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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________
Commission file number 001-41275

BRC Inc.
(Exact name of registrant as specified in its charter)

Delaware87-3277812
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1144 S. 500 W
Salt Lake City, UT 84101
(Address of principal executive office, zip code)

(801) 874-1189
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par valueBRCCNew York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of August 5, 2022, the registrant had (i) 52,614,237 shares of Class A common stock, par value $0.0001 per share (the "Class A Common Stock") and, (ii) 158,946,062 shares of Class B common stock, par value $0.0001 per share (the "Class B Common Stock").
DOCUMENTS INCORPORATED BY REFERENCE
None.








Table of Contents
Page




















CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements that express the Company’s opinions, expectations, hopes, beliefs, plans, intentions, objectives, strategies, assumptions or projections regarding future events or future results of operations or financial condition and therefore are, or may be deemed to be, “forward-looking statements.” The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and these forward-looking statements reflect management’s expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities.

As a result of a number of known and unknown risks and uncertainties, the Company’s results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

Failure to recognize the anticipated benefits of the Business Combination, which may be affected by, among
other things, competition and our ability to grow and manage growth profitably and retain our key employees.
Negative publicity impacting our brand and reputation, which may adversely impact our operating results;
Failure by us to maintain our message as a supportive member of the veteran and military communities and any
other factors which may negatively impact the perception of our brand;
Our limited operating history, which may make it difficult to successfully execute our strategic initiatives and
accurately evaluate future risks and challenges;
Failed marketing campaigns, which may cause us to incur costs without attracting new customers or realizing
higher revenue;
Failure to attract new customers or retain existing customers;
Risks related to the use of social media platforms, including dependence on third-party platforms;
Failure to provide high-quality customer experience, which may impact our brand;
Decrease in success of the direct to consumer revenue channel;
Loss of one or more co-manufacturers;
Failure to effectively manage or distribute our products through our wholesale business partners;
Failure by third parties involved in the supply chain of coffee, store supplies or merchandise to produce or deliver
products;
Changes in the market for high-quality Arabica coffee beans and other commodities;
Fluctuations in costs and availability of real estate, labor, raw materials, equipment, transportation or shipping;
Loss of confidential data from customers and employees, which may subject us to litigation, liability or
reputational damage;
Failure to successfully compete with other producers and retailers of coffee;
Failure to successfully open new retail coffee shops;
Failure to receive anticipated orders from current or prospective customers;
Failure to properly manage our rapid growth and relationships with various business partners;
Failure to protect against software or hardware vulnerabilities;
Failure to build brand recognition using our intellectual properties;
Shifts in consumer spending, lack of interest in new products or changes in brand perception upon evolving
1


consumer preferences and tastes;
Failure to adequately maintain food safety or quality and comply with food safety regulations;
Failure to successfully integrate into new domestic and international markets;
Risks related to leasing space subject to long-term non-cancelable leases and with respect to real property;
Failure of our franchise partners to successfully manage their franchise;
Failure to raise additional capital to develop the business;
Risks related to the COVID-19 pandemic, including supply chain disruptions;
The loss of one or more of our executive officers and other key employees;
Failure to hire and retain qualified employees;
Failure to meet our goal of hiring 10,000 veterans;
Risks related to unionization of employees;
Failure to comply with federal state and local laws and regulations;
Inability to maintain the listing of our Class A Common Stock on the New York Stock Exchange; and
Other risks and uncertainties indicated in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 16, 2022 (the “2021 Form 10-K”), including those set forth under “Item 1A.
Risk Factors” included therein.

The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under “Item 1A. Risk Factors” in our 2021 Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We will not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.






















2



BRC Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)

June 30,December 31,
20222021
(unaudited)(audited)
Assets  
Current assets:  
Cash and cash equivalents$93,085 $18,334 
Accounts receivable, net13,685 7,442 
Inventories26,583 20,872 
Prepaid expenses and other current assets11,219 6,377 
Total current assets144,572 53,025 
Property, plant and equipment, net38,516 31,114 
Operating lease, right-of-use asset10,392 — 
Identifiable intangibles, net242 167 
Other785 2,776 
Total assets$194,507 $87,082 
Liabilities and stockholders' equity/members’ deficit
Current liabilities:
Accounts payable$8,465 $17,387 
Accrued liabilities16,478 22,233 
Deferred revenue and gift card liability8,010 7,334 
Current maturities of long-term debt, net3,282 11,979 
Current operating lease liability959 — 
Current maturities of finance lease obligations92 85 
Total current liabilities37,286 59,018 
Non-current liabilities:
Long-term debt, net17,249 22,712 
Finance lease obligations, net of current maturities234 228 
Operating lease liability9,690 — 
Other non-current liabilities478 334 
Total non-current liabilities27,651 23,274 
Total liabilities64,937 82,292 
Commitments and Contingencies (Note 15)
Series A preferred equity, less issuance costs (151,406 units authorized, issued and outstanding as of December 31, 2021)
 154,281 
Stockholders' equity/members' deficit:
Preferred stock, $0.0001 par value, 1,000,000 shares authorized; no shares issued or outstanding
  
