Zevia PBC 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 44 Consolidated Balance Sheets 45 Consolidated Statements of Operations and Comprehensive Loss 46 Consolidated Statements of Redeemable Convertible Preferred Units and Changes in Equity (Deficit) 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Zevia PBC Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Zevia PBC and its subsidiary (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred units and changes in equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes collectively referred to as the "financial statements". In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with the accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Los Angeles, California March 11, 2022 We have served as the Company’s auditor since 2020. 44 ZEVIA PBC CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 43,110 $ 14,936 Short-term investments 30,000 — Accounts receivable, net 9,047 6,944 Inventories 31,501 20,800 Prepaid expenses and other current assets 3,421 1,492 Total current assets 117,079 44,172 Property and equipment, net 3,664 991 Right-of-use assets under operating leases, net 211 773 Intangible assets, net 3,738 3,939 Other non-current assets 301 81 Total assets $ 124,993 $ 49,956 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 13,492 $ 8,971 Accrued expenses and other current liabilities 6,705 4,479 Operating lease liabilities 236 623 Total current liabilities 20,433 14,073 Operating lease liabilities, net of current portion 1 238 Total liabilities 20,434 14,311 Commitments and contingencies (Note 9) Redeemable convertible preferred units: No par values. None authorized and outstanding as of December 31, 2021. 34,410,379 units authorized, 26,322,803 units issued and outstanding as of December 31, 2020; and aggregate liquidation preference $ 329,753 as of December 31, 2020. — 232,457 Permanent Equity (Deficit) Members’ deficit — ( 196,812 ) Preferred Stock, $ 0.001 par value. 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2021 and December 31, 2020. — — Class A common stock, $ 0.001 par value. 550,000,000 shares authorized, 34,463,417 shares issued and outstanding as of December 31, 2021. No shares authorized, issued and outstanding as of December 31, 2020. 34 — Class B common stock, $ 0.001 par value. 250,000,000 shares authorized, 30,113,152 shares issued and outstanding as of December 31, 2021. No shares authorized, issued and outstanding as of December 31, 2020. 30 — Additional paid-in capital 174,404 — Accumulated deficit ( 45,986 ) — Total Zevia’s Equity / members’ (deficit) 128,482 ( 196,812 ) Noncontrolling interests ( 23,923 ) — Total Equity 104,559 ( 196,812 ) Total liabilities, redeemable convertible preferred units and equity $ 124,993 $ 49,956 The accompanying notes are an integral part of these consolidated financial statements. 45 ZEVIA PBC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Year Ended December 31, (in thousands, except share and per share amounts) 2021 2020 Net sales $ 138,172 $ 110,025 Cost of goods sold 76,958 60,523 Gross profit 61,214 49,502 Operating expenses: Selling and marketing 42,403 27,333 General and administrative 27,516 18,845 Equity-based compensation 77,724 7,870 Depreciation and amortization 997 932 Total operating expenses 148,640 54,980 Loss from operations ( 87,426 ) ( 5,478 ) Other expense, net ( 207 ) ( 593 ) Loss before income taxes ( 87,633 ) ( 6,071 ) Provision for income taxes ( 34 ) — Net loss and comprehensive loss ( 87,667 ) ( 6,071 ) Net loss attributable to Zevia LLC prior to the Reorganization Transactions 1,913 6,071 Loss attributable to noncontrolling interest 39,768 — Net loss attributable to Zevia PBC $ ( 45,986 ) $ — Net loss per share attributable to common stockholders (1) Basic $ ( 1.33 ) N/A Diluted $ ( 1.33 ) N/A Weighted average common shares outstanding (1) Basic 34,450,409 N/A Diluted 34,450,409 N/A (1) Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from July 22,2021 through December 31, 2021, the period following the reorganization transactions and initial public offering (see Note 16). The accompanying notes are an integral part of these consolidated financial statements. 46 ZEVIA PBC CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED UNITS AND CHANGES IN EQUITY (DEFICIT) Redeemable Convertible Preferred Units Class A Common Stock Class B Common Stock Additional (in thousands, except for share amounts) Units Amount Members' Deficit Shares Amount Shares Amount Paid in Capital Accumulated Deficit Noncontrolling interest Total Equity Balance at January 1, 2020 22,558,386 $ 58,037 $ ( 39,969 ) — $ — — $ — $ — $ — $ — $ ( 39,969 ) Series E Preferred units issuance cost 11,851,993 190,435 — — — — — — — — — Exercise of common units — — 30 — — — — — — — 30 Equity-based compensation — — 7,870 — — — — — — — 7,870 Secondary sale of preferred units — — 311 — — — — — — — 311 Repurchase of common and redeemable convertible preferred units ( 8,087,576 ) ( 16,015 ) ( 158,983 ) — — — — — — — ( 158,983 ) Net loss — — ( 6,071 ) — — — — — — — ( 6,071 ) Balance at December 31, 2020 26,322,803 232,457 ( 196,812 ) — — — — — — — ( 196,812 ) Exercise of Common units prior to reorganization — — 10 — — — — — — — 10 Equity-based compensation prior to reorganization — — 73 — — — — — — — 73 Net loss prior to reorganization — — ( 1,913 ) — — — — — — — ( 1,913 ) Distributions to unitholders for tax payments prior to reorganization — — ( 2,669 ) — — — — — — — ( 2,669 ) Balance prior to reorganization 26,322,803 232,457 ( 201,311 ) — — — — — — — ( 201,311 ) Impact of Reorganization and IPO Effect of the reorganization ( 26,322,803 ) ( 232,457 ) 219,633 23,716,450 24 — — 12,800 — — 232,457 Issuance of Class A common stock in IPO, net of commission — — — 6,900,000 7 — — 90,073 — — 90,080 Issuance of Class B units Zevia LLC unitholders — — — — — 30,114,488 30 ( 30 ) — — — Purchases of Zevia LLC units in connection with IPO — — ( 2,037 ) 3,767,440 3 — — 2,034 — — — Cancellation of options in connection with IPO — — ( 423 ) 32,560 — — — 425 — — 2 Cancellation of options — — — — — — — ( 4 ) — — ( 4 ) Offering costs — — — — — — — ( 8,367 ) — — ( 8,367 ) Repurchase and cancellation of Zevia LLC units — — ( 17 ) — — ( 1,336 ) — — — — ( 17 ) Allocation of equity to noncontrolling interest — — ( 15,845 ) — — — — — — 15,845 — Exercise of stock options — — — 46,967 — — — ( 178 ) — — ( 178 ) Equity-based compensation — — — — — — — 77,651 — — 77,651 Net loss post reorganization — — — — — — — - ( 45,986 ) ( 39,768 ) ( 85,754 ) Balance at December 31, 2021 — $ — $ — 34,463,417 $ 34 30,113,152 $ 30 $ 174,404 $ ( 45,986 ) $ ( 23,923 ) $ 104,559 The accompanying notes are an integral part of these consolidated financial statements. 47 ZEVIA PBC CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2021 2020 Operating activities: Net loss $ ( 87,667 ) $ ( 6,071 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash lease expense 562 509 Depreciation and amortization 997 932 (Gain) loss on sale of equipment ( 4 ) 2 Amortization of debt issuance cost 94 52 Equity-based compensation 77,724 7,870 Changes in operating assets and liabilities: Accounts receivable, net ( 2,062 ) ( 2,069 ) Inventories ( 10,701 ) ( 9,408 ) Prepaid expenses and other assets ( 2,481 ) ( 187 ) Accounts payable 4,396 2,373 Accrued expenses and other current liabilities 1,960 3,155 Operating lease liabilities ( 624 ) ( 416 ) Net cash used in operating activities ( 17,806 ) ( 3,258 ) Investing activities: Payments for purchases of short-term investments ( 30,000 ) — Purchases of property and equipment ( 3,143 ) ( 805 ) Net cash used in investing activities ( 33,143 ) ( 805 ) Financing activities: Proceeds from revolving line of credit (1) 74,721 113,056 Repayment of revolving line of credit (1) ( 74,721 ) ( 113,056 ) Proceeds from Paycheck Protection Program Loan — 1,429 Repayment of Paycheck Protection Program Loan — ( 1,429 ) Proceeds from issuance of redeemable convertible preferred units, net of issuance costs — 190,435 Repurchase of common and redeemable convertible preferred units — ( 175,000 ) Proceeds from transaction in common and redeemable convertible preferred units — 311 Payment of debt issuance costs — ( 20 ) Distribution to unitholders for tax payments ( 2,669 ) — Proceeds from exercise of common units 10 30 Proceeds from issuance of Class A common stock sold in initial