brrc-20220930

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 September 30, 2022


☐			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)


Delaware						87-3277812
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0001 par value	BRCC	New 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 Exchange Act). Yes ☐ No ☒

As of November 4, 2022, the registrant had (i) 54,554,593 shares of Class A common stock, par value $0.0001 per share (the "Class A Common Stock") and, (ii) 157,005,706 shares of Class B common stock, par value $0.0001 per share (the "Class B Common Stock") outstanding.

Table of Contents


		Page
Forward-Looking Statements		1

Part I - Financial Information
	Item 1. Financial Statements (unaudited)	2
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4. Controls and Procedures	35

Part II - Other Information
	Item 1. Legal Proceedings	36
	Item 1A. Risk Factors	36
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3. Defaults Upon Senior Securities	36
	Item 4. Mine Safety Disclosures	36
	Item 5. Other Information	36
	Item 6. Exhibits	36

	Signatures	38

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, including as a result of production defaults, or issues,

including due to failures by one or more of our co-manufacturers, affecting the quality of our products, 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, including as a result of ongoing supply chain disruptions;

● 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

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 for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022 (the “2021 Form 10-K”) and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed with the SEC on May 12, 2022 (the “First Quarter 2022 10-Q”), in each case 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 and our First Quarter 2022 10-Q. 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.

BRC Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and par value amounts)


	September 30,		December 31,
	2022		2021
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	71,211	$	18,334
Accounts receivable, net	22,748		7,442
Inventories	40,933		20,872
Prepaid expenses and other current assets	8,996		6,377
Total current assets	143,888		53,025
Property, plant and equipment, net	48,037		31,114
Operating lease, right-of-use asset	14,915		—
Identifiable intangibles, net	234		167
Other	1,026		2,776
Total assets	$	208,100	$	87,082
Liabilities and stockholders' equity/members’ deficit
Current liabilities:
Accounts payable	$	4,576	$	17,387
Accrued liabilities	30,624		22,233
Deferred revenue and gift card liability	8,620		7,334
Current maturities of long-term debt, net	16,163		11,979
Current operating lease liability	1,118		—
Current maturities of finance lease obligations	98		85
Total current liabilities	61,199		59,018
Non-current liabilities:
Long-term debt, net	17,481		22,712
Finance lease obligations, net of current maturities	246		228
Operating lease liability	14,222		—
Other non-current liabilities	482		334
Total non-current liabilities	32,431		23,274
Total liabilities	93,630		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; 53,765,690 shares issued and outstanding as of September 30, 2022	5		—
Class B common stock, $0.0001 par value, 300,000,000 shares authorized; 157,794,609 shares issued and outstanding as of September 30, 2022	16		—
Class C common stock, $0.0001 par value, 1,500,000 shares authorized; no shares issued or outstanding as of September 30, 2022	—		—

Additional paid in capital	128,850		—
Accumulated deficit	(98,546)		(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' deficit	30,325		(149,491)
Non-controlling interests	84,145		—
Total stockholders' equity/members' deficit	114,470		(149,491)
Total liabilities, Series A preferred, and stockholders' equity/members' deficit	$	208,100	$	87,082

See notes to consolidated financial statements.

BRC Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue, net	$	75,494	$	60,106	$	207,695	$	161,253
Cost of goods sold	51,549		36,043		137,981		96,245
Gross profit	23,945		24,063		69,714		65,008
Operating expenses
Marketing and advertising	7,414		9,791		24,591		25,290
Salaries, wages and benefits	15,848		10,534		47,405		29,755
General and administrative	16,301		6,884		46,019		17,473
Total operating expenses	39,563		27,209		118,015		72,518
Operating loss	(15,618)		(3,146)		(48,301)		(7,510)
Non-operating income (expense)
Interest expense	(470)		(845)		(1,136)		(1,590)
Other income (expense), net	57		(3)		350		(5)
Change in fair value of earn-out liability	—		—		(209,651)		—
Change in fair value of warrant liability	—		—		(56,675)		—
Change in fair value of derivative liability	—		—		(2,335)		—
Total non-operating expenses	(413)		(848)		(269,447)		(1,595)
Loss before income taxes	(16,031)		(3,994)		(317,748)		(9,105)
Income tax expense	71		59		266		133
Net loss	(16,102)		$	(4,053)	(318,014)		$	(9,238)
Less: Net loss attributable to non-controlling interest	(12,059)				(240,295)
Net loss attributable to BRC Inc.	$	(4,043)			$	(77,719)

Net loss per share attributable to Class A Common Stock(1)
Basic and diluted	$	(0.08)			$	(1.54)

Weighted-average shares of Class A Common Stock outstanding(1)
Basic and diluted	53,013,720				49,843,715

(1) For the nine months ended September 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 September 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.