Class A common stock, $0.0001 par value, 2,500,000,000 shares authorized; 52,605,983 shares issued and outstanding as of June 30, 2022
5  
Class B common stock, $0.0001 par value, 300,000,000 shares authorized; 158,954,316 shares issued and outstanding as of June 30, 2022
16  
Class C common stock, $0.0001 par value, 1,500,000 shares authorized; no shares issued or outstanding as of June 30, 2022
  
Additional paid in capital128,245  
Accumulated deficit(94,503)(19,996)
Members' deficit (18,769 Class A units and 73,890 Class B units authorized, issued and outstanding as of December 31, 2021)
— (129,495)
Total BRC Inc.'s stockholders' equity/members' deficit33,763 (149,491)
Non-controlling interests95,807  
Total stockholders' equity/members' deficit129,570 (149,491)
Total liabilities, Series A preferred, and stockholders' equity/members' deficit$194,507 $87,082 
See notes to consolidated financial statements.
3


BRC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
(unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue, net$66,365 $52,357 $132,201 $101,147 
Cost of goods sold43,809 31,050 86,432 60,202 
Gross profit22,556 21,307 45,769 40,945 
Operating expenses
Marketing and advertising9,026 8,948 17,177 15,499 
Salaries, wages and benefits15,539 11,443 31,557 19,221 
General and administrative14,831 5,751 29,718 10,589 
Total operating expenses39,396 26,142 78,452 45,309 
Operating loss(16,840)(4,835)(32,683)(4,364)
Non-operating income (expense)
Interest expense(176)(451)(666)(745)
Other income (expense), net(56)(10)293 (2)
Change in fair value of earn-out liability(38,553) (209,651) 
Change in fair value of warrant liability5,435  (56,675) 
Change in fair value of derivative liability5,172  (2,335) 
Total non-operating expenses(28,178)(461)(269,034)(747)
Loss before income taxes(45,018)(5,296)(301,717)(5,111)
Income tax expense67 38 195 74 
Net loss(45,085)$(5,334)(301,912)$(5,185)
Less: Net loss attributable to non-controlling interest(34,330)(228,236)
Net loss attributable to BRC Inc. $(10,755)$(73,676)
Net loss per share attributable to Class A Common Stock(1)
Basic and diluted$(0.22)$(1.49)
Weighted-average shares of Class A common stock outstanding(1)
Basic and diluted49,771,104 47,789,909 

(1) For the six months ended June 30, 2022, net loss per share of Class A Common Stock and weighted-average shares of Class A Common Stock outstanding is representative of the period from February 9, 2022 through June 30, 2022, the period following the Business Combination, as defined in Note 1 - Organization and Nature of Business. For more information, refer to Note 14 - Net Loss per Share.

See notes to consolidated financial statements.
4


BRC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands, except for number of shares)
(unaudited)


Shares
Members’ InterestClass A Common StockClass B Common StockClass C Common StockClass A Common StockClass B Common StockClass C Common StockAdditional Paid-In CapitalAccumulated DeficitNon-Controlling InterestTotal Stockholders' Equity (Deficit)
Balance at January 1, 2021$(96,727)   $ $ $ $ $(6,151)$ $(102,878)
Equity-based compensation317 — — — — — — — — — 317 
Non-employee equity-based compensation368 — — — — — — — — — 368 
Series A preferred discount amortization(5,238)— — — — — — — — — (5,238)
Net income— — — — — — — — 149 — 149 
Balance at March 31, 2021$(101,280)   $ $ $ $ $(6,002)$ $(107,282)
Equity-based compensation1,973 — — — — — — — — — 1,973 
Non-employee equity-based compensation370 — — — — — — — — — 370 
Series A preferred discount amortization(5,163)— — — — — — — — — (5,163)
Repurchase of restricted member units(365)— — — — — — — — — (365)
Net loss— — — — — — — — (5,334)— (5,334)
Balance at June 30, 2021$(104,465)   $ $ $ $ $(11,336)$ $(115,801)

See notes to consolidated financial statements.