public offering ("IPO"), net of underwriting discounts and commissions 139,689 — Use of proceeds from issuance of Class A common stock to purchase Zevia LLC Units ( 49,609 ) — Proceeds from the cancellation of options in IPO 2 — Payment for cancellation of options ( 4 ) — Payment of offering costs ( 8,101 ) — Repurchase of Zevia LLC units ( 17 ) — Exercise of stock options ( 178 ) — Net cash provided by financing activities 79,123 15,756 Net change from operating, investing, and financing activities 28,174 11,693 Cash and cash equivalents at beginning of year 14,936 3,243 Cash and cash equivalents at end of year $ 43,110 $ 14,936 Non-cash investing activities Capital expenditures included in accounts payable $ 125 $ — Non-cash financing activities Unpaid IPO offering costs $ 266 $ — Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 148 $ 321 (1) Zevia PBC’s revolving line of credit provides for daily drawdowns and repayments of amounts outstanding. As of December 31, 2021 , no amounts were outstanding due to the termination of the line of credit in July 2021. Consistent with the provisions of ASC Topic 230, Statement of Cash Flows, Zevia PBC has presented daily draw-downs and repayments under its revolving line of credit with its lender on a gross basis in the consolidated statements of cash flows for the years ended December 31, 2021, and 2020 . The accompanying notes are an integral part of these consolidated financial statements. 48 ZEVIA PBC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Organization and operations Zevia PBC (the "Company") develops, markets, sells, and distributes a wide variety of zero calorie, non-GMO verified, carbonated and non-carbonated soft drinks and other beverages under the Zevia® brand name. Zevia PBC’s products are sold principally in the United States and Canada through various retailer channels (both brick-and-mortar and e-commerce), including grocery stores, natural products stores, warehouse clubs, and specialty outlets. Zevia PBC’s products are manufactured and generally maintained at third-party beverage production and warehousing facilities located in both the United States and Canada. Initial Public Offering and Reorganization Transactions On July 21, 2021, the registration statement on Form S-1 of Zevia PBC was declared effective by the Securities and Exchange Commission ("SEC") related to the initial public offering ("IPO") of its Class A common stock. On July 22, 2021, the Company’s Class A common stock began trading on the New York Stock Exchange under the ticker symbol “ZVIA”. The Company completed the IPO of 10,700,000 shares of its Class A common stock at an offering price of $ 14.00 per share on July 26, 2021. The Company received aggregate net proceeds of approximately $ 139.7 million after deducting underwriting discounts and commissions of $ 10.1 million. The underwriters did not exercise their option to purchase 1,605,000 additional shares of Class A common stock and that option expired on August 20, 2021. In connection with the IPO, the Company completed the following transactions (“Reorganization Transactions”): • Zevia LLC recapitalized its common and preferred membership interests into a single class of common units and each common unit outstanding after giving effect thereto was reclassified as two Class B units on a one-to-two basis; • The Company amended and restated its certificate of incorporation in its entirety to, among other things: (i) authorize 800,000,000 shares of common stock, 550,000,000 shares of which are designated as “Class A Common Stock” and 250,000,000 shares of which are designated as “Class B Common Stock;” and (ii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company's Board of Directors in one or more series and amended and restated its bylaws in their entirety to, among other things: (a) establish procedures relating to the presentation of stockholder proposals at stockholder meetings; (b) establish procedures relating to the nomination of directors; and (c) conform to the provisions of the amended and restated certificate; • The limited liability company agreement of Zevia LLC was amended and restated (the “Amended and Restated Zevia LLC Agreement”) to, among other things, provide for Class A units and Class B units and appoint the Company as the sole managing member of Zevia LLC; • The Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis; • The Amended and Restated Zevia LLC Agreement classified the interests acquired by the Company as Class A units, reclassified the interests held by the continuing members of Zevia LLC as Class B units and permits the continuing members of Zevia LLC to exchange Class B units for shares of Class A common stock on a one-for-one basis or, at the election of the Company, for cash. For each membership unit of Zevia LLC that is reclassified as a Class B unit, the Company issued one corresponding share of its Class B common stock to the continuing members; • The Company contributed approximately $ 90.1 million of the net proceeds of the IPO to Zevia LLC to acquire 6,900,000 newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. The Company retained $ 81.7 million of the total IPO proceeds after $ 8.4 million of offering costs. The retained proceeds will ultimately be used by the Company for working capital and other general corporate purposes; • The Company used approximately $ 25.5 million of the net proceeds of the IPO to purchase 1,956,142 Class B units and corresponding shares of Class B common stock from certain of Zevia LLC’s unitholders, including certain members of senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. Such units were immediately converted into an equivalent number of Class A units; • The Company used approximately $ 0.4 million of the net proceeds of the IPO to cancel and cash-out of 32,560 outstanding options held by certain option holders, including certain members of senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. The Company received an equivalent number of Class A units from Zevia LLC in exchange for the cancellation of such options; • Zevia PBC formed a new, first-tier merger subsidiary with respect to each blocker company of certain pre-IPO institutional investors (“Direct Zevia Stockholders”), and contemporaneously with the IPO, each respective merger subsidiary merged with and into the respective blocker company, with the blocker company surviving. Immediately thereafter, each blocker company merged with and into Zevia PBC, with Zevia PBC surviving. As a result of the blocker mergers, the 100 % owners of the blocker companies acquired an aggregate of 23,716,450 shares of newly issued Class A common stock and received approximately $ 23.7 million in cash consideration in exchange for 1,811,298 previously-held Class B units, which were immediately converted into an equivalent number of Class A units in the hands of Zevia PBC, and the blocker companies ceased to own any Zevia LLC units; and • The Company entered into an Amended and Restated Registration Rights Agreement with the Class B stockholders to provide for certain rights and restrictions after the IPO. Immediately following the closing of the IPO on July 26, 2021, Zevia LLC became the predecessor of the Company for financial reporting purposes. The Company is a holding company, and its sole material asset is its controlling equity interest in Zevia LLC. As the sole managing member of Zevia 49 LLC, the Company operates and controls all of the business and affairs of Zevia LLC. This reorganization is accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of the Company will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Zevia LLC. The Company has consolidated Zevia LLC in its 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. As of December 31, 2021, the Company holds an economic interest of 53.4 % in Zevia LLC and the remaining 46.6 % represents the non-controlling interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP"). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary, Zevia LLC, that it controls due to ownership of a majority voting interest. All intercompany transactions and balances have been eliminated in consolidation. The Company owns a majority economic interest in, and operates and controls all of the businesses and affairs of, Zevia LLC. Accordingly, the Company has prepared these consolidated financial statements in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The Reorganization Transactions were accounted for consistent with a combination of entities under common control. As a result, the financial reports filed with the SEC by the Company subsequent to the Reorganization Transactions are prepared “as if” Zevia LLC is the accounting predecessor of the Company. The historical operations of Zevia LLC are deemed to be those of the Company. Thus, the consolidated financial statements included in this report reflect (i) the historical operating results and financial position of Zevia LLC prior to the Reorganization Transactions; (ii) the consolidated results of operations and financial position of the Company and Zevia LLC following the Reorganization Transactions; and (iii) the Company's equity structure for all periods presented. No step-up basis of intangible assets or goodwill was recorded. Reclassifications Certain amounts from prior periods have been reclassified in the consolidated balance sheet, consolidated statement of operations and comprehensive loss, and statement of cash flows to conform to the current period presentation. For the activity in the periods prior to the IPO and Reorganization Transactions, common stock, additional paid-in capital, and accumulated deficit information has been combined and presented as member’s deficit in the accompanying consolidated balance sheets and consolidated statements of changes in redeemable convertible preferred units and changes in equity (deficit). Consolidated Balance Sheet: The following table presents the reclassifications made to the Consolidated Balance Sheet: (in thousands) December 31, 2020 (as reported) Reclassification December 31, 2020 (adjusted) Accounts payable $ 7,770 $ 1,201 $ 8,971 Accrued expenses and other current liabilities 3,429 1,050 4,479 Other current liabilities 2,251 ( 2,251 ) — Consolidated Statement of Operations and Comprehensive Loss: The following table presents the reclassifications made to the Consolidated Statement of Operations and Comprehensive Loss: (in thousands) Year Ended December 31, 2020 (as reported) Reclassification Year Ended December 31, 2020 (adjusted) General and administrative $ 26,715 $ ( 7,870 ) $ 18,845 Equity-based compensation — 7,870 7,870 Consolidated Statements of Cash Flows: The following table presents the reclassifications made to the Consolidated Statement of Cash Flows: (in thousands) Year Ended December 31, 2020 (as reported) Reclassification Year Ended December 31, 2020 (adjusted) Non-cash lease expense $ — $ 509 $ 509 Changes in operating assets and liabilities: Right of use asset 509 ( 509 ) — Prepaid expenses and other current assets ( 188 ) 1 ( 187 ) Other non-current assets 1 ( 1 ) — Accounts payable 2,173 200 2,373 Accrued expenses and other current liabilities 2,412 743 3,155 Operating lease liabilities 196 ( 612 ) ( 416 ) Other current liabilities 943 ( 943 ) — Operating lease liabilities, net of current portion ( 612 ) 612 — 50 Use of estimates The preparation of the financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amount of net sales and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by the Company relate to net sales and associated cost recognition; the useful lives assigned to and the recoverability of property and equipment; reserves recorded for inventory obsolescence; the incremental borrowing rate for lease liabilities; allowance for doubtful accounts; recoverability of intangible assets, realization of deferred tax assets, and the determination of the fair value of equity instruments, including redeemable convertible preferred and common units, restricted unit awards, and equity-based compensation awards. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of its assets and liabilities. As of December 31, 2021 , the Company’s operations have not been adversely impacted by the COVID-19 pandemic to a significant extent. The global impact of COVID-19 continues to rapidly evolve, and the Company will continue to monitor the situation and the effects on its business and operations, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Cash, cash equivalents and investments Cash and cash equivalents include cash and investments in short-term, highly liquid securities, with original maturities of three months or less. Investments with original maturities at the date of acquisition of more than three months are classified as short-term investments or long-term investments based on the remaining contractual maturity of the security at the reporting date. As of December 31, 2021 , the Company held $ 27.0 million of time deposits with contractual maturities of less than three months, which are classified as cash and cash equivalents on the consolidated balance sheets, and $ 30.0 million of time deposits with contractual maturities of greater than three months but less than one year which are classified as short-term investments on the consolidated balance sheets. As of December 31, 2020 , the Company did no t hold any investments. The Company maintains cash deposits with high credit quality financial institutions. The deposits with these financial institutions may exceed the federally insured limits; however, these deposits typically are redeemable upon demand. The Company has not experienced any loss because of these deposits and does not expect to incur any losses in the future. Fair value of financial instruments Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions, and credit risk. The three-level hierarchy for disclosure of fair value measurements is as follows: • Level 1. Quoted prices in active markets for identical assets or liabilities. • Level 2. Inputs other than Level 1 inputs that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or market-corroborated inputs. • Level 3. Unobservable inputs for the asset or liability. The Company’s material financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying values of the Company’s cash, short-term investments, accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their fair values at December 31, 2021 and 2020 due to the short period of time to maturity or repayment. As of December 31, 2021 and 2020, all cash and cash equivalents and short-term investments were considered Level 1. As of December 31, 2021 and 2020 , the Company did no t have any assets or liabilities measured on a recurring basis without observable market values that would require a high level of judgment to determine fair value (Level 3). The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. For the years ended December 31, 2021 and 2020 , there were no transfers between levels of the fair value hierarchy. Other comprehensive loss The nature of the Company’s operations does not give rise to consequential other comprehensive loss. Accounts receivable and allowance for doubtful accounts Trade receivables are recorded at net realizable value, which includes an appropriate allowance for doubtful accounts. Credit is extended to customers based on an evaluation of their financial condition, credit rating, and trade references. The Company monitors exposure to credit losses and maintains an allowance for anticipated losses based on each customer’s credit condition and payment behavior. The Company’s accounts receivable balance is net of an allowance for doubtful accounts. The allowance for doubtful accounts was not material at December 31, 2021 or December 31, 2020 . Changes in the Allowance for Doubtful Accounts were as follows: Year Ended December 31, 2021 2020 Balance, beginning of the year $ — $ ( 25 ) Provision for bad debt ( 10 ) — Deductions and write-offs — 25 Balance, end of the year $ ( 10 ) $ — 51 Inventories Inventories consist of raw materials and finished goods. Raw materials include costs for the Company’s ingredients and packaging inventories. The costs of finished goods inventories include production fees from third-party manufacturers. Inventories are stated at the lower of average cost or net realizable value. The Company regularly reviews whether the net realizable value of its inventory is lower than its carrying value. Indicators that could result in inventory write downs include age of inventory, damaged inventory, slow moving products, and products at the end of their life cycles. While management believes that inventory is appropriately stated at the lower of average cost or net realizable value, judgment is involved in determining the net realizable value of inventory. The inventory reserve was not material at December 31, 2021 or December 31, 2020 . Property and equipment, net Property and equipment are recorded at cost. Additions, replacements, and leasehold improvements are capitalized, while maintenance and repairs that do not extend the useful life of an asset are expensed as incurred. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement. When assets are retired or otherwise disposed, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized. Depreciation and amortization are computed using the following estimated useful lives of the assets: Asset Years Leasehold improvements Shorter of lease term or estimated useful life Computer equipment and software 3 Furniture and equipment 4 - 7 Vehicles 8 Quality control equipment 2 - 7 Buildings and improvements 7 - 30 Certain external and internal computer software costs acquired for internal use are capitalized. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Capitalized costs are included within property and equipment. The Company periodically reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In order to assess recoverability, the Company compares the estimated undiscounted future pre-tax cash flows from the use of the group of assets, as defined, to the carrying amount of such assets. Measurement of an impairment loss is based on the excess of the carrying amount of the group of assets over the long-lived asset’s fair value. The Company did no t recognize any impairment charges associated with long-lived assets during the years ended December 31, 2021 and 2020 . Leases The Company leases office space and vehicles under operating leases. Right of use ("ROU") lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments. Both the ROU lease asset and liability are recognized as of the lease commencement date based on the present value of the lease payments over the lease term. The Company’s leases do not provide an implicit borrowing rate that can readily be determined. Therefore, the Company applies a discount rate based on the incremental borrowing rate, which is determined using the Company’s synthetic credit rating and other information available as of the lease commencement date. ROU lease assets also include any lease payments made before their contractual due dates and exclude any lease incentives. The Company’s lease agreements may include options to extend the lease term or to terminate the lease early. The Company includes options to extend or terminate leases upon determination of the ROU lease asset and liability when it is reasonably certain the Company will exercise these options. Operating lease expense attributable to lease payments is recognized on a straight-line basis over the lease term and is included in general, and administrative expense on the consolidated statements of operations and comprehensive loss. The Company has lease arrangements that include lease and non-lease components. The non-lease components in the arrangements are not significant when compared to the lease components. For all leases, the Company accounts for the lease and non-lease components as a single component. The Company evaluates ROU assets for impairment consistent under the impairment of long-lived assets policy. The Company had no material finance leases as of December 31, 2021 and 2020 . Intangible assets, net Intangible assets subject to amortization consist of customer relationships, which were acquired and are amortized over their estimated useful life of 15 years . In accordance with Accounting Standard Codification ("ASC") Topic 350, Intangibles—Goodwill and Other, intangible assets with definite lives are treated as a long-lived asset and are evaluated for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. If impaired, the asset is written down to its estimated fair market value, which is generally measured by discounting future cash flows. 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 United States and in foreign countries. Intangible assets not subject to amortization are evaluated for impairment annually, or sooner if management believes such assets may be impaired. An impairment loss is recognized if the asset’s carrying amount exceeds its estimated fair market value. For the years ended December 31, 2021 and 2020 , no impairment losses were recorded. 52 Debt issuance cost Costs incurred in connection with securing a revolving line of credit agreement are capitalized. These costs are amortized over the term of the credit agreement. Debt issuance costs are included in Other Non-Current Assets in the accompanying consolidated balance sheets. Net debt issuance costs totaled zero and $ 0.1 million as of December 31, 2021 and 2020 , respectively. Customer incentives and allowances The Company offers its customers sales incentives that are designed to support the distribution of its products to consumers. These incentives and discounts include cash discounts, price allowances, volume-based rebates, product placement fees and certain other financial support for items such as trade promotions, displays, new products, consumer incentives and advertising assistance. These amounts are deducted from gross sales and are included under Net sales in the accompanying consolidated statements of operations and comprehensive loss. The Company maintains an allowance representing the estimated cost of certain customer incentives incurred but not yet realized as of the end of each respective year, which is recorded as an offset against customer accounts receivable, and is included under Accounts receivable, net in the accompanying consolidated balance sheets. The customer incentives and allowances were $ 3.5 million and $ 1.6 million as of December 31, 2021 and 2020 , respectively. Revenue recognition The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred either upon shipment or delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, net of accruals for customer incentives and allowances. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers. 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. 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. The Company accounts 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. The Company excludes 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 the Company from a customer. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. Cost of goods sold Cost of goods sold consists of all costs to acquire and manufacture the Company’s products including the cost of the various ingredients, packaging, in-bound freight, and third-party production fees—which are typically incurred at a flat rate per case produced—and all other costs incurred to bring the product to salable condition. The Company’s cost of goods sold is generally subject to price fluctuations in the marketplace for aluminum, logistics costs such as fuel, freight and warehousing for raw materials, bottling tolling fees, as well as shifting product mix. The Company has elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss. Such costs amounted to approximately $ 13.2 million and $ 8.6 million for the years ended December 31, 2021 and 2020 , respectively. Selling and marketing expenses Selling and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss include warehousing and distribution costs, shipping and handling costs, advertising and marketing costs, which generally are expensed as incurred. Warehousing and distribution costs include storage, transfer and out-bound freight and delivery charges. The Company expenses sales and marketing costs as incurred. Advertising and marketing expenses represent costs associated with the promotion of the Zevia® brand and products as outlined in ASC Topic 730-25, Other Expenses – Advertising Costs , such as those for digital and other forms of advertising. Advertising and marketing expenses amounted to approximately $ 12.6 million and $ 6.8 million for the years ended December 31, 2021 and 2020 , respectively. General and administrative expenses General and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss include personnel-related expenses, including salaries, bonuses, and benefits, technology expenses, professional fees, facility costs, including insurance, utilities and rent relating to our headquarters, and overhead costs. These costs are expensed as incurred. 