Zevia PBC

Previous wording

We are a growth beverage company that develops, markets, sells, and distributes great tasting, zero sugar beverages made with simple, plant-based ingredients. We are a Delaware public benefit corporation and have been designated as a “Certified B Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by offering a broad portfolio of zero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and zero sodium and include a variety of flavors across Soda, Energy Drinks, Organic Tea, and Kids drinks. Our products are distributed and sold principally across the U.S. and Canada through a diverse network of major retailers in the food, drug, warehouse club, mass, natural, convenience and e-commerce channels and in grocery and natural product stores and specialty outlets. The Company’s products are manufactured and maintained at third-party beverage production and warehousing facilities located in both the U.S. and Canada. 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 2.0 billion cans of Zevia sold to date.

Current wording

We are a better-for-you beverage company that develops, markets, sells, and distributes great tasting, zero sugar beverages made with simple, plant-based ingredients. We are a Delaware public benefit corporation and have been designated as a “Certified B Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by offering a broad portfolio of zero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, and vegan and include a variety of flavors across Soda, Energy Drinks, Organic Tea, and Kids drinks. Our products are distributed and sold principally across the U.S. and Canada through a diverse network of major retailers in the grocery, drug, warehouse club, mass, natural, convenience and e-commerce channels and in grocery and natural product stores and specialty outlets. The Company’s products are manufactured and maintained at third-party beverage production and warehousing facilities located in both the U.S. and Canada. 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 2.1 billion cans of Zevia sold to date.

Previous wording

The Productivity Initiative resulted in the following:

Current wording

The Productivity Initiative has resulted in the following:

Previous wording

Costs associated with the Productivity Initiative, including restructuring costs, were $0.9 million during the three and six months ended June 2024, which primarily includes employee related severance costs as well as costs related to exiting two of our third-party warehouse and distribution facilities.

Current wording

Costs associated with the Productivity Initiative, including restructuring costs, were $0.1 and $1.0 million during the three and nine months ended September 30, 2024, which primarily includes employee related severance costs as well as costs related to exiting two of our third-party warehouse and distribution facilities.

Previous wording

The Productivity Initiative is expected to result in estimated annualized benefits in the range of $8.0 million to $12.0 million, and we began seeing these benefits in the second quarter of 2024. These benefits include reduction in costs of goods sold and reduction in operating expenses.

Current wording

The Productivity Initiative is now expected to result in estimated annualized benefits of approximately $15.0 million, and we began seeing these benefits in the second and third fiscal quarters of 2024, and expect the savings to be more fully realized over the next 3-5 quarters. These benefits include reduction in costs of goods sold and reduction in operating expenses. We expect to reinvest the majority of these costs in brand marketing and our Direct Store Delivery strategy to drive future growth.

Previous wording

Additional restructuring charges or cash expenditures may be incurred as the Company makes further progress on this Productivity Initiative, which we expect to be substantially completed by the end of 2024.

Current wording

Additional restructuring charges or cash expenditures may be incurred as the Company makes further progress on this Productivity Initiative, which we expect to be substantially completed by the end of the first quarter of 2025.

Previous wording

On June 26, 2024, we received formal notice from the New York Stock Exchange (the “NYSE”) that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Class A common stock was less than $1.00 per share over a consecutive 30 trading-day period. We subsequently notified the NYSE of our intent to regain compliance with the requirements of Section 802.01C. We are able to regain compliance at any time within the six-month period following receipt of the notice if, on the last trading day of any calendar month during this cure period (or the last trading day of this cure period), we have a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the prior 30 trading-day period. If we do not regain compliance with Section 802.01C within such cure period, the NYSE may commence delisting proceedings.

Current wording

The Company previously received a noncompliance notice from the New York Stock Exchange (“NYSE”) on June 26, 2024, because the average closing price of the Company’s Class A common stock had been less than $1.00 per share over a consecutive 30 trading-day period. On September 30, 2024, the Company’s Class A common stock closed above $1.00 and had an average closing share price of at least $1.00 over the prior 30 trading-day period. On October 1, 2024, the Company regained compliance with the minimum stock price continued listing standard set forth in Section 802.01C of the NYSE Listed Company Manual.