5


BRC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
(Amounts in thousands, except for number of shares)
(unaudited)
Shares
Members’ InterestClass A Common StockClass B Common StockClass C Common StockClass A Common StockClass B Common StockClass C Common StockAdditional Paid-In CapitalAccumulated DeficitNon-Controlling InterestTotal Stockholders' Equity (Deficit)
Balance at January 1, 2022$(129,495)   $ $ $ $ $(19,996)$ $(149,491)
Equity-based compensation prior to Business Combination308 — — — — — — — — — 308 
Non-employee equity-based compensation prior to Business Combination241 — — — — — — — — — 241 
Series A preferred discount amortization prior to Business Combination(6,621)— — — — — — — — — (6,621)
Repurchase of member units prior to Business Combination(1,599)— — — — — — — — — (1,599)
Net loss prior to Business Combination— — — — — — — — (2,691)— (2,691)
Effect of Business Combination137,166 44,009,874 139,106,323 1,388,125 4 14 — — (831)(83,021)53,332 
Equity-based compensation after Business Combination— — — — — — — 31 — 186 217 
Non-employee equity based compensation after Business Combination— — — — — — — — — 114 114 
First Tier Vesting Event— 694,062 9,926,563 (694,062)— 1 — 38,783 — 133,589 172,373 
Net loss after Business Combination— — — — — — — — (60,230)(193,906)(254,136)
Balance at March 31, 2022$ 44,703,936 149,032,886 694,063 $4 $15 $ $38,814 $(83,748)$(143,038)$(187,953)
Equity-based compensation— — — — — — — 175 — 804 979 
Non-employee equity-based compensation— — — — — — — — — 384 384 
Second Tier Vesting Event— 694,063 9,926,562 (694,063)— 1 — 60,803 — 195,154 255,958 
Warrant Redemption— 6,376,346 — — 1 — — 24,924 — 68,235 93,160 
Applicable Premium Vesting— 6,196 820,310 — — — — 3,153 — 8,922 12,075 
Common Unit redemption— 825,442 (825,442)— — — — 364 — (364) 
Effect of Business Combination adjustment— — — — — — — 12 — 40 52 
Net loss— — — — — — — — (10,755)(34,330)(45,085)
Balance at June 30, 2022$ 52,605,983 158,954,316  $5 $16 $ $128,245 $(94,503)$95,807 $129,570 
6


BRC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
Six Months Ended June 30,
20222021
Operating activities
Net loss$(301,912)$(5,185)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,015 1,152 
Equity-based compensation3,238 2,290 
Non-employee equity-based compensation739 738 
Amortization of debt issuance costs261 254 
Bad debt recovery (51)
Change in fair value of earn-out liability209,651  
Change in fair value of warrant liability56,675  
Change in fair value of derivative liability2,335  
Changes in operating assets and liabilities:
Accounts receivable, net(6,243)(1,127)
Inventories, net(5,711)(6,215)
Prepaid expenses and other assets(4,635)(1,148)
Accounts payable(8,922)49 
Accrued liabilities(3,105)2,522 
Deferred revenue and gift card liability676 745 
Operating lease liability257 — 
Other liabilities145  
Net cash used in operating activities(54,536)(5,976)
Investing activities
Purchases of property, plant and equipment(9,400)(7,156)
Net cash used in investing activities(9,400)(7,156)
Financing activities
Proceeds from issuance of long-term debt, net of cash paid for debt issuance costs of $ as of June 30, 2022 and $11 as of June 30, 2021
7,597 11,799 
Repayment of long-term debt(23,617)(8,872)
Financing lease obligations13 (237)
Distribution and redemption of Series A preferred equity(127,853)(3,062)
Proceeds from Business Combination, including PIPE investment337,957  
Payment of Business Combination costs(31,638) 
Redemption of Class A and Class B units(20,145) 
Redemption of incentive units(3,627) 
Net cash provided by (used in) financing activities138,687 (372)
Net increase (decrease) in cash and cash equivalents74,751 (13,504)
Beginning cash and cash equivalents18,334 35,632 
Ending cash and cash equivalents$93,085 $22,128 
7


BRC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts in thousands)
(unaudited)
Six Months Ended June 30,
20222021
Non-cash operating activities
Recognition of right-of-use operating lease assets$10,392 $— 
Non-cash investing and financing activities
Series A preferred exchange for PIPE shares$26,203 $ 
Series A preferred equity amortization5,390 7,339 
Issuance of note payable for repurchase of member units 365
Capital expenditures financed through credit facilities and capital leases 42
Accrued capital expenditures23 20 
Supplemental cash flow information
Cash paid for income taxes$233 $22 
Cash paid for interest$531 $372 
See notes to consolidated financial statements.
8