53 Equity-based compensation expense The Company records equity-based compensation expense for employees and nonemployees under the provisions of ASC Topic 718, Compensation—Stock compensation (“ASC 718”), using a Black-Scholes-Merton option pricing model to calculate the fair value of stock options by date granted. The determination of the grant date fair value of stock options issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected life of the options, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The Company derives its volatility from the average historical volatilities of several peer public companies over a period equivalent to the expected term of the awards. The Company estimates the expected term based on the simplified method prescribed by guidance provided by the Securities and Exchange Commission. This decision was based on the lack of relevant historical data due to the Company’s limited experience for the Company’s common stock. 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 the Company has not paid and does not anticipate paying dividends on its common stock. The fair value of stock options is recognized as expense on a straight-line basis over the requisite service period, which is typically four years. Equity-based compensation cost for restricted stock awards is measured based on the fair market value of the Company’s common stock at the date of grant and is recognized as expense over the requisite service period, which is the vesting period on a straight-line basis. Forfeitures are recognized as incurred. Foreign currency transactions The functional currency of the Company is the U.S. Dollar. The Company sells and distributes its 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 net sales and expenses. Foreign currency transaction (losses) gains for the years ended December 31, 2021 and 2020 amounted to approximately $ ( 15,000 ) and $ 95,000 , respectively, and are included under other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss. Income Taxes The Company is the managing member of Zevia LLC and, as a result, consolidates the financial results of Zevia LLC in the consolidated financial statements. Zevia LLC is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on the Company's 53.4 % economic interest in Zevia LLC. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize both accrued interest and penalties, when appropriate, in provision for income taxes in the accompanying consolidated statements of operations and comprehensive loss. Recent accounting pronouncements The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (" JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recently Issued Accounting Pronouncements – Recently Adopted In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance and requires the application of the if-converted method for calculating diluted earnings per share, with the treasury stock method no longer permissible. The ASU is applicable to the Company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company early adopted the ASU as of January 1, 2021 and applied the accounting standard update in computing diluted earnings per share for its redeemable convertible preferred units. The adoption of ASU 2020-06 did not have a significant impact on the Company’s financial statements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for private companies for annual reporting periods beginning after 54 December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The Company adopted the ASU as of January 1, 2021. The adoption of ASU 2018-15 did not have a significant impact on the Company’s financial statements. Recently Issued Accounting Pronouncements – Not Yet Adopted In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This ASU provides for a new impairment model that requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for private companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements as it does not have a history of material credit losses. In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes . This ASU improves areas of GAAP and reduces cost and complexity while maintaining usefulness. The main provisions remove certain exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This ASU is effective for private companies for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements. In April 2021, the FASB issued ASU No. 2021-04, which included Topic 260, Earnings Per Share and Topic 718, Compensation - Stock Compensation . This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements as the Company does not have freestanding equity-classified written call options. Any other recently issued accounting pronouncements are neither relevant, nor expected to have a material impact on the Company’s financial statements. 3. REVENUES Disaggregation of Revenue The following table disaggregates the Company’s sales by channel: Year Ended December 31, (in thousands) 2021 2020 Retail sales $ 119,884 $ 95,578 Online/e-commerce 18,288 14,447 Net sales $ 138,172 $ 110,025 Contract liabilities The Company did no t have any material unsatisfied performance obligations as of December 31, 2021 and December 31, 2020 , respectively. 4. INVENTORIES Inventories consist of the following as of: (in thousands) December 31, 2021 December 31, 2020 Raw materials $ 10,193 $ 8,155 Finished goods 21,308 12,645 Inventories $ 31,501 $ 20,800 5. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following as of: (in thousands) December 31, 2021 December 31, 2020 Land $ 336 $ — Leasehold improvements 463 468 Computer equipment and software 2,254 1,454 Furniture and equipment 521 473 Vehicles 38 — Quality control equipment 532 340 Buildings and improvements 1,443 — Assets not yet placed in service 456 — 6,043 2,735 Less accumulated depreciation ( 2,379 ) ( 1,744 ) Property and equipment, net $ 3,664 $ 991 55 During the year ended December 31, 2021 , the Company purchased a warehouse facility in Evansville, Indiana for a total purchase price of $ 1.7 million. For the year ended December 31, 2021 and 2020, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $ 0.8 million and $ 0.7 million, respectively. These amounts are included under depreciation and amortization in the accompanying consolidated statements of operations and comprehensive loss. 6. INTANGIBLE ASSETS, NET The following table provides information pertaining to the Company’s intangible assets as of: (in thousands) Useful lives December 31, 2021 December 31, 2020 Customer relationships 15 years $ 3,007 $ 3,007 Accumulated amortization ( 2,269 ) ( 2,068 ) 738 939 Trademarks Indefinite 3,000 3,000 Intangible assets, net $ 3,738 $ 3,939 For the years ended December 31, 2021 and 2020 , total amortization expense amounted to $ 0.2 million and $ 0.2 million, respectively. No impairment losses have been recorded on any of the Company’s intangible assets for the years ended December 31, 2021 and 2020. Amortization expense for intangible assets with definite lives is expected to be as follows: (in thousands) 2022 $ 200 2023 200 2024 200 2025 138 Expected amortization expense for intangible assets with definite lives $ 738 7. DEBT Credit Facility In 2019, Zevia LLC entered into a loan agreement providing for a $ 9.0 million revolving line of credit (the “Credit Facility”) with Stonegate Asset Company II, LLC (“Stonegate”), with a maturity date in April 2022 . Borrowings under the revolving line were secured by accounts receivable and inventory. In June 2020, Zevia amended the Credit Facility and increased it to $ 12.0 million. As of December 31, 2020 , the revolving line interest rate was 7.5 % annual percentage rate and there was no outstanding balance. On June 1, 2021, Zevia extended the Credit Facility through April 2023 and there were no other modifications made to the terms and conditions. In July 2021 and subsequent to the IPO, Zevia terminated the Credit Facility. Early-termination fees were not material and were included in interest expense within other expenses, net in the accompanying consolidated statements of operations and comprehensive loss. Paycheck Protection Program (“PPP”) Loan As a result of COVID-19, the Company faced risks to raising necessary capital which could have significantly disrupted our business. To help mitigate those risks and support the Company’s ongoing operations, in April 2020, the Company received loan proceeds in the amount of $ 1.4 million under the PPP. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses. The loans and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period. Any unforgiven portion of the PPP loan would be payable over two years at an interest rate of 1 %, with a deferral of payments for the first six months. The Company did not apply for forgiveness of the loan and has paid back the full amount of the proceeds and interest as of December 31, 2020. 8. LEASES The Company leases office space and vehicles. The leases have remaining lease terms of four to fifteen months. The Company’s recognized lease costs include: Year Ended December 31, (in thousands) 2021 2020 Income Statement Operating lease cost (1) $ 605 $ 604 (1) Operating lease cost is recorded within general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. Year Ended December 31, 2021 2020 Weighted-average remaining lease term (months) 4.6 16.3 Weighted-average discount rate 7.56 % 7.56 % 56 The Company’s variable lease costs and short-term lease costs were not material. The Company is obligated under various non-cancellable lease agreements providing for office space and vehicles that expire at various dates through 2023. Maturities of lease payments under non-cancellable leases were as follows: (in thousands) December 31, 2021 2022 $ 240 2023 1 Total lease payments 241 Less Imputed Interest ( 4 ) Present value of lease liabilities $ 237 9. COMMITMENTS AND CONTINGENCIES Purchase commitments As of December 31, 2021 the Company does not have any material agreements with suppliers for the purchase of raw material with minimum purchase quantities. Legal proceedings The Company is involved from time to time in various claims, proceedings, and litigation. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has not identified any material legal matters where it believes an unfavorable material outcome is reasonably possible and/or for which an estimate of possible losses can be made. Management does not believe that the resolution of these matters would have a material impact on the consolidated financial statements. 10. EMPLOYEE BENEFIT PLAN Employees of the Company may participate in the Zevia LLC 401(k) Plan (the “Plan”), a defined contribution plan which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute from 1 % to 90 % of their pre-tax earnings, up to the statutory limit. Effective January 1, 2020, the Company began offering matching contributions to the Plan of up to 4 % of employee pre-tax earnings. For the years ended December 31, 2021 and 2020, the Company incurred contribution expense of $ 0.4 million and $ 0.2 million, respectively. 11. BALANCE SHEET COMPONENTS Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of: December 31, (in thousands) 2021 2020 Accrued employee compensation benefits $ 3,032 $ 3,594 Accrued other 3,673 885 Total $ 6,705 $ 4,479 12. EQUITY-BASED COMPENSATION In connection with the IPO, the Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis and assumed all equity incentive plans and related award agreements from Zevia LLC. In July 2021, prior to the IPO, the Company adopted the Zevia PBC 2021 Equity Incentive Plan (the “2021 Plan”) under which the Company may grant options, stock appreciation rights, restricted stock units (RSUs), restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of Zevia PBC and its affiliates. In October and November 2021, Zevia amended outstanding RSU awards and outstanding stock options held by certain senior management employees, in each case, to provide for accelerated vesting upon the holder’s retirement on or after January 17, 2022. For this purpose, “retirement” generally includes a resignation after the holder has reached 50 years of age with at least 10 years of service to the Company, so long as the holder provides one year advance notice of such retirement unless waived by the Company. As of December 31, 2021 , the 2021 Plan provides for future grants and/or issuances of up to approximately 3.5 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose. Stock Options The Company uses a Black-Scholes valuation model to measure stock option expense as of each respective grant date. Generally, stock option grants vest ratably over four years, have a ten-year term, and have an exercise price equal to the fair market value as of the grant date. The fair value of stock options is amortized to expense over the vesting period. In July 2021 immediately following the effectiveness of the Company’s registration statement on the Form S-1, the Company’s Board of Directors approved the issuance of 186,000 stock options under the 2021 Plan to certain employees and non-employee directors. The fair value of stock option 57 awards granted during the year ended December 31, 2021 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions: Stock price $ 14 Exercise Price $ 14 Expected term (years) (1) 6.06 Expected volatility (2) 47.5 % Risk-Free interest rate (3) 0.9 % Dividend yield (4) 0.0 % (1) Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method. (2) Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term. (3) The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term. (4) We have assumed a dividend yield of zero as we have no plans to declare dividends in the foreseeable future. A summary of stock option activity for the year ended December 31, 2021: Shares Weighted average exercise price Weighted average remaining life Intrinsic value (in thousands) Outstanding Balance as of January 1, 2021 1,404,516 $ 0.49 Granted 186,000 $ 14.00 Exercised (1) 139,822 $ 0.18 Cancelled in the IPO 32,560 $ 0.05 Forfeited and expired 8,441 $ 2.04 Balance as of December 31, 2021 1,409,693 $ 2.30 6.7 $ 6,694 Exercisable at the end of the period 920,632 $ 0.69 6.1 $ 5,856 Vested and expected to vest 1,409,693 $ 2.30 6.7 $ 6,694 (1) Includes 75,148 options exercised prior to the IPO and Reorganization Transactions and included in member's deficit The total intrinsic values of options exercised during the year ended December 31, 2021 was $1.2 million. As of December 31, 2021, total unrecognized compensation expense related to unvested stock options was $ 1.2 million, which is expected to be recognized over a weighted-average period of 2.03 years. Restricted Phantom Units and Restricted Stock Units In July 2021, the Company’s Board of Directors approved an amendment to 2,422,644 restricted phantom units (the “Restricted Phantom Units”) previously granted by Zevia LLC (the “Phantom Unit Amendment”). The Phantom Unit Amendment changed the settlement feature of all outstanding Restricted Phantom Units so that following vesting, each award Restricted Phantom Units would be settled in shares of Class A common stock having a fair market value equal to (i) the number of Restricted Phantom Units subject to such award, multiplied by (ii) the difference between the fair market value of a share of Class A common stock and the grant date price per Restricted Phantom Unit . All other terms related to the Restricted Phantom Units remained unchanged. As a result of the Phantom Unit Amendment, the estimated fair value of the modified awards were $ 33.9 million and are being recognized as expense over the vesting period subsequent to the performance condition being met. In March 2021, the Company's Board of Directors also approved an amendment to the RSUs granted in August 2020 (“the RSU Amendment”). The RSU Amendment changes the vesting of such RSUs to occur as follows: (i) in the event of a change of control, the RSUs shall vest effective as of such change of control or (ii) in the event of an IPO, the RSUs shall vest in equal monthly installments over a 36-month period following the termination of any lockup period and shall be subject to the participant’s continued employment through such vesting date. Additionally, settlement shall occur within 30 days following the vesting of the RSUs and the participant shall be entitled to receive one share of Class A common stock for each vested RSU. All other terms remained unchanged. As a result of the RSU Amendment, the estimated fair value of the modified awards were $ 48.9 million and are being recognized as expense over the vesting period subsequent to the performance condition being met. RSU activity during the year ended December 31, 2021 was as follows: Shares Weighted average grant date fair value Aggregate Intrinsic Value (in thousands) Balance unvested shares at January 1, 2021 6,002,644 $ 2.58 Granted 2,017,300 $ 13.70 Forfeited ( 38,500 ) $ 13.65 Balance unvested at December 31, 2021 7,981,444 $ 5.33 56,269 Vested and expected to vest at December 31, 2021 7,981,444 $ 5.33 56,269 As of December 31, 2021, total unrecognized compensation expense related to unvested RSUs was $ 32.5 million, which is expected to be recognized over a weighted-average period of 2.79 years. 