. Our products are priced at an average retail cost per ounce of $0.07, representing the 37th percentile within all liquid refreshment beverages, which include all non-alcoholic ready-to-drink beverages, excluding dairy and non-dairy protein, and are therefore affordable for a broad range of income brackets, making Zevia an economically attractive option for a wide range of consumers.

 

   

Delivering Sustainability: We actively seek to minimize our environmental impact and continuously re-evaluate our packaging formats and processes to limit environmental waste. We have never sold a single plastic bottle, which we estimate has eliminated 15,000 metric tons of plastic bottles from the supply chain by selling only aluminum packaging since 2011. In



 

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addition, one of our main ingredients, stevia, requires less agricultural water resources than sugar, furthering our sustainability mission.

 

   

Creating An Inclusive Company Culture: Our social impact mission extends beyond the can and is embedded in the way we treat our people – all full-time Zevia employees have an equity interest in the Company, are paid a fair wage and receive robust benefits.

 

   

Driving Positive Social Change: We are a Delaware public benefit corporation and have been designated as a “Certified B Corporation” by B Lab, an independent non-profit organization, in recognition that we balance profit and purpose to meet the highest verified standards of social and environmental performance, public transparency and legal accountability.

Our platform of tasty beverages combined with our global mission and core set of values has been validated by our resonance with consumers and our growth in sales.

 

LOGO ACCESS SUSTAINABILITY POSITIVE SOCIAL CHANGE COMPANY CULTURE PUBLIC HEALTH

Since our founding in 2007, we have grown from three flavors of soda to a platform brand with six product lines and approximately 37 flavor variations. Although we compete in the cola segment, it represented only 24% of our total sales in 2020. In addition to Cola, our soda flavors include Cream Soda, Ginger Ale, Grape, Lemon Lime Twist and others, many of which are leaders in their respective flavor segment. Every Zevia line offers multiple exciting options, including Mango / Ginger Energy, Organic Peach Black Tea, Ginger Beer, Fruit Punch Kidz and Cucumber Lemon Sparking Water. Each of our product lines has been carefully crafted for consumer enjoyment, ensuring that flavor is not sacrificed in the process of eliminating unhealthy sugar and artificial ingredients including coloring, preservatives and flavors. In addition, continuous improvement is a Zevia core value, and as such we strategically reformulate our products to further enhance taste and simplify ingredients.

Our single brand, with a common set of ingredients that adhere to the same philosophy of creating zero calorie, zero sugar and naturally sweetened beverages, is a clear point of differentiation. This consistency across the portfolio provides multiple points of entry for consumers into the Zevia brand. With a broad variety of flavors across each category, we believe there is a Zevia beverage for every family member, time of day and usage occasion. Our plant-based ingredients are suitable for a broad range of lifestyles and dietary regimens, including vegan, gluten-free, Kosher, low sodium, and zero sugar, giving consumers broader choices to support their needs.


 

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LOGO

SODA Variety of familiar flavors for the whole family Lighter sweetness than conventional sodas ENERGY 120mg caffeine with no additional supplements Plant-based energy with simple ingredients TEA USDA Organic Fair Trade brewed tea Pioneer in zero calorie, naturally sweetened tea line MIXERS Pioneer in zero calorie, naturally sweetened mixers Bold flavor with no empty calories KIDZ Fruit flavors with just a little sweetness Lightly carbonated, with smaller cans for smaller hands

We benefit from sustained shifts across the liquid refreshment beverage market. Consumers are becoming more health conscious and focused on reducing sugar in their diets and are increasingly averse to added sugars versus naturally-occurring sugars. Many consumers are also more conscious of making choices with sustainability in mind, including plastic waste reduction. We believe that these shifts represent a significant change in consumer habits around the world. As a great-tasting, clean label beverage supporting a positive environmental and social impact, Zevia is positioned to appeal to a broad range of consumer needs in our current markets and beyond.

Consumers can purchase our products in both brick and mortar and ecommerce channels. Zevia was initially distributed in the U.S. natural products retail channel, where we still maintain the leading position. Fueled by a loyal and growing 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.

Zevia is a true omnichannel brand. Our strong ecommerce position has created a platform for discovery, trial and repurchase and represented 13% of our sales in 2020. In 2020, we were distributed in more than 20,000 retail locations in the U.S. according to SPINS. We estimate that we had approximately 88% market share among zero calorie naturally sweetened soft drinks in 2020. With significant room to grow within the broader soft drink category, we estimate that we held an 18% market share in the Natural Enhanced channel and a 0.4% market share in conventional retail channels in 2020 according to SPINS. We believe that merchandising Zevia results in material benefits to our retail stores, driving incremental category spending.

Our business is supported by a flexible and efficient supply chain that currently has the capacity to support our continued growth. Zevia beverages are produced and distributed through a network of third-party contract manufacturers and distribution centers. We have strong, long-standing relationships across our supply chain, creating an expansive supply network with large capacity for continued growth.


 

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We have experienced significant sales growth over the past ten years, increasing our net sales from $7 million in 2010 to $110 million in 2020, representing a 32% compound annual growth rate. According to SPINS, our retail sales growth has outpaced the zero calorie soda category in the food, drug and mass channel for the 52 weeks ended May 16, 2021. We have been able to drive net sales growth through a purposeful combination of distribution gains and velocity improvements, measured by retail sales per total distribution points. In 2020, we sold almost 240 million cans, our net sales grew to $110.0 million, a 29% increase from $85.6 million in 2019, our gross profit grew to $49.6 million, a 34% increase from $36.9 million in 2019, and our gross margin expanded to 45%, a 200 basis point increase from 43% in 2019. We intend to continue to invest in innovation, new product development, supply chain capabilities and marketing initiatives, as we believe the demand for our products will continue to increase globally across both brick and mortar and ecommerce channels. We believe that our asset light model drives an attractive financial profile with strong gross margins and modest capital expenditures.

Annual Net Sales

 

LOGO Retail Sales ($mm) # of stores selling zevia Retail sales per store per cagr:19% cagr: 7% cagr: 11% $76 $101 $128 18,136 21,344 22,043 $4,204 $4,736 $5,789 2018 2019 2020

 

 

Retail Sales ($mm)   # of Stores Selling Zevia   Retail Sales per Store per Year
LOGO   LOGO   LOGO

Industry Overview

We believe there is a sustained shift in consumer demand for better-for-you products that is transforming the $771 billion global liquid refreshment beverages market. This market, which is expected to grow at a 1.4% compound annual growth rate from 2019 to 2025 according to Euromonitor, is comprised of a broad set of categories that includes both current and potential Zevia offerings: soft drinks, energy drinks, ready-to-drink teas and coffees, mixers, kids beverages, sparkling water, isotonics and juice. Our categories have tremendous reach, creating significant runway to extend the Zevia brand.

The global beverages industry is comprised primarily of legacy, multinational category leaders. Consumer mega-trends, including growing concerns about the negative health impacts of sugar, consumers’ perception of artificial ingredients and the proliferation of plant-based alternatives, have allowed for emerging brands with reduced sugar products and natural product formulations to disrupt


 

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the status quo and capture market share from incumbent category leaders. Conventional carbonated soda per-capita consumption has declined from approximately 45.5 gallons in 2010 to approximately 38.6 gallons in 2019 according to Statista and Beverage Digest, while the Zevia brand has scaled from $7 million to $86 million in net sales over the same period.

Consumer Mega-Trends Driving Category Growth

 

   

Health and Wellness—health and wellness has become a significant focus in our everyday lives, especially for the growing Millennial and Gen-Z demographics. According to Euromonitor, the global health and wellness beverage category generated $301 billion in retail sales in 2020 and grew at a 2.0% compound annual growth rate (“CAGR”) from 2018 to 2020, and is expected to grow at a CAGR of 2.8% from 2019 to 2025.

 

   

Plant-Based Alternatives—the proliferation of plant-based alternatives has accelerated in conjunction with consumer concern with sugar content in their diets. U.S. adults have become more concerned with the level of sugar in their diets, and are particularly concerned with sugar content in their sodas and carbonated beverages.

 

   

Sustainability and Transparency—sustainability and transparency are influencing consumers’ purchase decisions, which we believe makes them more inclined to choose brands with post-consumable or recyclable packaging and ethical supply chain practices.

 

   

Omnichannel—consumers are changing the way they shop, and the brand discovery and selection process has migrated from retail locations to online. For omnichannel brands, ecommerce is both a transaction and a discovery opportunity, and this trend has benefited from a meaningful acceleration over a multi-year period.

 

 

LOGO

Zevia creates zero calorie, zero sugar beverages for the everyday consumer Zevia is made with a handful of simple, plant based ingredients you can pronounce Zevia cares about preserving the environment and has NEVER sold a plastic Bottle where they are, including the #1 carbonated soft drink product

We believe that consumers are seeking out brands they can trust and that align with their values, and that they are becoming increasingly aware of the harmful effects of sugar. At Zevia, it is part of our mission to both educate consumers and offer a solution. Non-diet soft drinks make up almost half of total added sugars for American consumers according to the American Journal of Clinical Nutrition, with most 12-ounce cans of sugar-laden soda containing 35 to 45 grams of sugar. Consuming sugary



 

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drinks regularly can increase the risk of type 2 diabetes, heart disease and other chronic diseases. Our products enable consumers to cut their added sugar intake in half without sacrificing flavor. Given the extensive availability of scientific and health data, consumers are becoming more aware of the benefits of maintaining a healthy lifestyle and a clean environment. Today’s consumers expect more than just a refreshing moment from the beverage brands they purchase, which presents an opportunity for better-for-you and socially responsible brands to gain share and redefine the future of the beverage industry. We believe Zevia is poised to benefit from these shifts in shopper patterns and the evolving landscape going forward.

Beverages in the U.S. containing zero calorie, plant-based sweeteners have grown from approximately $90.8 million in 2018 to $150.6 million in 2020, representing a 65.9% increase, compared to the broader U.S. liquid refreshment beverage industry which has grown from $69.8 billion in 2018 to $78.9 billion in 2020, representing a 12.9% increase, according to SPINS. These beverages can help address global health concerns, such as heart disease, cancer and diabetes, as well as reduce environmental impacts like plastic pollution. We believe consumer awareness of the negative health and environmental impacts of traditional, sugar-laden beverages is changing and accelerating the trajectory of our industry. In addition to shifting consumer preferences, regulatory changes are driving growth as well with governments in more than 50 jurisdictions imposing various taxes on sugary beverages.

Our Strengths

A Powerful Brand Platform Built Upon a Core Set of Values

Our brand platform is built around our mission to provide great-tasting and refreshing beverages that support healthier lifestyles, delivered in sustainable packaging. Our brand was created as a solution to the harmful effects of sugar, and the testament to that vision is the over one billion cans we have sold to date.

We market Zevia under one unified brand across multiple beverage categories, including Soda, Energy Drinks, Ready-To-Drink Teas, Mixers, Kidz drinks and Sparkling Water. We believe our brand has extensive consumer reach potential, as we deliver beverage offerings with a diversity of flavors and categories that appeal to every family member, time of day, and usage occasion. This is evidenced by our #1 brand ranking within carbonated soft drink brands in the Natural Enhanced channel according to SPINS, and as the #1 selling carbonated soft drink brand on Amazon in 2020 based on dollar sales according to Stackline.

We have established an authentic, trusted brand that supports the health of individuals. The Zevia brand promise is to offer delicious beverages that are better for you and better for the environment. We take pride in our ability to educate our consumers and our communities about the harmful effects of sugar, and the value of reducing plastic waste by using only aluminum cans as beverage containers.

Zero Sugar, Naturally Sweetened Products that Address Consumer Concerns

We believe we are well positioned within the $771 billion global liquid refreshment beverages market to capitalize on growing consumer demands for zero sugar, naturally sweetened, sustainable products that address global concerns such as heart disease, diabetes, obesity and plastic pollution. We believe our brand competes with any and every liquid refreshment beverage offering as our consumers choose Zevia beverage not only for the great taste, but also because of consumers’ positive perception of our health and sustainability attributes.



 

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The broader beverage industry is dominated by brands closely aligned with sugar and artificial ingredients, and many of whose ingredients are difficult to pronounce. As such, large brands collectively lost billions in market share in 2020, while emerging brands like Zevia are building deeper, values-based relationships with consumers, and delivering more innovative products that support healthy lifestyles.

Given Zevia’s tremendous brand promise and focus on global consumer needs, we remain excited about our ability to effectively enter new categories, channels and geographies as we grow, and continue to take share. Zevia has outpaced the broader Zero Calorie Soda category; according to SPINS, Zevia has experienced 25% and 14% retail sales growth in the last 52 and 12 weeks ended May 16, 2021, respectively, while the category has experienced 9% and 3% during the same periods.

 

LOGO

Passionate and Loyal Consumer Base

Our brand has grown significantly over the past decade, which has been largely tied to our dedicated consumer base. We believe that our products provide a great tasting, better-for-you solution for every family member, usage occasion and time of day, as evidenced by the repurchase and loyalty rates of Zevia shoppers. We measure loyalty, or “share of stomach,” based on how much brand purchasers spend in dollar sales on that brand, as a percentage of their total category spending. Among leading beverage brands, Zevia’s “share of stomach” was equal to or greater than category-leading, multi-billion dollar zero calorie brands for the 52 weeks ended April 25, 2021, according to SPINS. Additionally, we believe our repurchase rate compares favorably relative to those same category leading brands.

We believe our consumers are our best advocates and their loyalty is rooted in their alignment with our messaging and mission. Our passionate consumer base over-indexes to Millennials, whom we believe will continue to favor our better-for-you, more sustainable liquid refreshment beverages as they age. Our consumer base also includes families and health-conscious consumers, whom we believe increasingly seek better-for-you options and are driven less by discounts. In addition, we believe the majority of Zevia consumers come from other traditional and low-calorie soda brands, a meaningful share of consumers purchase Zevia as an incremental beverage and a handful of consumers migrate


 

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from energy drinks, juice and waters. We believe that consumers care about their diets and their planet, and are willing to pay a premium for those attributes. Zevia drinkers have historically increased their brand spending over time, and tend to spend more on average than traditional shoppers within the soft drink, energy and ready-to-drink tea categories. According to Numerator, for the 52 weeks ended February 28, 2021, Zevia consumers increased their spending nearly three-fold as they were exposed to more flavors, and two to three times more as they tried additional product categories.

Strong Relationships with Retailers Across Channels

We have grown and maintained strong relationships across our retailer network as Zevia products generate incremental consumer spending in the categories in which we compete. We offer our products at a premium yet accessible price point, which appeals to consumers given our taste and health attributes, and we believe also offers retailers materially higher gross margins from Zevia than from the broader category according to retailer feedback. Notwithstanding these higher retailer margins, Zevia products have an average retail cost per ounce of $0.07, representing the 37th percentile within liquid refreshment beverages according to Stackline. We help deliver meaningful growth to retailers by providing them with terms and timelines that are best for our brand and relationships.

Our customer network is comprised of the leading food retailers across the U.S. and Canada, as well as the largest online marketplace in North America, Amazon, where we were the #1 selling carbonated soft drink brand in 2020 based on dollar sales according to Stackline. We have experienced 29% sales growth in 2020 across all our channels, and 21% growth in brick and mortar. Over the same time period, we have grown both dollar and unit sales, and believe that our higher loyalty rates and positioning within the beverage space have resulted in limited purchasing on promotion. Our performance across the past decade has led retailers to reward Zevia with increased shelf space and distribution points for our portfolio of products.

Our omnichannel presence, including our leadership in the natural products retail channel and on Amazon, increases consumer exposure to and trial of our products, which we believe will drive repeat purchases and further our growth across all channels.


 

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Asset-Light Business Model

We use third-party contract-manufacturing and logistics providers, which offers us financial flexibility, scalability, and allows us to more closely focus on executing our strategic initiatives across sales, marketing, innovation, and ESG.

Our asset-light business model is designed to leverage reduced costs and overhead, with capital expenditures of less than 1% of net sales in each of the last two years. Our model supports our strategic initiatives and financial flexibility.

We work closely with our external supply chain to maximize forward-looking capacity and take a thoughtful approach to how we can leverage our existing relationships with our innovation efforts. Over time, we expect to further benefit from economies of scale, resulting in increased gross margin and expanding cash flow generation, providing significant financial flexibility to continue to reinvest in our business as we scale.

Mission-Driven Leadership and Generous Company Culture

Our passion to democratize healthier lifestyles is driven by our high-energy, entrepreneurial, and mission-driven management team, comprised of executives with an average track record of more than 20 years of success in growing better-for-you brands. Led by our Chair and CEO, Paddy Spence, our management team is obsessively focused on creating real social impact through combatting the harmful effects of sugar and artificial ingredients, as well as the environmental challenges posed by the proliferation of single-use plastic packaging.

The sentiment of our leadership permeates throughout our organization as we have attracted highly engaged employees and built an inclusive company culture to be proud of: every full-time Zevia employee has an equity interest in the company, our fair wages ensure proper compensation, and our robust benefits allow people to feel secure in their work environment. We have been awarded the following Comparably awards in recognition of our mission-driven culture: 2020 Best CEOs for Diversity, 2020 Best CEOs for Women, 2020 Best Company Leadership, 2020 Best Company Professional Development, 2020 Best Company Happiness, 2020 Best Company Perks & Benefits, 2020 Best Company Compensation, 2020 Best Company Work-Life Balance, 2020 Best CEO, 2021 Best Operations Teams, 2021 Best Places to Work in Los Angeles and 2021 Best Company Outlook.

The result of these policies and philosophies is that we have been designated as a “Certified B Corporation.” The entire Zevia family thrives off of doing well while doing right, maximizing consumer enjoyment while having a ton of fun along the way!

Our Growth Strategies

We believe that our commitment to delicious, better-for-you beverages and making the world a better place positions us for long-term success in a massive global industry.

Leverage Our Platform and Mission to Increase Velocity and Expand Our Consumer Base

Developing relationships with a broad consumer base is key to our future success. Amongst our consumers, we have a loyalty rate, or “share of stomach,” of 45.7% for the 52 weeks ended April 25, 2021 according to SPINS, on par with that of the category brand leader in zero calorie soda. We believe that our great tasting product offerings, which provide solutions for multiple day parts, usage


 

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occasions and family members, contribute to this high loyalty rate. We have been able to retain this loyal consumer base with our unrelenting focus on core beliefs, the quality of our products and the lifestyles they speak to.

We are undertaking a number of initiatives to increase product trial and enhance brand messaging, which include increased investments in digital marketing, constant innovation, and expanding distribution. According to Numerator, our household penetration of 3.7% during the 52 weeks ended May 2, 2021 is extremely low when compared to 40% to 67% penetration of full calorie category brand leaders, and we see a meaningful opportunity to grow by increasing our trial alone. We anticipate that as we continue to scale and enter new categories and channels, more people will become aware of our brand and mission. As our brand trial grows, we expect to convert those consumers into repeat Zevia purchasers and to bring health-conscious consumers back to the fun and enjoyment of carbonated soft drinks.

Invest in Our Ongoing Innovation Efforts

We are a mission-driven brand dedicated to addressing consumer needs by providing the best-tasting, highest-quality beverages to people. We have experienced consistent growth from our existing portfolio, and we foresee multiple opportunities to pursue meaningful innovation across categories, usage occasions, and day parts.

We are extremely selective about the categories in which we choose to develop new products. At the heart of our innovation strategy is our consumer – we have an unrelenting focus on ensuring we offer people the best tasting zero calorie, naturally sweetened beverages. We pioneered our first non-soda innovation in 2016, and have now expanded our innovation categories to include Energy (2016), Mixers (2017), Organic Tea (2018), Kidz drinks (2020) and Sparkling Water (2016). These innovation categories comprised 14% of our net sales in 2020.

In addition to entering new categories, our innovation team is constantly assessing different ways to develop great tasting beverage products that enhance our brand. We plan to continue to grow our current portfolio through line extensions and additional flavors, as well as enhancing our ingredients and sustainable packaging formats to drive incremental purchases. Continually innovating our ingredients to find the optimal taste and redesigning our packaging to enhance sustainability and margin is a key driver of our future growth. In addition to introducing line extensions within our existing categories, we have a robust pipeline of new category innovations to thoughtfully and strategically roll out over time in order to capture as much share of stomach as we can.

Realize Margin Expansion Through Increased Scale and Cost Efficiencies

We believe we are at an inflection point in our company’s trajectory where we anticipate expanding gross margin relative to our historical performance, resulting in enhanced profitability going forward as we are benefitting from our growth and realizing economies of scale. While we have experienced net losses, including net losses of $6.1 million in 2020, in the three months ended March 31, 2021, we achieved net income and anticipate enhancing our profitability in the coming years.

We recognize multiple areas within our business model that will benefit our profitability as we continue to scale. Our long-term gross margin target is greater than 50% as we enhance our relationships with suppliers and grow revenues faster than our production costs. This is expected to be achieved through our asset light model, requiring low capital expenditures, which results in higher free cash flow generation, lower profit volatility, and greater financial flexibility. For these reasons, we



 

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believe our business is well positioned to achieve profitability, while continuing to support growth initiatives.

Continuing to Expand Distribution Within Existing Channels

We believe we have created a meaningful flywheel for consumer acquisition in which shoppers are able to discover and learn about our brand online and subsequently purchase both online and offline. The online engagement with consumers serves as both a trial generator and a transaction opportunity, where we can leverage our bestselling variety packs to promote trial and consumer engagement. In 2020, we were the #1 selling brand in the soft drink category on Amazon based on dollar sales according to Stackline. We leverage our online presence to also create discovery opportunities for consumers to purchase across additional channels—according to Numerator, 53% of Zevia shoppers on Amazon also bought Zevia beverages in brick and mortar locations in 2020.

We have strong, long-standing relationships with food, drug, mass and natural retailers with whom we can grow distribution and sales through increased store penetration and shelf space. Our total distribution points of 512 for 2020 is still significantly lower than that of category brand leaders according to SPINS, yet we are still growing at key retailers, including one with whom we have been doing business with for over 13 years. We believe that our brick and mortar retailers value Zevia’s continued sales growth and margin profile, attracting relationships with additional major retailers.

We had year-over-year sales growth of 29% for 2020, and we believe we generate high margin for retailers. Due to this combination, retailers continue to reward us with new doors and greater shelf space. We continue to have significant opportunity with our existing retailers. To date we sell approximately six of our products at Walmart stores and approximately eight of our products at most Target stores. Our goal is to stock every product, in every door of every retailer that we currently serve so that we can mutually benefit from the sales and profitability of Zevia products that consumers enjoy and love.

We will continue to add other ecommerce sites and direct to consumer offerings to satisfy the significant demand our consumers have through the ecommerce channel. We will enhance our potential growth as we continue to expand into other categories within beverage, making us an even more attractive brand for retailers.

Capitalize on Significant Distribution Opportunities

We believe we will leverage our history of success across existing channels and apply it to building a presence in new ones.

Beyond our existing channels, we believe there is significant opportunity for our products in the drug, warehouse club, convenience, and foodservice channels, which accounted for more than 50% of carbonated soft drink sales in the U.S. and represent a sales potential of approximately $60 billion according to SPINS for the 52 weeks ended June 14, 2020.

We believe our products’ accessible price point, the broad demographic segments to which we appeal, and the core values of the Zevia brand provide the opportunity to become a leader in each of the retail channels in which beverages are distributed. Entering new channels will not only provide volume growth for our brand but will also enhance our omnichannel strategy and raise awareness of our brand among new potential enthusiasts.