BRC Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except unit/share and per unit/share amounts)
(unaudited)

1.Organization and Nature of Business

BRC Inc., a Delaware public benefit corporation ("BRC Inc."), previously entered into a Business Combination Agreement, dated as of November 2, 2021, as amended by the First Amendment to Business Combination Agreement, dated as of January 4, 2022 ( the "First Amendment" and the Business Combination Agreement as so amended, the "Business Combination Agreement"), each by and among BRC Inc., SilverBox Engaged Merger Corp I, a Delaware corporation ("SilverBox"), Authentic Brands LLC, a Delaware limited liability company ("Authentic Brands"), and certain other parties thereto. On February 9, 2022, as contemplated by the Business Combination Agreement, a series of transactions (the "Business Combination") were completed for an estimated value of $1,839,815 as a result of which Authentic Brands became a subsidiary of BRC Inc., with BRC Inc. acting as sole managing member thereof as a public benefit corporation.

BRC Inc. conducts substantially all of its business through its solely managed subsidiary, Authentic Brands, and its subsidiaries which are consolidated in these financial statements. Authentic Brands, through its wholly owned subsidiaries, purchases, roasts, and sells high quality coffee, coffee accessories, and branded apparel through its online channels and business networks. Authentic Brands also develops and promotes online content for the purpose of growing its brands.

Unless the context indicates otherwise, references to "the Company," "we," "us" and "our" refers to BRC Inc. and its consolidated subsidiaries following the closing of the Business Combination.

2.Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information. The unaudited consolidated financial statements reflect the financial position and operating results of the Company including wholly-owned subsidiaries. These financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair statement of the operating results for the interim periods. Intercompany transactions and balances have been eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021.

The Business Combination was accounted for as a reverse recapitalization transaction between entities under common control, whereas Authentic Brands was considered the accounting acquirer and predecessor entity. The Business Combination was reflected as the equivalent of Authentic Brands issuing stock for the net assets of SilverBox, accompanied by a recapitalization with no incremental goodwill or intangible assets recognized.

Authentic Brands was determined to be the predecessor entity to the Business Combination based on a number of considerations, including:

Authentic Brands former management making up the majority of the management team of BRC Inc.;
Authentic Brands former management nominating or representing the majority of BRC Inc.'s board of directors;
Authentic Brands representing the majority of the continuing operations of BRC Inc.; and
the chief executive officer of Authentic Brands having voting control of the combined company.

Use of Estimates

The preparation of unaudited consolidated financial statements in conformity with US GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the unaudited consolidated financial statements and accompanying notes. Such estimates include but are not limited to estimated losses on accounts receivable, inventory reserves, undiscounted future cash flows and the fair value of assets or asset groups for the purpose of assessing impairment of long-lived assets, warrant liabilities, earn-out liabilities, derivative liabilities, liabilities for contingencies, equity-based compensation, estimates for sales returns and related allowance, deferred revenue, and measurement and realization of deferred tax assets. Actual results could differ materially from those estimates.

9


Revenue from Contracts with Customers

The following table disaggregates revenue by sales channel:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Direct to Consumer ("DTC")$36,962 $39,821 $75,294 $78,144 
Wholesale23,971 9,798 45,926 19,149 
Outpost5,432 2,738 10,981 3,854 
Total net sales$66,365 $52,357 $132,201 $101,147 

Substantially all revenue is derived from customers located in the United States and no single customer represents more than 10% of revenue for the three and six months ended June 30, 2022 and 2021.

Loyalty Rewards Program

In August 2020, the Company established its Loyalty Points rewards program (the “Loyalty Program”), which is primarily a spend-based program. The Company’s customers who establish an online account are enrolled in the Loyalty Program. Customers can participate at two different levels under the Loyalty Program. Subscription customers (customers in the BRCC Coffee Club or subscribed to another subscription product type) are considered to be in the highest tier and earn 3% on purchases. Non-subscription customers earn 1% on purchases in the second tier. In addition to earning points on purchases, customers can earn points through certain other activities. The Company reserves the right in its sole discretion to modify, change, add, or remove point-earning activities at any time. Under the Loyalty Program, customers may redeem rewards as they reach minimum thresholds, each threshold providing access to different rewards. The Company reserves the right in its sole discretion to modify, change, add, or remove rewards and their points' thresholds at any time. Loyalty Points will expire if there is no account activity (i.e., if there is no new purchase made or order placed) for a period of twelve months. Conversion of rewards are non-changeable after redemption, have no cash value, and are nontransferable. A portion of rewards are expected to expire and not be redeemed and will be recognized as breakage income over time. Based on historical expiration rates, the Company estimates a certain percentage of rewards to expire and reassesses this estimate on a quarterly basis.