Previous wording

A number of external factors, including the global economy, global health emergencies, inflationary pressures, relatively high interest rates, volatility in the financial markets, recession fears, financial institution instability, any potential shutdown of the U.S. government, global hostilities, including the military conflicts in Ukraine and Israel and the surrounding areas, and political tensions between the U.S. and China have impacted and may continue to impact transportation, labor, and commodity costs. These pressures have and are expected to continue to impact our margins and operating results. We, along with our competitors, have increased pricing on a number of products in response to widespread inflation. These pricing increases may result in future reductions in volume.

Current wording

A number of external factors, including the global economy, global health emergencies, inflationary pressures, relatively high interest rates, volatility in the financial markets, recession fears, financial institution instability, any potential shutdown of the U.S. government, global hostilities, including the military conflicts in Ukraine and Israel and the surrounding areas, and political tensions between the U.S. and China, have impacted and may continue to impact transportation, labor, and commodity costs. These pressures have impacted, and are expected to continue to impact our margins and operating results. We, along with our competitors, have increased pricing on a number of products in response to widespread inflation. These pricing increases may result in future reductions in volume.

Previous wording

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

Current wording

The following summarizes the components of our results of operations for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

We expect our future growth to be driven by a combination of new distribution, increased organic sales from existing outlets, package and product innovation, and continued pricing strength; however, sales levels in any given period may continue to be impacted by seasonality, increased level of competition, customers efforts to manage inventory, and our ability to fulfill customer demands. During the first half of 2024, we experienced delays in the recovery of SKU level distribution at certain retailers which was primarily due to a lag effect from supply chain challenges in 2023 as well as increased competition within the category, that resulted in reduced volumes. We are also increasing our spend on promotional activity at key accounts in order to drive velocity. We are focused on building distribution in our key accounts and concurrently evolving our route-to-market, however we expect it will take time to regain placement and SKU level distribution in an increasingly competitive environment.

Current wording

We expect our future growth to be driven by a combination of new distribution, increased organic sales from existing outlets, package and product innovation, and continued pricing strength; however, sales levels in any given period may continue to be impacted by seasonality, increased level of competition, customers’ efforts to manage inventory, and our ability to fulfill customer demands. During 2024, we experienced reduced sales volumes, primarily due to lost distribution at certain retailers, largely in the club channel and one customer in the mass channel, and to a lesser degree as a result of a strategic decision we made to exit our Kids and Mixers product categories to focus on soda. We also increased our spend on promotional activity at key accounts, returning back to historical promotion levels, in order to drive velocity, which we expect to continue through the end of the year and in 2025. We also increased promotions in order to liquidate excess and obsolete inventory, which we expect to be temporary and complete by the end of 2024. We are focused on building distribution in our key accounts and concurrently evolving our route-to-market; however we expect it will take time to regain lost distribution in an increasingly competitive environment.

Previous wording

Historically, cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees. Beginning in the first quarter of 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods, therefore, cost of goods sold for the three and six months ended June 30, 2024 consist of all costs to purchase our product from our contract manufacturers as a finished good.

Current wording

Historically, cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees. Beginning in the first quarter of 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods; therefore, cost of goods sold for the three and nine months ended September 30, 2024 consists of all costs to purchase our product from our contract manufacturers as a finished good.

Previous wording

We expect our cost of goods sold to increase in absolute dollars as our volume increases, however, decrease over time as a percentage of net sales as a result of the Productivity Initiative, our continued focus on cost and efficiency improvements, and as we realize the benefit of scale.

Current wording

We expect our cost of goods sold to increase in absolute dollars as our volume increases, but decrease over time as a percentage of net sales as a result of the Productivity Initiative, our continued focus on cost and efficiency improvements, and as we realize the benefit of scale.