 

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Address Global Consumer Needs

The issues caused by sugar and artificial ingredients intake as well as by plastic packaging polluting the environment are global; therefore, we feel it is incumbent upon us to expand our presence across geographies to shoppers around the world that consume carbonated beverages in order to achieve our mission. While only available in the U.S. and Canada, we have the ability to expand into new markets through retail relationships or our own direct-to-consumer platform.

Governments in more than 50 jurisdictions around the world have imposed a tax on sugary beverages, which is indicative of the global focus to shift away from conventional unhealthy foods and beverages towards innovative and great tasting solutions with better-for-you ingredients such as Zevia.

We plan to prioritize regions where we believe the most attractive opportunities are available to us based on consumer trends and market size. We are particularly focused on regions such as Western Europe, Latin America, and Asia where there have been significant sugar tax implications, as well as further legislation to combat sugar consumption.

Corporate Information

Zevia PBC was incorporated in Delaware on March 23, 2021 as a public benefit corporation. It had no business operations prior to this offering. In connection with the consummation of this offering, Zevia PBC will become the managing member of Zevia LLC, pursuant to the Reorganization described under “Organizational Structure—The Reorganization.” Our principal executive offices are located at 15821 Ventura Blvd., Suite 145, Encino, CA 91436 and our telephone number is (855) 469-3842. Our website address is www.zevia.com. Information contained on our website or linked therein or otherwise connected thereto does not constitute part of and is not incorporated by reference into this prospectus or the registration statement of which this prospectus forms a part. We have included our website address in this prospectus solely as an inactive textual reference.

Summary of Risks Affecting Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:

 

   

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 acceptance 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;



 

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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.

You should carefully consider all of the information set forth in this prospectus and, in particular, the information in the section entitled “Risk Factors” beginning on page 27 of this prospectus prior to making an investment in our common stock. These risks could, among other things, prevent us from successfully executing our strategies and could have a material adverse effect on our business, financial condition and results of operations.

Organizational Structure

UP-C Structure

In connection with this offering, we will undertake certain transactions as part of a corporate reorganization, including recapitalizing the common and preferred membership interests of Zevia LLC, (the “Reorganization”) described under “Organizational Structure —The Reorganization” below. The Reorganization will be conducted through what is commonly referred to as an “UP-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The UP-C approach provides the existing members of Zevia LLC with the tax advantage of continuing to own interests in a pass-through structure and provides potential future tax benefits for the public company and economic benefits for the existing members of Zevia LLC when they ultimately exchange their pass-through interests and corresponding shares of Class B common stock for shares of Class A common stock. Following the Reorganization and this offering, Zevia PBC will be a holding company and its sole asset will be ownership of Class A units of Zevia LLC, of which it will be the managing member. The members of Zevia LLC holding common units prior to this offering will hold Class B units of Zevia LLC and will also own an equal number of shares of Class B common stock of Zevia PBC upon completion of this offering.

Tax Receivable Agreement

Zevia PBC will enter into a tax receivable agreement for the benefit of the continuing members of Zevia LLC (not including Zevia PBC) and certain of our pre-IPO institutional investors, which we refer to as the “Direct Zevia Stockholders” (the “Tax Receivable Agreement”), pursuant to which Zevia PBC will pay                % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers (each as defined below) and (iii) any payments Zevia PBC makes under the Tax Receivable Agreement (including tax benefits related to


 

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imputed interest). Generally, payments under the TRA will be made to the continuing members of Zevia LLC (not including Zevia PBC) 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 Zevia PBC for other uses, including reinvestment or dividends to Zevia PBC Class A stockholders. See “Organizational Structure” and “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

The amount payable under the Tax Receivable Agreement 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 Relationships and Related Party Transactions—Tax Receivable Agreement”. We expect that the payments that we may be required to make under the Tax Receivable Agreement 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, 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 $         million through 2036. Under such scenario we would be required to pay the Direct Zevia Stockholders and certain continuing members of Zevia LLC         % of such amount, or $         million through 2036.

Similarly, assuming no 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, we expect that future payments under the Tax Receivable Agreement relating to the purchase by Zevia PBC of Zevia LLC units from members of Zevia LLC in connection with this offering to be approximately $         million (or approximately $         million if the underwriters exercise their option to purchase additional shares, the proceeds of which will be used by Zevia PBC to acquire additional Zevia LLC units from members of Zevia LLC) and to range over the next 15 years from approximately $         million to $         million per year (or range from approximately $         million to $         million per year if the underwriters exercise their option to purchase additional shares) and decline thereafter. As a result, we expect that aggregate payments under the Tax Receivable Agreement over this 15-year period will range from approximately $         million to $         million (or range from approximately $         million to $         million if the underwriters exercise their option to purchase additional shares). These estimates are based on an initial public offering price of $         per share of Class A common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.



 

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Post-Offering Structure

The diagram below illustrates our structure and anticipated ownership immediately after the Reorganization and this offering (assuming no exercise of the underwriters’ option to purchase additional shares) and does not reflect the issuances of awards pursuant to the 2021 Plan or upon exercise or settlement of (i) outstanding options granted under the Zevia LLC 2011 Unit Incentive Plan (the “2011 Plan”), (ii) outstanding RCCCUs (as defined below in “Executive Compensation—Long-Term Incentive Compensation”) granted under the Zevia 2020 Incentive Plan (the “2020 Plan”) and otherwise and (iii) outstanding restricted phantom unit awards, which will be adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable.

Public Class A common Stock(2) % economic interest % voting interest Direct Zevia Stockholders Class A common Stock(2)(3) % economic interest % voting interest Zevia Owners Class B common Stock(4) % economic interest % voting interest Zevia PBC(1) Class A Units (Managing Members)(5) % economic interest % voting interest Class B Units (Non-Managing Members)(6) % economic interest % voting interest

LOGO

 

Amounts may not sum to total due to rounding.

(1)

At the closing of this offering, the members of Zevia LLC other than Zevia PBC will be certain historic owners of Zevia LLC, all of whom owned preferred or common units of Zevia LLC prior to the completion of this offering and the Reorganization, and all of whom, in the aggregate, will own                 Class B units of Zevia LLC and                shares of Class B common stock of Zevia PBC after this offering assuming no exercise of the underwriters’ option to purchase additional shares and                Class B units of Zevia LLC and                shares of Class B common stock of Zevia PBC if the underwriters exercise their option to purchase additional shares in full.

(2)

Each share of Class A common stock will be entitled to one vote and will vote together with the Class B common stock as a single class, except as provided in our amended and restated certificate of incorporation or required by law. See “Organizational Structure—Voting Rights of Class A Common Stock and Class B Common Stock.”

(3)

The Direct Zevia Stockholders hold their interests in Zevia LLC through Zip Holding Inc. and NGEN ZLLC Investment Corp., entities that are taxable as corporations for U.S. federal income tax purposes (the “Blocker Companies”). Zevia PBC will form a new, first-tier merger subsidiary with respect to each Blocker Company, and contemporaneously with this offering, each respective merger subsidiary will merge with and into the respective Blocker Company, with the Blocker Companies surviving (the “Blocker Mergers”). Immediately thereafter, each Blocker Company will merge with and into Zevia PBC, with Zevia PBC surviving. As a result of the


 

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  Blocker Mergers, the 100% owners of the Blocker Companies will acquire an aggregate of                shares of newly issued Class A common stock and the Blocker Companies will cease to own any Zevia LLC units.
(4)

Each share of Class B common stock is entitled to one vote and will vote together with the Class A common stock as a single class, except as provided in our amended and restated certificate of incorporation or required by law. The Class B common stock will not have any economic rights in Zevia PBC.

(5)

Zevia PBC will own all of the Class A units of Zevia LLC after the Reorganization, which upon the completion of this offering will represent the right to receive approximately                % of the distributions made by Zevia LLC assuming no exercise of the underwriters’ option to purchase additional shares and approximately                % of the distributions made by Zevia LLC if the underwriters exercise their option to purchase additional shares in full. While this interest represents a minority of economic interests in Zevia LLC, it represents 100% of the voting interests, and Zevia PBC will act as the managing member of Zevia LLC. As a result, Zevia PBC will operate and control all of Zevia LLC’s business and affairs and will be able to consolidate its financial results into Zevia PBC’s financial statements.

(6)

The Class B stockholders will collectively hold all Class B common stock of Zevia PBC outstanding after this offering. They also will collectively hold all Class B units of Zevia LLC, which upon the completion of this offering will represent the right to receive approximately                % of the distributions made by Zevia LLC assuming no exercise of the underwriters’ option to purchase additional shares and approximately    % of the distributions made by Zevia LLC if the underwriters exercise their option to purchase additional shares in full. The Class B stockholders will have no voting rights in Zevia LLC on account of the Class B units, except for the right to approve amendments to the Zevia LLC Agreement that adversely affect their rights as holders of Class B units. However, through their ownership of shares of Class B common stock, the Class B stockholders will control a majority of the voting power of the common stock of Zevia PBC, the managing member of Zevia LLC, and will therefore have indirect control over Zevia LLC. Class B units may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the Zevia LLC Agreement described in “Organizational Structure—Zevia LLC Agreement.” When a Class B stockholder exchanges Class B units for the corresponding number of shares of our Class A common stock or, at our election, for cash, it will result in the automatic retirement of the corresponding number of shares of our Class B common stock and, therefore, will decrease the aggregate voting power of our Class B stockholders. Any beneficial holder exchanging Class B units must ensure that the applicable corresponding number of shares of Class B common stock are delivered to us for retirement as a condition of exercising its right to exchange Class B units for shares of our Class A common stock or, at our election, for cash.

Implications of Being a 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. Under Delaware law, public benefit corporations are required to identify in their certificate of incorporation the public benefit or benefits they will promote and their directors have a duty to manage the affairs of the corporation in a manner that balances 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 the public benefit corporation’s certificate of incorporation. See “Description of Capital Stock—Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect—Public Benefit Corporation Status.”


 

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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

While not required by Delaware law 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 B Lab, an independent non-profit organization. As a result of this assessment, we have been designated as a “Certified B Corporation.” In order to be designated as a Certified B Corporation, companies are required to take a comprehensive and objective assessment of their positive impact on society and the environment. See the sections titled “Business—Certified B Corporation” and “Description of Capital Stock—Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect—Public Benefit Corporation” for additional information.

Implications of Being an Emerging Growth Company

As 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 Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For so long as we remain an EGC, we are permitted and have elected to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not EGCs. These exemptions include:

 

   

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit, the financial statements and Critical Audit Matters;

 

   

reduced disclosure obligations regarding executive compensation; 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.

We may take advantage of these provisions for up to five years or such earlier time when we are no longer an EGC. We will cease to be an EGC if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you may hold stock.

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


 

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adoption of accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period, 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. See Note 2 to our audited financial statements included elsewhere in this prospectus for additional information.



 

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THE OFFERING

 

Issuer

   Zevia PBC

Class A common stock offered by Zevia PBC

               shares

Underwriters’ option to purchase additional shares of Class A common stock from Zevia PBC

  


            shares

Class A common stock outstanding immediately after this offering

  


             shares of Class A common stock (or              shares of Class A common stock if the underwriters exercise their option to purchase additional shares of Class A common stock in full).

Class B common stock outstanding immediately after this offering

  


            shares of Class B common stock. Class B common stock will be issued to holders of Class B units in Zevia LLC. One share of Class B common stock will be issued for each Class B unit of Zevia LLC outstanding.

Use of proceeds

  

We estimate that our net proceeds from this offering, based on an assumed initial public offering price of $             per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions but before deducting expenses of this offering and the Reorganization payable by us, will be approximately $             million, or approximately $             million if the underwriters exercise in full their option to purchase additional shares of Class A common stock.

 

We intend to use $             million of the net proceeds from this offering to purchase 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 our Class A common stock in this offering.

 

We intend to use approximately $             million, or approximately $             million if the underwriters exercise in full their option to purchase additional shares of Class A common stock, of the net proceeds from this offering to purchase Class B units from certain of 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 our Class A common stock in this offering. Accordingly, we will not retain any of this portion of the proceeds.



 

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   We intend to cause Zevia LLC to use the remaining net proceeds to pay the expenses incurred by us in connection with this offering and the Reorganization, and for working capital and other general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

Dividend policy

  

We have no present intention to pay cash dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our existing and any future debt agreements and other factors that our board of directors deems relevant. Holders of our Class B common stock will not be entitled to dividends from Zevia PBC.

 

Following the Reorganization and this offering, Zevia PBC will be a holding company and its sole asset will be ownership of the Class A units of Zevia LLC, of which it will be the managing member. Subject to funds being legally available for distribution, we intend to cause Zevia LLC to make distributions to each of its members, including Zevia PBC, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to each member and to allow Zevia PBC to make payments under the Tax Receivable Agreement. If the amount of tax distributions to be made exceeds the amount of funds available for distribution, Zevia PBC 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. See “Dividend Policy.”

Voting rights

  

We have two classes of authorized common stock: Class A common stock and Class B common stock. Each share of Class A common stock and Class B common stock will entitle the holder to one vote.

 

Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as



 

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   otherwise provided in our amended and restated certificate of incorporation or as required by applicable law. See “Description of Capital Stock.” When a Class B stockholder exchanges Class B units for the corresponding number of shares of our Class A common stock or, at our election, for cash, it will result in the automatic retirement of the corresponding number of shares of our Class B common stock and, therefore, will decrease the aggregate voting power of our Class B stockholders. See “Organizational Structure—Voting Rights of Class A Common Stock and Class B Common Stock.

Exchange of Class B units

   We have reserved for issuance              shares of our Class A common stock, which is the aggregate number of shares of our Class A common stock expected to be issued over time upon the exchanges by the Class B unitholders. See “Organizational Structure.”

Zevia LLC Agreement

   The Zevia LLC Agreement will entitle certain of its members (and certain permitted transferees thereof) to exchange their Class B units, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash. When a Class B unit is exchanged for a share of our Class A common stock, the corresponding share of our Class B common stock will automatically be retired. See “Organizational Structure—Zevia LLC Agreement” and “Certain Relationships and Related Person Transactions—Zevia LLC Agreement.”

Tax Receivable Agreement

   Zevia PBC will enter into the Tax Receivable Agreement for the benefit of the continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders pursuant to which Zevia PBC will pay         % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers and (iii) any


 

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   payments Zevia PBC makes under the Tax Receivable Agreement (including tax benefits related to imputed interest). Following this offering, we expect to use distributions from Zevia LLC to fund any payments that we will be required to make under the Tax Receivable Agreement. 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 Zevia PBC for other uses, including reinvestment or dividends to Zevia PBC Class A stockholders. To the extent such distributions or our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement, such payments may be deferred for up to six months and would accrue interest until paid. See “Organizational Structure” and “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

Risk factors

   You should carefully read and consider the information set forth in the section entitled “Risk Factors” beginning on page 27, together with all of the other information set forth in this prospectus, before deciding whether to invest in our Class A common stock.

Reserved Share Program

   At our request, an affiliate of a participating underwriter has reserved for sale, at the initial public offering price, up to         % of the shares of Class A common stock offered by this prospectus for sale to certain individuals. If these persons purchase reserved shares of Class A common stock, it will reduce the number of shares of Class A common stock available for sale to the general public. Any reserved shares of Class A common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus.

Symbol

   “ZVIA.”

Unless otherwise noted, Class A common stock outstanding after the offering and other information based thereon in this prospectus does not reflect any of the following:

 

   

            shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;


 

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            shares of Class A common stock issuable under our 2021 Equity Incentive Plan (the “2021 Plan”) (under which no equity awards have been granted as of March 31, 2021), including:

 

  (i)

            shares of Class A common stock underlying stock options, restricted stock units or other awards to be granted to certain employees and non-employee directors pursuant to the 2021 Plan immediately after the closing of this offering; and

 

  (ii)

            additional shares of Class A common stock to be reserved for future issuance of awards under the 2021 Plan;

 

   

            shares of Class A common stock issuable upon exercise or settlement of (i) outstanding options granted under the 2011 Plan, (ii) outstanding RCCCUs granted under the 2020 Plan and otherwise and (iii) outstanding restricted phantom unit awards, which will be adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable; and

 

   

            shares of Class A common stock reserved for issuance upon exchange of the Class B units of Zevia LLC (and corresponding shares of Class B common stock) that will be outstanding immediately after this offering.

Unless otherwise indicated in this prospectus, all information in this prospectus assumes the completion of the Reorganization and that shares of our Class A common stock will be sold in this offering at $             per share (the midpoint of the price range set forth on the cover page of this prospectus).

Throughout this prospectus, we present performance metrics and financial information regarding the business of Zevia LLC. This information is generally presented on an enterprise-wide basis. The new public stockholders will be entitled to receive a pro rata portion of the economics of Zevia LLC’s operations through their ownership of our Class A common stock. Zevia PBC’s ownership of Class A units initially will represent a minority share of Zevia LLC. The existing members of Zevia LLC initially will continue to hold a majority of the economic interest in its operations as non-controlling interest holders, primarily through direct and indirect ownership of Class B units of Zevia LLC. Prospective investors should be aware that the owners of the Class A common stock initially will be entitled only to a minority economic position, and therefore should evaluate performance metrics and financial information in this prospectus accordingly. As Class B units are exchanged for Class A common stock (or cash) over time, the percentage of the economic interest in Zevia LLC’s operations to which Zevia PBC and the public stockholders are entitled will increase proportionately.


 

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SUMMARY HISTORICAL FINANCIAL INFORMATION

The following table sets forth certain summary financial information and other data of Zevia LLC on a historical basis. Zevia LLC is considered our predecessor for accounting purposes and its financial statements will be our historical financial statements following this offering. The following summary historical statements of operations and comprehensive loss data for the years ended December 31, 2020 and 2019 and the summary historical balance sheet data as of December 31, 2020 and 2019 have been derived from Zevia LLC’s audited financial statements included elsewhere in this prospectus. The statement of operations and comprehensive income (loss) data for the three months ended March 31, 2021 and 2020 and the summary historical balance sheet data as of March 31, 2021 have been derived from Zevia LLC’s unaudited financial statements included elsewhere in this prospectus. This summary historical financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results and growth rates are not necessarily indicative of the results or growth rates to be expected in future periods.

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2021     2020     2020     2019  
   

(in thousands, except units and per unit information)

 

Statements of Operations and Comprehensive Income (Loss) Data:

       

Net sales

  $ 30,694     $ 22,490     $ 110,025     $ 85,562  

Cost of goods sold

    16,506       13,458       60,523       48,662  

Gross profit

    14,188       9,032       49,502       36,900  

Operating expenses

       

Selling and marketing expenses

    7,988       6,921       27,333       27,643  

General and administrative expenses(1)

    5,713       4,333       26,715       13,925  

Depreciation and amortization

    244       223       932       786  

Total operating expenses

    13,945       11,477       54,980       42,354  

Income (loss) from operations

    243       (2,445     (5,478     (5,454

Other income (expense), net

    4       (149     (593     47  

Net income (loss) and comprehensive income (loss)

    247       (2,594     (6,071     (5,407

Net income (loss) attributable to common unit holders(2)

    19       (2,594     (6,071     (5,407

Net income (loss) per unit attributable to common unit holders, basic(2)(3)

  $ 0.01     $ (0.57   $ (126,512   $ (5,407

Net income (loss) per unit attributable to common unit holders, diluted(2)(3)

  $ 0.01     $ (0.57   $ (28.05)     $ (1.20

Weighted average common units outstanding, basic

    2,462,575       4,548,641       4,510,572       4,522,909  

Weighted average common units outstanding, diluted

    30,481,923       4,548,641       4,510,572       4,522,909  

 

(1)

General and administrative expenses includes compensation expense of $37,000 and $29,000 for the three months ended March 31, 2021 and 2020, respectively, and $7.8 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively, representing the excess of the repurchase price over then assessed fair value of the units of membership interest held by employees that were repurchased by Zevia LLC. See Note 9 to our financial statements included elsewhere in this prospectus.


 

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(2)

Net income (loss) attributable to common unit holders includes an incremental reduction to accumulated deficit of $120.4 million for the year ended December 31, 2020 related to the excess of tender offer purchase price over then assessed fair value. See Note 9 and Note 17 to our financial statements included elsewhere in this prospectus.

(3)

Net income (loss) per unit under the two-class method is the same under all classes of common units. See Note 17 to our financial statements included elsewhere in this prospectus.

 

     As of March 31,     As of December 31,  
     2021     2020     2019  
    

(in thousands, except unit and per unit
data)

 

Balance Sheet Data:

      

Cash

   $ 12,361     $ 14,936     $ 3,243  

Working capital(1)

     30,351       30,099       12,465  

Total assets

     50,267       49,956       27,267  

Total debt

                  

Redeemable convertible preferred units, no par value (34,410,379, 34,410,379 and 22,558,386 units authorized, 26,322,803, 26,322,803 and 22,558,386 units issued and outstanding as of March 31, 2021, December 31, 2020 and 2019, respectively; and aggregate liquidation preference, $329,753, $329,753 and $59,753 as of March 31, 2021, December 31, 2020 and 2019, respectively)

     232,457       232,457       58,037  

Common units, no par value (7,274,742, 7,274,742 and 8,451,586 units authorized; 2,476,386, 2,438,812 and 4,529,061 units issued and outstanding at March 31, 2021, December 31, 2020 and 2019, respectively)

     976       966       1,810  

Total Members’ deficit

     (196,518)       (196,812     (39,969

 

(1)

Working capital is defined as total current assets minus total current liabilities.

Non-GAAP Financial Measures:

Adjusted EBITDA and Adjusted Net Income (Loss) are non-GAAP financial measures. We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: (1) equity-based compensation expense, (2) depreciation and amortization and (3) other income (expense), net. Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the Tax Receivable Agreement liability. We calculate Adjusted Net Income (Loss) as net (loss) income adjusted to exclude equity-based compensation expense. Adjusted EBITDA and Adjusted Net Income (Loss) are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.



 

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

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021     2020     2020     2019  
    

(in thousands)

 

Net income (loss) and comprehensive income (loss)

   $ 247     $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37       29       7,870       606  

Depreciation and amortization

     244       223       932       786  

Other (income) expense, net

     (4     149       593       (47

Adjusted EBITDA

   $ 524     $ (2,193   $ 3,324     $ (4,062

The following table presents a reconciliation of Adjusted Net Income (Loss) to net (loss) income, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented:

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021      2020     2020     2019  
    

(in thousands)

 

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37        29       7,870       606  

Adjusted Net Income (Loss)

   $ 284      $ (2,565   $ 1,799     $ (4,801

For a detailed discussion of our key operating and financial performance metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Non-GAAP Financial Measures.”



 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties described below, together with all other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Class A common stock. The occurrence of any of the following risks, as well as any risks or uncertainties not currently known to us or that we currently do not believe to be material, could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow, in which case, the trading price of our Class A common stock could decline and you could lose all or part of your investment.

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.

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

 

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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

 

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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.

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.

Until the first quarter of 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

 

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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.

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

 

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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 98 at March 31, 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, all of whom have been working remotely since they have been hired. 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

 

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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.

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,

 

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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.

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 this prospectus captioned “Business—Our Supply Chain.”

 

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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

 

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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.

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

 

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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.

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.

 

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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,

 

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which could result in a material adverse effect on our business, financial condition, results of operations and cash flows.

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

Zevia PBC will depend on distributions from Zevia LLC to pay any taxes and other expenses, including payments under the Tax Receivable Agreement.