The Company defers revenue associated with the points earned through purchases that are expected to be redeemed, net of estimated unredeemed loyalty points. When a customer redeems an earned reward, the Company recognizes revenue for the redeemed product and reduces the related deferred revenue liability. The deferred revenue liability is included in “Deferred revenue and gift card liability” on the consolidated balance sheets.

For those points that are earned through other activities, the Company recognizes the redemption of these points as a discount to the transaction price at time of sale.

The following table provides information about deferred revenue, gift cards, and Loyalty Program, including significant changes in deferred revenue balances:

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Balance at beginning of period$7,768 $5,080 $7,334 $4,615 
Sales of gift cards168 90 358 208 
Redemption of gift cards(110)(87)(303)(237)
Increase from deferral of revenue3,352 2,710 3,352 2,710 
Decrease from revenue recognition(3,627)(3,121)(3,603)(3,244)
Loyalty Program points earned628 725 1,248 1,434 
Loyalty Program points redeemed/expired(169)(176)(376)(265)
Ending balance as of period$8,010 $5,221 $8,010 $5,221 




10


Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents also include proceeds due from credit card transactions with settlement terms of less than five days. The Company maintains cash and cash equivalent balances with financial institutions that exceed federally insured limits. The Company has not experienced any losses related to these balances, and it believes credit risk to be minimal.

Accounts Receivable

Accounts receivable consist primarily of trade amounts due from business customers at period end. Accounts receivable are recorded at invoiced amounts and do not bear interest. From time to time, the Company grants credit to some of its business customers on normal credit terms. The Company maintains an allowance for doubtful accounts receivable based upon its business customers’ financial condition and payment history, and its historical collection experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was $112 as of June 30, 2022 and December 31, 2021, respectively.

Inventories

Inventories are stated at the lower of standard cost, which approximates First In, First Out, or net realizable value. The Company records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method. Finished goods includes allocations of labor and occupancy expenses.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost with depreciation calculated using the straight-line method over the estimated useful lives of the related assets or the term of the related finance lease, whichever is shorter. Leasehold improvements are amortized over the shorter of the term of the related leases or estimated useful lives. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in earnings for the period. The cost of maintenance and repairs are charged to earnings as incurred; significant renewals and improvements are capitalized.

Estimated useful lives are as follows:

Estimated Useful Lives
Land
Building and Leasehold improvements539 years
Computer equipment and software3 years
Machinery and equipment515 years
Vehicles5 years

Impairment of Long-Lived Assets

The Company reviews the recoverability of its long-lived assets, such as property and equipment and identifiable intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset or asset group from the expected future undiscounted pre-tax cash flows of the related operations. If these undiscounted cash flows are less than the carrying amount of the related asset, an impairment is recognized for the excess of the carrying value over its fair value. For the three months and six months ended June 30, 2022 and 2021, no impairment loss was recognized.
11



Earn-out Liability

The earn-out shares that were payable in Common Units (as defined below) of Authentic Brands pursuant to the Business Combination Agreement were recorded as a liability under ASC 480 and the earn-out shares that were payable in BRC Inc. common stock pursuant to the Business Combination Agreement were recorded as a liability under ASC 815. The earn-out liability was initially measured at fair value at the closing of the Business Combination using a Monte Carlo simulation in an option pricing framework that simulated the future path of the Company's stock price over the earn-out period. The earn-out shares vested in March and April 2022. The Company recognized the earn-out shares as liabilities at fair value and adjusted the earn-out shares to fair value at each reporting period. The earn-out liabilities were subject to re-measurement at each balance sheet date until vesting, and any change in fair value was recognized in the Company’s unaudited consolidated statement of operations.

Warrant Liability

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company had public and private warrants, both of which did not meet the criteria for equity classification and were accounted for as liabilities. Accordingly, the Company recognized the warrants as liabilities at fair value and adjusted the warrants to fair value at each reporting period with any changes in fair value recognized in the Company’s unaudited consolidated statement of operations. The public and private warrants were redeemed in May 2022.

Income Taxes

The Company applies guidance issued by the Financial Accounting Standards Board ("FASB") that clarifies accounting for uncertainty in income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.