Previous wording

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

Current wording

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

Previous wording

Our selling expenses are expected to increase in absolute dollars in the long-term as a result of increased warehousing and distribution costs resulting from increased net sales, but decrease as a percentage of sales over time as a result of our Productivity Initiative and our continued focus on cost improvements in our supply chain. Our selling expenses are expected to decrease from the prior year in the short-term, largely due to a decrease in logistics expenses compared to the prior year as a result of the historical supply chain logistics challenges encountered during 2023 as well as a result of the Productivity Initiative.

Current wording

Our selling expenses are expected to increase in absolute dollars in the long-term as a result of increased warehousing and distribution costs driven by increased net sales, but decrease as a percentage of sales over time as a result of our Productivity Initiative and our continued focus on cost improvements in our supply chain. Our selling expenses are expected to decrease from the prior year in the short-term, largely due to a decrease in logistics expenses compared to the prior year as a result of the historical supply chain logistics challenges encountered during 2023 as well as due to the Productivity Initiative.

Previous wording

Marketing expenses are expected to increase as we invest in in brand awareness, which are expected to be partially funded by the selling expense cost savings.

Current wording

Marketing expenses are expected to increase as we invest in in brand awareness, which are expected to be partially funded by the selling expense cost savings and Productivity Initiative.

Previous wording

Restructuring expenses include employee severance and benefit costs to terminate a specified number of employees as well as costs to exit two of our third-party warehouse and distribution facilities designed to reduce costs and improve efficiency while continuing to invest in our brand and related initiatives.

Current wording

Restructuring expenses include employee severance and benefit costs to terminate a specified number of employees as well as costs to exit two of our third-party warehouse and distribution facilities designed to reduce costs and improve efficiency while continuing to invest in our brand and related initiatives. Additional restructuring charges or cash expenditures may be incurred as the Company makes further progress on the Productivity Initiative, which we expect to be substantially completed by the end of the first fiscal quarter of 2025.

Previous wording

Net sales were $79.2 million for the six months ended June 30, 2024 as compared to $85.5 million for the six months ended June 30, 2023. Equivalized cases sold were 6.0 million during the six months ended June 30, 2024 as compared to 6.6 million equivalized cases sold during the six months ended June 30, 2023. The decrease in net sales was primarily driven by a decrease in the number of equivalized cases sold, resulting in $8.6 million lower net sales primarily caused by delay in the recovery of SKU level distribution at retail discussed above in the Key Events During the First Half of 2024 section and lost distribution in our club channel, partially offset by pricing increases of $2.3 million which is inclusive of greater promotional levels at retailers. We define an equivalized case as a 288 fluid ounce case.

Current wording

Net sales were $36.4 million for the three months ended September 30, 2024 as compared to $43.1 million for the three months ended September 30, 2023. Equivalized cases sold were 2.9 million during the three months ended September 30, 2024 as compared to 3.3 million during the three months ended September 30, 2023. The decrease in net sales was primarily due to a decrease in the number of equivalized cases sold, which resulted in $6.3 million lower net sales and was largely caused by the expected lost distribution in our club channel and one customer in our mass channel, and a decrease in net sales of $0.4 million resulting from greater promotional levels at retailers as well as increased promotions in order to liquidate excess and obsolete inventory. We define an equivalized case as a 288 fluid ounce case.

Previous wording

Cost of goods sold was $23.5 million for the three months ended June 30, 2024 as compared to $22.5 million for the three months ended June 30, 2023. The increase of $0.9 million, or 4.1%, was largely due to higher inventory write-downs primarily related to club specific excess inventory driven by lost distribution of $1.4 million as well as unfavorable unit costs of $1.0 million primarily driven by investments in enhanced package-specific designs to improve on-shelf visibility and drive brand awareness, partially offset by a 5.9% decrease in the shipment of equivalized cases, resulting in $1.3 million lower costs of goods sold and favorable product mix of $0.2 million.

Current wording

Cost of goods sold was $18.5 million for the three months ended September 30, 2024 as compared to $23.5 million for the three months ended September 30, 2023. The decrease of $5.0 million, or 21.3%, was largely due to a 12.2% decrease in the shipment of equivalized cases, resulting in $2.6 million lower costs of goods sold, lower write-downs related to excess and obsolete inventory of $2.3 million, and favorable unit costs of $0.1 million driven by the Productivity Initiative.