Zevia PBC will be a holding company and, following this offering, its only business will be to act as the managing member of Zevia LLC, and its only material assets will be Class A units representing approximately                % of the membership interests of Zevia LLC (or                % if the underwriters exercise their option to purchase additional shares of Class A common stock in full). Zevia PBC 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, Zevia PBC 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 Zevia PBC, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to such member and to allow Zevia PBC to make payments under the Tax Receivable Agreement. In addition, Zevia LLC will reimburse Zevia PBC for corporate and other overhead expenses. If the amount of tax distributions to be made exceeds the amount of funds available for distribution, Zevia PBC 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 Zevia PBC 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 Zevia PBC’s ability to pay taxes and other expenses, including

 

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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 this offering and the related transactions and in connection with future acquisitions of Zevia LLC units.

Zevia PBC will acquire Zevia LLC units held directly by other members of Zevia LLC in connection with this offering 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 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) Zevia PBC’s depreciation and amortization and, together with other tax benefits, reduce the amount of tax that Zevia PBC 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. Zevia PBC’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.

Zevia PBC will be required to pay over to continuing members of Zevia LLC and the Direct Zevia Stockholders most of the tax benefits Zevia PBC receives from tax basis step-ups (and certain other tax benefits) attributable to its acquisition of units of Zevia LLC in connection with this offering and in the future, and the amount of those payments are expected to be substantial.

Zevia PBC will enter into the Tax Receivable Agreement with continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders. The Tax Receivable Agreement will provide for payment by Zevia PBC to continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders of                % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers and (iii) any payments Zevia PBC 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 Zevia PBC) 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 Zevia PBC for other uses, including reinvestment or dividends to Zevia PBC Class A stockholders. Zevia PBC will retain the benefit of the remaining                % of these net cash tax savings.

The term of the Tax Receivable Agreement will commence upon the completion of this offering 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 Zevia PBC 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

 

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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 Zevia PBC) in respect of the initial public offering will equal $                million in the aggregate, based on an assumed price of our Class A common stock of $                per share (the midpoint of the price range set forth on the cover page of this prospectus), 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 Zevia PBC’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 Zevia PBC may have made under the Tax Receivable Agreement and the portion of Zevia PBC’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 Zevia PBC 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 Zevia PBC receives in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to Zevia PBC by Zevia LLC are not sufficient to permit Zevia PBC 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 Zevia PBC actually realizes.

The Tax Receivable Agreement will provide that if (i) Zevia PBC 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) Zevia PBC experiences certain changes in control, (iii) the Tax Receivable Agreement is rejected in certain bankruptcy proceedings, (iv) Zevia PBC fails (subject to certain exceptions) to make a payment under the Tax Receivable Agreement within 180 days after the due date or (v) Zevia PBC materially breaches its obligations under the Tax Receivable Agreement, Zevia PBC 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 Zevia PBC 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 Zevia PBC 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 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

 

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includes an early termination will be used by Zevia PBC 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 Zevia PBC) 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 Zevia PBC under the Tax Receivable Agreement at a rate equal to the lesser of (a)                % and (b) the Secured Overnight Financing Rate, as reported by the Wall Street Journal (SOFR) plus                basis points.

Moreover, as a result of an elective early termination, a change in control or Zevia PBC’s material breach of its obligations under the Tax Receivable Agreement, Zevia PBC could be required to make payments under the Tax Receivable Agreement that exceed its actual cash savings under that Tax Receivable Agreement. Thus, Zevia PBC’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, Zevia PBC 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 Zevia PBC 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. Zevia PBC 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 Zevia PBC actually realizes in respect of the increases in tax basis (and utilization of certain other tax benefits) and Zevia PBC may not be able to recoup those payments, which could adversely affect Zevia PBC’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

 

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allocated to members, including Zevia PBC. Pursuant to the Zevia LLC Operating Agreement, Zevia LLC will make tax distributions to its members, including Zevia PBC, 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.

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 hold their interests in Zevia LLC through the Blocker Companies, which are taxable as corporations for U.S. federal income tax purposes. Zevia PBC will form a new, first-tier merger subsidiary with respect to each Blocker Company, and contemporaneously with this offering, each respective merger subsidiary will merge with and into the respective Blocker Company, with the Blocker Company surviving. Immediately thereafter, the Blocker Companies will merge with and into Zevia PBC, with Zevia PBC surviving. In the Blocker Mergers, the owners of the Blocker Companies will acquire an aggregate of                shares of newly issued Class A common stock. See “Organizational Structure—The Reorganization.” As the successor to these merged entities, Zevia PBC will generally succeed to and be responsible for any outstanding or historical tax or other liabilities of the merged entities, including any liabilities that might be incurred as a result of the mergers described in the previous sentence. Any such liabilities for which Zevia PBC 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”), Zevia PBC 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 Zevia PBC’s covered employees, potentially resulting in additional U.S. federal income tax liability for Zevia PBC and reducing cash available for distribution to Zevia PBC’s stockholders and/or for the payment of other expenses and obligations of Zevia PBC.

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

 

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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), Zevia PBC 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 Zevia PBC, exceeds $1,000,000 with respect to a covered employee, even if Zevia LLC, rather than Zevia PBC, 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 Zevia PBC 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 Zevia PBC and/or reduce cash available for distribution to Zevia PBC’s stockholders or for the payment of other expenses and obligations of Zevia PBC

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.

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

 

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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 this Offering and Ownership of Our Common Stock

No public market for our Class A common stock currently exists, and an active trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market for our Class A common stock. Although we have applied to list our Class A common stock on the New York Stock Exchange under the symbol

 

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“ZVIA,” an active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. 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 initial public offering price was determined by negotiations among us and the underwriters and may not be indicative of the future prices of our Class A common stock.

The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The market price of our common stock is likely to be volatile. If you purchase shares of our Class A common stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. Following the completion of our initial public offering, the market price of our Class A common stock may 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;

 

   

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 prospectus.

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,

 

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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.

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,”

 

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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, upon the completion of this offering, 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 after this offering, including when “lock-up” or “market standoff” periods end, 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 after this offering, including when “lock-up” or “market standoff” periods end, 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. Based on the total number of outstanding shares of our Class A common stock as of        , 2021, upon completion of this offering, we will have        shares of Class A common stock outstanding (assuming no exercise of the underwriters’ option to purchase additional shares and after giving effect to the automatic conversion of all of our preferred stock upon the closing of this offering into shares of common stock on a one-for-one basis). All of the shares of Class A common stock sold in this offering will be 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 exceptions described under the caption “Underwriting,” we, all of our directors and officers and substantially 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 the date of this prospectus. 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.

 

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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 will 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.” We also intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

We intend to file a registration statement on Form S-8 under the Securities Act to register the shares subject to outstanding options granted under the 2011 Plan and RCCCUs granted under the 2020 Plan and otherwise and shares of common stock reserved for issuance under the 2021 Plan, which as of         , 2021 totaled         shares. The 2021 Plan will provide for automatic increases in the shares reserved for grant or issuance under the plan which could result in additional dilution to our stockholders. Once we register the shares under these plans, they can be freely sold in the public market upon issuance and vesting, subject to a 180-day lock-up period and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants.

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

We expect the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock, after giving effect to the exchange of all outstanding Class B units for shares of our Class A common stock. Therefore, investors purchasing shares of Class A common stock in this offering will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. As a result, investors will:

 

   

incur immediate dilution of $        per share; and

 

   

contribute the total amount invested to date to fund Zevia PBC, but will own only approximately        % of the shares of our Class A common stock outstanding, after giving effect to the exchange of all Class B units outstanding immediately after the Reorganization and this offering for shares of our Class A common stock. See “Dilution.

Investors in this offering will experience further dilution upon the issuance of shares underlying awards made pursuant to any equity incentive plans, including the 2021 Plan. See “Organizational Structure—The Zevia LLC Agreement—Classes of Zevia LLC Units.”

We have broad discretion in the use of net proceeds that we receive in this offering and we may not use them effectively.

After giving effect to the use of proceeds described in “Use of Proceeds” and the Reorganization, we expect to have remaining net proceeds, which we currently intend to use for working capital and other general corporate purposes. Our management will have broad discretion in the application of the net proceeds. The failure by our management to apply these funds effectively could harm our business, operating results and financial condition.

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

 

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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 in effect upon completion of this offering 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 will be 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,

 

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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         % 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.

Our amended and restated certificate of incorporation will include 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 will provide 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 will provide 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.”

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 will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and will be 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 will increase our legal and financial compliance costs, make some activities more difficult, time- consuming or costly and increase demand on our systems and resources. Among other things, the Exchange Act requires that

 

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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 will be 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.

We also expect that being a public company and these new rules and regulations will 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 will now be 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 will 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.

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.

Our management is in the process of developing a remediation plan. The material weaknesses will be considered remediated when we design and implement effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. 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

 

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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 in the future after the consummation of the offering 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 this offering. We will cease to be an EGC upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of this offering, (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 if 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 will 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.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, 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

 

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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. Upon becoming a public company, 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 this prospectus 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 this prospectus, 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

 

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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.

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

 

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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.

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

 

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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.

 

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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.

We are a party to a revolving line of credit agreement, which contains a number of covenants that may restrict our current and future operations and could adversely affect our ability to execute business needs.

Our line of credit agreement with Stonegate Asset Company II, LLC (the “Loan Agreement”) contains a number of covenants that limit our ability to, among other things, incur indebtedness, create liens, make investments, merge with other companies, dispose of our assets, prepay other indebtedness and make dividends and other distributions. The terms of our Loan Agreement may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the means or manner desired. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy, invest in our growth strategy and compete against companies who are not subject to such restrictions. We may not be able to generate sufficient cash flow or sales to meet the financial covenant or pay the principal or interest under the Loan Agreement. Prior to the consummation of this offering, we intend to amend the Loan Agreement.

If we are unable to comply with our payment requirements, our lender may accelerate our obligations under our Loan Agreement and foreclose upon the collateral, or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests. If we fail to comply with our covenants under the Loan Agreement, it could result in an event of default under the agreement and our lender could make the entire debt immediately due and payable. If this occurs, we might not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are favorable to us.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this prospectus, including, without limitation, statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “consider,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar 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 prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. 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 prospectus, including, but not limited to, the following:

 

   

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 acceptance of our new products;

 

   

product safety and quality concerns, including relating to our naturally 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

 

   

other risks, uncertainties and factors set forth in this prospectus, including those set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

 

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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 prospectus. 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 prospectus. And 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 prospectus 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 prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by 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.

 

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ORGANIZATIONAL STRUCTURE

On March 23, 2021, Zevia PBC was incorporated as a Delaware public benefit corporation. Prior to this offering, Zevia PBC has had no business operations. Our business is currently conducted through Zevia LLC.

Historical Ownership Structure

Zevia LLC is owned by certain members of management, employees and institutional investors. Immediately prior to the Reorganization described below, the members of Zevia LLC consist of:

 

   

certain members of management and employees, holding aggregate interests representing a    % economic interest on a fully-diluted basis;

 

   

institutional investors, holding aggregate interests representing a    % economic interest on a fully-diluted basis; and

 

   

the Direct Zevia Stockholders, holding aggregate interests representing a    % economic interest on a fully-diluted basis.

In addition, Zevia LLC has outstanding unvested options and RCCCUs representing a    % economic interest upon exercise or settlement on a fully diluted basis.

Pre-Reorganization Ownership of Our Businesses

The diagram below summarizes the ownership structure of Zevia LLC’s operations on a fully diluted basis prior to the Reorganization.

 

LOGO

The Reorganization

The following actions will be taken in connection with the closing of this offering:

 

   

Zevia LLC will recapitalize its common and preferred membership interests into a single class of common units.

 

   

Zevia PBC will amend and restate its certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock. See “Description of Capital Stock.”

 

   

Zevia PBC will sell to the underwriters in this offering                 shares of our Class A common stock, or         shares of our Class A common stock if the underwriters exercise their option to purchase additional shares of Class A common stock in full.

 

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We will amend and restate the limited liability company agreement of Zevia LLC (as amended and restated, the “Zevia LLC Agreement”) to, among other things, provide for Class A units and Class B units and appoint Zevia PBC as the managing member of Zevia LLC. See “—The Zevia LLC Agreement.

 

   

Zevia PBC will use approximately $                million of the net proceeds of this offering 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 our Class A common stock in this offering. If the underwriters exercise their option to purchase additional shares of Class A common stock, we would use the additional net proceeds to acquire additional newly issued Class A units.

 

   

Zevia PBC will use approximately $                 million of the net proceeds of this offering to purchase                Class B units from certain of 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 our Class A common stock in this offering (or $                million if the underwriters exercise their option to purchase additional shares in full). Such units will be immediately exchanged by Zevia LLC for an equivalent number of Class A units.

 

   

The Zevia LLC Agreement will classify the interests acquired by Zevia PBC as Class A units and reclassify the interests held by the continuing members of Zevia LLC as Class B units, and will permit 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 our election, for cash. Any beneficial holder exchanging Class B units must ensure that the applicable corresponding number of shares of Class B common stock are delivered to us for cancellation as a condition of exercising its right to exchange Class B units for shares of our Class A common stock or, at our election, for cash.

 

   

The Direct Zevia Stockholders hold their interests in Zevia LLC through the Blocker Companies. Zevia PBC will form a new, first-tier merger subsidiary with respect to each Blocker Company, and contemporaneously with this offering, each respective merger subsidiary will merge with and into the respective Blocker Company, with the Blocker Company surviving. Immediately thereafter, each Blocker Company will merge with and into Zevia PBC, with Zevia PBC surviving. As a result of the Blocker Mergers, the 100% owners of the Blocker Companies will acquire an aggregate of                shares of newly issued Class A common stock and the Blocker Companies will cease to own any Zevia LLC units.

 

   

Zevia PBC will enter into the Tax Receivable Agreement for the benefit of the continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders pursuant to which Zevia PBC will pay                % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers and (iii) any payments Zevia PBC makes under the Tax Receivable Agreement (including tax benefits related to imputed interest). See “—Tax Receivable Agreement.”

 

   

We will enter into an Amended and Restated Registration Rights Agreement with the Class B stockholders to provide for certain rights and restrictions after the offering. See “—Amended and Restated Registration Rights Agreement.”

Our Class B Common Stock

For each membership unit of Zevia LLC that is reclassified as a Class B unit in the Reorganization, we will issue to the Class B unitholder one corresponding share of our Class B

 

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common stock. Immediately following the Reorganization, we will have outstanding                 shares of Class B common stock held of record by                 stockholders assuming no exercise of the underwriters’ option to purchase additional shares and                 shares of Class B common stock held of record by                 stockholders if the underwriters exercise their option to purchase additional shares in full. Each share of our Class B common stock will entitle its holder to one vote. See “—Voting Rights of Class A Common Stock and Class B Common Stock.”

The Class B stockholders will initially have                % of the combined voting power of our common stock (or                % if the underwriters exercise their option to purchase additional shares of Class A common stock in full). When a Class B unit is exchanged for a share of our Class A common stock, the corresponding share of our Class B common stock will automatically be retired. We will not issue any further Class B units or shares of Class B common stock after the completion of the Reorganization, except to holders of Class B units in a number necessary to maintain a one-to-one ratio between the number of Class B units and the number of shares of Class B common stock outstanding.

Our Class A Common Stock

We expect                 shares of our Class A common stock to be outstanding after this offering (or                 shares if the underwriters exercise their option to purchase additional shares in full), all of which will be sold pursuant to this offering.

The Class A common stock outstanding will represent 100% of the rights of the holders of all classes of our outstanding common stock to share in distributions from Zevia PBC, except for the right of Class B stockholders to receive the par value of the Class B common stock upon our liquidation, dissolution or winding up or an exchange of Class B units.

Post-Offering Holding Company Structure

This offering is being conducted through what is commonly referred to as an “UP-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The UP-C approach provides the existing partners with the tax advantage of continuing to own interests in a pass-through structure and provides potential future tax benefits for the public company and economic benefits for the existing partners when they ultimately exchange their pass-through interests and corresponding shares of Class B common stock for shares of Class A common stock. See “—Tax Receivable Agreement.”

Zevia PBC will be a holding company and, following this offering, its only business will be to act as the managing member of Zevia LLC, and its only material assets will be Class A units representing approximately                % of Zevia LLC units (or                % if the underwriters exercise their option to purchase additional shares of Class A common stock in full). In its capacity as the managing member, Zevia PBC will operate and control all of Zevia LLC’s business and affairs. We will consolidate the financial results of Zevia LLC and will report non-controlling interests related to the interests held by the continuing members of Zevia LLC in our consolidated financial statements. The membership interests of Zevia LLC owned by us will be classified as Class A units and the remaining approximately                % of Zevia LLC units (or                % if the underwriters exercise their option to purchase additional shares of Class A common stock in full), which will continue to be held by the current members of Zevia LLC, will be classified as Class B units. Zevia PBC consolidates Zevia LLC due to Zevia PBC’s power to control Zevia LLC, making it the primary beneficiary and managing member of the variable interest entity.

 

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Pursuant to the Zevia LLC Agreement, each Class B unit will be exchangeable for one share of Zevia PBC’s Class A common stock or, at Zevia PBC’s election, for cash. The exchange ratio is subject to appropriate adjustment by Zevia PBC in the event Class A units are issued to Zevia PBC without issuance of a corresponding number of shares of Class A common stock or in the event of certain reclassifications, reorganizations, recapitalizations or similar transactions. Any beneficial holder exchanging Class B units must ensure that the applicable corresponding number of shares of Class B common stock are delivered to us for retirement as a condition of exercising its right to exchange Class B units for shares of our Class A common stock or, at our election, for cash. The diagram below illustrates our structure and anticipated ownership immediately after the Reorganization and this offering (assuming no exercise of the underwriters’ option to purchase additional shares) and does not reflect the issuances of awards pursuant to the 2021 Plan or upon exercise or settlement of (i) outstanding options granted under the 2011 Plan, (ii) outstanding RCCCUs granted under the 2020 Plan and otherwise and (iii) outstanding restricted phantom unit awards, which will be adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable.

LOGO

Amounts may not sum to total due to rounding.

 

 

(1)

At the closing of this offering, the members of Zevia LLC other than Zevia PBC will be certain historic owners of Zevia LLC, all of whom owned preferred or common units of Zevia LLC prior to the completion of this offering and the Reorganization, and all of whom, in the aggregate, will own                Class B units of Zevia LLC and                shares of Class B common stock of Zevia PBC after this offering assuming no exercise of the underwriters’ option to purchase additional shares and                Class B units of Zevia PBC and                 shares of Class B common stock if the underwriters exercise their option to purchase additional shares in full.

(2)

Each share of Class A common stock will be entitled to one vote and will vote together with the Class B common stock as a single class, except as provided in our amended and restated certificate of incorporation or as required by law. See “—Voting Rights of Class A Common Stock and Class B Common Stock.”

(3)

The Direct Zevia Stockholders hold their interests in Zevia LLC through the Blocker Companies. Zevia PBC will form a new, first-tier merger subsidiary with respect to each Blocker Company, and contemporaneously with this offering, each respective merger subsidiary will merge with and

 

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  into the respective Blocker Company, with the Blocker Company surviving. Immediately thereafter, each Blocker Company will merge with and into Zevia PBC, with Zevia PBC surviving. As a result of the Blocker Mergers, the 100% owners of the Blocker Companies will acquire an aggregate of shares of                newly issued Class A common stock and the Blocker Companies will cease to own any Zevia LLC units.
(4)

Each share of Class B common stock is entitled to one vote and will vote together with the Class A common stock as a single class, except as provided in our amended and restated certificate of incorporation or as required by law. The Class B common stock will not have any economic rights in Zevia PBC

(5)

Zevia PBC will own all of the Class A units of Zevia LLC after the Reorganization, which upon the completion of this offering will represent the right to receive approximately                % of the distributions made by Zevia LLC assuming no exercise of the underwriters’ option to purchase additional shares and approximately                % of the distributions made by Zevia LLC if the underwriters exercise their option to purchase additional shares in full. While this interest represents a minority of economic interests in Zevia LLC, it represents 100% of the voting interests, and Zevia PBC will act as the managing member of Zevia LLC. As a result, Zevia PBC will operate and control all of Zevia LLC’s business and affairs and will be able to consolidate its financial results into Zevia PBC’s financial statements.

(6)

The Class B stockholders will collectively hold all Class B common stock of Zevia PBC outstanding after this offering. They also will collectively hold all Class B units of Zevia LLC, which upon the completion of this offering will represent the right to receive approximately                % of the distributions made by Zevia LLC assuming no exercise of the underwriters’ option to purchase additional shares and approximately                % of the distributions made by Zevia LLC if the underwriters exercise their option to purchase additional shares in full. The Class B stockholders will have no voting rights in Zevia LLC on account of the Class B units, except for the right to approve amendments to the Zevia LLC Agreement that adversely affect their rights as holders of Class B units. However, through their ownership of shares of Class B common stock, the Class B stockholders will control a majority of the voting power of the common stock of Zevia PBC, the managing member of Zevia LLC, and will therefore have indirect control over Zevia LLC. Class B units may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the Zevia LLC Agreement described in “—Zevia LLC Agreement.” When a Class B stockholder exchanges Class B units for the corresponding number of shares of our Class A common stock or, at our election, for cash, it will result in the automatic retirement of the corresponding number of shares of our Class B common stock and, therefore, will decrease the aggregate voting power of our Class B stockholders. Any beneficial holder exchanging Class B units must ensure that the applicable corresponding number of shares of Class B common stock are delivered to us for retirement as a condition of exercising its right to exchange Class B units for shares of our Class A common stock or, at our election, for cash.

Subject to the availability of net cash flow at the Zevia LLC level, Zevia PBC intends to cause Zevia LLC to distribute to Zevia PBC and the other members of Zevia LLC pro rata cash distributions for the purposes of funding tax obligations in respect of the taxable income and net capital gain that is allocated to the members of Zevia LLC and Zevia PBC’s obligations to make payments under the Tax Receivable Agreement. In addition, Zevia LLC will reimburse Zevia PBC for corporate and other overhead expenses.

Assuming Zevia LLC makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, Tax Receivable Agreement payments and expenses (any such portion, an “excess distribution’) will be made by our board of directors. Because our board of directors may determine to pay or not pay dividends to our Class A stockholders, our Class A stockholders may

 

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not necessarily receive dividend distributions relating to our excess distributions, even if Zevia LLC makes such distributions to us.

The Zevia LLC Agreement

As a result of the Reorganization, Zevia PBC will indirectly control the business through Zevia LLC and any consolidated subsidiaries. The operations of Zevia LLC, and the rights and obligations of its members, are set forth in the Zevia LLC Agreement, a form of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. The following is a description of certain terms of the Zevia LLC Agreement.

Classes of Zevia LLC Units

Zevia LLC will issue Class A units, which will be issued only to Zevia PBC, and Class B units. In connection with the closing of this offering, members holding preferred and common units prior to the closing will have such units reclassified into Class B units.

Economic Rights of Unitholders

Class A units and Class B units will have the same economic rights per unit. After the closing of this offering, the holders of Zevia PBC’s Class A common stock (indirectly through Zevia PBC) and the holders of Class B units of Zevia LLC will hold approximately                % and                %, respectively, of the economic interests in Zevia PBC’s business (or                % and                %, respectively, if the underwriters exercise their option to purchase additional shares of Class A common stock in full).