As part of the Business Combination, the Company entered into a Tax Receivable Agreement ("TRA") with certain shareholders that requires the Company to pay to such shareholders approximately 85% of the calculated tax savings based on the portion of basis adjustments on future exchanges of units of Authentic Brands that we anticipate to be able to utilize in future years. We have determined it is more likely than not that we will be unable to utilize our deferred tax assets ("DTAs") subject to the TRA; therefore, we have not recorded a liability under the TRA.

The Company has completed an analysis of its tax positions and believes there are no uncertain tax positions that would require recognition in the consolidated financial statements for the three and six months ended June 30, 2022 and 2021. The Company believes that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within twelve months of the reporting date. The federal income tax position taken for each of the subsidiaries organized as limited liability companies for any years open under the various statutes of limitations is that they will continue to be exempt from income taxes by virtue of being a pass-through entity. The statute of limitations for federal income tax returns are open from the period ended December 31, 2018. The statute of limitations for the state income tax returns are generally open from the period ended December 31, 2017.

Equity-Based Compensation

The Company recognizes the cost of equity-based compensation on stock options, restricted stock units ("RSU"), and incentive unit awards based on the fair value estimated in accordance with FASB ASC 718, Stock Based Compensation ("ASC 718"). The Company records equity-based compensation expense based on the fair value of equity awards at the grant date and recognizes compensation expense on a straight-line basis over the vesting period. The assumptions used to calculate the fair value of equity awards granted are evaluated and revised, as necessary, to reflect the Company’s historical experience and current market conditions. For more information, see Note 12, Equity-Based Compensation.

12


Concentrations of Credit Risk

The Company’s assets that are potentially subject to concentrations of credit risk are cash and accounts receivable. The accounts receivable of the Company are spread over a number of customers, of which two customers accounted for 24% of total outstanding receivables as of June 30, 2022 and one customer accounted for 19% of total outstanding receivables as of December 31, 2021. The Company performs ongoing credit evaluations as to the financial condition of its customers and creditors with respect to trade accounts.

Marketing and Advertising Expenses

The Company’s marketing and advertising expenses are primarily internet marketing expenses, commercial sponsorships and advertising time slots. Marketing expenses are recognized as incurred based on the terms of the individual agreements, which are generally, but not limited to: a commission for traffic driven to its websites that generate a sale, programmatic targeting advertisements, national television and radio advertisements, or payments to social media influencers. We may also enter into marketing service agreements with third party production and content providers where we prepay for certain services or deliverables. Prepaid marketing and advertising expenses totaled $2,782 and $1,941 as of June 30, 2022 and December 31, 2021, respectively.

Fair Value Measurements

The Company’s financial instruments consist primarily of accounts receivable, accounts payable and long-term debt. The carrying amounts of accounts receivable and accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair value of variable rate long-term debt is based upon the current market rates for debt with similar credit risk and maturity, which approximated its carrying value, as interest is based upon the Bloomberg Short Term Bank Yield Index ("BSBY") or Prime rates plus an applicable floating margin. In measuring fair value, the Company reflects the impact of credit risk on liabilities, as well as any collateral. The Company also considers the credit standing of counterparties in measuring the fair value of assets.

The Company uses any of three valuation techniques to measure fair value: the market approach, the income approach, and the cost approach in determining the appropriate valuation technique based on the nature of the asset or liability being measured and the reliability of the inputs used in arriving at fair value.

The Company follows the provisions of ASC 820, Fair Value Measurements (ASC 820) for non- financial assets and liabilities measured on a non-recurring basis.

The inputs used in applying valuation techniques include assumptions that market participants would use in pricing the asset or liability (i.e., assumptions about risk). Inputs may be observable or unobservable. The Company uses observable inputs in the Company’s valuation techniques and classifies those inputs in accordance with the fair value hierarchy established by applicable accounting guidance, which prioritizes those inputs. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels are defined as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

13




Series A Preferred Equity

The Company accounted for its preferred equity as temporary equity, given the Series A preferred units were probable of becoming redeemable (i.e., exercise of the exit rights is the passage of time). The Series A preferred units have been subsequently remeasured by accreting changes in the redemption value from the date of issuance to the expected redemption date using the effective interest method. The Series A preferred units were redeemed in February 2022 in connection with the Business Combination. For more information, see Note 11, Series A Preferred Units.

Comprehensive Income (Loss)

Comprehensive income (loss) is equivalent to net income (loss) in each of the periods presented. As such, no statement of comprehensive income (loss) is presented.