Previous wording

Gross profit was $16.9 million for the three months ended June 30, 2024 as compared to $19.7 million for the three months ended June 30, 2023. The decrease in gross profit of $2.8 million, or 14.0%, was primarily driven by lower volumes, higher inventory write-downs, unfavorable unit costs, and increased spend on promotional activity at key accounts.

Current wording

Gross profit was $17.9 million for the three months ended September 30, 2024 as compared to $19.6 million for the three months ended September 30, 2023. The decrease in gross profit of $1.7 million, or 8.8%, was primarily due to lower volumes and increased spend on promotional activity, partially offset by lower inventory write-downs.

Previous wording

Gross margin for the three months ended June 30, 2024 declined to 41.9% from 46.6% in the prior-year period. The decrease was primarily due to inventory write-downs, unfavorable unit costs and increased spend on promotional activity at key accounts.

Current wording

Gross margin for the three months ended September 30, 2024 improved to 49.1% from 45.4% in the prior-year period. The increase was primarily due to lower inventory write-downs and favorable unit costs, partially offset by increased spend on promotional activity.

Previous wording

Selling and marketing expenses were $13.6 million for the three months ended June 30, 2024 as compared to $16.1 million for the three months ended June 30, 2023. The decrease of $2.5 million, or 15.4%, was primarily due to $2.3 million of lower freight transfer costs as a result of the impact of supply chain logistics challenges in the prior year, decrease in repackaging costs of $1.2 million due to the automation of certain processes, a decrease in freight costs of $0.3 million due to lower volume, and a decrease in warehousing costs of $0.1 million due to the consolidation of warehouses. These decreases were partially offset by higher marketing expenses of $1.4 million as a result of investments made to drive brand awareness discussed above in the Key Events During the First Half of 2024 section.

Current wording

Selling and marketing expenses were $12.0 million for the three months ended September 30, 2024 as compared to $20.5 million for the three months ended September 30, 2023. The decrease of $8.5 million, or 41.4%, was primarily due to a decrease in freight transfer costs of $3.1 million as a result of the impact of supply chain logistics challenges in the prior year, a decrease in warehousing costs of $3.1 million due to efficiencies related to the Productivity Initiative and lower inventory levels, decreases in freight costs of $1.3 million due to improved rates and $0.6 million due to lower volumes, and a decrease in repackaging costs of $0.4 million due to the automation of certain processes. These decreases were partially offset by higher marketing expenses of $0.2 million as a result of investments made to drive brand awareness.

Previous wording

Equity-based compensation expenses were $1.4 million for the three months ended June 30, 2024 as compared to $2.4 million for the three months ended June 30, 2023, primarily related to outstanding equity-based awards being recognized over the remaining service periods of the awards. The decrease of $0.9 million was primarily driven by a $1.0 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, partially offset by equity-based compensation expenses related to new equity awards granted.

Current wording

Equity-based compensation expenses were $1.0 million for the three months ended September 30, 2024 as compared to $1.9 million for the three months ended September 30, 2023, primarily related to outstanding equity-based awards being recognized over the remaining service periods of the awards. The decrease of $0.8 million was primarily driven by a $0.9 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, partially offset by equity-based compensation expenses related to new equity awards granted.

Previous wording

Six months Ended June 30, 2024, Compared to Six months Ended June 30, 2023

Current wording

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

Previous wording

Net sales were $40.4 million for the three months ended June 30, 2024 as compared to $42.2 million for the three months ended June 30, 2023. Equivalized cases sold were 3.1 million during the three months ended June 30, 2024 as compared to 3.3 million equivalized cases sold during the three months ended June 30, 2023. The decrease in net sales was primarily driven by a decrease in the number of equivalized cases sold, resulting in $4.2 million lower net sales primarily caused by delay in the recovery of SKU level distribution at retail discussed above in the Key Events During the First Half of 2024 section as well as lost distribution in our club channel, partially offset by pricing increases of $2.4 million which is inclusive of greater promotional levels at retailers. We define an equivalized case as a 288 fluid ounce case.