Net profits and net losses of Zevia LLC will generally be allocated on a pro rata basis in accordance with the number of units held by such holder; however, under applicable tax rules, Zevia LLC will be required to allocate taxable income disproportionately to its members in certain circumstances. The Zevia LLC Agreement will provide for quarterly cash distributions, which we refer to as “tax distributions,” to the holders of the units generally equal to the taxable income allocated to each holder of units (with certain adjustments) multiplied by an assumed tax rate. It is intended that tax distributions by Zevia LLC will be made to each of its members in an amount to enable each member to pay all applicable taxes on taxable income allocable to such member. The Zevia LLC Agreement will generally require tax distributions to be pro rata based on the ownership of Zevia LLC units, but if the amount of tax distributions to be made exceeds the amount of funds available for distribution, Zevia PBC shall receive a tax distribution calculated using the corporate rate 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 (also using the corporate tax rate), and then to all members (including Zevia PBC) pro rata until each member receives the full amount of its tax distribution using the individual tax rate. For a more complete overview of the assumed tax rate calculation, see “—Certain Tax Consequences to Zevia PBC” In addition, Zevia LLC will make non-pro rata payments to reimburse Zevia PBC for corporate and other overhead expenses (which payments from Zevia LLC will not be treated as distributions under the Zevia LLC Agreement). However, Zevia LLC may not make distributions or payments to its members if doing so would violate any applicable law or result in Zevia LLC or any of its subsidiaries being in default under any material agreement governing indebtedness (which we do not expect to be the case upon the closing of this offering and the Reorganization).

Voting Rights of Unitholders

After the closing of this offering, Zevia PBC will act as the managing member of Zevia LLC. In its capacity as the managing member of Zevia LLC, Zevia PBC will control Zevia LLC’s business and

 

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affairs. Zevia LLC will issue Class A units, which will only be issued to Zevia PBC, and Class B units. Class B unitholders will have no voting rights in Zevia LLC, except for the right to approve amendments to the Zevia LLC Agreement that adversely affect their rights as Class B unitholders.

Coordination of Zevia PBC and Zevia LLC

Any time Zevia PBC issues a share of its Class A common stock for cash, unless used to settle an exchange of a Class B unit for cash, the net proceeds received by Zevia PBC will be promptly transferred to Zevia LLC, and Zevia LLC will issue to Zevia PBC a Class A unit. If at any time Zevia PBC issues a share of its Class A common stock upon an exchange of a Class B unit or settles such exchange for cash as described below under “—Exchange Rights,” Zevia PBC will contribute the exchanged unit to Zevia LLC and Zevia LLC will issue to Zevia PBC a Class A unit. In the event that Zevia PBC issues other classes or series of its equity securities (other than pursuant to our incentive compensation plans), Zevia LLC will issue to Zevia PBC an equal amount of equity securities of Zevia LLC with designations, preferences and other rights and terms that are substantially the same as Zevia PBC’s newly issued equity securities. If at any time Zevia PBC issues a share of its Class A common stock pursuant to our 2021 Plan or other equity plan, Zevia PBC will contribute to Zevia LLC all of the proceeds that it receives (if any) and Zevia LLC will issue to Zevia PBC an equal number of its Class A units, having the same restrictions, if any, as are attached to the shares of Class A common stock issued under the plan. If Zevia PBC repurchases, redeems or retires any shares of its Class A common stock (or its equity securities of other classes or series), Zevia LLC will, immediately prior to such repurchase, redemption or retirement, repurchase, redeem or retire an equal number of Class A units (or its equity securities of the corresponding classes or series) held by Zevia PBC, upon the same terms and for the same consideration, as the shares of our Class A common stock (or our equity securities of such other classes or series) are repurchased, redeemed or retired. In addition, Zevia LLC units, as well as Zevia PBC’s common stock, will be subject to equivalent stock splits, dividends, reclassifications and other subdivisions. Zevia PBC will issue additional shares of Class B common stock only to holders of Class B units only in a number necessary to maintain a one-to-one ratio between the number of Class B units and the number of shares of Class B common stock outstanding.

Issuances and Transfer of Zevia LLC Units

Class A units will be issued only to Zevia PBC and are non-transferable except as provided in the Zevia LLC Agreement. Class B units will be issued in connection with the Reorganization as described herein and may be issued pursuant to the Zevia LLC Agreement, provided that a corresponding number of shares of Class B common stock is issued to the holder of such Class B units. Class B units may not be transferred, except with Zevia PBC’s consent or to a permitted transferee, subject to such conditions as Zevia PBC may specify. In addition, Class B unitholders may not transfer any Class B units to any person unless he, she or it transfers an equal number of shares of Zevia PBC’s Class B common stock to the same transferee.

Under the Zevia LLC Agreement, Zevia PBC can require the holders of Class B units to sell all of their interests in Zevia LLC in the event of certain acquisitions of Zevia LLC.

Tax Receivable Agreement

Zevia PBC will enter into a tax receivable agreement for the benefit of the continuing members of Zevia LLC (not including Zevia PBC) and certain of our pre-IPO institutional investors, which we refer to as the “Direct Zevia Stockholders” (the “Tax Receivable Agreement”), pursuant to which Zevia PBC will pay         % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC

 

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units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers (each as defined below) and (iii) any payments Zevia PBC 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 Zevia PBC) 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 Zevia PBC for other uses, including reinvestment or dividends to Zevia PBC Class A shareholders. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

The amount payable under the Tax Receivable Agreement 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 Relationships and Related Party Transactions—Tax Receivable Agreement”. We expect that the payments that we may be required to make under the Tax Receivable Agreement 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, 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 $         million through 2036. Under such scenario we would be required to pay the Direct Zevia Stockholders and certain continuing members of Zevia LLC         % of such amount, or $         million through 2036.

Similarly, assuming no 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, we expect that future payments under the Tax Receivable Agreement relating to the purchase by Zevia PBC of Zevia LLC units from members of Zevia LLC in connection with this offering to be approximately $         million (or approximately $         million if the underwriters exercise their option to purchase additional shares, the proceeds of which will be used by Zevia PBC to acquire additional Zevia LLC units from members of Zevia LLC) and to range over the next 15 years from approximately $         million to $         million per year (or range from approximately $         million to $         million per year if the underwriters exercise their option to purchase additional shares) and decline thereafter. As a result, we expect that aggregate payments under the Tax Receivable Agreement over this 15-year period will range from approximately $         million to $         million (or range from approximately $         million to $         million if the underwriters exercise their option to purchase additional shares). These estimates are based on an initial public offering price of $         per share of Class A common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

Certain Tax Consequences to Zevia PBC

The holders of Zevia LLC units, including Zevia PBC, generally will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of Zevia LLC. Net income and net losses of Zevia LLC generally will be allocated to its members pro rata in proportion to their respective membership units, though certain non-pro rata adjustments will be made to reflect depreciation, amortization and other allocations. In accordance with the Zevia LLC Agreement, we intend to cause Zevia LLC to make distributions to each of its members, including Zevia PBC, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to such member, and to make non-pro rata payments to Zevia PBC to reimburse it for corporate and other overhead expenses (which payments from Zevia LLC will not be treated as distributions under the Zevia LLC Agreement). If the amount of tax distributions to be made exceeds the amount of funds available for distribution, Zevia PBC shall receive a tax distribution calculated using the corporate rate

 

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before the other members receive any distribution, and the balance, if any, of funds available for distribution shall be distributed first to the other members pro rata in accordance with their assumed tax liabilities (also using the corporate tax rate), and then to all members (including Zevia PBC) pro rata until each member receives the full amount of its tax distribution using the individual tax rate. Generally, these tax distributions will be computed based on our estimate of the net taxable income of Zevia LLC allocable per unit (based on the member which is allocated the largest amount of taxable income on a per unit basis) multiplied by an assumed tax rate equal to the highest combined U.S. federal and applicable state and local tax rate applicable to any natural person residing in, or corporation doing business in Los Angeles, California that is taxable on that income (taking into account certain other assumptions, and subject to adjustment to the extent that state and local taxes are deductible for U.S. federal income tax purposes).

Zevia LLC will have in effect an election under Section 754 of the Code for the taxable year of the offering and each taxable year in which an exchange of Class B units for shares of our Class A common stock occurs. As a result of this election, the exchanges of Class B units for shares of our Class A common stock, are expected to result in increases in the tax basis of the tangible and intangible assets of Zevia LLC, which will be allocated to Zevia PBC and are expected to increase the tax depreciation and amortization deductions available to Zevia PBC and decrease gains, or increase losses, on a sale or other taxable disposition, if any, of such assets and therefore may reduce the amount of tax that Zevia PBC would otherwise be required to pay.

Voting Rights of Class A Common Stock and Class B Common Stock

Except as provided in our amended and restated certificate of incorporation or as required by applicable law, holders of Class A common stock and Class B common stock vote together as a single class. Pursuant to our amended and restated certificate of incorporation, we may not amend, alter, repeal or waive the provisions of our amended and restated certificate of incorporation that relate to the terms of our capital stock without the approval of the holders of a majority of the then outstanding shares of our Class B common stock, voting as a separate class. Holders of the Class A common stock and Class B common stock, as the case may be, would also have a separate class vote if we subdivide, combine or reclassify shares of the other class without concurrently subdividing, combining or reclassifying shares of such class in a proportional manner. Pursuant to the Delaware General Corporation Law (the “DGCL”), the holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would increase or decrease the par value of the shares of such class or alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely. Each share of our Class A common stock and our Class B common stock will entitle its holder to one vote per share.

Immediately after this offering, our Class B stockholders will collectively hold approximately                 % of the combined voting power of our common stock (or                 % if the underwriters exercise their option to purchase additional shares in full). When a Class B stockholder exchanges Class B units for the corresponding number of shares of our Class A common stock or, at our election, for cash, it will result in the automatic cancellation of the corresponding number of shares of our Class B common stock and, therefore, will decrease the aggregate voting power of our Class B stockholders.

Exchange Rights

The Zevia LLC Agreement will entitle certain of its members (and certain permitted transferees thereof) to exchange their Class B units, together with an equal number of shares of Class B common

 

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stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash. The exchange ratio is subject to appropriate adjustment by Zevia PBC in the event Class A units are issued to Zevia PBC without issuance of a corresponding number of shares of Class A common stock or in the event of certain reclassifications, reorganizations, recapitalizations or similar transactions.

The Zevia LLC Agreement will provide that an owner will not have the right to exchange Class B units if we determine that such exchange would be prohibited by law or regulation or would violate other agreements with the Company, Zevia LLC or any of their subsidiaries to which Zevia LLC unitholder is subject. We intend to impose additional restrictions on exchanges that we determine to be necessary or advisable so that Zevia LLC is not treated as a “publicly traded partnership” for U.S. federal income tax purposes.

The Zevia LLC Agreement also provides for mandatory exchanges under certain circumstances, including at the option of Zevia PBC if the number of units outstanding (other than those held by Zevia PBC) is less than a minimum percentage and in the discretion of Zevia PBC with the consent of holders of at least 50% of the outstanding Class B units.

Any beneficial holder exchanging Class B units must ensure that the applicable corresponding number of shares of Class B common stock are delivered to us for retirement as a condition of exercising its right to exchange Class B units for shares of our Class A common stock or, at our election, for cash.

Shares of Class B common stock retired upon an exchange will be restored to the status of authorized but unissued shares of Class B common stock.

Amended and Restated Registration Rights Agreement

Prior to the consummation of this offering, we intend to amend and restate our existing Registration Rights Agreement. The amended and restated agreement will provide holders of our Class B common stock with certain registration rights whereby, at any time following the lockup restrictions described in this prospectus, they will have the right to require us to register under the Securities Act the shares of Class A common stock issuable upon exchange of Class B units. The Amended and Restated Registration Rights Agreement will also provide for piggyback registration rights for the holders party thereto, subject to certain conditions and exceptions.

 

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USE OF PROCEEDS

We estimate that our net proceeds from this offering, based on an assumed initial public offering price of $                per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions but before deducting expenses of this offering and the Reorganization payable by us, will be approximately $                million, or approximately $                million if the underwriters exercise in full their option to purchase additional shares of Class A common stock.

Each $1.00 increase or decrease in the assumed initial public offering price of $                per share of Class A common stock would increase or decrease the net proceeds to us from this offering by approximately $                million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions but before deducting expenses of this offering and the Reorganization payable by us. Similarly, each increase or decrease of one million in the number of shares of Class A common stock offered by us would increase or decrease the net proceeds to us from this offering by approximately $                million, assuming no change in the assumed initial public offering price of $                per share and after deducting estimated underwriting discounts and commissions but before deducting expenses of this offering and the Reorganization payable by us.

The principal purposes of this offering are to increase our financial flexibility, create a public market for our Class A common stock, and facilitate our future access to the capital markets. We intend to use $                million of the net proceeds from this offering to purchase 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 our Class A common stock in this offering.

We intend to use approximately $                million, or approximately $                million if the underwriters exercise in full their option to purchase additional shares of Class A common stock, of the net proceeds from this offering to purchase Class B units from certain of 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 our Class A common stock in this offering. Accordingly, we will not retain any of this portion of the proceeds.

Additionally, we intend to cause Zevia LLC to use approximately $                million of the net proceeds to pay the expenses incurred by us in connection with this offering and the Reorganization.

Although we have not yet determined with certainty the manner in which we will allocate the net proceeds of this offering, we expect to cause Zevia LLC to use the remaining net proceeds for working capital and other general corporate purposes.

The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term, interest-bearing, investment-grade securities.

 

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DIVIDEND POLICY

We have no present intention to pay cash dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our existing and any future debt and other factors that our board of directors deems relevant.

Following the Reorganization and this offering, Zevia PBC will be a holding company and its sole asset will be ownership of the Class A units of Zevia LLC, of which it will be the managing member. Subject to funds being legally available, we intend to cause Zevia LLC to make distributions to each of its members, including Zevia PBC, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to such member and to allow Zevia PBC to make payments under the Tax Receivable Agreement, and non-pro rata payments to Zevia PBC to reimburse it for corporate and other overhead expenses. Distributions from Zevia LLC to Zevia PBC to make payments under the Tax Receivable Agreement will reduce the cash that would otherwise have been available to Zevia PBC for other uses, including reinvestment or dividends to Zevia PBC Class A stockholders. If the amount of tax distributions to be made exceeds the amount of funds available for distribution, Zevia PBC 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. Holders of our Class B common stock will not be entitled to dividends distributed by Zevia PBC, but will share in the distributions made by Zevia LLC on a pro rata basis.

To the extent that the tax distributions Zevia PBC receives exceed the amounts Zevia PBC actually requires to pay taxes and other expenses and make payments under the Tax Receivable Agreement (because of the lower tax rate applicable to Zevia PBC than the assumed tax rate on which such distributions are based or because a disproportionate share of the taxable income of Zevia LLC may be required to be allocated to members in Zevia LLC other than Zevia PBC), our board of directors, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, including potentially causing Zevia PBC to contribute such excess cash (net of any operating expenses) to Zevia LLC. Concurrently with any potential contribution of such excess cash, in order to maintain the intended economic relationship between the shares of Class A common stock and Zevia LLC units after accounting for such contribution, Zevia LLC and Zevia PBC, as applicable, may undertake ameliorative actions, which may include reverse splits, reclassifications, combinations, subdivisions or adjustments of outstanding units of Zevia LLC and corresponding shares of Class A common stock of Zevia PBC, as well as corresponding adjustments to the shares of Class B common stock of Zevia PBC To the extent that Zevia PBC contributes such excess cash to Zevia LLC (and undertakes such ameliorative actions), a holder of Class A common stock would not receive distributions in cash and would instead benefit through an increase in the indirect ownership interest in Zevia LLC represented by such holder’s Class A common stock. To the extent that Zevia PBC does not distribute such excess cash as dividends on the Class A common stock or otherwise undertake such ameliorative actions and instead, for example, holds such cash balances, the members of Zevia LLC (not including Zevia PBC) may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following an exchange of their Class B units for shares of the Class A common stock, notwithstanding that such members may previously have participated as holders of Class B units in distributions by Zevia LLC that resulted in such excess cash balances at Zevia PBC.

 

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CAPITALIZATION

The following table sets forth the cash and capitalization as of March 31, 2021 of Zevia LLC on a historical basis and Zevia PBC on a pro forma basis to give effect to the Reorganization and the issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, after (i) deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the proceeds from this offering, as described under “Use of Proceeds.”

You should read this information together with the information in this prospectus under “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock,” and with the financial statements and the related notes to those statements included elsewhere in this prospectus.

 

     As of March 31, 2021  
     Historical
Zevia LLC
    Pro Forma
Zevia PBC
 
     (in thousands, except
per share/unit amounts
and share/unit data)
 

Cash

   $ 12,361     $    

Debt

    

Redeemable convertible preferred units, no par value (34,410,379 units authorized, 26,322,803 units issued and outstanding; and aggregate liquidation preference, $329,753, actual; no shares authorized, no shares issued and outstanding, pro forma)(1)

     232,457       —    

Common units, no par value (7,274,742 units authorized, 2,476,386 units issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma)(1)

     976       —    

Preferred Stock, $0.001 par value (no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma)

     —         —    

Class A common stock, $0.001 par value (no shares authorized, issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma)

     —      

Class B common stock, $0.001 par value (no shares authorized, issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma)

     —      

Additional paid-in capital

     37    

Accumulated deficit

     (197,531  

Total members’/stockholders’ deficit:

   $ (196,518   $    

Non-controlling interests

     —      

Total capitalization:

   $ 50,267     $    
  

 

 

   

 

 

 

 

(1)

In connection with the Reorganization, Zevia LLC will recapitalize its redeemable convertible preferred units and common units into a single class of common units and recapitalize such common units into Class B units. Zevia PBC will use the net proceeds of this offering to (a) acquire newly issued Class A units at a per-unit price equal to the per-share price paid by the underwriters for shares of our Class A common stock in this offering and (b) purchase Class B units from certain of 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

 

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  of our Class A common stock in this offering, and such units will be immediately exchanged by Zevia LLC for an equivalent number of Class A units. As of March 31, 2021, on a pro forma basis to give effect to the Reorganization and the issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $        per share, after (i) deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the proceeds from this offering, as described under “Use of Proceeds,” Zevia LLC would have            Class A units and            Class B units.

The above table does not include:

 

   

                shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;

 

   

                shares of Class A common stock issuable under the 2021 Plan (under which no equity awards have been granted as of March 31, 2021), including:

(i)                    shares of Class A common stock underlying stock options, restricted stock units or other awards to be granted to certain employees and non-employee directors pursuant to the 2021 Plan immediately after the closing of this offering; and

(ii)                    additional shares of Class A common stock to be reserved for future issuance of awards under the 2021 Plan;

 

   

                shares of Class A common stock issuable upon exercise or settlement of (i) outstanding options granted under the 2011 Plan, (ii) outstanding RCCCUs granted under the 2020 Plan and otherwise and (iii) outstanding restricted phantom unit awards, which will be adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable; and

 

   

                shares of Class A common stock reserved for issuance upon exchange of the Class B units of Zevia LLC (and corresponding shares of Class B common stock) that will be outstanding immediately after this offering.

 

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DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock immediately after the completion of this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the book value per share attributable to the existing equity holders.

Our pro forma net tangible book value as of March 31, 2021 was approximately $                million, or $                per share of our Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Reorganization and assuming that all of the Class B unitholders exchanged their Class B units outstanding immediately following the completion of the Reorganization and this offering for newly issued shares of our Class A common stock on a one-for-one basis as if such units were immediately exchangeable.

 

     (in thousands)  

Pro forma assets

   $                

Pro forma liabilities

  
  

 

 

 

Pro forma book value

   $                

Less:

  

Goodwill

  

Intangible assets, net

  
  

 

 

 

Pro forma net tangible book value after this offering

   $                

Less:

  

Proceeds from offering net of underwriting discounts

  

Purchase of units in Zevia LLC

  

Offering expenses

  
  

 

 

 

Pro forma net tangible book value as of March 31, 2021

   $                
  

 

 

 

After giving effect to (i) the Reorganization, (ii) the issuance and sale by us of                shares of our Class A common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us and assuming the exchange of all Class B units outstanding immediately following the completion of the Reorganization and this offering for shares of our Class A common stock as if such units were immediately exchangeable; and (iii) the application of such proceeds as described in the section entitled “Use of Proceeds,” our net tangible book value, our pro forma net tangible book value as of March 31, 2021 would have been $                million, or $                per share. This represents an immediate increase in pro forma net tangible book value of $                per share to existing equity holders and an immediate dilution in net tangible book value of $                per share to new investors.

 

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The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional shares:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share of Class A common stock as of March 31, 2021

   $                   

Increase in pro forma net tangible book value per share attributable to new investors

   $                   
  

 

 

    

Pro forma net tangible book value per share after the offering

      $                
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors

      $                
     

 

 

 

The information in the preceding table is based on an assumed offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase or decrease in the assumed price per share would increase or decrease, respectively, the pro forma net tangible book value after this offering by approximately $                million and increase or decrease the dilution per share of Class A common stock to new investors in this offering by $                per share, in each case calculated as described above and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase or decrease of 1.0 million shares in the number of shares of our Class A common stock offered by us would increase or decrease, as applicable, our pro forma net tangible book value by approximately $                per share and increase or decrease, as applicable, the dilution to new investors in this offering by $                per share, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on the same pro forma basis as of March 31, 2021, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us and the average price per share paid by the existing equity holders and by new investors purchasing shares in this offering, assuming that all of the Class B unitholders exchanged their Class B units for shares of our Class A common stock on a one-for-one basis as if such units were immediately exchangeable.

 

     Shares purchased(1)     Total consideration(2)     Average
price
per share
 
   Number      %     Number      %  

Existing stockholders

        %          %    

New investors

        %          %    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100        100  

 

(1)

If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own approximately                % and our new investors would own approximately                % of the total number of shares of our Class A common stock outstanding after this offering.

(2)

If the underwriters exercise their option to purchase additional shares in full, the total consideration paid by our new investors would be approximately $                 (or                 %).

The above table does not include:

 

   

                shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;

 

   

                shares of Class A common stock issuable under the 2021 Plan (under which no equity awards have been granted as of March 31, 2021), including:

 

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(i)                    shares of Class A common stock underlying stock options, restricted stock units or other awards to be granted to certain employees and non-employee directors pursuant to the 2021 Plan immediately after the closing of this offering; and

(ii)                    additional shares of Class A common stock to be reserved for future issuance of awards under the 2021 Plan; and

 

   

                shares of Class A common stock issuable upon exercise or settlement of (i) outstanding options granted under the 2011 Plan, (ii) outstanding RCCCUs granted under the 2020 Plan and otherwise and (iii) outstanding restricted phantom unit awards, which will be adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

The following unaudited pro forma consolidated balance sheet as of March 31, 2021 gives pro forma effect to the Reorganization (see transactions described under “Organizational Structure”), the consummation of this offering and our intended use of proceeds therefrom after deducting estimated underwriting discounts and commissions and other costs of this offering (collectively, the “Transactions”), as though such transactions had occurred as of March 31, 2021. The unaudited pro forma consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and the year ended December 31, 2020 present our consolidated results of operations giving pro forma effect to the transactions described above as if they had occurred as of January 1, 2020.

The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the effect of these transactions on the historical financial information of Zevia LLC. The unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statements of operations and comprehensive income (loss) may not be indicative of the results of operations or financial position that would have occurred had this offering and the related transactions taken place on the dates indicated, or that may be expected to occur in the future. The adjustments are described in the notes to the unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations and comprehensive income (loss). The unaudited pro forma consolidated financial information and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

The pro forma adjustments in the Reorganization and Offering Adjustments column principally give effect to:

 

   

the Reorganization as described in “Organizational Structure”, including the recapitalization of Zevia LLC’s common and preferred membership interests into a single class of common units;

 

   

the issuance of                  shares of our Class A common stock to the investors in this offering in exchange for net proceeds of approximately $                 (based on an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions but before offering expenses;

 

   

the amendment and restatement of the limited liability company agreement of Zevia LLC to provide for Class A units and Class B units, and to classify the interests acquired by Zevia PBC as Class A units and the interests held by continuing members of Zevia LLC as Class B units;

 

   

the payment of fees and expenses related to this offering and the application of the net proceeds from the sale of Class A common stock in this offering to purchase Class A units directly from Zevia LLC, at a purchase price per Class A unit equal to the initial public offering price per share of Class A common stock less the underwriting discount, with such Class A units representing                 % of the outstanding units of Zevia LLC;

 

   

the (i) grant of                  stock options and                  restricted stock units to certain employees and non-employee directors and (ii) adjustment of (a)                  options under the 2011 Plan, (b)                  RCCCUs under the 2020 Plan and otherwise and (c)                  restricted phantom unit awards, on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable; and

 

   

the provision for corporate income taxes on the income of Zevia PBC that will be taxable as a corporation for U.S. federal and state income tax purposes.

Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A common stock from us in the offering.

 

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Zevia LLC is considered our predecessor for accounting purposes, and its financial statements will be our historical financial statements following this offering. Zevia PBC is a holding company, and its sole material asset will be its equity interest in Zevia LLC. As the sole managing member of Zevia LLC, Zevia PBC will operate and control all of the business and affairs of Zevia LLC. This Reorganization will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Zevia PBC will recognize the assets and liabilities received in the Reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Zevia LLC. Zevia PBC will consolidate Zevia LLC on 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.

Zevia PBC will enter into the Tax Receivable Agreement for the benefit of the continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders, pursuant to which Zevia PBC will pay them                % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers and (iii) any payments Zevia PBC 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 Zevia PBC) and to the Direct Zevia Stockholders pro rata based on their relative percentage ownership of Zevia LLC immediately prior to the Reorganization. See “Organizational Structure” and “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

We have not made any pro forma adjustments relating to reporting, compliance and investor relations costs that we will incur as a public company. No pro forma adjustments have been made for these additional expenses as an estimate of such expenses is not determinable.

The unaudited pro forma consolidated financial information is included for informational purposes only. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the Transactions, including this offering, occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date. The unaudited pro forma consolidated statement of operations and balance sheet should be read in conjunction with the “Risk Factors,” “Prospectus Summary— Summary Historical Financial Information,” “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2021

 

    Zevia LLC
Historical
    Pro Forma
Reorganization
Adjustments
    As Adjusted
Before
Offering
    Pro Forma
Offering
Adjustments
    Zevia PBC
Pro Forma
 
    (in thousands, except per unit and share information)  

Current Assets:

         

Cash

  $ 12,361           (1  

Accounts receivable, net

    9,361          

Inventories, net

    20,066          

Prepaid expenses and other current assets

    2,821           (3  
 

 

 

         

Total current assets

    44,609          

 

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    Zevia LLC
Historical
    Pro Forma
Reorganization
Adjustments
    As Adjusted
Before
Offering
    Pro Forma
Offering
Adjustments
    Zevia PBC
Pro Forma
 
    (in thousands, except per unit and share information)  

Property and equipment, net

    1,065          

Right-of-use assets under operating leases, net

    637          

Intangible assets, net

    3,888          

Deferred tax assets (2)

             

Other non-current assets

    68          
 

 

 

         

Total assets

  $ 50,267          
 

 

 

         

Liabilities and Redeemable Convertible Preferred Units and Members’ Deficit

         

Current liabilities:

         

Accounts payable

  $ 8,927          

Accrued expenses

    1,288           (1  

Operating lease liabilities

    641          

Other current liabilities

    3,402          
 

 

 

         

Total current liabilities

    14,258          
 

 

 

         

Operating leases liabilities, net of current portion

    70          

Amounts payable pursuant to Tax Receivable Agreement (2)

             
 

 

 

         

Total liabilities

    14,328          

Commitments and contingencies (See Note 9 to the financial statements)

         

Redeemable convertible preferred units, no par value (34,410,379 units authorized, 26,322,803 units issued and outstanding; and aggregate liquidation preference, $329,753, actual; no shares authorized, no shares issued and outstanding, pro forma)

    232,457       (4      

Common units, no par value (7,274,742 units authorized, 2,476,386 units issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma)

    976       (4      

Preferred Stock, $0.001 par value (no shares authorized, issued and outstanding, actual;          shares authorized, no shares issued and outstanding, pro forma)

             

Class A common stock, $0.001 par value (no shares authorized, issued and outstanding, actual;          shares authorized,          shares issued and outstanding, pro forma)

              (5  

 

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    Zevia LLC
Historical
    Pro Forma
Reorganization
Adjustments
    As Adjusted
Before
Offering
    Pro Forma
Offering
Adjustments
    Zevia PBC
Pro Forma
 
    (in thousands, except per unit and share information)  

Class B common stock, $0.001 par value (no shares authorized, issued and outstanding, actual;          shares authorized,          shares issued and outstanding, pro forma)

              (5  

Additional paid-in capital (5)

    37           (3  

Accumulated deficit

    (197,531        
 

 

 

   

 

 

   

 

 

     

Total Members’ deficit

    (196,518        
 

 

 

   

 

 

   

 

 

     

Non-controlling interests (4)

             
 

 

 

   

 

 

   

 

 

     

Total liabilities and redeemable convertible preferred units and members’ deficit

  $ 50,267          
 

 

 

   

 

 

   

 

 

     

See accompanying notes to unaudited pro forma consolidated balance sheet.

 

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Notes to Unaudited Pro Forma Consolidated Balance Sheet

 

(1)

Reflects the net effect on cash of the receipt of offering proceeds to us of $                , based on the sale of                 shares of Class A common stock at an assumed initial public offering price of $                per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will use approximately $                million of the net proceeds from this offering to cause Zevia LLC to purchase Class B units from certain of its existing unitholders, at a per-unit price equal to the per-share price paid by the underwriters for shares of our Class A common stock in this offering. Accordingly, we will not retain any of this portion of the proceeds.

(2)

As described in greater detail under “Organizational Structure” and “Certain Relationships and Related Person Transactions—Tax Receivable Agreement,” in connection with the completion of this offering, we will enter into the Tax Receivable Agreement with continuing members of Zevia LLC and the Direct Zevia Stockholders, which will provide for the payment by Zevia PBC to certain continuing members of Zevia LLC (not including Zevia PBC) and the Direct Zevia Stockholders of                % of the amount of the net cash tax savings, if any, that Zevia PBC 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 Zevia PBC’s acquisition of a continuing member’s Zevia LLC units in connection with this offering and in future exchanges, (ii) certain favorable tax attributes we will acquire from the Blocker Companies in the Blocker Mergers and (iii) any payments Zevia PBC 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 Zevia PBC) and to the Direct Zevia Stockholders pro rata based on their relative percentage ownership of Zevia LLC immediately prior to the Reorganization.

Due to the uncertainty in the amount and timing of future exchanges of Zevia LLC units by the continuing members of Zevia LLC, and the uncertainty of when those exchanges will ultimately result in tax savings, the unaudited pro forma consolidated financial information assumes that no exchanges of Zevia LLC units have occurred and therefore no increases in tax basis in Zevia PBC’s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the continuing members were to exchange their Zevia LLC units, we would recognize a deferred tax asset of approximately $                and a liability of approximately $                , assuming (i) that the continuing members redeemed or exchanged all of their Zevia LLC units immediately after the completion of this offering at an assumed initial public offering price of $                per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), (ii) no material changes in relevant tax law, (iii) a constant combined effective income tax rate of                % and (iv) that we have sufficient taxable income in each year to realize on a current basis the increased depreciation, amortization and other tax benefits that are the subject of the Tax Receivable Agreement. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price of shares of our Class A common stock at the time of the exchange and the tax rates then in effect.

We will hold an economic interest of                % in Zevia LLC subsequent to the Reorganization and this offering. The                % interest that we do not own represents a non-controlling interest for financial reporting purposes. Zevia LLC has been and will continue to be treated as a partnership for U.S. federal and state income tax purposes. Following the Transactions, Zevia PBC will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to our allocable share of any net taxable income generated by Zevia LLC.

 

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As a result of this offering, we recorded a deferred tax asset of $                million in the unaudited pro forma consolidated balance sheet as of March 31, 2021, as a result of the difference between the financial reporting value and the tax basis of Zevia PBC’s investment in Zevia LLC. The Company analyzes the likelihood that its deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion, or all, of a deferred tax asset related to acquiring its interest in Zevia LLC through newly issued LLC units is not expected to be realized unless the Company disposes of its investment in Zevia LLC. Zevia PBC has recognized a valuation allowance of $                million against the deferred tax asset (resulting in a net deferred tax asset of zero) which is considered capital in nature as it was not more likely than not that this portion of deferred tax assets would be realized.

As of March 31, 2021, we did not have any material net operating loss or credit carryforwards.

 

(3)

Reflects deferred costs associated with this offering, including certain legal, accounting and other related costs, which have been recorded in prepaid expenses and other current assets on the consolidated balance sheet. Upon completion of this offering, these deferred costs will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital.

(4)

Upon completion of the Transactions, we will become the managing member of Zevia LLC. Although we will have a minority economic interest in Zevia LLC, we will have the majority voting interest in, and control of the management of, Zevia LLC. As a result, we will consolidate the financial results of Zevia LLC and will report non-controlling interests related to the interests in Zevia LLC held by the continuing members on our consolidated balance sheet. Immediately following the Transactions, the economic interests held by the non-controlling interests will be approximately                %. If the underwriters were to exercise their option to purchase additional shares of our Class A common stock in full, the economic interests held by the non-controlling interests would be approximately                %. Through their ownership of shares of Class B common stock, the Class B stockholders will control a majority of the voting power of the common stock of Zevia PBC, the managing member of Zevia LLC, and will therefore have indirect control over Zevia LLC.

(5)

The components of increase to additional paid-in capital as a result of the amounts allocable to Zevia PBC from net proceeds of this offering are set forth below:

 

     Pro Forma
Reorganization
Adjustments
     Pro Forma
Offering
Adjustments
     Zevia PBC
Pro Forma
 

Reclassification of members’ equity and convertible preferred units

   $                    $                    $                

Proceeds from offering net of underwriting discounts

        

Payment of estimated offering costs

        

Transaction costs incurred prior to this offering deferred as prepaid expenses and other current assets(4)

        

Par value of Class A common stock

        

Par value of Class B common stock

        

Non-controlling interests

        
  

 

 

    

 

 

    

 

 

 

Additional paid-in capital

   $        $        $    
  

 

 

    

 

 

    

 

 

 

 

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Unaudited Pro Forma Consolidated Statement of Operations and Comprehensive Income for the Three Months Ended March 31, 2021

 

     Zevia LLC
Historical
     Pro Forma Offering
Adjustments
    Zevia PBC Pro
Forma
 
     (in thousands, except units and share information)  

Net Sales

   $ 30,694       

Cost of goods sold

     16,506       

Gross profit

     14,188       

Operating expenses

       

Selling and marketing expenses

     7,988       

General and administrative expenses

     5,713        (7  

Depreciation and amortization

     244       

Total operating expenses

     13,945       

Income from operations

     243       

Other income (expenses), net

     4       

Provision for income taxes

            (5  

Net income and comprehensive income

   $ 247       

Net income attributable to non-controlling interests

   $        (6  

Net income attributable to Zevia PBC

   $ 247       

Net income attributable to equity holders

   $ 19       

Net income per unit/share attributable to equity holders, basic

   $ 0.01       

Net income per unit/share attributable to equity holders, diluted

   $ 0.01       

Weighted average common units/shares outstanding, basic

     2,462,575          (4

Weighted average common units/shares outstanding, diluted

     30,481,923       

See accompanying notes to unaudited pro forma consolidated statement of operations and comprehensive income.

Unaudited Pro Forma Consolidated Statement of Operations and Comprehensive Loss for the Year Ended December 31, 2020

 

     Zevia LLC
Historical
    Pro Forma Offering
Adjustments
    Zevia PBC Pro
Forma
 
     (in thousands, except units and share information)  

Net sales

   $ 110,025      

Cost of goods sold

     60,523      

Gross profit

     49,502      

Operating expenses

      

Selling and marketing expenses

     27,333      

General and administrative expenses (1)

     26,715                (7)   

Depreciation and amortization

     932      

Total operating expenses

     54,980      

Loss from operations

     (5,478    

Other income (expense), net

     (593    

Provision for income taxes

                    (5)   

Net loss and comprehensive loss

     (6,071    

Net loss attributable to non-controlling interests

                    (6)   

Net loss attributable to Zevia PBC

     (6,071    

Net loss attributable to equity holders (2)

     (126,512    

Net loss per unit/share attributable to equity holders, basic and diluted (2)(3)

   $ (28.05    

Weighted average common units/shares outstanding, basic and diluted

     4,510,572                  (4) 

See accompanying notes to unaudited pro forma consolidated statement of operations and comprehensive loss.

 

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Notes to Unaudited Pro Forma Consolidated Statement of Operations and Comprehensive Income (Loss)

 

(1)

General and administrative expenses includes compensation expense of $7.8 million for the year ended December 31, 2020, representing the excess of the repurchase price over then assessed fair value of the units of membership interest held by employees that were repurchased by Zevia LLC. See Note 9 to our financial statements included elsewhere in this prospectus.

(2)

Historical net loss attributable to equity holders includes an incremental reduction to accumulated deficit of $120.4 million for the year ended December 31, 2020 related to the excess of tender offer purchase price over then assessed fair value. See Note 9 and Note 17 to our financial statements included elsewhere in this prospectus.

(3)

Net loss per unit under the two-class method is the same under all classes of common units. See Note 17 to our financial statements included elsewhere in this prospectus.

(4)

Pro forma basic and diluted net income (loss) per share attributable to equity holders is computed by dividing the net income (loss) attributable to holders of Class A common stock by the weighted average shares of Class A common stock outstanding during the period. The weighted-average shares of Class A common stock outstanding excludes                 million shares of Class A common stock to be issued pursuant to (i) options under the 2011 Plan, (ii) RCCCUs under the 2020 Plan and otherwise and (iii) restricted phantom unit awards, adjusted on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable, and stock options and restricted stock units granted under the 2021 Plan. Shares of Class B common stock do not participate in the earnings of Zevia PBC. As a result, the shares of Class B common stock are not considered participating securities and are not included in the weighted average shares outstanding for purposes of computing pro forma earnings per share.

The following table sets forth a reconciliation of the numerators and denominators used to compute pro forma basic and diluted earnings per share of Class A common stock (amounts in millions except for share counts, which are in thousands):

 

    Zevia PBC Pro Forma  
    Three Months Ended
March 31, 2021
    Year Ended
December 31, 2020
 

Numerator

   

Pro forma net income (loss)

  $                       $                
 

 

 

   

 

 

 

Less: Pro forma net income (loss) attributable to non-controlling interests

   
 

 

 

   

 

 

 

Pro forma net income (loss) attributable to Zevia PBC

  $       $    
 

 

 

   

 

 

 
Denominator    
 

 

 

   

 

 

 

Shares of Class A common stock issued in connection with this offering

   

Shares of Class A common stock to be issued to the Direct Zevia Stockholders in the Reorganization

   

Pro forma weighted-average shares of Class A common stock outstanding—basic

   
 

 

 

   

 

 

 

Effect of dilutive securities

   
 

 

 

   

 

 

 

Pro forma weighted-average shares of Class A common stock outstanding—diluted

   
 

 

 

   

 

 

 

Pro forma earnings per share of Class A common stock—basic

  $       $    
 

 

 

   

 

 

 

Pro forma earnings per share of Class A common stock—diluted

  $       $    
 

 

 

   

 

 

 

Anti-dilutive shares excluded from pro forma earnings per shares of Class A common stock—diluted:

   

Shares of Class B common stock issued in connection with this offering

   
 

 

 

   

 

 

 

Total shares excluded from pro forma earnings per share of Class A common stock—diluted

   
 

 

 

   

 

 

 

 

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Shares of our Class B common stock do not share in the earnings or losses of Zevia PBC and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Shares of our Class B common stock are, however, considered potentially dilutive shares of Class A common stock. Amounts have been excluded from the computations of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

(5)

Following the Transactions, we will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to our allocable share of any net taxable income of Zevia LLC. As a result, the unaudited pro forma consolidated statements of operations and comprehensive income (loss) reflect adjustments to our income tax expense of $                 for the year ended December 31, 2020.

The following table sets forth the computation of pro forma effective tax rate for the periods presented:

 

     Three Months Ended
March 31, 2021
    Year Ended
December 31, 2020
 

Federal statutory rate

                          

State tax, net of federal effect

                          

Income attributable to non-controlling interests

                          

Other

                          
  

 

 

   

 

 

 

Pro forma effective tax rate

                          
  

 

 

   

 

 

 

 

(6)

Following the Transactions, we will become the managing member of Zevia LLC. We will own                % of the economic interest in Zevia LLC but will have                % of the voting interest in and control the management of Zevia LLC. The continuing members will own the remaining                % of the economic interest in Zevia LLC, which will be accounted for as non-controlling interests in our future consolidated financial results. Through their ownership of shares of Class B common stock, the Class B stockholders will control a majority of the voting power of the common stock of Zevia PBC, the managing member of Zevia LLC, and will therefore have indirect control over Zevia LLC. Accordingly, a portion of the net losses will be attributable to Zevia PBC and a portion will be attributable to the non-controlling interests of the holders of Class B common stock.

(7)

In connection with this offering, we will (i) grant                 stock options and                 restricted stock units to certain employees and non-employee directors pursuant to the 2021 Plan and (ii) adjust (a)                  options under the 2011 Plan, (b)                  RCCCUs under the 2020 Plan and otherwise and (c)                  restricted phantom unit awards, on a one-to-one basis to reflect exercisability for Class A common stock, settlement in Class A common stock, and value determination by reference to Class A common stock, as applicable. This adjustment reflects compensation expense associated with the grant and adjustments had they occurred at the beginning of the period presented.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth selected financial information and other data of Zevia LLC on a historical basis. Zevia LLC is considered our predecessor for accounting purposes and its financial statements will be our historical financial statements following this offering. The following selected statement of operations data for the years ended December 31, 2020 and 2019 and the selected balance sheet data as of December 31, 2020 and 2019 have been derived from Zevia LLC’s audited financial statements included elsewhere in this prospectus. The statement of operations and comprehensive income (loss) data for the three months ended March 31, 2021 and 2020 and the summary historical balance sheet data as of March 31, 2021 have been derived from Zevia LLC’s unaudited financial statements included elsewhere in this prospectus. Our historical results and growth rates are not necessarily indicative of results or growth rates to be expected in future periods.

You should read the following information in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Person Transactions” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

 

     Three Months Ended March 31,     Year Ended December 31,  
     2021      2020     2020     2019  
     (in thousands, except units and per unit information)  

Statements of Operations and Comprehensive Income (Loss) Data:

         

Net sales

   $ 30,694      $ 22,490     $ 110,025     $ 85,562  

Cost of goods sold

     16,506        13,458       60,523       48,662  
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     14,188        9,032       49,502       36,900  

Operating expenses

         

Selling and marketing expenses

     7,988        6,921       27,333       27,643  

General and administrative expenses (1)

     5,713        4,333       26,715       13,925  

Depreciation and amortization

     244        223       932       786  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,945        11,477       54,980       42,354  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     243        (2,445     (5,478     (5,454

Other income (expense), net

     4        (149     (593     47  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income (loss)

     247        (2,594     (6,071     (5,407
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common unit holders (2)

     19        (2,594     (6,071     (5,407
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per unit attributable to common unit holders, basic (2)(3)

   $ 0.01      $ (0.57   $ (126,512   $ (5,407
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per unit attributable to common unit holders, diluted (2)(3)

   $ 0.01      $ (0.57   $ (28.05   $ (1.20
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common units outstanding, basic

     2,462,575        4,548,641       4,510,572       4,522,909  
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common units outstanding, diluted

     30,481,923        4,548,641       4,510,572       4,522,909  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

General and administrative expenses includes compensation expense of $37,000 and $29,000 for the three months ended March 31, 2021 and 2020, respectively, and $7.8 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively, representing the excess of the repurchase price over then assessed fair value of the units of membership interest held by employees that were repurchased by Zevia LLC. See Note 9 to our financial statements included elsewhere in this prospectus.

 

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(2)

Net income (loss) attributable to common unit holders includes an incremental reduction to accumulated deficit of $120.4 million for the year ended December 31, 2020 related to the excess of tender offer purchase price over then assessed fair value. See Note 9 and Note 17 to our financial statements included elsewhere in this prospectus.

(3)

Net income (loss) per unit under the two-class method is the same under all classes of common units. See Note 17 to our financial statements included elsewhere in this prospectus.

 

     As of March 31,     As of December 31,  
     2021     2020     2019  
     (in thousands, except unit
and per unit data)
 

Balance Sheet Data:

      

Cash

   $ 12,361     $ 14,936     $ 3,243  

Working capital(1)

     30,351       30,099       12,465  

Total assets

     50,267       49,956       27,267  

Total debt

                  

Redeemable convertible preferred units, no par value (34,410,379, 34,410,379 and 22,558,386 units authorized, 26,322,803, 26,322,803 and 22,558,386 units issued and outstanding as of March 31, 2021, December 31, 2020 and 2019, respectively; and aggregate liquidation preference, $329,753, $329,753 and $59,753 as of March 31, 2021, December 31, 2020 and 2019, respectively)

     232,457       232,457       58,037  

Common units, no par value (7,274,742, 7,274,742 and 8,451,586 units authorized; 2,476,386, 2,438,812 and 4,529,061 units issued and outstanding at March 31, 2021, December 31, 2020 and 2019, respectively)

     976       966       1,810  

Total Members’ deficit

     (196,518     (196,812     (39,969

 

(1)

Working capital is defined as total current assets minus total current liabilities.

Non-GAAP Financial Measures:

Adjusted EBITDA and Adjusted Net Income (Loss) are non-GAAP financial measures. We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: (1) equity-based compensation expense, (2) depreciation and amortization and (3) other income (expense), net. Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the Tax Receivable Agreement liability. We calculate Adjusted Net Income (Loss) as net (loss) income adjusted to exclude equity-based compensation expense. Adjusted EBITDA and Adjusted Net Income (Loss) are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

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

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021      2020     2020     2019  
     (in thousands)  

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37        29       7,870       606  

Depreciation and amortization

     244        223       932       786  

Other (income) expense, net

     (4)        149       593       (47

Adjusted EBITDA

     $524      $ (2,193   $ 3,324       $(4,062)  

 

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The following table presents a reconciliation of Adjusted Net Income (Loss) to net (loss) income, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented:

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021      2020     2020     2019  
     (in thousands)  

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37        29       7,870       606  

Adjusted Net Income (Loss)

   $ 284      $ (2,565   $ 1,799     $ (4,801

For a detailed discussion of our key operating and financial performance metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Non-GAAP Financial Measures.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by reference to, the section entitled “Selected Historical Financial Information” and the financial statements of Zevia LLC and the related notes included within this prospectus. The historical financial data discussed below reflect the historical results of operations and financial position of Zevia LLC. The financial statements of Zevia LLC, our predecessor for accounting purposes, will be our historical financial statements following this offering. The historical financial data discussed below relate to periods prior to the Reorganization described in “Organizational Structure” and do not give effect to pro forma adjustments. As a result, the following discussion does not reflect the significant effects that such events will have on us. See “Organizational Structure” and “Unaudited Pro Forma Consolidated Financial Information and Other Data” for more information.