New Accounting Pronouncements

On January 1, 2022, the Company adopted a new standard from the FASB which simplified guidance on an issuer's accounting for convertible instruments and contracts in an entity's own equity. It also amended certain guidance related to the computation of earnings per share for convertible instruments and contracts in an entity's own equity. There was no material impact to the Company's financial statements as a result of this adoption.
On January 1, 2022, the Company adopted new guidance from the FASB on the recognition and measurement of leased assets and liabilities utilizing the modified retrospective approach. As a result, the prior period information reported under the previous lease guidance has not been restated.

As permitted under the new guidance, the Company elected certain practical expedients, which allowed us to retain our prior conclusions regarding lease identification, classification and initial direct costs. For our lease agreements with lease and non-lease components, we elected the practical expedient to account for these as a single lease component for all underlying classes of assets. Upon adoption, we elected to use hindsight for our existing leases in determining lease term and in assessing impairment. Additionally, for short-term leases with an initial lease term of 12 months or could reasonably be certain will not be exercised or material to the financial statements, we elected to not record right-of-use assets or corresponding lease obligations on our consolidated balance sheet. We will continue to record rent expense for each short-term lease on a straight-line basis over the lease term.

The new guidance had a material impact on our consolidated balance sheet; however, it did not have a material impact on our unaudited consolidated statement of operations. The most material impact was the recognition of right-of-use assets of $7,560, with corresponding lease liabilities of $7,689 relating to our operating leases. Existing deferred rent of approximately $129, previously recorded within other long-term liabilities, was recorded as an offset to our gross operating lease right-of-use assets. See Note 7, Leases, for further discussion regarding the adoption of this guidance.















14


3.Inventories

Inventories consist of the following:

June 30,December 31,
20222021
Coffee:
Unroasted$3,151 $2,578 
Finished Goods7,345 6,681 
Ready-to-Drink5,649 3,727 
Apparel and other merchandise10,438 7,886 
Inventories$26,583 $20,872 
4.Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following:

June 30,December 31,
20222021
Land$2,196 $2,196 
Building and leasehold improvements13,138 11,273 
Computer equipment and software3,810 3,474 
Machinery and equipment9,321 8,323 
Vehicles1,065 1,057 
Furniture and fixtures1,371 961 
Construction in progress14,999 9,236 
45,900 36,520 
Less: accumulated depreciation and amortization(7,384)(5,406)
Property, plant and equipment, net$38,516 $31,114 

The portion of depreciation expense related to production and distribution facilities is included in cost of goods sold including occupancy costs on the unaudited consolidated statements of operations. Depreciation expense recorded in cost of goods sold and general and administrative expenses was as follows:

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Cost of goods sold$207 $190 $412 $340 
General and administrative811 457 1,586 800 
Total depreciation expense$1,018 $647 $1,998 $1,140 

The total depreciation expense for internal use software included in the above table was $183 and $366 for the three and six months ended June 30, 2022, respectively, compared to $178 and $334 for the three and six months ended June 30, 2021, respectively.

Substantially all long-lived assets are located in the United States.








15


5.Accrued Liabilities

Accrued liabilities consist of the following:

June 30,December 31,
20222021
Accrued compensation and benefits$4,448 $2,799 
Accrued marketing2,168 3,323 
Accrued Series A preferred equity distribution 2,650 
Accrued freight1,333 1,912 
Accrued sales taxes791 1,364 
Accrued inventory purchases1,316 1,492 
Credit card liabilities904 4,759 
Other accrued expenses5,518 3,934 
Total$16,478 $22,233 

6.Long-Term Debt

The Company’s credit facilities and related balances were as follows:
June 30,December 31,
20222021
Mortgages$7,242 $7,380 
Equipment financing loan7,379 5,067 
Retail facility1,982 1,904 
Credit facility 8,000 
Promissory note 10,000 
Notes payable4,106 2,779 
Total principal20,709 35,130
Less debt issuance costs(178)(439)
Long-term debt, net$20,531 $34,691 
Current maturities:
Current maturities of principal$3,353 $12,273 
Less current portion of debt issuance costs(71)(294)
Current maturities of long-term debt, net$3,282 $11,979 
Long-term debt:
Non-current principal$17,356 $22,857 
Non-current portion of debt issuance costs(107)(145)
Long-term debt, net$17,249 $22,712 

Future contractual maturities of credit facilities as of June 30, 2022 are as follows:

Remainder of 2022$1,001 
20233,365 
20243,052 
20257,122 
20263,371 
Thereafter2,798 
$20,709 
16



Debt Issuance Costs

The Company capitalizes fees associated with the origination of its credit facilities which are presented in the consolidated balance sheets as a direct deduction from the carrying amount of the related loans. The debt issuance costs are amortized using the effective interest method. Amortization of debt issuance costs was $18 and $261 for the three and six months ended June 30, 2022, respectively, and $212 and $254 for the three and six months ended June 30, 2021, respectively. These costs are included in interest expense in the unaudited consolidated statements of operations.