BRC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Amounts in thousands, except for number of shares)

(unaudited)


			Shares
	Members’ Interest		Class A Common Stock	Class B Common Stock	Class C Common Stock	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-In Capital		Accumulated Deficit		Non-Controlling Interest		Total Stockholders' Equity (Deficit)
Balance at January 1, 2021	$	(96,727)	—	—	—	$	—	$	—	$	—	$	—	$	(6,151)	$	—	$	(102,878)
Equity-based compensation	317		—	—	—	—		—		—		—		—		—		317
Non-employee equity-based compensation	368		—	—	—	—		—		—		—		—		—		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 compensation	1,973		—	—	—	—		—		—		—		—		—		1,973
Non-employee equity-based compensation	370		—	—	—	—		—		—		—		—		—		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)
Equity-based compensation	357		—	—	—	—		—		—		—		—		—		357
Non-employee equity-based compensation	377		—	—	—	—		—		—		—		—		—		377
Series A preferred discount amortization	(9,968)		—	—	—	—		—		—		—		—		—		(9,968)
Repurchase of restricted member units	(2,588)		—	—	—	—		—		—		—		—		—		(2,588)
Net loss	—		—	—	—	—		—		—		—		(4,053)		—		(4,053)
Balance at September 30, 2021	$	(116,287)	—	—	—	$	—	$	—	$	—	$	—	$	(15,389)	$	—	$	(131,676)

See notes to consolidated financial statements.

BRC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

(Amounts in thousands, except for number of shares)

(unaudited)


			Shares
	Members’ Interest		Class A Common Stock	Class B Common Stock	Class C Common Stock	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-In Capital		Accumulated Deficit		Non-Controlling Interest		Total Stockholders' Equity (Deficit)
Balance at January 1, 2022	$	(129,495)	—	—	—	$	—	$	—	$	—	$	—	$	(19,996)	$	—	$	(149,491)
Equity-based compensation prior to Business Combination	308		—	—	—	—		—		—		—		—		—		308
Non-employee equity-based compensation prior to Business Combination	241		—	—	—	—		—		—		—		—		—		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 Combination	137,166		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

BRC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

(Amounts in thousands, except for number of shares)

(unaudited)


			Shares
	Members’ Interest		Class A Common Stock	Class B Common Stock	Class C Common Stock	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-In Capital		Accumulated Deficit		Non-Controlling Interest		Total Stockholders' Equity (Deficit)
Equity-based compensation	—		—	—	—	—		—		—		286		—		1,059		1,345
Non-employee equity-based compensation	—		—	—	—	—		—		—		—		—		110		110
Common Unit redemption	—		1,159,707	(1,159,707)	—	—		—		—		434		—		(434)		—
Effect of Business Combination adjustment	—		—	—	—	—		—		—		(115)		—		(338)		(453)
Net loss	—		—	—	—	—		—		—		—		(4,043)		(12,059)		(16,102)
Balance at September 30, 2022	$	—	53,765,690	157,794,609	—	$	5	$	16	$	—	$	128,850	$	(98,546)	$	84,145	$	114,470

BRC Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Operating activities
Net loss	$	(318,014)	$	(9,238)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3,055		2,000
Equity-based compensation	4,584		2,647
Non-employee equity-based compensation	849		1,115
Amortization of debt issuance costs	281		267
Bad debt recovery	—		(51)
Change in fair value of earn-out liability	209,651		—
Change in fair value of warrant liability	56,675		—
Change in fair value of derivative liability	2,335		—
Changes in operating assets and liabilities:
Accounts receivable, net	(15,306)		(8,015)
Inventories, net	(20,061)		(7,721)
Prepaid expenses and other assets	(3,110)		(2,483)
Accounts payable	(12,811)		4,444
Accrued liabilities	11,041		4,596
Deferred revenue and gift card liability	1,286		1,530
Operating lease liability	425		—
Other non-current liabilities	149		255
Net cash used in operating activities	(78,971)		(10,654)
Investing activities
Purchases of property, plant and equipment	(19,950)		(11,755)
Net cash used in investing activities	(19,950)		(11,755)
Financing activities
Proceeds from issuance of long-term debt, net of cash paid for debt issuance costs of $53 as of September 30, 2022 and $11 as of September 30, 2021	21,540		17,222
Repayment of long-term debt	(24,467)		(9,161)
Financing lease obligations	31		(1,604)
Distribution and redemption of Series A preferred equity	(127,853)		(5,688)
Proceeds from Business Combination, including PIPE investment	337,957		—
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 financing activities	151,798		769
Net increase (decrease) in cash and cash equivalents	52,877		(21,640)
Beginning cash and cash equivalents	18,334		35,632
Ending cash and cash equivalents	$	71,211	$	13,992