Current wording

Net sales were $115.6 million for the nine months ended September 30, 2024 as compared to $128.6 million for the nine months ended September 30, 2023. Equivalized cases sold were 8.9 million during the nine months ended September 30, 2024 as compared to 9.9 million during the nine months ended September 30, 2023. The decrease in net sales was primarily due to a decrease in the number of equivalized cases sold, which resulted in $13.9 million lower net sales and was largely caused by lost distribution in our club channel and one customer in our mass channel, partially offset by pricing increases of $0.8 million, which is inclusive of greater promotional levels at retailers as well as increased promotions in order to liquidate excess and obsolete inventory. We define an equivalized case as a 288 fluid ounce case.

Previous wording

Cost of goods sold was $44.6 million for the six months ended June 30, 2024 as compared to $45.7 million for the six months ended June 30, 2023. The decrease of $1.2 million, or 2.6%, was primarily due to a 8.2% decrease in the shipment of equivalized cases, resulting in $3.6 million lower costs of goods sold and favorable product mix of $0.9 million, partially offset by unfavorable unit costs of $2.1 million primarily driven by investments in enhanced package-specific designs to improve on-shelf visibility and drive brand awareness, and higher inventory write-downs primarily related to club specific excess inventory driven by lost distribution of $1.2 million.

Current wording

Cost of goods sold was $63.1 million for the nine months ended September 30, 2024 as compared to $69.3 million for the nine months ended September 30, 2023. The decrease of $6.2 million, or 8.9%, was primarily due to a 9.5% decrease in the shipment of equivalized cases, resulting in $6.3 million lower costs of goods sold, lower write-downs related to excess and obsolete inventory of $1.1 million, and favorable product mix of $0.9 million, partially offset by unfavorable unit costs of $2.0 million primarily due to investments in enhanced package-specific designs to improve on-shelf visibility and drive brand awareness.

Previous wording

Gross profit was $34.7 million for the six months ended June 30, 2024 as compared to $39.8 million for the six months ended June 30, 2023. The decrease in gross profit of $5.1 million, or 12.9%, was primarily driven by lower volumes, unfavorable unit costs, and higher inventory write-downs, partially offset by favorable product mix.

Current wording

Gross profit was $52.5 million for the nine months ended September 30, 2024 as compared to $59.4 million for the nine months ended September 30, 2023. The decrease in gross profit of $6.9 million, or 11.6%, was primarily due to lower volumes, unfavorable unit costs, and increased spend on promotional activity, partially offset by lower inventory write-downs and favorable product mix.

Previous wording

Gross margin for the six months ended June 30, 2024 declined to 43.8% from 46.5% in the prior-year period. The decrease was primarily due to unfavorable unit costs, higher inventory write-downs, and increased spend on promotional activity at key accounts, partially offset by favorable product mix.

Current wording

Gross margin for the nine months ended September 30, 2024 declined to 45.4% from 46.2% in the prior-year period. The decrease was primarily due to unfavorable unit costs and increased spend on promotional activity, partially offset by lower inventory write-downs and favorable product mix.

Previous wording

Selling and marketing expenses were $28.7 million for the six months ended June 30, 2024 as compared to $28.0 million for the six months ended June 30, 2023. The increase of $0.7 million, or 2.4%, was primarily due to an increase in marketing expenses of $1.9 million as a result of investments made to drive brand awareness, higher warehousing costs of $1.5 million resulting from increased level of storage costs driven by higher levels of inventory in the first quarter of 2024, and higher sales and broker and sales commissions of $0.4 million. These increases were partially offset by $1.5 million of lower freight transfers costs as a result of the impact of supply chain logistics challenges in the prior year, a decrease in repackaging costs of $1.5 million due to the automation of certain processes, and a decrease in freight out costs of $0.1 million due to lower volumes of $0.5 million partially offset by higher rates of $0.4 million.