Credit Lines

The equipment financing loan is secured by the equipment financed and is at an interest rate of the BSBY plus 3.50%. As of June 30, 2022, the Company has available credit under the equipment financing loan and the retail facility of $5,871 and $4,018, respectively.

Upon the closing of the Business Combination, Authentic Brands' credit facility borrowings of $8,000 were paid off and there are no borrowings outstanding as of June 30, 2022. The amount of borrowings available was $14,394 as of June 30, 2022.

Promissory Note

In January 2022, Authentic Brands borrowed an additional $5,000 under the promissory note. In February 2022, Authentic Brands repaid $15,000 outstanding on the promissory note and the promissory note was terminated.

Notes Payable

In January 2022, Authentic Brands entered into a note payable agreement for $1,599 at an interest rate of 1.30% per annum to repurchase incentive units from a former employee. The note matures on January 14, 2026. The loan is payable in four annual installments of principal commencing on January 14, 2023.

In May 2022, Authentic Brands fully repaid a note payable agreement for $272.

Guaranty

In March 2022, BRC Inc. entered into a Guaranty Agreement to guaranty payment of all the Authentic Brands' outstanding mortgage loans, equipment financing loan, the retail facility, and the credit facility.

7.Leases

The following significant lease accounting policies from 2021 Form 10-K have been updated to reflect the adoption of FASB's new guidance on the recognition and measurement of leases.

The majority of our leases are operating leases for our company-operated Outposts. We also lease distribution and warehouse facilities. We do not enter into material lease transactions with related parties. We categorize leases as either operating or finance leases at the commencement date of the lease. Operating lease agreements may contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component for all underlying classes of assets.

We recognize a right-of-use (“ROU”) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term. Our leases often include options to extend or terminate at our sole discretion, which are included in the determination of lease term when they are reasonably certain to be exercised.

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Our lease liability represents the present value of future lease payments over the lease term. We cannot determine the interest rate implicit in each of our leases. Therefore, we use market and term-specific incremental borrowing rates. Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. We considered a combination of factors, including the rates that we currently pay on our lines of credit, lease terms and the effect of adjusting the rate to reflect the term consideration of collateral. Our credit-adjusted risk-free rate takes into consideration the interest rate we pay on our Retail Facility.

Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs and short-term lease costs. Our real estate leases may require we pay certain expenses, such as common area maintenance (CAM) costs, real estate taxes and other executory costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. A significant majority of our leases are related to our company-operated Outposts, and their related costs are recorded within General and administrative expenses on the statement of operations.

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, initial direct costs, and any tenant improvement allowances received. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

The components of lease costs:
Three Months Ended June 30,Six Months Ended June 30,
20222022
Operating leases costs$432 $796 
Short-term lease costs14 26 
Total lease costs$446 $822 

The following table includes supplemental information:
June 30,
2022
Weighted-average remaining operating lease term7 years
Weighted-average operating lease discount rate4.44%

Cash paid related to operating lease liabilities was $702 for the six months ended June 30, 2022.

The total operating lease liability arising from ROU assets was $3,287 for the six months ended June 30, 2022. This amount excludes the initial impact of adoption. See Note 2, Summary of Significant Accounting Policies, for additional information.

Finance lease assets are recorded in property, plant, and equipment, net with the corresponding finance lease liabilities on the consolidated balance sheet. Finance leases were immaterial as of June 30, 2022.

Minimum future maturities of operating lease liabilities as of June 30, 2022 were as follows:
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Remainder of 2022 $1,392 
20235,572 
20245,866 
20255,819 
20265,855 
Thereafter61,670 
Total lease payments86,174 
Less imputed interest(23,618)
Total$62,556 

As of June 30, 2022, we have entered into operating leases that have not yet commenced of $73,041, primarily related to real estate leases. These leases will commence between fiscal year 2022 and fiscal year 2024 with lease terms of 10 years to 20 years.

Previous Lease Guidance Disclosures

Rent expense for operating lease agreements under the previous lease guidance, which excludes certain amounts required under the new guidance, was $222 and $450 for the three months and six months ended June 30, 2021, respectively.

The minimum future rental payments under non-cancelable operating leases and finance leases under the previous lease guidance as of December 31, 2021:

Operating Leases