This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Forward-Looking Statements,” “Risk Factors” and elsewhere in this prospectus. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

Zevia is a high-growth beverage company that is disrupting the liquid refreshment beverage industry through delicious and refreshing, zero calorie, zero sugar, naturally sweetened beverages that are all Non-GMO Project Verified. We are a pioneering beverage brand, offering a platform of products that 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. Our products are distributed across the U.S. and Canada through a diverse network of major retailers in the food, drug, mass, natural and ecommerce channels. We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the Zevia brand and resulted in over one billion cans of Zevia sold to date.

Consumers can purchase our products in both brick and mortar and ecommerce channels. Zevia was initially distributed in the U.S. natural products retail channel, where we still maintain the leading position. Fueled by a loyal and growing 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.

We have experienced significant sales growth over the past ten years, increasing our net sales from $6.8 million in 2010 to $110.0 million in 2020, representing a 32% compound annual growth rate. We have been able to drive net sales growth through a purposeful combination of distribution gains and velocity improvements, measured by retail sales per total distribution points. In 2020, we sold 240 million cans, a 15% increase from 208 million in 2019, our net sales grew to $110.0 million, a 29% increase from $85.6 million in 2019, our gross profit grew to $49.5 million, a 34% increase from $36.9 million in 2019, and our gross margin expanded to 45%, a 200 basis point increase from 43% in 2019. For the three months ended March 31, 2021, our net sales grew to $30.7 million, a 36%

 

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increase from $22.5 million for the three months ended March 31, 2020, our gross profit grew to $14.2 million, a 58% increase from $9.0 million for the three months ended March 31, 2020, and our gross margin expanded to 46%, a 600 basis point increase from 40% for the three months ended March 31, 2020.

We generated net losses from inception until the first quarter of 2021, as we invested in innovation and the growth of our business. Net loss and comprehensive loss was $(5.4) million in 2019 and $(6.1) million in 2020. Net income (loss) and comprehensive income (loss) was $(2.6) million for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2021. Adjusted EBITDA was $(4.1) million in 2019 and $3.3 million in 2020. Adjusted Net Income (Loss) was $(4.8) million in 2019 and $1.8 million in 2020. Adjusted EBITDA was $(2.2) million for the three months ended March 31, 2020 and $0.5 million for the three months ended March 31, 2021. Adjusted Net Income (Loss) was $(2.6) million for the three months ended March 31, 2020 and $0.3 million for the three months ended March 31, 2021. See the section titled “—Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA and Adjusted Net Income (Loss), as well as a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to net income (loss), the most directly comparable financial measure stated in accordance with GAAP.

We intend to continue to invest in innovation, new product development, supply chain capabilities and marketing initiatives, as we believe the demand for our products will continue to increase globally across both brick and mortar and ecommerce channels. We believe that our asset-light model drives an attractive financial profile with strong gross margins and modest capital expenditures.

Components of Our Results of Operations

Net Sales

We generate net sales from sales of our products, including Soda, Energy Drinks, Organic Tea, Mixers, Kidz beverages and Sparkling Water, to our customers, which include grocery distributors, national retailers and natural products retailers, as well as 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. These amounts 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 awareness, increase velocity and expand our consumer base;

 

   

continuing to grow our strong relationships across our retailer network and expand distribution amongst existing channels, both in-store and online; and

 

   

ongoing innovation efforts, including enhancing existing products and introducing additional flavors within existing categories, as well as entering into new categories.

We also expect expansion of distribution into new channels to be a key driver of our future sales growth. We sell our products in the U.S. and Canada, direct to retailers and also through distributors. In 2019 and 2020, 49% and 42% of our net sales, respectively, were made through distributors. We expect that our sales directly to retailers will increase as a percentage of our net sales over time. In

 

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2019 and 2020, our Canadian net sales represented approximately 9% of our net sales.

We sell our products to customers on a purchase order basis. We do not have short or long term commitments or minimum purchase volumes with our distributors or other customers.

Cost of Goods Sold

Cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of the various ingredients, packaging, in-bound freight and logistics and third party production fees. Our cost of goods sold also includes other costs incurred to bring the product to saleable condition. Our cost of goods sold is subject to price fluctuations in the marketplace, in particular in the price of aluminum and other raw materials, as well as in the cost of 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 ability to arrange for the purchase of raw materials and the production of our products in sufficient quantities at competitive prices. We have long 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 manufacturers governing pricing and other terms and minimum commitments on our part, but these contracts generally do not guarantee any minimum production volumes on the part of the manufacturers.

We expect our cost of goods sold to increase in absolute dollars as our mix shifts to higher selling price and high margin products.

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. We expect our gross margin to improve over time as we continue to leverage 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.

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 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. 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, both as a result of the increased warehousing and distribution costs resulting from increased net sales, which we expect to be partially offset by our continued focus on cost improvements in our supply chain, and as a result of increased focus on marketing.

 

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General and Administrative Expenses

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, IT and other functions. Our general and administrative expenses are expected to increase in absolute dollars, but to decrease 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 future obligations as a public company.

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 for certain non-employees. We record compensation expense for employee grants using a Black-Scholes-Merton option pricing model to calculate the fair value of unit options by date granted, net of estimated forfeitures. 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 unit awards is measured based on the closing fair market value of our common unit at 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 our equity-based compensation expense to increase over time in absolute dollars as we grow our business.

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 owned as a result 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 price over the fair value of the units and unit options repurchased, which were held by both current and former employees.

Depreciation and Amortization

Depreciation is primarily related to software applications, computer equipment and leasehold improvements. Intangible assets subject to amortization consist of customer relationships. Non-amortizable intangible assets consist of trademarks which represent the Company’s exclusive ownership of the Zevia brand used in connection with the manufacture, marketing, and distribution of its carbonated beverages. The Company also owns 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

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

Other Factors Affecting Our Performance

COVID-19

Although we encountered closures and delays at some of our third-party facilities and in our supply chain during the course of the pandemic, these closures and delays did not have a significant

 

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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 continued supply chain risk. The ultimate impact of the COVID-19 on our operational and financial performance is dependent on future developments, including the duration of the pandemic 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.”

Results of Operations

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

 

     For the Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021      2020     2020     2019  
    

(in thousands)

 

Net sales

   $ 30,694      $ 22,490     $ 110,025     $ 85,562  

Cost of goods sold

     16,506        13,458       60,523       48,662  
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     14,188        9,032       49,502       36,900  
  

 

 

    

 

 

   

 

 

   

 

 

 

Selling and marketing expenses

     7,988        6,921       27,333       27,643  

General and administrative expenses(1)

     5,713        4,333       26,715       13,925  

Depreciation and amortization

     244        223       932       786  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,945        11,477       54,980       42,354  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

   $ 243      $ (2,445   $ (5,478   $ (5,454

Other income (expense), net

     4        (149     (593     47  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

General and administrative expenses includes equity-based compensation expenses of $37,000 and $29,000 for the three months ended March 31, 2021 and 2020, respectively, and $7.8 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively, the substantial majority of which amount for 2020 relates to the repurchase of preferred and common units as described above under the heading “—General and Administrative Expenses.”

 

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The following table presents selected items in our statements of operations and comprehensive income (loss) as a percentage of net sales for the respective periods presented:

 

     For the Three Months Ended
March 31,
    Year Ended December 31,  
     2021     2020     2020     2019  

Net sales

     100     100     100     100

Cost of goods sold

     54       60       55       57  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     46       40       45       43  
  

 

 

   

 

 

   

 

 

   

 

 

 

Selling and marketing expenses

     26       31       25       32  

General and administrative expenses

     19       19       24       16  

Depreciation and amortization

     *       *       *       *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     45       51       50       49  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1     (11 )%      (5 )%      (6 )% 

Other income (expense), net

     *       *       *       *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income (loss)

     1     (12 )%      (6 )%      (6 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Net sales

 

     For the Three Months Ended
March 31,
     Change  

(in thousands)

   2021      2020      Amount      Percentage  

Net sales

   $  30,694      $  22,490      $  8,204        36
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales increased due to an approximately 22% increase in the number of equivalized cases sold and a 12% increase in net average price per equivalized case. We define an equivalized case as a 288 fluid ounce case. We believe that the increase in volume benefited from an increase in buying rate, which according to Numerator, rose to $25.22 per household for the 52 weeks ended March 31, 2021, an increase of 28%. Our net sales in our retail store sales channel increased approximately 30% and net sales in our online/ecommerce channel increased approximately 88%. Our online net sales increased primarily due to increased purchasing in that channel during the COVID-19 pandemic, and we believe these shopping patterns will continue post-pandemic.

Cost of Goods Sold

 

     For the Three Months Ended
March 31,
     Change  

(in thousands)

   2021      2020      Amount      Percentage  

Cost of goods sold

   $  16,506      $  13,458      $  3,048        23

Cost of goods sold increased on an absolute basis primarily due to volume increases. Cost of goods sold was essentially flat on a per case basis compared to the prior period.

 

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Gross Profit and Gross Margin

 

     For the Three Months Ended
March 31,
    Change  

(in thousands)

   2021     2020     Amount      Percentage  

Gross profit

   $ 14,188     $ 9,032     $ 5,156        57

Gross margin

     46     40     

Gross profit increased $5.2 million, of which $2.7 million was from price realization, with the remaining $2.5 million primarily related to increased volume.

Selling and Marketing Expenses

 

     For the Three Months Ended
March 31,
     Change  

(in thousands)

   2021      2020      Amount      Percentage  

Selling and marketing expenses

   $ 7,988      $ 6,921      $ 1,067        15

Selling and marketing expenses increased $1.1 million, of which $0.7 million was from higher freight rates, with the remaining $0.4 million primarily related to increased volume.

General and Administrative Expenses

 

     For the Three Months Ended
March 31,
     Change  

(in thousands)

   2021      2020      Amount      Percentage  

General and administrative expenses

   $ 5,713      $ 4,333      $ 1,380        32

General and administrative expenses increased due to an increase in headcount to support our growth.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales

 

     Year Ended December 31,      Change  
     2020      2019      Amount      Percentage  
     (in thousands)  

Net sales

   $ 110,025      $ 85,562      $ 24,463                29
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales increased due to an approximately 14% increase in the number of equivalized cases sold and a 12% increase in net average price per equivalized case. We define an equivalized case as a 288 fluid ounce case. We believe that the increase in volume benefited from an increase in buying rate, which according to Numerator, rose to $31.21 per household in 2020, an increase of 21%. Our net sales in our retail store sales channel increased approximately 21% and net sales in our online/ecommerce channel increased approximately 117%. Net sales in our retail store channel increased due to an approximately 3% increase in the number of stores selling Zevia and an approximately 22% increase in the sales per store. Our online net sales increased primarily due to increased purchasing in that channel during the COVID-19 pandemic, and we believe these shopping patterns will continue post-pandemic.

 

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Cost of Goods Sold

 

     Year Ended December 31,      Change  
     2020      2019      Amount      Percentage  
     (in thousands)  

Cost of goods sold

   $ 60,523      $ 48,662      $ 11,861        24

Cost of goods sold increased on an absolute basis due to volume increases as well as an approximate 3% increase due to shifting product mix and an approximate 5% increase in our third party manufacturing costs. In addition, we incurred an approximate 1,000% increase in our in-bound freight and logistics costs associated with the purchase of aluminum cans, an expense which primarily started in 2020, accounting for the large percentage increase. These aluminum can related cost increases were primarily driven by longer freight hauls from can manufacturing plants than in 2019, an increase in warehousing costs required to stage and store inventory in 2020, and last mile deliveries of the cans to our contract manufacturers from these warehouses. Cost of goods sold per equivalized case rose 9% from 2019 to 2020. Cost of goods sold per equivalized case is calculated as total cost of goods sold divided by equivalized cases. Cost of goods sold decreased as a percentage of net sales due to price realization.

Gross Profit and Gross Margin

 

     Year Ended December 31,     Change  
     2020     2019     Amount      Percentage  
     (in thousands)  

Gross profit

   $ 49,502     $ 36,900     $ 12,602        34

Gross margin

     45     43     

Gross profit increased due to price realization and a shift in product mix toward higher margin product lines, partially offset by increases in the cost of goods sold.

Selling and Marketing Expenses

 

     Year Ended December 31,      Change  
     2020      2019      Amount     Percentage  
     (in thousands)  

Selling and marketing expenses

   $ 27,333      $ 27,643      $ (310     (1 )% 

Selling and marketing expenses were essentially flat despite our growth in net sales. $3.6 million in reduced marketing spend was largely associated with the COVID-19 pandemic. This was partially offset by $2.8 million in higher shipping and handling costs due to overall net sales growth and higher freight rates.

General and Administrative Expenses

 

     Year Ended December 31,      Change  
     2020      2019      Amount      Percentage  
     (in thousands)  

General and administrative expenses

   $ 26,715      $ 13,925      $ 12,790        92

General and administrative expenses increased due to an increase in headcount to support our growth and an increase in equity-based compensation expense. The increase in equity-based compensation expense resulted primarily from equity-based compensation expense of $7.8 million incurred in connection with the repurchase of preferred and common units from current and former employees in connection with our Series E financing in December 2020. The majority of the units

 

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repurchased were units that had been purchased by the holders, and a minority of units purchased were units that holders owned as a result of equity awards granted by us. To a lesser extent, the increase in equity-based compensation expense resulted from an increase in headcount to support our growth and increased value of our options grants resulting from an increase in the value of our common units.

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.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly statements of operations and comprehensive income (loss) data for each of the periods presented. In management’s opinion, the data below have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and reflect all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. The results of historical periods are not necessarily indicative of the results to be expected for a full year or any future period. The following unaudited quarterly statements of operations and comprehensive income (loss) data should be read in conjunction with our audited financial statements and related notes included elsewhere in this prospectus.

 

    For the Three Months Ended  
(in thousands)   Mar. 31,
2019
    Jun. 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    Jun. 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
 

Net sales

  $ 18,038     $ 24,290     $ 20,705     $ 22,529     $ 22,490     $ 27,677     $ 32,035     $ 27,823     $ 30,694  

Cost of goods sold

    9,827       13,762       13,013       12,058       13,458       13,842       17,109       16,114       16,506  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    8,211       10,528       7,692       10,471       9,032       13,835       14,926       11,709       14,188  

Operating expenses:

                 

Selling and marketing expenses

    6,506       6,601       7,651       6,885       6,921       5,717       6,973       7,722       7,988  

General and administrative expenses

    3,075       3,143       3,466       4,246       4,333       4,643       4,963       12,775       5,713  

Depreciation and amortization

    211       185       203       183       223       250       256       203       244  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    9,792       9,929       11,320       11,314       11,477       10,610       12,192       20,700       13,945  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (1,581     599       (3,628     (843     (2,445     3,225       2,734       (8,991   $ 243  

Other income (expense), net

    251       (204     (102     102       (149     (118     (276     (51     4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income (loss)

    (1,330     395       (3,730     (741     (2,594     3,107       2,458       (9,042   $ 247  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EPS - Basic*

  $ (0.29   $ 0.01     $ (0.82   $ (0.16   $ (0.57   $ 0.10     $ 0.08     $ (2.09   $ 0.01  

EPS - Diluted*

  $ (0.29   $ 0.01     $ (0.82   $ (0.16   $ (0.57   $ 0.10     $ 0.08     $ (2.09   $ 0.01  

 

*

For all the periods presented, earnings (losses) per share were equal across the Class A, Class B and Class C common unitholders.

Quarterly Trends

Our net sales have generally increased over the periods presented. Net sales reflect seasonally higher consumption in the warmer second and third quarters, as well as strong, underlying annual growth. As an example, net sales for the quarters ended March 31, 2019 and December 31, 2019

 

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represented 21.1% and 26.3% of 2019 net sales, respectively, totaling 47.4%, while net sales for the quarters ended June 30, 2019 and September 30, 2019 represented 28.4% and 24.2% of 2019 net sales, respectively, totaling 52.6%. Net sales for the quarter ended December 31, 2019 of 26.3% was higher than that ended March 31, 2019 of 21.1%, driven by underlying annual growth. This pattern was repeated in 2020 where the quarters ended March 31, 2020 and December 31, 2020 represented 20.4% and 25.3% of 2020 net sales, respectively, while net sales for the quarters ended June 30, 2020 and September 30, 2020 represented 25.2% and 29.1% of 2020 net sales, respectively. And net sales for the quarter ended December 31, 2020 of 25.3% was higher than that ended March 31, 2020 of 20.4%.

Cost of goods sold generally increased as net sales increased, with cost of goods sold per equivalized case ranging from $5.25 to $6.61 over the periods presented. We define an equivalized case as a 288 fluid ounce case. Cost of goods sold per equivalized case is calculated as total cost of goods sold divided by equivalized cases. Significant factors influencing cost of goods sold variability include changes in the cost of inbound freight and commodity aluminum pricing, as well as inventory losses.

Our operating expenses generally have increased sequentially in each quarter, with the significant exception of the fourth quarter of 2020 where we incurred equity-based compensation in conjunction with our tender offer in December 2020. We anticipate our operating expenses will continue to increase in absolute dollars in future periods as we invest in the long-term growth of our business. Historical patterns should not be considered a reliable indicator of our future sales activity or performance.

Liquidity and Capital Resources

Our primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in our business. Historically, we have financed our operations through private sales of equity securities and through sales of our products. In 2019 and 2020, we raised a total of $207.2 million from the sale of redeemable convertible preferred ownership units, net of costs associated with such financings. We are party to the Loan Agreement described below with Stonegate Asset Company II, LLC.

As of March 31, 2021, we had $12.4 million in cash. We believe that our cash and cash equivalents, cash flow from operating activities and available borrowings under our credit facility will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments, and potential debt service requirements for at least the next 12 months.

Upon consummation of this offering, Zevia PBC will be a holding company with no operations of its own. Accordingly, Zevia PBC will be dependent on distributions from Zevia LLC to pay its taxes, its obligations under the Tax Receivable Agreement and other expenses. The Loan Agreement imposes, and any future credit facilities may impose, limitations on the ability of Zevia LLC to pay dividends to Zevia PBC.

In connection with the Reorganization, the Direct Zevia Stockholders and certain continuing members of Zevia LLC will receive the right to receive future payments pursuant to the Tax Receivable Agreement. The amount payable under the Tax Receivable Agreement 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 Relationships and Related Party Transactions—Tax Receivable Agreement”. We expect that the payments that we may be required to make under the Tax Receivable Agreement 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,

 

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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 $             million through 2036. Under such scenario we would be required to pay the Direct Zevia Stockholders and certain continuing members of Zevia LLC     % of such amount, or $             million through 2036.

Similarly, assuming no 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, we expect that future payments under the Tax Receivable Agreement relating to the purchase by Zevia PBC of Zevia LLC units from members of Zevia LLC in connection with this offering to be approximately $         million (or approximately $         million if the underwriters exercise their option to purchase additional shares, the proceeds of which will be used by Zevia PBC to acquire additional Zevia LLC units from members of Zevia LLC) and to range over the next 15 years from approximately $         million to $         million per year (or range from approximately $         million to $         million per year if the underwriters exercise their option to purchase additional shares) and decline thereafter. As a result, we expect that aggregate payments under the Tax Receivable Agreement over this 15-year period will range from approximately $ million to $ million (or range from approximately $         million to $         million if the underwriters exercise their option to purchase additional shares). These estimates are based on an initial public offering price of $         per share of Class A common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using prevailing tax rates applicable to us over the life of the Tax Receivable Agreements 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 Agreement 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 Agreement payment requirement.

However, a significant portion of any potential future payments under the Tax Receivable Agreement is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by Zevia PBC, assuming Zevia LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by Zevia LLC, the associated taxable income of Zevia ZBC will be impacted and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated Tax Receivable Agreement 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 Agreement for the factors discussed above, we anticipate funding payments from the Tax Receivable Agreement from cash flows generated from operations, and such payments are not anticipated to be dependent upon the availability of proceeds of this offering.

Credit Facility

As of March 31, 2021, we were a party to the Loan Agreement, a $12.0 million revolving line of credit with Stonegate Asset Company II, LLC, which matures on April 15, 2023. Borrowings under the Loan Agreement are secured by our accounts receivable and inventory. As of December 31, 2020 and March 31, 2021, the interest rate on the Loan Agreement was 7.5% annual percentage rate and there were no outstanding borrowings.

 

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The Loan Agreement contains a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur indebtedness, create liens, make investments, merge with other companies, dispose of our assets, prepay other indebtedness and make dividends and other distributions. Prior to the consummation of this offering, we intend to amend the Loan Agreement.

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 Three Months Ended
March 31,
    Year Ended December 31,  
             2021                     2020             2020     2019  
     (in thousands)  

Cash (used in) provided by:

        

Operating activities

   $ (2,331   $ (2,475   $ (3,258   $ (14,764

Investing activities

     (254     (442     (805     (456

Financing activities

     10       3,508       15,756       17,089  

Net Cash Used in Operating Activities

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

In 2019, cash used in operating activities resulted primarily from a $5.7 million reduction in accounts payable related to renegotiated supplier terms and mix, and a $3.1 million increase in inventory to accommodate sales growth.

In 2020, cash used in operating activities of $3.3 million was primarily the result of cash used for a $9.4 million increase in inventories as a precaution to ensure adequate supply in the midst of a pandemic, offset by the impact of an increase in accounts payable of $2.2 million, an increase in accrued expenses of $2.4 million and a decrease in other working capital balances of approximately $1.0 million.

In the three months ended March 31, 2020, cash used in operating activities of $2.5 million was primarily the result of a net loss for the quarter of $2.6 million.

In the three months ended March 31, 2021, cash used in operating activities of $2.3 million was primarily the result of the payment of accrued bonus expense of $2.8 million, offset by an increase in other current liabilities of $0.9 million relating to supplier marketing program.

Net Cash Used in Investing Activities

Net cash used in investing activities primarily relates to capital expenditures for software applications and computer equipment, and cash used in investing activities in 2019 and 2020 and for the three months ended March 31, 2020 and 2021, resulted primarily from these expenditures.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in 2019 and 2020 was primarily due to our $16.8 million Series D financing in 2019 and our $190.4 million Series E financing in 2020, offset by the purchase of $175.0 million of equity from existing holders in 2020. In 2020, we also incurred a PPP loan that was repaid during the same year.

 

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Net cash provided by financing activities in the three months ended March 31, 2020 of $3.5 million was primarily due to borrowings under the Company’s revolving line of credit.

Net cash provided by financing activities in the three months ended March 31, 2021 was not material.

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, management believes that Adjusted EBITDA and Adjusted Net Income (Loss), non-GAAP financial measures, provide investors with additional useful information in evaluating our performance.

We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: (1) equity-based compensation expense, (2) depreciation and amortization and (3) other income (expense), net. Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the Tax Receivable Agreement liability. We calculate Adjusted Net Income (Loss) as net (loss) income adjusted to exclude equity-based compensation expense.

Adjusted EBITDA and Adjusted Net Income (Loss) are financial measures that are not required by, or presented in accordance with GAAP. We believe that Adjusted EBITDA and Adjusted Net Income (Loss), when taken together with our financial results presented in accordance with GAAP, provide 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) are helpful to our investors as they are measures 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) are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with 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 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. In addition, our use of Adjusted EBITDA and Adjusted Net Income (Loss) may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA or Adjusted Net Income (Loss) in the same manner, limiting their usefulness as comparative measures. 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 and other results stated in accordance with GAAP.