Current wording

Selling and marketing expenses were $40.7 million for the nine months ended September 30, 2024 as compared to $48.5 million for the nine months ended September 30, 2023. The decrease of $7.8 million, or 16.1%, was primarily due to a decrease in freight transfer costs of $4.6 million as a result of the impact of supply chain logistics challenges in the prior year, a decrease in repackaging costs of $2.0 million due to the automation of certain processes, a decrease in warehousing costs of $1.6 million due to efficiencies related to the Productivity Initiative and lower inventory levels, and decreases in freight costs of $1.1 million due to lower volume and $0.9 million due to improved rates. These decreases were partially offset by higher marketing expenses of $2.1 million as a result of investments made to drive brand awareness.

Previous wording

General and administrative expenses were $15.8 million for the six months ended June 30, 2024 as compared to $14.9 million for the six months ended June 30, 2023. The increase of $1.0 million, or 6.4%, was primarily driven by an increase in employee compensation costs of $1.5 million, partially offset by a decrease in costs of $0.5 million as a result of our Productivity Initiative discussed above in the Key Events During the First Half of 2024 section.

Current wording

General and administrative expenses were $23.2 million for the nine months ended September 30, 2024 as compared to $23.1 million for the nine months ended September 30, 2023. The increase of $0.1 million, or 0.4%, was primarily due to an increase in employee compensation costs of $0.2 million, partially offset by a decrease in costs as a result of our Productivity Initiative discussed above.

Previous wording

Equity-based compensation expenses were $2.9 million for the six months ended June 30, 2024 as compared to $4.7 million for the six months ended June 30, 2023, primarily related to outstanding equity-based awards being recognized over the remaining service periods of the awards. The decrease of $1.8 million was primarily driven by a $2.0 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, partially offset by equity-based compensation expenses related to new equity awards granted.

Current wording

Equity-based compensation expenses were $4.0 million for the nine months ended September 30, 2024 as compared to $6.6 million for the nine months ended September 30, 2023, primarily related to outstanding equity-based awards being recognized over the remaining service periods of the awards. The decrease of $2.7 million was primarily due to a $2.9 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, partially offset by equity-based compensation expenses related to new equity awards granted.

Previous wording

As of June 30, 2024, we had $28.9 million in cash and cash equivalents. We believe that our cash and cash equivalents as of June 30, 2024, together with our operating activities and available borrowings under the Secured Revolving Line of Credit (as defined below), will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments beyond the next 12 months.

Current wording

As of September 30, 2024, we had $32.7 million in cash and cash equivalents. We believe that our cash and cash equivalents as of September 30, 2024, together with our operating activities and available borrowings under the Secured Revolving Line of Credit (as defined below), will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments beyond the next 12 months.

Previous wording

Loans under the Secured Revolving Line of Credit bear interest based on either, at our option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50% to 2.00% or the 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.

Current wording

Loans under the Secured Revolving Line of Credit bear interest based on either, at our option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50% to 2.00% or the 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 Loan and Security Agreement was amended on September 30, 2024 to replace the Bloomberg Short-Term Bank Yield Index, which will be discontinued on November 15, 2024, with the Term Secured Overnight Financing rate, effective November 20, 2024.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Net cash used in operating activities of $2.9 million for the six months ended June 30, 2024 was primarily driven by a net loss of $14.2 million, partially offset by non-cash expenses of $4.0 million primarily related to equity-based compensation and depreciation and amortization expense and a net increase in cash related to changes in operating assets and liabilities of $7.3 million. Changes in cash flows related to operating assets and liabilities were primarily due to a decrease in inventories of $12.3 million due to decreased production of inventory as inventory levels are managed as well as higher inventory reserves, decreased prepaid expenses and other assets of $2.1 million largely due to a decrease in prepaid deposits related to the sale of raw materials, partially offset by a decrease in accounts payable, accrued expenses and other current liabilities of $6.6 million due to timing of purchases and decreased production of inventory, and an increase in accounts receivable of $0.2 million due to timing of payments.