13. REDEEMABLE CONVERTIBLE PREFERRED UNITS In November 2020, the Company entered into a securities purchase agreement with a certain accredited investor, pursuant to which it sold and issued approximately 11.9 million units of its newly created Series E redeemable convertible preferred unit (“the Series E Financing”) at a purchase price of 58 $ 16.87 per unit (“the Series E Unit Price”). The aggregate gross proceeds from the Series E Financing were approximately $ 200.0 million. The Company incurred issuance costs of approximately $ 9.6 million during the year ended December 31, 2020 in connection with the Series E Financing and Tender Offer, which were recorded as a reduction of the Series E redeemable convertible preferred unit balance. In connection with the closing of the Series E Financing in December 2020, the Company used approximately $ 175.0 million of the proceeds from the Series E Financing to repurchase outstanding common units, vested common unit options and redeemable convertible preferred units from certain existing unit holders. The repurchase occurred through a tender offer made by the Company following the closing of the Series E Financing (the “Tender Offer”). The Tender Offer was made to certain existing equity holders of the Company to repurchase common and redeemable convertible preferred units and vested option units from such equity holders at a gross repurchase price equal to the Series E Unit Price. The repurchased redeemable convertible preferred and common units were retired and considered authorized, but not issued or outstanding, pursuant to the Company’s Eleventh Amended and Restated Limited Liability Company Agreement. In accordance with ASC 718, in connection with the tender offer, the Company recorded equity-based compensation expense of $ 7.8 million in the fiscal year ended December 31, 2020, 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 and is included in equity-based compensation in the statements of operations and comprehensive loss. In connection with the IPO and the reorganization transaction, all outstanding preferred units were reclassified into a single class of common units and each common unit outstanding after giving effect thereto was reclassified as two Class B units on a one-to-two basis. 14. SEGMENT REPORTING The Company has one operating and reporting segment which operates as a product portfolio with a single business platform. In reaching this conclusion, management considered the definition of the Chief Operating Decision Maker (“CODM”); how the business is defined by the CODM; the nature of the information provided to the CODM and how that information is used to make operating decisions; and how resources and performance are accessed. The Company’s CODM is the Chief Executive Officer. The results of the operations are provided to and analyzed by the CODM at the Company's level and accordingly, key resource decisions and assessment of performance are performed at the Company's level. The Company has a common management team across all product lines and does not manage these products as individual businesses and as a result, cash flows are not distinct. 15. MAJOR CUSTOMERS, ACCOUNTS RECEIVABLE AND VENDOR CONCENTRATION The table below represents the Company’s major customers and accounted for more than 10 % of total net sales for the periods: Year Ended December 31, 2021 2020 Customer A 17 % 20 % Customer B 16 % 16 % Customer C 11 % 12 % Customer D 11 % 12 % The table below represents the Company’s customers which accounted for more than 10 % of total accounts receivable, net as of: December 31, 2021 December 31, 2020 Customer A * 11 % Customer B 13 % 15 % Customer D 15 % * Customer E 11 % 13 % Customer F 12 % * Customer G * 11 % The table below represents raw material vendors that accounted for more than 10 % of all raw material purchases for the periods: Year Ended December 31, 2021 2021 2020 Vendor A 28 % 30 % Vendor B 22 % 24 % Vendor C 13 % 11 % Vendor D * 10 % * Less than 10 % of total net sales, accounts receivable, net or raw material purchases. 16. LOSS PER SHARE Basic earnings per share of Class A common stock is computed by dividing net loss attributable to the Company for the period from July 22, 2021 through December 31, 2021, the period following the Reorganization Transactions and IPO, by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is computed by dividing net loss attributable to the Company by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. There were no shares of Class A or Class B common stock outstanding prior to July 22, 2021, therefore no earnings per share information has been presented for any period prior to that date. 59 Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to 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 the Company’s Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related Zevia LLC Class B Common Units, are exchangeable into shares of Class A common stock on a one-for-one basis. Prior to the IPO, the Zevia LLC membership structure included various classes of Preferred Units and Common units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for the year ended December 31, 2020. The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock: Year Ended December 31, 2021 (in thousands, except for share and per share amounts) Net loss per share: Numerator: Net loss and comprehensive loss $ ( 87,667 ) Net loss attributable to Zevia LLC prior to the Reorganization Transactions ( 1,913 ) Net loss post reorganization ( 85,754 ) Less: net loss attributable to non-controlling interests 39,768 Net loss to Zevia PBC $ ( 45,986 ) Denominator: Weighted-average shares of Class A common stock outstanding - basic 34,450,409 Weighted-average shares of Class A common stock outstanding - diluted 34,450,409 Loss per share of Class A common stock - basic $ ( 1.33 ) Loss per share of Class A common stock - diluted $ ( 1.33 ) Zevia LLC Class B Common Units, s tock options and restricted stock units were evaluated under the treasury stock method for potential dilutive effects and were determined to be anti-dilutive. Year Ended December 31, 2021 Zevia LLC Class B Common Units exchangeable to shares of Class A common Stock 30,113,152 Stock options 1,483,824 Restricted stock units 7,981,444 17. INCOME TAXES AND TAX RECEIVABLE AGREEMENT Income Taxes The Company is the managing member of Zevia LLC and, as a result, consolidates the financial results of Zevia LLC in the consolidated financial statements of Zevia PBC. Zevia LLC is a pass-through entity for U.S. federal and most applicable state and local income tax purposes, following the Reorganization Transactions effected in connection with our initial public offering. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on Zevia PBC's 53.4 % economic interest in Zevia LLC. I ncome tax expense consists of the following: Year Ended December 31, 2021 Current Federal $ — State 34 Total 34 Deferred Federal — State — Total — Provision for income taxes $ 34 60 A reconciliation between the Company’s effective tax rate and the applicable U.S. federal statutory income tax rate is summarized as follows: Year Ended December 31, 2021 Tax computed at federal statutory rate 21.0 % State tax, net of federal tax benefit 1.7 % Permanent items and other 0.0 % Non-controlling interests ( 10.0 )% Equity-based compensation ( 3.7 )% Valuation allowance ( 9.0 )% Effective Tax Rate 0.0 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. The components that comprise the Company's net deferred tax assets consist of the following: Year Ended December 31, 2021 Deferred tax assets Investment in Zevia LLC $ 47,955 Net operating loss carryforwards 4,144 Equity-based compensation 6,840 Other temporary differences 1 Total deferred tax assets 58,940 Valuation allowance for deferred tax assets ( 58,940 ) Net deferred tax assets $ — The Company records a valuation allowance to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized. The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to the Company’s ability to generate revenue, gross profits, operating income and taxable income in future periods. The Company has recorded a full valuation allowance of $ 58.9 million as of December 31, 2021 as it cannot conclude that it is more likely than not that the deferred tax assets will be realized primarily due to the generation of pre-tax book losses from its inception. The following table summarizes the activity related to the Company's valuation allowance for the: Year Ended December 31, 2021 Balance, beginning of the year $ — Increases related to current year positions 58,940 Balance, end of the year $ 58,940 As of December 31, 2021, the Company has federal and state net operating loss carryforwards of $ 17.1 million and $ 10.1 million, respectively. The federal net operating loss can be carried forward indefinitely but are limited to 80 % utilization against future taxable income each year in accordance with the Tax Cuts and Jobs Act of 2017. The state net operating loss carryforwards will begin to expire in 2031 unless previously utilized by the Company. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes. As of December 31, 2021, the Company has no uncertain tax positions and does no t expect a significant change in unrecognized tax benefits during the next 12 months. The Company is subject to taxation in the United States and various states. The Company is not currently under examination by any taxing authorities. Due to the carryover of tax attributes, the statute of limitations is currently open for tax years since inception for Zevia PBC. On March 27, 2020, the United States enacted the CARES Act. The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are amending certain provisions of the previously enacted Tax Cuts and Jobs Act related to depreciable property and net operating losses, deferral of payroll taxes, and the PPP. At December 31, 2021, the Company has no t booked any income tax provision or benefit for the impact for the CARES Act due to its recent incorporation and the pass-through treatment of Zevia, LLC. On June 29, 2020, the state of California enacted Assembly Bill No. 85 (AB 85) suspending California net operating loss utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022. There was no material impact from the provisions of AB 85 in 2021. Tax Receivable Agreement The Company expects to obtain an increase in its share of tax basis in the net assets of Zevia, LLC when Class B units are exchanged by the holders of Class B units for shares of Class A common stock of the Company and upon certain qualifying transactions. Each change in outstanding shares of Class 61 A common stock of the Company results in a corresponding change in the Company's ownership of Class A units of Zevia, LLC. The Company intends to treat any exchanges of Class B units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Zevia PBC would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. In connection with the IPO, the Company entered into a Tax Receivable Agreement ("TRA") with continuing members of Zevia LLC and the Direct Zevia Stockholders. In the event that such parties exchange any or all of their Class B units for Class A common stock, the TRA requires the Company to make payments to such holders for 85 % of the tax benefits realized, or in some cases deemed to be realized, by the Company by such exchange as a result of (i) certain favorable tax attributes acquired from the Blocker Companies in the Mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in tax basis resulting from Zevia PBC's acquisition of continuing member's Zevia LLC units in connection with the IPO and in future exchanges and, (iii) tax basis increases attributable to payments made under the TRA (including tax benefits related to imputed interest). The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in Zevia, LLC or the Company. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an assumption related to the fair market value of assets. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of the Secured Overnight Financing Rate ("SOFR") plus 300 basis points from the due date (without extensions) of such tax return. The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur; (ii) there is a material uncured breach of any obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any Class B units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination. As of December 31, 2021, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized; therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets. The TRA liability that would be recognized if the associated tax benefits were determined to be fully realizable totaled $ 45.6 million at December 31, 2021 . If utilization of the deferred tax asset subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations. 18. UNAUDITED QUARTERLY INFORMATION The following summarizes selected unaudited quarterly financial data for the year ended December 31, 2021 (amounts may not sum due to rounding): (in thousands, except for share and per amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 30,694 $ 34,352 $ 38,956 $ 34,170 Gross profit 14,188 16,240 17,004 13,782 Income (loss) from operations 243 ( 707 ) ( 49,498 ) (1) ( 37,464 ) (1) Net income (loss) and comprehensive loss 247 ( 749 ) ( 49,761 ) (1) ( 37,404 ) (1) Net income (loss) attributable to Zevia PBC — — ( 25,823 ) ( 20,163 ) Basic earnings per share N/A (2) N/A (2) ( 0.75 ) ( 0.59 ) Diluted earnings per share N/A (2) N/A (2) ( 0.75 ) ( 0.59 ) The following summarizes selected unaudited quarterly financial data for the year ended December 31, 2020 (amounts may not sum due to rounding): (in thousands, except for share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 22,490 $ 27,677 $ 32,035 $ 27,823 Gross profit 9,032 13,835 14,926 11,709 Income (loss) from operations ( 2,445 ) 3,225 2,734 ( 8,992 ) (3) Net income (loss) and comprehensive loss ( 2,594 ) 3,107 2,458 ( 9,042 ) (3) Net income (loss) attributable to Zevia PBC — — — — Basic earnings per share (2) N/A N/A N/A N/A Diluted earnings per share (2) N/A N/A N/A N/A (1) Net loss in the second half of 2021 increased primarily due to $ 45.7 million and $ 31.9 million of equity-based compensation in the third and fourth quarter of 2021 relating to restricted stock unit awards and phantom stock awards that generally vest over six months following the IPO. (2) Prior to the IPO, the Zevia LLC membership structure included various classes of Preferred Units and Common units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for the periods prior to the IPO. (3) Net loss in the fourth quarter of 2020 increased primarily due to $ 7.8 million of equity-based compensation relating to the tender offer. 62 19. SUBSEQUENT EVENTS On February 22, 2022, Zevia LLC (the “Borrower”) obtained a revolving credit facility (the “Secured Revolving Line of Credit”) by entering into a Loan and Security Agreement with Bank of America, N.A. The Borrower may draw loans under the Secured Revolving Line of Credit up to an amount not to exceed the lesser of (i) a $ 20 million revolving commitment and (ii) a borrowing base which is comprised of inventory and receivables. Up to $ 2 million of the Secured Revolving Line of Credit may be used for letter of credit issuances and the Borrower has the option to increase the commitment under the Secured Revolving Line of Credit by up to $ 10 million, subject to certain conditions. The Secured Line of Credit matures in five years on February 22, 2027. Loans under the Secured Revolving Line of Credit bear interest based on either, at the Borrower’s option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50 % to 2.00 % or the Base Rate (customarily defined) plus an applicable margin between 0.50 % to 1.00 % with margin, in each case, determined by the average daily availability under the Secured Revolving Line of Credit. The Borrower is required under the Secured Revolving line of Credit to comply with certain covenants, including, among others, by maintaining Liquidity (as defined therein) of $ 7 million at all times until December 31, 2023. Thereafter, the Borrower must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $ 3 million and 17.5 % of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None