 

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

 

     For the Three Months Ended
March 31,
    Year Ended December 31,  
             2021                      2020                   2020                 2019        
    

(in thousands)

 

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37        29       7,870       606  

Depreciation and amortization

     244        223       932       786  

Other (income) expense, net

     4        (149     593       (47

Adjusted EBITDA

   $ 524      $ (2,193   $ 3,324     $ (4,062

The following table presents a reconciliation of Adjusted Net Income (Loss) to net (loss) income, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented:

 

     For the Three Months Ended
March 31,
    Year Ended December 31,  
             2021                      2020           2020                 2019        
    

(in thousands)

 

Net income (loss) and comprehensive income (loss)

   $ 247      $ (2,594   $ (6,071   $ (5,407

Equity-based compensation expense

     37        29       7,870       606  

Adjusted Net Income (Loss)

   $ 284      $ (2,565   $ 1,799     $ (4,801

Commitments

Effective March 2019, we entered into an amendment to our lease for our corporate offices at 15821 Ventura Boulevard, Suite 145, Los Angeles, California, for a term of three years. We also recently acquired a new warehouse for $1.7 million.

The following table summarizes our significant contractual obligations as of December 31, 2020:

 

     Payments Due by Period  
     Total      Less Than
One Year
     1-3 Years      3-5 Years      More Than
Five Years
 
     (in thousands)  

Rent obligations(1)

   $ 860      $ 636      $ 224      $ —        $ —    

Equipment lease obligations(2)

     47        25        22        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 907      $ 661      $ 246      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Real estate lease payments

(2)

Vehicle leases payments

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or any holdings in variable interest entities.

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 interest rates, raw material prices and inflation as follows:

 

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Raw Material Risk

Our profitability is dependent on, among other things, our ability to anticipate and react to raw material costs. Currently, the key ingredient in our products is stevia extract, which we source through a multi-year supply agreement with a large multi-national ingredient company. The prices of stevia and other ingredients we use are subject to many factors beyond our control, such as marketing conditions, climate change 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 March 31, 2021, a hypothetical 10% increase or 10% decrease in the weighted average cost of stevia, 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.

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 ability to continue to procure enough aluminum cans at reasonable prices will depend on future developments which are highly uncertain. As of March 31, 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 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.

Foreign Exchange Risk

The majority of our sales and costs are denominated in United States dollars and are not subject to foreign exchange risk. As we source some ingredients and packaging materials from international sources, 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 States 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 we increase sourcing from outside the United States or increase net sales outside of the United States 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.

Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. If our costs were to become subject to 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.

Critical Accounting Policies and Estimates

In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts of assets, liabilities, gross sales, costs and expenses, and disclosure of contingent assets and liabilities that are reported in the financial statements and accompanying disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain. Therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates and assumptions. See Note 2 to our financial statements included in this prospectus for information about these critical accounting policies, as well as a description of our other accounting policies.

 

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Revenue Recognition

We recognize revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred either upon shipping or delivery to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives we offer to our customers. These incentives and discounts include cash discounts, price allowances, volume-based rebates, product placement fees and other financial support for items such as trade promotions, displays, new products, consumer incentives and advertising assistance. These amounts are recorded as contra revenue and deducted from gross sales and are included under net sales in our statements of operations and comprehensive income (loss).

Customer incentives and allowances are estimated based on agreed upon terms as well as historical trends and current economic and market conditions, while cash discounts are based on trade terms and require management judgment with respect to estimating customer participation and performance levels. The expected cost of customer incentives incurred but not yet realized as of the end of each respective year is recorded as an offset against customer accounts receivable, and is included under accounts receivable, net on our balance sheets. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.

We account for costs associated with shipping and handling activities that occur after the transfer of control as a fulfillment activity, instead of a separate performance obligation. Shipping and handling costs are included in selling and marketing expenses as revenue is recognized.

We exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed and concurrent with a specific revenue-producing transaction and collected by us from a customer.

Equity-Based Compensation

We record equity-based compensation expense using a Black-Scholes-Merton option pricing model to calculate the fair value of unit options by date granted, net of estimated forfeitures. The determination of the grant date fair value of unit options issued is affected by a number of variables, including the fair value of our common units, the expected common unit price volatility over the expected life of the options, the expected term of the unit option, risk-free interest rates, and the expected dividend yield of our common units. We derive our volatility from the average historical volatilities of several peer public companies over a period equivalent to the expected term of the awards. We estimate the expected term based on the simplified method for employee unit options considered to be options, as our historical unit option exercise experience does not provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant. Expected dividend yield is 0.0% as we have not paid and do not anticipate paying dividends on our common unit. This amount is recognized on a straight-line basis over their respective vesting periods, which is typically four years. 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 nonemployee’s performance is complete, using the Black-Scholes-Merton option pricing model. Equity-based compensation cost for restricted unit awards is measured based on the fair market value of our common unit at 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.

 

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During the period covered by the financial statements included in this prospectus, we were a privately held company with no active public market for our common units. We have historically granted unit options at exercise prices equal to the fair value as determined by our board of directors on the date of grant. In the absence of a public trading market, our board, with input from management, exercises significant judgment and consider numerous objective and subjective factors to determine the fair value of the Company’s common unit as of the date of each unit option grant. These judgments and estimates include assumptions regarding relevant precedent transactions involving our capital unit; the liquidation preferences, rights, preferences, and privileges of our preferred units relative to the common unit; our actual operating and financial performance; current business conditions and projections; our stage of development; the likelihood and timing of achieving a liquidity event for the units of common unit underlying the unit options, such as an initial public offering, given prevailing market conditions; any adjustment necessary to recognize a lack of marketability of the common unit underlying the granted options; recent secondary unit sales and tender offers; the market performance of comparable publicly traded companies; and U.S. and global capital market conditions.

In addition, our board considers the independent valuations completed by a third-party valuation consultant. The valuations of our common units are determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. There are significant judgments and estimates inherent in these valuations. Based upon the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of unit options restricted unit awards outstanding as of                , 2021 was $                million, of which $                million related to vested units and $                million related to unvested units.

For additional information regarding equity-based compensation and the assumptions used for determining the fair value of unit awards see Note 14 to our financial statements included in this prospectus.

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 this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

Recent Accounting Pronouncements

Information regarding recent accounting developments and their effects to us can be found in Note 2 to our consolidated financial statements included elsewhere in this prospectus.

 

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LETTER FROM PADDY SPENCE, OUR CHAIR AND CHIEF EXECUTIVE OFFICER

Almost twenty years ago, my wife Jerra and I made a life changing discovery. We believed we were eating healthy, both of us had been part of the natural and organic food industry for years, and we subscribed to the notion that natural and organic foods and beverages were by definition “healthier” in all respects.

In 2001 this thinking was shattered. Jerra suggested I keep a “food journal” for a week, documenting everything I ate and drank. To my horror and surprise, it turned out I was consuming 250 grams of sugar per day, all from natural and organic foods and beverages. I realized that products I thought were “healthy” were actually full of sugar—items such as protein smoothies, juice-based spritzers, and fruit-flavored yogurt—and were contributing 1,000 calories per day to my diet, just from sugar!

Jerra and I knew we had to make a change, and we began eliminating sugar from our diet and using stevia, a zero calorie, plant-based sweetener. That discovery changed our lives. We felt better every day, and experienced fewer of the spikes and crashes associated with a sugar-laden diet. Today, we still use a “sugar budget” to manage our sugar intake at home. Our “sugar budget,” which targets a total grams of sugar per day, leads us to make intentional, active choices about where we get our sugar. It has become a learning tool for our children as well. They are educated and empowered to make sensible trade-offs, and better understand how to manage their own sugar consumption.

The health impacts from over-consumption of sugar are global, and well-documented. Consumers around the world are eating and drinking significantly more sugar than health professionals would recommend, and the result is diminished public health, with lower quality of life, and shorter life expectancy.

Sugar is only one of the reasons that more and more consumers are avoiding traditional soda, energy drinks and other beverages. Many of these products contain artificial flavors, preservatives, colors and sweeteners. In addition, many beverages are packaged in single use plastic containers, and ultimately end up in our rivers and oceans, or littering our neighborhoods.

Our solution at Zevia has been to address this challenge head-on, by creating great tasting, zero sugar, zero calorie, naturally sweetened beverages, made with a handful of simple, plant-based ingredients, and delivered exclusively in sustainable packaging. Zevia exists to enhance global public health by helping consumers reduce their sugar intake with better-for-you beverages that are delicious, with all of the enjoyment, bubbles and sweetness, and no unhealthy ingredients.

But we know that isn’t enough, because for many consumers across the United States and Canada, there are additional barriers to a healthier lifestyle, including affordability and access. So at Zevia, we are proud that we offer beverages that are accessible to consumers across a broad range of income levels. And just as importantly, we work closely with dietitians and health professionals in communities across America to provide educational materials and samples for their patients.

As passionate as I am about global health, I am equally passionate about the growing Zevia team. At Zevia, every full-time team member has an equity interest in the company, receives robust pay and benefits, and is a key stakeholder in our mission. I am proud to share that Zevia was recognized by the career website Comparably as a “best place to work” across 8 different categories in 2020, including “Happiest Employees,” “Best Leadership Teams,” “Best CEOs for Women,” and “Best CEOs for Diversity,” and as a “best place to work” across 3 different categories in 2021, including “Best Company Outlook” and “Best Operations Team,” based on employee survey data.

 

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There is no doubt that changing global public health is a huge goal, and it will take time to achieve. But Zevia’s philosophy of being “1% better every day” is what drives us to remain on this path. I learned personally in our family’s sugar reduction journey that small changes can have a significant impact over time. At Zevia, we are continuously examining how we can do better, work more efficiently, make more affordable beverages, and enhance our positive impact on the communities in which we operate, and the consumers we serve.

We are passionate about what we believe and we are also passionate that our brand, our products, and our category, at their core, are about enjoyment, sweetness and fun. Having fun, while doing good, is a key focus of our team, and something which the entire Zevia family is fully committed to.

I invite you to open and enjoy a can of Zevia, and to join us on this important journey as a stakeholder of Zevia. To join us in our mission to change global public health through helping consumers reduce their sugar intake, and to do so with affordable great tasting products that are fun to drink, delivered in sustainable packaging, and benefit the communities in which they are sold.

LOGO

Paddy Spence

Chair and Chief Executive Officer

 

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BUSINESS

Company Overview

Zevia is a high-growth beverage company that is disrupting the liquid refreshment beverage industry through delicious and refreshing, zero calorie, zero sugar, naturally sweetened beverages that are all Non-GMO Project Verified. We are a pioneering beverage brand, offering a platform of products that 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. Our products are distributed across the U.S. and Canada through a diverse network of major retailers in the food, drug, mass, natural and ecommerce channels. We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the Zevia brand and resulted in over one billion cans of Zevia sold to date.

We are guided by our mission to support the health of individuals and the communities we serve by creating zero calorie, naturally sweetened beverages. This purpose sets the foundation for our existence, as we strive to make the world a better place. Our focus on environmental, social and corporate governance, or ESG, impact is core to how we do business, and we believe makes us a more successful company. These ideals are embodied through our “Certified B Corporation” status, and we are acutely focused on:

 

   

Improving Public Health: The U.S. Centers for Disease Control and Prevention warns that Americans are consuming too much added sugars in their diets, which can lead to health problems. One of the leading sources of added sugars in the U.S. diet is sugar-sweetened beverages. Zevia products help consumers reduce their sugar intake and avoid artificial ingredients by offering a refreshing and enjoyable zero sugar, naturally sweetened alternative to high-sugar and artificially sweetened competitors. We estimate that by choosing Zevia, our consumers have eliminated almost 40,000 metric tons of sugar from their diets since 2011.

 

   

Providing Access: We are committed to supporting underserved communities by partnering with health professionals such as dietitians and nutrition educators to provide health-focused educational materials, webinars and product samples that educate patients and address the effects of sugary beverage consumption. Our products are priced at an average retail cost per ounce of $0.07, representing the 37th percentile within all liquid refreshment beverages, which include all non-alcoholic ready-to-drink beverages, excluding dairy and non-dairy protein, and are therefore affordable for a broad range of income brackets, making Zevia an economically attractive option for a wide range of consumers.

 

   

Delivering Sustainability: We actively seek to minimize our environmental impact and continuously re-evaluate our packaging formats and processes to limit environmental waste. We have never sold a single plastic bottle, which we estimate has eliminated 15,000 metric tons of plastic bottles from the supply chain by selling only aluminum packaging since 2011. In addition, one of our main ingredients, stevia, requires less agricultural water resources than sugar, furthering our sustainability mission.

 

   

Creating An Inclusive Company Culture: Our social impact mission extends beyond the can and is embedded in the way we treat our people—all full-time Zevia employees have an equity interest in the Company, are paid a fair wage and receive robust benefits.

 

   

Driving Positive Social Change: We are a Delaware public benefit corporation and have been designated as a “Certified B Corporation” by B Lab, an independent non-profit organization, in recognition that we balance profit and purpose to meet the highest verified standards of social and environmental performance, public transparency and legal accountability.

 

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Our platform of tasty beverages combined with our global mission and core set of values has been validated by our resonance with consumers and our growth in sales.

LOGO

Since our founding in 2007, we have grown from three flavors of soda to a platform brand with six product lines and approximately 37 flavor variations. Although we compete in the cola segment, it represented only 24% of our total sales in 2020. In addition to Cola, our soda flavors include Cream Soda, Ginger Ale, Grape, Lemon Lime Twist and others, many of which are leaders in their respective flavor segment. Every Zevia line offers multiple exciting options, including Mango / Ginger Energy, Organic Peach Black Tea, Ginger Beer, Fruit Punch Kidz and Cucumber Lemon Sparking Water. Each of our product lines has been carefully crafted for consumer enjoyment, ensuring that flavor is not sacrificed in the process of eliminating unhealthy sugar and artificial ingredients including coloring, preservatives and flavors. In addition, continuous improvement is a Zevia core value, and as such we strategically reformulate our products to further enhance taste and simplify ingredients.

Our single brand, with a common set of ingredients that adhere to the same philosophy of creating zero calorie, zero sugar and naturally sweetened beverages, is a clear point of differentiation. This consistency across the portfolio provides multiple points of entry for consumers into the Zevia brand. With a broad variety of flavors across each category, we believe there is a Zevia beverage for every family member, time of day and usage occasion. Our plant-based ingredients are suitable for a broad range of lifestyles and dietary regimens, including vegan, gluten-free, Kosher, low sodium, and zero sugar, giving consumers broader choices to support their needs.

 

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LOGO

We benefit from sustained shifts across the liquid refreshment beverage market. Consumers are becoming more health conscious and focused on reducing sugar in their diets and are increasingly averse to added sugars versus naturally-occurring sugars. Many consumers are also more conscious of making choices with sustainability in mind, including plastic waste reduction. We believe that these shifts represent a significant change in consumer habits around the world. As a great-tasting, clean label beverage supporting a positive environmental and social impact, Zevia is positioned to appeal to a broad range of consumer needs in our current markets and beyond.

Consumers can purchase our products in both brick and mortar and ecommerce channels. Zevia was initially distributed in the U.S. natural products retail channel, where we still maintain the leading position. Fueled by a loyal and growing 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.

Zevia is a true omnichannel brand. Our strong ecommerce position has created a platform for discovery, trial and repurchase and represented 13% of our sales in 2020. In 2020, we were distributed in more than 20,000 retail locations in the U.S. according to SPINS. We estimate that we had approximately 88% market share among zero calorie naturally sweetened soft drinks in 2020. With significant room to grow within the broader soft drink category, we estimate that we held an 18% market share in the Natural Enhanced channel and a 0.4% market share in conventional retail channels in 2020 according to SPINS. We believe that merchandising Zevia results in material benefits to our retail stores, driving incremental category spending.

Our business is supported by a flexible and efficient supply chain that currently has the capacity to support our continued growth. Zevia beverages are produced and distributed through a network of third-party contract manufacturers and distribution centers. We have strong, long-standing relationships across our supply chain, creating an expansive supply network with large capacity for continued growth.

 

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We have experienced significant sales growth over the past ten years, increasing our net sales from $7 million in 2010 to $110 million in 2020, representing a 32% compound annual growth rate. According to SPINS, our retail sales growth has outpaced the zero calorie soda category in the food, drug and mass channel for the 52 weeks ended May 16, 2021. We have been able to drive net sales growth through a purposeful combination of distribution gains and velocity improvements, measured by retail sales per total distribution points. In 2020, we sold almost 240 million cans, our net sales grew to $110.0 million, a 29% increase from $85.6 million in 2019, our gross profit grew to $49.6 million, a 34% increase from $36.9 million in 2019, and our gross margin expanded to 45%, a 200 basis point increase from 43% in 2019. We intend to continue to invest in innovation, new product development, supply chain capabilities and marketing initiatives, as we believe the demand for our products will continue to increase globally across both brick and mortar and ecommerce channels. We believe that our asset light model drives an attractive financial profile with strong gross margins and modest capital expenditures.

Annual Net Sales

 

LOGO

 

 

Retail Sales ($mm)   # of Stores Selling Zevia   Retail Sales per Store per Year
LOGO   LOGO   LOGO

Source: SPINS for 52 Weeks Ended December 27, 2020

Industry Overview

We believe there is a sustained shift in consumer demand for better-for-you products that is transforming the $771 billion global liquid refreshment beverages market. This market, which is expected to grow at a 1.4% compound annual growth rate from 2019 to 2025 according to Euromonitor, is comprised of a broad set of categories that includes both current and potential Zevia offerings: soft drinks, energy drinks, ready-to-drink teas and coffees, mixers, kids beverages, sparkling water, isotonics and juice. Our categories have tremendous reach, creating significant runway to extend the Zevia brand.

The global beverages industry is comprised primarily of legacy, multinational category leaders. Consumer mega-trends, including growing concerns about the negative health impacts of sugar, consumers’ perception of artificial ingredients and the proliferation of plant-based alternatives, have

 

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allowed for emerging brands with reduced sugar products and natural product formulations to disrupt the status quo and capture market share from incumbent category leaders. Conventional carbonated soda per-capita consumption has declined from approximately 45.5 gallons in 2010 to approximately 38.6 gallons in 2019 according to Statista and Beverage Digest, while the Zevia brand has scaled from $7 million to $86 million in net sales over the same period.

Consumer Mega-Trends Driving Category Growth

 

   

Health and Wellness—health and wellness has become a significant focus in our everyday lives, especially for the growing Millennial and Gen-Z demographics. According to Euromonitor, the global health and wellness beverage category generated $301 billion in retail sales in 2020 and grew at a 2.0% CAGR from 2018 to 2020, and is expected to grow at a CAGR of 2.8% from 2019 to 2025.

 

   

Plant-Based Alternatives—the proliferation of plant-based alternatives has accelerated in conjunction with consumer concern with sugar content in their diets. U.S. adults have become more concerned with the level of sugar in their diets, and are particularly concerned with sugar content in their sodas and carbonated beverages.

 

   

Sustainability and Transparency—sustainability and transparency are influencing consumers’ purchase decisions, which we believe makes them more inclined to choose brands with post-consumable or recyclable packaging and ethical supply chain practices.

 

   

Omnichannel—consumers are changing the way they shop, and the brand discovery and selection process has migrated from retail locations to online. For omnichannel brands, ecommerce is both a transaction and a discovery opportunity, and this trend has benefited from a meaningful acceleration over a multi-year period.

LOGO

We believe that consumers are seeking out brands they can trust and that align with their values, and that they are becoming increasingly aware of the harmful effects of sugar. At Zevia, it is part of our mission to both educate consumers and offer a solution. Non-diet soft drinks make up almost half of total added sugars for American consumers according to the American Journal of Clinical Nutrition, with most 12-ounce cans of sugar-laden soda containing 35 to 45 grams of sugar. Consuming sugary

 

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drinks regularly can increase the risk of type 2 diabetes, heart disease and other chronic diseases. Our products enable consumers to cut their added sugar intake in half without sacrificing flavor. Given the extensive availability of scientific and health data, consumers are becoming more aware of the benefits of maintaining a healthy lifestyle and a clean environment. Today’s consumers expect more than just a refreshing moment from the beverage brands they purchase, which presents an opportunity for better-for-you and socially responsible brands to gain share and redefine the future of the beverage industry. We believe Zevia is poised to benefit from these shifts in shopper patterns and the evolving landscape going forward.

Beverages in the U.S. containing zero calorie, plant-based sweeteners have grown from approximately $90.8 million in 2018 to $150.6 million in 2020, representing a 65.9% increase, compared to the broader U.S. liquid refreshment beverage industry which has grown from $69.8 billion in 2018 to $78.9 billion in 2020, representing a 12.9% increase, according to SPINS. These beverages can help address global health concerns, such as heart disease, cancer and diabetes, as well as reduce environmental impacts like plastic pollution. We believe consumer awareness of the negative health and environmental impacts of traditional, sugar-laden beverages is changing and accelerating the trajectory of our industry. In addition to shifting consumer preferences, regulatory changes are driving growth as well with governments in more than 50 jurisdictions imposing various taxes on sugary beverages.

Our Strengths

A Powerful Brand Platform Built Upon a Core Set of Values

Our brand platform is built around our mission to provide great-tasting and refreshing beverages that support healthier lifestyles, delivered in sustainable packaging. Our brand was created as a solution to the harmful effects of sugar, and the testament to that vision is the over one billion cans we have sold to date.

We market Zevia under one unified brand across multiple beverage categories, including Soda, Energy Drinks, Ready-To-Drink Teas, Mixers, Kidz drinks and Sparkling Water. We believe our brand has extensive consumer reach potential, as we deliver beverage offerings with a diversity of flavors and categories that appeal to every family member, time of day, and usage occasion. This is evidenced by our #1 brand ranking within carbonated soft drink brands in the Natural Enhanced channel according to SPINS, and as the #1 selling carbonated soft drink brand on Amazon in 2020 based on dollar sales according to Stackline.

We have established an authentic, trusted brand that supports the health of individuals. The Zevia brand promise is to offer delicious beverages that are better for you and better for the environment. We take pride in our ability to educate our consumers and our communities about the harmful effects of sugar, and the value of reducing plastic waste by using only aluminum cans as beverage containers.

Zero Sugar, Naturally Sweetened Products that Address Consumer Concerns

We believe we are well positioned within the $771 billion global liquid refreshment beverages market to capitalize on growing consumer demands for zero sugar, naturally sweetened, sustainable products that address global concerns such as heart disease, diabetes, obesity and plastic pollution. We believe our brand competes with any and every liquid refreshment beverage offering as our consumers choose Zevia beverage not only for the great taste, but also because of consumers’ positive perception of our health and sustainability attributes.

The broader beverage industry is dominated by brands closely aligned with sugar and artificial ingredients, and many of whose ingredients are difficult to pronounce. As such, large brands

 

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collectively lost billions in market share in 2020, while emerging brands like Zevia are building deeper, values-based relationships with consumers, and delivering more innovative products that support healthy lifestyles.

Given Zevia’s tremendous brand promise and focus on global consumer needs, we remain excited about our ability to effectively enter new categories, channels and geographies as we grow, and continue to take share. Zevia has outpaced the broader Zero Calorie Soda category; according to SPINS, Zevia has experienced 25% and 14% retail sales growth in the last 52 and 12 weeks ended May 16, 2021, respectively, while the category has experienced 9% and 3% during the same periods.

 

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Consumer Base

Our brand has grown significantly over the past decade, which has been largely tied to our dedicated consumer base. We believe that our products provide a great tasting, better-for-you solution for every family member, usage occasion and time of day, as evidenced by the repurchase and loyalty rates of Zevia shoppers. We measure loyalty, or “share of stomach,” based on how much brand purchasers spend on that brand, as a percentage of their total category spending. Among leading beverage brands, Zevia’s “share of stomach” was equal to or greater than category-leading, multi-billion dollar zero calorie brands for the 52 weeks ended April 25, 2021. Additionally, we believe our repurchase rate compares favorably relative to those same category leading brands.