Current wording

Net cash provided by operating activities of $1.0 million for the nine months ended September 30, 2024 was primarily driven by a net increase in cash related to changes in operating assets and liabilities of $12.4 million. Changes in cash flows related to operating assets and liabilities were primarily due to a decrease in inventories of $13.9 million due to decreased production of inventory as inventory levels are managed, decreased prepaid expenses and other assets of $2.4 million largely due to a decrease in prepaid deposits related to the sale of raw materials, and a decrease in accounts receivable of $1.1 million due to timing of payments, partially offset by a net decrease in accounts payable, accrued expenses and other current liabilities of $4.6 million due to timing of purchases and decreased production of inventory. These increases were partially offset by a decrease in cash due to a net loss of $17.0 million, partially offset by non-cash expenses of $5.6 million primarily related to equity-based compensation and depreciation and amortization expense.

Previous wording

Net cash provided by operating activities of $1.1 million for the six months ended June 30, 2023 was primarily driven by a net increase in cash related to changes in operating assets and liabilities of $3.1 million and non-cash expenses of $5.9 million primarily related to equity-based compensation and depreciation and amortization expense, partially offset by a net loss of $7.9 million. Changes in cash flows related to operating assets and liabilities were primarily due to an increase of $18.7 million in accounts payable, accrued expenses and other current liabilities due to timing of purchases and increased production of inventory, and a decrease in prepaid expenses and other assets of $0.6 million primarily due to amortization of prepaid insurance policies, partially offset by an increase in accounts receivable of $5.9 million due to timing of invoices, and an increase in inventories of $10.0 million due to timing of purchases and build-up of inventory to support future sales.

Current wording

Net cash used in operating activities of $9.7 million for the nine months ended September 30, 2023 was primarily due to a net loss of $19.2 million, partially offset by non-cash expenses of $8.4 million primarily related to equity-based compensation and depreciation and amortization expense and a net increase in cash related to changes in operating assets and liabilities of $1.1 million. Changes in cash flows related to operating assets and liabilities were primarily due to an increase of $29.1 million in accounts payable, accrued expenses and other current liabilities due to timing of purchases and increased production of inventory, partially offset by an increase in inventories of $21.8 million due to increased production of inventory as a result of the supply chain logistics challenges in the prior year, increase in accounts receivable of $5.3 million due to timing of invoices, and an increase in prepaid expenses and other assets of $0.5 million due to timing of prepayments.

Previous wording

Net Cash (Used in) Provided by Operating Activities

Current wording

Net Cash (Used in) Provided by Investing Activities

Previous wording

Net cash used in investing activities of $0.1 million for the six months ended June 30, 2024 was primarily due to purchases of property, equipment, and software of $0.1 million for computer equipment, marketing fixtures, and software used in ongoing operations.

Current wording

Net cash used in investing activities of $0.2 million for the nine months ended September 30, 2024 was primarily due to purchases of property, equipment, and software of $0.2 million for computer equipment, marketing fixtures, and software used in ongoing operations.

Previous wording

Net cash used in investing activities of $1.5 million for the six months ended June 30, 2023 was primarily due to purchases of property, equipment, and software of $1.5 million for leasehold improvements and computer equipment and software used in ongoing operations.

Current wording

Net cash provided by investing activities of $0.8 million for the nine months ended September 30, 2023 was primarily due to proceeds from the sale of its warehouse and related assets of $2.3 million, partially offset by purchases of property, equipment, and software of $1.6 million for leasehold improvements and computer equipment and software used in ongoing operations.

Previous wording

Net cash provided by financing activities of less than $0.1 million for the six months ended June 30, 2024 was due to proceeds from the Secured Revolving Line of Credit of $8 million which was repaid in the same period.

Current wording

Net cash provided by financing activities of less than $0.1 million for the nine months ended September 30, 2024 was due to proceeds from the Secured Revolving Line of Credit of $8 million which was repaid in the same period.

Previous wording

Net cash provided by financing activities of less than $0.1 million for the six months ended June 30, 2023 was primarily due to proceeds from the exercise of stock options.

Current wording

Net cash provided by financing activities of less than $0.1 million for the nine months ended September 30, 2023 was primarily due to proceeds from the exercise of stock options.