BRC Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts in thousands)
(unaudited)
	Nine Months Ended September 30,
	2022		2021
Non-cash operating activities
Recognition of right-of-use operating lease assets	$	14,915	$	—

Non-cash investing and financing activities
Series A preferred exchange for PIPE shares	$	26,203	$	—
Series A preferred equity distribution and related discount amortization	5,390		14,681




Issuance of note payable for repurchase of member units	—		2,953
Accrued capital expenditures	135		478
Capital expenditures financed through credit facilities and capital leases	—		42

Supplemental cash flow information
Cash paid for income taxes	$	255	$	150
Cash paid for interest	$	903	$	528

See notes to consolidated financial statements.

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, 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.

Revenue from Contracts with Customers

The following table disaggregates revenue by sales channel:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Direct to Consumer ("DTC")	$	38,082	$	37,512	$	113,376	$	115,656
Wholesale	32,247		19,459		78,173		38,608
Outpost	5,165		3,135		16,146		6,989
Total net sales	$	75,494	$	60,106	$	207,695	$	161,253

Substantially all revenue is derived from customers located in the United States. One customer represented 13% of total revenue for the three months ended September 30, 2022 and no single customer represented more than 10% of revenue for the three months ended September 30, 2021. No single customer represented more than 10% of revenue for the nine months ended September 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	8,010	$	5,221	$	7,334	$	4,615
Sales of gift cards	393		105		751		313
Redemption of gift cards	(317)		(93)		(620)		(330)
Increase from deferral of revenue	3,411		3,269		3,411		3,269
Decrease from revenue recognition	(3,335)		(2,973)		(3,586)		(3,507)
Loyalty Program points earned	632		864		1,880		2,298
Loyalty Program points redeemed/expired	(174)		(248)		(550)		(513)
Ending balance as of period	$	8,620	$	6,145	$	8,620	$	6,145

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 September 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 improvements	5	—	39 years
Computer equipment and software	3 years
Machinery and equipment	5	—	15 years
Vehicles	5 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 nine months ended September 30, 2022 and 2021, no impairment loss was recognized.

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 nine months ended September 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, 2019. The statute of limitations for the state income tax returns are generally open from the period ended December 31, 2018.

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.

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 57% of total outstanding receivables as of September 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 and recognize the expense when the service is completed. Prepaid marketing and advertising expenses totaled $2,917 and $1,941 as of September 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.

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 Equity and Derivative Liability.

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.

3.Inventories

Inventories consist of the following:


	September 30,		December 31,
	2022		2021
Coffee:
Unroasted	$	3,432	$	2,578
Finished Goods	9,308		6,681
Ready-to-Drink	18,836		3,727
Apparel and other merchandise	9,357		7,886
Total inventories	$	40,933	$	20,872

4.Property, Plant and Equipment, Net

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


	September 30,		December 31,
	2022		2021
Land	$	2,196	$	2,196
Building and leasehold improvements	15,181		11,273
Computer equipment and software	4,500		3,474
Machinery and equipment	9,908		8,323
Vehicles	1,065		1,057
Furniture and fixtures	1,696		961
Construction in progress	21,906		9,236
	56,452		36,520
Less: accumulated depreciation and amortization	(8,415)		(5,406)
Total property, plant and equipment, net	$	48,037	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of goods sold	$	207	$	209	$	619	$	549
General and administrative	825		634		2,411		1,434
Total depreciation expense	$	1,032	$	843	$	3,030	$	1,983

The total depreciation expense for internal use software included in the above table was $183 and $549 for the three and nine months ended September 30, 2022, respectively, compared to $281 and $615 for the three and nine months ended September 30, 2021, respectively.

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

5.Accrued Liabilities

Accrued liabilities consist of the following:


	September 30,	December 31,
	2022	2021
Accrued compensation and benefits	$