We believe our consumers are our best advocates and their loyalty is rooted in their alignment with our messaging and mission. Our passionate consumer base over-indexes to Millennials, whom we believe will continue to favor our better-for-you, more sustainable liquid refreshment beverages as they age. Our consumer base also includes families and health-conscious consumers, whom we believe increasingly seek better-for-you options and are driven less by discounts. In addition, we believe the majority of Zevia consumers come from other traditional and low-calorie soda brands, a meaningful share of consumers purchase Zevia as an incremental beverage and a handful of consumers migrate from energy drinks, juice and waters. We believe that consumers care about their diets and their planet, and are willing to pay a premium for those attributes. Zevia drinkers have historically increased their brand spending over time, and tend to spend more on average than traditional shoppers within the soft drink, energy and ready-to-drink tea categories. According to Numerator, for the 52 weeks ended February 28, 2021, Zevia consumers increased their spending nearly three-fold as they were exposed to more flavors, and two to three times more as they tried additional product categories.

 

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Strong Relationships with Retailers Across Channels

We have grown and maintained strong relationships across our retailer network as Zevia products generate incremental consumer spending in the categories in which we compete. We offer our products at a premium yet accessible price point, which appeals to consumers given our taste and health attributes, and we believe also offers retailers materially higher gross margins from Zevia than from the broader category according to retailer feedback. Notwithstanding these higher retailer margins, Zevia products have an average retail cost per ounce of $0.07, representing the 37th percentile within liquid refreshment beverages according to Stackline. We help deliver meaningful growth to retailers by providing them with terms and timelines that are best for our brand and relationships.

Our customer network is comprised of the leading food retailers across the U.S. and Canada, as well as the largest online marketplace in North America, Amazon, where we were the #1 selling carbonated soft drink brand in 2020 based on dollar sales according to Stackline. We have experienced 29% sales growth in 2020 across all our channels, and 25.6% growth in brick and mortar. Over the same time period, we have grown both dollar and unit sales, and believe that our higher loyalty rates and positioning within the beverage space have resulted in limited purchasing on promotion. Our performance across the past decade has led retailers to reward Zevia with increased shelf space and distribution points for our portfolio of products.

Our omnichannel presence, including our leadership in the natural products retail channel and on Amazon, increases consumer exposure to and trial of our products, which we believe will drive repeat purchases and further our growth across all channels.

Asset-Light Business Model

We use third-party contract-manufacturing and logistics providers, which offers us financial flexibility, scalability, and allows us to more closely focus on executing our strategic initiatives across sales, marketing, innovation, and ESG.

Our asset-light business model is designed to leverage reduced costs and overhead, with capital expenditures of less than 1% of net sales in each of the last two years. Our model supports our strategic initiatives and financial flexibility.

We work closely with our external supply chain to maximize forward-looking capacity and take a thoughtful approach to how we can leverage our existing relationships with our innovation efforts. Over time, we expect to further benefit from economies of scale, resulting in increased gross margin and expanding cash flow generation, providing significant financial flexibility to continue to reinvest in our business as we scale.

Mission-Driven Leadership and Generous Company Culture

Our passion to democratize healthier lifestyles is driven by our high-energy, entrepreneurial, and mission-driven management team, comprised of executives with an average track record of more than 20 years of success in growing better-for-you brands. Led by our Chair and CEO, Paddy Spence, our management team is obsessively focused on creating real social impact through combatting the harmful effects of sugar and artificial ingredients, as well as the environmental challenges posed by the proliferation of single-use plastic packaging.

The sentiment of our leadership permeates throughout our organization as we have attracted highly engaged employees and built an inclusive company culture to be proud of: every full-time Zevia

 

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employee has an equity interest in the company, our fair wages ensure proper compensation, and our robust benefits allow people to feel secure in their work environment. We have been awarded the following Comparably awards in recognition of our mission-driven culture: 2020 Best CEOs for Diversity, 2020 Best CEOs for Women, 2020 Best Company Leadership, 2020 Best Company Professional Development, 2020 Best Company Happiness, 2020 Best Company Perks & Benefits, 2020 Best Company Compensation, 2020 Best Company Work-Life Balance, 2020 Best CEO, 2021 Best Operations Teams, 2021 Best Places to Work in Los Angeles and 2021 Best Company Outlook.

The result of these policies and philosophies is that we have been designated as a “Certified B Corporation.” The entire Zevia family thrives off of doing well while doing right, maximizing consumer enjoyment while having a ton of fun along the way!

Our Growth Strategies

We believe that our commitment to delicious, better-for-you beverages and making the world a better place positions us for long-term success in a massive global industry.

Leverage Our Platform and Mission to Increase Velocity and Expand Our Consumer Base

Developing relationships with a broad consumer base is key to our future success. Amongst our consumers, we have a loyalty rate, or “share of stomach,” of 45.7% for the 52 weeks ended April 25, 2021 according to SPINS, on par with that of the category brand leader in zero calorie soda. We believe that our great tasting product offerings, which provide solutions for multiple day parts, usage occasions and family members, contribute to this high loyalty rate. We have been able to retain this loyal consumer base with our unrelenting focus on core beliefs, the quality of our products and the lifestyles they speak to.

We are undertaking a number of initiatives to increase product trial and enhance brand messaging, which include increased investments in digital marketing, constant innovation, and expanding distribution. According to Numerator, our household penetration of 3.7% during the 52 weeks ended May 2, 2021 is extremely low when compared to 40% to 67% penetration of full calorie category brand leaders, and we see a meaningful opportunity to grow by increasing our trial alone. We anticipate that as we continue to scale and enter new categories and channels, more people will become aware of our brand and mission. As our brand trial grows, we expect to convert those consumers into repeat Zevia purchasers and to bring health-conscious consumers back to the fun and enjoyment of carbonated soft drinks.

Invest in Our Ongoing Innovation Efforts

We are a mission-driven brand dedicated to addressing consumer needs by providing the best-tasting, highest-quality beverages to people. We have experienced consistent growth from our existing portfolio, and we foresee multiple opportunities to pursue meaningful innovation across categories, usage occasions, and day parts.

We are extremely selective about the categories in which we choose to develop new products. At the heart of our innovation strategy is our consumer – we have an unrelenting focus on ensuring we offer people the best tasting zero calorie, naturally sweetened beverages. We pioneered our first non-soda innovation in 2016, and have now expanded our innovation categories to include Energy (2016), Mixers (2017), Organic Tea (2018), Kidz drinks (2020) and Sparkling Water (2016). These innovation categories comprised 14% of our net sales in 2020.

In addition to entering new categories, our innovation team is constantly assessing different ways to develop great tasting beverage products that enhance our brand. We plan to continue to grow our

 

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current portfolio through line extensions and additional flavors, as well as enhancing our ingredients and sustainable packaging formats to drive incremental purchases. Continually innovating our ingredients to find the optimal taste and redesigning our packaging to enhance sustainability and margin is a key driver of our future growth. In addition to introducing line extensions within our existing categories, we have a robust pipeline of new category innovations to thoughtfully and strategically roll out over time in order to capture as much share of stomach as we can.

Realize Margin Expansion Through Increased Scale and Cost Efficiencies

We believe we are at an inflection point in our company’s trajectory where we anticipate expanding gross margin relative to our historical performance, resulting in enhanced profitability going forward as we are benefitting from our growth and realizing economies of scale. While we have experienced net losses, including net losses of $6.1 million in 2020, in the three months ended March 31, 2021, we achieved net income and anticipate enhancing our profitability in the coming years.

We recognize multiple areas within our business model that will benefit our profitability as we continue to scale. Our long-term gross margin target is greater than 50% as we enhance our relationships with suppliers and grow revenues faster than our production costs. This is expected to be achieved through our asset light model, requiring low capital expenditures, which results in higher free cash flow generation, lower profit volatility, and greater financial flexibility. For these reasons, we believe our business is well positioned to achieve profitability, while continuing to support growth initiatives.

Continuing to Expand Distribution Within Existing Channels

We believe we have created a meaningful flywheel for consumer acquisition in which shoppers are able to discover and learn about our brand online and subsequently purchase both online and offline. The online engagement with consumers serves as both a trial generator and a transaction opportunity, where we can leverage our bestselling variety packs to promote trial and consumer engagement. In 2020, we were the #1 selling brand in the soft drink category on Amazon based on dollar sales according to Stackline. We leverage our online presence to also create discovery opportunities for consumers to purchase across additional channels – according to Numerator, 53% of Zevia shoppers on Amazon also bought Zevia beverages in brick and mortar locations in 2020.

We have strong, long-standing relationships with food, drug, mass and natural retailers with whom we can grow distribution and sales through increased store penetration and shelf space. Our total distribution points of 512 for 2020 is still significantly lower than that of category brand leaders according to SPINS, yet we are still growing at key retailers, including one with whom we have been doing business with for over 13 years. We believe that our brick and mortar retailers value Zevia’s continued sales growth and margin profile, attracting relationships with additional major retailers.

We had year-over-year sales growth of 29% for 2020, and we believe we generate high margin for retailers. Due to this combination, retailers continue to reward us with new doors and greater shelf space. We continue to have significant opportunity with our existing retailers. To date we sell approximately six of our products at Walmart stores and approximately eight of our products at most Target stores. Our goal is to stock every product, in every door of every retailer that we currently serve so that we can mutually benefit from the sales and profitability of Zevia products that consumers enjoy and love.

We will continue to add other ecommerce sites and direct to consumer offerings to satisfy the significant demand our consumers have through the ecommerce channel. We will enhance our potential growth as we continue to expand into other categories within beverage, making us an even more attractive brand for retailers.

 

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Capitalize on Significant Distribution Opportunities

We believe we will leverage our history of success across existing channels and apply it to building a presence in new ones.

Beyond our existing channels, we believe there is significant opportunity for our products in the drug, warehouse club, convenience, and foodservice channels, which accounted for more than 50% of carbonated soft drink sales in the U.S. and represent a sales potential of approximately $60 billion according to SPINS for the 52 weeks ended June 14, 2020.

We believe our products’ accessible price point, the broad demographic segments to which we appeal, and the core values of the Zevia brand provide the opportunity to become a leader in each of the retail channels in which beverages are distributed. Entering new channels will not only provide volume growth for our brand but will also enhance our omnichannel strategy and raise awareness of our brand among new potential enthusiasts.

Address Global Consumer Needs

The issues caused by sugar and artificial ingredients intake as well as by plastic packaging polluting the environment are global; therefore, we feel it is incumbent upon us to expand our presence across geographies to shoppers around the world that consume carbonated beverages in order to achieve our mission. While only available in the U.S. and Canada, we have the ability to expand into new markets through retail relationships or our own direct-to-consumer platform. Governments in more than 50 jurisdictions around the world have imposed a tax on sugary beverages, which is indicative of the global focus to shift away from conventional unhealthy foods and beverages towards innovative and great tasting solutions with better-for-you ingredients such as Zevia.

We plan to prioritize regions where we believe the most attractive opportunities are available to us based on consumer trends and market size. We are particularly focused on regions such as Western Europe, Latin America, and Asia where there have been significant sugar tax implications, as well as further legislation to combat sugar consumption.

Our Products

Since our founding in 2007, we have built a true platform brand with six product lines and 37 flavor variations. Each product line is carefully crafted for consumer enjoyment and all of our products are made with a common set of plant-based ingredients, adhering to the same zero calorie, zero sugar and naturally sweetened principles.

Soda. Soda, our flagship product released in 2008, is the better-for-you alternative to conventional sodas and diet sodas with no artificial ingredients. Our Soda is available in 14 different flavors. Our Soda sales constituted approximately 86% of our net sales in 2020.

Energy. Energy drinks are zero sugar energy drinks that contain 120 mg of organic caffeine. We offer Energy in four flavors: Grapefruit, Kola, Mango Ginger and Raspberry Lime. We released our Energy drinks in 2016.

Mixers. Mixers are our non-alcoholic mixers that are meant to complement any cocktail or mocktail or can be enjoyed straight out of the can. We offer Mixers in three flavors: Ginger Beer, Tonic and Lemon Lime with Bitters. We released our Mixers in 2017.

Organic Tea. Our Organic Tea is a pioneer in the zero calorie, naturally sweetened ready-to-drink tea segment, and was released in 2018. Zevia Organic Tea is USDA Organic and brewed with Fair Trade Certified Tea. We offer Organic Tea in a variety of eight flavors, including two caffeine-free options.

 

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Kidz. Kidz is our product line for kids, packaged in smaller cans for smaller hands, and the right size for lunch boxes and afternoon snacks. Our Kidz drinks are available in six kid-friendly flavors and were released in 2020.

Sparkling Water. Sparkling Waters are lightly flavored sparkling water. We offer Sparkling Water in two flavors: Blackberry and Cucumber Lemon. We released our Sparkling Waters in 2016.

Innovation

Innovation is an integral part of what we do. We constantly look for ways to improve product taste, expand our offerings across categories and usage occasions, improve the sustainability of our packaging formats and simplify our plant-based ingredients.

Our product development team collaborates across our organization and supplier base to identify areas to improve our existing offerings and create new offerings. Our development team coordinates the creation, testing, launch and improvement of our products in collaboration with our suppliers. We employ in-house food scientists to help create the next iterations of our products.

We have refined the formulas of our products to ensure they meet our shoppers’ evolving taste profile, and have launched line and flavor extensions within existing categories to further fulfill consumer needs. Our robust pipeline of new category innovations allows us to thoughtfully and strategically enter new segments within the beverage space and maximize share of stomach by offering flavors and beverages for every family member.

Our team is also working to improve our ingredients and packaging. Our main ingredient, after carbonated water, is stevia sweetener, which is extracted from the leaves of the stevia rebaudiana plant, the leaves of which contain many different naturally-occurring sweet compounds called steviol glycosides (“SG”). Each specific SG has a unique taste perception property, and is present in the leaf at widely differing percentages, driving cost differences between high-content SGs and low-content SGs. We have continually refined our stevia blend to maintain leadership in our sweetener system and currently use a specific stevia extract product that contains a particular blend of SGs that was found to perform the best across our beverage platform, providing more rounded sweetness with minimal aftertaste commonly associated with prior stevia sweeteners. In addition, we continuously evaluate and research alternate ingredients, including plant-based sweeteners other than stevia extract, that may meet or exceed our sensory and cost standards. We also assess how we can reduce our carbon footprint and plastic waste through our packaging. We believe that by consistently offering great tasting products that are all zero calorie and naturally sweetened, with sustainable packaging under one brand, we will attract consumers to our new flavors and categories.

Our Customers

Our products are purchased in both brick and mortar and ecommerce channels. Our products were initially distributed in the U.S. Natural Enhanced channel and we have since expanded our presence through national retailers such as Albertsons and Kroger. Sales from our brick and mortar channel constituted approximately 87% of our net sales in 2020. We have also created a leading presence in the ecommerce channel through online businesses such as Amazon.com and Zevia.com. The ecommerce channel represented approximately 13% of our net sales in 2020.

Our customers include brick and mortar and online retailers and wholesale grocery distributors, such as United Natural Foods, Inc. and KeHE Distributors, which distribute to retailers such as Whole Foods Market and Sprouts. For 2020, our largest customers, United Natural Foods, Inc., KeHE Distributors, Kroger and Amazon, each represented 20%, 16%, 12% and 12% of our net sales, respectively. No other customer represented more than 10% of our net sales in 2020.

 

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Sales and Marketing and Consumer Outreach

Our marketing strategy is to target consumers as close to the point of purchase as possible, as we believe that many purchasing decisions are made in-store during the shopping experience. As such, we seek to deploy funding to enhance our presence at shelf, including shelf tags, product displays and other means to build consumer awareness. We also deploy marketing funds in-store, through advertising and couponing vehicles, and around the store via geotargeted digital advertising and offers. In addition, we seek to raise awareness of the Zevia brand through advertising programs targeted to key lifestyle segments such as families, fitness communities, and consumers following special diets, whether elective or medically directed.

Prior to the COVID-19 pandemic, Zevia conducted significant sampling activities, with the goal of driving increased consumer awareness and product trial. We paused these activities due to health concerns associated with COVID-19, but anticipate re-engaging in product sampling, both in-store and at sampling events outside of the store, when these opportunities return.

From a messaging perspective, we aim to create authentic content that focuses on Zevia’s taste experience—flavor, sweetness, bubbles and enjoyment—without the guilt that comes from drinking sugary or artificially sweetened beverages. We believe that combining our focus on taste with the positive ESG benefits of our brand—zero sugar, zero plastic, and products that are affordable to consumers across a broad range of income brackets—creates a compelling proposition that will drive both initial product trial and ongoing brand loyalty.

Sales

As of December 31, 2020, our sales team is comprised of 27 people. The team works in close coordination with a national network of broker and distributor sales teams that gives us access to accounts across the U.S.

Marketing and Social Media

We are undertaking a number of initiatives to increase trial and enhance brand messaging through awareness-building tactics, which include an improved approach to digital-first marketing, innovation, and expanding distribution. Our omnichannel approach engages with consumers over multiple touchpoints throughout their product discovery journey, stimulating trial, and leverages our brand awareness to grow cross-portfolio velocities and market share.

We maintain a website at www.zevia.com, which serves as the most comprehensive source of information regarding our products. Our website is used as a platform to introduce our entire brand portfolio, promote and sell our products, provide news, share recipes, highlight nutritional facts and provide general information on where to purchase our products.

We also use social media platforms such as Facebook, Instagram and Twitter for online collaboration to support our brand awareness strategy. These platforms allow us to directly engage with our consumers and publish content related to our products, activities and company and to better connect with potential and existing consumers.

Our Supply Chain

Ingredients and Ingredient Suppliers

The principal ingredients of our beverages, aside from carbonated water, are stevia sweetener, flavor and citric acid. Our stevia extract is sourced through a multi-year supply agreement with a large multi-national ingredient company with international agriculture operations and substantial research

 

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and development capabilities. We obtain the stevia extract under the supply agreement on a purchase order basis. Although we do not view our stevia blend as a commodity ingredient, we believe that we can, within a reasonable period of time, make satisfactory alternative arrangements in the event of an interruption of supply from our supplier. Our product development team provides ongoing sensory and cost evaluation of competing stevia extract products as well as other plant-based sweeteners as a means of planning alternate sources of supply that meet or exceed our sensory expectations.

Flavors are developed in collaboration with our product development team and our three flavor ingredient suppliers. These suppliers produce and supply the unique flavor ingredients to our contract manufacturers. We do not have long-term supply agreements with these ingredient suppliers. For flavors and for our other ingredients, we believe that we can, within a reasonable period of time, make satisfactory alternative arrangements in the event of a supply interruption.

Our ingredients must comply with our rigorous ingredient standards, which require ingredients to meet various standards relating to vegan, gluten-free, non-genetically modified, Generally Recognized As Safe (GRAS), FEMA GRAS, and Kosher. In addition, our ingredients also comply with Whole Foods Market’s published “Unacceptable Ingredients for Food” list.

Packaging and Packaging Suppliers

We have chosen aluminum beverage cans as our primary packaging containers, which have the highest recycling rate of any beverage packaging format and a low carbon footprint in the supply chain. We source beverage cans through multiple suppliers, including a direct supply contract with a major can manufacturer, two agreements with contract manufacturers and opportunistic spot purchasing. Although the current global shortage of aluminum cans has broadly impacted the beverage industry, we have taken proactive measures, including diversifying our suppliers of aluminum cans and building finished goods and empty can inventory, which have allowed us to mitigate the risk of such shortage.

Our secondary packaging consists of paperboard cartons for multipacks, corrugate boxes and lightweight, plastic six-pack ring holders. Tertiary packaging, typically used for supply chain purposes only, include corrugate trays, shrink film to protect the master cases from breakage and contaminants, and stretch wrap around pallets to protect them from shifting in transit.

Manufacturing and Supply Planning

We have relationships with four contract manufacturers who operate our 17 manufacturing locations across the U.S. and Canada. This network allows us to mitigate supply risk in the event of a disruption at a specific facility and to disperse production geographically to reduce freight miles driven to distribute our products. Our contracts are typically in the form of multi-year master service agreements which define overall commercial and legal terms, while volume commitments, production costs and other services are typically re-evaluated annually or as-needed. The majority of such agreements are pricing and volume-based commitments rather than ‘take or pay’, however we may enter into ‘take or pay’ arrangements to improve assurance of supply for both co-pack volume and aluminum cans.

Our supply planning team uses robust internal data and a fact-based analytical decision process to plan all finished goods productions for our contract manufacturer network and plan all raw materials and packaging that we are responsible for purchasing. The team uses our cloud-based supply planning system, Smoothie, to generate both finished goods and raw material plans, and executes purchase orders via our third-party enterprise resource planning system, NetSuite. Supply plans are driven by our demand plan, which is updated both monthly and as needed, using the demand planning module of Smoothie.

 

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Quality Control

Upon receipt of ingredients, we receive certifications from our suppliers in order to confirm that they meet our specifications. Contract manufacturers perform in-process quality checks common to the carbonated soft drink industry, throughout the manufacturing process. We provide beverage specifications for every unique formula, as well as Zevia-specific quality requirements to our manufacturers to ensure they comply with our unique needs.

Zevia personnel also conduct a secondary layer of quality control checks to identify any potential quality discrepancies not reported or identified by our contract manufacturers, and to document their ongoing performance. Our quality team places specific inventory on hold at all inventory locations if either the contract manufacturer or our quality team identifies any suspected discrepancy, to allow for immediate investigation and corrective action if necessary.

Distribution

We distribute our products from 11 full-service third-party warehouses and distribution centers across the U.S. and Canada, from which we ship most products that we sell to our customers. We also have six repack locations and two consolidators for individual customers. We generally manage the shipping of our products from our distribution centers to our customers. We periodically source freight lanes from carriers and freight brokers to help us manage costs, and seek to lock in rates for specified time periods. We are nearly complete in implementing a transportation management system to support the tendering, management and costs associated with our freight.

Competition

We believe we compete broadly with all categories of liquid refreshment beverages. The beverage industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition is generally based on brand recognition, taste, quality, price, availability, selection and convenience, as well as factors related to corporate responsibility and sustainability. We believe we compete effectively with respect to each of these factors. Our competitors in the beverage market include category leaders such as The Coca-Cola Company, Keurig Dr. Pepper, PepsiCo, Inc., National Beverage Corp., Monster Energy, and Red Bull, as well as a range of emerging brands.

Human Capital Resources

We offer a diverse environment full of fiercely passionate and talented people. Our team members are collaborative and supportive, with an insatiable hunger to change the beverage industry. Our core values drive our people initiatives and provide our focus on respect, teamwork, continuous improvement, learning and seeking, gratitude, a positive attitude, and passion for our mission. We believe we attract and retain the best talent because we offer a challenging work environment with opportunities to make a difference in the Company’s business objectives. We work together as one team, with the single vision of making our company successful as a modern employer.

As of March 31, 2021, we had 98 full-time employees. Approximately 49% of our workforce is female and 51% is male. Our senior leadership team (vice president level and above) is 64.3% male and 35.7% female, while manager roles are approximately 49.3% male and 50.7% female. In 2020, our voluntary employee turnover rate was approximately 4.9%.

Diversity, Equity and Inclusion

As part of our mission to foster a work environment where everyone can bring their true self to work, in 2021 we created the Zevia Pillars of Culture and Social Impact: employee engagement,

 

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diversity, equity and inclusion. We promote equity by practicing consistent, fair treatment through policies that offer access, opportunity, and career growth for all team members. Promotions, compensation and learning opportunities are impartial and just. We believe in supporting our team members in achieving their personal and professional goals.

Our Diversity, Equity and Inclusion (DEI) Taskforce offers suggestions for improvements we can make in furth